Peck v Chief Executive, Department of Lands
[1996] QLC 85
•14 June 1996
|
LAND COURT
BRISBANE
14 June 1996
Re: Appeal against annual valuation
of the Chief Executive, Department of Lands
Gold Coast City Council - Division of Albert
Colin H and Marilyn C Peck
v.
Chief Executive, Department of Lands (AV95-94)
(Hearing at Coolangatta)
D E C I S I O N
Introduction
Colin H Peck and Marilyn C Peck (the "appellants") own 4.083 hectares of land fronting Darwalla Road, Mount Nathan. The land is Lot 7 on RP148099 in the Parish of Barrow and is known as "Buckenham Orchards".
The subject land was valued by the respondent Chief Executive as at 30 June 1993 as having an unimproved value of $120,000. The valuation took effect at 30 June 1994. The appellants objected against the valuation. Their objection was disallowed. The appellants appealed to the Land Court, and estimated that the valuation of the land should be $62,000.
The only issue in this case is whether the subject land should be valued in accordance with section 17 of the Valuation of Land Act 1944. Section 17(1) provides that, in making a valuation of the unimproved value of land exclusively used "for purposes of farming", any enhancement in value because of subdivision or potential use for subdivisional or any other purpose shall be disregarded. "Farming" is defined in section 17(2) 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."
The dispute between the parties has arisen because the subject land was previously valued on a concessional basis in accordance with the predecessor of section 17, the now repealed section 11(1)(vii) of the Valuation of Land Act 1944. According to the respondent, the land does not satisfy the criteria contained in section 17 and so should not be valued on a concessional basis.
The appellants' concern about the apparently arbitrary change in the basis of valuation is apparent from the grounds of appeal which stated:"When the appellants purchased the land in November 1986, it enjoyed relief under a concessional valuation.
The chief executive amended the valuation of the land in accordance with the provisions of Section 28(1)(f) of the Act.
During the period of time specified under Section 28(1)(f), there was no alteration to the use of the land that would warrant the chief executive's amendment to the valuation.
During the appellants' ownership of the land, there has been no alteration to the use of the land that would warrant the chief executive's amendment to the valuation. Rather, there has been a marked intensification of the farming activities on the land.
At all times since the appellants' purchase of the land, the use of the land has complied with all the requirements and definitions that are pertinent to the allowance of the concessional valuation.
When the chief executive made his decision to amend the valuation of the land, he had not made proper enquiries to determine the use of the land at that time."
The appellants' concern to determine the reasons for amending the valuation noted in the last quoted paragraph was also evident in the service of a summons and subpoena issued on their application to two named officers of the Department of Lands requiring them to appear at the Land Court and to produce a range of documents "in any way related to and relied upon by" the Department of Lands in any way concerning the valuation of the subject land dated 30 June 1993 "denying the appellants the concessional valuation previously granted under Section 17, Valuation of Land Act 1944 as amended".
Although the respondent answered the summons and subpoena, it became apparent early in the hearing that the documents to be produced were not relevant to the determination by this Court of the matter in issue, that is, whether section 17 applied to the land at the relevant time. The appellants wanted to know by what administrative process the decision had been taken to remove the concession which had previously been allowed and, it seems, they were prepared to challenge or criticise that process. This Court does not have jurisdiction to review administrative decisions in that way. In any case, the nature of the remedy which might result from those proceedings would not have the potential to advance the appellants' interests to the same extent as a decision of this Court on a review of the merits of the respondent's decision.
The appellants' agent, Mr Foster, did not call for the production of the documents nor did he call the Departmental Officers to give evidence.
The evidence
Evidence concerning the use of the subject land was given orally by Mr Colin Peck and in various documents produced or provided by him. It is appropriate to summarise the evidence in some detail.
From 1983 onwards, the appellants were looking for land to farm, in particular, land on which to grow macadamias. They purchased the subject land in 1986 for both the residence on it and the existing orchard. At that time the orchard had been established for 4 years and comprised some 100 macadamia trees, 115 lychee trees, and 100 mixed species (including avocado, bananas, mangoes, kiwi fruit, mixed citrus and stone fruit trees). The property was valued then on a concessional basis under the Valuation of Land Act 1944.
Mr Peck is a retired pilot. He and his wife reside on the land. Mr Peck said that the appellants needed to supplement the pension income derived from a superannuation fund.
In support of their assertion that the operations were being run on a commercial basis, the appellants produced tables showing expected yields and returns on macadamias, lychees and palms, together with information about the likely extent of investment in such crops (Exhibits 6 and 7). The information was drawn, in each case, from published material or information provided to the appellants namely:(a) "Growing Macadamias in Queensland" by P O'Hare and N Vock, Horticulture Branch, Queensland Department of Primary Industries, Nambour, 1990;
(b) "Is Macadamia Growing For You?";
(c) "Lychee" by KR Chapman; and
(d) letter dated 8 June 1995 from Kings Landscapes Pty Ltd, Mudgeeraba to Mr Peck.
The documents also provide some indication of the period before any return can be expected from the investment in each type of plant.
The respondent did not object to the admission of these documents and Mr Peck was not cross-examined on them. Although there is only one document about potential yields for each crop, and hence no way of comparing those figures with the opinion of others, there was no reason to doubt their veracity. It may be that the figures are best read as indicative only. There are many factors such as soil quality, climate, availability (or lack) of water, and cultivation practices, which may influence whether crops reach their potential within those periods. That much is implicit in the statement in "Lychee" that "yields are variable in Queensland and northern New South Wales, and in some instances biennial in nature". Similarly, in "Is Macadamia Growing For You?", the author stated that "macadamia production is dependent on a suitable environment and careful planning and management". The documents must be read with that qualification in mind.
Macadamias: The document titled "Is Macadamia Growing For You?" stated that establishing a macadamia plantation "requires a major capital investment." It continued:"Further heavy cash outlays are needed before the plantation begins to pay. A commitment to quality is essential. Insect control, fertiliser management, harvesting and post-harvest handling are key factors affecting profitability. ... At least $14,000 per hectare is required to establish a 20 hectare macadamia plantation. That is approximately $45 per tree. Included is the cost of:
× trees and their establishment
× a packing shed
× an undertree sprinkler irrigation system
× a tractor with a carryall
× a slasher
× a trailer
× separate spray equipment for pesticides and herbicides
× 4WD trayback utility
This does not include the cost of a house and land.Further capital outlays are required once cropping commences for dehuskers, harvesting equipment, drying and storage facilities.
Cash flow
A minimum of $2500 per hectare per year is required to maintain young trees until they begin to bear. This includes costs involved in fertilising, irrigating, mulching, tree training, machinery operating costs, and pest, disease and weed control.
Yield and nut quality vary with location, season, cultivar and individual management. Little or no income is received before the fifth year and annual expenses exceed annual income until the eighth year. Accumulated expenses exceed accumulated income until the eleventh year."
The Document titled "Growing Macadamias" contained a table of "Expected yield (kg nut-in-shell)" for trees ranging in age from 1 to 10 years and beyond. The table shows that there would be no yield until year 5, from which age the yield would be as follows:
Year Yield per tree Yield per hectare
5 2 600
6 5 1,500
7 8 2,400
8 12 3,600
9 16 4,800
10 on 20 6,000
Another table set out the "approximate price paid by major processors from 1981 to 1990 for macadamia nut-in-shell at 33% sound kernel recovery at 10% moisture content".
When the appellants purchased the subject land in 1986 there were approximately 120 macadamia trees, each of which was about 4 years old. The appellants estimate that, on the basis of the tables in the published document (including prices for the years to 1990) and the prices achieved for macadamias sold at "Buckenham Orchards" from 1990 to 1995, the potential income from macadamias grown on the subject land was as follows:
| Year No. | Year | Expected Kgs/Tree | Total 120 trees | Nut in $/kg | Potential Crop value |
| 5 | 1987 | 2 | 240 | $3.10 | $ 744 |
| 6 | 1988 | 5 | 600 | $3.95 | $2,370 |
| 7 | 1989 | 8 | 960 | $3.65 | $3,504 |
| 8 | 1990 | 12 | 1440 | $2.50 | $3,600 |
| 9 | 1991 | 16 | 1920 | $2.75 | $5,280 |
| 10 | 1992 | 20 | 2400 | $2.75 | $6,600 |
| 11 | 1993 | 20 | 2400 | $2.79 | $6,696 |
| 12 | 1994 | 20 | 2400 | $3.50 | $8,400 |
| 13 | 1995 | 20 | 2400 | $4.00 | $9,600 |
In fact, the yield fell far short of the "expected yield". The yield and the actual income from macadamias, compared with the projected potential income, was as follows:
Year Yield Income Estimated Potential (% of EPI)
Kgs Income
1987 - - $744 ( 0%)
1988 114 $450 $2,370 (19%)
1989 229 $834 $3,504 (24%)
1990 318 $794 $3,600 (22%)
1991 403 $1,108 $5,280 (21%)
1992 441 $1,213 $6,600 (18%)
1993 1,133 $3,161 $6,696 (47%)
1994 399 $1,397 $8,400 (17%)
1995 444 $2,119 $9,600 (22%)
_____________________________________________________________
Total $11,076 $46,794 (24%)
The actual yield, on an average per tree, was about one fifth of the "expected yield" for each year, except in 1993 when it was less than half of the "expected yield". Although Mr Peck referred to some die-back of macadamias (see also the chart of "Die-Back Sep 93 - Exhibit 14), there was no explanation of why the actual yield was so far below the "expected yield" or why the yield fluctuated so dramatically from 1992 onwards.
Lychees: The document concerning lychees stated that the fruit yield potential for trees of different ages was as follows:7 and 8 years up to 45 kg
10-12 years 60-70 kg
15-20 years 130-140 kg
older 150-300 kg.
When the appellants purchased the subject land there were approximately 115 lychee trees, each of which was about 4 years old. On the basis of the above figures for yield potential, together with the prices actually achieved for fruit at "Buckenham Orchards", the appellants argued that the potential crop yields in the years subsequent to their purchase of the land were as follows:
| Year No. | Year | Expected Kgs/Tree | Total 115 trees | Price $/kg | Potential Crop value |
| 5 | 1987 | 5 | 575 | $3.45 | $ 1,984 |
| 6 | 1988 | 30 | 3450 | $3.50 | $12,075 |
| 7 | 1989 | 40 | 4600 | $3.50 | $16,100 |
| 8 | 1990 | 40 | 4600 | $4.00 | $18,400 |
| 9 | 1991 | 50 | 5750 | $4.40 | $25,300 |
| 10 | 1992 | 60 | 6900 | $4.94 | $34,086 |
| 11 | 1993 | 65 | 7475 | $4.89 | $36,515 |
| 12 | 1994 | 70 | 8050 | $5.50 | $44,275 |
| 13 | 1995 | 100 | 11500 | $5.50 | $63,250 |
As with macadamias, production fell well below the "expected yield". The total annual production, and the approximate average number of kilograms per tree, from 1987 to 1995 were as follows:
Year Total Yield Yield/Tree
1987 336 2.9
1988 70 0.6
1989 514 4.4
1990 630 5.5
1991 478 4.2
1992 1,332 11.6
1993 57 0.5
1994 308 2.7
1995 0 0
Again there was no explanation of why the actual yield was so far below the "expected yield" each year, (although some information about production levels may be gleaned from a table of "Lychee Panicle Emergence" - Exhibit 14).
In 1995 there was no revenue from lychees. The trees did not flower and so there was no fruit. The appellants do not know what caused the failure to flower but are aware of another lychee grower whose orchard was similarly affected at about that time.
Palms: In 1988 some 540 palm trees were planted on part of the subject land where the appellants had grown corn soon after purchasing the land. There was no evidence about what information the appellants had at that time to guide them in deciding how many palms to plant and what return they might expect on their investment. In a letter dated 8 June 1995, Mr Rob King of Kings Landscapes Pty Ltd advised Mr Peck that "the prices growers were getting for advanced Cocos, approximately 4 to 5 years old, in early 1988 was around $150.00 to $200.00 each". On the basis of that information, the appellants calculated that in 1992 (year 4 after planting) they could have expected to sell the palms for a total of $81,000. In fact, the only revenue from palms up to the relevant date was $120 in 1994. In 1995 they received $2,000 from sales of 100 palm trees at $20 each. The appellants had an agreement with a person who had undertaken to purchase the remaining trees.
According to Mr Peck, ornamental palms had lost favour in the market place. Such a change was beyond the appellants' control.
Financial investment and returns: In the course of managing the property, the appellants have spent substantial sums of money on capital purchases, buying such items as farm machinery, vehicles, sheds, tools, computer equipment and office equipment (Exhibit 3).
The itemised farm capital improvements in the land purchase were valued at $37,690. The annual farm capital expenditure from the date of purchase in September 1986 to October 1995 was:1986-87 $10,476
1987-88 $26,097
1988-89 $ 9,229
1989-90 $13,005
1990-91 $ 5,829
1991-92 $ 6,212
1992-93 N/A
1993 to October 1995 $18,274
___________________________________
Total $89,122
The appellants obtained Waterworks Licence No G-49558 (Exhibit 5) for the purpose of irrigating 2 hectares of the subject land with water drawn from the Coomera River by a 40 mm centrifugal pump. The licence was issued on 20 January 1989 and is expressed to expire on 31 January 1999.
A sketch plan of the subject land (Exhibit 8) shows that during the relevant valuation period the following separate areas were (and still are) irrigated for the purpose of growing the plants specified:
0.5135 ha palms
0.5707 ha nuts
0.9097 ha fruit and nuts
0.1406 ha fruit and nuts
-------------
2.1345 ha
The sketch plan shows that the irrigated areas are the only areas under cultivation. Other parts of the land include a floodway, an area "too steep to cultivate", and areas on which the house and sheds are located. The Coomera River runs inside the western boundary of the subject land.
The name "Buckenham Orchards" was registered in January 1989 as a business name in Queensland pursuant to the provisions of the Business Names Act 1962.
The scale of the operations on the subject land is evident from the table of Actual Yields, Sales and Expenditures (Exhibit 4) from which the following two tables are drawn.
Financial Maca- Total
Year Lychee damia Maca- Other Farm
Ended Yield Lychee Yield damia Egg Palm Farm Revenue June Kgs * Sales $ Kgs Sales $ Sales $ Sales $ Sales $ $
1987 336 1,159 78 1,237
1988 70 245 114 450 235 152 1,082
1989 514 1,800 229 834 170 24 2,828
1990 630 2,523 318 794 229 3,546
1991 478 2,101 403 1,108 322 3,531
1992 1,332 6,582 441 1,213 452 8,247
1993 57 276 1,133 3,161 554 8 3,999
1994 308 1,696 399 1,397 600 120 22 3,835
1995 0 0 446 2,119 536 2,000 7,050 11,705 **
* 1995 year - lychee trees did not blossom and there was no fruit produced.
** 1995 total revenue includes $7000 gross profit on sale of ostrich agisted off-farm.
Financial Total Farm Non- Farm Profit Farm Capital
Year Ended Farm Capital Profit Expenses $
June Revenue $ Expenses $ (Loss) $
(Note 1) (Note 1) (Notes 2 & 3)
1987 1,237 6,042 (4,805) 48,166
1988 1,082 11,341 (10,259) 26,097
1989 2,828 12,014 (9,186) 9,229
1990 3,546 8,104 (4,558) 13,005
1991 3,531 9,415 (5,884) 5,829
1992 8,247 8,860 (614) 6,212
1993 3,999 7,463 (3,464) 0
1994 3,835 8,492 (4,657) 13,959
1995 11,705 * 11,644 61 2,638
Note 1: Does not include depreciation, car expenses or off-farm agistment, but does include all other tax-deductible expenses, eg telephone, stationery, etc.
Note 2: 1990 and 1994 years include farm share of car purchases, assessed at 38%.
Note 3: 1987 year includes farm capital improvements included in land purchase price.
* 1995 total revenue includes $7,000 gross profit on sale of ostrich agisted off-farm.
The total farm revenue figures in the above table for the 1993 and 1994 financial years are slightly different from those provided in response to a request for information from the District Manager, Department of Lands (Exhibit 18) but Mr Peck explained the basis for the discrepancies and said that the figures noted in the table were correct.
In summary, the figures provided by the appellants show that their actual income in 1993 and 1994 was substantially below what they estimated it could have been or might otherwise have hoped it would be.
Actual income Estimated Potential % of EPI
1993 (1994) Income 1993 (1994) 1993 (1994)
Macadamias $3,161 ($1,397) $ 6,696 ($ 8,400) 47% (17%)
Lychees $ 276 ($1,696) $36,515 ($44,275) 1% ( 4%)Palms - ($ 120)
______________________________________
Total $3,437 ($3,213) $43,211 ($52,675)
The appellants also produced copies of their certificate of registration for sales tax, notices of income tax assessment for 1992, 1993 and 1994 showing primary production averaging details, and their 1994 partnership income tax return (Exhibits 11,12, 13). The 1994 tax return shows the net income/loss for that year to have been a loss of $10,854.
The operation of section 17(1)
If land is to be valued under section 17(1) of the Valuation of land Act 1944 on the basis that the land is "exclusively used ... for purposes of farming", each of the following questions must be answered in the affirmative:1. Is the land used for the purposes of:
(a) the business or industry of a type specified (namely, 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 an activity of a type specified (namely, the cultivation of soils, the gathering in of crops or the rearing of livestock)?
2. Does the use of the land for the purposes of that business or industry represent the dominant use of the land?
3. Does the use of the land for the purposes of that business or industry have:
(a) a significant and substantial commercial purpose; or
(b) a significant and substantial commercial character?
4. Is the use of the land for the purposes of that business or industry engaged in for the purpose of profit on:
(a) a continuous basis; or
(b) a repetitive basis?
The respondent did not dispute that the subject land is used for the purposes of a relevant type business or industry. Nor did he dispute that the use of the land for those purposes represents the dominant use of the land. The issue was whether the use of the land for those purposes:
(a) had a significant and substantial commercial purpose or character; and
(b) was engaged in for the purpose of profit on a continuous or repetitive basis (see Exhibit 17).
Most of the activity in connection with the enterprises is undertaken by the appellants. Either or both of them work every day of the week, putting in a combined total of about 50 hours each week. They do not employ anyone to work there, although they have been assisted by others in the planting of ornamental palms. No crops have been sent to markets since 1987. After a dip in the market price for macadamias, the appellants decided to sell their produce at the farm gate in front of their house. They set the price and sell the produce at the rate they can pick it. That involves daily selling for about three weeks when lychees are picked, and for the period between March and June when macadamias are harvested. The price for macadamias has steadily risen, and the price for lychees has risen in most consecutive years. Customers include regular clients who come to the house and passing trade, including tourists, attracted by roadside signs.
There was evidence of the type of long term planning which the appellants have undertaken with respect to such matters as which crops to plant, irrigation of part of the subject land and the purchase of plant and equipment. It is clear that by diversifying they have not "put all their eggs in one basket" but have tried to assess the risks and potential profitability of each type of plant. There was evidence, for example, that they had planted corn, rock melons and avocados, but had not persisted with these. They have made a substantial investment in capital items and are active in ongoing education (for example, by maintaining a technical library and computer access to data bases, attending seminars and participating in farming field days).
Having regard to the history of the intensive use to which the land has been put, the improvements made to the land in relation to primary production, the effort expended by the appellants in the planning, planting, husbanding, pruning and harvesting of the various crops and selling of produce, I am satisfied that the business is engaged in for the purpose of profit on a continuous or repetitive basis.
The real issue is whether the business has "a significant and substantial commercial purpose or character".
It is appropriate to resolve the issue in these cases by looking first at the history of section 17, then at court decisions interpreting that section, and then by applying the law to the facts.
Legislative history
Section 17 is similar to, but not the same as, section 11(i)(vii) which it replaced. The law relating to the operation of section 11(1)(vii) was developed in a series of decisions of the Land Court and the Land Appeal Court.
To assist in ascertaining the meaning and operation of section 17, it is useful to consider its legislative antecedents. The following discussion of the history of the section draws on the judgment of the Land Appeal Court in Whackett v Chief Executive, Department of Lands (AV93-163 and AV93-164, unrepoprted decision dated 3 March 1995) which drew on a series of earlier decisions of the Land Court and the Land Appeal Court.
Before 1971, there was no protection for land used for a primary production enterprise and such land was required to be valued on the basis of its highest and best use. If that land had a potential for a higher use, then it was valued on the basis of that potential and its existing use was ignored.
In the 1971 amendments to the Act, section 11(1)(vii) was inserted. The relevant provisions were -"In making, pursuant to this subsection, the valuation of the unimproved value of land exclusively used ... for purposes of the business of primary production, any enhancement in that value for that the land has been subdivided by survey or has a potential use for industrial, subdivisional or any other purposes shall be disregarded ...
In this paragraph -
....
`the business of primary production' means the business of agriculture, pasturage, horticulture, viticulture, apiculture, forestry (including the planting or tending in a plantation or forest of trees intended for felling), poultry farming, dairy farming or any other business consisting of the cultivation of soils, the gathering in of crops or the rearing of livestock."
As the Land Appeal Court has noted previously:
"The provisions of section 11(1)(vii) are concessionary - they constitute an exception to one of the cardinal principles of valuation, namely, that potential forms part of the unimproved value. In terms of the section, if a parcel of land is being exclusively used for the business of primary production any enhancement in the value thereof because of a higher potential use is to be disregarded." (WH Bowden v The Valuer-General (1980) 7 QLCR 138, at 148)
The purpose of section 11(1)(vii) can be gleaned from a statement by the Honourable WAR Rae (then the Minister for Local Government and Electricity) to the Legislative Assembly on 1 December 1971 when moving that a Bill be introduced to amend the Valuation of Land Act 1944-1970. The Minister stated:
"The Bill also provides that land used exclusively for primary production in a potentially higher-use area is to be valued without regard to the potential. ... The provision regarding primary production has been inserted to ensure that a primary producer caught up in urban development is not valued on the potential until he ceases using the land for primary production. This will enable a primary producer to carry on economically for as long as possible, and is parallel to the single-unit residential owner in a higher use zone." (Parliamentary Debates, Legislative Assembly, 1 December 1971 at 2401-2.)
The purpose of the provision was more fully explained by the then President of the Land Court in TR Groom v The Valuer-General, an explanation that was quoted with approval by the Land Appeal Court in Walker v The Valuer-General (1978) 5 QLCR 347 as follows:
"One of the objects of the Valuation of Land Act is to achieve relativity in the incidence of rates. It does this by assuming that all land in Queensland is held as fee simple and for purposes of valuation is regarded as if it remained in its unimproved or natural state. The normal principle of valuation requiring that land must be valued for its highest and best use has been judicially held to be generally applicable. Section 11(1)(vii) was introduced as an exception to the general application of this principle. As far as primary producing land is concerned its aim appears to be to give a rating concession to those lands exclusively used for the business of primary production which are in localities where lands in the course of progress have come to have a potential for some other use. The most common example is, perhaps, that of lands in actual use for substantial cultivation or dairying on the outskirts of developing towns. By virtue of their situation these lands would command a market as accommodation or subdivisional land. The section patently protects such lands from the incidence of the higher rate burden which would apply to accommodation or subdivisional land." (at p.353)
The application of the provisions of section 11(1)(vii) to a particular case was not a mechanical one. An assessment of the facts in some cases indicated that there was room for argument about whether the concession applied. The passage from the Walkers' case just quoted continued:
"The difficulty is how far the Legislature intended this concession to extend. Like many statutory concepts, the concept in itself and its purpose are easily appreciated but the application of the concept to the facts of particular cases causes problems and difficulties" (p.353).
In the Walkers' case, the Land Appeal Court pointed out that not all activities of a primary producing nature constitute a "business", and set out the requirements in the following terms:
"Profit or lack of profit is not in itself the deciding criterion ... There must, in my opinion, be continuity, diligence and repetition of actions constituting the activities and, moreover, the operations must have some significant commercial purpose or character - a degree of substantiality or viability although not necessarily always profitable. Alternatively, the actions or operations in train at the relevant date of valuation must be such that given favourable seasons and conditions they are of such magnitude that they will, in the fullness of time, by maturity or further activity reasonably be expected to develop into a viable venture. In short, I cannot accept that the scale of operations or activities are not a significant factor in determining whether or not they are to be classed as a business." (at p.354).
Thereafter this passage became the test of whether a primary production activity qualified as a "business" and has been applied by the Land Court and the Land Appeal Court on numerous occasions. For example, in Tobin v The Valuer-General (1986-87) 11 QLCR 29, the Land Appeal Court applied the test in respect of about 30 hectares of land in the Gympie area which ran 20 to 25 head of cattle, with annual gross returns of up to $4,500, while profits were of the order of $1,000 to $1,200 per annum. There was evidence that a fully developed carrying capacity would be up to 40 head.
After discussing the Walkers' case, the Land Appeal Court said:"Viewing the totality of the evidence concerning the nature of the primary production activities carried out on the subject lands, we cannot find that they conform to the test of Walker's case. Although they possess some of the necessary elements of a business, they lack a significance of commercial purpose or character, a degree of substantiality or viability." (at p.32).
In Crawford v The Valuer-General (1990-91) 13 QLCR 138, the Land Appeal Court again considered the provisions of section 11(1)(vii), this time in relation to the valuation of 4 hectares of land in the Brisbane suburb of Chandler. This land had been used for the growing of small crops, mainly strawberries and tomatoes, for about 30 years. The land owner had extensive plant and equipment which were used in the small-crop enterprise. His income from the sale of crops for the three years prior to the hearing, was $5,184, $4,667 and $10,247. However, his expenditure in production for those three years was $3,686, $10,963 and $9,050, resulting in a profit of $1,498 for the tax year 1986, a loss of $6,296 for the tax year 1987 and a profit of $1,197 for the tax year 1988.
In the Land Court it had been acknowledged that the activity carried out by the appellant possessed all the ingredients of continuity, diligence and repetition of actions constituting the activity, but it was considered that it did not possess the degree of substantiality or viability necessary to bring the activity within the requirements of the Walker test as a "business" of primary production.
The Land Appeal Court found that "an artificial and unwarranted gloss had developed in the determination of eligibility for the benefit of Section 11(1)(vii)" and considered it desirable that the cases be re-examined. It found that a tendency had developed to include the element of "scale of operations" in the Walker test as an end in itself in determining whether or not an activity is a "business" of primary production, to give it a greater level of importance than was intended. The Court went on to discuss the judgments of members of the High Court in Hope v Council of the City of Bathurst (1979-80) 144 CLR 1, where it was explained that the requirement for the use of land to have "a significant commercial purpose or character" arose from "an unwarranted interpretation of the statement by Walsh J in Thomas v FCT (1972) ATC 4094, 4100 in which His Honour used that phrase."
The Land Appeal Court said:"The remarks by Mason J at pp.9-10 are destructive of the notion that an enterprise may qualify as a business according to notions whether the activities are `significant', `real', `important', `genuine' or `weighty'." (at p.145)
After referring to the facts relied on by Mason J in concluding that the appellant's activities in that case amounted to a business, the Land Appeal Court said:
"His Honour's remarks do not suggest any magnitude or size of the activities as being necessary to constitute a business, and indeed they underline the fact that a business may be small and that concentration upon the size or significance of the business is prone to lead to error." (at p.147)
The Land Appeal Court went on to consider Ferguson v FCT (1979) 79 ATC 4261, Fennell v Wyong Shire Council 31 LGRA 64 and FCT v Walker (1985) 16 ATR 331, before concluding:
"In the light of the above analysis the passage in Walker v The Valuer-General (at p.354) which has earlier been set out should not be read as placing emphasis upon scale or size as a significant factor in the ultimate determination. In particular, the final sentence in that passage - (`In short, I cannot accept that the scale of the operations or activities are not a significant factor in determining whether or not they are to be classed as a business') seems to have been used as the justification by means of which small genuine activities designed to make a profit had been denied the status of a business.
In truth it is impossible to pose a simple test which will give the correct answer to the great variety of personal enterprises undertaken from place to place. It is true that the volume of operations needs to be understood and that it is relevant to an understanding of the enterprise as a whole. Its smallness may in the end help in leading to a conclusion that it is not a bona fide commercial exercise, just as its largeness may help to place it clearly beyond characterisation as a hobby and assist in the conclusion that it is a business. Alternatively, its size when considered with other factors may show that it could never be reasonably capable of commercial viability, in which case it will fail the test. But there must be no preconceptions against little enterprises. Familiarity with the tests recognised in the above cases and in particular those applied in Thomas, Hope, Ferguson and F.C.T. v Walker, and the above passage in Fennell v Wyong Shire Council, subject to the comment we have made in relation to it, should provide the relevant guidance. Our intent in reviewing the authorities has been to remove any undue emphasis that might otherwise be given to the words we have underlined at p.6 in the short statement of the Walker test.
Where then does the present case stand? It is an example of a reasonably substantial production but of small profit and occasional loss at least according to taxation accounting. Even so it is an activity that has been ongoing for nearly 30 years and involves significant work, continuous application, diligence and repetition. It from time to time makes a profit, and it has inherent in it the less obvious but nonetheless real benefits to the appellant to which we have earlier adverted. The appellant is plainly bona fide engaged in primary production, and this much is common ground between the parties. The activity is such that it would be absurd to characterise it as a hobby. He competes in a market and his relevant activities bear a commercial character. Had the appropriate tests been applied the only reasonable conclusion was that he was using his land exclusively for the purposes of the business of primary production. It is we think a clear case of a bona fide small business." (at 149-50)
The provisions of section 11(1)(vii) were amended by the Lands Legislation Amendment Act 1991, which recast the terms of the exception in subsections (9) and (10) of section 11 of the Act. Those subsections have since been reprinted as section 17(1) and (2) of the Act, quoted earlier in these reasons for decision.
The definition of "farming" in section 17(2) of the Act contains a number of similarities to the Walker test, although expressed somewhat differently. Although the Land Appeal Court in Crawford's case was at pains to remove any emphasis upon the scale of operations or its significance, the Legislature has now included in the definition requirements of "significant and substantial commercial purpose or character", possibly to overcome the decision in Crawford's case.
Significant and substantial commercial purpose or character
To be characterised as farming, the relevant business or industry must have a "significant and substantial commercial purpose or character". Having regard to the legislative history of section 17(2), it would appear that the reference to "a significant commercial purpose or character" derives from the judgment of Walsh J in Thomas v Commissioner of Taxation (1972) 46 ALJR 397 at 401, which has been described as "the well known test used in this area of law" to determine whether activities constitute a business (Hope v Bathurst City Council [1979] 2 NSWLR 471 at 474 per Reynolds JA, see also 476-7 per Samuels JA).
The majority of the Land Appeal Court in Whackett v The Chief Executive, Department of Lands ("Whackett") turned to dictionaries and noted that among the ordinary English meanings of "commercial" are "of, engaged in, bearing on, commerce; interested in financial return rather than artistry" and "capable of returning a profit; ... preoccupied with profits or immediate gains". "Commerce" includes the interchange of goods or commodities or services, especially on a large scale, and trade or business.
The relevant "purpose" is the "object to be attained, thing intended" or, in other words "the object for which anything ... is done, ... an intended or desired result; end or aim". In this context (and by contrast with "character") the word "purpose" seems to be subjective in nature or at least have a subjective component. So for the business or industry to have a commercial purpose there must be some intention or desire on behalf of those engaged in the business or industry to pursue commercial goals rather than merely to be engaged in the enterprise for recreational or some other purpose.
The majority in Whackett thought that the word "character" has a more objective connotation, being "the aggregate of qualities that distinguish one person or thing from others". The commercial character of a business or industry could be ascertained by reference to a range of criteria, quite independently of the intention or desire of those engaged in the business or industry or their goals.
The commercial purpose or character must be both "significant" and "substantial". Each word is imprecise.
The dictionary definitions of "significant" include "noteworthy, of considerable amount or effect or importance" and "important; of consequence". In Hope v Bathurst City Council [1979] 2 NSWLR 471 at 477, Samuels JA suggested that, although the word "significant" as used in the expression "significant commercial purpose" is "perhaps inadequate for the work here required of it", it is intended to mean "important", or "real", or "genuine', or "weighty" (see also Hope v Bathurst City Council (1980) 144 CLR 1 at 9 per Mason J).
The word "substantial" has been judicially described as "not a word of fixed meaning in all contexts" (Terry's Motors Ltd v Rinder [1948] SASR 167 at 180 per Mayo J) and as a word that "is not only susceptible of ambiguity" but that is "calculated to conceal a lack of precision" (Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331 at 348 per Deane J). In the present context, it would seem to connote something of real importance, worth or value and of considerable amount which pertains to the essence of the purpose or character.
The majority in Whackett concluded:"It is difficult, and unnecessary, to state a precise and compendious meaning of the expression "significant and substantial commercial purpose" and "significant and substantial commercial character". Bearing in mind the various connotations of the words "significant" and "substantial" it is perhaps sufficient for present purposes to say that for section 17(1) of the Act to apply to the subject land there must be evidence that:
(a) the business or industry is being carried on with a genuine and sizeable intention or desire that there will be reward, if not profit and is not being engaged in merely for recreational or some other purpose; or
(b) the qualities or distinguishing features of the business or industry demonstrate that it is being carried on in a way which (ordinarily, at least) will generate reward, if not profit."
Mr Grennan placed some reliance on a decision of the Land Court in Taylor v Chief Executive, Department of Lands ((1993) 14 QLCR 477) in which the Court concluded that "the purpose of the amendment would seem to be to avoid the effect of the Land Appeal Court in Crawford's case by making more stringent the requirements for land to qualify for valuation under the protective provisions as being used for purposes of farming". In the Taylor decision it was said that 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 appeared to require a trading or business activity of important or considerable size. "If the purpose of the amendment is to avoid the consequences of the Crawford case, then that interpretation makes sense and indicates that the intention of the Legislature is to provide protection only to those enterprises which come within the definition."
Importantly it was also stated that "it will still be necessary to consider each case on its own merits and it is still not possible to pose a simple test in this regard ... Each enterprise is different and it is not possible to set numerical or financial requirements which would be applicable for all or any of them." The majority of the Land Appeal Court in Whackett expressly agreed with that observation, and with the statement that there can be no artificial base for determining the scale of any particular activity which will satisfy the criterion in paragraph (c) of the definition. Justice Ambrose also took that approach.
It was on the meaning of the expression "a significant and substantial commercial purpose or character" that Justice Ambrose differed from the majority of the Land Appeal Court in the Whackett case. Like the majority members, he noted judgments which find that "substantial" is an imprecise word, the meaning of which is influenced by the context in which it is used. In his opinion, the net and/or gross income and/or profit derived from a business are factors in determining whether the business has a significant and substantial commercial purpose or character. Other relevant factors in that case were the area of and improvements to be found on the land in question, the number of cattle run on it and the number normally turned off periodically for sale. The "significant and substantial commercial purpose or character" referred to in section 17(2) does not denote any relativity between the amount of income generated by the business and a standard (if any) to be gleaned from the terms of the legislation. In his opinion, the object of section 17(1) is to benefit owners of land used for a real and bona fide business of farming. He contrasted that with a use which has a token, nominal, illusory, or insubstantial commercial character. Any ambiguity in the expression should be construed in favour of the ratepayer. On the facts in Whackett he held that use of the land came within the scope of section 17(1).
Conclusion:
The legislative history traversed in the Whackett decision is important as setting the policy context in which section 17 was enacted. The present case is distinguishable in key factual respects from the facts in Whackett and is more akin to the facts in the Crawford case. It seems that the result in Crawford may have prompted the change in wording from section 11(1)(vii) to section 17. Whatever the legislative history may indicate about why the section was reformulated, the Court must resolve the issue in these proceedings by reference to the words used. The decision in Whackett is useful for that purpose also.
Various features of the enterprise at "Buckenham Orchards" can be cited in support of the appellants' contention. The appellants purchased a property which was used for primary production. They have intensified development of it, changing some crops to better suit the land and their needs. They have invested time and effort into the enterprise on a continuous basis, have obtained a waterworks licence for the purpose of irrigating the land under cultivation, and have spent substantial sums of money on plant and equipment which is necessary or appropriate to the use of the land for the purpose of growing macadamias, lychees and palms. The appellants have planned what to plant and, by diversifying, have not tied their whole enterprise to the fortunes of one product. They pointed to apparently reputable documents about the growing of macadamias, lychees and ornamental palms. Those documents provide guidance about such matters as the amount of financial investment necessary to establish and maintain the plants, the length of time before a financial return on the investment can be expected, and the potential yield of each type of plant (by reference to which the possible financial return could be calculated). That information shows that each crop would require a commitment of money and effort over some years before any profit could be gained. In the case of macadamias, for example, it was said that accumulated expenses would exceed accumulated income until the eleventh year.
The respondent's valuer, Mr DT Treston, observed that the lychees, macadamias and palms seemed to be healthy. He was willing to accept that growing those plants was an appropriate use of the area and that much of the equipment purchased by the appellants was appropriate or necessary for the specific uses to which the land was put.
I accept that each crop could be grown on the subject land, that there are many factors which affect the productivity of the plants (including die back of some macadamia plants and the failure of lychee trees to flower one year), and that the market for each product (such as ornamental palms) will vary by reference to factors beyond the appellants' control.
The financial records in evidence show that gross annual income from the enterprises has fluctuated, that it has rarely approached or exceeded $5,000, and that the enterprise usually runs at a loss. Mr Peck said that he was disappointed at the failure of the lychee crop, but noted that in one year they produced the best return. He still hopes that they will prove profitable. Among the factors influencing income Mr Peck listed drought, excess rain and wind, changes in markets for certain produce, and the shifting ratio of the value of the Australian dollar to the American dollar.
Profit or lack of profit is not in itself the deciding criterion. The history of the intensive use to which the land has been put, the improvements made in relation to primary production, and the effort expended by the appellants on a continuous and repetitive basis in respect of all aspects of the enterprise suggest that it is a business or industry engaged in for the purpose of profit. The fact that profits have yet to be achieved does not of itself deprive the enterprise of its commercial purpose or character. The information summarised earlier also suggests that, at the date of valuation, the enterprise should have had potential to become commercially viable. What was not explained was why every year the productivity obtained from the lychee trees and the macadamia trees fell so far short of the "estimated" or potential yield, and why their productivity fluctuated so dramatically from year to year. Had such an explanation been forthcoming, the appellants' case may have been stronger.
The other features of the enterprise which weaken the appellants' case are the relatively small area of the subject land (4.083 hectares) and the even smaller area which is under cultivation (2.1345 hectares), the fact that the plant and equipment could be used to more economical effect on a larger area, and the fact that the income from the enterprise has to be supplemented for the appellants to maintain a reasonable standard of living. Although the size of the area under cultivation is not itself determinative, it is a factor in ascertaining the potential of an enterprise to have a substantial and significant commercial purpose or character.
I have not found this an easy case to determine, but am satisfied that the appeal must fail. The land is not used as a hobby, and the level of effort and investment involved in the enterprise indicates that the business or industry is not token, nominal, illusory or insubstantial. Although the use of the land has not changed in the period since the appellants purchased it, the law has changed. Having regard to the evidence, much of which is set out in these reasons, I am not satisfied that the character of the enterprise (as evident from the amount of production or the income generated) or the purpose (as described in Mr Peck's evidence) can be described as so substantially or significantly commercial that it meets the requirements of section 17 of the Valuation of Land Act 1944.
Order
The appeal is dismissed and the determination of the Chief Executive is affirmed.
GJ NEATE
MEMBER OF THE LAND COURT
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