Pratt v Department of Natural Resources and Water
[2008] QLC 63
•27 March 2008
LAND COURT OF QUEENSLAND
CITATION: Pratt v Department of Natural Resources and Water [2008] QLC 0063 PARTIES: Michael St John Pratt and Susan Jennifer Pratt
(appellants)v. Chief Executive, Department of Natural Resources and Water
(respondent)FILE NOS: AV2006/0558 DIVISION: Land Court of Queensland – General Division PROCEEDING: An appeal against an annual valuation. DELIVERED ON: 27 March 2008 DELIVERED AT: Brisbane HEARD AT: Longreach MEMBER: Mr JJ Trickett, President ORDER: The appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved value of “Ban Ban” as at 1 October 2005 is determined at One Million, Two Hundred and Seventy Thousand Dollars ($1,270,000). CATCHWORDS: Unimproved value – grazing property in central west – conflict of interest – valuer also acting as advocate – admissibility of valuer’s evidence – weight to be attached to expert evidence – direct comparison with analyses of improved sales – added value of improvements - whether sales at market value – relativity of applied values – carrying capacity - Valuation of Land Act 1944. APPEARANCES: Mr P Whip, Valuer, for the appellants.
Mr W Isdale, Executive Legal Consultant, Crown Law, for the respondent.
This is an appeal by landowners against the unimproved value applied to their land by the Chief Executive, Department of Natural Resources and Water (the Department) under the provisions of the Valuation of Land Act 1944 (the Act).
Background
Mr and Mrs Pratt (the appellants) are the owners of a grazing property known as "Ban Ban", containing an area of 14,263.83 ha. As at 1 October 2005, the Department applied an unimproved value of $1,400,000.00, or $98.15/ha, to that property under the provisions of the Act. Mr and Mrs Pratt appealed to the Land Court against that valuation, the notice of appeal being lodged by their agent, Mr Peter Whip. The grounds of appeal in this case are quite specific, stating:
"The sale analysis of this property and other sales used to value this property have not been analysed in a manner which takes full account of the improvements, plant and stock on the sale properties."[1]
The owner's estimate of unimproved value is stated to be $1,150,000.
[1] Exhibit 1.
This case and the subsequent case concerning the valuation of "Avondale" were heard separately, but the parties agreed that any relevant evidence in either of those cases be evidence in the other. Because of the general inter-relationship of the appeals against the Department's valuations in the central west, the parties also agreed that any relevant evidence in the cases which I heard at Blackall, Longreach and Winton, should also be treated as evidence in these two cases.
The Admissibility and Weight of Mr Whip's Evidence
Mr Whip is the agent for Mr and Mrs Pratt. He lodged the appeal and generally assisted them to prepare for this case. Mr Whip is also a registered valuer based in Longreach. He appeared as advocate for the appellants in this case and in the "Avondale" case.
Mr Isdale objected to Mr Whip acting as both advocate and expert witness, contending that Mr Whip had a conflict of interest. He had identified himself with the appellants’ case and could not therefore act as an impartial and objective expert witness. Furthermore, he submitted, Rule 1.3 of the Rules of Conduct of the Australian Property Institute (the API) prohibit a valuer from also acting as an advocate in a case where his duty is to exercise independence and impartiality. As a member of the API, Mr Whip was bound by those professional rules.
In his defence, Mr Whip explained that he is the principal of PRW Agribusiness, which offers a range of services in addition to valuation. Following the recent valuation of the area by the Department, many of his clients were dissatisfied with the valuations of their properties. They had therefore sought his professional assistance in challenging those valuations.
Mr Whip said that he was well aware of the duties and responsibilities of a valuer acting as an expert witness. He admitted that his position was far from ideal, but explained that the cost of obtaining legal representation would be prohibitive for his clients.
Mr Whip said he had considered retaining an independent valuer, but that would duplicate the work that he had already undertaken. He thought that he had found the answers to his dilemma in the recent decision of the Judicial Registrar of the Land Court in Sparrow v Department of Natural Resources and Water [2007] QLC 0071, where a somewhat similar situation has arisen. In that case, the Judicial Registrar held that in the circumstances a valuer could act as both an independent expert and as advocate. However, the Judicial Registrar suggested that if the situation again arose, the valuer should seek a ruling from the API as to its stance in the circumstances.
Mr Whip sought a ruling from the API. According to Mr Whip, the Executive Officer of the API pointed out that there was an exemption in Rule 7.1 to the API's Rules where compliance with any rule would be departed from in circumstances where a member considers such departure is warranted. The Executive Officer told Mr Whip that in his opinion, the API Board would support a commonsense approach to circumstances which would warrant departure from the rule. At the date of hearing, Mr Whip still had not obtained a ruling from the API.
The alleged non-compliance with the API Rules of Conduct is a matter between Mr Whip and the API. It does not affect the legal position as to Mr Whip’s evidence. However, it indicates the importance which the valuers’ professional body attaches to the requirement for a valuer to act independently and impartiality.
The role of an expert witness in the Land Court has been discussed on a number of occasions. In most of those cases, reference has been made to remarks of Cresswell J in The Ikarian Reefer [1993] FSR 563:
"The duties and responsibilities of expert witnesses in civil cases include the following:
1. Expert evidence presented to the court should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of litigation: …
2. An expert witness should provide independent assistance to the court by way of objective, unbiased opinion in relation to matters within his expertise: … An expert witness in the High Court should never assume the role of an advocate.
3. An expert witness should state the facts or assumptions upon which his opinion is based. He should not omit to consider material facts which could detract from his concluded opinion …"[2] (citations omitted)
[2] At 565.
However, although as agent and advocate Mr Whip had identified with his clients’ case, he felt that he could give his valuation evidence in an objective and impartial manner. I have no doubt that he tried. However, that placed a great deal of stress upon him throughout these hearings. In an attempt to separate the two roles, when acting as advocate he went so far as to refer to himself as the valuer in the third person. Although he consciously attempted to separate the conflicting duties when acting as a valuer, he was unable to completely divorce himself from his partisan interest in the outcome of the case. That may well have been subconscious rather than deliberate.
There is a continuing debate about the independence of any expert witness retained by a party. The argument goes that a paid expert will usually adopt his client's case and skew evidence to present it in the most favourable light in order to secure a favourable outcome for the person who pays him. Such bias may not be designed to deliberately mislead, it may be more a matter of emphasis.
In the present case, there is no doubt that Mr Whip was more sympathetic to his clients’ case, even though he tried to remain impartial in giving his valuation evidence. Therefore, I have no alternative than to find that his evidence is tainted to that extent. However, there is some authority for the proposition that an interest or a perceived interest in the outcome of litigation does not constitute a justification for the exclusion of expert evidence. It is simply a matter which goes to the weight of that evidence.[3] Therefore, even though Mr Whip's evidence was tainted, it was admitted. However, any argumentative or adversarial statements were excluded from consideration. Furthermore, where there was a conflict between Mr Whip's evidence and that of the Department's valuer, little or no weight was attributed to Mr Whip's evidence unless it was corroborated from another source, or unless the Department's valuer was demonstrably wrong.
[3]Freckelton and Selby, Expert Evidence 3rd Ed, 2005, page 316, referring to Fagenblat v Feingold Partners Pty Ltd [2001] VSC 454.
Before leaving this topic, it must be pointed out that throughout these proceedings it cannot said that Departmental valuers were entirely independent and unbiased. They are employed by the Department and clearly have an interest in the outcome of the litigation. However, their evidence was afforded a higher degree of weight than that of Mr Whip, because generally there was not a blurring of the duties they owed to the Court.[4] However, from time to time a bias was apparent, in failing to make concessions where appropriate and in advancing or endeavouring to support propositions which were clearly wrong.
[4] See Freckelton and Selby, at pages 315 – 316.
The Subject Land
"Ban Ban" consists of Lot 2 on Crown Plan RV 21 (situated in Longreach Shire) and Lot 3 on Crown Plan RV 95 (situated in Isisford Shire and known as “Melton”) held as Grazing Homestead Perpetual Lease 29/11379, comprising a total area of 14,263.826 ha. Although it seems that appeals were lodged in respect of the valuations in both shires (AV2006/0557 and AV2006/0558), both parties treated the proceedings as one appeal against the valuation of 14,263.826 ha which was valued by the Department at $1,400,000. Therefore, I will deal with the matter as one appeal, although an apportionment would seem to be necessary at some stage.
According to Mr PD Schefe, the registered valuer who gave evidence on behalf of the Department, "Ban Ban" is situated about 99 km south west of Longreach with access by the bitumen sealed Thomson Development Road (Longreach to Windorah Road). However, that road is not all weather, being cut during flooding. Telephone and electricity are available and connected to the property.
Mr Schefe described the property as consisting of:
Approximately 2,440 ha (17%) of open to lightly shaded Mitchell grass downs, tending loose in areas and shaded with boree and vinetree;
Approximately 9,004 ha (66%) of open brown soil downs with scattered shade, becoming looser towards the west;
Approximately 1,690 ha (12%) of boree woodlands, thickening with gidyea in areas;
Approximately 280 ha (2%) of creek channels timbered with coolibah and thickening with gidyea in areas;
Approximately 450 ha (3%) virgin gidyea scrub (thickening) being in a single large patch in the south east corner.
Overall, Mr Schefe assessed the carrying capacity of “Ban Ban” at 1 sheep to 1.7 ha, a total of 8,390 dry sheep equivalents.[5]
[5] Exhibit 18, pp 3-4.
Mr Whip described the country somewhat differently:
Approximately 250 ha (2%) of thick stunted gidyea scrub, generally stony throughout, no significant areas of open country and very little grass;
Approximately 1,300 ha (9%) of broken boree and gidyea with encroaching and thickening gidyea growth throughout, thick patches of stunted gidyea throughout;
Approximately 11,900 ha (83%) of brown soil, Mitchell grass downs type country, nicely shaded in the east, moderate shade to open in the west, timbered with whitewood, gidyea, boree, vinetree and well grassed with Mitchell and Flinders with herbage in season;
Balance approximately 814 ha (6%) of channels and associated flats of Melton Creek timbered with coolibah, turpentine, rivergum and bauhinia with some clumpy gidyea. Interchannel areas are generally open and tending towards panning throughout growing good herbage and light grasses in the right season. Channels have coarse grasses, lignum, bluebush and herbage.
Overall Mr Whip assessed the carrying capacity at 1 sheep to 1.7 ha, or 8,390 sheep.[6]
[6] Exhibit 5.
According to a Court-ordered joint report prepared by the two valuers prior to the hearing, there was broad agreement as to the classification of country and the overall carrying capacity of the property.
Mr Michael Pratt, the joint owner of the property, who also gave evidence, agreed that in good seasons the downs country was heavy carrying country and that the long term average of “Ban Ban” would be 1 sheep to 4 acres (1 sheep to 1.6 ha), but overall he was of the view that the carrying capacity would be no better than 1 sheep to 4½ acres (1 sheep to 1.8 ha). He thought that the thick gidyea country was of little of no value, with no potential for development and that it should be fenced off and declared a nature reserve.
Although I accept the valuers’ agreed assessment of 1 sheep to 1.7 ha (1 sheep to 4¼ acres), it seems that having regard to the situation and rainfall and the lighter carrying country of “Melton”, for comparison purposes it would be at the lower end of that carrying capacity scale.
The Relevant Legislation and Legal Principles
Under the provisions of the Act, the Department is required to make annually or periodically a valuation of all land throughout the State. The valuation of each parcel of land is to be the “unimproved value” of that land, which is defined to mean in relation to improved land, the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that the improvements did not exist: s.3(1).
The Act thus requires the Department to ascertain the unimproved market value of each parcel of land as at the date of valuation, assuming that there were no improvements on the land, but also assuming the existence of all present facilities and amenities external to the land, such as roads, power, access, and that all other properties are at their present state of development.
The test for the determination of market value was established by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418. In that case the Court held that the market value of land is determined by the price that a willing but not over-anxious buyer will pay to a willing but not over-anxious seller, both of whom are aware of all the circumstances which might affect the land either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding facilities, the then present demand for land and the likelihood of a rise or fall in the value of the property.
It has been well established that the unimproved value of land is ascertained by the prices that have been paid for similar parcels of land.[7] However, in most areas there is essentially no unimproved land, as most land has been improved to a greater or lesser extent. Therefore, there are usually no sales of unimproved land that can be used as a basis for assessing unimproved value. It is therefore necessary to analyse sales of improved land for the purpose of ascertaining, as far as is possible, what part of the purchase price of the sale property relates to improvements and what part is attributable to the land itself.[8]
[7] Waterhouse v The Valuer-General (1927) 8 LGR NSW 137-138.
[8] Valuer-General v Marano (1978) 5 QLCR 194.
That was the process adopted by the Department in valuing the lands in the central western shires as at 1 October 2005. In the present case, the one ground of appeal is that the sales have not been analysed in a manner which takes into account the improvements, plant and stock which were on the sale properties. The Act requires that it is the appellants who must demonstrate that the valuation is incorrect, as the onus and burden of proof are upon the appellants. The valuation by the Department is deemed to be correct until proved otherwise: s. 33. However, if it can be shown that in making the valuation the Department acted upon a wrong principle, or made a serious error of fact, or the valuation was made by a method fundamentally erroneous, the presumption of correctness is rebutted.[9]
[9] Brisbane City Council v The Valuer-General (1978) 140 CLR 41 at 56-57.
The Case for the Appellants
The appellants’ case is that the unimproved value assessed by the Department for “Ban Ban” at $98/ha is excessive, because the Department had not correctly analysed the sale of the property itself, or the other sales upon which the Department relied. The appellants contend that the unimproved value should be $1,150,000, or $80.62/ha. “Ban Ban” sold on the 19th October 2005, only days after the date of valuation, 1 October 2005. The sales analysis attached to his statement of evidence shows that Mr Schefe analysed the sale to show an unimproved value of $1,518,471, or $106.46/ha.[10] However, he had applied $98/ha at the date of valuation.
[10] Exhibit 18, p. 53.
On the other hand, Mr Whip analysed the same sale to show an unimproved value of $1,185,000, or $83.07/ha. Although there were differences between the valuers in the added value they attributed to the various improvements in their respective analyses, the major differences were in relation to the value of structures and water facilities. Those issues will be discussed in some detail later.
In addition to the sale of “Ban Ban”, Mr Whip relied upon two supporting sales. The first is a property known as “Glenroy”, with an area 13,404 ha, which sold in July 2005 for $590,000. Mr Whip analysed that sale to show an unimproved value of $206,000, or $15.37/ha. “Glenroy” is situated on the outskirts of the township of Stonehenge approximately 138 km south west of Longreach, with access by means of a bitumen sealed road. Mr Whip described “Glenroy” as comprising:
8% river channels and flood plain;
12% broken gidyea and boree with encroaching gidyea throughout;
3% lighter Mitchell grass downs, well shaded;
49% thick stunted gidyea, stony throughout with very little grass;
15% creek channels, claypans and floodout area; and
13% hard stony hills and toprock.Mr Whip assessed the carrying capacity of “Glenroy” as 1 sheep to 4.2 ha.[11]
[11] Exhibit 5.
“Glenroy” is considerably inferior to “Ban Ban”, but Mr Whip had included it as a support sale as it is in the same locality. Mr Schefe had not relied upon that sale, because he did not consider it to be appropriate. However, he had analysed the sale. That will be discussed later.
Mr Whip’s second support sale is a property known as “Weeumbah”, with an area of 6,441 ha, which sold in April 2004 for $900,000. That sale was analysed by Mr Whip to show an unimproved value of $462,000, or $71.73/ha. However, because of the particular circumstances of that sale, Mr Whip was of the opinion that certain adjustments should be made before the analysed value could be used for comparison with any other property. His adjusted unimproved value was $364,000, or $56.51/ha.
Mr Whip’s classification of “Weeumbah” is as follows:
29% river channels and flood plain;
8% lighter Mitchell grass downs, with red brown soils;
48% Mitchell grass downs, well shaded in the east, open and ashy in the west;
16% creek channels of Horseshoe Creek, channels and claypan.Mr Whip assessed the carrying capacity of “Weeumbah” at 1 sheep to 1.9 hectares.[12]
[12] Ibid.
That property is also considerably inferior to “Ban Ban”, but had been included by Mr Whip as a support sale because it is in the general vicinity and had somewhat similar country, although in different proportions. It is situated about 70 km south west of Longreach, with access by 15 km of bitumen road and 55 km of formed earth and gravel road. Mr Schefe did not analyse that sale as he thought that the particular circumstances of the sale rendered it inappropriate as a basis of valuation. That sale will also be discussed later.
Mr Whip has been a registered valuer at Longreach for more than 20 years. He is also the principal of PRW Agribusiness and is the owner of grazing properties in the area. He has direct knowledge of the property market in the area since the 1980’s and the content of his general statement outlining the movements in the property market was not challenged. For the relevant period he stated:
“At the date of valuation, the biggest influence on the current rural property market in the Central West was the poor seasonal conditions over most of the region. This has seen a similar trend experienced into 2006 with few properties selling in 2005/2006 but those that have sold have achieved good market prices (several have been adjoining owner purchases and/or considered to be above ‘normal’ market levels). Advice from agents indicates that there are more properties that will be marketed when the seasonal conditions improve but at this stage there are no indications of any likely downturn in the market.
We investigated the circumstances of all the sales that occurred in the area. Market background. There were more sales in the Aramac and Winton shires at the time as the rainfall had generally been much better in that area (and continues to be so to date). However, there were a number of sales south of Longreach.”[13]
[13] Exhibit 6.
Mr Whip contended that the two sales relied upon by the Department as support sales, “Amor Downs” and “Corona”, were to over-anxious purchasers and achieved prices higher than the general market at the time. Those sales will also be discussed later.
The Case for the Department
Mr Schefe was responsible for the valuation of the Shire of Longreach and some other shires in the area. According to Mr Schefe, all property sales since the previous valuation as at 1 October 2001 had been investigated by the Department. Particular emphasis had been placed on the sales between July 2004 and October 2005, where the bulk of the sales evidence lay. Those sales were inspected and analysed to establish a basis of valuation for the Longreach Shire and as part of the basis for the central west as a whole. Sales just prior to and subsequent to the date of valuation generally demonstrated a higher level of value than was applied.
For the valuation of “Ban Ban”, Mr Schefe’s primary basis was the analysis of the sale of that property. However, he contended that it was supported by the analyses of the sales of “Amor Downs” and “Corona”.
Mr Schefe reported that the sale of “Ban Ban” was widely advertised prior to auction, which approximately 40 people attended but there were no bids and it was eventually passed in on the auctioneer’s bid. The sale was to include a two bedroom home to be constructed at the vendors’ expense to replace the original homestead which had been destroyed prior to the sale. However, Mr Pratt’s evidence was that the purchasers negotiated the sale for $2,000,000 not including the construction of the two bedroom house, which they did not require as there was a sound cottage on the property.
Mr Schefe’s written statement asserts that he analysed the sale to show an unimproved value of $1,518,471, or $106.46/ha, but had applied only $1,400,000, or $98.15/ha. Mr Schefe originally stated that he had applied less than the analysed value in order to maintain internal relativity throughout the shire. However, under cross-examination it emerged that Mr Schefe had previously analysed the sale in company with another Departmental valuer, Mr Shaun Salter, to show an unimproved value of $1,431,038, or $100.33/ha.[14] That analysis was somewhat different to the analysis contained in Mr Schefe’s statement.
[14] Exhibit 23.
Mr Schefe’s valuation was based on his original analysis of the sale, not on the amended analysis. Mr Schefe explained, somewhat belatedly, that following the objection conference he realised that the size of the dams on “Ban Ban” would be a major issue and he reinspected the property, measuring each of the dams as best he could. The details of the analyses are considered later.
In addition to the sale of “Ban Ban”, Mr Schefe relied upon the analyses of two other sales. “Amor Downs” is situated in Ilfracombe Shire, approximately 52 km south of Longreach by formed earth road. It sold in September 2005 for $2,314,130 and was analysed by Mr Schefe to show an unimproved value of $1,458,827, or $169.37/ha. However, as at 1 October 2005, Mr Schefe applied an unimproved value to that property of $1,200,000, or $139.33/ha.
“Amor Downs” has an area of 8,613 ha and was described by Mr Schefe as consisting of firm and well shaded downs, parts stony and pebbly, timbered with boree, gidyea and vinetree, with coolibah along the water courses. He assessed the carrying capacity at 1 sheep to 1.4 ha. The sale is therefore considerably superior to “Ban Ban”.
His explanation for not applying the analysed unimproved value was for internal relativity purposes. However, it was later revealed that he thought that the analysed unimproved value was out of line with his analysis of the sale of “Newstead”, on the outskirts of Ilfracombe, which he had analysed to show an unimproved value of $158/ha, and to which he had applied $151/ha at the date of valuation.
The “Newstead” sale was part of the Department’s basis in a recent appeal against the valuation of the property known as “Tara” situated in the Barcaldine Shire.[15] “Newstead” has an area of 12,251 ha, and sold in July 2004 for $2,754,899. Although analysed by Mr Schefe, it was relied upon in the “Tara” case by Mr P Haydon, the Departmental valuer responsible for the valuation of Barcaldine Shire. “Newstead” was described as sparsely shaded to open loose brown soil downs, with parts scalded and pebbly in the south-west corner. Its carrying capacity was assessed at 1 sheep to 1.45 ha.
[15] Walker v Department of Natural Resources and Water [2008] QLC 0005.
Although better situated than “Amor Downs”, “Newstead” was apparently seen by Mr Schefe to be somewhat inferior country. It appeared to be the key sale to which Mr Schefe referred on a number of occasions and he seemed to be anxious to relate the values of the downs country back to that sale.
The other sale referred to by Mr Schefe was “Corona”, of 25,064 ha, situated 109 km west of Longreach, with access by 68 km of the bitumen sealed Landsborough Highway and 41 km of formed earth road. “Corona” sold in May 2004 for $4,500,000, was analysed by Mr Schefe to show an unimproved value of $128.12/ha but, as at the date of valuation, he applied only $91.76/ha to that property. “Corona” is basically downs country, with about 10% creek channels and claypans which are generally lightly grassed. Of the downs, Mr Schefe categorised 26% as good well shaded pebbly brown soil downs, some lightly grassed ironstone country on the ridges, 34% fairly open and firm pebbly downs and 30% open loose downs with odd whitewood and mimosa. Overall he assessed the carrying capacity as 1 sheep to 1.67 ha.
Although having much the same carrying capacity as “Ban Ban”, Mr Schefe considered “Corona” to be inferior on a per ha basis, but largely due to its access and location. It is about 104 km north of the subject land. Once again, the reason that he gave for not applying the analysed unimproved value was to maintain internal relativity, presumably with the “Newstead” sale.
The Sales Evidence
The sale of “Ban Ban” was the primary basis for both valuers. However, there was no agreement about their support sales. According to Mr Whip, his first support sale, “Glenroy”, sold in July 2005 to a local couple who were not adjoining owners after a well advertised auction where neighbours were the under-bidders. It was not a “grass sale”. It is lighter country than “Ban Ban” and in Mr Whip’s opinion, it shows a “bottom in the market”.[16]
[16] Transcript p. 82
Mr Schefe placed no reliance on the sale “Glenroy” because it was not comparable to “Ban Ban”. Furthermore, he thought that the sale was below market value. It had been advertised in the Country Life newspaper as “a forced sale to meet family commitments”.[17] Mr Schefe had not disclosed that he had also analysed the sale in conjunction with Mr Salter. His analysis was produced only after being called for.[18]
[17] Exhibit 15.
[18] Exhibit 26.
Mr Whip analysed the sale to show an unimproved value of $206,000, or $15.37/ha, while Mr Schefe’s analysis showed $85,080, or $6.35/ha. However, as at 1 October 2005, the departmental valuer responsible for the valuation of Barcoo Shire in which “Glenroy” is situated, applied an unimproved value of $330,000, or $24.62/ha, clearly abandoning the sale.
A comparison of the valuers’ analyses reveals many differences in the values attributed to individual improvements. Surprisingly, Mr Schefe’s figures are generally higher than Mr Whip’s, resulting in a lower analysed value. While the reasons for the differences were not explored, I note that Mr Schefe’s capacities of the earth tanks appear to be wrong, as they make no allowances for the batters. This is in stark contrast to his approach to the earth tanks in his analysis of “Ban Ban”.
I do not accept that the sale of “Glenroy” should be rejected out of hand as below market value, despite the Country Life advertisement. That may well have been a marketing tactic. On the evidence, the property went to auction, there was interest from adjoining owners and it sold after auction to a local couple. It seemed to fulfil the Spencer case requirements. Despite Mr Schefe’s assertion that it was over-capitalised and too small to be viable, there was no evidence that the sale was at less than market value, only three months prior to the date of valuation.
However, it is difficult to see how Mr Whip’s analysis supports the unimproved value which he contends for “Ban Ban”. There are just too many differences between the properties.
Mr Whip also considered that the sale of “Weeumbah” provided some support for the unimproved value of “Ban Ban”. Although he conceded that it was a far from perfect sale, it was in the same locality, with the same rainfall and similar country types. However, it sold in April 2004 and Mr Whip conceded that the market had increased by the date of valuation.
Mr Schefe rejected the sale of “Weeumbah” principally because of the early date of the sale, but also because of its peculiar circumstances. The evidence is that Mr Whip himself and another neighbour, both adjoining owners, purchased “Weeumbah” jointly in order to divide it and each take half. Mr Whip conceded that there was a premium paid. Because it was leasehold land, approval had to be obtained to divide the land. In addition, “Weeumbah” had a licence to irrigate from the Thomson River which added value to the property. Furthermore, 20% of the area was infested with prickly acacia.
Notwithstanding that Mr Whip contended that allowances could be made for each of those differences, I do not think that the sale of “Weeumbah” is of any assistance in the valuation of “Ban Ban”.
Mr Schefe relied on the sale of “Amor Downs” because it was close to the date of valuation, was not on an adjoining owner sale and demonstrated that the market had increased. However, he did not apply his analysed unimproved value of $169.37/ha, but applied $139.33/ha, in order, he said, to maintain relativity with sales further to the east in Ilfracombe and Aramac Shires.
Mr Whip regarded “Amor Downs” as a high sale, contending that it was purchased by a cattleman from Cloncurry whose properties were badly droughted. According to Mr Whip, the purchaser needed grass for his cattle quickly. In Mr Whip’s view, he was an over-anxious purchaser and paid more than market value. Mr Whip contended that the recent resale of the property in April 2007 demonstrated the purchaser’s short term need.
Despite Mr Schefe’s opinion that the sale of “Amor Downs” was at market value, he did not apply the sale, effectively conceding that it was a high sale. It is therefore of little use as a basis for the valuation of “Ban Ban”.
Mr Schefe also relied on the sale of “Corona”, which sold at auction to an adjoining owner. However, Mr Schefe contended that it was at market value. He analysed the sale to $128.12/ha, but applied only $91.76/ha for the same relativity reasons.
Mr Whip rejected the sale of “Corona” because, he contended, it was purchased by an adjoining owner who needed somewhere to put breeders in a hurry and paid too much. As with “Amor Downs”, Mr Schefe did not apply his analysed unimproved value for “Corona”, effectively conceding that it also was a high sale.
In my view, the sale of “Ban Ban” itself must be the best evidence of value. For various reasons, the other sales relied on by the valuers are of little assistance. None of them provided direct support for the values applied to “Ban Ban” by either Mr Whip or Mr Schefe.
However, although he relied on it, Mr Schefe did not accept that the sale of “Ban Ban” was at market value. His evidence on this issue was quite ambivalent. He thought that it was a low sale compared with sales of “Amor Downs” and “Corona”. He thought it should have sold for a higher price. However, all the evidence is to the contrary. It was a sale from willing but not over-anxious vendors to willing to but not over-anxious purchasers. Mr and Mrs Pratt live on the nearby property “Waroona”. They had leased “Ban Ban” from previous owners from 1997 to 2002. They were, as Mr Pratt put it, well aware of its capability. They were also aware of the state of the improvements, particularly the size of the dams which, Mr Pratt asserted, were all big enough to adequately water the property when fully stocked.
It was not seriously suggested that “Ban Ban” was a forced sale. While Mr Pratt’s evidence is that they were satisfied with the price they paid for the property, there is no evidence that it was cheap. The fact that up to 40 people attended the auction but there were no bids at a time of what was agreed to be a buoyant market for properties suitable to run cattle, suggests otherwise.
This case then essentially turns on the accuracy of the valuers’ analyses of the sale. It is literally a one sale case. It will therefore be necessary to consider those analyses in some detail. Before doing so, however, it is important to consider how the market at the time affected the valuers’ approaches to their analyses.
The Market at the Relevant Date
The Longreach area had traditionally been a wool-growing and sheep-breeding area. All the sale properties had been developed with sheep infrastructure. However, there is evidence in this case and in the other cases throughout the central west, that the market at the date of valuation was dominated by the demand for properties to run cattle. Any purchaser seeking land to run sheep would have to compete with potential cattle purchasers. In those circumstances, the Department’s valuers concluded that the highest and best use of the lands throughout the central west was for cattle grazing.
Mr Schefe concluded that the highest and best use of “Ban Ban” is for cattle and that conclusion influenced the way in which he assessed the added value of the sheep improvements.
On the other hand, Mr Whip contended that the highest and best use of the land was for sheep-breeding and wool-growing. The evidence is that Mr and Mrs Pratt run both sheep and cattle on their property aggregation and that they purchased “Ban Ban” for that purpose.
The vendors of the property, Mr and Mrs Murphy, ran cattle on “Ban Ban” and therefore had little interest in the sheep improvements. However, Mr Pratt insisted that the purchasers intend to use the sheep improvements for shearing and crutching.
The Valuers’ Analyses of the Sale of “Ban Ban”
As mentioned earlier, both valuers analysed the sale. Mr Whip’s analysis arrived at an unimproved value of $83.08/ha. Mr Schefe analysed the sale twice. His first analysis showed an unimproved value of $100.33/ha, from which an unimproved value of $98/ha was applied. His second analysis arrived at an unimproved value of $106.46/ha. The capacities of the dams were significantly different in the two analyses. He had also reinspected at least some of the other improvements and made what adjustments he considered necessary.
While the reinspection of such a crucial sale to check on disputed issues is unexceptional, there are a number of aspects of concern. First, the analysis showing $106.46/ha which appeared in Mr Schefe’s statement of evidence, and which was disclosed prior to the hearing, showed the date of inspection as 21 November 2005. Although it was signed by Mr Schefe, it stated that it was undertaken by Mr Schefe and Mr Salter.[19] However, that is not correct. The original inspection by both Mr Schefe and Mr Salter was carried out on 21 November 2005 and the original analysis of the sale showed $100.33/ha,[20] not $106.46/ha. That analysis was produced during the hearing only after being called for. Although no deception may have been intended by Mr Schefe, his statement of evidence created the impression that the analysis in that document was the only analysis and that it had been jointly undertaken with and endorsed by Mr Salter.
[19] Exhibit 18 p. 53.
[20] Exhibit 23.
Furthermore, although the major adjustments in the second analysis were to the values attributed to the water facilities, from $253,863 in the first analysis down to $176,519, the valuations of structures were also altered, from $87,116 down to $79,842. Strangely however, the valuation of fencing was increased, from $84,417 to $114,807. Although in his oral evidence Mr Schefe explained the reason for some of those alterations, some were not explained.
Another disturbing aspect was that a purported record of interview with Mrs Pratt[21] contained several answers to questions which were disputed by Mr Pratt. That interview was not undertaken by Mr Schefe, but by Mr Salter. Mrs Pratt could not give evidence and Mr Salter was not called. Therefore, I had no regard to the record of interview.
[21] Exhibit 18, pp. 54-57.
I turn now to the details of the values attributed to the various improvements. In their respective analyses of the sale, there was little between Mr Schefe and Mr Whip in the values of the plant and the yards. An apparent discrepancy was explained, as Mr Schefe had included some portable yards as “yards”, while Mr Whip had included them in as “plant”.
There was little between the values attributed to fencing in Mr Schefe’s first analysis (boundary fencing $40,540, internal fencing $39,750) and Mr Whip’s values (boundary fencing $38,000, internal fencing $49,000). However, for some unexplained reason, in his second analysis Mr Schefe altered the values (boundary $66,780, internal $42,280).
However, there were significant differences between them in the values of structural improvements. In Mr Schefe’s first analysis the total of structures was $84,933, in his second analysis $77,792. The total value of structural improvements in Mr Whip’s analysis was $218,165.
The valuers approached the valuation of the various structural improvements differently. Mr Schefe took the view that as Mr and Mrs Pratt lived nearby, the structural improvements will get little use. He concluded that the sheep infrastructure was of virtually no added value, unless it could be used for some other purpose. That approach was adopted in his valuation of the shearing shed. After explaining that following windstorm damage, a new shed had been constructed over the old timber shearing shed, Mr Schefe’s report continued:
“New shed has concrete footings, steel portal frame, CGI roof approximately 50% enclosed with CGI walls. Total roof area of 280m². No overhead gear. H & B (highest and best) use is for a machinery or hay shed.”[22]
[22] Exhibit 18, p. 62.
Mr Schefe valued the structure at the value he would attribute to a machinery or hay shed, with no value for the shearing shed floor, pens, wool bins, etc, and little or no value to the remaining shearing equipment. His total value for the shearing shed (excluding the wool press which he valued with the plant) was $26,730.
On the other hand, Mr Whip valued the shearing shed as a going concern. The fact that the Murphys had bulldozed the sheep yards and removed the overhead gear did not affect the value he attributed to the shed, as the purchasers intended to use portable yards and plant.
Mr Whip valued the shearing shed on a cost less depreciation basis, depreciating the new part of the shed by only 5%, but for the expert’s room, the old cracked concrete floor, the shearing floor and penning up areas, the depreciation was at 75%. His total value of the shed, including $7,320 for the wool press, amounted to $96,204.
A similar situation arose in the recent case of “Minnie Downs”[23], where it was agreed by the valuers for both parties that the sale of that property was the sole basis for the valuation. “Minnie Downs” had been sold for the purpose of grazing cattle, but had earlier been a sheep-breeding and wool-growing property.
[23] Walker & Fairfax v Department of Natural Resources and Water [2008] QLC 0008.
In that case I accepted that there had been a change of emphasis in the area from sheep to cattle. The market was dominated by cattle producers. The evidence in this case is to similar effect. “Ban Ban” is clearly a property well suited to the running of cattle. Although Mr and Mrs Pratt purchased the property to run both sheep and cattle, in my view, the market for the good downs type country at the relevant date was clearly a cattle market. Sheep graziers would have to compete on that market and similar principles apply in this case as in the “Minnie Downs” case.
In that case, in writing off or writing down the value of sheep improvements, the valuer for the Department purported to apply the principles in O’Brien Nominee Pty Ltd v The Valuer-General (1979) 6 QLCR 280. There the Land Appeal Court considered the analyses of sales in a period of depressed prices. However, in the “Minnie Downs” case, as in the present case, the situation in the central west at the date of valuation was different. The market was not depressed. There was evidence of a buoyant and increasing market for grazing properties.
Therefore, in the “Minnie Downs” case, I held that it would be erroneous to write off the value of sheep improvements and that a prudent person who purchased land for cattle grazing would attribute some value to those sheep improvements and would maintain them, to enable the land to be used for either sheep or cattle in the future. However, I expressed the view that in a dominant cattle market, such a prudent person would not pay full value for the sheep improvements.
In this case, even though it was dominantly a cattle market, Mr and Mrs Pratt purchased the property to run both sheep and cattle. In the circumstances, however, if they had turned their minds to it, I do not think they would have attributed full value to the sheep improvements. The old quarters seem to add little value. I accept that Mr and Mrs Pratt intend to use the shearing shed for shearing and crutching. However, it seems reasonable to assume that the shed will not get the same use that it would if they were running only sheep. Therefore, in my view, the principles in O’Brien Nominee apply to this case as well as to the “Minnie Downs” case, although perhaps not to the same extent. In O’Brien Nominee, the Land Appeal Court emphasised that it is the actual improvement on the land which must be considered, not some hypothetical standard of improvement. The Court went on to say:
“The nature, type, effectiveness and efficiency of the actual improvement, its age and condition are all relevant matters for consideration in ascertaining what amount the prudent purchaser would pay for the improvement in question on the basis of the value it adds to the land at the relevant date which is in a period of adversity or depressed economic conditions.”[24]
[24] (1979) 6 QLCR 280 at 287-288.
Although the economic conditions at the date of valuation were far from depressed, in my view those principles apply in this case. Therefore, in valuing the “Ban Ban” shearing shed, I am of the view that the approach taken by Mr Schefe should not be applied. He valued it as a hypothetical machinery or hay shed, not the actual improvement. However, nor do I think Mr Whip’s approach of attributing full added value to the shed can be maintained. As I pointed out in the “Minnie Downs” case, any assessment of added value in such circumstances is necessarily somewhat arbitrary. However, in my view, it would not be unreasonable to take Mr Whip’s assessment of the cost of the new part of the shed at $70,246 and depreciate it somewhat more heavily, with limited value for the remainder of the old shed. I intend to adopt a value of $50,000 for the shearing shed.
In view of my finding as to the weight to be given to Mr Whip’s evidence, I propose to adopt Mr Schefe’s assessment of value for the rest of the structural improvements, except for the cottage at “Melton”, which Mr Schefe first valued at $15,818. In his second analysis, he valued it at $8,678 because he noticed that the roof had collapsed. Mr Pratt gave evidence that this wind-storm damage was sustained after purchase. Mr Whip valued it at $15,000 based on its value for removal. In the circumstances, I intend to adopt $15,000.
There was a significant difference of opinion about the “Ban Ban” cottage, which Mr Schefe thought would be little used and which he depreciated by 75% to $29,905. Mr Whip depreciated it by 50% to $66,300. Mr Pratt gave evidence that the cottage is used from time to time and when the seasonal conditions improve, he will probably have a caretaker reside there. Although he described it as a good sound cottage, very well built, he conceded that it was fairly dilapidated and poorly maintained and needed considerable restoration work.[25] I will adopt Mr Schefe’s value.
[25] Transcript 22-23.
The Value of the Water Facilities
The biggest differences between the two valuers were the values which they attributed to the water facilities on “Ban Ban”. In his first analysis, Mr Schefe valued those facilities at $241,452, while Mr Whip valued the same facilities at $386,550. In his second analysis, after reinspecting and measuring the dams, Mr Schefe arrived at $167,682.
The differences arise from the capacities which they have calculated for the various dams, which seem to be all earth tanks, except for Coolibah Dam, which Mr Schefe described as an excavated waterhole. Their capacities are tabulated below:
Water Facility Mr Schefe’s First Analysis[26] Mr Schefe’s Revised Analysis[27] Mr Whip’s Analysis[28]
Double Dam (Earth Tank) 35,000 m³ 18,000 m³ 15,200 m³
400 m³ (silt tank)
800 m³ (silt tank)
House Dam (Earth Tank) 10,000 m³ 9,300 m³ 33,800 m³
2,700 m³ (silt tank)
Boundary Dam (Earth Tank) 11,000 m³ 6,000 m³ 16,600 m³
700 m³ (silt tank)
Anzac Dam (Earth Tank) 2,000 m³ 2,000 m³ 1,800 m³
200 m³ (silt tank)
Road Dam (Earth Tank) 12,000 m³ 7,300 m³ 19,300 m³
700 m³ (silt tank)
Top Blue Dam (Earth Tank) 8,000 m³ 3,000 m³ 13,300 m³
700 m³ (silt tank)
Melton Homestead Dam 10,000 m³ 5,000 m³ 13,700 m³
(Earth Tank) (but silted to 2,000 m³) (but silted to 2,000 m³) 4,100 m³ (silt tank)
Bottom Blue Dam (Earth Tank) 6,000 m³ 1,400 m³ 5,600 m³
300 m³ (silt tank)
Coolibah Dam 20,000 m³ 3,500 m³ 17,100 m³
(Excavated Water Hole) (Silt Tank 5,000 m³) (Silt Tank 3,500 m³) 7,600 m³ (silt tank)
Middle Dam 15,000 m³ 7,300 m³ 18,300 m³
1,900 m³ (silt tank)
Johnny’s Dam (Earth Tank) 20,000 m³ 4,700 m³ 25,300 m³
300 m³ (silt tank)[26] Exhibit 23.
[27] Exhibit 18, pp. 72-74.
[28] Exhibit 5.
There was no evidence of how Mr Schefe and Mr Salter estimated the capacity of each of the dams on their first inspection of the property. Mr Schefe was clearly not confident of those capacities, again inspecting the property and measuring the dams.
However, Mr Schefe did not depth the dams as he had no depthing device. Instead, he paced the dams at high water mark to ascertain the area of the top and then measured what he thought to be the batter of each dam from the top of the bank to high water mark, working on the assumption that the batter or gradient would remain constant through to the bottom of the dam.
In my view, the evidence is such that it cannot be assumed that the slope from the top of the dam wall to high water mark, which would be worn by stock and erosion, would be maintained to the bottom of the dam. For many of the dams Mr Schefe had estimated a batter of one in nine or one in ten. The evidence of Mr Whip, corroborated by evidence from Mr Pratt, is that earth tanks are not built with such shallow batters. They are constructed with batters of one in three or one in four.
Mr Whip gave detailed evidence of how he depthed each of the dams with a measuring device of his own making. He also measured the full capacity level of each dam, estimated the batter, assumed that each earth tank was in the shape of a truncated pyramid and calculated the volume of each dam by use of the appropriate formula.
Mr Pratt gave evidence that he had independently depthed each of the dams and had satisfied himself that the depths estimated by Mr Schefe were incorrect. He gave further evidence that most of the dams had been desilted by the Murphys, who had their own earth-moving equipment. Mr Pratt had been aware of the approximate capacity of each of the dams when he had leased the property from 1997 to 2002.
Mr Pratt estimated the capacity of the house dam at 30,000 m³, with a batter at 3 or 4 to 1. He said that he would not have purchased the property if it had a house dam of only 10,000 m³ and the other dams were of the size calculated by Mr Schefe. He said “… there’s no way in the world I would have purchased the property because those dams would be totally inadequate for my requirements.”[29]
[29] Transcript p. 39.
Mr Schefe contended that he had checked his estimate of the capacity of each of the dams by measuring the amount of soil in the banks of each dam above ground level which, he concluded, was the amount of earth which had been excavated. Although his calculations were not revealed, Mr Schefe contended that they supported the capacity shown in his revised analysis.
I do not accept that check method. It apparently derives from his measurement of the amount of material in gully dams in other areas of the State. Regardless of whether or not such a method is appropriate in those circumstances, it is not appropriate to measure the capacity of earth tanks, as it takes no account of erosion from constant traffic of stock and from wind and rain, or other earthworks associated with earth tanks.
I cannot accept Mr Schefe’s revised estimates of the capacities of the dams. The weight of the evidence is to the contrary. Mr Whip appeared to have adopted the correct approach to estimating their capacities. However, I would be reluctant to accept his evidence without some corroboration. Mr Pratt asserted that his measurements indicated that Mr Schefe’s estimates were wrong. When giving evidence in the “Avondale” case, Mrs Sedgwick, whose family had owned “Ban Ban”, verified that the house dam was then at least 30,000 m³.
Mr Schefe recorded that the house dam was dry at the time of his first inspection. Mr Pratt said the Murphys had taken the opportunity to desilt it. If that was so, it would have been restored to its original capacity. At the time of Mr Schefe’s second inspection, the dam was full as shown by photographs in his statement of evidence.[30]
[30] Exhibit 18, pp. 14 and 15.
It is unexplained how Mr Schefe could arrive at a capacity of only 10,000 m³. It is most unlikely to have a batter of 1 in 9, as shown in his statement.[31] Either his other measurements were incorrect or he applied the wrong formula. The weight of evidence is that the house dam has a capacity of at least 30,000 m³. Mr Whip measured the capacity of the house dam at 33,800 m³, with a silt tank of 2,700 m³. The evidence of Mr Pratt and Mrs Sedgwick, together with the historical records of the Department, indicate that his measurements are more likely to be correct than those of Mr Schefe at 10,000 m³ (first analysis) or 9,300 m³ (second analysis).
[31] Ibid, p. 72.
Mr Schefe’s oral evidence leads to the conclusion that his estimates of the capacities in his first analysis were unreliable. The capacities in his second analysis are, on the balance of probabilities, incorrect.
This is not an issue where I can select some evidence from one valuer and some from the other, to determine the value of the water facilities. I find that I cannot accept Mr Schefe’s evidence. On the other hand, Mr Whip gave evidence under oath explaining how he measured the capacities of the dams. That evidence was challenged but was not refuted. It was supported to some extent by the evidence of Mr Pratt and Mrs Sedgwick and for some dams, by the Department’s own historical record.
In the circumstances, I will adopt Mr Whip’s assessment of the value of the water facilities. The alternative would be to reject the evidence of both valuers and reject the sale. However, that would be unacceptable, as the sale is the best evidence of value in this case. Therefore, it is necessary to adjust the analysis of the sale as best I can.
Adjusted Analysis of the Sale
In accordance with my findings, using the valuers’ agreed interest rate of 5.27%, the adjusted analysis of the sale of “Ban Ban” is as follows:
Sale Price $2,000,000
Less plant and machinery (Mr Schefe’s analysis) $9,175
Sale Price ex plant and machinery 1,990,825
Less structures (Mr Schefe’s analysis $107,386
(adjusted as explained)
yards (Mr Schefe’s analysis) $ 20,619
fencing (Mr Schefe’s analysis) $109,060
water (Mr Whip's analysis) $386,550
Total value of improvements $623,615
Plus interest 5.27% for one year $ 32,865
Total value of improvements plus interest $656,480 __$656,480
Gross unimproved value $1,334,345
Less development interest 5.27% for one year ___$66,800
Net unimproved value $1,267,545
Therefore, in accordance with that revised analysis, I propose to adopt $1,270,000 as the unimproved value of “Ban Ban”, which equates to 14,264 ha at $89/ha.
Order
The appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved value of “Ban Ban” as at 1 October 2005 is determined at One Million, Two Hundred and Seventy Thousand Dollars ($1,270,000).
JJ TRICKETT
PRESIDENT OF THE LAND COURT
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