Challenger Property Asset Management Pty Ltd v Stonnington City Council
[2011] VSC 184
•5 May 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
VALUATION, COMPENSATION & PLANNING LIST
No. 2702 of 2010
| CHALLENGER PROPERTY ASSET MANAGEMENT PTY LTD CHALLENGER LISTED INVESTMENTS LTD | Plaintiffs |
| v | |
| STONNINGTON CITY COUNCIL VALUER GENERAL VICTORIA | Firstnamed Defendant Secondnamed Defendant |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11-14, 18-21 October 2010; 8-11, 15-18, 23-26 November 2010 | |
DATE OF JUDGMENT: | 5 May 2011 | |
CASE MAY BE CITED AS: | Challenger Property Asset Management Pty Ltd & Anor v Stonnington City Council & Anor | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 184 | |
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VALUATION OF LAND – Meaning of “site value” – Meaning of “capital improved value” and whether “vacant to let” deduction required – “highest and best use” – Falconer principle – sales of other properties and their relevance as comparable sales or on other bases – Valuation of Land Act 1960 (Vic) - Trust Company of Australia Ltd v Valuer General (2008) 101 SASR 110, ISPT Pty Ltd v City of Melbourne [2007] VCAT 652; (2008) 20 VR 447,
Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 2) (2007) 99 SASR 251, Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 1) (2006) 95 SASR 338, Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615, 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).
REAL PROPERTY – Meaning of fee simple in possession – “Whether lease an encumbrance” - Trust Company of Australia Ltd v Valuer General (2008) 101 SASR 110, Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 2) (2007) 99 SASR 251, Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 1) (2006) 95 SASR 338, Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D. Batt SC with Mr C. Parkinson | Gadens Lawyers |
| For the Stonnington City Council | Mr C. Wren SC | Maddocks |
| For the Valuer General | Mr G. Garde QC with Ms J. Forsyth | Victorian Government Solicitor |
TABLE OF CONTENTS
APPLICATION................................................................................................................................... 1
Nature of application........................................................................................................................ 1
Procedural history............................................................................................................................ 1
Onus of proof.................................................................................................................................... 2
Role of the Court............................................................................................................................... 5
VALUATION PROCESS.................................................................................................................. 9
Role of the valuer.............................................................................................................................. 9
Valuation methodology................................................................................................................... 11
Highest and best use....................................................................................................................... 20
Vacant to let deduction.................................................................................................................. 25
THE CHALLENGER PROPOSAL................................................................................................ 56
Generally........................................................................................................................................ 56
Nature and extent of formulation of the Proposal........................................................................... 60
Effect of failure to call witnesses and provide documents......................................................... 67
Planning evidence.......................................................................................................................... 78
Highest and best use....................................................................................................................... 93
VALUATION EVIDENCE.............................................................................................................. 98
Independence of valuers and assessments of their evidence generally............................................. 98
SITE VALUE................................................................................................................................... 114
Valuation issues........................................................................................................................... 114
Location................................................................................................................................ 114
Residential use.................................................................................................................... 118
Relevance of permits issued after the relevant date...................................................... 122
Adjustments................................................................................................................................. 124
Plot ratios............................................................................................................................. 124
Size........................................................................................................................................ 129
Adjustments for time.......................................................................................................... 131
Shape..................................................................................................................................... 133
Heritage................................................................................................................................ 133
Section 173 Agreement....................................................................................................... 137
Railway line......................................................................................................................... 142
PUZ (Public Use Zone)...................................................................................................... 143
SBO (Special Building Overlay)....................................................................................... 144
Comparable Sales.................................................................................................................... 144
CAPITAL IMPROVED VALUE.................................................................................................. 154
Introduction................................................................................................................................. 154
Rental evidence............................................................................................................................. 155
Introduction........................................................................................................................... 155
Cinemas.................................................................................................................................. 156
Office rents............................................................................................................................. 161
Other tenancies....................................................................................................................... 163
Vacancy allowance....................................................................................................................... 164
Outgoings..................................................................................................................................... 166
Capitalisation rate......................................................................................................................... 166
Introduction........................................................................................................................... 166
Mr Jackson............................................................................................................................. 167
Mr Cundall............................................................................................................................ 170
Mr Fitzgerald......................................................................................................................... 173
Assessment of the evidence..................................................................................................... 174
Vacant to let deduction................................................................................................................ 176
Conclusion....................................................................................................................................... 181
APPLICATION
Nature of application
This is an application by Challenger Property Asset Management Pty Ltd and Challenger Listed Investments Ltd, as plaintiffs (“Challenger”), challenging the site value and capital improved value of the land at 500 Chapel Street, Prahran as assessed pursuant to the Valuation of Land Act 1960 (Vic) (“the Act”). The land and buildings at 500 Chapel Street, Prahran, are known collectively as the “Jam Factory”. For convenience, it is described as such in this judgment. However, naturally, the extent to which it is referred to in its improved state depends upon the context; whether it is a discussion of “site value” or “capital improved value” (unless otherwise indicated).
Challenger are the registered proprietors of the Jam Factory, being a parcel of land of some 19,200 square metres. It is situated in a predominantly “Business One” zone which has been improved by a two level retail and entertainment complex and car-park.
By rate and valuation notices, dated 30 July 2008 and issued pursuant to the Act, the first defendant, Stonnington City Council (“Stonnington”) assessed the site value of the Jam Factory as at 1 January 2008 as $48,176,000, and the capital improved value of the Jam Factory as at 1 January 2008 as $103,855,000.
By letter and notice of objection dated 26 September 2008, Challenger objected, pursuant to s 16 of the Act, against Stonnington’s determinations of both the site value and the capital improved value, as being too high.
By notice dated 22 December 2008, Stonnington disallowed the objection pursuant to s 21(3)(a) of the Act.
Procedural history
On 22 January 2009, Challenger made application to the Victorian Civil and Administrative Tribunal (VCAT) pursuant to s 22 of the Act for review of the decision of Stonnington to disallow the objection.
On 21 September 2009, on the application of the second defendant, Valuer General Victoria (“the Valuer-General”), VCAT Deputy President Dwyer ordered that the Valuer-General be joined as a party to the review proceeding in VCAT, pursuant to s 60 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic).
On 25 June 2010, upon the application of Challenger, Osborn J ordered, pursuant to s 23(3) of the Act, that the matter the subject of the review proceeding in VCAT be treated as a appeal to this Court, and that all documents filed in VCAT stand as documents filed in this Court, for the purpose of what had thereby become an appeal proceeding under s 23 of the Act in this Court.
In the present circumstances, the jurisdiction of the Court is original jurisdiction in the exercise of which the Court may, by order, confirm, increase, reduce or otherwise amend any valuation and make any other order it thinks fit.[1]
[1]See sub-s 23(3) and sub-s 25(1) of the Valuation of Land Act 1960 (Vic).
Onus of proof
Challenger submitted that the plaintiff did not bear the legal onus to prove that the values assessed by Stonnington were in error. It was submitted that the decision of Batt J in 101 Collins Street Pty Ltd v City of Melbourne (“101 Collins Street”),[2] in which it was held that the appellant, the person seeking to challenge the valuation, had the ultimate onus of proof, should be distinguished on this issue. Reference was made by Challenger to Alpine Shire Council v MHSC Transportation Services Pty Ltd,[3] where counsel for the Alpine Shire Council submitted that the ratepayer bore the onus of proof, relying upon 101 Collins Street. The submission by counsel for the ratepayer was that there was no ultimate onus and, rather, the Shire had the same onus as the ratepayer to establish the validity of its valuation. The basis of the submission on behalf of the ratepayer was that the conclusion of Batt J in 101 Collins Street was based on sub-s 42(2) of the Act as it then stood, namely that in an appeal under Part III of the Act, the ratepayer bore the onus. Sub-section 42(2) has, however, since been repealed and there is no corresponding provision in the provisions of the Act as it now stands.
[2](Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).
[3][2002] VSC 22 (25 February 2002).
Challenger submitted that the decision of Batt J in 101 Collins Street[4] should be distinguished for the same reasons as those submitted by counsel for the ratepayer in Alpine Shire Council v MHSC Transportation Services.[5] Additionally, it was submitted that an application to challenge a valuation in the present circumstances may now only be made to VCAT, rather than the applicant having a choice between commencing in VCAT or the Court. Challenger also submitted that having regard to the fact that an application to VCAT is an application for a merits review, there could properly be no onus in such a proceeding. It was submitted, therefore, that the revised framework of the Act is different from that at the time of the 101 Collins Street decision, and is not consistent with an onus applicable when a matter is later uplifted to the Court from VCAT.
[4](Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).
[5][2002] VSC 22 (25 February 2002).
Challenger also submitted that even if 101 Collins Street[6] were to be followed, no onus of proof falls upon them. It was said that in 101 Collins Street, Batt J recognised that it may not always be appropriate to have regard to the onus.[7] In that case, the City of Melbourne contended for a higher valuation than the municipal valuer’s original valuation. All parties led detailed evidence in support of their contended for valuations, which were different from the original valuations. In those circumstances, Batt J held that it was “quite out of the question” to adopt the original valuation.[8]
[6](Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).
[7]Ibid 84.
[8]Ibid 83–4.
On this basis, it was submitted that, with respect to site value, similar considerations would apply as Stonnington does not press its original valuation, and each party has led evidence as to what it submits is the proper valuation. Hence, it was submitted, no onus falls upon Challenger to show error in the calculation of the site value and, consequently, each party has the same burden to establish the accuracy of its own valuation.
In relation to capital improved value, Stonnington contended for its original valuation and both Challenger and the Valuer General contended for other valuations. Further, Challenger and the Valuer General contended for different meanings to be applied with respect to the proper interpretation of the definition of capital improved value.
The Valuer General submitted that the person seeking to challenge the valuation has the ultimate onus of proof, but where no party contends for the return figure (as is the case in respect of site value in this proceeding), there is no onus and the question is the proper value on the evidence and provisions of the Act. Further, it submitted that where there is an onus of proof, which the Valuer General said was the position in the case of the capital improved value in this proceeding, once error in the valuation is shown, the proper valuation is an open matter for the Court.
In my opinion, applying the approaches argued for by Challenger and the Valuer General, the position is reached, with respect to both site value and capital improved value, that no onus applies. Rather, the burden simply lies on each party to establish the accuracy of its own valuation. Additionally, and in my view more significantly, regard should be had to the considerations in this respect advanced by the ratepayer and accepted by the Court in Alpine Shire Council v MHSC Transportation Services.[9] These considerations are particularly significant in the present circumstances, where the merits review proceeding in VCAT has simply been “uplifted” to the Court under s 23 of the Act. It would be at odds with the purpose of permitting such an “uplift” if the result were to change, in a fundamental and perhaps decisive way, the nature of the proceeding which would otherwise have been conducted in VCAT under s 22 of the Act as a merits review proceeding.[10] In my view, this position is made clear by sub-s 23(1) of the Act, which provides for “uplift” if the Supreme Court or the President of VCAT is “satisfied that the matter raises questions of unusual difficulty or general importance”.
[9][2002] VSC 22 (25 February 2002); and see above, paragraph 10.
[10]See sub-s 22(1) of the Act; and see s 42 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic).
Role of the Court
It is clear from the authorities that the role of the Court is not “to bring a third set of opinions into the arena”[11] or to “piece together a valuation of [its] own”.[12] Further, in circumstances where there is a disparity between valuers’ valuations, the Court must subject each valuer’s evidence to critical evaluation.[13] 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”.[14]
[11]Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541, 544-5: Wells J held that “it would be quite contrary to principle … for the judge to bring a third set of opinions into the arena and to supplement or condemn testimony properly adduced before him in reliance on his own theoretical grasp of principles and precepts … the judge cannot arrogate to himself the role of an expert”. See also Minister for Environment v Florence (1979) 21 SASR 108 and Bronzel v State Planning Authority (1979) 21 SASR 513.
[12]101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 83.
[13]Minister for the Environment v Florence (1979) 21 SASR 108, 111 (Wells J).
[14]Commonwealth v Milledge (1953) 90 CLR 157, 161 (Dixon CJ and Kitto J); and see 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 80, fn 28; and Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541, 578 (Wells J).
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.[15] Thus Zelling J said in Doherty v Commissioner of Highways:[16]
“Judges do not have to accept the valuations of the valuers of either side and frequently arrive at a figure or figures which constitute a modification or modifications of the figures submitted by one or more valuers. For a typical example of the process, see the judgment of Walsh J in Anthony v The Commonwealth,[17] especially at p 94. They are guided in coming to the conclusion by the evidence of the valuers together with the other evidence in the case.”
Nevertheless, as Batt J indicated in 101 Collins Street, care needs to be taken by the Court when it adjusts the evidence of valuers:[18]
“Whilst I cannot piece together a valuation of my own (Brewarrana [Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541] at 545), it appears to me that I am entitled, by reference to evidence of one valuer, to adjust on a number of aspects the valuation of another valuer, provided that I make allowance for the fact that one variable in a component consisting of several variables may in fact have been balanced in the latter valuer’s valuation by one or more of the other variables. In such a case it might, depending upon the circumstances, be necessary to refrain from making the adjustment and to adopt the component in full or not at all.”
[15]101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 81.
[16](1974) 7 SASR 57, 83; and see Anthony v The Commonwealth (1973) 47 ALJR 83, 94 (Walsh J); Adelaide City Corporation v City of Port AdelaideEnfield (2000) 110 LGERA 153, 170 (Bleby J); and 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 81-3 (Batt J).
[17](1973) 47 ALJR 83.
[18]101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 83.
Challenger submitted that the comments of Batt J in 101 Collins Street,[19] set out in the preceding paragraph, are of application in the present proceeding. The Valuer General made reference to this part of the judgment of Batt J where these comments appear, and more broadly to the material under the heading “Valuation Issues: Task of the Court”, which also appears in that judgment.[20] The comments relied upon by Challenger encapsulate the position reached by Batt J as a result of his Honour’s consideration of the authorities with respect to the task of the Court when considering valuation issues. It is, however, helpful to refer to part of the preceding analysis of the authorities:[21]
[19]Ibid.
[20]Ibid 80-4.
[21]Ibid 81-3.
“On the other hand, by reference to Royal Sydney Gold Club v FC of T (1967) 97 CLR 379 at 394-395, (1967) 97 CLR 379 at 394-395, Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 168 and 171 (though this was in the dissenting judgment of Mahoney JA) and Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 at 436, counsel for the appellants cautioned me to avoid the Charybdis of binding myself to one valuer’s valuation where the evidence of methodology was not satisfactory instead of ‘doing the best I can’ in those circumstances. Reference may also be made to Hyam, op cit, 299-306 and 317-320. It seems to me that the question is one of degree. Even counsel for the respondent acknowledged that I could accept the evidence of one valuer on one issue and the evidence of the other valuer on another, discrete issue. He acknowledged, too, that I could make at any rate make some adjustments to evidence that I was otherwise disposed to accept. That, indeed, is indisputable. In Yates Property at 182 Handley JA pointed out that the method of deducing market value from sales of comparable land almost invariably involved the making of adjustment to allow for differences from the land to be valued or timing differences and referred with approval to the following statement of Hope JA in Seatainer Terminals at 434:
‘The need to make adjustments to values deduced from sales in order to arrive at the true valuation of the land to be valued does not preclude the court … from relying upon the sales as comparable … nor from … making … of adjustments which may be nothing more than the best guess that can be made’.
Handley JA continued that a judicial officer was not required to formulate verbal reasons for such guesses or exercises of judgment, pointing out that Australian courts, and in particular the High Court, had frequently referred to the following statement by Lord Hobhouse in Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [2901] AC 373 at 391:
‘… in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity. In such an inquiry as the present, relating to subjects abounding with uncertainties and on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusions arrived at.’
That passage is cited also in Seatainer Terminals at 437. The statements by Hope JA and Handley JA about sales that may properly be treated as comparable apply equally, in my view, to lettings, which are, of course, the transactions whose consideration is relevant to these appeals. In addition to the statements I have already cited or mentioned, it is to be observed that Royal Sydney Golf Club Kitto J, at 394 described his task ‘on this very scanty material’ as being to ‘form the best judgment I can’ and on the next page said that how much should be allowed by way of addition for the chance that sales of building lots in subdivision of the land in question might become possible at some future date was ‘necessarily a matter of guesswork’. He thought that an increase of five per cent was ‘as near the mark as one [could] get’.”
The conclusion reached by Batt J in 101 Collins Street,[22] as set out above,[23] was cited with approval by Morris J (sitting as President of VCAT) in ISPT Pty Ltd v City of Melbourne,[24] and by the Court of Appeal in refusing the application for leave to appeal the decision of Morris J.[25]
[22]101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).
[23]See paragraph 18 above.
[24][2007] VCAT 652, [18].
[25]ISPT Pty Ltd v Melbourne City Council (2008) 20 VR 447, [20], [24].
In terms of the general approach that the Court should adopt in exercising its role, Challenger submitted that to the extent that the role involves the interpretation of the provisions of the Act, the Court should prefer Challenger’s submissions on the application of the principle of statutory interpretation, being, that any ambiguity in a taxing statute should be interpreted in favour of the taxpayer. In this respect, reference was made to the following passage in the judgment of Batt J in Shell Co of Australia Ltd v City of Melbourne (“Shell”):[26]
“Even if the correct interpretation were a matter of doubt (which I do not think it is), two considerations would lead to the resolution of that doubt in favour of the appellants. First, the interpretation contended for by the respondent would cause inconvenience and difficulties in administration. For all municipal valuers would have to ascertain the terms on which each leased parcel of land in the municipality was held and to determine whether or not the lease was more favourable to the landlord than a lease in accordance with the conditions of the market. In saying this, I acknowledge that the interpretation placed on s 42 of the Land Tax Act 1958 by the Full Court in Commissioner of Land Tax v City of Melbourne [1994] 1 VR 486 requires the commissioner to make a similar enquiry and the converse determination. But that interpretation was clear and unavoidable. Secondly, the appellants are, in my view, entitled to invoke the principles of statutory construction applicable to an Act which imposes a tax or duty and, relevantly, the principle that the imposition of a tax must be in plain terms: Anderson v Commissioner of Taxes (Vic) (1937) 57 CLR 233 at 243; Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492 at 510-11. I say that because, although the definition containing the putatively ambiguous words now appears in valuation legislation rather than in rating legislation, it is clear from provisions which I have discussed earlier that the definition of CIV and the provisions of the Valuation of Land Act 1960 which incorporate it are intended to govern the making of valuations on one basis (CIV) for use in the declaration of rates under the Local Government Act 1989. For the purposes of the principles of construction that I have referred to the latter Act relevantly imposes a tax or a duty. The remarks of Dixon J in Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of SA Ltd. (1947) 74 CLR 358 at 373-4 (agreed in by Gibbs J in Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547 at 565), in which a distinction is drawn between revenue cases and compensation cases, although expressed in the context of valuation as opposed to interpretation of valuation legislation, point in the same direction.”
Consequently, Challenger submitted that any ambiguity of the Act should be interpreted in its favour.
[26][1997] 2 VR 615 at 668.
The Valuer General, on the other hand, submitted that in the case of ambiguity, the Court should favour the interpretation of capital improved value which it advanced on the basis of ease of administration. It was submitted by Challenger that it became plain during the course of the trial that little divided the approaches of the Valuer General and Challenger in terms of administration. In this respect, reference was made to the evidence of Mr Cundall, a valuer, who stated in his evidence that until the Valuer General changed its guidelines, it was common practice for valuers to allow letting up allowances, which were argued for by Challenger, in the course of valuing land for capital improved value purposes under the Act.[27]
[27]Transcript of proceedings (“Transcript”), 1384.
For the reasons which appear below, I am of the opinion that the interpretation of the critical divisions of the Act is not doubtful in the relevant sense,[28] and is not made so as a result of a different view or views having been taken in relation to the proper construction of these provisions in a previous decision or decisions of this Court.[29]
[28]And in this respect I refer to the opening passages of the statement of Batt J in Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615, 668, which is set out above.
[29]And see the discussion of the Shell case below, paragraphs 55 and 75.
VALUATION PROCESS
Role of the valuer
It is clear from the authorities that, depending on the particular circumstances, different methods of valuation may be appropriate. The Courts have not adopted a prescriptive position with respect to valuation methodology and care should be taken to ensure that no single process of reasoning is elevated into a statement of principle.[30] The valuer’s task is then, within the context of the facts and circumstances relating to the relevant property, to apply the most appropriate method of valuation according to his or her expertise and experience. Valuation practice is principally an art, rather than a science and is an art that continues to evolve.[31]
[30]See Boland v YatesProperty Corporation Pty Ltd (1999) 74 ALJR 209, 245 [174] (Hayne J) and 268 [283] (Callinan J). Reference was made by Callinan J in Boland v Yates (at the page and paragraph cited) to the judgment of Wells J in Bronzel v State Planning Authority (1979) 21 SASR 513, 516. Callinan J said:
“[283] Wells J recognised the availability of different methods of valuation in Bronzel v State Planning Authority:
‘… I am not disposed to reject any method of valuation adopted by either valuer on the ground that it is not worth considering; it seems to me that if Spencer’s case … is to keep its practical worth in this jurisdiction, this Court should be slow to reject any method that, in expert hands, is capable of yielding a result within bounds that are not too unreasonable. The limitations of every method must, of course, always be kept clearly in mind. I am of the opinion that the approach likely to result in the most direct and reliable resolution of the outstanding differences between the valuations is to consider the particular features of each valuation that are capable of yielding to adverse criticism.’”
[31]Boland v YatesProperty Corporation Pty Ltd (1999) 74 ALJR 209, 267 [280] (Callinan J). Similarly, the Full Court of this Court said in Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] 1 VR 657, 669 (Lush, Murphy and Jenkinson JJ):
“The valuation of land and buildings involves a matter of judgment. Opinions notoriously vary on this subject matter – it would be surprising to find two valuers who agree on the valuation to be given to land and buildings of the nature of the subject premises. There is no scientific exactitude in the valuations of land and buildings. They are as hypothetical as the hypothetical purchaser whom they assume.”
A valuer is, of course, an expert and, as such, is required to reveal in his or her evidence the factual and intellectual basis of an opinion. This follows from the general principle applicable to expert opinion evidence as stated by Heydon JA in Makita (Australia) Pty Ltd v Sprowles:[32]
“In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of ‘specialised knowledge’; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be ‘wholly or substantially based on the witness’s expert knowledge’; so far as the opinion is based on facts ‘observed’ by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on ‘assumed’ or ‘accepted’ facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert’s evidence must explain how the field of ‘specialised knowledge’ in which the witness is expert by reason of ‘training, study or experience’, and on which the opinion is ‘wholly or substantially based’, applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ’s characterisation of the evidence in HG v The Queen [197 CLR 414] (at 428 [41]), on ‘a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise’.”
[32](2001) 52 NSWLR 705, 743-4 [85].
Valuation methodology
In the present circumstances, against the background of the general law of and relating to valuation and the practice and methodology applied by valuers, regard must be had to the provisions of s 5A of the Act. Given their importance in the present context, it is helpful to set them out in full:[33]
[33]These are the provisions of s 5A of the Act, incorporating amendments as at 2 July 2008, and agreed to be the provisions applicable at the relevant time or times in these proceedings.
“5A 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.”
As is implicit in the provisions of s 5A of the Act, the essence of the valuation process is the assessment of comparable sales, making adjustments to the extent necessary so that the process is one which involves, as nearly as possible, comparing “like with like”. This process was helpfully discussed by Morris J (sitting as President of VCAT) in ISPT Pty Ltd v City of Melbourne:[34]
“51. It is sometimes thought that sales are either comparable or not comparable: that is, a binary paradigm should be used to classify sales. In my opinion, this is a flawed approach. Rather there will be gradations of comparability: from identical to irrelevant. As this scale of comparability approaches the irrelevant end, there will be many sales that offer so little assistance that they ought be disregarded. Further, there will be circumstances where there is a sale or sales that are strongly comparable; in which case there will be no need to closely analyse other sales, even though these may be comparable in some way.
…
53. The comparable size, location and condition of land must also be taken into account in a similar way. Similarly, the use to which land might be put must be considered. This exercise might produce the result that a sale is so dissimilar that it should be disregarded; or it might produce the outcome that a sale needs to be adjusted before being applied; or it might produce the outcome where a sale is given more or less weight in the exercise of a valuation judgment.”
[34][2007] VCAT 652, [51], [53].
The approach of Morris J was expressly endorsed by the Court of Appeal in its reasons for refusing an application for leave to appeal the VCAT decision.[35] More particularly, the Court of Appeal said, with respect to improved sales, that the general principle is equally applicable to unimproved sales, though the nature of the comparables and adjustments may vary as between these contexts:[36]
“[83] The court held that although the traditional and usually appropriate method of valuing land in a notionally unimproved state is to seek out relatively contemporaneous sales of comparable properties between parties at arm’s length, unaffected by special circumstances, that approach had miscarried in the circumstances of the case. More particularly, it had led to reliance on a very small basket of sales which were not representative of the value of the land in issue, because vacant land was very scarce. It said:[37]
In valuing the land, the respondent’s valuer, to use the language of the Privy Council in Melwood,[38] “ignored a principle of assessment of [value]”, the principle being, that sales to be treated as comparable sales need to be truly comparable; or, to put it another way, in valuing the land the respondent’s valuer did not proceed rationally, in that he was unreasonably selective in ultimately confining himself to two sales of scarce vacant land for the purposes of the comparison. The respondent could not, and did not suggest that he would be performing his statutory duty if he made other than a fair estimate of the value of the subject land. A fair estimate could only be made here on the basis of a fair, that is to say, a reasonably representative group of comparable sales. A group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land. That is not to say that sales of comparable vacant land may not provide useful evidence of value. But as J F N Murray observes in Principles and Practice of Valuation[39] in discussing valuations under federal land tax legislation of land in its notionally unimproved state, “sale evidence [must be] relevant and sufficient in volume” (emphasis added). So too, sales relied on, such as of scarce vacant land, are likely to be to a special and different class of buyer from buyers of improved land. As Waddell J said in Sher v Commissioner for Main Roads,[40] sales of properties of a different character are likely to attract a different class of buyer and are unlikely to provide a reliable indication of value.”
[35]ISPT Pty Ltd v Melbourne City Council (2008) 20 VR 447, 468 and following.
[36]Ibid 468 [83].
[37]Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111, 121 [18].
[38]Melwood Units Ltd v Main Roads Commissioner [1979] AC 426.
[39](Commonwealth Institute of Valuers, 4th ed, 1969) 120.
[40](1975) 24 The Valuer 150, 151.
As these cases indicate, the degree of comparability of particular sales is a matter of judgment by the expert valuer and, consequently, the observations of Heydon JA in Makita (Australia) Pty Ltd v Sprowles[41] are apposite. Care, however, needs to be exercised with respect to the process of adjusting for comparability, for two reasons. First, the process of adjustment has an illusion of precision which tends to obscure the reality that the process is a matter of expert judgment; an art and not a science. Secondly, it is clear that the question whether a sale can be relied upon as a comparable is a question of fact and degree and, generally speaking, if the adjustments required to achieve comparability are very extensive, one might be more inclined to the view that the extent of adjustments required indicates that the sales are not, in reality, comparable.
[41](2001) 25 NSWLR 705; see paragraph 25 above.
In relation to the first point, it is helpful to note the comments by Gobbo J in Mario Piraino v Roads Corporation:[42]
“. . . detailed adjustments of unit rates derived from comparable sales were used by the other valuers. Often there were as many as six or seven different percentage adjustments for such matters as time, size, shape, location, freeway exposure, planning permission and services. All of those adjustments were matters of judgment. Very few of them were capable of meaningful support by analysis of sales evidence. The whole structure of percentage adjustments had an illusory air of certainty and reliability about it. ...
The detailed percentage adjustment analysis method . . . was not the method adopted by the experienced valuers of yesteryear . . . who once they had analysed a sale to a unit rate, such as land clear of improvements, then gave a reasoned explanation of the factors of similarity and dissimilarity and why in the light of those factors they settled upon their valuation figures.”
[42](1990) 76 LGRA 263.
Further, it is noted that in Pamalco Pty Ltd v Minister Administering National Parks and Wildlife Act 1974 (No 3),[43] Hemmings J said:
“[M]athematical precision is impossible and inappropriate for such matters of judgment.”
[43](1991) 71 LGRA 441, 454.
In relation to the second point, I note the following comments made by Hope JA in Leichhardt Municipal Council v Seatainer Terminals Ltd,[44] Hope JA said:
“Whether the differences between land a sale of which is to be relied upon and the land to be valued are so great that the land the subject of the sale cannot be regarded as comparable is a question of fact and degree. The difference may be so great that a court may be constrained to hold that the land is in no sense comparable, and that the adjustments which have been made are so great that the sale can provide no evidence of the value to be determined, and no basis upon which that value can be assessed.”
[44] (1981) 48 LGRA 409, 435.
Nevertheless, the fact that a sale is not to be treated as a comparable does not mean, necessarily, that it must be excluded from all consideration.[45] These “non-comparable sales” may be helpful in the process of checking the valuation, aspects of it, or underlying assumptions. Thus, Alan Hyam commented in The Law Affecting Valuation of Land in Australia:[46]
“In arriving at an opinion as to value it is important that the valuer have regard to all material relevant to value and to check her or his valuation by as many methods as may be available (including the value deduced from the assumption of a hypothetical sale): Ford v Minister for Housing (1964) 18 The Valuer 579; Minister for Navy v Rae (1945) 70 CLR 339; Brickworks Ltd v Minister for Public Works (1949) 29 LVR 67 at 87-88.”
I turn now to consider the nature and extent of matters that a valuer is to take to be known to the hypothetical purchaser and, particularly, the extent to which material post-dating the relevant date of the valuation may properly be relied upon.
[45]Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541, 551.
[46](The Federation Press, 2009) 123.
The authoritative, and much-quoted, statement of the assumptions as to the facts to be taken to be known by the hypothetical purchaser, is the statement by Isaacs J in Spencer v The Commonwealth (“Spencer’s case”):[47]
“All circumstances subsequently arising are to be ignored. Whether the land becomes more valuable or less valuable afterwards is immaterial. Its value is fixed by Statute as on that day. Prosperity unexpected, or depression which no man would ever have anticipated, if happening after the date named, must be alike disregarded. The facts existing on 1st January, 1905, are the only relevant facts, and the all important fact on that day is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted. The plaintiff is to be compensated; therefore he is to receive the money equivalent to the loss he has sustained by deprivation of his land, and that loss, apart from special damage not here claimed, cannot exceed what such a prudent purchaser would be prepared to give him. To arrive at the value of the land at that date, we have, as I conceive, 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 the value of the property.”
[47](1907) 5 CLR 418, 440-1.
The leading authority on the extent to which the use of post-valuation assessment date material may be relied upon is that of the New South Wales Court of Appeal in Housing Commission of New South Wales v Falconer.[48] The principles applicable in this respect have come to be known as “the Falconer principle”.[49]
[48][1981] 1 NSWLR 547.
[49]See Sorrell Council v Downie [2005] TASSC 2, [21]-[23] (Evans J); Maggiotto v Roads and Traffic Authority [2006] NSWLEC 54, [76]-[81] (Cowdroy J); Chino Pty Limited v Transport Infrastructure Development Corporation [2006] NSWLEC 768, [66], [102]-[103] (Pain J); Murdesk Investments Pty Ltd v Roads Corporation [2006] VSC 363, [38] (Osborn J).
The Falconer principle was explained in the reasons of Hope JA in the case itself:[50]
“However there are many decisions, including decisions of the High Court, in which it has been held that evidence of future events is admissible not to prove a hindsight, but to confirm a foresight: see, for example, Trustees Executors and Agency Co Ltd v Commissioner of Taxes (Victoria) (1941) 65 CLR 33; Minister for Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459, at pp 514, 515, McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1, at p 16; Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77, at p 108. An application of the principle namely, that ‘The amount of compensation, being a matter of assessment, can, like damages, be calculated in the light of any subsequent facts to the extent to which they throw light upon items of value which can properly be taken into account in the calculation, having regard to the circumstances existing at the date of acquisition’: Minister for Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459, at p 514 is to be found in the decision of the Full Court of Queensland in Brisbane City Council v Thorpe (1965) 13 LGRA 31. In that case the council resumed land on which stood a part of a shop building, the other part standing on land retained by the owners. Two years after the date of resumption the council offered to move the existing shops back to the resulting new alignment. In his judgment Gibbs J, as he then was, with whom Hanger and Jeffries JJ agreed, said (at p 37):
‘In the present case at the date of the resumption it was reasonable to expect that the council would offer to make the building available, since the purpose of the resumption was to widen a road and possession of a portion of a building could be of no use to the council. The fact that it has since made the offer may be regarded to show that as at the date of resumption the building would have been available.”
If such a principle were to be applied to the present case then it would seem that as at the date of resumption in March 1974, a prudent purchaser, properly advised, would certainly have anticipated a significant rise in building costs. In the year ending 1973, the increase in the CPI was 6 per cent, but in the year ending 30th June, 1974, it mounted to 12.9 per cent. Accordingly a prudent purchaser would have taken into account the probability, indeed certainty, of increasing building costs. The Court would not be concerned here, as it has been in ordinary damages cases, to determine what the amount of those inflated costs would be; it would be concerned with what a prudent purchaser would do in the knowledge that there had been a sudden and very large growth of inflation which was likely to continue. I do not consider that the Court would be entitled to credit the prudent purchaser with an exact knowledge of what increases in building costs would be between 1974 and 1977 and 1981; what would have to be determined is what would be the attitude of a prudent person in the hypothetical circumstances which the cases have described; but the actual increases could be looked at in confirmation of what the hypothetical purchaser, properly advised at the time of resumption, would have foreseen. The extent to which foresight coincided with or approached fact must be a question of fact—assuming there is evidence to support a conclusion—but it seems impossible to conclude that a purchaser in 1974 could predict what building costs would be seven years later.”
[50]Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547, 558-9.
Also in the same case, Glass JA said:[51]
“In relation to both market and special value, events subsequent to the resumption are of no relevance (McSweeney v Commissioner for Railways (1914) 14 SR (NSW) 18; 31 WN 14) except to the extent that they provide some evidence of what was foreseeable by the owner in calculating what he would have accepted or offered at the time of resumption: Minister for Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459, at p 514.”
[51][1981] 1 NSWLR 547, 563.
And Mahoney JA also made the following comments, again in the same case:[52]
“There are some cases in which the theory or principle on which the compensation is to be assessed prevents regard being had to subsequent events. Thus, where the compensation which is to be given is measured by the ordinary market price of the property taken, the principle on which that market price is to be determined prevents (or at least restricts) reference to subsequent events. That market price is the price acceptable to a willing but not anxious vendor and purchaser on the relevant date. Such persons are to be taken to know what an appropriately informed person would know on that date. That being the principle, it follows that such persons (and the court, as determining what they would have done) cannot be seen as knowing more. The price which such persons would accept at that date will be affected by the uncertainties as at that date, as to, for example, the future demand for land at the relevant time, future decisions of zoning authorities, and the like. Those uncertainties and the effect of them on the postulated vendor and purchaser help to determine what price will be found acceptable. In that regard, therefore, evidence of what subsequently has occurred in relation to such matters may not ordinarily be referred to. This does not operate so as necessarily to exclude evidence of subsequent sales: Melwood Units Pty Ltd v Commissioner of Main Roads (1978) 52 ALJR 593, at pp 597, 598; [1978] 3 WLR 520, at pp 527, 529, 530; [1979] 1 All ER 161, at pp 166, 167, 168; McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1, at p 16. Such sales are evidence, not of the subsequent outcome of matters which, at the relevant date, were inherently uncertain, but of the price a relevant vendor and purchaser found acceptable at that date for comparable land. The assumption of the law is that from that evidence it is possible to infer what the relevant vendor and purchaser would have found acceptable for the subject land: see generally Harris v Minister for Public Works (NSW) (1912) 12 SR (NSW) 149, at pp 161-4; 29 WN 33; reversed 14 CLR 721; McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231, at p 239.”
[52][1981] 1 NSWLR 547, 576.
The principle was also considered in the Queensland Court of Appeal in Cairns City Council v CMB No. 1 Pty Ltd, where McPherson JA said:[53]
“It would, however, be a mistake to regard the reasons, read as a whole, of Isaacs J in Spencer’s case as completely excluding reference to matters arising after the date to which the valuation relates. The hypothetical vendor and purchaser are not treated as being impervious to the influence of potential future events or developments. According to Mahoney JA in Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547, 576, in a passage which is set out in full in the reasons of Cullinane J on this appeal, such persons are to be taken as knowing ‘what an appropriately informed person would know on that date’, although as Mahoney JA added, ‘they cannot be seen as knowing more’. As at that date, his Honour said, the price will be affected by uncertainties, and these uncertainties and their impact on the postulated vendor and purchaser help to determine what price would be found acceptable. The principle, his Honour continued, does not operate necessarily to exclude evidence of subsequent sales; but such sales are evidence, not of the subsequent outcome of matters which at the relevant date were inherently uncertain, but of the price a relevant vendor and purchaser found acceptable at that date for comparable land. The assumption is that what they would have found acceptable can be inferred from evidence of such sales.
It would follow from applying here what was said by Mahoney JA in Housing Commission v Falconer that the evidence in this case of the subsequent rezoning of the land and completion of the sale at $5 million would be admissible to support an inference as to the price which a hypothetical vendor and purchaser might have agreed on as the sale price of the land after the rezoning to Rural on 17 December 1993. The possibility that a further rezoning would occur, and the strong likelihood, approaching near certainty, that the Council would ensure that it did, are factors that would be taken into account by such hypothetical persons in arriving at a price that affords evidence of the value of the land at that date. In In Re Bwllfa & Merthyr Dare Steam and Collieries (1891) Ltd and Pontypridd Waterworks Co [1902] 2 KB 135, 141, the principle applied in valuation cases was likened by Vaughan Williams LJ to the ordinary rule for measuring damages for breach of contract, which, his Lordship said, is that the value at the date when the contract ought to have been performed is to be taken into consideration, but not any matters so remote or so uncertain that they are incapable of being measured. Read in the light of the later decision of Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, 539, the comparison is reminiscent of the distinction between foresight based on knowledge of ‘the ordinary course of things’, which is imputed to all contracting parties as reasonable persons, and foresight based on actual knowledge of special circumstances outside the ordinary course of things.
It may have been knowledge of a kind in the first of those two categories that Mahoney JA had in mind in Housing Commission v Falconer when in his reasons in that case he spoke of persons being ‘taken to know what an appropriately informed person would know on that date’.”
[53][1999] 1 Qd R 1, 11.
In Minister Administering the Crown Lands Act v Illawarra Local Aboriginal Land Council,[54] Basten JA said that the principle drawn from the Falconer case from the judgment of Hope JA is often summarised, too simplistically, as requiring, simply, that post-claim evidence must be used not to “prove a hindsight but to confirm a foresight”.[55] Explaining his comments further, Basten JA said:[56]
“The distinction which Hope JA was intending to draw in Falconer was not between confirming or denying a foresight, but between evidence which could relate to a foresight and that which merely constituted a hindsight. The point may be illustrated by reference to the example to which Hope JA referred, of the use of subsequent events to quantify loss: see at [69] above. The fact that foresight might anticipate a very significant loss does not mean that future events which discount the loss, rather than confirm its significance, are not admissible. Indeed, that was the point of the evidence in Parbury Henty: the cost of moving to cheaper premises was lower than expected, without adverse impact on the business of the property owner.”
[54][2009] 168 LGERA 71.
[55]See [2009] 168 LGERA 71, [70]-[85].
[56][2009] 168 LGERA 71, [80].
In my opinion, the legal propositions arising from the Falconer case and the other authorities to which reference has been made may, as Challenger submitted, be distilled as follows:[57]
(a)All circumstances occurring after the date of valuation (which is, in the present case, 1 January 2008) cannot be taken into account in valuing the site;
(b)Evidence of subsequent circumstances may only be used if it relates to a foresight, but may not be used if it merely constitutes a hindsight;
(c)The amount to be assessed is what the hypothetical prudent purchaser would entertain if perfectly acquainted with the land as at the relevant date.
[57]Plaintiff’s Closing Submissions (Other than Concerning CIV), dated 26 November 2010.
On the basis of the Falconer principle thus formulated, Challenger submitted that Stonnington and the Valuer General have sought to rely on material which cannot properly be taken into account in an assessment of the site value as at 1 January 2008. This issue is considered further in the course of the reasons which follow. It is, however, convenient to note at this point, in general terms, the Stonnington submission that the Challenger redevelopment proposal[58] would not, as at 1 January 2008, have “come out of thin air”, and that a well-informed, prudent purchaser, as equally well-informed as the vendor, would be bidding against other prospective well-informed purchasers for a development site with at least the potential of that proposed by Challenger.
[58]See below, paragraphs 97 and following.
Highest and best use
The concept of highest and best use is a fundamental principle of valuation and is, as would be expected, reflected in the provisions of s 5A of the Act.[59] This is clear, particularly, from sub-s 5A(3)(a) and (f). As such, it is also intrinsic to the formulation of Isaacs J in Spencer’s case. This was explained by the Court of Appeal in ISPT Pty Ltd v Melbourne City Council as follows:[60]
[59]See above, paragraph 26.
[60](2008) 20 VR 447, 458-467, particularly at 458-460 [37]-[44].
“The first threshold issue -- Highest and best use
[37] The concept of highest and best use is implicit in the theoretical basis of assessment of market value at a given point in time. Such value is understood to be ascertainable in accordance with the formulation of Isaacs J in Spencer v Commonwealth:[61]
[61](1907) 5 CLR 418, 441.
…
[38] It is implicit in this formulation that both vendor and purchaser are to be regarded as aware of the potentially most advantageous ongoing 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.
[39] Further, in Turner v Minister of Public Instruction[62] Dixon CJ stated:
[62](1956) 95 CLR 245, 264.
‘After all the purpose [of valuation] is to ascertain the full return which may reasonably be expected from the sale of the land, not the most conservative value.’
[40] In Commonwealth Custodial Services Ltd as Trustee for Burwood Trust Fund v Valuer General (NSW)[63] Biscoe J elaborated the concept by reference to relevant authority in the following terms:
[63](2006) 148 LGERA 38, 45 [15].
‘There is no statutory definition of “highest and best use”. It has been described in the High Court as “the most advantageous purpose for which [the land] was adapted”: Spencer v Commonwealth.[64] It “is the present value alone of such advantages that falls to be determined”: Cedar Rapids Manufacturing & Power Co v Lacoste.[65] In Park v Allied Mortgage Corporation Ltd[66] Hill J said at [70]: “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”. In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources[67] Jacobs J said:
[64]At 441 per Isaacs J.
[65][1914] AC 569, 576 per Lord Dunedin.
[66](1995) NSW ConvR ¶55-753 (Federal Court).
[67](1988) 65 LGRA 410, 415 (SA Supreme Court).
“Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says — the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value.”’
[41] In the present case, the tribunal summarised the underlying concept as follows in terms with which, with respect, we agree:[68]
‘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.’
[42] It also expressly referred to the notion of most advantageous use articulated by Jacobs J in the passage quoted above from the Adelaide Clinic case. Such a notion takes account of all factors relevant to the land affecting its present and future potential.
[43] Further, as the tribunal recognised in the course of its judgment, the highest and best use of a particular piece of land is flexible and may, at a particular point in time, be to ‘bank’ the land with a view to future development rather than to use it actively.[69]
[44] By reference to s 5A,[70] it can be seen that the tribunal was required to take into account 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 where it was relevant. In the present case the question of highest and best use was potentially relevant both to the question of valuation generally pursuant to s 5A(1) and more specifically to questions of comparability of sales of other land pursuant to s 5A(2).”
[68]At [62]. See Spicer v Valuer General (1963) 10 LGRA 319, 320 per Else-Mitchell J.
[69]Thus, it has been recognised in respect of land which has the potential for development for urban purposes that there is a clear distinction which may be drawn between land ripe for subdivision and land having the potential for future subdivision and “banked” for that purpose: Crompton v Commissioner of Highways (1973) 5 SASR 301, 318-19.
[70]See above [35].
There is no statutory definition of highest and best use, only references to the principle in provisions such as s 5A of the Act.[71] This is made clear in Biscoe J’s judgment in Commonwealth Custodial Services Limited as Trustee for the Burwood Trust Fund v Valuer General (NSW) (“Commonwealth Custodial”).[72]
[71]See, particularly, sub-s 5A(3)(a) and (f).
[72]See (2006) 148 LGERA 38, 45 [15], extracted above in paragraph 43, at paragraph 40 of the Court of Appeal judgment.
Similarly, in ISPT Pty Ltd v City of Melbourne,[73] Morris J (sitting as President of VCAT) said:
“62. 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 the 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 the highest and best use is relevant in assessing value, whether improved value or site value.
63. As Jacobs J pointed out in Adelaide Clinic Holdings v Minister for Water Resources[74] highest and best use is not the value of land assuming there are no planning or like controls. Rather it is the most profitable use having regard to the physical, economic and legal constraints on the use of the land.”
[73][2007] VCAT 652, Morris J.
[74](1988) 65 LGERA 410 at 415.
It is plain, as submitted by Challenger, that it is not necessary for the Court to identify a precise highest and best use in any particular circumstances. Rather, it was submitted that the Court should identify the highest and best use in terms of the types of uses and the likely size of any development. These propositions were supported by reference to the decision of VCAT in Mirvac Funds Ltd v Moonee Valley City Council:[75]
[75][2009] VCAT 1924.
“47. Section 5A(3) of the Valuation of Land Act 1960 requires a valuer to take into account, where it is relevant, the highest and best use of the land and any potential use. In ISPT Pty Ltd v Melbourne City Council,[76] the Court of Appeal (following the Tribunal decision at first instance) indicated that the role and weight to be given to this factor will turn logically upon other relevant factors disclosed by the evidence. It will not always be necessary to identify a precise highest and best use before considering comparative sales, and the highest and best use may extend to a range of potential uses.
[76](2008) 20 VR 447, following the Tribunal decision at [2007] VCAT 652.
48. Indeed, in business and activity centre zones, there may be mixed use opportunities where different categories of buyers compete for different opportunities, and where the highest and best use is a moveable feast that is effectively the use to which the highest bidder wishes to put the land. It will thus be sufficient in most cases to describe a highest and best use in general terms – for example, intensive retail and mixed use. That sentiment applies here. It is not necessary to go the level of specificity that Mr Jackson articulated – for example, valuation as a sub-regional shopping centre (which was not clearly substantiated here), or valuation consistent with the actual designated use under the approved development plan.
49. In a business and activity centre context, there is also some danger in being too prescriptive as to what the highest and best use might be. To argue that the actual Mirvac development represents the single highest and best use of the land is flawed. The valuation exercise by Mr Milne perhaps demonstrates this. He uses a prescriptive highest and best use of 10,000m2 retail, and 5,500 m2 non-retail (i.e. not dissimilar to the subject site) to derive a site value for the land of $15.3 million – well in excess of the Council valuation. However, Mr Milne bases his valuation on comparative sales for other infill retail/residential development sites at Camberwell and Highett and his opinion of a more optimal development and tenancy mix for the Moonee Ponds land. A very prescriptive highest and best use becomes very sensitive to, and reliant upon, the other assumptions made.
50. The planning framework for the Moonee Ponds land in this case included the possibility of retail, office, hotel and residential development. The land was initially in several parcels, and consolidated into two lots with different attributes. Multiple opportunities existed for development and use. We think in these circumstances, the Council valuer was not obliged to identify a single or precise highest and best use before ascertaining and considering relevant sales of comparable development land.” [Emphasis added]
Morris J was of the same view in ISPT Pty Ltd v City of Melbourne.[77]
[77][2007] VCAT 652, [61]-[68].
Highest and best use in a mixed use zone raises some additional issues, as indicated by Morris J in ISPT Pty Ltd v City of Melbourne:[78]
[78][2007] VCAT 652, [61]-[68], [93].
“61. Counsel for the applicant argued that it was necessary to identify a precise highest and best use for the land being valued before embarking on the process of ascertaining and considering comparable sales.
…
65. In a mixed zone, such as that applicable in central Melbourne, different categories of buyers of land compete for opportunities. Some buyers might seek to maintain land in its present condition and seek a rental return. Other buyers might buy to ‘land bank’ with a view to selling or developing the land at some future time. Other buyers may seek to develop the land for commercial uses. Yet other buyers may seek to develop the land for residential purposes. The highest and best use in this situation is the use to which the highest bidder wishes to put the land.
…
67. The applicant’s submission does not recognise the reality of the marketplace. In my opinion, at least, in the circumstances of this case, it is not necessary to identify a precise highest and best use of the land in order to assess site value. I would add that, if the highest and best use must be ascertained, it might be identified in general terms: such as an intense use for office, residential, hotel, club or retail purposes (or some combination of these); without specifying a single, precise use.
68. I accept that in identifying comparable sales it will be relevant to consider what uses are likely to be most profitable for the subject land and to look for sales of land with similar characteristics in that respect. And if a sale was in respect of land with a different use profile, then it might be disregarded or be accorded less weight. But where realistic options for the development of land might be a residential tower or an office tower, the sale of such land is likely to be relevant even if the actual purchaser had one or other type of development in mind when the land was purchased. (footnotes omitted)
…
93. Assuming that the improvements on the subject land had not been made, I find that the highest and best use of the land was for intensive development with a tower building (of a similar volume to the existing building) and underground car-parking, to be used for either office purposes or residential purposes or institutional purposes or some combination of these.
…”
In my view the authorities to which reference has been made support the proposition advanced by Challenger with respect to the extent to which highest and best use needs to be identified. Additionally, the decision of the Court of Appeal in ISPT Pty Ltd v Melbourne City Council[79] on the highest and best use, does, in my view, support this proposition.
[79](2008) 20 VR 447, 458-67.
Vacant to let deduction
Reference has already been made to the provisions of s 5A of the Act, particularly sub-s 5A(3)(a) and (f), in relation to the issue of highest and best use. It was argued by the Valuer General that these provisions provided an obstacle to the position advanced by Challenger, that their valuer, Mr Jackson, was correct in making a ”vacant to let” deduction on the basis of the definition of “capital improved value” contained in sub-s 2(1) of the Act. In particular, reference was made to the opening words of sub-s 5A(1), “[u]nless expressly provided” as governing the operation of these provisions and, consequently, rendering them subject to the application of the definition of “capital improved value” contained in the Act. Consequently, it was said that the provisions of s 5A are not relevant for the purpose of construing this definition. Whilst I would accept this position if I were of the view that the meaning of the definition of capital improved value was clear, I do not accept the proposition that the provisions are not relevant to the process of construction of the Act as a whole where definitional clarity is lacking. For the reasons which follow, I am of the opinion that this is the position, at least to the extent that the provisions of s 5A are relevant to the proper construction of the definition. Finally, the argument advanced by Challenger, on the basis that the position at common law is that premises are assumed to be vacant and to let, and that the “use” refers to the use which the hypothetical tenant would make of the land,[80] must, in my view, be rejected on the basis of the express words of paragraphs 5A(3)(a) and (f), which clearly contemplate, within alternatives, actual use – not hypothetical use by a hypothetical tenant, or anyone else.
[80]Plaintiff’s Closing Submissions (Other than Concerning CIV) (dated 26 November 2010), particularly [60], [145].
Returning to s 5A of the Act, reference was made by the Valuer General to the consideration by the Full Court of sub-s 7(2) of the Act as it then existed in the case of City of Castlemaine v Scott (No. 2),[81] where Winneke CJ and Menhennitt J said:[82]
“We agree with the submission by counsel for the municipality that the manifest purpose of s 7(2) of the Valuation of Land Act was to require a general valuation of rateable properties as at a specified date, which would commonly be a date prior to the time of the actual valuation, and to require the properties to be valued as at that date but on the basis that physically all things and conditions present at the time of the valuation, including such things as access roads, had been present at the date fixed by the Minister.
…
However, the duty of the valuer is, we think, to take each property as it is physically at the time of the valuation and with all things and conditions then present affecting its value and to determine what value the property would have had at the date fixed by the Minister if it had then been in that physical condition and with those things and conditions then present.
…
The notion of making a valuation of property as at an anterior date is a common one particularly in legislation providing for the valuation of land compulsorily acquired. All that s 7(2) does to qualify this common concept is something that makes the task of valuation more certain and more facile by taking the property and all its surrounds in their physical state at the time the valuation is actually made.”
[81][1973] VR 277.
[82][1973] VR 277, 282.
In Stack v City of Collingwood,[83] Crockett, Murphy and Marks JJ applied Scott’s case, making it clear that the valuer was required to take into account all matters (such as changes to trading conditions) and not only the physical condition of land. In this respect, Murphy J (with whom Crockett and Marks JJ agreed) said:[84]
[83][1984] VR 544.
[84][1984] VR 544, 546-7.
“There are many things and conditions which would not be termed ‘physical’ and yet are considerations to which regard should be had when fixing the value of land. One need only refer to s 5A of the Act and to sub-s (3)(a), sub-s (3)(b) and sub-s (3)(f) for illustration. There, the use to which such land is being put, the highest and best use to which the land might reasonably be expected to be put, the potential use of the land, zoning, planning schemes, interim development orders, regulations and the actual and potential capacity of the land to yield a monetary return are all mentioned as ‘relevant circumstances’ to which to have regard, when determining the value of any land.
Again, s 5A(1) of the Act stipulates that the Court shall take into account, when required to determine the value of any land ‘every matter or thing which such court ... considers relevant to such determination’.
[412]See the Fitzgerald Table.
[413]See the Cundall Table.
8.2Mr Cundall’s evidence was that this sale is one of his three sales of most direct relevance.[414] Mr Cundall’s evidence was that although Toorak Road is a significant retail area, the Jam Factory site is in a superior location.[415] Mr Cundall’s evidence was that this sale demonstrates the high land values being achieved in the area.[416]
[414]See above, paragraph 179.
[415]Transcript, 1409.
[416]See the Cundall Valuation Report, 20.
8.3 Mr Fitzgerald was also of the view that this sale provides a clear indication of the strength of the market for development sites in the vicinity of the Jam Factory site around the relevant date.[417]
[417]CB 240.
8.4Mr Fitzgerald’s evidence was that this sale (in drawing a comparison with 2-4 Yarra St) demonstrates that the rates per square metre paid for larger properties relative to smaller properties is “converging”.[418]
[418]Transcript, 1488-9.
8.5It was put to Mr Cundall that as a valuation approach sales with analysed rates of $10,390 could not help him to settle on a figure of $3,500 with reliability.[419] I rephrased the proposition as follows: “Mr Batt is putting to you that the extent of the adjustment you’ve had to make is indicative of it not being a comparable sale.”[420]
[419]Transcript, 1153.
[420]Transcript, 1154.
8.6Mr Cundall said that it still informed him as to what was happening in the market.[421]
[421]Transcript, 1155.5-6.
8.7Mr Cundall was cross examined about his allowance for demolition costs, given that Mr Cundall’s understanding was that at the time of sale the purchaser intended to retain the building. His evidence was that he allowed for interim rental, but also for demolition costs on the basis that it was a redevelopment site. He conceded the point that, if one was standing in the shoes of the purchaser at the time, then it may be that an allowance would not be made for demolition and instead an allowance would be made for improvements.[422]
[422]Transcript, 1290.
8.8On that basis, Mr Cundall gave evidence that even if the analysed sale as adjusted for size was $5,322/sqm[423] instead of $6,006/sqm (as a result of retaining the building, not demolishing it), then he would not revisit his $3,500 because it is still a high sale. He said that it was always the case that the $33 million was a “big sale”.[424] It is well above the rate of $3,500 he adopted.[425]
[423]Transcript, 1300.22.
[424]Transcript, 1301.24.
[425]Transcript, 1301-3.
8.9Mr Batt SC put to Mr Fitzgerald that “if a purchaser buys it on the basis that the improvements are of utility to them, then rather than demolition allowances, one would adjust for such value as the improvements are properly seen to have added [value].”[426] Mr Fitzgerald noted that a valuer does not take into account what was in the mind of the purchaser, but rather what is “reasonable”[427] and that the specific circumstances of the individual purchaser does not always represent a reasonable representation of how the market would have viewed the property.[428] On the basis of this evidence, it appears that this is the correct approach to take.
[426]Transcript, 1830.3-7.
[427]Transcript, 1829.12-17.
[428]Transcript, 1830.16-19.
8.10Mr Fitzgerald noted that this was not an “out of line market sale” given that there was strong interest in the site.
8.11Further, it appears on the evidence of Mr Fitzgerald and Mr Cundall that it would be unrealistic to contemplate retaining that building on the site in the long term. It is a major redevelopment site. Rather, the retention of the existing building in the short term gave the developer a platform to negotiate a maximal outcome for the site, relying on the existing scale and bulk as a reason to be able to build a substantial building. It is noted that:
8.11.1the Age article indicates that the proposed redevelopment which kept the building was for a 32 level apartment tower possibly with another tower to the rear;[429] but
[429]See the Cundall Valuation Report, 21.
8.11.2 the later proposal was for demolition of the building and redevelopment with a 24 level tower.
8.12Further again, the Jones Lang LaSalle Information Memorandum promoted the site as a “redevelopment site” with the “potential to build a new building in the future”.[430] It is noted that Mr Cundall was not taken to this reference in the document.
[430]Jones Lang LaSalle, Information Memorandum, [6.2].
8.13On the basis of the evidence of Mr Cundall and Mr Fitzgerald, the Toorak Road sale is very pertinent to show the very high prices for land for major redevelopment sites being paid in the Jam Factory environs.
9.0 Property Number 9: 670 Chapel St (Vogue)[431]
[431]Fitzgerald Sale No. 1, Cundall Sale No. 8, Jackson Sale No. 1.
9.1See the previous discussion.[432]
[432]See above, paragraph 259 and following.
10.0 Property Number 10: 637-641 Chapel St, Sth Yarra[433] (the Olsen)
[433]Fitzgerald Sale No. 7.
10.1The site has the following features:
10.1.1Land Area: 1,460
10.1.2Zoning: B2
10.1.3Sale Price: $6,160,000
10.1.4 Sale Date: Mar-06
10.1.5 Raw Rate: $4,219 ($5,300 analysed rate per Mr Fitzgerald[434]).
[434]See the Fitzgerald Table.
10.2Mr Cundall’s evidence was that he did not use this sale because the sale of 162-4 Commercial Road tells a similar story but was more pertinent due to its location.[435]
[435]Transcript, 1119-1120.
10.3Mr Fitzgerald said this property was helpful in making size adjustments. The size adjustment required between this property (1460sqm) and 670 Chapel St (14,699 sqm) is in the order of 47 per cent. In Mr Fitzgerald’s view, it was reasonable to make a 10 per cent adjustment between the subject site and 670 Chapel St. He was comforted in this view when he looked at the difference between 637 Chapel St and 670 Chapel St.[436]
[436]Transcript, 1494.
10.4Mr Fitzgerald also used this property to make a locational adjustment. He compared it with 256 Chapel St, took into account the size differential and took the view that the remaining differential was related to location. He calculated a 40 per cent difference for location. Mr Fitzgerald’s view was that this locational difference of 40 per cent could then be applied to compare 670 Chapel St with the Jam Factory.[437]
[437]Transcript, 1499.
11.0 Property Number 11: 6-10 Daly St, Sth Yarra[438]
[438]Fitzgerald Sale No. 6.
11.1The site has the following features:
11.1.1Land Area: 2,268
11.1.2Zoning: B2
11.1.3Sale Price: $11,400,000
11.1.4 Sale Date: Dec-06
11.1.5 Raw Rate: $5,025 ($5,800 analysed rate per Mr Fitzgerald[439])
[439]See the Fitzgerald Table.
11.2This was not one of the sales Mr Cundall thought relevant.
12.0 Property Number 12: 1-21 Somers Ave, Malvern[440]
[440]Fitzgerald Sale No. 12.
12.1The site has the following features:
12.1.1Land Area: 17,150
12.1.2Zoning: R1
12.1.3Sale Price: $46,500,000
12.1.4Sale Date: May-08
12.1.5Raw Rate: $2,711 ($2,450 analysed rate per Mr Fitzgerald[441])
[441]See the Fitzgerald Table.
12.2Mr Cundall’s evidence was that this sale provides a floor on the values of the Jam Factory site.[442] It was not a primary sale that he relied upon.
[442]Transcript, 1323.11-12.
12.3Mr Fitzgerald used this sale, among other things, as evidence that the rates per square metre paid for larger properties relative to smaller properties is “converging”.[443]
[443]Transcript, 1490.
12.4He agreed that the property was not “a directly comparable” property but “it assists me to benchmark values in relation to my property”[444].
[444]Transcript, 1609.25-30.
(Note: there is no property number 13)
13.0 Property Number 14: 601-603 Victoria St, Abbotsford[445]
[445]Jackson Sale No. 2.
13.1The site has the following features:
13.1.1Land Area: 10,256
13.1.2Zoning: B1 & B2
13.1.3Sale Price: $21,800,000
13.1.4Sale Date: Apr-08
13.1.5Raw Rate: $2,125 (Mr Jackson did not include an analysed rate or deduced rate in the same way as did Mr Fitzgerald or Mr Cundall, but rather a “rate sale indicates $m2” including an adjustment for size and location, namely $1,835)[446]
[446]Jam Factory Table of Comparable Sales (1 January 2008).
13.2Mr Cundall’s evidence was that the sales evidence that he adopted is far more pertinent due to location.[447] It is very difficult, he said, to make a location jump between Chapel St and Abbotsford.[448] Mr Cundall said that if this were to be done, then you would need to “say how you make the jump, and you would have to go into a very complex series of looking at sales of other properties around that site compared to around the subject site.”[449]
[447]Transcript, 970.6-10; Transcript, 1332.23-31.
[448]Transcript, 1419.10.
[449]Transcript, 1419.11-16.
13.3Mr Fitzgerald was also of the opinion that it is not a relevant sale[450] other than to demonstrate that the Jam Factory is a better site.[451]
[450]Transcript, 1516.
[451]Transcript, 1842.
13.4On the basis of Mr Cundall and Mr Fitzgerald’s evidence and the answers given by Mr Jackson in cross examination, the Valuer General submitted that:
13.4.1It is not within a retail strip;[452]
[452]Transcript, 667.
13.4.2It has a short frontage to Victoria St;[453]
[453]Transcript, 660.
13.4.3There is no prospect of integrating it with Victoria Gardens which is some 300m away;[454]
[454]Transcript, 667.
13.4.4It is surrounded by older industrial style buildings;[455]
[455]Transcript, 660-1.
13.4.5As at the sale date, the permit had not yet been issued (it was issued more than 1 year later in October 2009);[456]
[456]Transcript, 659.
13.4.6The planning controls were much more restrictive than those relating to the Jam Factory including that the development must respond to the medium scale of up to five storeys of the buildings in the vicinity of the site;
13.4.7The planning policies of specific relevance to the site are very different to those pertaining to the Jam Factory (for example that development must protect the operation of the brewery) and have little if anything to do with retail.[457]
[457]Transcript, 662-3; Yarra Planning Scheme – Schedule 6 to the Design and Development Overlay – 601-603 Victoria Street, Abbotsford, p 1 (DDO6-8) and Yarra Planning Scheme – Local Planning Policies – Victoria Street East Precinct Policy – Clause 22.1, pp 1-6 (Cl 22.11); Yarra Planning Scheme – Local Planning Policies - Victoria Street East Precinct Policy - Clause 23.11, p 1.
13.4.8Further, the evidence of Mr Cundall was that Mr Jackson’s analysis was flawed – for instance he did not make an adjustment for demolition costs,[458] and Mr Fitzgerald’s evidence was that Mr Jackson’s adjustment for GST was not well explained and is questionable.[459]
[458]Transcript, 664.12-15.
[459]Eg see Transcript, 1916.
14.0 Property Number 15: 284-286 Highett Rd, Highett[460]
[460]Jackson Sale No. 3.
14.1The site has the following features:[461]
[461]Jam Factory – Table of Comparable Sales (1 January 2008).
14.1.1Land Area: 11,100
14.1.2Zoning: B1
14.1.3Sale Price: $10,500,000
14.1.4Sale Date: Nov-08
14.1.5Raw Rate: $946 (Mr Jackson did not include an analysed rate or deduced rate in the same way as did Mr Fitzgerald or Mr Cundall, but rather a “rate sale indicates $m2” including an adjustment for size and location, namely $1,750)[462]
[462]Jam Factory – Table of Comparable Sales (1 January 2008).
14.2Mr Cundall’s evidence was that “this site has no relevance in regard to the valuation” because “we need to look within the location of the subject property itself to ascertain a valuation based on local sales.”[463] Mr Fitzgerald was also of the opinion that it is not a relevant sale. It has nothing to do, he said, with what drives values in Chapel Street.[464]
[463]Transcript, 969.25-31.
[464]Transcript, 1516.
14.3Mr Cundall noted that the Highett site has a site area of 11,100m2 and was sold for $10,500,000 in November 2008. He then compared it with 256 Chapel Street which is approximately one tenth of the size (1,110 m2) and was sold for the same price ($10,500,000) only a few months earlier (in July 2008).[465]
[465]Transcript, p 1169 (Note references in Transcript to High Street at T1168-9 should be to Highett).
14.4On the basis of Mr Cundall’s evidence and, it seems, on that basis alone this site should be ignored.
14.5However, it is noted that:
14.5.1Mr Jackson made a 70 per cent adjustment for location for this sale.[466]
[466]Jam Factory Table of Comparable Sales (1 January 2008).
14.5.2Mr Jackson’s table of plot ratios shows Highett with a plot ratio of 1.42:1.[467]
[467]Plot Ratio Comparison of the Subject Property to the Sales Evidence.
14.5.3Highett is simply not comparable with Chapel Street, which Mr Jackson acknowledged as one of the leading suburban retail strips in Australia.[468]
[468]Transcript, 655.
14.5.4The evidence was that Highett is a neighbourhood activity centre; but not even a Major Activity Centre. On the other hand, and in marked contrast, the Jam Factory site is in the Prahran/South Yarra Principal Activity Centre.
14.5.5The planning controls for the Highett activity centre contain maximum height limits.[469] They demonstrate that this is not an area that is envisaged for major change, as is the Jam Factory site.
[469]Transcript, p 668-9; Bayside Planning Scheme – Design and Development Overlay Schedule 4, 1.
14.5.6The Highett sale was made after the Global Financial Crisis had struck[470]. The property was purchased for $16.5M in 2005 and sold 3 years later for $6M less than the purchase price.[471] Mr Fitzgerald’s opinion was that “we can only imagine, speculate – Multiplex as a large construction company would be feeling the pressure of the GFC …”[472]
[470]Transcript, 667.20-22.
[471]Transcript, 668.2-5.
[472]Transcript, 1516.
APPENDIX 2 – COMPARABLE SALES (CAPITAL IMPROVED VALUE)
13.3Prahran Central
13.3.1This complex was classified by Mr Fitzgerald as being a 'neighbourhood' shopping centre. It has a Strike Bowling Alley as a major tenant, two offices, and approximately 40 specialty shops. It sold in November 2006 for $34,611,187, with an analysed yield of 6.2 per cent. Both Mr Cundall and Mr Fitzgerald had regard to this sale.
13.4Pakenham Place
13.4.1Mr Cundall's next sale was Pakenham Place. Mr Jackson and Mr Fitzgerald also had regard to this sale when making their capitalization rate assessments.
13.4.2Pakenham Place is a subregional shopping centre with three majors, 27 specialty shops, and 9,170 sqm of development land. It sold in December 2006 for $60,500,000.
13.4.3Mr Cundall analysed the yield at 5.48 per cent. This compares with Mr Fitzgerald's analysed yield for the property at 5.8 per cent and Mr Fitzgerald's analysed yield of 5.75 per cent.
13.4.4The relevance of this sale for Mr Cundall was twofold:
a. the property is a substantial shopping centre, indicating that it would be a less risky investment than the Jam Factory;
b. however, the property is located 'out in Pakenham'.
13.5Rivoli Cinema
13.5.1Mr Cundall had regard to the sale of the Rivoli Cinema in June 2006. Mr Jackson also had regard to two sales of this property, the first in June 2006, the second in June 2009.
13.5.2Rivoli Cinema sold in June 2006 for 23,000,000. Mr Cundall cited a reported yield of 7.8 per cent. Mr Jackson analysed the yield at 7.77 per cent. While this sale was transacted between related entities, both Mr Cundall and Mr Jackson treated it as being at arms-length, market terms.
13.5.3Mr Jackson also considered the sale of the Rivoli Cinema in June 2009 for $20,200,000. Mr Jackson analysed a yield of 10.27 per cent. Mr Jackson attributed this higher yield to the Global Financial Crisis.
13.6Peninsula Village, Pakenham
13.6.1This was the final sale which Mr Cundall took into account when assessing a capitalization rate. Mr Jackson also took this sale into account.
13.6.2Peninsula Village is a sub-regional shopping centre with two majors, four mini majors, 24 specialties, two offices and a gym.
13.6.3Peninsula Village sold in October 2007 for $65,200,000. Mr Cundall cited a reported yield of 6.50 per cent. Mr Jackson arrived at the same figure for his analysed yield.
13.6.4Mr Cundall considered that this sale was largely unreliable because it was purchased off the plan by Centro just as it was about to experience difficulties. The complex remains incomplete.
14.0George Street Cinema Complex, Sydney, New South Wales
14.1This complex has eleven screens, 2,706 seats and eight shops. It sold for $85,000,000 in October 2009, almost two years after the relevant date, and after the Global Financial Crisis, with a yield analysed by Mr Jackson at 8.28 per cent. Only Mr Jackson relied upon this sale.
15.0Glenorchy Cinema Complex, Glenorchy, Tasmania
15.1This complex has a Village cinema, six specialty shops and a civic centre. It sold in December 2007 for $7,450,000, with a yield analysed by Mr Jackson at 8.78 per cent. Only Mr Jackson relied upon this sale.
16.0Shellharbour Cinema Complex, Shellharbour, New South Wales
16.1This property comprises a cinema and a shop. It sold in August 2006 for $8,650,000, with a yield analysed by Mr Jackson at 8.00 per cent. Only Mr Jackson relied upon this sale.
17.0Karingal Hub, Frankston
17.1This is a sub-regional shopping centre comprising two supermarkets, two discount department stores, and approximately 100 specialty shops. It sold in May 2006 for $182,400,000, with a reported yield of 6.32 per cent. Only Mr Fitzgerald relied upon this sale.
18.0MacArthur Central Shopping Centre, Brisbane, Queensland
18.1This is a sub-regional shopping centre with a supermarket, discount department store, and 42 specialty shops. It sold in May 2006 for $119,500,000, with a reported yield of 6.32 per cent. Only Mr Fitzgerald relied upon this sale.
19.0Lakes Village Mount Gambier, Mount Gambier, South Australia
19.1This is a sub-regional shopping centre in a country town with a supermarket, discount department store, and 35 specialty shops. It sold in June 2007 for $51,500,000, with a yield analysed at 6.67 per cent. Only Fitzgerald relied upon this sale.
“1.1.There is a delicious irony in this case that highlights the farce behind the cards that had been handed to Mr Batt [SC] and Mr Parkinson by their client. If this were a compulsory acquisition case where, for instance, the Department of Transport had decided to acquire the Jam Factory site for a new station, imagine the evidence they would have led on behalf of Challenger supporting the value of its deprived asset on the acquisition date on 1 January, 2008. “Market Value” as defined by s 40 of the Land Acquisition and Compensation Act 1986 involves the same Spencer concepts of the Valuation of Land Act 1960.
1.2.Counsel would have presented evidence from experts deposing to the “remarkable opportunity” for the “Jam Factory redevelopment (as) a new vision for a mixed-use precinct that will reinforce the status of Chapel Street as a premier fashion and lifestyle destination and Melbourne as a vibrant cultural city” (CB 1881). Their witnesses would have presented a proposal that represented “a total urban environment: part central city, part infill, big and small, civic and cosmopolitan, historic and contemporary” (CB 1888). The elements of the proposal that would have been put forward as indicative of the site’s potential would have involved:-
· “significant investment of $600M+;
· exemplar development of Principal Activity Centres;
· opportunity to provide an integrated mixed-use development;
Approximate floor areas:
retail 40,000m2
office 10,800m2
boutique hotel (100 rooms) 6,000m2
residential (65 apartments) 6,000m2
entertainment (cinema, club) 14,000m2
car spaces 1,750m2
gross floor area (excl. car park) 85,000m2
· strategically located development site;
· significant direct and indirect employment opportunities during and post-construction (11,089 total – 4,773 direct and 6,316 indirect);
· opportunity to strengthen inner Melbourne as a local and international destination;
· opportunity to integrate the Jam Factory into Chapel Street via a series of new lanes and urban spaces;
· market interest now.” (CB 1895)
1.3.They would have been armed with images and perspectives of the site’s potential CB 1893. In fact, it is likely that many of their witnesses would have said that such a proposal was indeed conservative and could have contained significantly higher elements of residential development in a series of integrated architecturally designed towers.
1.4.The evidence would have shown there was no engineering impediment either structurally, acoustically, environmentally T861.23 or from a traffic perspective and heritage consultants would have demonstrated the ability to satisfy any potential constraint that the heritage overlay may have presented. Experts in relation to residential demand would have told the court of the amazing levels of demand and take up of apartments in the area. Retail demographers would have explained the amazing growth expected to substantiate the proposal’s prospects and explain the level of affluence of the primary and secondary catchments who would utilise that retail – not to mention the regional, national and international customers it was likely to attract. There would have been evidence of anchor tenants’ pre-commitment T891.9, 892.31 and 893.1 and from commercial leasing agents, financial advisors T862.6, 878.20, and quantity surveyors 862.7 demonstrating the project’s feasibility 890.22-30, 891.2-26 and 953.15-22.
1.5.They would have led evidence from a leading firm of retail architects to demonstrate via a set of plans, perspectives and concepts what could be feasible on the site. Those plans could well have demonstrated residential towers up to 22 or more storeys with views and finishes that were “breathtaking” (CB 2411) and “unique ever changing panoramas” (CB 2413). The architect could have talked about the “quality of design choices having been based on achieving a crisp, sophisticated result with timeless appeal that compliments a contemporary lifestyle and superb styling features throughout each carefully planned apartment” (CB 2414). The architect could have talked about the style of the development (CB 2415) and the luxurious retreat of its club/spa (CB 2416, 1895 and 1853). The architect would certainly highlight the site’s location at the heart of the retail and entertainment centre of Melbourne’s premium retail strip shopping centre.
1.6.Finally, evidence would have been led from the dispossessed owners’ planners “the largest firm in Victoria of that skill base” T883.20 as to their view of the very strong likelihood of such an application achieving planning approval CB 551, T884.1-9. That evidence would have been predicated on the basis that if there was an inconsistency between different provisions of the planning scheme the State provisions prevail over local provisions (Planning and Environment Act 1987, Section 7(4)(b)(i)), that State Government policy specifically directed major development into principal activity centres (Stonnington Planning Scheme Clause 12), that Chapel Vision included the site within a Substantial Change Area and that any development on the site could accommodate substantial height 847.30 and 900.5-19. It would have demonstrated that if Council was proving recalcitrant, the land owner could have approached the Minister to assist in what would have been a development of State significance T864.31 and 894.4-16.
1.7.In contrast, however, Mr Batt and Mr Parkinson have been handed two cards only, namely Mr Negri and Mr Jackson. Mr Negri was not instructed to evaluate the development potential of the site (T 526.25) and agrees he was not in a position to come to such a view, his expertise would not assist and that the conclusion about its potential is one that is reached having regard to the views of a number of different experts T444.19-31. The examination of development potential he conceded is a sophisticated exercise informed by many experts T445.28 and that without a proposal being presented to him as a town planner to examine and test it, he couldn’t express an opinion T473.24. He accepted that he has limited experience in substantial retail centres T512.1-6.
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