Caradi Pty Ltd (Formerly Scared Bear Pty Ltd) v Secretary to the Department of Transport (Formerly Secretary to the Department of Economic Development, Jobs, Transport and Resources)

SUPREME COURT OF VICTORIA
COURT OF APPEAL

S APCI 2019 0002

CARADI PTY LTD (FORMERLY SCARED BEAR PTY LTD)	Applicant
v
SECRETARY TO THE DEPARTMENT OF TRANSPORT (FORMERLY SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES)	Respondent

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JUDGES:	TATE, EMERTON and OSBORN JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	2 March 2020
DATE OF JUDGMENT:	5 August 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 197
JUDGMENT APPEALED FROM:	[2018] VSC 696 (Quigley J)

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LAND ACQUISITION AND COMPENSATION – Compulsory acquisition of whole of land for Melbourne Convention Centre car park – Land situated in Fishermans Bend Urban Renewal Area – Appeal from determination by judge in Trial Division of market value of land and availability of compensation for costs of acquiring replacement land – Whether valuations based on highest and best use of land – Whether remediation costs had to be deducted or whether general allowance could be made – Whether valuers considered sufficiently large number of comparable sales – Relevance of sales after date of acquisition in rapidly rising market – Whether applicant entitled to replacement land costs – Leave to appeal granted – Appeal dismissed – Spencer v Commonwealth (1907) 5 CLR 418; ISPT Pty Ltd v Melbourne City Council (2008) 20 VR 447 applied; Secretary, Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd [2017] 224 LGERA 195; Western Australian Planning Commission v Arcus [2003] WASCA 295; Brisbane City Council v Mio Art Pty Ltd [2011] 2 Qd R 1 considered – Land Acquisition and Compensation Act 1986 ss 40, 41(1)(d), 41(1)(f); Valuation of Land Act 1960 s 5A.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr S Morris QC with Ms M Foley SC	Minter Ellison
For the Respondent	Mr J Delany QC with Ms J Trewhella	Corrs Chambers Westgarth

TATE JA
EMERTON JA
OSBORN JA:

Introduction

This application for leave to appeal involves a claim for compensation pursuant to the provisions of the Land Acquisition and Compensation Act 1986 (‘LAC Act’) for the compulsory acquisition of land situated at 11–31 Montague Street, Southbank (the ‘Land’).

The Land is a large irregular shaped parcel of 15,900 m² adjacent to the West Gate Freeway in South Melbourne.[1] It has frontages to Montague, Munro and Ford Streets and is located within the Montague precinct of the Fishermans Bend Urban Renewal Area (‘Fishermans Bend’).
[1]2,796 m² of the Land is encumbered by easements and it is subject to a freeway related acquisition of a stratum of the land previously held in the title as a result of VicRoads’ compulsory acquisition of air rights.

On 19 December 2013, the respondent, the Secretary to the Department of Economic Development, Jobs, Transport and Resources,[2] compulsorily acquired the Land for the purposes of the Melbourne Convention Centre Development. The Land was acquired for development as a multi-storey car park.
[2]Now the Secretary to the Department of Transport.

At the time of its compulsory acquisition, the Land was owned by the applicant, Caradi Pty Ltd[3]. The applicant purchased the Land in 1996 for $4 million and held it as a long-term investment with a view to securing its re-zoning for mixed-use residential and commercial development.
[3]Formerly known as Scared Bear Pty Ltd.

In late 2009, the applicant commenced negotiations with a potential purchaser of the Land, the Woolworths Group, which proposed to purchase the Land for a ‘Masters’ hardware store.

On 29 January 2010, the respondent served a Notice of Temporary Occupation on the applicant and entered into occupation of the Land on 5 February 2010. The respondent remained in occupation until 13 April 2011.

Negotiations with the Woolworths Group continued during the period of temporary occupation and, on 17 August 2011, the applicant and a nominee of the Woolworths Group, Hydrox Nominees Pty Ltd (‘Hydrox’), entered into a contract of sale with respect to the Land in the amount of $24.5 million (the ‘Hydrox transaction’). However, on 5 October 2011, Hydrox informed the applicant that it would not proceed with the purchase of the Land because it understood that Major Projects Victoria intended to compulsorily acquire the Land.

On 5 July 2012, Fishermans Bend was declared to be an area of State Significance by the Minister for Planning and, by Amendment C102 to the Port Phillip Planning Scheme, was re-zoned from Industrial 1 Zone to Capital City Zone - Schedule 1 (‘CCZ1’). Amendment C102 imposed no built form controls which would restrict the height and density of development in Fishermans Bend. Not surprisingly, the re-zoning caused a significant increase in the value of land in the area.

Following the re-zoning of the Land to CCZ1, the applicant engaged architects, Rothe Lowman, to prepare concept drawings and designs for a high-rise residential development on the Land. In June 2013, Rothe Lowman provided concept drawings depicting several options for a five-tower residential complex on the Land (the ‘Rothe Lowman development scheme’). Later the same year, at the request of the respondent, Hayball Architects (‘Hayball’) provided an alternative — but very similar — scheme for a five-tower residential development (the ‘Hayball development scheme’). The Rothe Lowman development scheme contained approximately 2,100 apartments, while the Hayball development scheme provided for approximately 3,100 (smaller) apartments. The developable area involved in both schemes was approximately 70,000 m².

On 27 June 2013, the respondent served on the applicant a Notice of Intention to Acquire the Land and, on 19 December 2013 (the ‘Relevant Date’), the respondent published the Notice of Acquisition of the Land in the Government Gazette.

On 28 March 2014, the respondent made an offer of compensation for the market value of the Land in the amount of $16.15 million, based on a valuation of the Land prepared by Mr Brian Dudakov on behalf of the Valuer General of Victoria (‘VGV’). The respondent also obtained a ‘check’ valuation from Mr Les Brown, who valued the Land at $14.5 million. These valuations were based on remediation costs in the order of $12.5 million, were the Land to be developed for residential purposes.

The applicant rejected the respondent’s offer for $16.15 million and claimed compensation of $61.5 million, comprising market value of $60 million and solatium of $1.5 million. The applicant’s claim was based on the valuations of Mr Chris Torr in the amount of $57 million and Mr Mark Murray in the amount of $60 million.

The applicant also made a claim of $3,350,000 for its anticipated costs of purchasing replacement land. The applicant claimed stamp duty in the amount of $3.3 million and $50,000 in legal costs.

On 28 May 2015, the applicant’s claim was referred as a disputed claim to a judge in the Trial Division of the Supreme Court for determination. In its revised particulars of claim[4] and further revised particulars of claim[5] the applicant continued to claim $60 million for the market value of the Land.
[4]Dated 13 July 2015.
[5]Dated 21 April 2016.

On 16 November 2016, the environmental consultants engaged by the parties to the proceeding produced a joint report which included each consultant’s estimate of the remediation costs for a high-rise residential development (without a basement) on the Land. The competing estimates were $2.4 million, $3.76 million, $3.6 million and $7.2 million.

On 14 December 2016, Mr Torr, Mr Murray, Mr Dudakov and Mr Brown participated in a Court-ordered conference of valuers and produced a joint statement dated December 2016 (the ‘Joint Statement’). While the valuers agreed on certain matters relating to the valuation of the Land, including as to its highest and best use and as to the limited range of remediation costs, there was no agreement on the market value of the Land. The parties remained almost $30 million apart.

Following the conference of valuers, the parties agreed in December 2016 that remediation costs would be set at $3,686,250.

At trial, the applicant’s claim for the market value of the Land was revised down to $56 million. While its formal offer remained at $16.15 million, the respondent contended that the appropriate award should accord with revised market value assessments of Messrs Dudakov and Brown, which were $24.61 million and $25.3 million, respectively.

The main issues in dispute at trial were as follows:

(a) the market value of the Land at the Relevant Date, having regard to:

(i) the appropriate comparative sales method (dollar per square metre of land; dollar per apartment; or otherwise);

(ii) the comparable sales relied upon by the respective valuers (including locational difference considerations, market maturity in Fishermans Bend, and a ‘low sales’ case theory in relation to key comparable sales);

(iii) the relevance of transactions that were not completed;

(iv) the use of evidence of sales that occurred after the Relevant Date; and

(v) the impact of the agreed figure for remediation costs and the effect of the remediation costs on the highest and best use of the Land; and

(b) whether the applicant was entitled to compensation for replacement land costs in circumstances where no replacement land had been purchased.

On 15 November 2018, the judge determined the disputed claim. In respect of the items that remained in dispute, the judge made the following assessments:[6]
[6]Secretary, Department of Economic Development, Jobs, Transport and Resources v Caradi Pty Ltd [2018] VSC 696, [384] (Quigley J) (‘Reasons’).

Market Value

$

25,300,000

Cost of replacement land

Nil

Loss incurred as a result of inability to invest initial sum offered in a higher return asset

Nil

Agent’s commission

Nil

Legal, valuation and other professional expenses

$

242,689.49

Solatium

$

50,000

The judge’s determination of the market value of the Land at the Relevant Date was based on Mr Brown’s assessment, as recorded in the Joint Statement.[7] She made no award for replacement land costs, which had been claimed as disturbance losses under the LAC Act. The judge found that the applicant had failed to show that steps had been taken towards the purchase of replacement land.[8]
[7]Ibid [318]–[319].
[8]Ibid [332]–[333].

Statutory Framework

Section 89 of the LAC Act provides for the determination of disputed claims for compensation for the compulsory acquisition of land as follows:

(1)On an application or referral of a disputed claim under this Part, the Tribunal or Court is to determine the amount of compensation in accordance with this Act to be paid in respect of the claim and may make any orders necessary to give effect to that determination.
(2)An appeal to the Court of Appeal from a determination or order made by the Court under this section lies only on a question of law.

Section 90(2) of the LAC Act provides that in determining the compensation payable, the Court is not bound by the exercise of any discretion of the Authority or by any determination or opinion of the Authority, but must determine the compensation payable in the particular circumstances of the case having regard to the provisions of the LAC Act.

The LAC Act provides for the assessment of compensation according to the general principles in s 41(1) as follows:

(1)Except as otherwise provided in this Part, in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired under this Act, regard must be had to the following factors—
(a)the market value of the interest on the date of acquisition;
(b)any special value to the claimant on the date of acquisition;
(c)any loss attributable to severance;
(d)any loss attributable to disturbance;
(e)the enhancement or depreciation in value of the interest of the claimant, at the date of acquisition, in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired;
(f)any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.

Relevantly, ‘market value’ is defined in s 40 of the LAC Act as follows:

‘market value’, in relation to any interest in land on a particular date, means the amount of money that would have been paid for that interest if it had been sold on that date by a willing but not anxious seller to a willing but not anxious purchaser;

This definition is based on the discussion of market value in the seminal case of Spencer v The Commonwealth,[9] where Griffith CJ stated:

[T]he test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring ‘What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?’[10]

[9](1907) 5 CLR 418; [1907] HCA 82 (‘Spencer’).

[10]Ibid 432.

For his part, Isaacs J described the nature of the hypothetical bargain as follows:

To arrive at the value of the land at that date, we have … to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as to the value of the property.[11]

[11]Ibid 441.

Implicit in this formulation is that both vendor and purchaser are to be regarded as aware of the potentially most advantageous future use of the land and not simply its current use, when formulating the relevant value. Such potential is a circumstance which necessarily affects the value of the land either advantageously or prejudicially.[12] In Park v Allied Mortgage Corporation Ltd,[13] Hill J explained the process in the following terms:

As Spencer’s case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land.[14]

[12]ISPT Pty Ltd v Melbourne City Council (2008) 20 VR 447, 458 [38]; [2008] VSCA 180 (Warren CJ, Kellam JA and Osborn AJA) (‘ISPT’).

[13](1995) NSW ConvR 55-753.

[14]Ibid 55,806.

Section 5A of the Valuation of Land Act 1960 (‘VL Act’) is also relevant to the comparable sales method used by all of the valuers in this case to determine the value of the Land. It provides:

Determining value of land
(1)Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.
(2)In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.
(3)Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account—
(a)the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;
(b)the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;
(c)the shape size topography soil quality situation and aspect of the land;
(d)the situation of the land in respect to natural resources and to transport and other facilities and amenities;
(e)the extent condition and suitability of any improvements on the land; and
(f)the actual and potential capacity of the land to yield a monetary return.

It is trite that the method of establishing market value from the sales of comparable land involves making adjustments to allow for differences in the character of the land to be valued or for differences in the timing of sales. The more adjustments that must be made, the less useful may be the comparator.[15] There will come a point where the necessary adjustments are simply too many or too extreme for the comparable sale to have any utility in the valuation exercise.[16] At what point that occurs will be a matter for expert judgment.
[15]Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156, 177 (Handley JA).
[16]RK Morgan Holdings Pty Ltd v Melbourne & Metropolitan Board of Works (1992) 77 LGRA 102, 108 (Gobbo J).

It also trite that valuation is not a science. As Kirby P said in Electricity Commission of New South Wales v Arrow, it is an imprecise, opinionative activity involving the consideration of many variables, sometimes with equally legitimate outcomes.[17]
[17](1994) 85 LGRA 418, 419.

Background
The valuations

Valuations of the Land were carried out on a number of occasions between 2011 and 2018. During that period, the Land was re-zoned, compulsorily acquired and the costs of its remediation were repeatedly assessed, with estimates ranging from $2.4 million to $12.6 million. Development occurred at an uneven pace in Fishermans Bend, but apace in surrounding areas such as Southbank and Docklands.

Each of the valuers used the comparable sales method to ascertain the value of the Land. Each considered a basket of sales that were primarily in Southbank, Docklands, Port Melbourne and South Melbourne. The earliest sale was in July 2010 and the most recent in November 2017.

Mr Dudakov was first retained by VGV in 2011 to ascertain the market value of the Land in anticipation of its acquisition. He provided preliminary valuation advice in April 2011 and a ‘compensation assessment’ as at 30 June 2011.

In April 2011, Mr Dudakov had regard to advice that the likely cost of remediation for a development without basement excavation was $904,000. He based this preliminary valuation assessment on the assumption that a likely re-zoning would be supported by the responsible authority, which would facilitate commercial, industrial and/or retail uses. He valued the Land at that time at $1,500/m²and adjusted his valuation by subtracting $904,000 for remediation, arriving at a valuation of $20 million.

Mr Dudakov’s compensation assessment of June 2011 identified the highest and best use for the land as commercial, industrial, retail, and/or possible residential use and car parking. He again made a direct deduction of $904,000 for the costs of cleaning up contamination and arrived at the same value as in April.

On 27 November 2013,[18] just prior to the Relevant Date, Mr Dudakov assessed market value of the Land at $16.15 million ($1,150/m²) as at that date. By this time, the Land had been re-zoned to CCZ1 and the Hayball development scheme had been prepared. However, a report had been obtained from environmental consultants costing remediation works for high density residential development (without basement) at $12.6 million, with ‘over and above’ costs estimated to be in the order of $11,756,400. Mr Dudakov considered these costs to be sufficiently large to reconsider the highest and best use for the Land. He expressed the view that the highest and best use of the Land would involve commercial or industrial purposes with some prospect of residential development, subject to satisfying environmental issues.
[18]The Reasons refer to a further report in July 2013 prepared by Mr Dudakov which was based on the same remediation information as before and took into consideration the Hayball development scheme. As the Land had been re-zoned to CCZ1, the highest and best use was identified, having regard to the remediation costs of $904,000, as high density residential and the Land was valued at $22.25 million.

Mr Dudakov did not make a specific deduction in his 2013 valuation for the remediation costs, but allowed for them generally in his valuation by adopting a reduced land value.

Mr Brown carried out a ‘check’ valuation on behalf of VGV and prepared a valuation report dated 17 December 2013. He assessed the market value of the Land at $14.5 million ($947/m²) based on the same remediation costs for high-density residential development as Mr Dudakov. Mr Brown considered these costs to be prohibitive and that, in the short term, residential would not be the most probable use. Until the area developed and the return on residential use became more attractive, an interim use akin to industrial, car showroom, car parking or bulky goods retailing would be more suitable.

In March 2014, Mr Dudakov provided a further report valuing the Land at the Relevant Date, and confirmed his assessment of the market value of the Land at $16.15 million.

Mr Dudakov and Mr Brown each prepared a further report in early 2016 for the purpose of the proceeding. In his report dated February 2016, Mr Dudakov assessed the market value of the Land at $21.71 million. In his report dated 30 March 2016, Mr Brown assessed market value of the Land at $21.4 million.

The essential difference between the 2016 valuations and the earlier valuations of the Land (in 2013 and 2014) was the availability of a key sale of a slightly smaller parcel of land at 85–93 Lorimer Street, Docklands, which was also in Fishermans Bend. That property sold in February 2014 (approximately two months after the Relevant Date) for $18.25 million ($2,063/m²) (the ‘Lorimer Street sale’).

By reference to the Lorimer Street sale, which concerned land that Mr Dudakov considered unlikely to be as heavily contaminated as the Land, to be smaller in size and in a superior location, Mr Dudakov resolved to adopt a value for the Land of $1,550/m², representing a 25 percent reduction in value relative to the Lorimer Street sale.

Mr Brown considered the Lorimer Street site to be superior to the Land, being not as exposed to the West Gate Freeway and enjoying a northerly aspect over the Yarra River. It was not expected to have anything ‘extraordinary’ in relation to contamination. He observed that the Lorimer Street site had the same development potential as the Land, although he considered the Land’s potential for residential development to be ‘more medium to long term’. He adopted a direct comparison rate of $1,500/m².

The 2016 valuations prepared by Mr Dudakov and Mr Brown continued to be based on the estimated remediation costs of $12.6 million[19] for high-rise residential development on the Land. Again, these high remediation costs caused both Mr Dudakov and Mr Brown to identify the highest and best use of the Land as other than residential development in the short term: Mr Dudakov considered the highest and best use for the Land to be a ‘land bank’ proposition which could include the continued operation of the car park until the commencement of residential development was deemed appropriate; Mr Brown considered that the highest and best use of the Land continued to be an interim use akin to industrial, car showroom, car parking or bulky goods.
[19]With ‘over and above costs’ of $11,756,400.

Having regard to the costs of remediation, neither valuer made a specific deduction for remediation costs but made a general allowance by adopting a reduced land value.

In his 2016 report, Mr Dudakov had regard to 11 sales but considered the Lorimer Street sale to be the most comparable sale. He also regarded the sale of 60–82 Johnson Street in December 2012 for $10.1 million (the ‘2012 Johnson Street sale’) as an important indicator of the value of the Land. Mr Brown relied on a number of sales, but also considered the Lorimer Street sale, and to a lesser extent the 2012 Johnson Street sale, to be the most comparable sales.

For their part, the applicant’s valuers, Mr Torr and Mr Murray, carried out valuations in March 2016 and again in January 2018, the latter after the valuers’ conference and the agreement to fix remediation costs.

Mr Torr’s March 2016 valuation assessed the market value of the Land at the Relevant Date at $52.4 million; Mr Murray’s March 2016 report gave a value of $55 million. In these reports, Mr Torr and Mr Murray factored in remediation costs of $4.76 million and $5 million respectively, which were deducted directly from the market valuation.

In January 2018, following the agreement on remediation costs, Mr Torr’s assessment of market value was raised to $53.5 million and Mr Murray’s to $56 million. Again, the remediation costs were deducted directly from the valuations.

In his comparable sales analysis, Mr Torr considered 30 sales and re-sales of high density development sites in the CBD and surrounding precincts. Of those sales, Mr Torr considered the following to be key sales:

(c) the Lorimer Street sale;

(d) 60–82 Johnson Street, South Melbourne (contract only, May 2014) for $55.5 million ($5,677/m²)[20] (‘2014 Johnson Street transaction’);

(e) 93–119 Kavanagh Street, Southbank (June 2014) for $145 million ($7,380/m²) (the ‘Kavanagh Street sale’); and

(f) 6–78 Buckhurst Street, South Melbourne (September 2014) for $42 million ($4,375/m²) (the ‘Buckhurst Street sale’).

[20]Mr Torr adopts a figure of $55 million ($5,626/m²) in respect of this transaction in his report dated 22 January 2018. The Joint Statement of Valuers refers to the figure of $55.5 million ($5,677/m²).

The 2014 Johnson Street transaction involved a contract for sale in May 2014 that was extended on at least two occasions but never completed. The sale was known to have been conditional on the grant of a planning permit. In the course of the trial, documents produced under subpoena revealed that the contract of sale contained a special ‘walk away’ condition, which was ultimately exercised by the putative purchaser. Clause 23.4 of the contract of sale, which was inserted on 30 May 2014, provided:

The Purchaser may, within 10 business days of receiving the planning permit referred to in special condition 23.1 from the vendor …, rescind this contract of sale by giving notice to the vendor …, if the terms of that planning permit are not acceptable to it, in its absolute discretion and in the event of such notice being given, any deposit monies paid by the purchaser shall be promptly refunded to the purchaser and this contract of sale shall be at an end, but without affecting any accrued rights and remedies.

The Johnson Street property had previously sold for $10.1 million in 2012 (being the 2012 Johnson Street sale) and it sold again in 2016 for $40 million. The contract for sale in May 2014 for $55.5 million fell between these dates and there was no identifiable reason for spike and subsequent fall in value.

Mr Murray considered 22 sales and re-sales. In addition to the key sales identified by Mr Torr, Mr Murray considered the following to be important sales:

(g) 15–87 Gladstone Street, South Melbourne (April 2015 and March 2016) for $37 million ($6,183/m²) and $52 million ($8,690/m²), respectively;

(h) 89–103 Gladstone Street, South Melbourne (December 2012) for $3.42 million ($4,207/m²); and

(i) 91–95 Montague Street, South Melbourne (May 2015) for $6.08 million ($9,635/m²).

Mr Dudakov and Mr Brown did not consider the sales identified by Messrs Torr and Murray that occurred after February 2014 to be helpful in assessing the market value of the Land at the Relevant Date, largely because there was a directly comparable sale nearby proximate to the Relevant Date — the Lorimer Street sale. Furthermore, they did not consider the 2014 Johnson Street transaction to be a reliable indicator of the market value of the Land at the Relevant Date because of the circumstances in which it remained uncompleted. For their part, Mr Torr and Mr Murray considered the Lorimer Street sale (at $18.5 million) to be a ‘low sale’ which was not indicative of the value of the Land. They also considered the 2012 Johnson Street sale (at $10.1 million) to be a ‘low sale’.

Joint Statement of Valuers

The valuers’ conference took place in December 2016. Each of the valuers came to the conference with a market value assessment in accordance their (then) most recent (2016) valuation report:

(j) Mr Dudakov — $21.71 million;

(k) Mr Brown — $21.4 million;

(l) Mr Torr —$52.4 million; and

(m) Mr Murray — $55 million.

The valuations of Mr Dudakov and Mr Brown reflected their views on the highest and best use for the Land outlined in their reports of February and March 2016, which were as a land bank and for interim industrial uses respectively.

However, it was agreed at the valuers’ conference that the highest and best use of the Land was for high-rise residential development. The Joint Statement records the valuers’ agreement that:

[t]he highest and best use for the land was for high-rise residential development.

In respect of this point of agreement, the Joint Statement continued:

While there was some divergence as to the likely timing of development ultimately nothing in each of the valuers respective valuations turned on this point as all valuers relied on analysis of comparable sales in determining value. The exception to that statement is that the respective valuers’ perception of the likely timeframe until development does influence the way in which they treat contamination remediation costs in their calculations: Murray/Torr applied a full impact; Dudakov/Brown applied a deferred/diluted impact.

The valuers agreed that the development schemes prepared by Rothe Lowman and Hayball (for five high-rise residential towers) were reasonable responses to the planning regime at the Relevant Date.

As to the comparable sales, the Joint Statement recorded that:

[t]he properties at 85–93 Lorimer Street and 60–82 Johnson Street were considered to be directly comparable in terms of location, size and development potential. However the valuers diverged in their respective interpretation as to the weight given to the various dealings and transactions relating to these properties.

The issues identified by the valuers as giving rise to the substantial differences between their valuations were recorded in the Joint Statement as follows:

(n) the impact of site contamination and the various environmental reports, and the subsequent provision of the joint environmental report;

(o) the relevance and application of a particular sale, being the Lorimer Street sale;

(p) the relevance and application of the conditional contract of sale comprising the 2014 Johnson Street transaction; and

(q) the relevance of the various development schemes proposed for the Land.

The Joint Statement dealt with each of these issues in turn. Only the first three are relevant to this appeal.

In relation to the impact of site contamination, the Joint Statement recorded that:

(a) Mr Dudakov did not make a specific deduction for clean-up but considered that any such cost was part of a suite of reasons justifying a downward adjustment on the key sale, which was the Lorimer Street sale. In light of the remediation costs in the joint environmental report, Mr Dudakov reviewed his downward adjustment from 25 percent to 15 percent, resulting in a value for the Land of $1,750/m²and a revised valuation of $24.61 million.

(b) Mr Brown did not make a specific deduction for clean-up as, in order to make such a deduction, the same information in relation to sales evidence would need to be obtained and it was not available. In light of the remediation costs in the joint environmental report, Mr Brown also made an adjustment and revised his valuation to $25.3 million, with an unencumbered land value of $1,800/m².

(c) Mr Torr had relied on remediation costs of $4.76 million and deducted that sum from his valuation of the Land. However, taking the mid-point of the clean-up costs estimates as $3.268 million, Mr Torr adjusted his valuation upwards by $1.5 million and revised his valuation to $53.9 million.

(d) Mr Murray had deducted $5 million from the land value for remediation costs. Based on the joint environmental report, Mr Murray reduced his ‘clean up allowance’ to $4 million and increased his valuation from $55 million to $56 million.

In relation to the Lorimer Street sale:

(a) Mr Dudakov and Mr Brown considered this to be the most comparable sale. Mr Dudakov acknowledged that sales from March 2014 onwards showed a significant rise in value from the Lorimer Street sale but considered that these changed levels were a function of a rapidly rising market and a greater appreciation of the impact from the re-zoning of Fishermans Bend.

Mr Dudakov acknowledged that the site had been developed with lower density than anticipated due to parkland and transport corridor requirements.

(b) Mr Torr and Mr Murray considered this to be ‘a very low sale’ and significantly below the levels of value in the wider market for this type of property. Sales analysed in Mr Torr’s report as well as other sales that had come to his attention since then showed a range of $33,000 to $43,000 per apartment site, whereas the Lorimer Street sale was analysed at $13,000 to $18,800 per apartment site. Mr Murray agreed that it was appropriate to carry out analyses of sales on a rate per square metre of land area as well as on an apartment/dwelling basis. His sales evidence, as well as further sales, indicated a range falling within $30,000 to $51,000 per apartment.

Mr Torr stressed that planning documents available at the time of the Lorimer Street sale showed a transport corridor and a public park on the site and that, as things turned out, approximately 41 percent of the site was earmarked for public purposes, resulting in lower development density.

In relation to the 2014 Johnson Street transaction, the Joint Statement recorded that the property sold in November 2012 for $10.1 million, and was contracted to be sold in May 2014 for $55.5 million ($5,677/m²), subject to a planning permit being obtained by 27 August 2014. The time limit for the completion of the sale was extended twice, but the parties mutually agreed to withdraw from the sale in March 2015.

The Joint Statement further recorded, in relation to the 2014 Johnson Street transaction, that:

(a) Mr Dudakov and Mr Brown considered that the sale price ($55.5 million or $5,677/m²) had to be treated with caution, as the sale was conditional. The consent of the vendor to extend the contract twice in a rapidly rising market indicated the vendor’s awareness that the price was ‘fulsome’.

(b) Mr Torr agreed that the conditional nature of the contract demanded some adjustment, but the failure of the contract to proceed was not due to matters related to the land or the agreed price. According to Mr Torr, the sale price represented $34,690 per apartment, which was in line with other sales evidence, with the exception of the Lorimer Street sale. Mr Torr observed that the Lorimer Street sale and the 2014 Johnson Street transaction stood in ‘stark contrast’ to one another and that the difference could not be explained by the three month difference in dates or by the permit condition applicable to the Johnson Street sale. He concluded that the Lorimer Street sale was a low sale.

(c) Mr Murray essentially agreed with Mr Torr’s analysis.

In summary, as a result of the valuers’ conference, and having regard to the joint environmental report and the agreed development scenarios, the valuers adjusted their respective valuations as follows:

(r) Mr Dudakov — $24.61 million;

(s) Mr Brown — $25.3 million;

(t) Mr Torr — $53.9 million; and

(u) Mr Murray — $56 million.

Pre-trial events

In December 2017, the parties agreed that the remediation costs would be fixed at $3,686,250.

Messrs Torr and Murray treated the agreed remediation costs as a direct deduction from the market value of the Land, whereas Messrs Dudakov and Brown did not make a precise numerical deduction for those costs and continued to allow for them by reducing the land value.

Although Mr Torr and Mr Murray both prepared supplementary reports just prior to trial, no order was made for the provision of further reports following the valuers’ conference or the agreement on remediation costs. Mr Dudakov and Mr Brown did not prepare any further reports and relied at trial on their reports from early 2016 and their adjusted valuations.

Reasons

The judge set out in summary form the valuation evidence and, in order to aid the task of interpretation, included an analytical table of all 52 sales considered by the valuers in their respective valuation reports, setting out sale price, land area and a dollar per square metre analysis.[21] She then considered the issues identified in the Joint Statement as giving rise to the substantial differences in the valuations, namely:
[21]Reasons [56].

(v) the impact of site contamination on value and the various environmental reports;

(w) the relevance and application of the Lorimer Street sale in February 2014;

(x) the relevance and application of the conditional contract of sale of Johnson Street in May 2014; and

(y) the relevance of the various development schemes postulated for the Land.

The judge recorded that as a result of the valuers’ conference, the valuers had reviewed their opinions and amended their assessments of market value.[22] The disagreement between them focussed on the value of the Lorimer Street sale and the 2014 Johnson Street transaction as comparable sales. Examination of other information about sales and the state of the market essentially revolved around the positions put by the parties, which aimed respectively to demonstrate or undermine the applicant’s argument that the Lorimer Street sale was a ‘very low sale’ and the 2014 Johnson Street transaction was a reliable indicator of market value.[23]
[22]Ibid [72].
[23]Ibid [73].

The judge further observed that the parties had agreed a figure for the costs of remediation prior to trial (but after the valuers’ conference) and, as a result, no evidence was required to be adduced at trial on the quantum of remediation costs. However, there remained the issue of how the costs of remediation should be factored into the valuations. This was essentially a criticism by the applicant of the approach of the respondents’ valuers, Messrs Dudakov and Brown.[24]
[24]Ibid [74].

The judge then moved to consider issues that had arisen concerning the methodology for analysing comparable sales. For the purposes of this appeal, only some of those issues are relevant.

The judge considered the relevance of transactions which were not completed sales, the two transactions in question being the uncompleted Hydrox transaction and the 2014 Johnson Street transaction. The judge distinguished between, on the one hand, offers to purchase the Land itself and, on the other hand, offers, whether conditional or otherwise, to purchase allegedly comparable land such as the 2014 Johnson Street transaction. She considered that evidence of the latter was not direct evidence of value.[25] She also concluded that the Hydrox transaction ought to be disregarded as relevant to assessing the market value of the Land at the Relevant Date.[26] In relation to the 2014 Johnson Street transaction, the ‘walk away’ provision in the contract, among other matters, made the agreement worthless to the vendor. That transaction was not, in the judge’s opinion, something that could be relied on as a comparable sale.[27] In addition, the subsequent re-sale of the Johnson Street land in December 2016 for $40.65 million provided compelling evidence that the $55.5 million transaction in 2014 was significantly out of line with the actual market value of that land.[28] The judge concluded:

I am of the view that, in principle, evidence of market transactions which fall short of a completed sale might be relevant depending on the circumstances. This view is supported by s 5A(1) of the VL Act, which provides that every matter or thing which a court considers relevant to determining the value of any land may be taken into account.
However, in this case, the facts do not bear out the robustness of such a price and I cannot give the $55.5 million Johnson Street May 2014 ‘transaction’ any weight. This transaction did not complete and the eventual completed transaction in December 2016, at $40.65 million, more than two and a half years later, when all of the valuers have agreed that the 2014 period was one of a rapidly rising market, demonstrates that the transaction was one of pure speculation rather than a transaction that demonstrated market value. The context and circumstances of the transaction are such that, in my view, it would be unsafe for the Court in these circumstances to rely on it.[29]

[25]Ibid [113].

[26]Ibid [117], [120].

[27]Ibid [134]–[135].

[28]Ibid [132].

[29]Ibid [136]–[137] (citations omitted).

Based on the valuers’ identification of comparable sales, the judge considered four sales: the Lorimer Street sale; the 2012 Johnson Street sale; the uncompleted sale of Johnson Street in May 2014 (that is, the 2014 Johnson Street transaction); and the sale of Johnson Street in December 2016. She noted that the Joint Statement identified the Lorimer Street and the Johnson Street properties as directly comparable with the Land in terms of location, size and development potential.[30] However, Mr Torr and Mr Murray described the Lorimer Street sale as ‘very low’, while Mr Dudakov and Mr Brown considered it to be the most comparable sale and the key sale justifying their valuations.
[30]Ibid [139].

The judge set out in some detail the background to the Lorimer Street sale, referring to the evidence given by a representative of the purchaser about the negotiations.[31] Reviewing the evidence of Mr Torr as to why he considered Lorimer Street to be a ‘low sale’, the judge observed that Mr Torr had initially used the wrong date for the agreement as to price and, when this became clear, he attributed the low price to a proposed tram route and public park which would take up 40 percent of the site.[32] In fact, based on the evidence of the purchaser’s representative, these factors were not known to the purchaser at the time of the sale.
[31]Ibid [142]–[143].
[32]Ibid [144].

Based on the evidence, the judge found that the Lorimer Street sale took place between fully informed, sophisticated parties, both of whom were fully acquainted with the land, its planning circumstances, its potential for the development of multi-storey residential towers and its locational attributes. The Lorimer Street sale took place two months after the Relevant Date and a number of parties were interested in securing the property.[33] As a consequence, the judge did not accept that there was any proper basis for treating the Lorimer Street sale as a low sale. She found that the Lorimer Street sale was the most useful and compelling evidence of the market at or about the Relevant Date.[34]
[33]Ibid [149].
[34]Ibid [154].

The judge also analysed the circumstances of the 2012 Johnson Street sale, which Mr Torr considered to be ‘extraordinarily low’. She concluded that it was both a real sale, in that it was a completed transaction, and a sale of which a hypothetical purchaser would have been aware at the Relevant Date.[35] It satisfied all of the criteria in s 5A(2) of the VL Act, only requiring adjustment for the passage of time. In contrast, the 2014 Johnson Street transaction was incomplete and suffered from the defects previously identified.[36]
[35]Ibid [158].
[36]Ibid [161]–[162].

Finally, the judge did not consider the Johnson Street sale in December 2016 for $40.65 million to be a low sale, as contended by Mr Torr. The only support for this sale being a low sale was the $55 million 2014 Johnson Street transaction, upon which her Honor found that no reliance could be placed.[37]
[37]Ibid [164]–[165].

The judge identified the primary reason for the difference in the positions of the valuers to be their respective commencement points for considering the comparable sales. Mr Brown and Mr Dudakov placed the greatest weight on the Lorimer Street sale in February 2014, while Mr Torr and Mr Murray relied on the $55.5 million Johnson Street transaction in May 2014 and their ‘low sales’ case theory.[38] Her Honour concluded:

Unless I accept the proposition upon which both Mr Torr and Mr Murray rely, that both the 85–93 Lorimer Street sale in February 2014 for $18.5 million, and the sale of the 60–82 Johnson Street property in December 2012 for $10.1 million and then again, in December 2016 for $40.65 million are low sales, the $50 million plus valuation figures for the Land which the Claimant contends cannot be supported.
In effect, the ‘low sales’ proposition only gains any support from one ‘sale’ — the sale that never completed being the 60–82 Johnson Street transaction in May 2014. The position advanced by Mr Torr and Mr Murray that the sales are ‘low’, and ‘very low’, depends upon adopting the 60–82 Johnson Street May 2014 transaction as defining evidence of market value as at May 2014.
I agree with Mr Dudakov that no weight should be placed upon the 60–82 Johnson Street transaction, and that the only transaction that was ‘out of line’ was the 60–82 Johnson Street transaction in May 2014.[39]

[38]Ibid [166].

[39]Ibid [170]–[172].

The judge then turned to consider the embryonic market in Fishermans Bend by reference to the planning evidence, concluding that at the Relevant Date meaningful comparisons could not be made between the more developed and settled areas of Southbank and Docklands and the Montague precinct within Fishermans Bend.[40] Accordingly, the utility of sales in Southbank and Docklands in assessing the market value of the Land at the Relevant Date was questionable and the use of sales in the more mature high-rise residential market locations of the established Southbank, Docklands and other inner city locations was not of sufficient probative value in light of the closest sale in all respects being the Lorimer Street sale in February 2014.[41]
[40]Ibid [193].
[41]Ibid.

The judge then moved to consider the sales relied upon by Mr Murray and Mr Torr that occurred after the Relevant Date, in particular, the Kavanagh Street sale for $145 million (representing a rate of $7,380/m²) in June 2014 and the Buckhurst Street sale for $42 million (a rate of $4,375/m²) in September 2014.[42] Having reviewed the authorities on the relevance of sales after the relevant date, the judge stated that she accepted as a matter of law that sales which were comparable in all or most other relevant respects which occurred in, or around, or after the Relevant Date, ought to be taken into account in some way.[43] The question was how much adjustment could safely be made. If the adjustment was significant, a mere mathematical adjustment might not reflect the market at the relevant point in time. This was particularly so where the market was rapidly changing, was ‘lumpy’ or non-linear. It was necessary to judge to what extent the sales reflected consistency with general market conditions at the Relevant Date.[44] In relation to the Kavanagh Street and Buckhurst Street sales the judge said:

I do not accept that the correct approach is to look at the escalation of the market several years after the Relevant Date to assist a finding as to the market price at the Relevant Date. It is difficult to apply the Spencer approach at a date well after the Relevant Date in what is acknowledged to be a rapid and non-linear escalating market. In such a market, the closest in time will be the best evidence of value.[45]

[42]Ibid [195].

[43]Ibid [205].

[44]Ibid.

[45]Ibid [207].

Nonetheless, the judge considered and briefly discussed a number of other sales, including the Kavanagh Street and Buckhurst Street sales in June and September 2014. She concluded that both of these sales were in a different ‘band of value’, having regard to their location. In addition, the Buckhurst Street sale was more than nine months after the Relevant Date and was therefore of no real assistance, given that period of time in the rapidly escalating market.[46]
[46]Ibid [209]–[210].

The judge’s conclusion in relation to the other sales was as follows:

In view of the foregoing, I have concluded that the most reliable evidence of market value as at the Relevant Date was the sale of 85–93 Lorimer Street in February 2014 [the Lorimer Street sale]. Each of the sales otherwise referred to is either significantly smaller in area, has locational differences, and/or has a sale date which is significantly remote in a rapidly-rising market. I have concluded that they do not provide better evidence of market value than the 85–93 Lorimer Street sale.[47]

[47]Ibid [220].

Overall, the judge agreed with Mr Dudakov and Mr Brown, who saw no need to have regard to sales that took place more than one or two months after the Relevant Date in circumstances where the Lorimer Street sale in February 2014 provided a clear and reliable indicator of value.[48] The judge said:

If there is evidence of a sale or sales at or near the date of acquisition of land, which is otherwise comparable, then such a sale will properly fit into the basket of sales and, with the appropriate adjustments, is properly a ‘comparable sale’. However, a rapidly-rising market is a factor which distorts the picture. The further out from the relevant date, the less confidence the Court can have in such sales, and the weight given to such adjusted valuations based on the length of time will be reduced.
I agree with the submission made by the [respondent] that, where the market is rapidly rising, and the increase is non-linear, the difficulty of seeking to use sales many months after the Relevant Date in an attempt to establish the prevailing value at the Relevant Date is fraught.[49]

[48]Ibid [225].

[49]Ibid [226]–[227].

The judge described Mr Torr’s and Mr Murray’s evidence, based as it was on sales after the Relevant Date, as having a ‘rear view mirror’ starting point and as relying upon a ‘low sales’ case theory, both of which were fundamentally unsound foundations.[50] She continued:

Prior to the Relevant Date, and prior to March 2014, there was no sale of land comparable in size to the subject at levels in excess of $2,000/m². The sales after this time are in a very different band of value. The 85–93 Lorimer Street sale [the Lorimer Street sale], which took place two months after the Relevant Date, is critical and highlights the difficult task that both Mr Torr and Mr Murray had, to ensure that they excluded hindsight in their thought processes. In my view, taking hindsight as their starting point is a key factor in explaining why their valuations are significantly higher than those undertaken contemporaneously with the Relevant Date for the Authority, by Mr Dudakov and Mr Brown. It also explains why they formed the view that the 85–93 Lorimer Street sale was a ‘low sale’, rather than seeing it as reflecting the state of the market at that time.[51]

[50]Ibid [241].

[51]Ibid [242] (citations omitted).

As to the treatment of remediation costs, the judge noted that after the valuers’ conference, the parties had agreed that the cost of cleaning up contamination would be $3,686,250. Notwithstanding this agreement, Mr Dudakov did not adjust his valuation.[52] Likewise, Mr Brown made no further adjustment to his valuation because he had proceeded on the basis that it was likely that the clean-up costs would be between $3.6 million and $3.8 million.[53]
[52]Ibid [272], [274].
[53]Ibid [275].

Before considering whether it was appropriate for Mr Dudakov and Mr Brown to make a general allowance for remediation costs by adopting a reduced land value once the remediation costs had been agreed, and whether she should accept the allowances that they made for remediation costs in the light of the agreed remediation costs, the judge addressed the way in which Mr Dudakov and Mr Brown had identified the highest and best use of the Land having regard to the likely remediation costs. She noted that in the Joint Statement, the valuers generally agreed that the highest and best use for the Land was for high-rise residential development[54] and that while there was some divergence as to the likely timing of development, ultimately nothing in the valuations turned on this point, as all of the valuers relied upon an analysis of comparable sales to determine value.[55]
[54]Ibid [281].
[55]Ibid [282].

The exception, the judge considered, was the treatment of remediation costs.[56] The judge recorded that the applicant criticised Mr Dudakov’s approach to contamination costs on the basis that the reduction in contamination costs was not reflected in a corresponding increase in the value of the Land. She observed, however, that Mr Dudakov’s 2016 valuation (prepared prior to the agreement on remediation costs) was not based on the absolute cost of remediation and, accordingly, a reduction in remediation costs would not result in a dollar for dollar increase in the valuation.[57]
[56]Ibid [283].
[57]Ibid [288].

The judge accepted that the valuers had adopted different approaches to adjusting for remediation costs, namely, an arithmetic approach and an allowance approach.[58] She found the non-arithmetic (allowance) approach taken by Mr Dudakov and Mr Brown, when they were working with significantly higher remediation costs, to be reasonable. The judge acknowledged that the arithmetic approach adopted by Mr Torr and Mr Murray was more conservative, but did not consider this to be of such consequence as to require it to be preferred.[59]
[58]Ibid [286].
[59]Ibid [290].

The judge then moved to consider whether she should accept the adjustments made by Mr Dudakov and Mr Brown for remediation costs in the light of the agreed remediation costs. She calculated the rate that each of them would need to adopt for the unencumbered Land ($/m²) to reduce the allowance for remediation costs so as to cap costs at the agreed remediation costs of $3,686,250. The judge calculated that Mr Dudakov would need to adopt a rate of $1,801.95/m², which would increase his valuation to $25.3 million in line with Mr Brown’s valuation.[60] Applying the same methodology, the judge concluded that Mr Brown would need to adopt a rate for unencumbered land of $1,808.95/m².[61]
[60]Ibid [297].
[61]Ibid [301].

The judge concluded:

Finally, I accept that the treatment by the valuers of a reduction to account for contamination costs, either by making a direct dollar deduction, or by a percentage are both acceptable approaches. I accept that the cost of remediation, when high, affected the Authority’s valuers’ acceptance of a high-rise residential highest and best use, but both Mr Dudakov and Mr Brown accepted that the highest and best use was high-rise residential with some time delay in their assessment before the Court. I also accept that there is validity in the time lag to development at the Relevant Date, given the state of development and the physical attributes and infrastructure available to the Land at that date. The Land was, and still is, at the date of trial in an industrial precinct in appearance and operation. This inevitably reduces its attractiveness for immediate high-rise residential development.
As set out above, the assessments of Mr Brown and Mr Dudakov are very similar, notwithstanding the route to the final figure is not identical. What the analysis in relation to the agreed contamination costs shows is that there is support for the $1800/m²rate for unencumbered land, which is the figure currently adopted by Mr Brown.
For the reasons set out above, I am of the view that the evidence and opinions of Mr Dudakov and Mr Brown should be preferred. Mr Brown and Mr Dudakov have approached the exercise in a very similar manner in contrast to that of the Claimant’s valuers. In accordance with established principles, I will resolve the amount properly payable in favour of a more liberal estimate, by giving the benefit of the doubt to the Claimant in awarding the slightly higher figure as assessed by Mr Brown.
I find that the market value of the Land at the Relevant Date is $25.3 million based on Mr Brown’s slightly higher valuation.[62]

[62]Ibid [316]–[319] (citations omitted).

The judge then moved to consider the claim for replacement land costs pursuant to s 41(1)(d) of the LAC Act. As at the date of trial, no replacement land had been purchased. According to the judge, this was not conclusive of the issue and did not necessarily mean that replacement land costs were not recoverable, but it did mean that it was necessary to look closely at the evidence in support of the claim.[63]
[63]Ibid [324].

The judge recorded the applicant’s argument that due to the significant disparity in the value of the Land as assessed by the experts, the applicant was unable to determine how much money it had available to spend on property to replace the Land. The applicant claimed that due to this uncertainty, it was premature for the applicant to undertake a detailed investigation of potential replacement properties as there was little point in looking at properties in and around the $15 million to $20 million range if the amount of compensation awarded by the Court turned out to be significantly higher.[64] The judge further recorded that the applicant had obtained a private ruling from the Australian Taxation Office on 7 July 2015 giving the applicant until 30 June 2019 to acquire a replacement asset without triggering a capital gains tax liability.[65]
[64]Ibid [325].
[65]Ibid [326].

The judge found that the applicant had had the benefit of the advance payment by the respondent since May 2014 and the fact that it was more than four years between the Relevant Date and the trial was ‘not helpful’, notwithstanding the arguments put concerning delay.[66] This timeframe, in association with the scant evidence of any action in pursuit of a replacement property, did not assist in convincing the Court that this aspect of the applicant’s claim could properly be held to be a claim which met the causal connection test under the LAC Act.[67] Moreover, the judge did not give significant weight to the tax ruling as this was simply a prudent step for the applicant to take at the time and did not prove an active intention to purchase replacement land.[68]
[66]Ibid [329].
[67]Ibid.
[68]Ibid [330].

The judge found that the evidence of the search for replacement land was ‘scant and superficial’ and fell well short of the evidence relied upon successfully in Secretary, Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd.[69] She concluded:

I am of the opinion that the [applicant] sat on its hands and effectively punted that the claim for market value would be significantly more than the [respondent’s] offer. I do not accept the evidence that the [applicant] has taken sufficient steps to convince me that replacement land will be purchased.[70]
[69][2017] 224 LGERA 195; [2017] VSCA 114 (Warren CJ, Osborn and Ferguson JJA) (‘Manor Lakes’).
[70]Reasons [332].

Proposed grounds of appeal

In the Amended Application for Leave to Appeal, the applicant’s proposed grounds of appeal are expressed as follows:

1. The judge erred in basing her assessment of the market value of the land on the valuations of Mr Dudakov and Mr Brown where each of those valuations:

(a) was not founded on the agreed highest and best use of the Land, but on some other highest and best use;

(b) failed to give effect to the agreed quantum of remediation costs;

(c) was, in substance, based on a single sale (85–93 Lorimer Street) and failed a core requirement of the comparable sales method, namely, that the volume of sales be sufficient to justify an inference as to the value of the Land;

(d) alternatively to (c), excluded consideration of sales after February 2014, whilst considering sales at least 12 months before the Relevant Date,

and thereby failed to apply the principles required by s 40 of the LAC Act, s 5A of the VL Act and Spencer[71] (collectively, ‘relevant legal principles’).
[71](1907) 5 CLR 418; [1907] HCA 82.

2. The judge erred in rejecting the evidence of Mr Torr and Mr Murray on the basis that it was based on hindsight (or, alternatively, was wrongly influenced by hindsight); and thereby the judge failed to apply the relevant legal principles.

3. [abandoned]

4. [abandoned]

5. The judge erred in determining the replacement property claim:

(a) by wrongly taking into account irrelevant considerations, namely, that the Court had determined that the compensation payable for market value was not significantly higher than the market value conceded by the respondent and that the applicant was punting that its claim for market value would be significantly higher than the amount offered; and/or

(b) by failing to take into account a relevant consideration, namely, the disparity between what the applicant considered to be the market value of the Land and the amount offered by the respondent.

Although an appeal from the decision of the judge lies only on a question of law, the applicant did not identify any questions of law arising on appeal. The grounds of appeal embrace alleged errors of fact and do not distil questions of law.[72] At the request of the Court, and very shortly before the hearing of the appeal, the Court was provided with a document setting out questions of law, relevantly, as follows:
[72]Victoria v Bacon [1998] 4 VR 269, 285 (Phillips JA).

Ground 1(a): Whether the judge, in basing her assessment of the market value of the land on the valuations of Mr Dudakov and Mr Brown, erred by not founding the assessment on highest and best use of the land?
Ground 1(b): Whether the judge, in basing her assessment of the market value of the land on the valuations of Mr Dudakov and Mr Brown, erred in relation to the effect of remediation costs by failing to assume that the hypothetical parties were perfectly acquainted with the land?
Ground 1(c): Whether the judge, in basing her assessment of the market value of the land on the valuations of Mr Dudakov and Mr Brown, erred by failing to apply a core requirement of the comparable sales method, namely that the volume of sales relied upon be sufficient to justify an inference as to the value of the subject land?
Ground 1(d): Whether the judge, in her assessment of the market value of the land, erred by adopting a different legal principle for sales after the relevant date than for sales before the relevant date?
Ground 2: Whether a valuation based on hindsight is necessarily less reliable than a valuation made at or near the relevant date?
Ground 5: Whether, in determining the replacement property claim, the judge erred:
a. by wrongly taking into account irrelevant considerations, namely that the court had determined that the compensation payable for market value was not significantly higher than the market value conceded by the Authority and that the Claimant was punting that its claim for market value would be significantly higher than the amount offered; and/or
b.by failing to take into account a relevant consideration namely, the disparity between what the Claimant considered to be the market value of the land and the amount offered by the Authority?

The respondent submits, not without some justification, that these questions of law simply involve a repackaging of the grounds of appeal and do not distil questions of law.

However, the applicant submits that the valuation of land, in and of itself, will frequently involve the application of legal principles and that questions of fact, law and opinion are not readily divisible in valuation practice and cases. Where there is an established principle of valuation, whether the valuer has adhered to that principle will be question of law, or a mixed question of fact and law.

In Maurici v Chief Commissioner of State Revenue,[73] the High Court considered whether a complaint that the valuer had considered an insufficient number of sales to carry out a comparable sales analysis gave rise to a question of law. Concerning an appeal to a judge of the Land and Environment Court on a question of law pursuant to s 56A of the Land and Environment Court Act1979 (NSW), it said:

We do not doubt that the question argued there, and again here, as to the relevance of scarcity, was a question of at least mixed law and fact. The making of a valuation will frequently involve an application of legal principle or principles. Questions of law, fact and opinion do not always readily and neatly divide themselves into discrete matters in valuation cases and practice.[74]

[73](2003) 212 CLR 111; [2008] HCA 8 (‘Maurici’).

[74]Ibid 116 [8] (McHugh, Gummow, Kirby, Hayne and Callinan JJ) (citations omitted).

In this context, the High Court referred with approval[75] to the following passage in the opinion of the Privy Council in Melwood Units Pty Ltd v Commissioner of Main Roads:

If it should appear that the Land Appeal Court ignored a principle of assessment of compensation for compulsory acquisition (resumption), such as for example that commonly known as the Point Gourde principle, that in their Lordships' opinion would be an error in law. So also if the Land Appeal Court rejected as wholly irrelevant to assessment of compensation a transaction which prima facie afforded some evidence of value and rejected it for reasons which were not rational, that in their Lordships' opinion would be an error in law. And as will be seen, it is on those lines that the developer contends that the Land Appeal Court erred in this case.[76]

[75]Ibid.

[76][1979] AC 426, 432 (Lord Russell of Killowen) (‘Melwood Units’).

It will be observed that the Privy Council, in considering what amounts to an error of law, referred to a principle of valuation as having been ‘ignored’ and the rejection of the transaction as being based on reasons that were ‘not rational’.

More recently, in Barkat v Maritime Services,[77] Emmett AJA in the Court of Appeal of New South Wales considered what will constitute an error of law by a judge sitting as a ‘judicial valuer’ under the Land and Environment Court Act 1979 (NSW). Having stated that what will amount to an error of law in any particular case will depend upon context, his Honour said:

A failure to comply with a valuation principle can, but will not necessarily be, an error of law. While the nature and extent of adjustments in a valuation case may be contestable, it does not follow that an error of law is disclosed. Whether a sale of a particular parcel of land is comparable so as to assist in the valuation of the subject land is a matter of degree and judgment. There may be an error of law if a finding that a particular sale is comparable with the hypothetical site sale required for a valuation was not reasonably possible or open the evidence. There may be an error of law in making an adjustment to a particular sale to ensure comparability if the adjustment was not reasonably possible or open on the evidence. On the other hand, almost every sale that is said to be comparable to the hypothetical sale will require an adjustment. Whether or not an adjustment to a sale that is said to be comparable should be made, and if so by what amount, is a matter of degree and of judgment.[78]

[77][2019] NSWCA 240 (‘Barkat’).

[78]Ibid [48], [49] (Emmett AJA) (citations omitted).

Justice Emmett’s formulation (with which Basten JA and Simpson AJA agreed) was that legal error would exist where a finding or adjustment was ‘not reasonably possible or open on the evidence’.

In this case, the judge relied on the valuations of Mr Brown and Mr Dudakov. The figure that she adopted for the market value of the Land was that of Mr Brown.

There was no dispute that it was proper for the judge to place reliance upon the opinion of a valuer, rather than to act as the valuer herself. The judge identified her task by reference to the manner in which Croft J in Challenger Property Asset Management Pty Ltd v Stonnington City Council[79] described both the role of the Court in assessing valuation evidence and in making findings as to the value of land:

It is clear from the authorities that the role of the Court is not ‘to bring a third set of opinions into the arena’ or to ‘piece together a valuation of [its] own’. Further, in circumstances where there is a disparity between valuers’ valuations, the Court must subject each valuer’s evidence to critical evaluation. Additionally, it is clear that it is not permissible to average valuations because the result ‘would be a figure not arrived at by the application by the Court of the established principles of valuation’.
This does not mean, however, that the evidence of one valuer must be accepted on all issues. It is open to the Court to accept the evidence of one valuer on one issue and the evidence of another valuer on another, separate, issue.[80]

[79](2011) 34 VR 445; [2011] VSC 184.

[80]Ibid 453 [17]–[18] (Croft J) (citations omitted).

No issue was taken with this description of the judge’s task, which was based on longstanding authority.[81] The judge was required to subject the valuations of Messrs Dudakov, Brown, Torr and Murray to critical evaluation and, in determining the market value of the Land, to accept the expert evidence of the valuer whose valuation best stood up to that critical scrutiny. It was not her task to piece together a market valuation of her own.
[81]Brewarrana Pty Ltd v Commissioner of Highways[No 2] (1973) 6 SASR 541, 544–5 (Wells J) (‘Brewarrana’), cited in Masters Home Improvement Australia Pty Ltd v North East Solutions Pty Ltd (2017) 372 ALR 440, 549 [420]; [2017] VSCA 88 (Santamaria, Ferguson and Kaye JJA) and Public Transport Development Authority v Commissioner of State Revenue [2017] VSCA 266, [86] (Warren CJ, Maxwell P and Kaye JA).

Having regard to the fact that an appeal from the judge’s determination lies only for error of law, the applicant must establish that it was not open to the judge to rely on the valuations of Mr Brown and Mr Dudakov.[82] It is not a question of preference, but of whether the judge was precluded, as a matter of law, from relying on those valuations. In our view, it would be necessary to demonstrate that the valuations of Mr Dudakov and Mr Brown so departed from established valuation principles or were otherwise so flawed as to make their expert opinions worthless.
[82]ISPT (2008) 20 VR 447, 460 [65]; [2008] VSCA 180 (Warren CJ, Kellam JA and Osborn AJA).

Before us, senior counsel for the applicant conceded that the 2014 Johnson Street transaction, upon which Mr Torr and Mr Murray relied, was not a reliable indicator of the value of the Land at the Relevant Date. Evidence had emerged at trial about the ‘walk away’ provision in the contract of sale, unknown to Mr Torr and Mr Murray when they prepared their valuations, that rendered the contract of sale largely meaningless. Although in his closing address at trial, senior counsel for the applicant submitted that the judge should find that Mr Torr’s valuation was the most reliable and adopt it, it is not now contended that the judge erred in not doing so. The 2014 Johnson Street transaction was the principal basis for the ‘low sales’ case theory applied by Messrs Torr and Murray to the Lorimer Street sale and, indeed, the 2012 Johnson Street sale. If those were not ‘low sales’ and the 2014 Johnson Street transaction was an unreliable comparator, it follows that the valuations of Mr Torr and Mr Murray are fatally flawed. Implicitly, it is conceded that the judge was correct not to adopt the assessments of Mr Torr or Mr Murray.

We observe, in light of this concession, that if it was not open to the judge to accept the expert evidence of Mr Dudakov or Mr Brown, she was in no position to make a determination of the market value of the Land, other than by impermissibly bringing ‘a third set of opinions into the arena’. In substance, therefore, the applicant submits that the trial miscarried, because there was no expert valuation evidence upon which the judge could rely. A retrial would be necessary. We consider this to be an extraordinary proposition, given the experience and expertise of the four valuers concerned, and the obvious efforts that were made over a number of years to carefully assess and refine the assessments of the market value of the Land.

Ground 1(a): Failure to apply highest and best use
Submissions

The applicant submits that the judge erred in law in basing her assessment of market value on the valuations of Mr Dudakov and Mr Brown where each of those valuations was not founded on the agreed highest and best use, but on some other highest and best use.

It was common ground that the relevant legal principles required the Land to be valued on the basis of an identified highest and best use, a concept implicit in the theoretical basis for the assessment of market value at a given point in time. The valuers ultimately agreed, and it was a common position adopted by the parties at trial, that the highest and best use for the Land was for high-rise residential development, generally in accordance with the development schemes prepared by Rothe Lowman and Hayball.

The applicant submits, however, that neither Mr Dudakov nor Mr Brown prepared a valuation report using the agreed highest and best use of the Land. At best, after agreeing a highest and best use that was different from that which was the foundation for their valuation reports, each valuer adjusted his assessment (by $2.95 million and $3.95 million respectively) as part of the Joint Statement, and only by reason of the reduced remediation costs. While the respondent’s valuers agreed that a scheme like the Rothe Lowman development scheme or the Hayball development scheme could be implemented in due course, this wasn’t in fact what they identified as the highest and best use of the Land at the Relevant Date. It was a prospective highest and best use at some point in the future.

The applicant submits that Mr Dudakov’s and Mr Brown’s identification of the highest and best use of the Land was affected by their (incorrect) understanding of what its remediation would cost. According to the applicant, the respondent’s valuers were ‘thrown off track’ by an overinflated estimate of the remediation costs and ‘didn’t sufficiently get back on track’ by recognising, not only that the highest and best use of the Land was for high-rise residential development, but also that the timeframe for the realisation of that development potential had shortened in light of the much reduced agreed remediation costs. The applicant submits that the judge failed to deal with the argument that the adjustments that Mr Dudakov and Mr Brown made to their valuations at the valuers’ conference were not in fact founded on the agreed highest and best use of the Land.

The applicant submits that, having regard to the valuations prepared by Mr Dudakov and Mr Brown in late 2013 and early 2014 contemplating a land bank and interim non-residential uses as the highest and best uses of the Land, they should have made larger adjustments than they made at the valuers’ conference. In fact, so it is contended, the adjustments made by Mr Dudakov and Mr Brown reflected no more than the reduced quantum for remediation costs whilst purporting to respond to the new information about remediation costs more generally, which affected the timing for development. The valuations given at trial relying on the Joint Statement purported to be based on the agreed highest and best use of high-rise residential development, but Mr Dudakov and Mr Brown in fact valued the Land on the basis of deferred high-rise residential development. Notwithstanding the significant change in relation to the timing of future development, their figures were not adjusted.

The respondent argues that the applicant’s submission is directly contradicted by the express terms of the agreement between the valuers that is recorded in the Joint Statement and disregards the fact that the Joint Statement was tendered in evidence and was evidence upon which the judge was entitled to rely. The Joint Statement expressly recorded that Mr Dudakov and Mr Brown agreed that the highest and best use of the Land was for high-rise residential development. The structure of the Joint Statement begins with the identification of highest and best use of the Land, which was the same use applicable in the Lorimer Street sale, a sale accepted by all four valuers as comparable.

Analysis

This ground requires consideration of the relationship between the identification of the highest and best use of land and the application of comparable sales evidence to determine the value of that land.

Ordinarily, the first step in the valuation of land will be to ascertain the highest and best use both presently open and potentially open in the foreseeable future.[83] However, there is not always a single, clearly defined highest and best use.
[83]Manor Lakes [2017] 224 LGERA 195, 205 [38]; [2017] VSCA 114 (Warren CJ, Osborn and Ferguson JJA).

In ISPT,[84] this Court endorsed the following statement in respect of highest and best use:

Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why highest and best use is relevant in assessing value, whether improved value or site value.[85]

[84]ISPT (2008) 20 VR 447, 459 [41]; [2008] VSCA 180 (Warren CJ, Kellam JA and Osborn AJA).

[85]ISPT Pty Ltd v City of Melbourne (Land Valuation) [2007] VCAT 652, [62] (Morris J) (citations omitted).

The Court went on to make the following observation regarding the flexibility of the concept in a given situation:

According to the applicant, the requirement that comparable sales be sufficient in volume to justify a deduction or inference as to value will usually require consideration of more than two sales, because it is necessary to consider the sales evidence as a whole in order to ascertain whether any sales are out of line with the main body of the sales evidence.

The applicant submits that it was not open to the judge to rely, effectively, on a single sale. Although both Mr Dudakov and Mr Brown cited numerous sales in their respective valuation reports, both valuations were, in substance, based upon a single sale (the Lorimer Street sale) and, apart from that sale, neither valuer had regard to sales after the Relevant Date. At trial, Mr Dudakov relied on the Lorimer Street sale and Mr Brown relied on that sale and the 2012 Johnson Street sale. In contrast, so the applicant contends, its valuers relied on a suite of sales and identified eight key sales, including the 2014 Johnson Street transaction.

According to the applicant, the judge wrongly characterised the dispute as a contest between the 2014 Johnson Street transaction and the Lorimer Street sale and treated other sales simply as bearing upon which of those two sales should be relied on. As a result, the judge’s assessment of market value came down to reliance on just one sale. If the proper method had been used and a sufficient basket of sales had been analysed, it inevitably would have led, even after adjustments for time and locale, to a recognition that the Lorimer Street sale was not sufficient evidence of value.

The respondent submits that whether there has been consideration of a sufficient volume of sales is a question of fact and not law. In any event, in this case, each valuer began with a basket of sales which was incorporated in the matrix of sales set out in the Reasons. At the valuers’ conference, the valuers narrowed the issues to focus on two key transactions considered to be of direct relevance. There can be no legitimate criticism of that process. The trial judge discussed the comparable sales method and made no error by directing significant attention in the Reasons to the two directly comparable transactions identified in the Joint Statement. She did not consider these transactions alone or in isolation from the evidence of other sales. The Reasons include consideration of other sales to which the valuers referred in their evidence (the Kavanagh Street and Buckhurst Street sales in 2014, sales of a property in Gladstone Street in 2015 and 2016, and a sale in Montague Street in 2015). The judge found that each of these ‘after’ sales was in a different band of value.

Analysis

The applicant’s submission is primarily based on the decision of the Court of Appeal of Western Australia in Western Australian Planning Commission v Arcus,[99] in which McLure JA said of the comparable sales method:

There is significant scope for legitimate variations in approach and method and it is inappropriate to formulate rigid rules as to what is required. However, a core requirement of the comparable sales method is that the comparable sales be sufficient in volume to justify a deduction or inference as to value. What is sufficient in volume will vary from case to case. Generally, it will require multiple (more than two) sales. In those circumstances it is necessary to consider the comparable sales evidence as a whole in order to assess whether any of the sale prices are out of line with the main body of evidence or whether there are any other conflicts in the evidence.[100]

[99][2003] WASCA 295 (‘Arcus’).

[100]Ibid [51].

McLure JA warned that there may be some unknown factor affecting the price paid or a sale may, after collective analysis, legitimately be regarded as an aberration.[101]
[101]Ibid.

In Arcus, the court held that the primary judge had erred by considering each sale relied on by the experts in isolation and ruling as to its comparability with the subject land. This assumed that the sale price reflected market value and that there would be a single most comparable sale on which to determine value. However, such matters should not be assumed and had to be tested.[102] While there is no requirement that a valuer identify the most important comparable sale, there is a requirement that a sufficient sample of comparable sales be collected and analysed collectively and individually.[103] In the course of this analysis, a valuer is likely to attach different weights to individual sales and will be able to identify the sale or sales to which he or she can appropriately accord the greatest weight. On this approach, comparable sales are weighted, but the sample of sales remains representative and sufficient in volume.[104]
[102]Ibid.
[103]Ibid [52].
[104]Ibid.

We are not at all persuaded that Mr Brown and Mr Dudakov limited their analysis of comparable sales in the way the Commissioner did in Maurici. This was not a case where the valuers disregarded evidence as to comparable sales which was plainly relevant. Nor was it a case where the sales upon which reliance was ultimately placed were inherently unreliable, as they were in Maurici, where the values derived from the sales were affected by scarcity of that type of land.

Each of Mr Dudakov and Mr Brown carried out his analysis:

(a) by reference to a broad basket of sales as background or context; and

(b) by analysing and deconstructing a smaller group of sales including, in particular, those relied on by Mr Torr but also, for example, the 2012 Johnson Street sale and the re-sale of Lorimer Street in December 2016.

Mr Dudakov’s evidence was that the two most comparable sales were the Lorimer Street sale and the 2012 Johnson Street sale, both in close proximity to the Land, both of a similar size and both occurring within 12 months of the valuation date for the Land. In Mr Dudakov’s expert opinion, these two sales were as good as any that would ever be available to establish a value for the Land at the Relevant Date.

Mr Dudakov gave evidence that he relied significantly on the Lorimer Street sale, initially making a ‘broad brush’ 25 percent deduction for the Land to take into account the advantages of the Lorimer Street property, namely, its slightly smaller size, its superior location and the fact that it was not completely bounded on one side by the Westgate Freeway. Documents obtained under subpoena reinforced his view that the Lorimer Street sale was characterised by active engagement between the estate agent and prospective purchasers, who were well versed in residential development, that negotiations were pursued between those parties and that the best price was offered. He did not consider it to be a ‘low sale’. In his view, it was a classic Spencer sale involving a willing but not over-anxious vendor who had extensive real estate holdings and a thorough knowledge of the market. Experienced estate agents acted on behalf of the vendor and more than one party was willing to enter into negotiations. In contrast, the 2014 Johnson Street transaction was not a sale: the contract was effectively rolled over three times in a rapidly rising market in circumstances where it provided for both the vendor and the purchaser to walk away from the sale at will. When the property ultimately sold for $40 million in 2016, it had been actively marketed and there was nothing to suggest that it was not a true market transaction at that point.

Referring to the basket of sales to which he had regard to reach his conclusion as to value, Mr Dudakov ranked as ‘number three’ the sale of 134–150 Buckhurst Street, which sold in August 2012, immediately prior to the announcement of the re-zoning to CCZ1. Unlike the Land, however, the Buckhurst Street property was significantly improved by a 6,000/m² office development, and capable of being let in the short to medium term for an alternative use with quite a substantial return. According to Mr Dudakov, the remaining items in his basket of sales really just helped formulate his opinion of value. In his view, sales outside of the Fishermans Bend area had to be treated with caution. Furthermore, there was a rapidly rising market and the rise was not linear.

For his part, Mr Brown gave evidence that he considered a number of sales beyond the Lorimer Street sale and the 2012 Johnson Street sale. Some were remote from the subject locality but within the Fishermans Bend area, and some were outside the Fishermans Bend area in Docklands and Footscray. He accepted that some of these sales were not directly comparable and that there were timing issues, but said that they were sales he was ‘confronted with’ and thought were relevant, having regard to the date of the acquisition.

We accept that the prominence ultimately given to the Lorimer Street sale meant that its value as an indicator of true market value required particularly close scrutiny. It was subjected to scrutiny by the respondent’s valuers and in the course of the trial. Mr Michael Fox, formerly of Little Projects, the purchaser of the Lorimer Street site, gave evidence at trial as to the circumstances of the sale. The judge, in turn, carefully considered the value of the Lorimer Street sale as a comparable sale. In our view, it was open to her on the evidence to be satisfied that the Lorimer Street sale reflected the market price for the Land at the Relevant Date.

Whilst it is not appropriate to approach the analysis of comparable sales as having as its purpose the identification of the most comparable sale, if a broad-based critical analysis identifies only one directly comparable sale, this may be the best evidence of value. Ultimately, the valuer, and the Court or tribunal, must act on the best evidence available. In Arcus, McLure JA recognised that what is a sufficient volume of sales will vary from case to case.[105] The embryonic nature of the market in the new urban renewal area of Fishermans Bend presented unusual problems for the valuation exercise in this case. The trial judge gave careful reasons as to why the other sales relied on by the applicant’s valuers were not directly comparable sales.
[105]Ibid [51] (McLure JA).

In this context, we observe that, as the applicant no longer contends that the valuations that it put forward are sustainable, it effectively acknowledges that the sales relied on by Mr Torr and Mr Murray — distanced in both place and time from the subject acquisition — were not directly comparable sales.

In light of the foregoing, we consider that neither Mr Dudakov nor Mr Brown had regard to an insufficient number of sales so as to breach a ‘core requirement’ of the comparable sales method. Once again, we consider that it was open to the judge to accept their valuations.

Ground 1(c) is not made out.

Ground 1(d): Timing of comparable sales
Submissions

The applicant submits that the judge erred in basing her assessment of market value on the valuations of Mr Dudakov and Mr Brown where each of those valuations excluded consideration of sales after February 2014, while considering sales at least 12 months before the Relevant Date.

The applicant submits that the law is to the effect that sales after a relevant date may be directly relevant to the market value of land at that date and that the relevance and weight of any sale will be influenced by any change in circumstances (such as inflation and market conditions) between the relevant date and the after sale. It is the existence, nature and extent of change that is important, not whether the sale occurred before or after the relevant date. An after sale may be direct evidence of value, as the law assumes that it is possible to infer from that evidence what the parties to the hypothetical sale would have found acceptable at the relevant date.

Analysis

There is no substance to this complaint. In fact, neither the respondent’s valuers nor the judge dismissed out of hand sales after the Relevant Date. The central complaint seems to be that neither Mr Dudakov nor Mr Brown considered the Kavanagh Street and Buckhurst Street sales in 2014 to be useful comparators, despite the fact that they relied on the much earlier 2012 Johnson Street sale. This is a complaint about the weight that the valuers attached to various sales. The respondent’s valuers considered all the sales which might be regarded as directly comparable both before and after the Relevant Date. However, the market rose rapidly, but unevenly, after the Relevant Date, which made the use of later sales problematic.

Mr Dudakov was asked about the rising market at Fishermans Bend. He said that the market started to take off from December 2012, but it really took off exponentially mid-way through 2014. However, there was no curve. If a new sale occurred, it set a benchmark and then the sale thereafter set another benchmark. One could try to draw a line between sales to describe a curve, but there was in fact no curve.

Mr Dudakov considered it to be legitimate to look at sales after the Relevant Date if that was the only evidence, but if there were sales at or around the Relevant Date, it was unnecessary to rely on after sales, as to do so would require an adjustment for the time difference. While he was aware of other sales that had been quoted as evidence of market value, he did not consider that they had been properly analysed to bring them back to the Relevant Date. There was a sale in very close proximity to the Relevant Date that had many characteristics making it comparable, so there was no need to go beyond the Relevant Date to try to articulate a value based on subsequent sales.

Mr Brown acknowledged that after sales may be considered, but said that at some point a line had to be drawn, particularly in a market that was ‘active and moving’. If value was to be captured at a particular point in time, then there had to be a restriction on how far it was permissible go from that date. He drew the line at the Lorimer Street sale (2 months after the Relevant Date). While there was no rule that sales could not be considered after a relevant date, particularly where sales evidence would potentially confirm what was occurring at the date for valuation, he would have difficulty if sales were six or twelve months (or longer) after the relevant date. The question arose as to how changed market circumstances were to be taken into account in a market that was very fluid, given what was occurring in relation to re-zonings and government plans for the Fishermans Bend area.

The manner in which sales after the relevant date may be used in the assessment of market value was described by Fryberg J in Brisbane City Council v Mio Art Pty Ltd[106] in the following terms:

The Spencer test postulates hypothetical parties in full possession of knowledge generally available on the date of acquisition. That knowledge includes knowledge of future possibilities, but only as possibilities, and with the weight which prudent persons would ascribe to them. It is difficult to imagine how the fact that a possibility subsequently became a reality could be directly relevant to that knowledge.
I see no inconsistency between this approach and that which enables subsequent sales to be taken into account in assessing market price. Those sales are not taken into account as matters which would be present in the minds of the hypothetical parties. They are simply evidence of an event from which an inference can be drawn about the position at an earlier (but not very much earlier) time. The implicit assumption is that nothing material has changed in the meantime or that if it has, allowance can be made for the change. Consequently they are probative of the earlier position. There will probably be other cases in which inferences about the position on the date of acquisition might logically be drawn from subsequent events. For example, suppose in circumstances similar to those in this case an acquiring authority denied that a change in building heights was under consideration at the date of acquisition. Publication of a document which would have taken six months to prepare on that topic only three months after the date of acquisition might tend to prove the falsity of the denial; it might support an inference that the topic was under consideration. But it would still be necessary to prove what would have been known by the hypothetical vendor and purchaser.[107]

[106][2011] 2 Qd R 1; [2011] QCA 234.

[107]Ibid [78], [79] (Fryberg J) (citations omitted).

Accordingly, later sales are ‘simply evidence of an event from which an inference can be drawn about the position at an earlier (but not very much earlier) time’, and the implicit assumption is that ‘nothing material has changed in the meantime or that if it has, allowance can be made for the change’.[108]
[108]Ibid [79].

In this case, however, there was evidence of significant change to market values after the Relevant Date. What inferences could be drawn from sales six months and nine months after the Relevant Date in markedly different neighbourhoods and in an unevenly rising market was open to question.

The judge accepted that sales after the Relevant Date were potentially relevant, including the Lorimer Street sale and the 2014 Johnson Street transaction,[109] although she gave the latter no weight because of the highly conditional nature of the arrangement.[110] She found the Lorimer Street sale to be a genuine sale and directly comparable.[111] The judge also found that, at the Relevant Date, there was a rapidly rising market and that sales closest to the Relevant Date were most useful in such a market.[112] This was particularly so given that development in the area in which the Land was located was embryonic, a fact which impacted upon sales volume and comparability.[113]
[109]Reasons [201], [205].
[110]Ibid [137], [162]
[111]Ibid [220].
[112]Ibid [78].
[113]Ibid [184].

These findings were open to the judge on the evidence. The judge was not precluded from accepting the respondent’s valuers’ evidence because of the way in which they treated after sales in arriving at their valuations.

Ground 1(d) is not made out.

Ground 1 overall

Ground 1 is made up of a series of criticisms of the way in which the respondent’s valuers carried out their comparable sales analysis. In Blacktown City Council v Cancato [No 4], Campbell J helpfully reviewed the authorities and, on that basis, divided the comparable sales method into four steps: accumulation, analysis, adjustment and application.[114]
[114][2020] NSWSC 9, [79]–[81], citing New South Wales Crematorium Company Pty Ltd v Valuer General [2016] NSWLEC 135, [99]–[104] (Robson J) and Marroun v Roads and Maritime Services [2012] NSWLEC 199, [196]–[208] (Sheahan J).

In the accumulation phase, the valuer collects sales that are ‘truly comparable’,[115] recognising, however, that there is no hard and fast rule enabling the valuer to draw the line that separates sales that are comparable from those that are not[116] and that the valuer will give different weight to different comparable sales. The analysis phase often involves converting the value of comparable sales into a measurement that can be easily compared. The adjustment phase then involves creating equivalences with the land being valued. Campbell J emphasised the significant role of expertise and professional judgement in making adjustments, setting out the following passage from Holcim (Aust) Pty Ltd v Valuer-General:

Such adjustments are generally based on a reasoning process drawing on the skill and experience of the valuer and are undertaken to derive an opinion of value through a deductive process. Because properties are rarely identical, adjustments for differences are obviously necessary but caution is required through making as few adjustments as possible, in a consistent manner, to ensure the reliability of the comparable sale when related to the subject property. Too many adjustments potentially render the comparable sale unsafe to rely upon. Caution is therefore required where large adjustments are to be made. Reflecting the significant roles of skill, experience and personal assessment in the adjustment process, the scope for differences in the quantum and direction of adjustment between valuers can be considerable.[117]

[115]Maurici (2003) 212 CLR 111, 121 [18]; [2008] HCA 8 (McHugh, Gummow, Kirby, Hayne and Callinan JJ).

[116]Brewarrana (1973) 6 SASR 541, 551 (Wells J).

[117][2009] NSWLEC 225, [31] (Biscoe J).

Finally, in the application phase, the valuer applies the comparable sales to determine the value of the land based on the adjusted values of the comparable properties.

This was, in a nutshell, the process followed by Mr Dudakov and Mr Brown: they accumulated sales, recognising that the development in the area was embryonic and there was a limited number of sales that were truly comparable; they analysed the sales and adjusted those that they considered to be comparable, recognising that too many adjustments would compromise the reliability of the sale; and they applied the adjusted sales to determine the value of the Land. At each step, they exercised their professional skill and expertise, given that the task at each step involved questions of degree and judgement. At the valuers’ conference there was, understandably, a focus on the points of disagreement as to which were the truly comparable sales. But that did not derogate from the fact that both Mr Dudakov and Mr Brown carried out entirely conventional valuations upon which, we consider, the judge was entitled to rely.

Ground 2: Hindsight

Ground 2 is that the judge erred in rejecting the evidence of Mr Torr and Mr Murray on the basis that it was based on hindsight.

Submissions

The applicant submits that this ground is related to, but different from, ground 1(d) and that the judge’s approach was wrong as a matter of legal principle. Although it is possible to value land at or before the relevant date, valuations will commonly be made after the relevant date. Hindsight is not only inevitable, it is properly used in identifying sales, assessing the relevance of sales and assessing changes between a sale and the relevant date in order to adjust for timing.

According to the applicant, the judge’s approach reflected an inherent bias against claimants in compulsory acquisition cases because, unlike valuations prepared for an acquiring authority, valuations commissioned by claimants are overwhelmingly commissioned after the date of acquisition. Furthermore, so the applicant contends, the judge was inconsistent. On the one hand she was critical of Mr Murray for using the April 2016 sale of Lorimer Street (at $60 million) to check the reliability of the sale of that property in February 2014 (at $18.5 million), but she herself used the December 2016 Johnson Street sale ($40.65 million) to find that the transaction concerning that property in May 2014 (at $55.5 million) was out of kilter with the trajectory of sales.

The respondent submits that the issue at trial was not the use of hindsight but, rather, what weight should be given to the evidence about the 2014 Johnson Street transaction and the Lorimer Street sale. The weight to be given to each was a matter for the judge to determine, and she did. Nevertheless, the judge was both entitled and correct to find as a fact that hindsight played a significant role in, and influenced, the opinions of both Mr Torr and Mr Murray. Hindsight provided an explanation as to why Mr Torr and Mr Murray considered the market value of the Land to be in excess of $4000/m²in circumstances where, as at the Relevant Date, there had not been a comparable sale at more than $2000/m².

Analysis

This proposed ground of appeal lacks merit. The judge’s reference to the use of ‘hindsight’ was descriptive and was not the basis upon which the judge rejected the evidence of the applicant’s valuers. It did no more than to explain in a general way why Mr Torr and Mr Murray arrived at values that were out of kilter with land values in and around Fishermans Bend at the Relevant Date, the judge having arrived at this conclusion by scrutinising the sales and adjustments used the valuers. The judge declined to accept the evidence of Mr Torr and Mr Murray for reasons that included their ‘low sales’ case theory, their reliance on the 2014 Johnson Street transaction as the most comparable sale and their reliance on sales that the judge found not to be useful because they occurred well after the Relevant Date in a rapidly rising but ‘lumpy’ market and in areas that were established areas for residential development.[118]
[118]Reasons [241], [232]–[234].

Ground 2 is not made out.

Ground 5: Replacement land claim

The applicant claimed replacement land costs as disturbance losses under s 41(1)(d) of the LAC Act. Loss attributable to disturbance is defined in s 40 as follows:

‘loss attributable to disturbance’ means any pecuniary loss suffered by a claimant as the natural, direct and reasonable consequence of—
(a)the service upon the claimant of a notice of intention to acquire, where the Authority has refused or failed to give consent to the carrying out of improvements to the land in respect of which that notice has been served or the effecting or obtaining of any sales, transactions, licences or approvals in respect of that land; and
(b)the fact that an interest of the claimant in that land has been divested or diminished, being a pecuniary loss for which provision is not otherwise made in this Part;

Accordingly, the causal relationship that must be established is that the replacement land costs were the natural, direct and reasonable consequence of the compulsory acquisition of the Land.

In Manor Lakes,[119] this Court confirmed that costs associated with the acquisition of replacement land may qualify as losses attributable to disturbance. There, the claimant held land for residential subdivision that it had to replace in order to carry out its business. Although no replacement land had been acquired at the time of trial, there was reasonably extensive evidence of attempts that had been made to acquire replacement land.
[119]Manor Lakes [2017] 224 LGERA 195; [2017] VSCA 114 (Warren CJ, Osborn and Ferguson JJA).

At trial, the applicant relied on the evidence of Gabor Eugene Hubay. Mr Hubay was a long serving director of the applicant and an architectural designer and builder who had been involved in property development for the whole of his professional career.

Mr Hubay deposed that the applicant planned to use the amount received as compensation for the Land to purchase a replacement property. However, given the significant disparity in the value of the Land as assessed by the experts, the applicant did not know how much money it had available to spend. Due to this uncertainty, no detailed investigation of potential replacement properties had been undertaken. However, he was regularly in contact with agents about possible investment opportunities and had made preliminary inquiries about some possible replacement properties, including in Melbourne and Queensland. Once a definite compensation figure was known, the applicant would be in a position to make tailored investigations into a suitable property purchase.

In Mr Hubay’s experience, there was a material difference in investment potential associated with properties at different price ranges. He exhibited a copy of a letter from Ray Berryman of Fitzroys dated 29 April 2016 identifying the financial return associated with the purchase of properties at prices ranging from the $15–20 million range compared to those in the $50–60 million range.

The judge found the evidence of the applicant’s search for replacement land to be ‘scant and superficial’ and that it fell well short of the evidence as to intention to replace relied upon successfully in Manor Lakes.[120] She expressed the view that the applicant had ‘sat on its hands’ and ‘punted’ that its claim would yield significantly more than the respondent’s offer (which had been advanced and was available to be spent). The judge considered that the tax ruling did not prove an active intention to purchase replacement land, but was merely consistent with keeping that option open.[121] She continued:

This is particularly so given that I have determined that the compensation for market value was not significantly higher than the market value conceded by the [respondent], and not in the realm of the $60 million claimed by the [applicant] in their initial claim, nor the amount of the amended claim.[122]

[120]Reasons [332].

[121]Ibid [330]. See [96] above.

[122]Ibid.

The judge concluded:

I do not accept on the evidence that the [applicant] has taken sufficient steps to convince me that replacement land will be purchased.[123]
[123]Ibid [332].

Submissions

The applicant submits that the trial judge erred in determining the replacement land claim:

(z) by wrongly taking into account irrelevant considerations, namely, that the court had determined that the compensation payable for market value was not significantly higher than the market value conceded by the respondent and that the applicant was punting that its claim for market value would be significantly higher than the amount offered; and/or

(aa) by failing to take into account a relevant consideration, namely, the disparity between what the applicant considered to be the market value of the Land and the amount offered by the respondent.

The applicant submits that inherent in the Court’s finding that the applicant sat on its hands and ‘punted’ that the award for market value would be significantly more than the respondent’s offer was a reliance on the judge’s subsequent assessment of market value and the fact that this assessment was closer to the respondent’s offer than the amount claimed. These considerations were irrelevant to the question as to whether the applicant suffered a pecuniary loss as the natural, direct and reasonable consequence of the fact that its interest in the Land had been divested. The judge also failed to consider a relevant matter, namely, the disparity between the claim and the offer.

The respondent submits that, as with other proposed grounds of appeal, this ground dresses up a factual finding made by the Court as a question of law. Where complaint is made of failure to take into account relevant considerations or the taking into account of irrelevant considerations, the consideration must be such that the Court is required, as a matter of law, to take that consideration into account or to be not entitled, as a matter of law, to rely on that consideration.[124] The applicant has identified no consideration that was required as a matter of law to be taken into account or prohibited from being taken into account.
[124]Craig v South Australia (1995) 184 CLR 163, 196; [1995] HCA 58 (Brennan, Deane, Toohey, Gaudron and McHugh JJ).

The respondent submits that the judge accurately identified the relevant legal framework and the matters that the applicant needed to satisfy in order to bring its claim within the statutory definition of loss attributable to disturbance and no error is alleged in that respect. The judge considered the evidence in support of this claim and concluded that it was scant and superficial and that she was not persuaded that the applicant would in fact have purchased replacement land in the future. That finding was clearly open to the judge. The judge contrasted the evidence in this case with the evidence that was before the Court in Manor Lakes, observing that unlike in that case, the applicant had sat on its hands and punted that the claim for market value would be significantly more than the respondent’s offer.[125] The judge was required to consider the evidence in light of the statutory definition of loss attributable to disturbance. She undertook that task and the applicant is unhappy with the factual finding that she made.
[125]Reasons [332].

Analysis

We accept the respondent’s submission that the judge was required to consider the evidence in light of the statutory definition of loss attributable to disturbance, that she undertook that task and that the substance of the applicant’s complaint is that it is unhappy with the factual finding that she made. The onus was on the applicant to establish the replacement land claim. The judge was not bound to be persuaded by the applicant’s evidence that replacement land was to be purchased. Her conclusion that she did not accept on the evidence that the applicant had taken sufficient steps to convince her that it would purchase replacement land is unimpeachable.

The applicant has not established that the judge failed to take into account a relevant consideration or that she took into account an irrelevant consideration in reaching that conclusion. Insofar as she referred to the fact that her determination of compensation for the market value of the Land was not significantly higher than the market value conceded by the respondent and well short of the amount claimed by the applicant, that observation was apparently related to her finding that, in the circumstances, the tax ruling was not good evidence of an intention to acquire replacement land. That was a question of fact, not a question of law.

Ground 5 is not made out.

Disposition

None of the proposed grounds of appeal is made out. Leave to appeal will be granted but the appeal will be dismissed.

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Market Value	$	25,300,000
Cost of replacement land	Nil
Loss incurred as a result of inability to invest initial sum offered in a higher return asset	Nil
Agent’s commission	Nil
Legal, valuation and other professional expenses	$	242,689.49
Solatium	$	50,000

[2020] VSCA 197

5 August 2020