Peck v Chief Executive, Department of Natural Resources
[1997] QLAC 118
•1 August 1997
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BETWEEN:
Re:Appeal against determination of unimproved value by the Land Court -
Valuation of Land Act 1944 -
Gold Coast City Council (AV95-94)
COLIN H PECK AND MARILYN C PECK
and
Appellant
CHIEF EXECUTIVE, DEPARTMENT OF NATURAL RESOURCES
Respondent
J U D G M E N T
Delivered at Brisbane this first day of August 1997.
This is an appeal by Mr and Mrs Peck against the decision of the Land Court dismissing their appeal and affirming the determination of the Chief Executive of the unimproved value of their land at $120,000. In making its determination the Court held that the Pecks’ land should not be valued as land used for "purposes of farming" under the concessional provisions of s.17 of the Valuation of Land Act 1944.
The land in question is described as Lot 7 on Registered Plan 148099, Parish of Barrow, containing an area of 4.083 ha. It is at Mt Nathan and is called "Buckenham Orchards". The respondent Chief Executive determined the unimproved value of the land as at 30 June 1993, effective from 30 June 1994, to be $120,000. Following an unsuccessful objection to that valuation, Mr and Mrs Peck appealed to the Land Court, asserting that the unimproved value at the relevant date was $62,000.
Mr and Mrs Peck purchased the land in November 1986. Their reasons for purchase were explained by Mr Peck in the Land Court in the following terms:
"We purchased it for the residence on it and for the existing orchard which
fulfilled our requirements and our pocket with what we had available to buy a farm property."
He later explained they purchased the property with the orchard because they needed to supplement their income which was funded by his superannuation.
Situated on the property at the time of purchase, in addition to the house, was an orchard which had been established for about four years, comprising about 120 macadamia trees, about 115 lychee trees, and about 100 trees of other types, grown more or less experimentally.
The evidence before the Land Court was that since the purchase of the property, which Mr Peck estimated to have capital improvements excluding the house to the value of $37,690, capital expenditure on the farm had been:
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
On 20 January 1989 the appellants obtained a waterworks licence to pump from the Coomera River by means of a 40 mm pump, to irrigate 2 ha.
In 1988 the appellants had planted some 540 palm trees on part of the land, which was low lying and subject to flooding. It was their expectation that after four years they would have been able to sell the palms for a total of $81,000. However, the only income from palms was
$120 in 1994 and $2,000 in 1995.
The returns from the other enterprises also fell far short of expectations. In each of the financial years from 1987 to 1994, the farming operations ran at a loss, which would be compounded considerably if farm capital expenditure for each of those years were taken into account.
The details were set out in the decision of the Land Court as follows:
" 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 Lychee Lychee Macadamia Macadamia Egg Palm Other Total
Year Yield Sales Yield Sales Sales Sales Ended Kgs* Kgs June $ $ $ $ Farm Farm Sales Revenue
$ $
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 Farm Capital Profit Expenses June Revenue $ Expenses $ (Loss) $ (Note 1) (Note 1) (Notes 2 & 3)
1978 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
Note1: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 expected yields and returns were derived from published material produced in evidence in the Land Court.
Section 17 of the Valuation of Land Act provides for concessions based on land use. Where the use of a parcel of land qualifies it for valuation under s.17, the unimproved value must be determined disregarding any enhancement in value for a purpose other than the one for which the land was used at the relevant date.
Section 17 provides as follows:
" (1) In making a valuation of the unimproved value of land exclusively used for purposes of a single dwelling house or for purposes of farming, 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 irrespective of whether or not, in case of potential use as aforesaid, that potential use is lawful when the valuation is made.
(2)In subsection (1) -
‘a single dwelling house’ means -
(a)a dwelling used solely for habitation by not more than 1 family; or
(b)a dwelling occupied by the resident owner and used solely for habitation -
(i)part of which stands converted for use as a flat; or
(ii)part of which is used or for use as a furnished room or furnished rooms;
by a person or persons other than the owner’s family; or
(c)a building used solely for habitation and that consists of 2 flats, 1 of which is occupied by the resident owner; and
‘farming’ means -
(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 first limb of s.17 relating to use for purposes of a single dwelling house is not an issue in this case. The appellants claim that their land should be valued under the second limb of
s.17 of the Act as land being used for purposes of "farming".
Mr Peck explained to the Land Court that the appellants’ land had previously been valued on a concessional basis under the provisions of the now repealed s.11(1)(vii), the predecessor to the present s.17, but differently worded, as land exclusively used for purposes of "the business of primary production". However, when valuing the land as at 30 June 1993, the respondent did not value the land under the provisions of s.17, as land used for purposes of
"farming".
The legislative history of that section was discussed at some length by the Land Appeal Court in Whackett v. Chief Executive, Department of Lands (AV93-163 and AV93-164, unreported, 3 March 1995). On 30 June 1993 subsections (1) and (2) of s.17 appeared as subsections (9) and (10) of s.11. Those subsections were renumbered as subsections AD(1) and AD(2) of s.11 from 10 December 1993 by operation of Lands Legislation Amendment Act 1993,
s.3 and schedule 1. They were given their present numbers in Reprint No. 1 of the Valuation of Land Act dated 27 January 1994.
The definition of "farming" in the section has the effect of imposing four conditions which must be satisfied before the farming concession can apply: first, the land must have been used for the purpose of a business or industry specified in either paragraphs (a) or (b); secondly, the business or industry must have been the dominant use of the land; thirdly, the business or industry must have had a significant and substantial commercial purpose or character (paragraph (c)); and fourthly, the business or industry must have been engaged in for the purpose of profit on a continuous or repetitive basis (paragraph (d)). The respondent did not dispute before the learned member that the first and second conditions had been satisfied, but asserted that the third and fourth conditions had not.
The member concluded that the fourth condition had been satisfied. He said: "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."
Later he said:
"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 fourth condition concerns an exclusively subjective matter. It focusses on the purpose for which the business or industry was undertaken. That purpose must have been profit- making on a continuous or repetitive basis, thus ruling out those who lacked the desire to make money and those who engaged in the business or industry only intermittently. Clearly enough the member was satisfied that the appellants had demonstrated the necessary persistence and financial motive, although their efforts were without success. The fourth condition then concerns the genuineness of the owner's purpose without reference to its results.
It was on the third condition that the appellants failed before the member. He said: "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. "
The "information summarised earlier" is set out above.
The third condition concerns one purely objective matter, the commercial character of the business or industry. The commercial purpose of the business or industry is a matter which requires consideration of a subjective matter, again the genuineness of the purpose, but the use of
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the adjectives "significant" and "substantial" to qualify the expression "commercial purpose" in our view calls for consideration of objective criteria when assessing that purpose. The use of both adjectives leads us to that conclusion, but, of the two, "significant" is the more important in leading to that result.
So whereas paragraph (d) makes the genuineness of the purpose alone a condition and so concerns an exclusively subject matter, paragraph (c) requires assessment of that purpose by reference to objective facts to determine if it can properly be described as significant and substantial. In making such an assessment it is permissible - and necessary in our view in a case like this in which a business has been established for some time - for consideration to be given to the results achieved by the business after a reasonable interval has elapsed following its establishment. Full allowance must, of course, be made for such things as the uncertainties of the weather, the vagaries of markets, and fluctuations in exchange rates. Having given those factors proper weight, one may conclude that an owner, though genuinely pursuing profits, is engaged in such an unpromising enterprise that it could not be said, in accordance with any ordinary or reasonable standard, to have a significant and substantial commercial purpose. Such a conclusion was clearly open in this case, as was a conclusion that the appellants' business lacked the requisite significant and substantial commercial character. Where a business or industry is in the process of being established objective criteria other than results, such as a credible business plan, will of course be appropriate.
In Whackett v. Chief Executive, Department of Lands the majority, after considering the meanings of the individual words making up the expressions "significant and substantial commercial purpose" and "significant and substantial commercial character", concluded that it was difficult and unnecessary to state a precise and compendious meaning off those expressions. They continued:
"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. "
We see nothing in that passage which is inconsistent with the construction we have put upon the section, bearing in mind that a precise and compendious construction was not attempted.
On the evidence before the member we can detect no error in his having reached the conclusion he did on the requirements of the third condition; in our view the evidence supports
no other conclusion.
Accordingly, the appeal is dismissed and the determination of the Land Court is affirmed.
(J.W.B. Helman) Justice of the Supreme Court
(J.J. Trickett) President of the Land Court
(R.P. Scott) Member of the Land Court
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