Petts v Chief Executive, Department of Natural Resources

[1999] QLC 67

[1999] QLC 67

LAND COURT

BRISBANE

17 JUNE 1999

Re:     AV98-228

An appeal against an unimproved valuation -

Valuation of Land Act 1944 -

Local Government:  Broadsound

WH, SM, LT and LG Petts

v.

Chief Executive, Department of Natural Resources

(Hearing at Mackay)

D E C I S I O N

The appellants own property known as "Rosedale", a cattle grazing property located about 170 km north of Rockhampton and 165 km south of Mackay.  I refer to this as the "subject land" or similar.  The Chief Executive valued the land for the purposes of the Valuation of Land Act 1944 and arrived at a value of $670,000 as at the date 1 October 1997. The landholders have appealed to this Court against that valuation and provided an estimate of value in the appeal document in the amount of $257,000. Evidence given during the hearing was, however, directed to a value of $352,360 and I will come to the manner in which that figure was calculated shortly.
           One of the landholders, Stephen Michael Petts, appeared on behalf of the appellants and gave evidence, whilst the valuation of the Chief Executive was supported by Owen Leslie Eisenmenger, a registered valuer.  I will not set out the grounds of appeal fully, however, will summarise them by saying that they are concerned exclusively with the proposition that it was the sale of "Rosedale" Station in May 1997 which ought to have been the basis upon which the valuation was struck.
           "Rosedale" has an area of 13,365 ha and includes, as part of that area, Connie Creek Pastoral Holding.  The property has frontage to the bitumen sealed Bruce Highway, which provides good access to the property boundary.  Mr Petts suggested that the bitumen road was, in effect, a disability as he was concerned that stock might wander on to the highway and cause accidents with a result that substantial damages might be claimed from the stock owners.  Mr Eisenmenger's view was, however, that such a risk could adequately be catered for by appropriate insurance and that any cost associated with such insurance would be more than compensated for by the advantage of the bitumen road frontage.  Mr Eisenmenger is clearly correct.
           In his written valuation Mr Eisenmenger said that the property comprised 5,465 ha (41%) of "level to undulating coastal forest consisting of narrow leaf ironbark, poplar gum, Moreton Bay ash, bloodwood and some Ti tree".  Mr Petts agreed with the area indicated and the description, however, put the view that the country description could be further refined to separate out any level country from undulating country.  Mr Eisenmenger's country description referred to 1,200 hectares (9%) of "predominantly Ti tree on grey sandy soils".  Again Mr Petts was concerned to point out that this country description could also have been further subdivided having regard to the topography of the land.  The description went on, "about 1800 hectares (13%) of moderate forest ridges with main timbers being narrow leaf ironbark, bloodwood and some poplar gum".  Again Mr Petts substantially agreed with the description, however, thought that the break-up could have been different.  Mr Eisenmenger's country description then referred to "about 4900 hectares (37%) of steeply sloping mountain range mainly timbered with ironbark, bloodwood, zamia and grasstree".  Mr Petts did not dispute the description excepting to say, importantly, that the mountain range land is "basically inaccessible" and therefore ought to have a nil value applied to it.  I return to that argument later in these reasons.
           The water supply on "Rosedale" consists of natural seasonal supplies in Waverley Creek, together with other creeks, and artificial supplies available from bores and dams.  The airstrip servicing St Lawrence is located in the north-eastern corner of the property and a high voltage transmission line severs the property.  There is also a local power line in the northern part.
           Before I come to the individual valuation approaches, I will deal with the 4,900 ha of mountain range country.  Mr Petts applied a nil value to that land, whereas Mr Eisenmenger included that land as part of the block-to-block comparison carried out by him in his valuation.  There is some country within the mountain range which is suitable for grazing, however, access to that land is best obtained from land to the west of the subject property and not from the subject property itself.  There was evidence from Mr Eisenmenger that in the case of a nearby property called "Burswood" access to similar country has been constructed, however, I am not sure of the form of that access nor whether construction on the subject land around the relevant date would have involved similar circumstances to that which prevailed in the case of "Burswood" at the time of the construction of the access there.  In any event, the thrust of Mr Eisenmenger's evidence was that he viewed the mountain range country as having a value as it was possible that that land could, for example, be sold to an adjoining owner and put to use.  Mr Petts appeared to not dispute that proposition, excepting to say that if the land in question was transferred from the present pastoral holding in which most of the mountain range country is largely located, then that transfer at the conclusion of the term of the pastoral holding would provide no financial benefit to the present lessee who would, pursuant to the provisions of the Land Act 1994, be compensated for improvements only and there are no improvements on that country. The difficulty with that proposition is that I am required under s.3(1) of the Valuation of Land Act  to strike a value on the basis of "the capital sum for which the fee simple of the land might be expected to realise", notwithstanding the fact that the land is a lesser tenure than fee simple.
           Whilst the mountain range has questionable value in the hands of the present owners for the purpose of conducting their business of grazing cattle, it, nevertheless, has a value in the marketplace if viewed as fee simple land.  Accordingly, I will proceed to consider the mountain range country as having a value and that that value ought to be taken into account in carrying out a block-to-block comparison.
           It is another matter as to whether clearing of any part of the steep slopes of the mountain range country might be approved under the tree clearing guidelines promulgated pursuant to the provisions of the Land Act.  Much of the mountain range country has a slope greater than 20% and the evidence shows that the tree clearing guidelines would either prohibit or substantially inhibit clearing on slopes of that magnitude.  Mr Eisenmenger was unwilling to conclude that tree clearing would not be permitted, saying that each case needs to be considered on its merits, together with any scientific evidence which supports an application for tree clearing.  Part of the mountain range country is held as freehold and is not subject to tree clearing guidelines, nor is there any evidence that the implementation of guidelines is imminent. 
           Mr Petts said that approximately 4,000 ha of the subject land would be classified as usable ridges and foothills running down to the flat country.  That country, he said, was cut by numerous gullies and streams and was quite challenging to muster, and is largely overgrown with ironbark suckers.  He said that the area would have the same carrying capacity as "Burswood", that is 1 beast to 12 ha.  He said that the remaining area of "Rosedale", which he estimated at 4,000 ha, is reasonably flat and might be compared with "Mystery Park" which has a stocking rate of 1 beast to 4.5 ha. 
           Mr Petts understood that the Chief Executive has applied a value to "Burswood" of $14.67 per ha and to "Mystery Park" of $73.42 per ha as at 1 October 1997.  By process of mathematics Mr Petts calculated that if he applied the "Burswood" value to the area of land which he says is similar; the "Mystery Park" value to the area which he says is similar to that property; and applies a nil value to the mountain range country, then a figure of $352,360 results. 
           "Burswood" is located south of the subject property.  Mr Petts' knowledge of "Burswood" comes from topographic maps and a conversation he had with the owner of that property the night before the case was called on.  He was told that the carrying capacity was 1 beast to 12 ha and that that is a reduced carrying capacity owing to regrowth on treated country.  Mr Eisenmenger knows "Burswood" and said that the property has a total area of 8,520 ha, has no formed access and stock are taken out through neighbours' yards over a quite dangerous track "down the side of a mountain".  He understood that stock would be walked out, however, Mr Petts suggested that the owner has used a truck..  Mr Eisenmenger said that "Burswood" has some 3,800 ha of low undulating ridges to flats, whilst the balance comprises forest ridges of which about 4,000 ha is very steep and mountainous.  There is a nature conservation agreement which was all but finalised at the date of hearing and I understand the presence of that agreement featured in the assessment of the unimproved value by the Chief Executive.  That unimproved value was said by Mr Eisenmenger  to be $14.70 per ha and the carrying capacity applied by the Chief Executive was 1 beast to 14 ha.
           The property named "Mystery Park", to which Mr Petts referred, was the name given to an aggregated property which now stands in three separate ownerships.  Mr Eisenmenger said that the property relied upon by Mr Petts has an area of 3,473 ha and is valued at $73 per ha.  Mr Eisenmenger classified that property as having 2,200 ha of undulating easy narrow leaf ironbark forest country, 1,000 ha of ti-tree on grey soil and 273 ha of hard ridge.  Mr Petts said that the stocking rate of "Mystery Park" was 1 beast to 4.5 ha, however, this was neither put to nor challenged by Mr Eisenmenger.  Mr Petts suggested to Mr Eisenmenger that the ti-tree country on "Mystery Park" was capable of development, just as ti-tree country on "Amet Dale", a sale referred to by Mr Eisenmenger had been.  Mr Eisenmenger said, however, that the ti-tree country on "Amet Dale" was a different landscape, having a mix of timbers and that the Department of Primary Industries' advice is that ti-tree country of the type on "Mystery Park" could not be economically developed.  Mr Petts extracted from Mr Eisenmenger an agreement that the ti-tree country on "Mystery Park" would be capable of development with nutrient deficiencies addressed by the use of fertiliser, however Mr Eisenmenger maintained the view that district standards of development did not support the development of such country.  The science of hydroponics indicates that even a bucket of sand is capable of having an increased productivity, however, the economics of extracting land productivity turn very much on such economic factors as the value of the asset or land, the cost of development, the value of the product and the proximity to market.  All of those factors feature in an assessment of a development potential and it is not sufficient to simply point to the technical capacity to develop a piece of land, or for that matter a bucket of sand, for it is the economics which dictates the final decision.
           Red lantana is a noxious plant which is dangerous to livestock and which is found generously distributed in the region around the subject land.  Mr Petts expressed the view that "Mystery Park" does not have as much lantana as "Rosedale" has, however, it was Mr Eisenmenger's view that "Mystery Park" has significant stands of red lantana and pink lantana as well.  He has discussed the matter with the owners of "Mystery Park" who said to him that at one stage they were concerned about the property being taken over by this weed. 
           "Mystery Park" was apparently inspected by Mr Petts from the road that travels through the property and he had a conversation with the landowner concerning the carrying capacity of the land there.  Mr Eisenmenger, on the other hand, has fully inspected the property and has broken it up into land classifications.  He has also inspected "Burswood", though Mr Petts has relied upon a topographic map and hearsay evidence.  In such circumstances the "best evidence" rule applies and I must prefer the evidence of Mr Eisenmenger.  In saying this, I not only prefer his comparisons between "Burswood", "Mystery Park" and the subject land, but also his view of the red lantana problem on the "Mystery Park" property compared with the subject land.  "Mystery Park" is clearly superior to "Rosedale" on a per ha basis, given the property descriptions provided, and both Mr Petts and Mr Eisenmenger agree on that.  Mr Petts, however, appears to have taken the value applied to "Mystery Park" as if it applied to part of the land only and has attempted to compare it with part of "Rosedale".  Now whilst on the face of it that might appear to be a conservative approach, given that there is a proportion of hard ridge country on "Mystery Park", Mr Petts has not provided a block-to-block comparison, but rather has approached the valuation on the basis of a variation of the classification method.  In Scougall v. The Valuer-General (1980) 7 QLCR 51 at 57 the Land Appeal Court had this to say about the classification method:

"     The classification method of valuing has been criticised as a primary method in several judgments of this Court and the Land Court – vide for example Conversion of tenure – Settlement Farm Leases – Goondiwindi District – Land Appeal Court – (1967) 34 C.L.L.R. 278 at p. 281.  The method may provide supporting evidence of valuation but direct block to block comparison is generally to be preferred as a primary method.  The difficulty of expressing in the classification method appropriate allowance, overall, for differences in situation, access, type of water, varying percentages of component land types and working difficulties is so well known as to need no stressing."

Another concern that I have with the approach adopted by Mr Petts is that he is reliant upon the correctness of relativities between the subject property and valuations determined by the Chief Executive.  Mr Eisenmenger, on the other hand, has referred to sales evidence and such an approach is to be preferred.  That view was expressed by the Land Appeal Court in Clough v. The Valuer-General (1981) 8 QLCR 70 at 76 where the Members of that Court said:

"     It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value.  The reason is obvious.  In applying such sales there is no room for error in analyzing the value of improvements."

Mr Petts also relied on the sale of the subject land and the details of that transaction were also included in Mr Eisenmenger's valuation, though he rejected reliance on that transaction as a basis for valuation.  Mr Petts said that there had been a public auction of "Rosedale" in early 1996 following extensive advertising in "The Country Life" newspaper.  The property was passed in at that auction at the highest bid of $1,000,000.  Late in 1996 the mortgagee, QIDC, began advertising the sale of the leasehold portion of "Rosedale".  In January 1997 Mr Petts called in to "Rosedale" to see the then owner and was offered the property for $2,000,000, together with some cattle.  He declined that offer.  He noted three "For Sale" signs on the property.  The property was subsequently auctioned following further advertising in "The Country Life", though the first date for the second auction was deferred for two weeks owing to wet weather.  There were four separate bidding parties at the second auction and the property was eventually passed in to the highest bidder.  Negotiations then took place and Mr Petts and his family succeeded n purchasing the property for $980,000.  He is aware that Mr Eisenmenger has valued the improvements on "Rosedale" at $723,000 and says that based on the purchase price the unimproved value would be $257,000.  In his view the highest bid of $1,000,000 at the first auction and the final contract price of $980,000 indicate that the value of "Rosedale" as improved is approximately $1,000,000.  He was supported in that view by a letter from the auctioneer who wrote, "It is of my opinion that $980,000 was all that was going to be paid for "Rosedale" at that time".
           Mr Eisenmenger expressed the view that the sale price is low when compared with other grazing properties in the immediate vicinity and that this may have been because the sale was a sale by mortgagee in possession.  I will return to the subject sale, shortly.
           Mr Eisenmenger referred to the sale of "Wahroonga", a property of 9,892 ha which sold in March 1997 for a price of $1,330,000.  He analysed that improved sale price to an unimproved figure of $41.10 per ha.  "Wahroonga" is located with frontage to the bitumen Marlborough-Sarina Road, about 180 km south of Mackay.  The property has 1,320 ha (13%) of mixed scrub comprising brigalow, belah, softwood and some blackbutt; about 2,500 ha (25%) of easy narrow leaf ironbark ridges; and about 6,072 ha (62%) of rough forest ridges and mountain consisting of narrow leaf ironbark and grasstree, running to some gum and bloodwood on the far eastern part.  There is no permanent natural water on the property, with seasonal supplies being provided in creeks and gullies.  Artificial supplies consist of 16 dams and two bores.  In his comparison between "Wahroonga" and "Rosedale" Mr Eisenmenger stressed that 62% of the sale property comprises rough to forest ridges compared with a lesser percentage of mountain range country on the subject property together with some "moderate forest ridges".  He said also that "Wahroonga" is in a lower rainfall area than the subject and has a drier forest. 
           Mr Petts has had a conversation with the owners of "Wahroonga" and was led to believe that about 6,000 acres of softwood scrub on that property has been developed to buffel grass.  Mr Eisenmenger was able to confirm that about 6,000 acres of "Wahroonga" has been developed, however, was firm in his view that only 1,320 ha of the property contained scrub.  He said that the property was part of a Lands Department development commencing in the early 1970's and the area was thoroughly mapped and surveyed by field staff, leading him to believe that the area break-up was quite accurate.  In addition to that, he has inspected the sale property on four occasions over the last 15 years.  He suggested that there may have been 6,000 acres of scrub country altogether when "Wahroonga" was combined with a property to the south by the name of "Spring Valley", however, that area of scrub was not on the sale property.  The Chief Executive's valuation for "Wahroonga" as at 1 October 1997 is $39 per ha. 
           The sale of "Amet Dale", a property of 8,795 ha took place in July 1997.  The sale price was $1,650,000 and Mr Eisenmenger deduced an unimproved figure of $67.42 per ha.  The Chief Executive applied a value to "Amet Dale" at $60 per ha.
           The sale property is located just to the south of "Rosedale" and enjoys frontage to the Bruce Highway, which actually severs the property.  "Amet Dale" comprises about 2,800 ha (32%) of easy undulating coastal forest comprising mainly poplar gum and narrow leaf ironbark; about 2,400 ha (27%) moderate sloping forest mainly comprising narrow leaf ironbark and bloodwood; about 800 ha (9%) of ti-tree on poorer sandy soils; and about 2,795 ha (32%) of steep forest ridges running to mountains and gorges mainly timbered with ironbark, bloodwood, zamia and grasstree.  There are natural seasonal waterholes in Amity and Granite Creeks which are the major creeks on the property.  Artificial supplies are obtained from nine dams and two bores.

           Mr Eisenmenger saw the "Amet Dale" sale as providing a good comparison with "Rosedale" given the similarities of access, water and country type, though there is a differential in size.  Overall he thought the sale property to be slightly superior to the subject land.
           Mr Petts challenged reliance on "Amet Dale" from a number of perspectives.  He has driven through the sale property and has made reference to a sales brochure associated with the present attempts to resell the property.  Mr Petts thought that there was 2,000 acres of improved pasture on "Amet Dale", however, did not challenge Mr Eisenmenger's figure of 640 ha.  Mr Eisenmenger had applied a value of $300 per ha to the pasture improvement as part of his analysis of the sale.  In cross-examination he agreed that costs of development of that class of country on "Amet Dale" would have been much greater than $300 per ha, however, he explained that he had discounted the cost of development on the basis that a lot of the pasture had reverted to natural grass.  He also applied a nil value to pondage banks on the basis that the banks that had previously been constructed were totally ineffective and would need to be established from scratch.  In my view the approach that Mr Eisenmenger adopted in considering the value of improvements on "Amet Dale" was appropriate.
           Mr Petts' second challenge to reliance on the "Amet Dale" transaction was based on the fact that the purchaser intended to grow ti-tree on the land for the purpose of extracting ti-tree oil.  Mr Eisenmenger said that he had spoken at length with the purchaser and was aware that there were intentions to grow ti-tree, but also to graze the country not suitable for ti-tree growing.  In the event it transpired that the purchaser was not able to obtain the required water licence and has placed the property back on the market.
           Mr Petts put the view to Mr Eisenmenger that on an improved basis his comparison between "Amet Dale" and "Rosedale" could be shown to be wanting.  Mr Eisenmenger did not, however, carry out a comparison on that basis and if he had it would be of no assistance to me, given the requirement to value the land on an unimproved basis pursuant to the provisions of the Valuation of Land Act.  Mr Petts was also concerned that in his comparison between "Amet Dale" and "Rosedale" Mr Eisenmenger had taken into account the potential for "Rosedale" to be developed and submitted that it was not appropriate to take into account such potential in striking the unimproved value.  Potential is part of the unimproved value of land.  Indeed, if this were not the case, most unimproved land would have no value at all.
           Both Mr Petts and Mr Eisenmenger agree that "Amet Dale" is superior to "Rosedale", however it is Mr Petts' view that the sale property has a greater superiority than is reflected in Mr Eisenmenger's valuation.  Mr Petts understood, and I think this is taken from the sales brochure, that 500 weaners are able to be run on a year-round basis in the "steep forest ridge" country, however, Mr Eisenmenger disputed this, saying that whilst stock can be run on the floor of the valley which runs through the steep forest ridge country and which he did not classify in his 2,795 ha of that class of country, he would be surprised if 500 head of weaners could be run on that valley floor on a year-round basis.
           Mr Petts also expressed the view that in the case of both "Amet Dale" and "Wahroonga", the area which is subject to the invasion of red lantana is less than that in the case of "Rosedale".  Mr Eisenmenger appeared not to address this issue squarely, saying that he had compared "Rosedale" with properties which were also subject to red lantana and, therefore, the comparisons were appropriate.  In submissions the agent for the Chief Executive said that as Mr Petts had acknowledged that the prevalence of red lantana on the subject property was as a result of poor historical management, that it would not be appropriate for me to take that into account.  I cannot accept this submission for it has been accepted by the Land Appeal Court in Raynbird v. The Valuer-General (1980) 7 QLCR 106 that "worsement" needs to be taken into account in determining unimproved value.
           Mr Eisenmenger included the sale of "Lavinia Park", a property of 4,552 ha which sold in March 1998 for $1,020,000.  He analysed that sale to an unimproved figure of $103.60 per ha, whereas the Chief Executive's value on that property as at 1 October 1997 was $42 per ha.  Mr Eisenmenger included this sale, which he readily acknowledged was a high sale, as an indication that properties in the area of the subject land are sought after in the marketplace.
           When I consider the sales evidence produced by Mr Eisenmenger, it is clear that the sale of the subject property is at a different and substantially lower level.  There was evidence from Mr Eisenmenger that "Rosedale" had previously sold in September 1994 for $1,200,000 bare, yet following an appropriate marketing campaign having regard to the evidence from Mr Petts, only $980,000 was able to be achieved in May 1997.  In Re Determination of Rents and Unimproved Values for Conversion Purposes – Perpetual Lease Selections and Grazing Selections Goondiwindi District (1974) 1 QLCR 45 the then President of the Land Court said at pp.48-49:

"I think I should say at this juncture that whilst a sale of a subject property around about the relevant date in normal circumstances is cogent evidence of its value, it is always necessary to check the analysed value against the standard reflected by other sales of comparable properties to ensure that it conforms to the 'norm' of the market.  If the sale does not so conform caution must be used in its application and it may be even proper to reject it if it is shown to be a sale out of line with the market 'norm'.  this check becomes vital, in my opinion, in times of a varying market be it rising or falling or in terms of an erratic market.  One cannot assume, ipso facto, that the analysed sale figure equates fair market value for the subject purposes.

The words of the President were endorsed by the Land Appeal Court in Chief Executive, Department of Lands v. J & L Lorenzen (1 June 1994).  I think that the principle expressed by the President is applicable in the instant case.  Were I to determine the value of "Rosedale" by reference to the subject sale, I would be striking a value of the land for the purposes of the Valuation of Land Act which is below the level that ought to apply when I consider all of the evidence.  I think, however, that a small discount ought to apply to the value of "Rosedale" given the extent of red lantana infestation on that property.  Accordingly, I allow the appeal and determine the value of the subject land at Six Hundred and Fifty Thousand Dollars ($650,000).

RP SCOTT

MEMBER OF THE LAND COURT