The High Court Decision of Maurici - An Analysis

The unanimous judgment of the High Court of Australia in Maurici v Chief Commissioner of State Revenue given on 13 February 2003, has thrown into doubt the validity of all land valuations issued by the Valuer-General (VG) in New South Wales in every year since 1998.

These land valuations are used to assess land tax and council rates payable by property owners and property owning superannuation funds and feed into the rents that are charged to residential and commercial tenants.

It is therefore fair to say that every person in NSW, whether a property owner or tenant and every member of a superannuation fund owning property in NSW, whether resident in NSW or not, is financially affected by this decision.

The facts of the case

• The VG issued a valuation notice in 1998 determining the land value of Mr Maurici’s residential waterfront property in Woolwich to be $2,440,000.
• Mr Maurici objected to this valuation and the VG reduced it to $2m.
• Mr Maurici was not satisfied with this reduction and appealed to the Land and Environment Court (L & E Court) contending that the value of his land was only $1.25m. Commissioner Nott initially heard the appeal. He accepted the evidence of the Chief Commissioner’s valuer as to the method of valuation being correct, subject to some minor adjustments, and determined the value to be $1.95m.
• In arriving at his valuation, the Chief Commissioner’s valuer had relied on four sales of vacant or substantially vacant land. Mr Maurici argued that the four sales of vacant land were unduly inflated and therefore unreliable as comparable sales due to a scarcity factor. Commissioner Nott declined to make any deduction because of the scarcity factor.

• Mr Maurici appealed this decision to Judge Cowdroy of the L and E Court who allowed the appeal.
• The Chief Commissioner of State Revenue, realising the significance of this decision, then appealed to the NSW Court of Appeal, where three judges unanimously took a different view to Cowdroy J and confirmed Commissioner Nott’s view. The OSR was delighted, but not for long.
• Mr Maurici, undeterred by this setback then appealed to the High Court. Five Judges unanimously upheld Mr Maurici’s appeal and reconfirmed the earlier judgment of Cowdroy J. However because of the incomplete nature of the evidence as to the discount to be allowed for the scarcity value inherent in each of the sales of the four vacant lots, the case was sent back to the Commissioner to make the necessary determination.

So one Commissioner and nine judges later, Mr Maurici still does not know what his land value was in 1998 and in each year since.

What the judgment means for property owners and tax payers

The High Court’s judgment gives heart to every property owner who also suffered massive increases in their land values in 1998. In 1998 there was a public outcry resulting in two inquiries, the 1998 Nile Inquiry and the 1999 Walton Inquiry, neither of which could identify any single cause for such overvaluation.

The Walton Inquiry found that unrealistic values had been produced and concluded that there had been technical flaws in the mass valuation system that could be rectified if the Inquiry’s recommendations were adopted. The Government has since said it is proceeding to implement most of those recommendations.

Maurici’s case however totally undermines Walton’s conclusions.

The High Court has found that the Chief Commissioner’s valuer, a senior Valuer in the VG’s office, had adopted a flawed method of valuation because he had:

• failed to follow proper valuing principles when assessing vacant land sales; and
• ignored reasonably contemporaneous sales of comparable improved land, which the High Court said could not be disregarded in the case of scarcity of vacant land.

It is clear that in tens of thousands of cases the VG made no allowance for the scarcity factor included in vacant land sales nor did he take into account sales of comparable improved land. In the words of the High Court he was "unduly selective".

The Government now has a real problem as the entire basis on which its valuations have been done since 1998 has been found to be defective. The flawed method of valuation identified in Maurici’s case is one single cause that has led to systemic overvaluation throughout NSW.

For the last three years the Government has been given other documentary evidence alleging serious systemic irregularities in the valuation process in 1998. Our requests to the Government to reopen the Walton Inquiry to investigate these irregularities have been refused.

The Government has also been aware since 1999 that the Auditor General of NSW suspected that systemic overvaluation had occurred in determining the 1998 land values. The Government ignored that warning.

The Government will now have to act and their options are not very attractive. Maurici’s case has made it quite clear that there has been systemic overvaluation. This has resulted in systemic overcharging of both land tax and council rates for the last five years.

We believe the Government now has to go back and review all 1998 land values in NSW to see which have been affected by Maurici’s case and which have not.

Ironically, the Government faced the same problem in 1999 after the Walton Report was released indicating overvaluation of between 11.5% - 21.5% in the eight areas of NSW the Inquiry investigated in depth. The Government rejected the idea of reviewing the 1998 land values at that time, pocketed the extra revenue obtained by overvaluation and promptly proceeded to use those inflated values as the basis for 2000 and each year thereafter, thereby compounding the overcharging of the previous two years.

Will they be tempted to do the same thing again, ignore the High Court and keep on overcharging like they have for the last five years?

The future

And what of the future? This is the most important and critical issue to confront.

Maurici’s case makes it clearer than ever that the use of land values to assess land tax must be replaced by a cheaper, more transparent and fairer system of assessment.

Nick Greiner was faced with almost the identical problem when land values were used to assess water rates in 1993. He referred the problem to an independent and impartial umpire - Professor Parry of the Independent Pricing and Regulatory Tribunal. The Professor found an answer and the annual outcry at huge increases in water rate bills disappeared.

Both the Government and the Opposition need to get Professor Parry on the job again. He should be able to find a solution that will once and for all make cases like Maurici a thing of the past.

Both the Government and Opposition were given this advice 5 years ago. Had they accepted it, they would not be faced with the utter chaos and confusion that the Walton Inquiry has caused and that Maurici’s case is giving them now.

For further information contact:

Simon Singer
Phone 9212 1099
Email ssinger@dls-lawyers.com

David Singer
Phone 9212 1099
Email dsinger@dls-lawyers.com

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