McDonald v Holden[2007] QSC 54

SUPREME COURT OF QUEENSLAND

1. MULLINS J:   The applicants seek a review under the Judicial Review Act 1991 (“JRA”) of the decision of the respondent Mr Colin Holden, the chief executive officer of the Queensland Rural Adjustment Authority (“QRAA”), declining an application for assistance under the Queensland Vegetation Management Framework, Financial Assistance for Farm Businesses, Exit Assistance Scheme (“the exit assistance scheme”) which is an approved assistance scheme under the Rural and Regional Adjustment Act 1994 (“the Act”).   

2. The applicants’ application was heard at the same time as that which is the subject of the decision in Cooney v Holden [2007] QSC 53 (“Cooney”).  In Cooney I set out the relevant legislation and summarised the provisions of the exit assistance scheme which I also rely on for the purpose of these reasons.

The application under the exit assistance scheme

3. The applicants are in partnership and the owners of the property comprising 53,100 hectares that is known as “Rosevale” (“the property”) and is located south of Charleville in south western Queensland. Mr BR McDonald is the son of Mr GA and Mrs SW McDonald. Mr and Mrs McDonald had previously developed their property in the Springsure district into a substantial beef cattle property. The applicants purchased the property in June 2002 for $2.04m using borrowings in total of about $3.1m that were also secured on other assets of Mr and Mrs McDonald. The property was substantially either unimproved or timbered. It had traditionally operated as a mixed grazing enterprise involving sheep breeding, wool growing and beef cattle breeding. The applicants purchased the property with the intention of undertaking development of timbered areas to establish a significant beef cattle enterprise which was to be Mr B McDonald’s first rural property. Development was commenced early in 2003 in accordance with existing tree clearing permits. Further development was postponed due to drought conditions and the introduction of the Vegetation (Application for Clearing) Act 2003, which provided that all applications for broadscale vegetation clearing made after 16 May 2003 were to be refused.

4. Any further clearing of the property by the applicants was then prevented by the Vegetation Management and Other Legislation Amendment Act 2004 (“Amendment Act”), which amended the Vegetation Management Act 1999 (“VMA”) to regulate the clearing of land in a way which conserves the sustainability of regional ecosystems: VMA s 3(1).  According to s 3(2)(e) of the VMA, one of the chief means of achieving this objective was to phase-out broadscale clearing of remnant vegetation by 31 December 2006. During the phase-out period, each region affected was allocated a transitional clearing cap for remnant vegetation: VMA, s 22G. The applicants’ property is situated in the Mulga Lands Bioregion.  The applicants submitted three applications by ballot to receive part of the clearing allocation for the Mulga Lands Bioregion pursuant to s 22G of the VMA.  These ballot applications faced no prospect of success and were therefore withdrawn. 

5. It was common ground between the parties that as a consequence of the applicants’ failure to secure any portion of the allocated clearing land in the Mulga Lands Bioregion via the ballot system a total area comprising, 25,801 hectares of the property could not be cleared and was therefore directly affected by the Amendment Act. 

6. On 16 February 2006 the applicants’ agent, Mr Graham Kenny of Devine Agribusiness, submitted an application under the exit assistance scheme to the QRAA in respect of the property.

7. The QRAA wrote to the applicants on 22 February 2006 acknowledging receipt of their application and requesting additional information that was needed to complete the assessment of the application. On 2, 22 and 23 March 2006 Mr Kenny forwarded further information to the QRAA. This included the draft financial statements for the partnership for the year ended 30 June 2005 and the monthly cash flows for the partnership for the year ended 30 June 2006 including budgeted cash flows.

8. An initial assessment of the application was performed by an employee of the QRAA, Mr Scott Wilson, on or about 6 April 2006. In his recommendation to the QRAA’s Lending Committee, Mr Wilson identified clause 5.2.1 of the scheme as the criterion which the applicants failed to meet and noted:

“For purposes of Exit Assistance the enterprise “Rosevale Partnership” must be considered in isolation and on a stand alone basis.

On this basis the enterprise, under its initial debt load at the time of purchasing the property, is considered to have been unviable.  Their current position is still considered to be unviable based on the now increased debt load and therefore it is not considered that their non viability has been the result of the implementation of the VM Legislation.”

9. Mr Wilson’s recommendation was considered and wholly adopted by the QRAA’s Lending Committee on 19 April 2006. By letter dated 20 April 2006, the QRAA advised the applicants that their application for assistance under the exit assistance scheme had been declined. That letter stated:

“Your application was given due consideration by the QRAA Lending Committee which advises that, for the purpose of this application, the enterprise “Rosevale Partnership” must be considered in isolation and on a stand alone basis.  On this basis, the Committee is not convinced that the non-viability of this enterprise has occurred as a direct result of the introduction of the new vegetation management arrangements.

…

Based on the information available, the Lending Committee is firmly of the opinion that the enterprise, under its initial debt load at the time of purchasing the property was not viable in its own right.  Under its current position which shows an even higher level of debt (due to the drought), the “Rosevale Partnership” enterprise’s potential to have achieved a position of sustainable long term viability is not evident.  Under these circumstances, you are unable to satisfy the program’s eligibility requirements.”

The decision of the respondent

10. Pursuant to s 13A of the Act, Mr Kenny on behalf of the applicants applied, by way of letter dated 9 May 2006, to the respondent for an internal review of the decision to decline the applicants’ application for exit assistance on the basis that it was not in accordance with the published guidelines and assessment criteria for the exit assistance scheme. Mr Kenny objected to the decision by QRAA to consider the financial position of the Rosevale Partnership in isolation from the financial position of its individual members. Mr Kenny also reiterated the potential long term viability the applicants believed the property to possess but for the Amendment Act and drew attention to the letter of support provided by the applicants’ bank manager.

11. On or about 29 May 2006 another employee of the QRAA, Mr Neil Currie, performed another assessment of the application and made a recommendation that the application be declined. As part of that assessment Mr Currie spoke to Mr BR McDonald on 29 May 2006 and incorporated his comments in the assessment. Mr McDonald dealt with the numbers of sheep that the property had been carrying since purchase and the history of the applicants’ operations on the property. Mr McDonald acknowledged that the applicants could not prove they were viable before the Amendment Act due to the short period of time in which they owned the property and drought conditions, but confirmed that the intention was to clear the property and increase the carrying capacity and the applicants would have been in a better position if drought had not continued and they had been able to clear the property as planned.  In the general comments made as part of his assessment, Mr Currie noted:

“I agree with previous assessor…that “Rosevale” was not viable when initially purchased under such a high debt load.  The ensuing poor results can be attributed to dry conditions & have placed applicants in an even more desperate position. 

The purpose/objective of exit assistance is to assist producers who have become unviable due to legislation. 

This is not the case, with non-viability being due to causes other than legislation. 

There are only 2 possible ways to assess application, i) the methodology adopted in previous (& this) assessment or ii) assess consolidated trading of applicant & GA & SW McDonald”.  I believe that method ii) would see decline based on expected insufficient overall impact on combined partnerships.  The methodology being employed is based on the definite lines drawn which show that “Rosevale” is being operating as stand-alone operation, noting that GA & SW McDonald are propping up financially.”

12. There are hand written comments at the end of Mr Currie’s assessment that appear to be made by the assistant lending manager of the QRAA, Mr Wessling, and addressed to the respondent. These comments summarise the financial state of the partnership and suggest that:

“With > 100% borrowing from day 1 they were always going to do it tough.”

Mr Currie prepared a recommendation that the exit assistance application of the applicants be declined.  The respondent signed that recommendation stating that it was supported.  Mr Wessling also prepared “Decision Minutes” dated 2 June 2006 which reflect the conclusions and recommendation of Mr Currie.  The respondent signed those decision minutes which appears to be an endorsement of them.

13. By letter dated 5 June 2006 the respondent informed the applicants that he adhered to the original decision to decline their application for exit assistance in terms which echo the recommendation of Mr Currie and the decision minutes of Mr Wessling:

“I have given your application careful consideration based on additional information provided in your letter of appeal and am of the opinion that the non-viability of “Rosevale” is considered to be as a result of high debt level and drought conditions.

Therefore, as you have not demonstrated that you are without prospects of viability as a result of the Vegetation Management and Other Legislation Amendment Act 2004 I regret to advise that I have no alternative but to adhere to the previous decision to decline your application for Exit Assistance.”

14. For the purpose of the application under the JRA the respondent confirmed in his affidavit filed on 17 November 2006 that he had before him all of the documents that are exhibits to the affidavit of Mr Kenny filed on 15 September 2006 and, in addition, a copy of the application of the applicants made through AgForce on 23 June 2004 to the QRAA for an interest subsidy in relation to a loan for purchasing sheep for the property.  

Nature of review decision

15. Under Part 3A of the Act the respondent is required to review the original decision of the QRAA which is the subject of the review application. On the review the respondent is not limited to the material that was available for the making of the original decision: s 13B(1)(b) of the Act.

16. The possible decisions that the respondent can make on the review that are set out in s 13C(1)(b) of the Act of confirming, amending or substituting another decision for the original decision are consistent with the respondent embarking on a decision-making process that requires him to look at all the material that is before him to decide the outcome of the application for exit assistance. There is nothing that remains to be decided in relation to the application for exit assistance after the respondent has undertaken his review. That the respondent expresses his decision in relation to the application by reference to the effect of his decision on the original decision does not mean that he limits his review to deciding whether or not he agrees with the original decision. It is an independent decision making process.

The issue before the respondent

17. The farm business that was relevant for the purposes of the exit assistance application was that conducted by the applicants in partnership on the property. The assessment criteria found in clause 5 of the exit assistance scheme set the framework of the considerations that are relevant to deciding the application. The question on which the respondent had to satisfy himself is expressly set out in clause 5.3 of the exit assistance scheme. The respondent had to be satisfied that “the applicant has demonstrated that, as a direct consequence of the introduction of the new vegetation management arrangements, the Farm Business is not, or does not have the potential to be, a viable commercial operation”, taking into account the criteria listed in clause 5.2 of the scheme.

18. There were therefore two ways in which the applicants could seek to show that the effect of the introduction of the new vegetation management arrangements on the farm business conducted on the property qualified them for assistance. They were by showing that the farm business was not presently a viable commercial operation as a result of the Amendment Act (taking into account the criteria listed in clause 5.2) or that the farm business did not have the potential to be a viable commercial operation as a result of the Amendment Act (taking into account the criteria listed in clause 5.2). 

19. The application that was made by Mr Kenny on behalf of the applicants was directed at the impact of the Amendment Act on the long term viability of the applicants’ farm business.  That was reinforced by the additional submissions made by Mr Kenny on the applicants’ behalf in support of the application for review of the original decision.          

Grounds for review of respondent’s decision

20. The grounds of review that were pursued on the hearing of the application were:

1. the respondent erred in failing to take into account a relevant consideration, namely the assets of the individual partners;

2. the respondent erred in taking the drought into account as it is irrelevant to a consideration of the long term viability of the property;

3. the respondent erred in failing to consider the applicants’ partnership agreement which was a relevant consideration;

4. the respondent denied the applicants procedural fairness by not giving them a reasonable opportunity to be heard on critical adverse material. 

21. Although I have expressed paragraph (a) above in terms of the failure of the respondent to take into account a relevant consideration, the applicants argued that the error alleged against the respondent in failing to consider the assets of the individual partners could also be characterised as an improper exercise of the respondent’s power, error of law or unreasonableness.

Failing to take into account the assets of the individual partners

22. The respondent on the hearing of this application queried whether the assets of the individual partners was a relevant criterion required to be taken into account by the respondent under clause 5.2 of the scheme. On the issue of the long term viability of the applicants’ farm business on the property, the criteria listed in both clause 5.2.1 and clause 5.2.2 of the scheme are specified as relevant. The criteria of the capital contribution of the applicants to acquire and develop the farm business and the provision of financial support for the farm business by lenders are affected by the individual assets of the applicants, by virtue of the nature of a partnership and the manner in which it can finance its undertaking on the relevant property. The grazing business conducted on a property may not be viable in the short term (as is apparent in the applicants’ case in relation to the property), but that does not preclude steps being taken by the partners in the short and medium term to make the property viable in the long term which may require the financial support of the applicants (apart from the property and the farm business conducted on the property) until the property is established or developed into a viable commercial operation. The preparedness and capacity of the applicants individually to use assets (other than the property) for financing or security purposes may affect whether long term viability for the farm business conducted on the property is achieved. This is reflected in the criteria that are identified above. The assets of the individual partners was clearly a relevant consideration in applying the specified criteria under clause 5.2.2 of the scheme to determine the long term viability of the farm business to be conducted on the property.

23. The threshold issue for this ground of review is determining whether the respondent did fail to take into account the assets of the individual partners. As Mr Bickford of counsel for the respondent submitted, the reviewable error has to be found in the decision-making of the respondent and not merely in the work of an employee of the QRAA who has prepared material on the file for the purpose of the making of the decision by the respondent.

24. Under s 13C(2) of the Act, the notice given by the respondent of the review decision must state the reasons for the review decision. That invokes s 27B of the Acts Interpretation Act 1954 that requires the instrument giving the reasons to set out the findings on material questions of fact and refer to the evidence or other material on which those findings were based.  The respondent did not comply with this obligation.  Very brief reasons were set out in the respondent’s letter of 5 June 2006 for the respondent’s decision to adhere to the original decision and there was no attempt whatsoever to comply with the obligation of setting out the findings that were made on material questions of fact and the evidence on which those findings were based.  That is not a matter, however, on which the respondent’s decision can be challenged.  The applicants failed to take advantage of s 32 of the JRA to request a written statement of reasons.  The relevance of the lack of a proper statement of reasons is that the court on the application under the JRA must consider whether it can determine that either relevant or irrelevant considerations were not or were taken into account by the respondent in making his decision and what findings he did, in fact, make to the extent that they may not be expressly articulated in his letter of 5 June 2006.

25. The letter giving notice of the review decision to the applicants suggests that the respondent made the review decision on the same basis as the original decision. Recourse to the letter advising of the original decision made it clear that the QRAA did not take into account the assets of the individual partners, as the QRAA had expressly advised that the partnership “must be considered in isolation and on a stand alone basis”. That overlooked entirely the relevance of the individual assets of the partners in ascertaining whether the long term viability of the property was achievable.

26. Apart from the indication in the respondent’s letter of 5 June 2006 that he did not depart from the process of reasoning undertaken by the QRAA in reaching the original decision, as counsel for the respondent described it, there were “footprints” of the respondent on other documents on the QRAA file which indicate endorsement by the respondent of the process of reasoning in dealing with the applicants’ application that is disclosed by those documents. Those documents are the assessment of Mr Currie whose recommendation was expressly supported by the respondent and the decision minutes of Mr Wessling that mirrored Mr Currie’s recommendation that was also endorsed by the respondent. These documents reflect the approach of assessing the property as a stand alone operation with the partnership of the applicants only operating that property (and by implication ignoring the individual assets of the partners).

27. Whether it is described as an error of law or failure to take into account a relevant consideration, the respondent erred in adopting the same approach as the other officers of the QRAA in failing to take into account the assets of the individual partners in assessing whether the farm business conducted on the property does not have the potential to be a viable commercial operation, as a direct consequence of the commencement of the Amendment Act, taking into account the criteria listed in clause 5.2 of the scheme. In the circumstances this was not an insignificant error.

Taking the drought into account

28. The reason offered by the respondent in his letter of 5 June 2006 for his review decision was that non-viability of the farm business conducted on the property was as a result of high debt level and drought conditions. This reason appears to be relied on by the respondent for both existing non-viability and lack of potential for long term viability of the farm business. The reliance on existing high debt level as precluding long term viability is tainted by the respondent’s failure to take into account the individual assets of the applicants.

29. As a matter of common experience, drought conditions are not necessarily determinative of the long term viability of a farm business. It was not suggested on behalf of the respondent that drought was determinative of the potential for long term viability of the property. There is nothing in the material on the QRAA file relating to the applicants’ application that suggests that drought should be considered as a long term condition. The respondent erred in taking the drought into account as a relevant consideration in determining the long term viability of the property, without taking into account the assets of the individual partners to sustain the farm business in the interim period.

Failing to consider the applicants’ partnership agreement

30. The error is the respondent’s failure to take into account the assets of the individual partners rather than the failure to consider the document that constitutes the partnership of the applicants. The fact that the respondent’s solicitors requested the applicants to provide a copy of the partnership deed on the basis that it was “clearly relevant” after the application for statutory order of review had been filed does not make the document itself something which should have been considered by the respondent before making the review decision.

Denial of procedural fairness

31. The content and scope of procedural fairness must be evaluated by reference to the legislative context and the nature of the decision-making process required to be undertaken by the respondent. It is pertinent that the respondent is a public servant and not undertaking an adjudicative role. See Kioa v West (1985) 159 CLR 550, 584-585.

32. The applicants complain that prior to making the review decision, the respondent had the assessment and recommendation of Mr Currie on which Mr Wessling had endorsed comments for the attention of the respondent and Mr Wessling’s decision minutes. The applicants point to the fact that Mr Wessling was a member of the Lending Committee of the QRAA which made the original decision. Mr Wessling was merely another employee of the QRAA performing his functions in providing an analysis of the relevant information for the purpose of the respondent’s consideration of the applicants’ application. Mr Wessling’s analysis was adverse to the applicants in the sense that he reached a conclusion that rejected their application, but there was no additional factual material as such in his comments or decision minutes. Even acknowledging the obligation of the QRAA under s 8(1)(a) of the Act to ensure the scheme is “properly and fairly administered” and the obligations that govern his decision-making role at common law, the respondent was not precluded from considering the work of other employees of the QRAA in assessing the applicants’ application, provided the respondent embarked on the independent decision-making process required of him in conducting the review.

33. The applicants were fully acquainted with the factual material that was before the respondent on the application. Fairness did not require the contents of the assessments done by employees of the QRAA for the purpose of assisting the respondent in his review role to be brought to the notice of the applicants before the respondent made the review decision: Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576, 591.       

Orders

34. The grounds for review of the respondent’s decision which have been made out by the applicants justify the relief sought by the applicants in their application. It follows that the orders which should be made are:

1. The decision of the respondent of which notice was given to the applicants by letter dated 5 June 2006 be set aside.

2. The applicants’ application for exit assistance be referred to the respondent to be decided according to the law.

It follows that the respondent should pay the applicants’ costs of the proceeding.  I will hear the submissions of the parties on the issue of costs, before making any order relating to costs.