Walker & Anor v Department of Natural Resources and Water
[2008] QLC 8
•15 January 2008
LAND COURT OF QUEENSLAND
CITATION: Walker & Anor v Department of Natural Resources and Water [2008] QLC 0008 PARTIES: Ian E Walker
(appellant)v. Chief Executive, Department of Natural Resources and Water
(respondent)Timothy Vincent Fairfax
(appellant)v. Chief Executive, Department of Natural Resources and Water
(respondent)FILE NOS: AV2006/0354, AV2006/0207, RV2006/0208 DIVISION: Land Court of Queensland – General Division PROCEEDING: Appeals against annual valuations and a rental valuation. DELIVERED ON: 15 January 2008 DELIVERED AT: Brisbane HEARD AT: Blackall MEMBER: Mr JJ Trickett, President ORDERS: (1) In Appeal AV2006/0354, the appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved value of "Ravensbourne" as at 1 October 2005 is determined at One Million, Seven Hundred and Fifty-five Thousand Dollars ($1,755,000).
(2) In Appeal AV2006/0207, the appeal is dismissed and the annual valuation of the Chief Executive of "Minnie Downs" is affirmed at Four Million, One Hundred Thousand Dollars ($4,100,000).
(3) In Appeal RV2006/0208, the appeal is dismissed and the rental valuation of the Chief Executive of "Minnie Downs" is affirmed at Four Million, One Hundred Thousand Dollars ($4,100,000).
CATCHWORDS: Unimproved value – grazing properties in Blackall and Tambo Shires – classification of country – direct comparison with analyses of improved sales – method of analysis – added value of improvements – added value of sheep infrastructure in cattle market – impact of vegetation management legislation - Valuation of Land Act 1944. APPEARANCES: Mr S Ure of counsel, instructed by Bernard Ponting & Co, for the appellants.
Mr W Isdale, Executive Legal Consultant, Crown Law for the respondent.
These are appeals by landowners against the unimproved values applied to their lands situated in the shires of Blackall and Tambo by the Chief Executive, Department of Natural Resources and Water (the Department) as at 1 October 2005. The appeals were heard together.
Background
Mr Ian E Walker is the owner of a property known as "Ravensbourne", described as Lot 9 on Plan W00802398:GHPL 3/5845, Parish of Dulwich, containing an area of 8,777.273 ha. As at 1 October 2005, the Department applied an unimproved value to that land of $1,950,000, under the provisions of s.37(1) of the Valuation of Land Act 1944 (the Act). Mr Walker appealed against that valuation, advising that his estimate of the unimproved value was $850,000.
Mr Timothy Vincent Fairfax is the owner of a leasehold property known as "Minnie Downs", described as Lot 2 on Plan GW54:PH 3/3823 Minnie Downs Holding, in the Parish of Glanmire, containing an area of 22,176.8 ha. As at 1 October 2005, the Department applied an unimproved value to that land of $4,100,000, under the provisions of s.37(1) of the Act. Mr Fairfax appealed against that valuation, advising that his estimate of the unimproved value was $2,500,000. Because the property is leasehold, the Department issued a separate valuation for rental purposes. In this case, the rental valuation was identical to the annual valuation. Mr Fairfax also appealed against the rental valuation, contending that the unimproved value was the same as for the annual valuation.
The appeals against these valuations were lodged by the owners' agent, Mr Alister Boyd, before the involvement of their solicitors, Bernard Ponting & Company. The grounds of appeal are general and contend that the valuations are excessive because of errors or failures by the Department, none of which is particular to the subject properties. However, in compliance with Court orders, the valuers for the parties conferred on 11 July 2007 and prepared joint reports identifying where they were in agreement and, where they disagreed, the reasons for their disagreement. These joint reports successfully identified the issues between the valuers.
Valuation evidence on behalf of the appellants was given by registered valuer, Mr CV Dyer, with additional evidence from their agent, Mr Boyd. Valuation evidence for the Department was given by registered valuer, Mr PJ Haydon.
The Appeal Properties
Both "Ravensbourne" and "Minnie Downs" are well known properties in central western Queensland. Until comparatively recently, both were used for sheep breeding and wool growing, "Minnie Downs" having formerly been a well known Merino stud. However, like many other areas in the central west, the Blackall and Tambo areas have experienced a change in dominant use from sheep to cattle. "Minnie Downs" has been used for the grazing of cattle for some time. However, "Ravensbourne" is used for both sheep and cattle.
There is little disagreement between the valuers regarding the situation, access and services of each of the properties. While they agree that "Ravensbourne" is adequately watered by a flowing artesian bore and dams, they also agree that at the relevant date "Minnie Downs" required more water. Since purchasing the property, Mr Fairfax has sunk an additional bore.
However, they differ in their description of the country on each property, particularly "Ravensbourne". Mr Haydon described "Ravensbourne" as follows:
"6,127.273 hectares (70%) mixed black soil open to lightly shaded downs, mainly Mitchell grass to areas of undulating semi-open red brown to brown loam soils, dead finish and bloodwood, well established to buffel grass. CC 1-1.25 ha (Sheep)
1,900 hectares (22%) developed scrub, well established to buffel grass. CC1-1.25 ha (Sheep)
500 hectares (6%) channels, comprising about 215 hectares poor scalded channels in south west corner at about 320 hectares fair channels in north west corner. CC 1-1.8 ha (Sheep).
250 hectares (3%) remnant scrub. Fair buffel established under tree canopy. CC 1-2.8 ha (Sheep)
Overall carrying capacity 1-1.3 ha (Sheep)"
On the other hand, Mr Dyer described "Ravensbourne" as follows:
"Approximately 2,400 ha (27%) of thick gidyea scrub sandalwood and leopard wood etc, including 2,035 ha developed at 1:1.3 ha and 365 ha virgin scrub at 1:4 ha.
Approximately 430 ha (5%) scalded claypans in south-west corner with semi-open gidyea to Lake Creek channels and flats with scalded claypan areas with coolibah, gidyea and sandalwood at 1:3.2 ha.
Approximately 440 ha (5%) boree/sandalwood forest with broken plains, some gidyea and myall at 1:1.4 ha.
Approximately 2,268 ha (26%) open to lightly shaded Mitchell grass downs on cracking black/brown clay soils at 1:1.2 ha.
Approximately 3,239 ha (37%) undulating semi-open forest ridges and slopes timbered with dead finish, white myrtle, vinetree, bloodwood, ironbark, brigalow and ironwood having red/brown loam soils generally (shallow in places at top of slopes with sandstone influence) and falling to brown/black clay soil flats and hollows. Originally grassed with forest bluegrasses and unpalatable native species, now predominantly buffel (areas planted to buffel in early 1970's).
Overall carrying capacity assessed at 1:1.5 ha or 5,851 sheep (DSE)."
The major disagreement between the valuers is with respect to what Mr Dyer described as "the undulating semi-open red/brown forest ridges and slopes", which he measured as comprising approximately 3,239 ha. Mr Haydon did not deny that such country exists but, largely for historical reasons, he included it with the black soil downs, comprising an area of which he measured at 6,127.273 ha, or 70% of the property.
According to Mr Haydon, departmental valuers had included the two types of country together on previous occasions and for the sake of consistency with other properties, Mr Haydon was reluctant to classify them separately. The difficultly with that approach is that they are distinctly different country types. Soil tests indicate that the red/brown soil ridges have shallow topsoil and the underlying sandstone has modest water-holding capacity, compared with the black clay soils of the downs. The carrying capacity of 1 sheep to 1.25 ha attributed to that combined classification by Mr Haydon differs considerably from the carrying capacity of 1 sheep to 1.8 ha assessed by Mr Dyer for the red/brown ridges and slopes. However, there was general agreement as to the relative merits of the downs and the red/brown soil country. The heavy black soil Mitchell grass downs has a better carrying capacity in good seasons than the red soil ridge country with predominantly buffel grass which, although quicker to respond after lighter rainfall events, deteriorates more rapidly. There is general agreement that the two types of country complement each other.
In my view there is clear evidence that the red/brown soil ridges are so different to the black soil downs that they should be classified separately. Even though Mr Haydon recognised its existence and "let out" the carrying capacity of the combined area, I prefer the separate classifications and carrying capacities adopted by Mr Dyer.
There was little difference between the valuers in the area of developed scrub. Both agree that it is well established to buffel grass. However, they disagree as to its carrying capacity. As the buffel grass is well established, Mr Dyer's estimate seems overly conservative. They agree that the remnant scrub has no potential for development because of the effect of the vegetation management legislation, but their areas and carrying capacities of the remnant scrub differ. On the whole, I prefer the assessments of area and carrying capacity of the small remnant area made by Mr Dyer. It is consistent with the carrying capacity for remnant scrub adopted by Mr Haydon for "Mineeda" and "Allambie".
On the state of the evidence, it would be futile to attempt a precise classification of the types of country, but overall I prefer the land classification of Mr Dyer. I am of the opinion that the carrying capacity assessed by Mr Haydon is somewhat too tight. Therefore, for the purposes of these cases I will adopt a carrying capacity of 1 sheep to 1.4 ha. However, that is achieved at the cost of developing approximately 2,000 ha of gidyea scrub.
The Relevant Legislation
In my reasons for decision in the Barcaldine Shire case, "Tara", Walker v Department of Natural Resources and Water [2008] QLC 0005), I discuss the relevant provisions of the Act. It is not necessary to repeat that discussion. For the purposes of these cases, it is only necessary to say that the Act requires that the unimproved value of each of these properties be assessed at its unimproved market value 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 the like. Market value is the price that a willing but not over-anxious buyer would pay to a willing but not over-anxious seller, both of whom are aware of all the circumstances which might affect the value of the land either advantageously or prejudicially: Spencer v The Commonwealth (1907) 5 CLR 418.
In this central western area there were no sales of vacant land. Therefore, following the principles established by various Courts, the valuers in these cases adopted the traditional approach of arriving at unimproved market value by analysing sales of improved land and, after making necessary adjustments, using those analysed values to value the subject lands.
In these cases, the Department's valuations are deemed to be correct until proved otherwise: s.33. In addition, the appellants have the burden of proving their grounds of appeal: s.45(4).
The Market at the Relevant Date
Mr Haydon gave evidence about the way in which he had undertaken the valuations on behalf of the Department. In accordance with the Department's mass appraisal of valuations, all recent sales in the area were considered and the appropriate ones inspected and analysed. From those analyses, using historical records, WARLUS Land Use Study, Regional Ecosystem mapping and satellite imagery, the increases for various types of country were applied to individual properties. In the 2005 valuation process, because of the restrictions imposed by the vegetation management legislation, all remnant areas of scrub were identified and valued as is, without any potential for development. This caused changes in relativity.
Mr Haydon was responsible for the valuations of the Shires of Blackall, Barcaldine and Tambo. He investigated and analysed more than 20 sales in those areas. Only two of those sales had been purchased primarily for sheep and wool growing, while the balance had been purchased for grazing cattle. He concluded that the market at the time was dominated by the demand for land for cattle. Any purchaser seeking land for sheep grazing would have to compete on the cattle market. Therefore, he concluded, the highest and best use of these lands was for cattle grazing.
Barcaldine, Blackall and Tambo Shires were traditional sheep country and all of the sales had been developed with sheep infrastructure. Mr Haydon took the view that a prudent purchaser would place little or no value on the sheep improvements unless they could be used or converted for use for running cattle. That reasoning influenced the way in which he approached the analyses of the sales which were used as the basis for the valuation of the properties under appeal.
On the other hand, Mr Dyer thought that the highest and best use of these properties was for grazing either cattle or sheep. Sheep were still run on many properties, including "Ravensbourne", and he was of the view that it would be wrong to regard sheep improvements as having no added value.
The Sales
Mr Haydon relied upon three sales, "Mineeda"/"Forest Park ("Mineeda")", "Eastwood" and "Allambie" for the valuation of "Ravensbourne". He considered the sales of "Mineeda" and "Eastwood" to be basic sales, while the sale of "Allambie" was a support sale. On the other hand, Mr Dyer rejected those sales and relied upon the sale of "Minnie Downs".
"Mineeda" comprises 10 separate freehold and leasehold parcels, with a total area of 13,056.88 ha. That property sold in February 2005 for $4,500,000, which Mr Haydon analysed to show $240.88/ha. As at the date of valuation, he applied an unimproved value of $222.50/ha.
The sale is situated only 10 km east of Blackall on the bitumen sealed Landsborough Highway. Mr Haydon classified the property as comprising 46% open Mitchell grass downs and 20% developed gidyea scrub. The balance of the country comprises 9% red brown loamy soils (which he classified separately) and open to shaded timbered country, flooded coolibah and remnant gidyea scrub, with lighter carrying capacities. Overall Mr Haydon assessed the carrying capacity of "Mineeda" as 1 sheep to 1.3 ha, similar to his carrying capacity on "Ravensbourne". He regarded the sale as comparable to "Ravensbourne" and applied the same rate of $222.50/ha to both properties.
Mr Dyer rejected the sale as he considered it to be substantially superior to "Ravensbourne". It was, he contended, on the outskirts of Blackall, with superior access, with potential for sale as separate lots and with superior country and carrying capacity. However, he had not analysed the sale.
On the evidence, I agree with Mr Dyer that "Mineeda" is superior to "Ravensbourne", not only because of its situation, access and potential for separate sales, but in view of my findings regarding the proportion of red/brown soil country and the carrying capacity of "Ravensbourne". Although Mr Haydon did not produce a detailed analysis of the sale, from the summary which he provided, I question the accuracy of his analysis. He shows only $46,487 as the added value of timber treatment, which presumably is for the 2,650 ha of developed gidyea scrub. That amounts to approximately $17.50/ha, whereas he allowed almost $90/ha for scrub development in his analyses of "Eastwood" and "Allambie". Unless that development is only about 20% effective, that value seems inconsistent. However, without his detailed analysis of the sale, I am unable to take that further. I have some doubts about Mr Haydon's analysis of "Mineeda".
Mr Haydon's second basic sale, "Eastwood", has an area of 10,097.21 ha. It sold in July 2004 for $3,650,000. Mr Haydon analysed that sale to show an unimproved value of $182.12/ha. As at the date of valuation, he applied an unimproved value of $178/ha. "Eastwood" comprises 7,800 ha of gidyea scrub, of which approximately 7,400 ha has been developed. The balance of the property comprises open to lightly shaded black soil Mitchell grass downs (16%) and a small area of channels. It is basically a gidyea property. Although Mr Haydon's carrying capacity for "Eastwood" is 1 sheep to 1.3 ha, he acknowledges that it was achieved at the cost of developing the scrub, reflecting a lower rate per hectare for the unimproved value. For that reason, it is inferior to "Ravensbourne" as unimproved land.
Mr Dyer rejects the sale of "Eastwood" as a basic sale to value "Ravensbourne". He contends it is not comparable. The proportions of the various types of country are quite different. "Ravensbourne" has only 27% (Mr Dyer) or 25% (Mr Haydon) of gidyea scrub, while "Eastwood" has about 80% and only a very small percentage (16%) of open Mitchell grass downs. It appears to have none of the red/brown soil country.
In my view, it would be difficult to use the analysis of the sale of "Eastwood" in isolation to value "Ravensbourne". Although the carrying capacities may be somewhat similar, "Eastwood" can carry 1 sheep to 1.3 ha only because of the expenditure of $637,764 (Mr Haydon's analysis summary), or $86/ha, on the 7,402 ha of developed scrub. That can hardly be compared with a property such as "Ravensbourne", where the majority of the open downs and red soil ridge country required no such development expenditure.
In my view, Mr Haydon's analysis of "Eastwood", although not directly comparable to "Ravensbourne", provides a useful indication of the unimproved value of the scrub area.
Mr Haydon's third sale, "Allambie", is almost adjacent to "Ravensbourne". It has an area of 13,121.78 ha and sold in April 2005 for $4,505,000. It was analysed by Mr Haydon to show $195.83/ha and as at the date of valuation, he applied an unimproved value of $167.50/ha.
According to Mr Haydon, "Allambie" comprises 37% developed gidyea scrub, 32% open to lightly shaded black soil Mitchell grass downs, about a third of which is flooded. The balance area is principally creek channels with clayplan areas, sandalwood forest and remnant scrub. Mr Haydon assessed the carrying capacity of "Allambie" at 1 sheep to 1.42 ha. However, as with "Eastwood", that carrying capacity is achieved at a considerable cost, on Mr Haydon's estimate, $434,813 for developing 4,900 ha of gidyea scrub, or $89/ha.
Mr Dyer rejected that sale because of the circumstances leading up to the transaction. According to Mr Dyer, the purchasers were desperate to save their cattle and purchased "Allambie" for grass, with the intention of selling it when the seasons improved. Indeed, on Mr Haydon's evidence, the purchasers held "Allambie" for just over 12 months, before selling it at a higher price ($5,200,000).
It seems that Mr Haydon agrees with Mr Dyer about the circumstances of the sale. He described it as "somewhat tainted" because the purchaser was over-anxious. He analysed the sale to show $195.83/ha, but only $167.50/ha was applied. Mr Haydon regards "Allambie" as a support sale, but only 85% of the analysed value was applied. In my view, the sale of "Allambie" is of little assistance in these cases.
That leaves Mr Haydon with the somewhat doubtful analysis of the sale of "Mineeda" and the sale of "Eastwood", neither of which is directly comparable. However, those sales cannot be rejected. It was agreed that they were at market value.
Mr Dyer did not analyse those sales. Instead, he relied on the sale of "Minnie Downs" for the valuation of both appeal properties. Mr Haydon did not rely on that sale for the valuation of "Ravensbourne". Although he did not consider it to be the most appropriate sale, he agreed that it was at market value and it is in close proximity to "Ravensbourne", consisting of generally similar types of country. As I understand his evidence, he did not think it was in the same marketplace as the general run of sales in the area. However, that can only be because of its size, as he used the sale to value "Minnie Downs" itself.
The Sale of "Minnie Downs"
The 22,176.8 ha leasehold property "Minnie Downs" had previously been owned by the Stanbroke Pastoral Company (Stanbroke), which had purchased it on 6 June 2002 for $6,000,000, for cattle grazing. However, prior to the wool recession the property had been the home of a well known Merino stud for many years. Stanbroke fenced off most of the sheep infrastructure, including the shearing shed, shearers' quarters and sheep yards, out of concern for possible contamination. Stanbroke also renovated the main homestead and constructed steel cattle yards.
Stanbroke sold "Minnie Downs" to Mr Fairfax on 16 June 2004, for $8,000,000. Mr Fairfax is the owner of several grazing properties and is using "Minnie Downs" for the grazing of cattle.
Both Mr Dyer and Mr Haydon analysed that sale, Mr Dyer arriving at an unimproved value of $3,846,961, or $173.47/ha, while Mr Haydon arrived at an unimproved value of $4,535,189, or $204.50/ha. Both valuers agree that it represented market value at the time and both of them rely on the analysis of the sale as the only basis for the valuation of "Minnie Downs". Therefore, it is literally a one sale case.
In their respective analyses of the sale, both valuers applied development interest, or allowance for loss of earnings on capital during the period of development, on the value of the land and on improvements, at the rate of 5.12%. However, during the hearing Mr Dyer had second thoughts, saying that his enquiries had revealed that the long term bond rate at the date of sale was actually 5.85%. By adopting that rate, his analysis of the sale would be reduced by a further $45,532. The Department contended that the six month average long-term bond rate was 5.46%.
The basis for allowances for interest in the analyses of sales depends for its validity on the decision of the High Court in Kiddle v. Deputy Federal Commissioner of Land Tax (1920) 27 CLR 316. In that case, it was held that there should be proper allowance for loss of interest on capital during the period of development, before the land and improvements become income earning. The reasoning is that such loss of income is part of the cost of improving unimproved land. In the presence cases, there was no argument as to whether the reasoning which was valid in 1920 is still valid, or whether the long-term bond rate is appropriate. That seemed to be accepted by the parties. In the absence of such argument, I will adopt 5.5%.
Mr Haydon applied $185/ha, or 90% of his analysed unimproved value, as the valuation of "Minnie Downs" as at 1 October 2005. Mr Dyer's contended unimproved value of $156/ha represents 90% of his analysis of the sale. I will return to this issue later.
The Country Types on "Minnie Downs"
Based on satellite imagery and his inspection of the property, Mr Dyer classified the country on "Minnie Downs" as follows:
"Approximately 15,030 ha (68%) open to lightly shaded Mitchell grass downs with areas of semi-open brigalow forest broken by lighter ridges (approximately 30% established to buffel). Generally heavy black/brown clay soils at 1:1.3 ha.
Approximately 3,867 ha (17%) lightly timbered to semi-open forest ridges and slopes timbered with ironbark, bloodwood, ironwood, brigalow, etc. Originally grassed with forest bluegrass and other unpalatable native species and now predominantly buffel at 1:2 ha.
Approximately 2,105 ha (10%) creek and river channels, flood plains and flats with areas tending to claypan. Timbered with coolibah, brigalow and gidyea, including patches of thick gidyea scrub at 1:2 ha.
Approximately 1,175 ha (5%) remnant gidyea/brigalow/bottletree scrub in scattered patches with an area of approximately 590 ha in the largest section at 1:4 ha.
Overall carrying capacity assessed at 1:1.5 ha or 14,785 sheep (DSE)".
Mr Haydon described the country somewhat more concisely as follows:
"18,451.8 ha (83%) mixed black soil open to lightly shaded downs, mainly Mitchell grass interspersed with areas of open red soil forest mainly buffel grass. CC1-1.4 ha (sheep).
2,225 ha (10%) channels CC1-1.8 ha (sheep)
1,500 ha (7%) remnant gidyea CC1-2.4 ha (sheep)
Overall carrying capacity 1-1.45 ha (sheep)".
As with "Ravensbourne", Mr Haydon included in the one classification the black soil Mitchell grass downs country and the red soil semi-open forest country, whereas Mr Dyer classified them separately.
As with "Ravensbourne", I prefer the approach adopted by Mr Dyer of separately classifying the red soil semi-open forest country and applying a different carrying capacity. Overall, I prefer Mr Dyer's assessment of carrying capacity at 1 sheep to 1.5 ha.
The scrub country on "Minnie Downs" has not been developed. There was an issue between the valuers as to whether there had been potential to clear that scrub prior to the prohibition on such clearing under the vegetation management legislation. The attachments to Mr Haydon's report clearly show that the scrub on "Minnie Downs" is in scattered clumps, the largest of which is approximately 600 ha. It seems to me that the issue is now largely academic, as it is common ground that the vegetation management legislation prevents those areas of scrub from being cleared. The property must be valued on that basis.
The Valuers Analyses of the Sale
It is of some concern that two experienced valuers arrived at such different unimproved values. However, they did so largely because they adopted different approaches to the analysis of the sale. Those differences are such that this is not a case where one valuer's analysis can be preferred to the exclusion of the other. Because of the importance of the sale, I have no alternative but to attempt my own analysis.
As stated earlier, Mr Haydon took the view that at the relevant date the highest and best use of properties in the area was for cattle, as the market in the central western shires was dominated by purchasers seeking land for grazing cattle. For well over 100 years and until comparatively recently, the better country in the Shires of Blackall and Tambo had been traditionally used mainly for sheep breeding and wool growing. Few properties ran cattle exclusively. Therefore, the vast majority of properties were developed with the necessary infrastructure for wool growing, particularly shearing sheds, shearers quarters, sheep yards and associated improvements.
Mr Haydon reasoned that a prudent purchaser would place little or no value on those improvements which were exclusively devoted to the running of sheep. Therefore, he wrote off, or wrote down, the value of shearing sheds, quarters and other sheep improvements. He applied some limited value to those improvements which could be used or converted for use for cattle purposes. For example, he attributed a machinery shed value to a shearing shed if it could be used for such purposes, significantly less than its cost less depreciation as a shearing shed.
On the other hand, Mr Dyer attributed full value to the sheep improvements. He felt he could speak with authority as he was one of the purchasers of such a property, known as "Stainburn Downs", near Aramac. Although his family purchased "Stainburn Downs" to run cattle, he said that they had been aware of the sheep improvements and intended to maintain them, so that they had the option of running sheep at a later stage, or perhaps selling to a purchaser who intended to run sheep. Although as a purchaser he did not consciously attribute a value to each of the sheep improvements, he thought that they added value to the property and that part of the purchase price was paid for them.
There was some support for Mr Dyer's contention. He gave evidence of various sheep improvements on properties being repaired or replaced. The shearing shed at "Barcaldine Downs" was to be rebuilt after being damaged in a wind storm. It seems that generally the sheep improvements are kept insured. At "Minnie Downs", Stanbroke had fenced off the sheep infrastructure with a three-barbed wire fence, but seems to have been motivated more by keeping cattle away from possible contamination than in protecting those improvements. It is perhaps significant that instead of demolishing or selling those improvements, Stanbroke fenced them off and allowed them to remain.
There is evidence that since the purchase by Mr Fairfax, the sheep improvements have remained insured and it is the owner's intention to maintain them to give the property the flexibility to move into sheep production, should there be a downturn in the cattle market. There is evidence from Mr Dyer that the purchaser was aware of that infrastructure and realised that the sheep improvements had some added value.
In writing off or writing down the value of the sheep improvements, Mr Haydon purported to apply the principles in O'Brien Nominee Pty Ltd v The Valuer-General (1979) 6 QLCR 280. In that case, the unimproved value of sheep breeding and wool growing land had to be determined in a period when the wool industry was suffering depressed economic conditions. The sale prices for such lands were considerably below those which had formerly prevailed. In considering the approach to be adopted to the analyses of the improved sales in those circumstances, the Land Appeal Court referred to the added value provisions of the Act and made the following observations at 285:
"It seems to us that the concept of 'added value' of improvements involves at least two methods of valuation, the appropriateness of which depends to a substantial degree on the economic conditions prevailing at the relevant time.
In times of normal, and above normal, prosperity the added value which improvements give to land generally exceeds their value deduced by the traditional method of replacement cost less depreciation. …
In the subject circumstances, when economic conditions are depressed, the traditional method ceases to be appropriate because its application results in an entire or substantial absorption of the total sale consideration and, as already discussed, leads to an absurd situation. 'Added value' in these circumstances continues to be a matter of ascertaining what value the improvements add to the land in question at the relevant date irrespective of their cost, but owing to the special circumstances prevailing, there is a change of emphasis and it is a matter of ascertaining the amount which the hypothetical prudent purchaser, fully appreciative of the depressed economic conditions, would give for the actual improvements, irrespective of the cost of making them. In short it is the value the market is prepared to pay for the specific improvements on the property."
In that case, the Land Appeal Court was dealing with the analyses of sales in a period of depressed prices. The question is, can the same principle be applied in the present cases? The market is not depressed. There is evidence of a buoyant and increasing market for grazing properties. However, there has clearly been a change of emphasis from sheep to cattle. The majority of purchasers clearly considered it was more profitable to raise cattle than to grow wool. However, historically commodity prices are cyclical and this area is traditional wool growing country. The Department still refers to carrying capacity in terms of sheep rather than cattle. It is not possible to predict what the future market trends will be. In my view, a prudent owner would not abandon the sheep improvements. It would be prudent to maintain the sheep improvements to enable the land to be used for either sheep or cattle or both in the future.
Therefore, it would be erroneous to write off the value of sheep improvements. However, on the evidence in this and other cases, I do not think that a prudent person who purchased land for cattle grazing, would pay the full value of the sheep improvements. Even if such a purchaser intended to maintain those improvements to give the option of running sheep, he would not pay full value for those improvements.
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 at p. 287:
"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 a relevant date which is in a period of adversity or depressed economic conditions."
Although any assessment of added value in such circumstances is necessarily arbitrary, I am of the view where a property was purchased for the running of cattle, a prudent purchaser would discount the value of the sheep improvements to a greater extent than would a purchaser who intended to run sheep, but keeping in mind the likelihood/possibility of those improvements being required in the future.
The Added Value of Improvements
Apart from the different approaches to the added value of some of the sheep structural improvements, there was a surprising degree of agreement by the valuers as to the added value to be attributed to most of the other improvements.
Where the evidence is sufficient to indicate that the reasoning of one valuer is to be preferred to the other, I will adopt his figures. However, where it is insufficient to resolve the issue, I will adopt the values applied by Mr Dyer. On the whole, I prefer his evidence. His costs were obtained locally, whereas Mr Haydon's were from a costs register maintained by the Department to which various valuers contributed. Some of those costs were from as far away as Toowoomba and Rockhampton.
Stock
It was common ground that the purchase price of $8,000,000 included stock namely, 4 bulls, 180 No. 4 steers, 236 cows, 1,597 speyed No. 3 heifers and three station horses. There was no dispute that the stock were not required by Mr Fairfax and were sold at auction at Roma for a total consideration of $1,290,000.
In analysing the sale, Mr Dyer deducted that amount as the value of stock which passed in the sale. However, Mr Haydon took the view that it was inappropriate to apply the saleyard price. He adopted a profit and risk allowance of 10%, amounting to $129,000.
Mr Haydon reasoned that a prudent purchaser would not have paid $1,290,000 for the cattle, but would have expected to make a profit. Furthermore, he reasoned, there was always the risk that some stock would be lost in the mustering, loading and transport to the saleyards.
On the other hand, Mr Dyer reasoned that it was always difficult to value stock that were included in a sale. Here there was direct evidence of the price that was obtained for the actual cattle involved. Although he conceded that there was some risk of stock losses, in the circumstances he considered any risk to be minimal.
While I have some sympathy with Mr Dyer's argument, I do not think it appropriate to apply the full saleyard value to the stock. There is undoubtedly a cost involved in mustering, loading, and trucking the cattle to Roma, to say nothing of saleyard fees and agents' commission. However, an allowance of 10%, or $129,000, amounts to almost $65 per head. Without evidence of the actual costs involved, that seems to be inordinately high. But when that is considered with the fact that Mr Fairfax did not want the stock and proposed to sell them after purchasing "Minnie Downs", it is reasonable to assume he would not have paid full value for them. Indeed, there is evidence from Mr Haydon that Mr Fairfax's General Manager, Mr Robertson, told him that the saleyard price had not been paid for the stock. In the circumstances, an allowance of 10% is not unreasonable. I will adopt Mr Haydon's stock value of $1,161,000.
Plant and Equipment
The contract for the sale of "Minnie Downs" was not tendered. However, there is evidence that the contract contained a detailed itemised list of plant, equipment and furniture which passed with the property. Mr Haydon valued plant and machinery and sundries at $125,000, but did not provide a detailed list. On the other hand, Mr Dyer provided details of the plant, furniture and chattels which were on the list, which he valued at $127,000. Those figures are remarkably close and I will adopt the figure of $127,000.
However, in addition Mr Dyer valued items of fencing and yard material which, he said, were not on the itemised contract list, but which the manager pointed out to him as being included in the sale. Mr Dyer applied $15,000. Mr Haydon was unaware that the material passed with the sale.
I accept that it is unlikely that a contract which included such a detailed list of plant and equipment, itemising such small items as butchers' knives, would exclude $15,000 worth of fencing and yard material. In the absence of any further evidence concerning those items, I propose to exclude them from the analysis of the sale.
Yards
Given the differences between the valuers with regard to the valuation of other items, there was substantial agreement as to the total value of yards. I propose to adopt Mr Haydon's assessment of yards at $134,494.
Fencing
There is little difference between the valuers as to the value of fencing. However, Mr Haydon included the value of grids and property tracks in his total assessment for fencing of $447,704 (including interest). Mr Dyer assessed the value of roads and grids separately at $63,780. The distance of graded roads and the number of grids was greater than valued by Mr Haydon. The correct numbers were not resolved at the hearing and in the circumstances, I will adopt Mr Dyer's combined figure of $460,576.
"Timber Treatment"
Although none of the scrub had been developed on "Minnie Downs", both valuers deducted what they called the "value of timber treatment". Those figures largely comprised the cost of seeding buffel grass over some or all of the property. Although their approaches are different, their figures are not far apart. (Mr Haydon $109,792, Mr Dyer $120,000). Mr Haydon also included the value of the airstrip, which Mr Dyer had included with his value of roads.
However, Mr Dyer included an area of 243 ha of cultivation at $40,824. Mr Haydon did not include any added value for the cultivation, as he reasoned that cultivation was not district standard practice. However, there was uncontradicted evidence that a number of nearby properties had areas of cultivation for forage purposes and I will accept that the cultivation added value to the property. Therefore, I propose to adopt Mr Haydon's figure of $109,792 for the seeding, to which I will add Mr Dyer's figure of $40,824 for the cultivation, a total of $150,616.
Before applying those figures in a revised analysis of the sale, it is necessary to resolve the major differences between the valuers in their approaches to the added value of structures and water.
The Added Value of Buildings
Mr Haydon arrived at a total value for buildings of $537,883. Mr Dyer arrived at a value for buildings of $939,158. Although there were considerable differences between the valuers in the valuation of some individual structures, the largest differences were in respect of the sheep infrastructure improvements, particularly the shearing shed, shearers' quarters and ram shed.
I will consider each of those sheep improvements separately, but will briefly discuss the values applied to the other structures.
Homestead
There is evidence that the homestead on "Minnie Downs" was relocated in 1990, having previously been the nurses' quarters at the Tambo hospital. It was extensively renovated by Stanbroke and both valuers agree that it is well appointed with modern facilities and in good condition. Mr Dyer was of the view that because of the renovation, only 25% depreciation should be applied to the new cost of the homestead. However, while agreeing about the quality of the renovation, Mr Haydon took the view that it is basically still an old building and depreciated the new cost by 45%.
Each valuer had adopted somewhat different measurements and replacement costs, with the result that Mr Haydon's value of the homestead was $358,290, while Mr Dyer's value was somewhat higher at $383,250. While acknowledging Mr Haydon's reasoning, there is little between them in their assessments of value and I will adopt the value applied by Mr Dyer.
Cottage Number 1/Quarters
There is evidence that Stanbroke upgraded this cottage. Once again, the valuers applied somewhat different measurements and costs. Mr Haydon depreciated the cost of the cottage by 75%, while Mr Dyer adopted a depreciation rate of 30%. The result is that Mr Haydon arrived at a value of $65,201, while Mr Dyer arrived at $89,973.
The differences between the valuers could not be resolved and in the circumstances, I will adopt Mr Dyer's value of $89,973.
Cottage Number 2
Mr Haydon regarded this cottage as being in poor condition and depreciated its cost by 80%. On the other hand, Mr Dyer depreciated the value of the cottage by 50%. The result is Mr Dyer's valuation of the cottage is $54,625, while Mr Haydon's valuation is $36,515. Mr Dyer considered the cottage to be in fair condition, but requiring a general cleanup and some renovations. I will adopt the value applied by Mr Dyer of $54,625.
Sheds
There are three sheds referred to by Mr Dyer as workshop, vehicle shed and store, and steel framed machinery shed, which he valued at $19,760, $19,440 and $23,760 respectively. Mr Haydon valued them at $10,004, $10,150 and $20,073.
Once again, there were variations in the measurements and costs applied by the valuers, and also in the rates of depreciation, with Mr Haydon's depreciation rates being greater than those applied by Mr Dyer. I will adopt the values for those buildings applied by Mr Dyer. I will also adopt his values for the Boggy Creek shed ($500) and for the ancillary items associated with the buildings ($35,240).
Therefore, the value of buildings (excluding the sheep infrastructure) as assessed by Mr Dyer is $626,548.
The Added Value of Water
Mr Haydon assessed the added value of water at $657,432, while Mr Dyer arrived at $724,833. Mr Dyer's assessment of the value of each water point is more detailed than Mr Haydon's. He valued each component separately and applied different rates of depreciation to them. Mr Haydon's report is less detailed and depreciation rates for many items are not revealed. Mr Haydon's dam capacities are larger than Mr Dyer's and he applied a higher rate per metre for the cost of sinking bores.
In my view, the evidence of Mr Dyer is to be preferred. He had depthed and measured the dams and had obtained information from Mr Sandy Bolton, who had maintained the water facilities on "Minnie Downs".
I will adopt Mr Dyer's assessments, except for one water point where the evidence indicates that some adjustment is required.
Mr Dyer attributed a value of $124,881 to Mustering Bore (referred to by Mr Haydon as Boggy Creek Bore) and its equipment. According to Mr Dyer, this artesian bore is 1,242 m deep, having been sunk in 1909, but it ceased to flow in 1984. From information he obtained from Mr Bolton, the then owners tried to restore the flow, but were not successful. However, it is a functioning bore, pumping by syphon pump from a depth of 5 m. Mr Dyer applied the artesian bore rate of $300/m, but depreciated by 75%, for a value of $93,150. He valued the Comet Mill, polythene piping, concreted CGI tank and three troughs, applying different rates of depreciation to each component, to arrive at a total value for the bore of $124,881.
Mr Haydon had concluded that the Boggy Creek Bore (or Mustering Bore) was of no value. On the two occasions he had inspected the bore, the mill had been disconnected and he thought that, like several other bores on "Minnie Downs", it was no longer functional. He therefore applied a salvage value of $2,500 to the large Comet Mill at that facility.
A letter from Mr Greg Robertson to Alister Boyd dated 13 July 2007, indicates that the water point was considered by Mr Fairfax to add value, and supports Mr Dyer's opinion that it is a viable pumping supply. Mr Robertson's letter explains that the pump rod had been disconnected but has since been repaired and the bore is functioning.
I accept that the bore was a working water facility and considered by the purchaser to add value. However, in view of the evidence that the bore ceased to flow and is a pumping supply only, it would not seem appropriate for Mr Dyer to apply $300/m as the new cost, as he applied only $75/m to the Main Top Bore, a pumping supply, 1,231 m deep, which was sunk in 1902. For consistency, I will apply $75/m, or $93,150 as new cost.
However, I consider Mr Dyer's depreciation rate of 75% is appropriate, because Mr Robertson's letter indicates that Mr Fairfax is considering the option of recasing the bore within the existing casing, or sinking another bore in close proximity.
I will accept Mr Dyer's assessment of the value of the equipment associated with Mustering Bore. For the purposes of my reanalysis, the value of the bore and equipment is:
1,242 m deep at $75/m $93,150
75% depreciation $23,287
18' by 40' Comet Mill, syphon pump,
polythene piping, concreted tank and stand and
3troughs - as assessed by Mr Dyer $31,731
Total$55,018
Therefore, I find that the value of water facilities is the value as found by Mr Dyer, but substituting the value of $55,018 for the Mustering (Boggy Creek) Bore instead of $124,881, a total of $654,970.
The Sheep Infrastructure
The valuers' approach to the sheep infrastructure has been discussed earlier. Mr Haydon significantly wrote down the value all structures associated with the running of sheep which could not practically utilised for the running of cattle. On the other hand, Mr Dyer took the view that those improvements should be valued on a full cost less depreciation basis, reasoning that the owner, or a future purchaser, would have the option of running sheep, without the necessity of constructing sheep improvements.
I have come to the conclusion that the sheep improvements on "Minnie Downs" have some added value. In his discussion with Mr Dyer, Mr Fairfax's General Manager acknowledged that they are to be maintained and kept insured, as the owner may want to run sheep some day. There is evidence that many properties in the area still run sheep, including "Ravensbourne". The confidence in the future of the wool industry has been borne out by subsequent improvements in wool prices. According to Mr Dyer, the owners of "Barcaldine Downs" are replacing its shearing shed.
Having regard to the guidance of the Land Appeal Court in the O'Brien Nominee case, I am of the opinion that the traditional cost less depreciation approach should not be applied. I accept that a prudent person intending to run cattle would not pay full value for the sheep improvements, but would not totally discount them. In the absence of any better evidence, I will adopt the measurements and new values applied by Mr Dyer, but depreciate them by 75%.
The results are as follows:
· Shearing shed, 9 stands at $30,000 per stand, $270,000,
depreciated by 75% $67,500
· Shearers quarters, 294 m² main living area at $950/m²,
$279,300; plus Verandah 70 m² at 1/3 MLA cost, $22,167;
Total new value of shearers quarters $301,467, 75%
depreciation $75,366· Shearers ablutions, 20 m² at $1,250/m², $25,000,
75% depreciation $6,250
· Ram Shed, 180 m² at $180/m², $32,400, 75% depreciation $8,100
· Meat House, 9m² at $500/m², $4,500, 75% depreciation $1,125
Total value of sheep infrastructure $158,341
Total value of other buildings $626,548
Total value of buildings $784,889
Analysis of the Sale
In accordance with those findings, my reanalysis of the sale of "Minnie Downs" is as follows:
Sale price $8,000,000
Stock $1,161,000
Plant, furniture etc $127,000 $1,288,000
Sale Price ex stock, plant etc $6,712,000
Less buildings $784,889Yards $134,494
Fencing $460,576
Water $654,970
Timber Treatment $150,616
Total improvements $2,185,545
Plus interest 5.50% on improvements $120,205 $2,305,750for 1 year
Gross unimproved value $4,406,250
Less development interest on land
at 5.50% for 1 year $229,710
Net unimproved value $4,176,540
The reanalysis of the sale equates to 22,176.8 ha at $188.33/ha.
Application of Unimproved Value
Both Mr Haydon and Mr Dyer adopted 90% of the analysed unimproved values they derived from the sale for the purposes of the valuation of "Minnie Downs" as at 1 October 2005. Mr Haydon applied $185/ha from his analysed value of $204.50/ha. Mr Dyer adopted $156.12/ha from his analysed value of $173.47/ha.
The practice of adopting less than the analysed figure from a highly improved sale is said to be justified as it represents a conservative approach. There is some logic in that approach as valuation is not a precise science and no valuer can be confident that his analysis is accurate to the last degree. However, that should not be carried too far.
On behalf of the appellants it was contended that 90% application of the analysed figure is the norm. That is not correct. There is no requirement at law or principle of valuation that supports the application of a particular percentage of an analysed figure to the valuation of a sale property. It is a judgment that must be made by the valuer in the circumstances of each case. In the present cases, there is evidence of a buoyant market which continued to rise.
In such circumstances, I endorse the observation by the Land Court in Fawckner & Ors v Department of Natural Resources and Mines [2004] QLC 100, where Mr Wenck was considering the unimproved values applied to early sales on a rising market in the Winton area:
"In my view the application of the full or near full level of value shown by analyses of the sales … to those individual properties was consistent with a conservative approach which followed sound valuation practice for revenue-gathering valuations in light of the overall market evidence." (at [47]).
In the present cases, Mr Haydon applied 92% of his analysis of the February 2005 sale of "Mineeda". He applied 98% of his analysis of the July 2004 sale of "Eastwood". In contrast, he applied only 90% of his analysis of the June 2004 sale of "Minnie Downs". It is common ground that the market increased progressively from mid-2004 up to the date of valuation and that it continued to increase after that date.
On such a strongly rising market, a valuer would be entitled to apply his analyses of the sales in full, particularly the earlier sales. In the case of "Minnie Downs", where both valuers agree that the sale was at market value at the date of sale, there is no reason why the revised analysis of $188.33/ha should not be applied.
However, Mr Haydon has applied $185/ha. The revised analysis demonstrates that the valuation of "Minnie Downs" is not excessive as contended by the appellant. Therefore, the appeal must be dismissed.
The Unimproved Value of "Ravensbourne"
'Ravensbourne" has a greater proportion of the lighter red/brown semi-open forest ridges and slopes (37%) than "Minnie Downs" (17%), but a smaller proportion of Mitchell grass downs (26% compared to 68%). However, it has approximately 2,000 ha (23%) of successfully developed gidyea scrub, which enhances its overall carrying capacity. However, "Minnie Downs" is significantly larger and on general valuation principles, even if they were identical, would have a somewhat lower value per ha.
Mr Haydon has valued "Ravensbourne" at $222.50/ha and "Minnie Downs" at $185/ha. For comparison purposes, I have found the carrying capacity of "Ravensbourne" to be 1 sheep to 1.4 ha and the carrying capacity of "Minnie Downs" to be 1 sheep to 1.5 ha. In my view, the valuation of "Ravensbourne" is excessive, probably because the Department has historically not recognised the inferiority of the red/brown soil, open forest ridges and slopes. The superior carrying capacity of "Ravensbourne" was achieved at the cost of developing the gidyea scrub.
Mr Dyer has valued "Ravensbourne" at $150/ha by comparison with his applied value of $156/ha to "Minnie Downs", because he considers that on a per ha basis, "Ravensbourne" is inferior to "Minnie Downs". However, in my view, that does not sufficiently take into account the differences in size or carrying capacity.
On the evidence, I have concluded that on a per ha basis, "Ravensbourne" should have a higher unimproved value per ha than "Minnie Downs". For the extent of that difference, I turn to Mr Haydon's sales of "Mineeda" and "Eastwood".
Both "Mineeda" and "Eastwood" have fully developed carrying capacities of 1 sheep to 1.3 ha, according to Mr Haydon. As mentioned previously, because of the cost involved in developing the gidyea scrub, the unimproved sheep area value of gidyea country like "Eastwood" must be significantly lower than the sheep area value of similar carrying country that requires no such treatment.
Adopting Mr Haydon's applied value of $178/ha for "Eastwood", with a carrying capacity of 1 sheep to 1.3 ha, its sheep area value is $231.40. Similarly, using Mr Haydon's applied value of $222.50/ha for "Mineeda", its sheep area value is $289.25. The sheep area value of "Ravensbourne" must be significantly higher than "Eastwood" because of the relative proportions of gidyea scrub. On the other hand, it must be somewhat less than that of "Mineeda", because of the superior location and access of "Mineeda". The greater proportion of the red/brown country on "Ravensbourne" is reflected in its carrying capacity compared with that of "Mineeda".
In my view, an adjusted sheep area value for "Ravensbourne" of $280/ha from the "Mineeda" sale is reasonably consistent with the sheep area value of $277/ha for "Minnie Downs", taking into account the extent of gidyea development and the respective sizes. One would tend to offset the other. That equates to $200/ha for "Ravensbourne", or rounded to $1,755,000.
Therefore, the appellant has proved that the valuation of "Ravensbourne" is excessive. I propose to determine the unimproved value at $200/ha, or $1,755,000.
Orders:
(1)In Appeal AV2006/0354, the appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved value of "Ravensbourne" as at 1 October 2005 is determined at One Million, Seven Hundred and Fifty-five Thousand Dollars ($1,755,000).
(2)In Appeal AV2006/0207, the appeal is dismissed and the annual valuation of the Chief Executive of "Minnie Downs" is affirmed at Four Million, One Hundred Thousand Dollars ($4,100,000).
(3)In Appeal RV2006/0208, the appeal is dismissed and the rental valuation of the Chief Executive of "Minnie Downs" is affirmed at Four Million, One Hundred Thousand Dollars ($4,100,000).
JJ TRICKETT
PRESIDENT OF THE LAND COURT
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