Daher v Gembane

[2016] SADC 16

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil)

DAHER v GEMBANE & ANOR

[2016] SADC 16

Ruling of His Honour Judge Slattery

11 February 2016

REAL PROPERTY - TORRENS TITLE - LEASES

Daher is the lessee of a property in Mount Barker owned by Gembane Pty Ltd and Suetill Pty Ltd (Gembane) as lessors.

These parties have previously been in dispute in another action about the right of Daher to be granted a lease of the property under an agreement to lease and any damages sustained by Daher flowing from that dispute. The lease arrangements between the parties follow upon orders made by the Court in that other action; the damages suffered by Daher have been assessed by the Court. Those damages claims and associated costs claims are the subject of Daher’s claim in action 1607 of 2015. In response, Gembane has filed a cross action and Counterclaim in that action.

Special condition SC1 of the lease gave Daher a right to purchase the property at an agreed market value at a time to be nominated by Gembane. If Daher did not agree with the nominated market value, Daher could request for an independent valuer to determine the market value of the property.

Nicholas Carter, the second defendant in action 1842 of 2015, was appointed to value the property; he produced a valuation of the property as at 1 October 2015. In action 1842 of 2015, Gembane seeks a declaration that Carter’s valuation was not in accordance with special condition SC1 of the lease and for other orders. Gembane’s claims in action 1842 of 2015 reflect in part its Counterclaim and cross action in action 1607 of 2015.

In action 1842 of 2015 Daher applies for interlocutory orders pursuant to 6R104 striking out portions of Gembane’s Statement of Claim because they fail to disclose any reasonable cause of action and for other orders.

In both actions, Daher seeks orders for the hearing and determination of a preliminary issue and in variation of the orders made by the Court on 22 December 2015, for the hearing and determination of action 1842 of 2015 prior to action 1607 of 2015.

Held:

The Court orders:-

1. That paragraphs 14, 15 and apart from subparagraph 16.5, paragraph 16 of the Statement of Claim in action 1842 of 2015 be struck out pursuant to 6R104;

2. In both actions, refusing orders for the hearing and determination of a preliminary issue;

3. That in variation of the orders made on 22 December 2015, action 1842 of 2015 be heard and determined before action 1607 of 2015;

4. Daher is to have his costs of FDN13 in action 1842 of 2015 and 80% of his costs of FDN17 in action 1607 of 2015.

District Court (Civil) Rules 6R 104, referred to.
Legal and General Life of Australia Limited v Hudson Pty Ltd (1985) 1 NSWLR 314; AGL Victoria Limited Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173; Holt v Cox (1994) 15 ACSR 590 ; Jones v Sherwood [1992] 1 WLR 277; Australian Vintage Limited v Belvino Investments (No 2) Pty Ltd. [2015] NSWCA 275 ; The Tap Inn v Matthews [2015] SASCFC 188, discussed.
Chapman v Australian Broadcasting Corporation (2000) 77 SASR 181; Pillay v Lloyd [2000] SASC 208; Chapman v Australian Broadcasting Corp (2000) 77 SASR 181; Legione & Anor v Hateley [1982-1983] 152 CLR 406; Rafferty v Schofield [1897] 1 Ch 937; Kern Corporation Limited v Walter Reid Trading Propriety Limited & Ors [1986-1987] 163 CLR 164 , considered.

DAHER v GEMBANE & ANOR
[2016] SADC 16

Action 1607 of 2015

Action 1842 of 2015

1. These two actions both principally concern the resolution of issues between the same parties about a lease agreement over property at Mount Barker. In paragraph [14] and following of this decision I explain the connection between the two actions. These reasons deal with applications for orders in both actions: as will be seen, the resolution of some issues in the applications in each action will have relevance to the other action. That connection is also explained in these reasons.

   Background to this application

2. On 23 May 2012, in action 1106 of 2015, Judge Tilmouth of this Court gave judgment in an action between the same parties to this action concerning an agreement to lease given to Daher of a property at 2 Gawler Street Mt Barker. That property is the subject of the current dispute.

3. The background to that action was that Gembane Pty Ltd and Suetill Pty Ltd (Gembane) agreed to lease that property to Daher pursuant to an agreement to lease dated 25 August 2009. The parties fell into dispute about the terms and the enforceability of that agreement and Gembane sought to terminate the agreement. Daher sought an order for specific performance of the agreement as well as damages. Gembane resisted the claims of Daher.

4. Judge Tilmouth gave judgment in favour of Daher about the enforceability of the agreement to lease but refused Daher’s claim for damages. Gembane brought an appeal against that judgment which was unsuccessful. Daher appealed against the judgment dismissing the damages claim and sought an assessment of those damages. That appeal was successful and the appeal Court remitted the matter to Judge Tilmouth for assessment of damages. There was then an agreement between the parties about damages and consent orders were made by Judge Tilmouth on 5 August 2013. Paragraph 4 of those orders applied to the question of the memorandum of lease and what was described as special condition SC1 of that lease.

5. A lease was subsequently executed between the parties. That lease dated 4 August 2013 is before me and is marked “MFID2”. Gembane is the lessor and Daher is the lessee. The term of the lease is two years commencing 1 October 2013 and expiring on 30 September 2015. The first operative provisions of the lease are contained within a schedule of the lease. Item 10 of that schedule contains a special conditions SC1. That special condition relevantly reads as follows:-

   SC1. Lessee and/or Nominee’s Right to Purchase

   (a)    The lessee and/or his nominee has the right to purchase the Premises from the Lessor, with clean and unencumbered title, at market value (“the Purchase Price”) at a time nominated by the Lessor during the period from 1 October 2013 to 30 September 2015 (“the Head Term”).

   (b)    The Lessor will give the Lessee notice in writing attaching a standard REISA form contract with terms of sale (“the Contract”) offering to sell the Premises to the Lessee (and/or his nominee) for the Purchase Price no later than 11 business days prior to the last day of the Head Term and the Lessee shall have the right to enter into the Contract within 21 days from the Lessee’s receipt of the said notice and the Contract.

   (c)    If the Lessor and the Lessee are unable to agree the amount of the Purchase Price then the Purchase Price is to be determined by an independent property valuer (“the Valuer”) appointed by the President of the Australian Property Institute. The Valuer is to determine the market value of the Premises and his determination (“the Valuation”) shall be final and binding on the Lessor and Lessee.

   (d)    Upon the Lessee’s receipt of the Valuation, the Lessee will within 10 business days notify the Lessor in writing as to whether the Lessee accepts the Valuation and agrees to enter into a standard form REISA contract for the sale and purchase of the Premises for the purchase price as determined by the Valuer (“the Valuer’s Purchase Price”). Upon receipt of the Lessee’s notice of acceptance of the Valuation, the Lessor will provide to the Lessee, within two business days, a standard form REISA sale contract incorporating the Valuer’s Purchase Price which contract the Lessee and/or his nominee will execute within 7 days.

   (e)    In the event the Lessee does not enter into a contract in accordance with sub-clause (b) or (d) then the right of the Lessee to purchase the Premises lapses.

   (f)     In the event the Lessee enters into the Contract, settlement will be not less than 45 days from the execution of the contract.

   (g)    The parties shall bear the costs of the independent valuer’s costs equally.

   (h)    From the date of settlement onwards, all obligations on the part of the Lessor and the Lessee subsequent to the date of settlement pursuant to the terms of this Lease stand extinguished. This clause is not intended to extinguish any of the obligations of the Lessor and the Lessee pursuant to this Lease prior to the date of Settlement.

6. The lessee’s obligations under the lease are set out in paragraph 2 of the lease and prior to 15 September 2015 there was no assertion that Daher had not complied with the lessee’s obligations under the lease. In that background, on 15 September 2015, Gembane communicated through their solicitors in writing that in Gembane’s opinion, the market value of the property was $1.115 million dollars. The letter contained an offer by Gembane to sell the property to Daher for that amount. This was the offer contemplated under clause SC1(b) of the schedule.

7. Daher did not agree with the market value of the property as nominated by Gembane and on or about 17 September 2015 Daher requested the president of the Australian Property Institute to appoint an independent valuer to determine the market value of the property. This was in compliance with clause SC1(c) of the first special conditions.

8. The president nominated Mr Nicholas Carter of Carter Property as the valuer and he wrote to Daher and Gembane on 25 September 2015 informing the parties that he had been nominated under SC1 and the terms upon which he was prepared to be engaged by the parties. Those terms were accepted by the parties. There was later separate communication between Gembane’s solicitors, Corsers Lawyers, and Carter by letter dated 14 October 2015. That letter was directed to Mr Carter and reads as follows:-

   Dear Sir,

   Re: 2 Gawler Street Mt Barker SA

   We refer to our earlier submissions filed on behalf of the lessor.

   It should be assumed by you that the property is in good order.

   The lease requires reinstatement to good order and condition and of course in any event the owner would cause the property to be in good order.

   Yours faithfully,

   Corsers.

9. The Carter Property valuation is before me and is marked “MFID1”. The valuation says that as at 1 October 2015 the current market value for the property determined in accordance with special condition SC1(c) of the lease is $660,000. On or about 23 October 2015 Daher notified Gembane that he accepted the valuation and that the standard form REISA contract that had previously been provided by Gembane under clause SC1(b) should be adjusted to reflect a purchase price of $660,000. Gembane has not delivered up a contract for sale and purchase in those terms.

10. The background facts above recited are matters that arise from the un-contradicted pleadings of the parties and the contents of two documents that are before me: MFID1 and MFID2. Those documents are referred to in the pleadings of the parties and for the purposes of this application are therefore properly before me.

    The applications

11. I am here dealing with two applications in the two actions 1842 of 2015 (FDN13) and 1607 of 2015 (FDN17).

12. The terms of both of those applications, in turn, are as follows:

    FDN13 DCCIV-15-1842

    Application

    The First Defendant, JACK GEORGE DAHER applies for the following orders or directions –

    1.   That the issues set out in the Annexure hereto be heard and determined ahead of all other issues in the within Action, and in Action 1607 of 2015.

    2.   In the alternative, that the within Action to be heard and determined before Action Number 1607 of 2015.

    3.   That paragraphs 14, 15 and 16, including 16.1-16.6 of the Plaintiffs Second Statement of Claim filed 15 January 2016, be struck out.

    4.   That this application be made returnable before Judge Slattery on 4 February 2016 at 9am.

    5.   Costs reserved.

    ANNEXURE

    Issues proposed for Preliminary Determination

    (a)Common issue in 1607/15 and 1842/15

    1.    Whether the valuation of the Premises as if in good order is or would be a conforming valuation.

    [see, paragraphs 41A and 41B of Daher’s Defence in 1842/15; and paragraphs 34.1-34.3 in Daher’s Defence to Counterclaim, and Counterclaim to Counterclaim in 1607/15]

    (b)Early disposal of 1607/15

    2.    Whether Daher is entitled to restrain (stay), until settlement, enforcement of any make good obligations under the Lease, and, upon settlement, dismissal of the Lessor’s claim.

    [see, paragraphs 34.4, 34.5 in Daher’s Defence to Counterclaim, and paragraph 39 in Daher’s Counterclaim to the Counterclaim]

    FDN17 DCCIV-15-1607

    Application

    The Plaintiff, JACK GEORGE DAHER applies for the following orders or directions –

    1.   That the issues set out in the Annexure hereto be heard and determined ahead of all other issues in the within Action, and in Action 1842 of 2015.

    2.   In the alternative, that paragraph 2 of the Order made on 22 December 2015 be varied so as to provide that the within Action be heard and determined after the hearing and determination of the proceedings in Action 1842 of 2015.

    3.   That paragraphs 5-8 of the Order made on 22 December 2015 be varied so as to relieve the parties from their obligations to comply with same until further orders.

    4.   That this application be made returnable before Judge Slattery on 4 February 2016 at 9am.

    5.   Costs reserved.

    6.   Liberty to all parties to apply.

    ANNEXURE

    Issues proposed for Preliminary Determination

    (a)Common issue in 1607/15 and 1842/15

    1.    Whether the valuation of the Premises as if in good order is or would be a conforming valuation.

    [see, paragraphs 41A and 41B of Daher’s Defence in 1842/15; and paragraphs 34.1-34.3 in Daher’s Defence to Counterclaim, and Counterclaim to Counterclaim in 1607/15]

    (b)Early disposal of 1607/15

    2.    Whether Daher is entitled to restrain (stay), until settlement, enforcement of any make good obligations under the Lease, and, upon settlement, dismissal of the Lessor’s claim.

    [see, paragraphs 34.4, 34.5 in Daher’s Defence to Counterclaim, and paragraph 39 in Daher’s Counterclaim to the Counterclaim]

13. I will deal with each of them in the same order as was argued before me: paragraph 3 of FDN13 in action 1842 of 2015, paragraphs 1 and 2 of FDN13 in the same action and then paragraphs 1 and 2 in FDN17 of action 1607 of 2015.

14. It is necessary to say something of the fact that there are two actions in this matter. In action 1607, which is a money action, Daher seeks payment by Gembane of the amount of damages and costs agreed before Judge Tilmouth; a cross action and counterclaim has been filed by Gembane. Some of the content of that cross action and counterclaim is reflected in the Statement of Claim of Gembane in action 1842 of 2015 in which Gembane is plaintiff. In that action, Gembane has also joined Nicholas John Carter as the second defendant. Carter has filed defences, counterclaims and cross actions against Gembane. Carter has now agreed to abide the event of the action and will not take any active part in the proceedings.

15. The issues in action 1842 of 2015 are therefore joined between Gembane and Daher. It is the content of those pleadings between those parties that are in issue before me. The same matters arise in the counterclaims and cross actions brought by Gembane in action 1607 of 2015.

16. In the second Statement of Claim in action 1842 of 2015 Gembane asserts that Carter failed to carry out the valuation in accordance with the terms of special condition SC1(c) of the lease.

17. The pertinent paragraphs of Gembane’s Statement of Claim are contained within paragraphs 12-16 inclusive. Based upon the contents of those paragraphs Gembane now seeks a declaration that the valuation of Carter dated 18 November 2015 was not in accordance with the terms and conditions of special condition SC1(c) of the lease. Gembane seeks an order setting aside the valuation and an order appointing an independent valuer to determine the current market value of the property.

18. The success or otherwise of the application by Gembane revolves around the attack Gembane makes the valuation process having regard to the terms of its contract with Daher.

    Special condition SC1

19. Special condition SC1 is not an option to purchase given by Gembane to Daher. It is not in contest here that this special condition sets out the terms of an enforceable contract between Gembane and Daher. Under its terms, Gembane has the right to make an offer to Daher to purchase the property at the price which it stipulates. Daher has the right to either accept that price or to ask for an independent valuation of the property to be undertaken. Then upon the receipt of that valuation Daher has the capacity within 10 business days to notify the lessor whether it accepts the offer of the lessor based upon the valuation price as determined by the independent valuer. This is a very different arrangement than an option to purchase which ordinarily does not form part of the terms of a lease. It is a contractual right operating in parallel with the terms of the lease.

20. The only issue for resolution under the terms of the contract created under the special condition is the price to be paid for the property. That is to occur by agreement or alternatively by the price determined by the independent property valuer. Even if the lessee agrees with that valuation, the lessee is not bound to proceed to purchase the property. The lessee has the option to decide not to proceed with the purchase.

    The pleadings and 6R 104

21. Clauses 12-16 inclusive of the second Statement of Claim (FDN4) relevantly read as follows:-

    12. the Second Defendant received instructions dated 24 September 2015 from Sylvia O’Keefe on behalf of the President of the Australian Property Institute – SA Division to provide a Current Market Value of the property.

    13. In purported conformity with the instruction to provide a current market value of the property the Second Defendant delivered to the Plaintiffs and the First Defendant a document entitled “Rental Determination” dated 18 November 2015 (the Rental Determination is henceforth referred to as “the Carter Valuation”).

    14. It was an implied term of Special Condition 1(c) of the Lease and the instructions pleaded in paragraph 12 above that the Valuer appointed by the President of the Australian Property Institute would carry out the determination of the market value of the property:

    14.1 in accordance with good valuation standards and practice;

    14.2 by the application of appropriate valuation methodology; and

    14.3 in such a way as to expose his reasoning process and methodology to reasonable scrutiny.

    15. The implied term referred to in paragraph 14 above is to be implied by reason of the following facts and matters:

    15.1 it is so obvious that it goes without saying; and

    15.2 it is not inconsistent with the express terms of Special Condition 1(c); and

    15.3 it is necessary to give business efficacy to Special Condition 1(c).

    Part 2: Basis of Causes of Action and Other Material Matters

    16. In carrying out the Carter Valuation the Second Respondent failed to adopt the methodology required to determine market value such that the Second Defendant did not carry out the Carter Valuation in accordance with the requirements of Special Condition 1(c) of the Lease.

    Particulars

    16.1 the Second Defendant purported to use the capitalisation of imputed net income as his primary method of valuation but failed to properly apply that method in that he:

    16.1.1 wrongly calculated the imputed market net income of the property by deducting from the annual rental an amount of $3,000 for undefined, non-recoverable outgoings;

    16.1.2 ought not to have made such a deduction because to do so was contrary to good valuation standards and practice;

    16.2 the Second Defendant purported to use the direct sale and rentals comparison approach as his secondary method of valuation but failed to properly apply that method in that he:

    16.2.1 reproduced verbatim lists of sales produced by Kofti Adih & Associates which had been supplied by the First Defendant without indicating which, if any, of those sales had been relied upon by the Second Defendant and without any analysis of their alleged relevance;

    16.2.2 purported to rely on other sales evidence which was not identified allegedly for reasons of confidentiality; and

    16.2.3 failed to adjust the sales evidence to reflect the non-recoverable outgoings deduction of $3,000 which he had made in respect of the property thereby making an inapt and invalid sales comparison.

    16.3 The actions of the Second Defendant pleaded in paragraphs 16.2.1 – 16.2.3 failed to conform to the implied term pleaded in paragraph 14 above and to the instructions pleaded in paragraph 12 above in that they:

    16.3.1 did not comply with good valuation standards and practice;

    16.3.2 constituted fundamental errors;

    16.3.3 did not involve the application of appropriate valuation methodology;

    16.3.4 failed to expose the Second Defendant’s reasoning process and methodology to reasonable scrutiny.

    16.4 The Second Defendant failed to review his determination for possible error despite the fact that:

    16.4.1 he had determined the market value of the property to be $660,000 which was significantly lower than the current Valuer-General’s Capital Value assessment for rating purposes of $770,000; and

    16.4.2 he knew or ought to have known that the purchase price of the property in 2002 was $350,000 and that the Registered Proprietors claimed to have spent $405,000 on improvements such that the market value of the property in 2015 was likely to be in excess of the $775,000 which had been expended on it since 2002.

    16.5 The Second Defendant failed to properly or at all take into account the First Defendant’s obligations to make good the property at the conclusion of the Lease.

    16.6 The conduct of the Second Defendant pleaded in paragraph 16.4 and 16.5 above failed to conform to the implied term pleaded in paragraph 12 above in that they:

    16.6.1 did not comply with good valuation standards and practice;

    16.6.2 constituted fundamental errors; and

    16.6.3 did not involve the application of appropriate valuation methodology.

1. The first defendant Daher now applies to strike out paragraphs 14, 15 and 16 of the Statement of Claim pursuant to 6R 104 of the Rules.

2. That Rule reads as follows:-

   104—Court's power to strike out pleading

   The Court may strike out a pleading in whole or part if the pleading—

   (a) does not comply with these Rules; and

   (b) is an abuse of the process of the Court or prejudices the proper conduct of the action.

   Example—

   If a statement of claim discloses no reasonable cause of action, or a defence discloses no reasonable ground of defence, the Court may strike it out as an abuse of the process of the Court.

3. The basis upon which the order is sought is that these pleadings disclose no reasonable cause of action and are an abuse of the process of the Court or prejudice the proper conduct of the action. This form of expression is not described within the text of the Rule. However, the example of a strike out for a pleading that discloses no reasonable cause of action is to be found within the examples contained within the Rule. It is not in contest that under the Acts Interpretation Act 1915, an example is a matter that can be taken into account in the interpretation of the Rule. If the Statement of Claim discloses no reasonable cause of action the Court may strike it out as an abuse of process of the Court.

4. The applicable principles associated with the operation of this Rule are reasonably well settled. The Rule is discretionary and it would not generally be used where leave may be given after argument to cure a pleading deficiency. It is necessary to show that the pleading does not comply with the Rules, and that it is an abuse of the process of the Court or prejudices the proper conduct of the action. As the example illustrates, a Statement of Claim which discloses no reasonable cause of action is an abuse of the process of the Court. A reasonable cause of action is one which has some chance of success based only on the allegations and the pleadings.[1]

   [1]    Chapman v Australian Broadcasting Corporation (2000) 77 SASR 181;  Pillay v Lloyd [2000] SASC 208.

5. A distinction must be maintained between rights arising between Daher and Gembane under the lease and the contract with the valuer to provide a valuation. The two obligations are different and the distinction between them must always be borne in mind. If, for example, it is shown that the valuer has failed to undertake the process of valuation competently and has in some way acted in breach of duty to persons to whom a duty is owed, then an action for breach of duty with lie; that is an action in damages. That separate interest arising from the tortious obligation implicit in the professional role and function of the valuer stands separately from the principles which govern the operation of the contract for the provision of the valuation by Carter under clause SC1(c) of the lease document.

   Issues in the pleadings

6. Paragraph 14 of the Statement of Claim pleads that it was an implied term of special condition SC1(c) of the lease and the “instruction” pleaded in paragraph 12 that the valuer would carry out the determination of the market value of the property in accordance with good valuation standards and practice, by application of appropriate valuation method and in such a way as to expose his reasoning process and methodology to reasonable scrutiny. In carrying out his task, the valuer was required to act in accordance with good valuation standards and practice and by the application of appropriate valuation methodology.

7. Paragraph 15 pleads that those implied terms arise because they are so obvious that they go without saying, they are not inconsistent with the expressed terms of special condition SC1(c) and that they are necessary to give business efficacy to special condition SC1(c).

8. Those two paragraphs are then said to be the bases of the pleading in paragraph 16, the chapeau of which alleges that in carrying out the valuation, Carter failed to adopt the methodology required to determine market value and he therefore did not carry out the valuation in accordance with the requirements of special condition SC1(c) of the lease. There is then a pleading of particulars. It is to be understood that those particulars are pleadings of further material facts. The first is that Carter purported to use the capitalisation of imputed net income as his primary method of evaluation but failed to properly apply that method by the omission of an amount of $3,000. The second is that Carter purported to use the direct sales and rentals comparison approach but failed to properly apply the method because he reproduced verbatim lists supplied by the first defendant without indicating which sales on those lists he relied upon, relied upon other sales evidence which was not identified because of confidentiality reasons. He then failed to adjust the sales evidence to reflect the non-recoverable outgoing deduction of $3,000. The third is that Carter failed to conform to the implied term pleaded in paragraph 14.

9. In paragraph 14, Gembane pleads the negative, that Carter did not comply with good valuation standards and practice, his work contained fundamental errors, he did not use appropriate valuation methodologies and failed to expose his reasoning to reasonable scrutiny.

10. The fourth and sixth subparagraphs of particulars allege that Carter failed to review his determination for possible errors and suggest that the valuation that he arrived at was significantly lower than the current Valuer General’s capital value and that he knew or ought to have known of outlays expended upon the property since 2002. In the sixth particular, it is alleged that Carter failed to conform to the implied term and the instructions and the particulars referred to in paragraph 16.3 are largely repeated.

11. Paragraph 16.5, on one view, stands in a slightly different category. It alleges that Carter failed to properly or at all take into account the first defendant’s obligations to make good the property at the conclusion of the lease.

12. The engagement with the valuer required the valuer to exercise due care skill and diligence, a failure of which would give both parties a right to sue for breach of duty. That is not this case. As an example, paragraph 16.1 is an allegation that Carter has somehow fallen short of requirements upon him to carry out the valuations. That is, by making the deduction of the sum of $3,000, he has somehow fallen short of the standard of a valuer. But that is not an assertion that he has failed to carry out a contractual term to perform a valuation. The two things are different.

13. Paragraph 16.2 is a criticism of methodology. However there is no allegation in the Statement of Claim that the methodology used is somehow foreign to any valuation exercise. That is, merely because those things are done does not mean that a valuation has not been carried out and, by parity of reasoning, that the contract for the valuation has not been satisfied. Paragraph 16.3 is the allegation of failure to conform to the implied terms and instructions. However, the law as it stands is that in these circumstances, Gembane cannot insert into the contractual terms that it has with Daher some normative requirements for performance of the valuer. For example, there is nothing in the valuation to say that Carter as the valuer was not turning his mind to the correct questions.

14. Paragraph 16.3.4 is difficult to understand. It uses expressions such as fail to expose …his… methodology to reasonable scrutiny (my underlining). It is unclear what is meant by the expressions ‘expose’ or ‘reasonable scrutiny’, or where a requirement may be found for the valuer to do those things.

15. Paragraph 16.4 criticises the valuer’s conduct. It suggests that Carter has failed to review his determination for possible error. This is despite the fact that he has expressed his own opinion. The criticisms are that he has failed to compare the valuation with the Valuer General’s capital value assessment. There is no indication that he did or he did not do those things. It is also alleged that he ought to have known that there were expenditures on improvements from 2002 through to 2015 in an amount of about $755,000. It is implicit that this means he should have arrived at a valuation greater than $660,000. Those allegations appear to have nothing to do with the issues before the Court which is whether the valuer has observed the terms of the contract. It is not a question of whether the Court agrees or disagrees with the content of the valuer’s report.

16. Paragraph 16.5 alleges a failure to properly, or at all, take into account the First Defendant’s obligations to make good the property at the conclusion of the lease. Properly construed, this is an allegation that the valuer has fallen short of the process of a good valuation. However, it is not suggested within the pleadings what the valuer was meant to do. Is it to be said that the valuer has failed to comply with the contract description because the valuer proceeded on assumption that SC1 did not require the property to be made good? The material before me discloses that the valuer was instructed to proceed to carry out the valuation as if the property was in good order and not on the basis of the property as inspected by the valuer. Read at its highest, the paragraph appears to suggest that the valuer has failed to conform with clause SC1 of the contract because the valuer has failed to proceed on an assumption otherwise required by SC1. This subparagraph (potentially) stands in a different category to the other pleading.

17. Paragraph 16.6 is an allegation that the valuer failed to conform to the implied term pleaded in paragraph 14. This is an attack upon the valuation itself and could not be a plea that is an attack upon the non-conformity of the valuer with the contract. It is an attack on methodology.

    The applicable legal principles

18. The starting point for a consideration of the position of the valuer in the circumstances of the case at bar is the decision of the Court of Appeal of New South Wales in Legal and General Life of Australia Limited v Hudson Pty Ltd.[2]

    [2] (1985) 1 NSWLR 314.

19. Legal and General Life of Australia Ltd v Hudson Pty Ltd was a decision of the Court of Appeal of New South Wales about a commercial lease containing a rent revision clause. That clause provided that where the lessor and lessee were unable to agree, a qualified valuer acting as an expert should determine the amount of the current annual open market rental of the premises. That decision was to be final and binding. A valuer prepared a speaking valuation setting out the reasons for the conclusions based upon a particular calculation of the floor space demised including the area of a mezzanine floor removed by the lessee with the lessor’s consent after commencement of the lease. There was no reference in the lease to lettable area or to the removal of the mezzanine floor. At first instance, the Court held that the valuation was not binding on the ground that the valuer had erred in valuing the premises as at the date of commencement of the lease.

20. After surveying the relevant decisions, McHugh JA held at page 335-D as follows:-

    In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, expressed or implied…. A valuation obtained by fraud or collusion can usually be disregarded even in an action at law.

    For in a case of fraud or collusion the correct conclusion to be drawn will almost certainly be that there has been no valuation in accordance with the terms of the contract… it will be easy to imply a term that a valuation must be made honestly impartially. It will be difficult and usually impossible however to imply a term that a valuation can be set aside on the ground of the valuer’s mistake all because the valuation is unreasonable.

    The terms of the contract usually provide as the lease in the present case does that the decision of the valuer is final and binding on the parties. By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision.

    It is now settled that an action for damages for negligence will lie against a valuer to whom the parties have referred the question of valuation if one of them suffers loss as the result of his negligent valuation… But as between the parties to the main agreement the valuation can stand even though it was made negligently.

    While mistake or error on the part of the valuer is not by tself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement.

    In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.

21. His Honour then said at page 336-D as follows:-

    Is the mistake in the present case of a kind which enables the court to set aside the valuation? In my opinion it is not of the relevant kind. There is nothing in the contract which would enable the valuation to be set aside on the simple ground that the valuer made a mistake. Nor do I think it possible to imply a term to that affect...The rent review clause makes the decision of the valuer ‘final and binding on the parties to this lease.’ Nothing in the lease suggests that it was not to be final and binding if it was the result of error or mistake or was unreasonable. The decision – whatever it is – is to bind the parties. It is true that the valuer is ‘acting as an expert and not an arbitrator.’ But those words...reinforce the view that the parties as between themselves rely on the honest and impartial skill and judgment of the valuer.

22. The decision of McHugh JA in Hudson was considered in the Victorian Court of Appeal decision in AGL Victoria Limited Pty Ltd v SPI Networks (Gas) Pty Ltd (Formerly TXU Networks (Gas) Pty Ltd), Victorian Energy Networks Corporations.[3]

    [3] [2006] VSCA 173.

23. The decision of the Appeal Court was written by Nettle JA.

24. In AGL the appeal concerned the finality of calculations made by the Second Respondent VENCorp of the reconciliation amounts for gas for the TXU distribution systems for the 1999 and 2000 calendar years. The calculations that had been made were based on erroneous data. The trial judge held that as VENCorp’s calculations were made as an expert appointed under a contract, they were valid and binding even though they were based on the erroneous data. He held that they could not be reopened and revised in order to correct the error. The appeal turned on a question of law as to whether the opinion of the trial judge about the binding nature of the expert opinion was correct. The contract between the parties which governed the gas distribution system took account of the possibility of leakage of gas from the system and an obligation to make a payment on short fall from an established benchmark. Under clause 8.5 of the contract, it was necessary for the distributor to give VENCorp written notice by 31 March in each year of the volume of gas withdrawn by the distributor.

25. In May 2012 it was discovered that gas had been flowing through an unmetered valve on a pipe for which AGL was the host retailer. This was from gas of which TXU was the beneficiary of the unmetered supply of this gas. It was found that gas had been flowing through the unmetered valve since about March 1999 and therefore much more gas had been flowing through the system (for which AGL claimed payment) than had previously been thought. It measured about 6.5% of the total gas previously thought to have flowed through the system.

26. As a result, AGL requested VENCorp to perform a recalculation of the reconciliation amounts taking account of the unmetered flows. TXU as the entity taking gas through the distribution system objected and said that VENCorp’s calculations were final and binding under clause 8.5(b). A recalculation was not legally possible.

27. At [51] Nettle JA surveyed the relevant principles. He said:-

    ‘...the question of whether it is open to review and an expert determination on the ground of error is in the first place to be decided according to whether the determination answers the contractual description of what the expert was required to determine. I also agree with the judge that the question of whether an error in determination deprives the determination of compliance with the contractual description of what the expert was required to determine is in the first place to be answered according to whether the error occurred in respect of a task which the contract entrusted to the expert. As Mason P explained in Holt v Cox,[4] mistake is not itself a ground for vitiation of a final and binding expert determination, a mistake may still be of such a nature that the resultant determination is beyond the realm of contractual contemplation – beyond anything which the parties may be supposed to have intended to have intended to be final and binding – and therefore susceptible to review.”

    [4] (1994) 15 ACSR 590 at [597].

28. At paragraph [66], Nettle JA considered the overall character of the determination of the reconciliation amount and held as follows:-

    [66] ...it does not necessarily follow from the fact that a determination is of an overall discretionary or judgmental nature that those of its elements which are matters of objective fact or mere mechanical calculation are to be treated as being of a discretionary or judgmental nature. In each case the question is one of what the parties intended. Logic suggests and the course of authority tends to confirm, that parties more often than not intend that the discernment of objective facts and mechanical calculations on which a determination is to be based should be subject to review. Hence the conclusion reach in Holt v Cox that the failure of a valuer to have regard to one of the facts upon which his opinion should have been based meant that his valuation was not in accordance with the contract.

29. At paragraph [70], Nettle JA held further as follows:-

    [70] …the requirement in clause 8.5...that VENCorp determine the reconciliation amount according to a formula based upon the volume of gas withdrawn in the last year is no different to a contractual requirement that an estate agent determine the value of real property on the basis of, say, the last three sales in the street. If the valuer makes a mistake as to one or more of those prices, the resulting valuation is not in accordance with the contract and so will be subject to review.

30. Nettle JA summarised his views at paragraph [73] as follows:-

    [73] In my view there is no relevant difference between an accountant who is required to value an identified number of shares in a company and who by mistake values a wrong number of shares or shares in the wrong company and an estate agent who is required to value property by reference to the prices at which three identified properties have been sold and who by mistake as to one or more of those prices values the property the subject of valuation on the basis of something other than the three identified prices. The consequence of the mistake in each case is that what is done is not of the contract required to be done.

1. His Honour held that the figures given by the distributor to VENCorp of the volume of the gas withdrawn by the distributor from the system was incorrect. Therefore, clause 8.5 of contract under which VENCorp was to make an assessment of value, had not been complied with. In that case, VENCorp had not complied with its contract.

2. Reference was made to the judgment of Dillon LJ in Jones v Sherwood[5] in particular at page 287. There Dillon LJ gave examples of, an expert departing from instructions for example, to value shares in a company. If the expert valued the wrong number of shares or valued the shares in the wrong company then either party would be able to say that the certificate was not binding because the expert had not done what he was appointed to do.

   [5] [1992] 1 WLR 277.

3. In my opinion, nothing in the AGL decision affects the judgment of McHugh JA in the Hudson case. In Hudson, McHugh JA continually emphasised that the critical question is: was the valuation made in accordance with the terms of the contract?[6]

   [6]    At page 336A.

4. Reference was also made to the decision of Australian Vintage Limited v Belvino Investments (No 2) Pty Ltd.[7] This case turned on the meaning of clauses within a lease. The Appellant was a lessee responsible for the development and operation of a vineyard. A term of the lease provided for the possibility of productivity of the vineyard being affected by natural disaster. Two matters arose under that term. The first, whether production had been reduced by more than 50% of average production capacity as defined in the lease. The second, whether production capacity had been so reduced.

   [7] [2015] NSWCA 275 a decision of the New South Wales Court of Appeal from a decision of Rein J.

5. If both limbs of the clause were satisfied, then the lessor had the ability to choose between carrying out remedial works or to terminate the lease. If the lessee terminated the lease, then the lessee was required to pay a lump sum payment calculated under clause 4.26(j)(i)(A), (B), (ii) and (iii).

6. In circumstances where the lessor and the lessee could not agree about whether and to what extent productivity was affected by natural disaster, the question could be referred to an expert under clause 4.26(d). The expert was entitled to issue a final determination about the calculation of the reduction of production or production capacity, whether the reduction was due to a natural disaster and the remedial work necessary to restore production capacity (clause 4.26f).

7. A severe frost occurred in 2013, there was a severe downturn in production of grapes for the 2014 vintage. The lessee invoked clause 4.26 asserting the loss of production of more than 50% of average production capacity. An expert was appointed and made a  determination that although a natural disaster had occurred, any resulting reduction of production or production capacity was less than 50% of average production capacity. The expert made a decision that the requirements of clause 4.26 meant that in order to measure the downturn, there had to be a comparison made with average production capacity and then the expert compared pre-frost production capacity for 2014 with average production capacity.

8. The Court of Appeal overturned the decision of the trial judge who had dismissed the application. The Court held that if there was a reduction of production capacity then the operation of clause 4.26 required a comparison of pre-disaster production capacity for that year. If the difference exceeded 50% of average production capacity then clause 4.26(h)-(j) applied. The expert and primary judge were therefore in error.

9. Bathurst CJ wrote the judgment of the Court. His Honour commenced his consideration of the matter at paragraph [74]. At Paragraphs [74] and [75], his Honour set out some fundamental propositions as follows:-

   1.   The question depends upon whether the determination made by the expert was in accordance with the contract: Hudson at 336;

   2.   That test is conclusionary and the question of whether the determination is open to review depends on whether or not the expert has carried out the task which he was contractually required to undertake; AGL at [44] and [51];

   3.   If the expert carries out the task, the fact that he made errors or took irrelevant matters into account would not render the determination challengeable;

   4.   If the expert had not performed the task contractually conferred on him, but performed some other different task or carried out his task in a way not within the contractual contemplation of the parties, objectively ascertained, then the determination will be liable to be set aside.

10. Bathurst CJ held at [84] that there were three matters for determination namely, calculation of production or production capacity, whether the reduction was due to a natural disaster and the remedial work required to restore production capacity. These were all matters for judgment and were peculiarly within the qualification of the expert particularly having regard to the expert’s function under clause 4.25.

11. Bathurst CJ then held at [84]:-

    [84] By contrast the construction of the formula was an objective matter outside the expertise of such a person. It seems to me that, in these circumstances, it would be unlikely that the parties intended to bind themselves to the expert’s determination on that issue. It does not seem to me that questions of costs, finality and expedition compel a contrary conclusion.

12. Bathurst CJ then held that a term within the contract that the expert determination is ‘final and binding’ must be understood in the context of the whole contract. At [85] his Honour held:-

    [85] Nor do I think that the fact the decision is said to be final and binding compels a contrary conclusion. I respectfully agree with the statement by Nettle JA in AGL at [76] that such a clause makes very little difference to the question. To the extent that the decision was made in accordance with the terms of the contract, it will be final and binding. To the extent that it is not, it will be subject to review.

13. In my opinion, the judgments in AGL and in Australian Vintage Limited do not in any way ameliorate the affect of the decision in Hudson. To the contrary, the decisions in both cases are on all fours with the approach of McHugh JA in Hudson for the reasons that I have already explained.

    The make good obligation

14. An issue that occupied considerable time in argument before me is whether, under the lease, it is only a matter for decision by the Court that the valuer must take account of the make good obligation within the lease. What was in the contractual contemplation of the parties must be objectively ascertained. That first requires an examination of the lease. Clause SC1(c) obliges the valuer to determine the value of the premises. The valuer is taken to be aware of the terms of the lease. Clause 2.32 governs the obligations upon the lessee at the expiration of the lease. It requires the lessee to remove partitions, alterations or additions and to make good, damage. If the lessee does not carry out that work, the lessor may carry out that work and charge the lessee. The lessee is also required to yield up the premises in good and substantial repair and condition, if required by the lessor to provide a certificate in relation to mechanical air conditioning equipment, to deliver up keys and comply with clauses 2.10, 2.11 and 2.20.

15. Clause 2.33 reads as follows:-

    2.33 Lessee Not Required to Reinstate 

    The lessor acknowledges that upon execution of this lease (including any renewed terms) any alterations in the nature of removal of walls, fireplace or other brick or structural works, are not required to be reinstated by the lessee where such alterations had been agreed to by the parties prior to the commencement of the term or are agreed to in writing thereafter.

16. As will be seen, clause 2.33 does not operate as a complete exclusion of the obligations in clause 2.32; it only applies to alterations in the nature of removal of walls, fireplace or other brick or structural works. It does not affect issues of cleanliness or the certificates required under clause 2.32.3. At pages 26 and following of MFID1 there are a series of photographs of the exterior and interior of the premises. A review of those photographs discloses a number of walls, architraves, fireplace surrounds, and service outlets which have been left in an unfinished state. That is not in contest between the parties. A question from the defendant’s view point is whether those issues were matters that were addressed by the expert valuer and upon which instructions were obtained. At paragraph 11 on page 8 of the valuation report, the valuer says as follows:-

    At the time of inspection the building had been stripped of tenants’ fixtures and fittings and was presented vacant. It is unknown whether any ‘make-good’ works were still to be made to the structure where the removal of the lessee’s fixtures and fittings left holes and incomplete finishes to the remaining structure, however, the owners solicitor provided instruction that the property should be assumed to be ‘in good order’ and that ‘in any event, the owner would cause the property to be in good order.

17. On page 12 of the valuation at paragraph 17, the valuer has set out the valuation considerations. On the top of page 13 he says:-

    The property is currently vacant and has been stripped of tenants’ fixtures and fittings leaving some make good works to be completed. It is assumed for the purposes of this valuation that any such works will be completed prior to any proposed sale transaction.

18. The instructions that were received by the valuer are reflected in the content of a letter from Corser’s Lawyers who were the solicitors for the Plaintiff Gembane directed to Mr Carter dated 14 October 2015. The letter directs the valuer to assume that the property is in good order because the lease requires reinstatement to good order and of course in any event the owner would cause the property to be in good order. On page 13 of the valuation, the valuer informs the reader that the requirement to reinstate to good order and condition, refers to make good works that are to be completed. The obligation to make good is described is paragraph 2.32 of the lease subject to the operation of clause 2.33. If there is any doubt about the instructions in the letter of Corser’s Lawyers to Mr Carter of 14 October 2015, it is dispelled by the approach outlined by Mr Carter at page 13 of his report.

19. The terms of the valuation, assessed objectively, disclose that the valuer has carried out his valuation process based upon the assumption that all make good works would be completed prior to any sale transaction as between lessor and lessee. [8] If it be the case that the valuer has said that he has proceeded with his valuation based upon the assumption that he was asked to make and which, by slight extension from that assumption (in favour of the lessor) is that he has carried out his valuation on the basis that the make good works have been completed, there is no basis in fact to challenge that the valuer has failed to value having regard to the make good obligations. In that context, the opinion of another valuer on the valuation is not relevant. It may well be that another valuer comes to an entirely different valuation figure using the same approach. That evidence cannot prove that the valuer has not performed the contractual task given to him. The valuer has said that he has undertaken the contractual task given to him on the basis as contended for by Gembane, under clause SC1(c).

    [8]    cf Bathurst CJ in Australian Vintage Limited v Belvino Investments (No 2) Pty Ltd at [75].

20. The task of the valuer was to determine the market value of the premises. It was necessary for the valuer to address the question whether he was valuing the premises to which clause SC1 referred. Objectively, that is the task that the valuer undertook. He was required to value the property as an expert. No directions were given to him as to how he should value the property and the content of clause SC1(c) gives no such direction. Using the analogy identified by Nettle JA in AGL Victoria, this valuer was not required to have regard to the last three sales in the street. There was no requirement to have regard to a particular fact, again using the example of AGL, of the recalculation of gas transmitted through the system. The requirement here is to identify the matter that has been remitted to the expert for the expert determination: the market value of the premises.

21. On the approach of the valuer in relation to the make good works, it was properly conceded by Gembane that the instructions to value on that basis were provided to the valuer by Gembane and that the valuer has purported to proceed to carry out the valuation on that basis. Gembane now says that because other valuers disagreeing with the valuation of Carter, a fortiori, the valuation of Carter is in error. The vendors do not now complain that Carter undertook the valuation other than upon the assumptions which he was asked to make.

22. It would only be if Carter had not performed the task contractually conferred on him but rather perform some different task, or carried out his task in a way not within the contractual contemplation of the parties, objectively ascertained would the determination be liable to be set aside. If the expert carried out the task required of him, the fact that he made errors or took irrelevant matters into account would not render the determination challengeable (Australian Vintage Limited at [74]).

    The content of the pleading and 6R 104: decision

23. Turning then to the content of the pleading. The allegations in paragraph 14 of implied terms are in my opinion relevant only to the relationship between Gembane as the owner of the premises and the valuer carrying out the valuation under the terms of the contract of lease. There is no doubt that any valuer in the position of Carter appointed by the President would be required to carry out his valuation in accordance with good valuation standards and practice and by the application of appropriate valuation methodology.

24. Paragraph 14.3 is consequently almost meaningless because under either of the subparagraphs 14.1 or 14.2, it would be necessary for the valuer to expose his reasoning process as well as his methodology. Having regard to authority[9] no such obligation in the form of an implied term arises under the obligations upon Carter following his appointment. Carter was appointed under clause SC1(c) and he was required to carry out the terms of the contract. That is the fundamental obligation upon him.

    [9]    Hudson, AGL Victoria Pty Ltd and Australian Vintage Limited.

25. As I have decided that the implied term pleaded in paragraphs 14.1, 14.2 and 14.3 arise only in relation to the question of the merits of the valuation i.e. as between Carter and Gembane (and any other person within the purview of the duty of care owed by Carter), paragraph 14 adds nothing to the causes of action pleaded by the Plaintiff.

26. Similarly paragraph 15, which purports to plead the basis upon which the term is implied takes the matter no further. The implied term is not so obvious that it goes without saying because it does not arise in the circumstances of the contractual task to be fulfilled by Carter. The correct question is whether Carter has performed the task contractually undertaken by him. If he has done so, the fact that he might have made errors or took irrelevant matters into account does not render his determination challengeable. Therefore, to plead that some implied term arises pursuant to the wording of Special Condition 1(c) of the lease (and by the referral from the President) does not add anything to the Plaintiff’s claim. The implied term is only obvious as between Carter and Gembane but in a different context. It is not a matter that is so obvious that it goes without saying in the relationship created by the contract pursuant to which Carter was acting. That being the case, it is not necessary to assess whether it was consistent or inconsistent with the express terms of Special Condition 1(c), because it does not arise. Finally, it is not necessary to give business efficacy to Special Condition 1 (c) which operates in accordance with well understood and well settled principles. The question is always: was the valuation made in accordance with the terms of the contract? That is the question for consideration. Those were the matters that occupied the Court in Hudson, AGL and Australian Vintage Limited.

27. It follows that paragraphs 14 and 15 add nothing to the plea in paragraph16. It is also my opinion that, as a basis for a consequential plea in paragraph 16, apart from paragraph 16.5 the pleadings are misconceived.

28. The chapeau of paragraph 16 alleges that Carter failed to adopt the methodology required to determine market value and therefore did not carry out the valuation in accordance with the requirements of Special Condition 1(c). The first further pleading of that allegation is that Carter purported to use the capitalisation of imputed net income as his primary method of valuation. It is alleged that the use of that method was an aspect of breach because it is alleged that Carter failed to properly apply the method. The reasons are set out in paragraph 16.1.1 and 16.1.2. If those assertions are right, then Carter has made errors in making his calculations of the capitalisation of imputed net income but those errors do not render the determination challengeable (Australian Vintage Limited at [74]; Hudson at p 333-336; AGL Victoria at [51]).

29. In paragraph 16.2 it is alleged that Carter purported to use the direct sales and rentals comparison approach but failed to properly apply that method. Again it appears that the criticism is not the method but rather the failure to properly apply the method. There are three further pleadings as to how Carter is said to have failed to have properly applied the method. The first is that he reproduced verbatim lists of sales supplied by the First Defendant without indicating which, if any of those sales had been relied upon by him and without any analysis of their alleged relevance. The second is that Carter purported to rely upon other sales evidence which was not identified allegedly for reasons of confidentiality and the third was that Carter failed to adjust the sales evidence to reflect the non recoverable outgoing deduction of $3000.00 which had been made in respect of the property, thereby making an inapt and invalid sales comparison. The criticism does not appear to be that Carter has not performed the task contractually conferred upon him or that he has carried out the task in a way not within the contractual contemplation of the parties objectively ascertained. Rather, it appears to be asserted against Carter that in applying the appropriate methodology of valuation, he made errors or took irrelevant matters into account. In so doing, his determination is not challengeable. Something more would need to be pleaded.

30. The third further pleading of the Plaintiff is that Carter failed to conform to the implied terms pleaded in paragraph 14. It is not necessary to consider those matters because in my opinion, those implied terms have no part to play in this proceeding.

31. The fourth criticism is that Carter failed to review his determination for possible error despite that his valuation was less than the current Valuer General’s capital value and he knew or ought to have known of monies expended upon the property between 2002 and 2015 which, logically (as the Plaintiff suggests) must mean the property was worth in excess of $755,000.00. The assertion that Carter has failed to review his determination for possible error must be understood as Gembane alleging that Carter has carried out his determination under the terms of the contract but he has failed to review it for what Gembane contend are possible errors. Gembane does not plead that what Carter has done renders the determination challengeable. The assertion that Carter has made errors is not a basis to challenge the determination. An assertion of an error as described for example in subparagraph 16.3.2 does not constitute a ground for the challenge of the determination.

1. Paragraph 16.5 pleads that Carter failed to properly or at all take into account the First Defendant’s obligations to make good the property at the conclusion of the lease. Arguably, that assertion is unsustainable on the objectively admissible evidence. On the objective evidence before the Court, Carter took into account the First Defendant’s obligations to make good the property at the conclusion of the lease by making the assumption that for the purposes of the valuation, any such make good works would be completed prior to any proposed sale transaction. It is not suggested that there was some particular unique obligation of the First Defendant which fell within the description of make good under the terms of the lease. I have earlier referred to paragraphs 2.32, 2.33 and 2.35. The submission made by counsel for the Plaintiff[10] was that Carter was instructed to assume that the premise was in good order which is effectively the same thing as saying that the lessee had complied with its obligations to make good. Gembane then contended that although that is what Carter records as having been done by him, that is not what he did. Counsel for Gembane then argued[11] that it was a matter for the trial whether or not the expert had undertaken his contractual task. Gembane says that it has expert evidence which opines that it doesn’t appear that Carter has undertaken that task, that is an issue to be fully ventilated at trial.

   [10]   T32.12.

   [11]   T33.17.

2. That expressed view of Gembane appears to be misconceived. Whether or not another valuer has come to a different conclusion applying the same methodology is nothing to the point.[12] Properly assessed, the argument lacks a proper foundation. That view is easily explained. Gembane argues that because another valuer comes to a different view applying the same methodology, means that notwithstanding that Carter says that he applied the appropriate methodology, he did not do so: he was in breach of his contractual obligations. There is a logical flaw in that argument. Merely because another valuer comes to a different conclusion is not informative of the question whether Carter has complied with his contract. Carter has said that he has approached the valuation on the basis that all make good works have been completed prior to any proposed sale transaction. Carter proceeded on the basis as he was instructed by Gembane’s solicitors. In my opinion the plea is unsustainable on that basis.

   [12]   Hudson; Australian Vintage Limited at [74].

3. Even so, I do not think that the plea constitutes an abuse of process because it does not disclose any reasonable cause of action.  It is empty of any meaning on the current approach of Gembane. In reaching that conclusion I have not made a survey of the terms of the lease which operate upon this alleged obligation between Gembane and Daher. It has not been necessary to do so on the material put to me by Gembane. Carter has set out in his valuation the approach that he has taken to the task before him. He sought and obtained instructions and then proceeded in the way he has described. A question is whether that approach complied with the terms of the contract. The pleading has the potential to disclose some reasonable cause of action only if some connection can be made between what Carter did and that action being in breach of the contract to produce the valuation of market value under special clause SC1(c) That connection is not currently apparent to me but it is not appropriate for me to say anything further on the merits or otherwise of what appears to be Gembane’s current approach to that issue. It is sufficient to say that only in respect of that subparagraph, Daher has not been able to satisfy the test under R104.

4. In paragraph 16.6 Gembane alleges that the conduct alleged in paragraph 16.4 and 16.5 constitutes a failure by Carter to conform with the implied terms pleaded in paragraph 14 and the requirement to conduct a market value. I have already decided that the assertions of fact contained in paragraph 16.4 are not a sufficient basis on the authorities to challenge the determination made by Carter and a failure to comply with an implied term pleaded in paragraph 14 is not informative. That implied term is only relevant as to the relationship between Carter and any person to whom he owed a duty which in this instance would be any person within his contemplation namely Gembane and Daher.

5. A failure to comply with good valuation standard practice or to fail to apply an appropriate valuation methodology would not, under the pleadings that have been made by Gembane, constitute a breach. That is because the fundamental errors alleged are those referred to in paragraphs 16.3. They are not matters the subject of the pleading in paragraph 16.6. The fundamental errors can only be those matters in paragraphs 16.4 and 16.5 although the allegations therein have not otherwise been described as fundamental errors.

6. Looking again at paragraph 16.4 and 16.5, it is obvious that all that could be said by Gembane in its pleading it that there were possible errors. Gembane has not seen fit to describe them as fundamental errors. In paragraph 16.6.3, Gembane alleges that the approach did not involve the application of appropriate valuation methodology. There is a significant weakness in that assertion because Gembane does not anywhere allege that the valuation methodology used by Carter was inappropriate. Rather, the allegation is that in adopting that valuation methodology, Carter committed errors. It follows that paragraphs 16.6.3 is not sustainable as an allegation nor is paragraph 16.6.2. Paragraph 16.6.1 fails for the same reason because it only alleges that Carter did not comply with good valuation standards and practice. If Carter made those errors then it still does not mean that he performed some different task than the task contractually required of him. A failure to comply with good valuation standards is not a failure to perform the contract . The pleading fails for the same reason.

7. Logically the same result applies even though I have not struck out paragraph 16.5 of the pleading. The pleading in paragraph 16.6 is limited to the implied terms pleaded in paragraph 14 (which do not inform the position) and the instructions which suffer the same fate because Carter was appointed by the president. But Gembane then ties those matters to valuation standards and practice, errors and valuation methodology. I have already dealt with those criticisms above. They do not inform any aspect of paragraph 16.5 and paragraph 16.6 should be struck out on the same basis.

8. In paragraph 17 of the Statement of Claim, Gembane pleas that by reason of the matters pleaded in paragraph 16 that Carter failed to carry out the valuation in accordance with the terms of Special Condition 1(c) of the lease and the valuation should be set aside. The remedies then sought are set out in paragraphs 18, 19, 20 and 21.

9. I am satisfied that apart from 16.5 paragraph 16 (when read with paragraphs 1-15) does not disclose a reasonable cause of action and in my opinion constitutes an abuse of the process of the Court. That being so, my power to strike out the pleading under Rule 104 is enlivened. I have formed that view because I am satisfied that the cause of action pleaded by Gembane is not sustainable and it does not rise to the level of having some chance of success when only the allegations in the pleading are considered.[13] I have reached my decision on the basis of the pleadings themselves and on the basis of the documents referred to in the pleadings. There was no contest that I was in a position to consider the documents in MFI D1 and MFI D2.  And the letter of Corser’s Lawyers of 14 October 2015 is referred to at page 8 of the valuation MFI D1 as the owner’s solicitors providing instructions that the valuer should assume the property to be in good order and that in any event the owner would have caused the property to be in good order. No contention was raised in Gembane about that matter.

   [13]   Chapman v Australian Broadcasting Corp (2000) 77 SASR 181.

10. Having formed that view I then turn to the question of the exercise of my discretion. In my discretion I may strike out a pleading in whole or in part if the pleading does not comply with these rules and is an abuse of the process of the Court. Daher seeks an order that paragraphs 14, 15 and 16  be struck out. I am satisfied that an order under 6R 104 should be made except in relation to paragraph 16.5. I am satisfied that both paragraphs (a) and (b) of the rule are satisfied. The reason for my exercising the discretion in that manner is that I am satisfied on a proper review of the whole pleading, the documents mentioned in the pleadings and the relevant authorities, that, apart from paragraph 16.5 no reasonable cause of action is disclosed within those paragraphs and it would not be possible to overcome the objections to the pleadings by amendment. The only extant pleading remaining is 16.5.

    Interlocutory Application of Daher (FDN 17) in action number 1607 of 2015

11. A largely identical application is made in action 1842 of 2015. I will deal with action 1607 of 2015. In this application, Daher seeks the following orders:-

    1.   That the issues set out in the annexure hereto be heard and determined ahead of all other issues in the within action, and in action 1842 of 2015.

12. Those issues are described as follows:-

    (a)    Common issue in 1607/15 and 1842/15

    (1)    Whether the valuation of the premises as if in good order is or would be a conforming valuation

    [see, paragraphs 41A and 41B or Daher’s defence in 1842/15; and paragraphs 34.1 and 34.3 in Daher’s defence to counter claim, and counter claim in 1607/15]

    (b)    Early disposal of 1607/15

    (2)    Whether Daher is entitled to restrain (stay) until settlement, enforcement of any make good obligations under the lease, and upon settlement, dismissal of the lessor’s claim

    [see, paragraphs 34.4, 34.5 in Daher’s defence to counter claim, and paragraph 39 in Daher’s counter claim to the counter claim]

    1.   In the alternative that paragraph 2 of the orders made on 22 December 2015 be varied so as to provide that the within action be heard and determined after the hearing and determination of the proceedings in action 1842/15.

    2.   …

    3.   …

    4.   …

    5.   …

13. In paragraph 7.6 of its counterclaim, Gembane pleads paragraph 2.35 of the lease and alleges that all of the obligations set out in sub clauses 2.2 to 2.34 of the lease are subject to the full force and effect of SC1 of the lease. Daher argues that the valuation for SC1 was to be undertaken on the assumption that the premises had been made good so that full value is accorded to the premises. That means that the question of the issue of make good falls by the way side. In its pleadings in the counter claim in this action, Gembane contends that the only way to calculate the contract market price is on the basis that the premises had been made good because that is the way that Gembane could obtain full value for the premises. Gembane then complains that Daher is in breach of the make good obligation under the lease.

14. Daher argues that there is no condition specified in SC1 that requires compliance with the terms of the lease as a condition to proceeding to settle. It argues that there is also an absurd aspect about the contention of Gembane. It is that Gembane asserts that Daher would have to spend some $207,000 to make good the premises for the purpose of paying the market price of the premises when on settlement, Gembane would have no further interest in the property which would enable them to carry out the make good work. The amount of $207,000 would therefore be a windfall. In effect, Gembane is asking for the capital value of the premises on the basis that they have been made good but also to be paid the costs of making good. None of those costs could be applied to the property because Gembane would lose any interest in the property on transfer to Daher. On that basis that Daher says that there is no utility in going through all the evidence in relation to make good, if the proceeding can be disposed of in one ‘fell swoop.’

15. It is to be recalled that it is not in contention that SC1 is an enforceable contract by its own terms and an order can be made for specific performance of that contract. By virtue of the exercise of rights under SC1, Daher has acquired an equitable interest in the premises which had been an equitable interest in the reversion until the expiration of the term.[14] By virtue of his equitable interest Daher is entitled to take action to protect his interest in the reversion. This would include the power to prevent the landlord purporting to exercise some power of ownership over the reversion which is inconsistent with the contractual rights of Daher.[15]

    [14]   Legione & Anor v Hateley [1982-1983] 152 CLR 406 at 446 per Mason and Deane JJ; this term expired on 30 September 2015.

    [15]   Rafferty v Schofield [1897] 1 Ch 937, see also Kern Corporation Limited v Walter Reid Trading Propriety Limited & Ors [1986-1987] 163 CLR 164 at p 192 ‘...it is wrong to characterise the position of such a vendor as that of a trustee. True it is that pending settlement of the purchase price, the purchaser has an equitable interest in the land which reflects the extent to which equitable remedies are available to protect his contractual rights and that the vendor is under obligations in equity which attach to land.’

16. I am satisfied and it was not put in contention that the equitable interest in the land belonging to Daher as purchaser would entitle Daher to protect his interest to prevent, for example, the lessor (vendor) purporting to re-let the premises for a period beyond the date upon which the vendor/lessor was required to settle upon the contract for the sale and purchase of the property. Daher argues that another power that is suspended (similar to the power to re-let beyond the settlement date) would be a right under the lease to have the premises made good in circumstances where, if there is a settlement, the owner will no longer be the owner of the reversion. That is, the vendor would no longer be the beneficial owner of the premises in respect of which the make good work is to be done. By extension of reasoning, Daher also wishes to argue that he has remedies sufficient to say that the obligations to make good are suspended pending completion of the contract. The appropriate way to proceed for a Court exercising both common law and equitable jurisdiction would be to grant a stay of the claim of Gembane for compensation or reimbursement in respect of the leased premises. Thus, Daher wishes to argue that, as a separate issue, the obligations to make good are suspended pending completion of the contract and an order should be staying any such obligations.

17. If that were the case, then the question of the make good of the premises would never arise until such time as completion failed. If completion failed, the parties would be restored to their usual position and the lessor/vendor would be restored to its full rights under the lease.

18. Daher argues that keeping in mind the approach of the Full Court in The Tap Inn v Matthews[16] if the preliminary point was decided in his favour, it would effectively put an end to the case.

    [16] [2015] SASCFC 188.

19. Gembane argued that it would first be necessary to ascertain a solution to the dispute as about whether the make good obligations had been breached. Daher conceded that there is a package of obligations (in relation to make good) but argues that properly construed they are in suspense. Gembane contends that if the separate question was to be considered there would need to be an assumption made that Daher was in breach because otherwise the Court would be construing the terms of the agreement in a vacuum. This would be contrary to the approach favoured by the Full Court in The Tap Inn. In particular, Gembane referred to the contents of SC1(h) which reads as follows:-

    (h) from the date of settlement onwards, all obligations on the part of the lessor and the lessee subsequent to the date of settlement pursuant to the terms of this lease stand extinguished. This clause is not intended to extinguish any of the obligations of the lessor and the lessee pursuant to this lease prior to the date of settlement.

20. Gembane argues that a proper reading of the second part of that clause means that there is a continuing obligation up to the point of settlement. For his part, Daher argues that this is only a holding provision which means that in the event that, for example, an option to purchase existed and was exercised, then up to the date of the settlement on the option agreement all of the obligations of lessor and lessee under the lease would be maintained.

21. It is impossible at this juncture to resolve that issue. That will be a matter for further argument and evidence.

22. The second argument raised by Gembane is that a pre-condition to any consideration of the entitlement to a stay is the need to determine whether or not the Carter valuation is valid. It would be impossible to disentangle the two actions bearing in mind that both are intrinsically interrelated because of the existence of the Carter valuation. Gembane also wishes to argue in the same fashion that Daher is in breach of the lease and that would be another reason why he would not obtain an order for specific performance.

23. I accept the submissions of Mr Floreani even though I see the real strength, plain commercial common sense and force in the submissions of Daher. On the authorities that bind me, because it may be said that there still remains a number of outstanding factual issues concerning the inter-relationship of both proceedings and the question of the assumption of breach (which was not conceded by Mr Wells QC and is therefore in contention) that means that in the particular circumstances of this case, the application should be refused; I am bound by the approach that the Full Court. That is not to say that with proper management by a trial Judge, the importance of any of those matters may possibly fall away.

    Decision on application for determination of a preliminary issue

24. The application in both actions for the same orders should be refused for the same reasons.

25. The further application therefore that remains to be considered is the question of the order of hearing of these actions. In my opinion it is appropriate that action 1842 of 2015 should proceed first. The resolution of that action will simplify the process of resolution of action 1607 of 2015 notwithstanding that that action was commenced first. It is to be recalled that action 1607 was a money claim which has developed more latterly into a cross claim in relation to the lease, the valuation and all of the issues raised in relation to action 1842.

26. Action 1842 also has the advantage that its principal focus is the attack upon the valuation of Carter. In my view, the resolution of that matter will significantly assist the resolution of 1607. There are many common issues involved and it is also to be recalled that in the cross action commenced by Daher in action 1842, he seeks an order for specific performance of the obligation to settle under the terms of the contract. In my opinion, a resolution of all issues in action 1842 of 2015 will substantially resolve the issues in 1607 of 2015.

27. The formal orders are as follows:-

    1.   On FDN13 (action 1842 of 2015) paragraph 3 I make an order under 6R104 striking out paragraphs 14 and 15 and paragraph 16, apart from the chapeau of that paragraph, and paragraph 16.5 of the second Statement of Claim (FDN4) filed 15 January 2016;

    2.   On FDN13 paragraph 1 and 2 in action 1842 of 2015 I refuse the application for the hearing of separate determination of issues but I order, in variation of the orders made by me on 22 December 2015 that action 1842 of 2015 be heard and determined before action 1607 of 2015;

    3.   On FDN17 in action 1607 of 2015 I refuse the application for separate determination of issues;

    4.   On FDN17 in action 1607 of 2015 I make an order to vary my order of 22 December 2015 so that action 1602 of 2015 shall be heard and determined following action 1842 of 2015;

    5.   Daher is to have his costs of FDN13 in action 1842 of 2015, and 80% of his costs of FDN17 in action 1607 of 2015.