Central City Ltd v Nioka Corporation Pty Ltd
[2007] WASC 126
•3 MAY 2007
CENTRAL CITY LTD -v- NIOKA CORPORATION PTY LTD & ANOR [2007] WASC 126
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2007] WASC 126 | |
| Case No: | CIV:2156/2002 | 3 MAY 2007 | |
| Coram: | MARTIN CJ | 3/05/07 | |
| 27 | Judgment Part: | 1 of 1 | |
| Result: | Action dismissed | ||
| B | |||
| PDF Version |
| Parties: | CENTRAL CITY LTD (ACN 076 750 055) NIOKA CORPORATION PTY LTD (ACN 085 028 048) REGISTRAR OF TITLES |
Catchwords: | Contract Performance Terms of settlement of property Whether valuation of property conforms with the terms of settlement Whether it was a condition of the settlement agreement that the valuation be obtained within a reasonable time or by a specified time |
Legislation: | Nil |
Case References: | Butt v M'Donald (1896) 7 QLJ 68 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
NIOKA CORPORATION PTY LTD (ACN 085 028 048)
First Defendant
REGISTRAR OF TITLES
Second Defendant
- Plaintiff
AND
CENTRAL CITY LTD (ACN 076 750 055)
Defendant
(Page 2)
Catchwords:
Contract - Performance - Terms of settlement of property - Whether valuation of property conforms with the terms of settlement - Whether it was a condition of the settlement agreement that the valuation be obtained within a reasonable time or by a specified time
Legislation:
Nil
Result:
Action dismissed
Category: B
Representation:
CIV 2156 of 2002
Counsel:
Plaintiff : MR M C Hotchkin
First Defendant : Mr D K Barker
Second Defendant : No appearance
Solicitors:
Plaintiff : Hotchkin Hanly
First Defendant : Chalmers Legal Studio
Second Defendant : No appearance
CIV 2226 of 2004
Counsel:
Plaintiff : Mr D K Barker
Defendant : Mr M C Hotchkin
Solicitors:
Plaintiff : Chalmers Legal Studio
Defendant : Hotchkin Hanly
Case(s) referred to in judgment(s):
Butt v M'Donald (1896) 7 QLJ 68
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489
(Page 4)
1 MARTIN CJ: The matter that has come on for trial and determination today arises from a dispute between the parties to these proceedings in relation to a settlement agreement that they entered into on 1 February 2006. That agreement was in settlement of the substantive proceedings which were brought by Central City Pty Ltd ("Central City") against Nioka Corporation Pty Ltd ("Nioka").
2 It is unnecessary to go into the issues that were raised by the substantive proceedings in any detail other than to observe that they arose in a circumstance in which the parties are owners of adjoining land and involved a dispute with respect to a right of way.
3 Because the matters that have come on for determination this morning relate to the rights and obligations created by the settlement agreement entered into on 1 February 2006, as I suggested to the parties on a previous occasion, there is I think a reasonable argument to the effect that, strictly speaking, a fresh writ was necessary to ventilate the issues that have arisen with respect to that settlement agreement.
4 However, in order to avoid the delay and inconvenience that might have been occasioned by following that course the parties have agreed that the original proceedings can provide an appropriate vehicle for the determination of these issues and so, by consent we have proceeded accordingly. The nature of the issues that arise for determination this morning will emerge from the facts which I will now set out.
5 All the evidence that has been given in the case has been given on affidavit. There has been no cross-examination of any of the deponents to those affidavits and the substantive facts are not in dispute. The terms of settlement were reduced to writing and are attached to the affidavit of Mr Aristei sworn 6 March 2007. They are dated 1 February 2006 and provide by cl 1 that the settlement is to be in full and final settlement of all disputes in two proceedings - action CIV 2156 of 2002 and CIV 2226 of 2004.
6 Clause 1(a) of the terms of settlement provides that the first defendant in action CIV 2156 of 2002 (Nioka) is to appoint a valuer in accordance with cl 1(b) to value the land, and the land is thereafter described. The valuer is to also value the business conducted thereon as a going concern. Clause 1(b) of the terms of settlement provides that the valuer is to be a licensed valuer approved of by BankWest ("the bank"). Clause 1(c) of the terms of settlement provides that the cost of the valuation of the land and business is to be paid by Central City.
(Page 5)
7 Clause 1(d) provides that the valuer is to provide a fixed price for both the land and the business as a going concern. Clause 1(e) provides that Central City and/or its nominee agrees to purchase the land and business as a going concern from Nioka for the price determined by the valuer plus $300,000 on a walk-in, walk-out basis. There is then a clause dealing with GST and later provisions in the terms of settlement make the transaction conditional upon Central City being satisfied within 60 days of the date of the agreement that the land and the building thereon are not adversely affected in anyway whatsoever by any heritage listing.
8 The agreement then provides that subject to satisfaction of the condition relating to heritage listing, within 14 days of either the date of receipt of the valuation or the expiry of the period of 60 days within the heritage condition was to be satisfied, the parties are to enter into a contract by way of offer and acceptance incorporating the Joint Form of General Conditions for the Sale of Land published by The Law Society and the Real Estate Institute of WA. Clause 1(i) of the terms of settlement provides the contract of sale is not to be subject to finance but completion is to occur within 90 days of execution of the contract.
9 The settlement agreement provides that the purchase price is to be in accordance with cl 1(e) above. There is another clause that provides that upon completion of the contract of sale, Central City is to pay Nioka $30,000 in settlement of its costs of the two proceedings to which I have referred. Later terms of the agreement require discontinuance of the proceedings and the counterclaim. There is a further term, cl 1(l), requiring the parties to do all such things and to execute all such documents as shall be required in order to effect settlement.
10 Following entry into the settlement agreement, on 2 February 2006, Mr Aristei, describing himself as counsel for Nioka, wrote to Mr Kingsley Lewis, a valuer, inquiring whether he would be prepared to act as valuer in accordance with the terms of the settlement agreement. On the same day he also wrote to the bank seeking a letter approving Mr Lewis as a valuer to carry out the valuation pursuant to the terms of settlement.
11 Mr Lewis responded to Mr Aristei by letter dated 9 February 2006 in which he indicated that he might arrive at a conclusion that the value of the property to an adjoining owner such as Central City is not the market value and a special value might be determined. The solicitors for Central City wrote to Mr Aristei by letter of 17 February 2006 complaining that the methodology which Mr Lewis had foreshadowed was not in accord with the settlement agreement and making the further point that the
(Page 6)
- appointed valuer to value both land and business had to be a licensed valuer approved by the bank. They advised that according to their instructions there were only two valuers on the list authorised by the bank to value both land and business, and that Mr Lewis was not one of them.
12 That letter attached a facsimile from the bank indicating that there were only two valuers on the list used by the bank for the assessment of specialised going concern businesses such as accommodation. Those two valuers were Christie Whyte Moore and Knight Frank.
13 By letter dated 17 February 2006, the bank replied to Mr Aristei's letter advising that Mr Lewis of Burgess Rawson was approved to carry out valuations of land and buildings only.
14 By letter dated 20 February 2006, Mr Aristei wrote to the solicitors for Central City disagreeing with the proposition that Mr Lewis proposed to adopt a valuation method which was outside the terms of settlement and pressing for their concurrence in the appointment of Mr Lewis. By letter dated 22 February 2006, the solicitors for Central City responded advising that they saw no point in debating the matter further because Mr Lewis was not approved by the bank as required by the terms of settlement.
15 By letter dated 8 March 2006, Mr Aristei wrote to Mr Mark Crowe of Knight Frank, one of the bank-approved valuers, inquiring whether he would be prepared to accept appointment to value the business and the land in accordance with the terms of settlement. By letter dated 14 March 2006, the solicitors for Central City wrote to Mr Aristei noting that they had not received any advice as to which of the two valuers approved by the bank had been selected by Mr Aristei's client and seeking his advice by return.
16 By letter dated 14 March 2006, Mr Aristei responded, advising that Mr Crowe had been requested to provide a valuation. By letter dated 21 March 2006, Mr Aristei wrote again to Mr Crowe seeking confirmation of his willingness to accept the request, and further information in relation to his qualifications and experience. By email dated 21 March 2006, Mr Crowe responded confirming advice apparently earlier given to the effect that he would decline the appointment.
17 By letter dated 12 April 2006, the solicitors for Central City wrote to Mr Aristei referring to earlier correspondence advising that their client was anxious to settle the matter and inquiring as to how the valuation to be conducted by Mr Crowe was proceeding. It is clear from that letter
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- that Mr Aristei had not advised those solicitors that Mr Crowe had declined to accept the appointment, although he had apparently received that advice some three weeks earlier.
18 The letter from the solicitors for Central City of 12 April 2006 went on to advise that their client was prepared to accept settlement on 30 June 2006. By letter dated 13 April 2006, Mr Aristei wrote to Mr Greg Whyte of Christie Whyte Moore inquiring as to whether he would be prepared to accept appointment. By email dated 18 April 2006 to Mr Aristei, Mr Whyte responded that he was not prepared to accept appointment. By letter dated 28 April 2006, some 10 days later, Mr Aristei wrote to the solicitors for Central City advising that Mr Whyte had declined appointment and suggesting that the terms of the deed could not be performed by reason of the lack of availability of the valuers.
19 By letter dated 4 May 2006, the solicitors for Central City responded to Mr Aristei advising that their client's position was that the agreement remained on foot and that their client was anxious to proceed and bring the transaction to a conclusion. They further advised that Central City had, as a matter of urgency, requested the bank to nominate approved valuers. By facsimile of the same date, the solicitors for Central City advised Mr Aristei that they had received a facsimile from the bank nominating Colliers International (WA) Pty Ltd ("Colliers International") to undertake the valuation. A copy of that facsimile was attached to the letter to Mr Aristei.
20 By letter dated 5 May 2006, which appears to have been sent by facsimile, the solicitors for Central City advised Mr Aristei that Egan National Valuers were approved by the bank to undertake the valuation and attached a facsimile from the bank to that effect. By letter dated 18 May 2006, some two weeks later, Mr Aristei wrote to the bank seeking the full list of valuers approved by the bank for the carrying out of a particular type of valuation.
21 By letter dated 26 May 2006, the solicitors for Central City wrote to Mr Aristei repeating their client's anxiety to settle the matter before the end of June and requesting the expeditious appointment of a valuer by Nioka and seeking advice as a matter of urgency as to what steps had been taken to appoint one or other of the nominated valuers. That letter received a response from Mr Aristei dated 26 May 2006 in which he advised that his client was now in the process of appointing a valuer from the bank panel as discussed. That seems to be a generous description of what was occurring at the time.
(Page 8)
22 On the same day Mr Aristei wrote again to the bank repeating his request for a full list of the valuers approved by the bank for valuation of this type of business. On 30 May 2006, the bank responded to Mr Aristei listing the preferred bank panel valuers - Messrs Christie Whyte Moore, Knight Frank, Colliers International and Egan National Valuers; they being of course the four names that had already been provided to Mr Aristei some time earlier.
23 On 1 June 2006, the solicitors for Central City wrote again to Mr Aristei thanking him for his letter of 26 May 2006 and inquiring as to which valuer had been appointed by Nioka. No response was provided to that letter. On 22 June 2006, the solicitors for Central City wrote again to Mr Aristei repeating their request for advice as to which valuer had been appointed from the bank panel. Mr Aristei deposes in [34] of his affidavit that in or about early June he was instructed by Mr Williams of Nioka that there was no point in approaching Gordon Jeanes of Egan National Valuers to conduct the valuation because Mr Williams had recently approached Mr Jeanes and Mr Jeanes had declined the appointment.
24 It was not, however, until 23 June 2006 that Mr Aristei wrote to Mr John Del Dosso of Colliers International inquiring as to his availability to take appointment to act as a valuer in accordance with the terms of settlement. Mr Aristei then went on leave overseas during which time a letter from Mr Del Dosso dated 28 June was received indicating his willingness to accept appointment.
25 On 14 July 2006, after his return from holiday, Mr Aristei wrote to the solicitors for Central City enclosing a quotation received from Mr Del Dosso and asking for its acceptance. By letter dated 21 July 2006, the solicitors for Central City responded to Mr Aristei enclosing an acceptance of the quotation from Mr Del Dosso endorsed by Central City. On 27 July 2006 Mr Aristei wrote to the Registrar of this court advising that the substantive proceedings had been resolved by way of a deed of settlement executed between the parties and dated 1 February 2006 and that there had been a delay in implementing the deed because of difficulties in identifying a valuer approved by the bank.
26 Mr Aristei then advised the court that on 20 July 2006 Mr John Del Dosso had been appointed as the valuer to carry out the valuation matters under the deed and went on to advise:
"As the terms of the settlement remain executory (requiring a valuation and a settlement of payment of monies based upon
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- that valuation), the Plaintiff requests that this matter be adjourned for a further three months to enable the terms of the deed to be completed."
27 It seems to me to be clear from the sequence of events that I have set out that any delay in the appointment of a valuer, up until the end of July, is entirely attributable to the steps taken on behalf of Nioka and not at all attributable to anything done by or on behalf of Central City, which was ready, willing and anxious to proceed with settlement, and through their representative, was constantly pressing for all steps in that regard to be taken expeditiously.
28 The valuation of Mr Del Dosso was apparently received on 6 October 2006. On its cover it refers to the date of valuation as being 1 February 2006. The instructions received by Mr Del Dosso are referred to on page 1 of the valuation report. They were to establish a fixed price for both the land and the business as a going concern in accordance with the deed of settlement dated 1 February 2006.
29 I digress to observe that the terms of the settlement agreement did not specify any date by reference to which the valuation was to take place, nor did they specify the criteria which were to be used in undertaking the valuation. The terms of the settlement agreement did not, for example, specify that the value to be arrived at was to be a market value.
30 In order to address these issues, the basis of his instructions and of the valuation were addressed by the valuer in his report. He expressed the view that the implied basis of valuation was market value as defined by the International Valuation Standards Committee and endorsed by the Australian Property Institute.
31 On page 4 of the valuation report, it is stated that the valuation was current as at the date of valuation only. On page 6 under the heading "Date of Valuation", the valuer wrote:
"1 February 2006 based upon our complete inspection of 28 August 2006. Due to possible changes in market forces and circumstances in relation to the subject property the report can only be regarded as representing our opinion of the value of the property as at the date of the valuation. We have assumed the property is in the same condition on the valuation date as the inspection date."
(Page 10)
32 The reference in that paragraph to changes in market forces and circumstances is of course a reference to changes in market forces and circumstances after the date of the valuation report. That is clear enough from the later terms of the valuation report in which events up to and including the date of the valuation report have plainly been taken into account, irrespective of whether or not they occurred after 1 February 2006. So the only inference to be drawn from that clause is an inference to the effect that the valuer was expressing his view based upon all the information available to him as at the date of the valuation report; that is, 6 October 2006.
33 At page 19 of the valuation report under the heading "Financial Details", the valuer refers to the operations of the business on the land to be valued. Occupancy statistics for the periods ending June 2006 and June 2005 are then referred to and those occupancy statistics are compared to income in the financial statements for those periods. I refer to these matters because it is clear from them that the valuer has used all the information current as at the date of the valuation report for the purposes of forming his view.
34 On page 20 of the valuation report under the heading Trading History the trading of the business for the past three financial years is summarised. Those three financial years are the years ending June 2006, June 2005 and June 2004. After that summary the valuer writes:
"The business has shown steady growth in income and earnings over the three years and we consider 2005/06 earnings of $259,758, say $260,000 is maintainable under good average management.
Earnings of $260,000 are before the wages of a sole proprietor owner operator working full time in the business."
35 So it is clear that the future maintainable earnings of the business have been assessed by the valuer by reference to the most current figures including the figures for the period ending 30 June 2006.
36 On page 26 of his report, the valuer describes the valuation rationale used and suggests that the primary valuation approach of capitalisation of future maintainable earnings (ebitda) was the method to be adopted and the value so derived is described by the valuer as the total freehold going concern walk in/walk out value for the real estate and business assets.
37 He then refers to capitalisation rates and states:
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- "The only sale of a comparable freehold going concern backpacker lodge is Hay Street Backpackers, which sold on a yield of 9.68%. Hay Street is a superior facility to Grand Central and a smaller investment, which would suggest a rate for Grand Central of 10.5%."
38 Elsewhere in the report, detailed reference is made to the Hay Street Backpackers and its sale and it is clear from that reference that the sale occurred in November 2004. Later in the valuation report, the application of the method described by the valuer as the primary valuation method is set out in detail. Essentially what the valuer has done is to apply the capitalisation rate of 10.5 per cent which he derived in the manner I have described to the future maintainable earnings figure of $260,000, which he derived in the manner I have described, to arrive at a capitalised figure of $2.48 million.
39 Because the terms of settlement required him to break the figure down into components allocating the price as between land and buildings and business value, the valuer has then gone on to undertake that process. He has done so by capitalising the market rental of the land and buildings, assessed at $130,000 per annum to arrive at a figure of $2 million. He then capitalised the future maintainable earnings of the business after deducting notional rent, at a rate of 30 per cent to arrive at a capitalised value for the business of $430,000, to which has been added assets in the form of plant and equipment and licence in an amount of $50,000, which takes one back to the total of $2.48 million at which he first arrived.
40 In rounding off the figures, the valuer has summated the components at $2.43 million but then adopted a rounded-off value of $2.45 million. He then observes that the summation of the separate land building and business values is close to what he described as the primary method of value which derived a value of $2.48 million.
41 The valuer then considered the application of an alternative method of valuation being the unimproved capital value of the land viewed as a vacant site. In order to pursue that methodology the valuer set out a large number of comparable sales which he has taken into account for the purpose of applying this method. Those comparable sales include land at 701-705 Wellington Street, Perth; land at Lot 207 Lake Street, Northbridge, sold under contract in May 2006; land at Lot 301 Lake Street, Northbridge, sold under contract in May 2006; land at 1002-1006 Wellington Street and 3-9 Douro Place, West Perth, sold in April 2006; land at 1 Coolgardie Street, West Perth, sold under offer in August 2006;
(Page 12)
- land at 208 Adelaide Terrace, East Perth, said to have been sold in February 2006, presumably on or after 1 February 2006; land at 189 William Street and 8-10 Roe Street, Northbridge, sold under contract in June 2006; land at 175 Adelaide Terrace, East Perth, sold under contract in June 2006; land at 22 Brown Street, East Perth, sold under contract in May 2006; land at 155 and 157 Adelaide Terrace, East Perth, sold under contract in June 2006; land at 22 Plain Street, East Perth, sold under contract in May 2006; land at 208 Adelaide Terrace, East Perth, sold in February 2006; land at Adelaide and Hay Street, East Perth, sold in May 2006; and Lot 504 Murray Street, Perth, sold in March 2006 and Lot 501 Murray Street, Perth, sold in April 2006.
42 Those are not all the comparable sales referred to by the valuer but it is clear from the sales to which I have referred that the valuer, in applying this method, has taken account of all sales known to him at the date of his report including a large number of sales which post-dated the date of valuation of 1 February 2006.
43 In his report, the valuer set out his reasoning in relation to the alternative methodology of valuing the land by reference to its unimproved capital value. He identified four benchmark sales which he used for the purpose of deriving an estimate of value of the unimproved land. Those sales were the sales at 701 to 705 Wellington Street, which as I have mentioned, occurred in May 2006; the sale of the land at 3-9 Douro Place and 1002-1006 Wellington Street, which as I have mentioned, occurred in April 2006; the sale of the land at Lot 504 Murray Street, Perth, which as I have mentioned, occurred in March 2006; and the sale of land at Lot 501 Murray Street, Perth, which as I have mentioned, occurred in April 2006.
44 So the four transactions which the valuer relied upon as his primary source of guidance for his estimate of the unimproved capital value of the land, all took place after the valuation date of 1 February 2006. There is no suggestion anywhere in the report that either the unimproved capital value or the value derived from the capitalisation of future maintainable earnings have in any way been adjusted to reflect the valuation date of 1 February 2006.
45 The valuer concluded his report by observing that the value of the land and business for its existing use as backpackers' accommodation represents its highest and best use and therefore provides a valuation of $2.45 million, made up somewhat curiously as to land in the amount of $2 million and business as a going concern, in the amount of $430,000.
(Page 13)
- However, later in the report, there is an adjustment to the latter figure and the business is described as having a value of $450,000.
46 I will refer to the further evidence that has been tendered. An affidavit has been provided from Graham Neville Kennedy, who is a valuer. He refers in [5] to what appears to be a practice standard issued by the Australian Property Institute, although perhaps not the practice standard current at the time of the valuation. He also says what he would have done if he had received the instructions given to Mr Del Dosso. He expresses no view as to whether what was done by Mr Del Dosso was correct or not.
47 I have also received an affidavit from David Brian Moore, who is Vice President of the WA Division of the Australian Property Institute and a National Councillor of that body. He describes the institute as having been formed in 1926 as the Commonwealth Institute of Valuers. It currently comprises more than 7500 members and is the peak representative body for valuers in Australia.
48 Mr Moore refers to the Institute's Code of Professional Practice and, in particular, the Code of Professional Practice applicable in May 2006. Clause 5.1.2.4 of that code is attached to his affidavit and provides:
"All valuations undertaken by Members must be assessed as at the date of inspection of the property except where the valuation instructions are to assess the value at a retrospective date. When a retrospective valuation is reported, the date of the valuation must be recorded next to or immediately above or below the valuation figure in the report."
49 Mr Del Dosso has provided an affidavit in which he observes that he referred to the API practice standard in his valuation. He says in [4] of that affidavit that he was instructed by Mr Aristei to establish a fixed price for both the land and the business as a going concern in accordance with the deed of settlement dated 1 February 2006. Mr Del Dosso deposes that because his instructions included the deed of settlement, he interpreted those instructions to mean that the property and business conducted thereon were to be valued retrospectively, namely, as at the date of the deed.
50 The position that is adopted by the respective parties can be shortly stated. Central City says that the valuation provided by Mr Del Dosso conforms with the deed, and that the settlement should be implemented in accordance with that valuation. Nioka, on the other hand, says that the
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- valuation provided by Mr Del Dosso does not conform with the terms of settlement because it does not value the land and business at the correct date. Nioka further argues that it was a condition of the settlement agreement that the valuation be obtained within a reasonable time of that settlement agreement, and that it was not, and that therefore the settlement agreement is terminable at the suit of either party.
51 Central City says in response to the second of those contentions that firstly, any delay was caused by Nioka which cannot therefore rely on that delay; and secondly, that by electing to proceed in late July with the appointment of Mr Del Dosso, both parties are to be taken to have modified their agreement by agreeing that the expiry of time up until then would not vitiate the terms of their agreement. Central City further argues that Nioka should in any event be estopped from now asserting that the valuation does not conform to the agreement by reason of the delay in its provision, by its conduct in concurring in the appointment of Mr Del Dosso in late July.
52 In light of these contentions it seems to me that the critical question is whether the valuation was within the scope of the contract made by the parties when they settled their dispute. If so, the valuation will bind the parties. The critical questions therefore are whether, by referring to the valuation date of 1 February 2006, or by reason of the valuation not being provided until 6 October 2006, the valuation provided by Mr Del Dosso falls outside the scope of the settlement agreement.
53 I will deal with the law relating to these issues by referring first to the decision of the Full Court of this court in the case of WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489. That case concerned an engineering contract which was rather different in its terms to the current contract, although the considerations enunciated by Ipp J in his judgment range rather more broadly.
54 In [16], [18] and [19], Ipp J, with whom the other members of the court agreed, referred to engineering contracts and observed that:
"16. Generally, the contract concerned will provide detailed fixed and objective criteria as to how the value of amounts to be certified under interim and final certificates is to be determined. These fixed and objective criteria are usually in the form of detailed schedules of rates or bills of quantities or specifications.
…
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- 18. Ordinarily, in cases of this kind, where a certified valuation is to be made by reference to fixed, objective, criteria (such that there is no discretionary element in the valuation) there will only be one uniquely correct value. If the certifying valuer, in these circumstances, arrives at the incorrect value, the valuation will be in breach of the contract. It is for that reason that an incorrect certificate will also be set aside. The court will then have the jurisdiction to determine the correct amount owing in terms of the contract. Where there is an arbitration clause that gives the arbitrator jurisdiction to hear the merits of the claim, the arbitrator will have the same powers as the court: Prestige & Co Ltd v Brettell [1938] 4 All ER 346 at 350 and 354, Neale v Richardson, Brodie v Cardiff Corporation.
19. This may also be the case even when the schedules of rates or bills of quantities do not apply to variations, and the certifier is empowered to value them by some other, less well-defined but nevertheless readily available standard criteria. An example of this is Hawker Noyes Pty Ltd v New South Wales Egg Corporation, unreported; SCt of NSW (Brownie J); 14077 of 1988; 11 November 1988. In this case the Court was concerned with a variation clause, the fourth sentence of which provided, 'A variation shall be valued in accordance with the rates included in the priced bill of quantities or schedule of rates if and in so far as those rates are applicable to the variation.' The fifth sentence provided that should the superintendent determine that the rates included in the priced bill of quantities or schedule of rates did not apply, the rate was to be determined by agreement, and if the parties did not agree, 'the superintendent shall determine the rate or price as he considers reasonable, …' Brownie J said that the fourth sentence:
'Provides a mechanism for the valuation of the variations which does not really involve any exercise of discretion, properly so called. If that sentence does not provide a more or less mechanical mechanism for valuing or pricing the variations, then the fifth sentence requires the superintendent to determine a reasonable price,
- and cl 231 requires him to act in a reasonable and equitable manner. This seems to me to involve no more than that he decide, as a question of fact, what is a reasonable rate or price.'
- See also Atlantic Civil Pty Ltd v Water Administration Ministerial Corporation (1992) 39 NSWLR 468, which concerned a clause in a construction contract that empowered the superintendent to determine whether any latent conditions existed and to order any consequent variation. Giles J, when commenting on the superintendent's function said (at 483):
'As in Hawker Noyes Pty Ltd v New South Wales Egg Corporation, what the superintendent had to do was determine questions of fact - what conditions had been encountered, were they physical conditions, did they differ materially from those ascertainable, and could they have reasonably been anticipated; what variation to the work was required as a result. Although no doubt opinions could differ, there was nothing discretionary in what was required of the superintendent, he had to make his determination reasonably and by regard to the facts (as would an arbitrator in hearing a dispute over the superintendent's determination), and once he concluded that a variation to the work was necessary he was obliged to order a variation'."
"It is to be emphasised, however, that, unlike the decisions of the superintendents in Hawker Noyes Pty Ltd v New South Wales Egg Corporation and Atlantic Civil Pty Ltd v Water Administration Ministerial Corporation, there may be decisions involving valuations of work which do require a valuer to exercise a very broad discretionary judgment indeed, and particular consequences flow, in law, where this is the case."
56 Ipp J then went on to draw an important distinction between valuations which do not involve discretionary judgment and valuations which do. He did so in these terms:
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- "23. Valuations may involve making decisions where no fixed or readily available standard criteria exist. There may be several possible methods of assessing value, each giving widely different results, but each being reasonable. Many subsidiary factors relevant to the valuation may be uncertain, many contingencies may have to be taken into account, wide ranges of legitimate decisions may apply, and opinions may legitimately differ as to virtually all of the relevant issues.
24. This kind of valuation is exemplified by the task undertaken by the court in Turama Forest Industries PtyLtd v Eng, unreported; SCt of WA; Library No 960238; 7 May 1996. In this case a determination had to be made of the reasonable value of the undertaking of a logging contractor. Many facets of the business had to be valued, and the factors affecting the valuation were complex. They included the international market for timber and its future trends, the cost of logging particular forests (including variable transport and labour costs), contingencies including adverse weather conditions, and difficulties with the work force. An assessment had to be made of the effect of decisions made by the plaintiff which had caused losses to the business. The capital costs of establishing the infrastructure of the undertaking had to be taken into account. Difficult questions arose as to the methods by which particular heavy equipment was to be valued. As I will attempt to demonstrate, that valuation was, in principle, not dissimilar from the valuation of the variations in the present case. On appeal, in Turama Forest Industries Pty Ltd v Eng, unreported; FCt SCt of WA; Library No 980190; 15 April 1998, Malcolm CJ (with whom Franklyn and Steytler JJ agreed) said that the character of such a valuation decision was 'in the nature of a discretionary judgment'.
25. The courts have consistently emphasised the discretionary nature of these kinds of valuations. In The Commonwealth v Reeve (1949) 78 CLR 410 Dixon J said (at 423) that the estimation of a value in monetary terms of land is very much 'a result of judgment and sound discretion'. In Federal Commissioner of Taxationv St
- Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 Mason J said (at 381):
'As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculation. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense.'
In Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, McHugh JA (at 336) described the task of a valuer of property as being a 'discretionary judgment'.
- 26. The reason why the valuation of property involves a discretionary judgment or contains discretionary elements, is explained by the remarks of Mason J, to which I have referred. The valuation of anything, be it property, the undertaking of a business, or engineering or mining work, that requires estimation and value judgments 'in the metaphorical sense', is discretionary in the sense referred to by Mason J in Federal Commissioner of Taxation v St Helens Farm(ACT) Pty Ltd and Malcolm CJ in Turama Forest Industries Pty Ltd v Eng."
57 Ipp J helpfully summarised the principles which he took to be applicable in this area in [36] - [38] of his judgment:
"36. Firstly, by the contract, the parties agree to be bound by a valuation made in terms thereof. Therefore, if the valuation complies with the contract, they are bound thereby. Because of the discretionary nature of the valuation, the contract will not require the valuation to be 'correct'. There will indeed be no uniquely correct valuation. The valuation will merely have to be within the terms of the contract.
37. Secondly, a court will not set aside a valuer's determination merely on the ground that it is 'incorrect' or that it reveals errors. The determination will only be
- interfered with if it is not made in terms of the contract; a mere mistake in the valuation will ordinarily not be a departure from the terms of the contract.
- 38. In England, the leading authority on the issue is Campbell v Edwards [1976] 1 WLR 403. Lord Denning MR expressed the principles in stark terms (at 407):
'[I]t is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it. If there were fraud or collusion, of course, it would be very different. Fraud or collusion unravels everything.'
- His Lordship (at 407) expressed some reservations if a valuer gave a 'speaking' valuation and it appeared from the face of the valuer's reasons or calculations that they were wrong. In Jones v Sherwood's Computer Services Plc [1992] 1 WLR 277, however, Dillon and Balcombe LLJ held (at 284 and 289-290) that the principles expressed by Lord Denning in Campbell v Edwards apply, irrespective of whether the valuation is or is not a 'speaking' valuation."
"[A] valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: was the valuation made in accordance with the terms of the contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question
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- is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract. (My emphasis).
…
There is nothing in the nature of the mistake which indicates a departure from the terms of the contract. The mistake was one made in the process of valuation. But it was not a departure from the terms of the contract."
59 In [41] of WMC Resources Ltd v Leighton Contractors Pty Ltd (supra),Ipp J observed that although the contractual terms in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (supra) were somewhat different to those under consideration in the case before him, in that they provided that the decision of the valuer was "final and binding on the parties", his Honour did not understand that phrase to be relevant to the basic principles expressed by McHugh JA.
60 In WMC Resources Ltd v Leighton Contractors Pty Ltd(supra) there was a reference to the valuation being undertaken in the sole discretion of the valuer. However, that phrase was not considered critical by Ipp J who had, in any event, concluded that the valuation task being undertaken was more analogous to that of a discretionary judgment than the application of fixed criteria to objectively determined facts. He expressed the conclusion at which he had arrived in that case in these terms (at [83]):
"Firstly, even without the phrase, 'in its sole discretion', the very nature of the valuation task undertaken by the appellant under cl 14.2(b)(iv) has the effect that the appellant's determination can only be challenged on grounds directed to the appellant's obligations to act honestly, bona fide and reasonably, or on any other ground on which it could be said that the valuation was not in accordance with the contract (in the sense explained by McHugh JA in Legal and General Life of Australia Ltd v A Hudson Pty Ltd), or on a ground based on the remarks of Mason J in Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd to which I have referred."
61 Turning then to one of the cases relied upon by Ipp J, that of Legal & General Life of Australia v A Hudson Pty Ltd (supra), that case concerned a rent revision clause pursuant to which a qualified valuer
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- acting as expert was to determine the amount of the current annual open market rental of the premises in the event of disagreement.
62 The valuer appointed undertook that task by applying a rental rate per square metre to what he had erroneously assumed was the area of the leased premises. However, apparently unknown to the valuer, a mezzanine floor which was included within the areas provided to him had in fact been removed and no longer existed so that the total rental provided by the valuer was greater than it would have been had he known that the mezzanine floor had been removed. The court nevertheless upheld the valuation despite that apparent error on the part of the valuer.
63 After reviewing the authorities dealing with the circumstances in which a valuation will be impeached by a court, McHugh JA, as his Honour then was, summarised the principles that he took from those cases in the following passage (at pages 335 – 336):
"In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied. This was pointed out by Sir David Cairns in the Court of Appeal in Baber v Kenwood Manufacturing Co Ltd (at 181). A valuation obtained by fraud or collusion can usually be disregarded even in an action at law. For in a case of fraud or collusion the correct conclusion to be drawn will almost certainly be that there has been no valuation in accordance with the terms of the contract. As Sir David Cairns pointed out, it is easy to imply a term that a valuation must be made honestly and impartially. It will be difficult, and usually impossible, however, to imply a term that a valuation can be set aside on the ground of the valuer's mistake or because the valuation is unreasonable. The terms of the contract usually provide, as the lease in the present case does, that the decision of the valuer is 'final and binding on the parties'. By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision. It is now settled that an action for damages for negligence will lie against a valuer to whom the parties have referred the question of valuation if one of them suffers loss as the result of his negligent valuation: Sutcliffe v Thackrah [1974] AC 727; Arenson v Arenson [1977] AC 405. But as between the parties to the main agreement the valuation can stand even though it was made negligently. While mistake
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- or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract."
64 Applying the principles enunciated in those cases to the facts of this case, I deal firstly with Nioka's contentions arising from the date of valuation having been specified by the valuer as 1 February 2006. There are two alternative reasons why, in my view, those contentions should not be upheld. The first is that I am not at all persuaded that the specification by the valuer of the date of valuation of 1 February 2006 made any difference whatsoever to the valuation at which he arrived.
65 There is no evidence to the effect that the valuation would have been any different had the valuer specified a different date of valuation in his report. Not only is there no evidence of that, but the inferences I draw from the terms of his report lead me to conclude that whatever date within the year 2006 he had specified, his valuation would have been exactly the same. That is because he used as his primary method of valuation the figure of future maintainable earnings derived primarily from the financial returns of the business up to the period ended 30 June 2006 to which he applied a capitalisation rate which he had derived from a transaction which took place in November 2004.
66 The capital value derived from the application of those two figures was not adjusted in any way by the valuer. There is therefore no reason to suppose that the outcome of that process would have been any different had a different date of valuation been specified because none of the vital
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- ingredients applied to the reasoning process employed by the valuer would have changed.
67 Similarly, in relation to the alternative method of unimproved capital value by reference to comparable sales, it is clear that the valuer relied primarily on four transactions, all of which post-dated the date of 1 February 2006. So, far from there being any evidence that the valuation would have been different had the valuer taken a different date, I am satisfied from my reading of the valuation report that the valuation would have been no different had the valuer taken a date of valuation later in 2006, and I so find.
68 The second reason why Nioka's contentions in this regard should be rejected is that, as I have already observed, no date of valuation is specified in the settlement agreement. It is clear from the authorities to which I have referred that the only basis upon which the court would be justified in impeaching the valuation provided by Mr Del Dosso is if it falls outside the terms of the contract made by the parties.
69 Two alternative bases for implying a date of valuation into the contract made by the parties are proposed. The first is by reference to the practice standard of the Australian Property Institute to which I have referred. But there is no evidence nor any reasonable inference available to the effect that the parties had any awareness of that standard.
70 It might reasonably be supposed that the parties to the settlement agreement contemplated that a valuer to be engaged would apply the standards and practices of his or her profession, and a term to the effect that a valuer would be engaged on those terms might readily be implied. However, it seems to me that that is quite a different thing to using the terms that might be implied into the contract of engagement between Nioka and the valuer to imply into the agreement between these two parties a provision as to the date upon which the valuation was to be undertaken.
71 There is no evidence to the effect that the parties turned their mind at all to the date of valuation, and so I do not think that there is any basis for the implication of a term in the contract between them as to the date by reference to which the valuation should be carried out.
72 Of course at the time the valuer was engaged, had he raised a question as to the date of valuation, it would have been possible to specify a date of valuation as part of the contract of engagement and the parties could have done that consensually. I make that observation for the
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- purpose of emphasising the distinction between the terms properly implied into the contract of engagement of the valuer in the absence of an express stipulation as to date, and the implication of a term under the contract between the parties. They are quite different things.
73 The second basis upon which it is said that there is to be a term implied into the contract between the parties to the effect that the valuation should be by reference to the date of inspection is that that is said to accord with commercial practice or expectation.
74 There is no evidence whatsoever to that effect, and I am unable to make any finding as to what the commercial expectation of the parties would have been in the circumstances in which they settled their dispute on 1 February 2006. It seems to me to be at least as open to conjecture that had they been asked at that time what the date of valuation was to be, they might well have said that it was to be as at the date upon which they settled.
75 So there is a quite insufficient foundation for the implication of a term as to the date upon which the land and business were to be valued. Because I have concluded that there was no term of the agreement between the parties requiring the valuer to undertake a valuation at a particular date, it follows that the valuation at which the valuer has arrived using a particular date cannot be said to fall outside the terms of the settlement contract.
76 The valuer's choice of the date of 1 February 2006 was a choice open to him on the basis of the instructions received. It cannot be said that in choosing that date he stepped outside the terms of the settlement contract between the parties, even if I were satisfied that the choice of another date would have made any material difference to the figure at which he arrived.
77 I turn then to the second raft of arguments advanced by Nioka which concerned the time at which the valuation was provided, being 6 October 2006. It is, I think, important in considering these arguments to distinguish between the expectation which the parties might have had at the time they settled their dispute on 1 February 2006, and the implication of a contractual term.
78 Although there is no evidence of this, it is not hard to imagine that on 1 February 2006, the parties had an expectation that the valuation would be received sooner than, in fact, it was. But even if that were so, it does not of itself sustain the implication of a term which would condition their
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- agreement upon the provision of a valuation by any particular date. The implication of a term is, of course, subject to the principles of law enunciated by the High Court in the well-known case, Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 347. Before any term could be implied, the various requirements enunciated by the court in that case would have to be satisfied. It does not seem to me that any of them are satisfied in relation to the term which Nioka seeks to imply.
79 It also seems to me that there is a difference between the implication of a term into the contract to the effect that performance of the agreement was conditional upon the receipt of the valuation within a reasonable time or by a specified time, and the implication of a term obliging the parties to take all reasonable steps to procure the provision of a valuation within a reasonable time.
80 A term of the latter kind is relatively easy to imply in this case because of the express provision in the terms of settlement, to which I have referred, requiring the parties to do all things necessary to be done to give effect to the settlement. In any event, such a term may be nothing more than the particular application of the term generally implied into all contracts whereby the parties agree to cooperate to enable each of them to obtain the benefit of the contract - being the implied term referred to in the cases of Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607 and Butt v M'Donald (1896) 7 QLJ 68, 70-71.
81 A term of this kind, imposing mutual obligations on the parties would not give rise to any claim for relief on the part of Nioka, because it is clear from the circumstances that I have related that Central City did all that could reasonably be expected of it to procure the expeditious appointment of a valuer in accordance with the terms of settlement.
82 Any delay in the appointment of a valuer in this case is, in my view, the responsibility of Nioka and, therefore, not a matter upon which Nioka can rely. However, Nioka seems to be putting the case not so much on the basis that there was a term imposing obligations on the parties, but rather that there was a condition to which the future performance of the contract was subject to the effect that the valuation be obtained within a reasonable time.
83 In relation to that proposition, it is significant that by the end of July 2006, notwithstanding the delays that had by then occurred, both parties
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- concurred in the appointment of Mr Del Dosso. Accordingly, if there was any basis for implying a term into the contract of February to the effect that the valuation be obtained within a reasonable time, by their conduct the parties impliedly agreed to persevere with their agreement by the appointment of a valuer in late July, and to that extent, agreed to vary any earlier agreement, express or implied. That course was clearly undertaken consensually by both parties with knowledge of the delay that had occurred up until that point.
84 In those circumstances, the valuation could only be impeached or the settlement contract found to be terminable at the suit of either party if it could be said that the delay following the engagement of the valuer in late July 2006 was so far outside the contemplation of the parties at the time they concurred in his appointment, as to give rise to the conclusion that it was their implicit understanding that their agreement would be terminable if the valuation was not received by that time. The valuation, as I have observed, was received in early October 2006 after the valuer's appointment was confirmed in late July 2006. The period expired was therefore a little over two months.
85 There is no evidence before me as to the way in which that period of time conforms with, or is either longer or shorter than any period of time that might reasonably be expected for the undertaking of a valuation of combination of land and business as a going concern. The valuation itself reveals the application of diligent effort to the ascertainment of the future maintainable earnings of the business, and the ascertainment of comparable transactions to be used in the valuation of the land and business. There is nothing in the assessment itself that would suggest that a period of a little over two months was an unreasonable period within which it was to be provided.
86 In these circumstances, given that the parties concurred in the appointment of the valuer in late July, and given that there is no evidence to the effect that the provision of a valuation report in early October 2006 was outside their expectations at the time they concurred in his appointment, or was delay of a magnitude that would lead to the conclusion that it must have been the contemplation of the parties that their agreement would lapse if the valuation had not by then been received, it seems to me to follow that Nioka's contention that the agreement is terminable because of a failure of a condition to which it was subject, must fail.
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87 I am reinforced in that conclusion by the letter written by Mr Aristei to the court in late July 2006 in which he appears to have contemplated a period of some three months within which the transaction would be concluded.
88 Given the enthusiasm of Central City to settle on the transaction, demonstrated by its repeated correspondence to that effect, and given that the valuation was provided on 6 October 2006, there would not appear to have been any impediment to the achievement of settlement within the time apparently contemplated by the representative of Nokia at the time that he wrote to the court.
89 For all of those reasons, there does not seem to me to be any basis for impeaching the valuation provided by Mr Del Dosso. In my view, for the reasons I have expressed, it conforms to the terms of the settlement contract between the parties and binds those parties. The most appropriate form of relief would be to issue a declaration to that effect.