Fortson Pty Ltd v Commonwealth Bank of Australia - [2008] SASC 49

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
FORTSON PTY LTD v COMMONWEALTH BANK OF AUSTRALIA & ANOR
[2008] SASC 49
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Debelle and The Honourable Justice Bleby)
4 March 2008
MORTGAGES - MORTGAGES AND CHARGES GENERALLY - REMEDIES OF THE MORTGAGEE - SALE UNDER POWER - MODE OF EXERCISE OF POWER
Mortgage – mortgagee bank – default – bank exercised its powers as mortgagee and sold mortgaged hotel – bank had acted in breach of s 420A of Corporations Law – content of duty in s 420A(1)(a) to take all reasonable care to sell property for not less than market value – whether the judge had erred in assessing market value of hotel – whether Full Court able to determine market value – market value determined – appeal dismissed and cross-appeal allowed.

EVIDENCE - ADMISSIBILITY AND RELEVANCY - OPINION EVIDENCE - EXPERT OPINION
Valuer retained by bank to value hotel premises – valuer not employee of bank – valuer gives evidence – valuer later gives evidence on same valuation at re-hearing – valuer employed by bank at time of re-hearing – failure to make disclosure of valuer’s employment – effect of failure to make disclosure.
Corporations Law s 420A, referred to.
Commercial and General Acceptance Ltd v Nixon (1983) 152 CLR 491; Commonwealth v Arklay (1952) 87 CLR 159; FGT Custodians Pty Ltd v Fagenblat [2003] VSCA 33; Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54; Kyuss Express Pty Ltd v Sellers (2001) 37 ACSR 62; Spencer v The Commonwealth (1907) 5 CLR 418; Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646; Whitehouse v Jordan [1981] 1 WLR 246, applied.
Liverpool Roman Catholic Archdiocesan Trustees Inc v Goldberg (No 3) [2001] 1 WLR 2337, not followed.
Jovanovic v Commonwealth Bank of Australia (2004) 87 SASR 570, discussed.
Anderson Stuart v Treleaven (2000) 49 NSWLR 88; Brewarrana Pty Ltd v Commissioner of Highways (No 2) (1973) 6 SASR 541; Commonwealth v Milledge (1953) 90 CLR 157; Emerson v Custom Credit Corporation Ltd [1994] 1 Qd R 516; Festa v The Queen (2001) 208 CLR 593; Flavel v South Australia (2007) 96 SASR 505; GE Capital Australia v Davis (2002) 180 FLR 250; Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309; R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381; Skinner v Jeogla Pty Ltd (2001) 37 ACSR 106; Stead v State Government Insurance Commission (1986) 161 CLR 141, considered.

FORTSON PTY LTD v COMMONWEALTH BANK OF AUSTRALIA & ANOR
[2008] SASC 49
Full Court: Doyle CJ, Debelle and Bleby JJ

DOYLE CJ: I agree with the orders proposed by Debelle J. I agree with his reasons. There is nothing that I wish to add.
DEBELLE J: The events giving rise to this appeal have been protracted. There has already been a hearing in the District Court, an appeal to the Full Court, and a re-hearing in the District Court. This appeal and cross-appeal are from the orders made on the re-hearing in the District Court.
It is not necessary to recite all of the facts leading to this appeal and cross-appeal. It will suffice to note only the facts relevant to the issues in each.
In 1995 the appellant Fortson Pty Ltd (“Fortson”) purchased a hotel property called the Plaza Hotel. The only directors and the controlling shareholders of Fortson are Mr and Mrs Jovanovic. The hotel is situated at 83-89 Hindley Street, Adelaide. It is about 250 metres west of the intersection of Hindley Street and King William Street. It is an unlicensed hotel providing accommodation at budget prices. The property included three shops at ground level. Fortson had purchased the hotel from a company called Roclin Developments Pty Ltd (“Roclin”). Roclin was controlled by two men called Mr Slavko Govedarica and Mr Milond Govedarica.
Fortson borrowed $750,000 from the Commonwealth Bank of Australia (“the Bank”) to assist it with the purchase. The loan was secured by a mortgage over the hotel property, a charge over the business and a guarantee by Mr and Mrs Jovanovic.
By early 1997 Fortson had defaulted in repayments of the loan to the Bank. It was then in a desperate financial position. In February 1997 the Bank decided to exercise its powers as mortgagee and sell the hotel property by a private tender process. It did not advertise the sale of the hotel property in any public manner or place it on the open market.
On 22 May 1997, on instructions from the Bank, Mr Burton, a valuer employed by Knight Frank (SA) Pty Ltd, inspected the hotel property and assessed its market value at $660,000. On 14 July 1997 the Bank sold the hotel property to Roclin for the sum of $800,000. The Bank made a loan to Roclin of $620,000 to assist it in the purchase of the business. The Govedaricas guaranteed repayment of the loan. The contract for sale excluded from the sale “all goods, chattels, plant, equipment and machinery and movable items not in the nature of permanent improvements in or about the land”.
On 11 February 1998 the Bank commenced an action in the District Court of South Australia to recover the sum of $39,615.90 from Mr and Mrs Jovanovic, being the amount due under the guarantee they had executed. Mr and Mrs Jovanovic defended the action. In addition, Fortson and the Jovanovics made a counterclaim alleging, among other things, that the Bank had acted in breach of s 420A of the Corporations Law in that it had failed to take reasonable care to sell the hotel property for the best price that was reasonably obtainable having regard to the circumstances existing when the hotel property was sold. After a long hearing, Judge Lowrie gave judgment for the Bank in the sum of $77,643.93 and dismissed the counterclaim. Judge Lowrie held that, while the Bank owed a duty of care under s 420A of the Corporations Law to Fortson and to the Jovanovics, it had not acted in breach of that duty.
Fortson and Mr and Mrs Jovanovic appealed to the Full Court. On 3 March 2004 the Full Court (Mullighan, Gray and Besanko JJ) delivered judgment allowing the appeal and setting aside the orders made by Judge Lowrie: Jovanovic v Commonwealth Bank of Australia (2004) 87 SASR 570. The Full Court agreed with Judge Lowrie that the Bank did not owe a common law duty of care to either Fortson or to Mr and Mrs Jovanovic. It agreed with the judge that the Bank owed Fortson the duty prescribed by s 420A of the Corporations Law but held that the Bank had failed in that duty because it had sold the hotel property by private tender to one party with no advertisement or attempt to sell the property in a public manner.
The reasons of Besanko J, with whom Mullighan J agreed, differ in some respects from those of Gray J. For present purposes, the differences are immaterial. I refer only to those aspects of the decision relevant to the issues on this appeal and cross-appeal. None of the judges expressly specified whether the Bank had acted in breach of paragraph (a) or paragraph (b) of s 420A(1). However, it is implicit in the reasons for judgment that the hotel property had a market value and that the Bank had failed to take all reasonable care to sell the property for not less than market value in breach of s 420A(1)(a). All members of the court held that the Bank had failed in its duty because it did not appoint an agent nor put the property on the open market nor conduct a proper marketing campaign.
The majority of the court (Besanko and Mullighan JJ) held that the duty imposed by s 420A did not sound in damages. They applied the reasoning of Bryson J in GE Capital Australia v Davis (2002) 180 FLR 250 at [53], [54] and [56] and held that the remedy was in equity so that the mortgagor was to be credited with compensation when accounts are taken of the mortgage debt. The compensation would be the difference, if any, between the price obtained and market value. Similarly, the Jovanovics as guarantors were entitled to be credited with the difference between the price obtained and market value.
In his reasons Besanko J considered the question as to the price which would have been obtained if the Bank had performed its duty under s 420A. He said:
[117]The question remains as to the price which would have been obtained for the freehold title of the property had the bank taken all reasonable care in terms of the section. In the circumstances of this case that involved appointing an agent, conducting a proper marketing campaign and putting the freehold title of the property to the market. The difference between the price which would have been obtained had that been done and the price the bank in fact obtained, together with appropriate adjustments in relation to the expenses of the sale, is the measure of the loss for the breach of the duty in s 420A. Unfortunately, this Court is not in a position to determine that figure. It involves an assessment of the valuation evidence including an assessment of the extent to which that precise issue has been addressed by the valuers, and a determination as to the valuation evidence which should be preferred. It may be noted that the market value as defined by one or more of the valuers who gave evidence is not necessarily the same as the sale price that would have been achieved had the bank appointed an agent, conducted a proper marketing campaign and put the freehold title of the property to the market.
[118]The question which I have identified must be determined by the judge and it will be a matter for him whether, if the parties wish to call further evidence, he allows that to be done. If the conclusion is reached that there is a difference, then Fortson is entitled to have the difference brought to account in the taking of accounts between it and the bank. Depending on the figure, it may or may not have a counterclaim. The Jovanovics are entitled to bring to account by way of an equitable set off to the claim on the guarantee the difference, if there be a difference. As guarantors they are not entitled to bring a counterclaim, and although they were directors and shareholders of Fortson, they are not entitled to claim for loss sustained by the company: Gould v Vaggelas (1985) 157 CLR 215. For these reasons, I disagree with the conclusion of Gray J that the Jovanovics are entitled to pursue their counterclaim against the bank.
In the last sentence of paragraph [117] and in paragraph [118], Besanko J appears to draw a distinction between market value and the price which would have been achieved had the Bank appointed an agent and put the property on the open market with a proper marketing campaign. For the reasons to be given in a moment, that is not the relevant inquiry and I do not think that Besanko J intended to say that it was.
The action was remitted to Judge Lowrie for further hearing and determination of the issue identified in paragraphs [117] and [118]. The terms of those paragraphs were to cause difficulty on the re-hearing.
Judge Lowrie began the re-hearing in September 2004. After three days the judge disqualified himself on the ground of perceived bias. The action was assigned to Judge Lee for hearing and determination.
On 22 December 2005, after a long hearing of some seven days, Judge Lee gave directions as to the evidence to be led on the re-hearing. The judge published detailed reasons for judgment which dealt with the question he had to consider and the directions as to the calling of further evidence. It is apparent from those reasons that the reasons of Besanko J had led to debate as to the question to be determined. It was common ground that the hotel property had a market value. Judge Lee expressed his understanding of the issues in these terms:
7There is no suggestion that the property did not have a market value. So subsection (1)(a) applies. The duty is not to take reasonable care in a general sense. It is a duty to take all reasonable care to sell for not less than market value. It must follow that the duty is not discharged merely by the obtaining of market value. If there is an opportunity to sell for more, the mortgagee’s failure to take that opportunity may amount to a breach of the section.
8When it comes to the measure of any loss, there is a difference between asking “What is the market value of the property?”, and asking “What price would be achieved by taking all reasonable care to sell the property for not less than market value?”. The second question, unlike the first, does not focus exclusively upon market value. Assets are often sold under or over their market value. Sometimes a buyer with a special interest in acquiring an asset will pay a premium on market value. So the second question would permit consideration of information that a buyer was prepared at the relevant time to pay more than market value.
After referring to paragraphs [117] and [118] of the reasons of Besanko J, Judge Lee said:
10Two points emerge. The issue for determination is “the price which would have been obtained for the freehold title of the property had the Bank taken all reasonable care in terms of the section”. In the particular circumstances of this case, the requirement to take “all reasonable care in terms of the section” would have been met by the Bank “appointing an agent, conducting a proper marketing campaign and putting the freehold title of the property to the market”.
11It is apparent that the witnesses who gave oral evidence about the value of the property did not pose the correct question for themselves, that is, the question which arises from s 420A. Each purported to advise on market value.
Having identified the issue he had to determine in those terms, Judge Lee noted that the persons who had given evidence as to value before Judge Lowrie had not addressed that question but had given evidence as to market value. He ruled that the parties could not call any further evidence other than to recall three witnesses, Messrs Burton, Williamson and Taylor, who had given evidence as to value before Judge Lowrie.
Judge Lee directed at [26] that the ultimate question for those witnesses to consider was:
What price would have been obtained for the freehold title of the property in July 1997 had the Bank appointed an agent, conducted a proper marketing campaign and put the freehold title of the property to the market?
The judge then added at [27]:
As I have already said, this question would permit consideration of information that a buyer was prepared at the relevant time to pay more than market value. It would be necessary, however, that there be reliable information upon which a positive finding could be based. Mere conjecture would not be enough. Moreover, any such buyer would had to have been genuine and at arms length. I would not attach any weight to any offers said to have passed between the Govedaricas and the Jovanovics.
These passages from the judge’s reasons of 22 December 2005 disclose an error as to the question he had to determine. I will deal with that issue in a moment.
After a hearing over four days, the judge published reasons for judgment on 30 November 2006. He held that the best price reasonably obtainable for the hotel property was $870,000. On 16 May 2007, he made orders to give effect to his reasons. He dismissed the Bank’s claim against Mr and Mrs Jovanovic. On the counterclaim he ordered that the Bank pay Fortson the sum of $10,323.64, together with interest in the sum of $7,000. He ordered the Bank to pay Mr and Mrs Jovanovic 90 per cent of the costs of defending the action and to pay Fortson 90 per cent of the costs of the counterclaim.
Fortson has appealed against that part of the orders of Judge Lee made on 16 May 2007, by which he ordered that the Bank pay the sum of $10,323.64 to Fortson, together with interest in the sum of $7,000. There are many grounds of appeal. Essentially, the appeal is on the ground that Judge Lee erred in his treatment of the evidence of value and that the value of the hotel property is more than $870,000. Fortson contends that the hotel property would have sold for a price not less than $1.5 million.
The Bank has cross-appealed against the orders made by Judge Lee on 30 November 2006 and 16 May 2007. It contends that the judge erred in finding that the price at which the hotel property would have sold was $870,000. It says that the price would have been less than that sum. It also appeals against all of the orders made on 16 May 2007. Essentially, the Bank’s case on appeal is that Judge Lee erred in his approach to the question of market value. The Bank relies on three main grounds. Shortly stated, they are:
1That the task for the judge was to determine the market value of the hotel and he should have found that the market value was not more than $800,000;
2That, even if Judge Lee had correctly found that the sale price was $870,000, he had erred in finding the amount payable to the Bank which, if corrected, resulted in judgment for the Bank;
3That the Judge had erred in making the order as to costs.
The Bank seeks orders setting aside the orders of Judge Lee and, in their place, orders giving judgment for the Bank and dismissing the counter-claim with orders as to costs in favour of the Bank.
Before the hearing of the appeal began, Mr Sallis, who appeared for Fortson, applied to this Court to tender two affidavits of Mr Jovanovic, sworn on 22 and 27 August 2007, and an affidavit of Mr Cole, sworn on 29 August 2007. Mr Sallis also applied on behalf of Fortson for leave to file a supplementary notice of appeal. The main issue addressed by the supplementary notice of appeal and affidavits was the non-disclosure by the Bank of the fact that Mr Burton, the valuer called by the Bank, had been employed by the Bank at the time of the re-hearing before Judge Lee. Mr Forster SC, who appeared for the Bank, applied to tender an affidavit of Mr Leydon, sworn on 29 August 2007, on the same issue. The Court admitted
·the affidavit of Mr Jovanovic, sworn on 22 August 2007, with the exception of paras 13-23 thereof;
·the affidavit of Mr Cole, sworn on 29 August 2007; and
·the affidavit of Mr Leydon, sworn on 29 August 2007.
Leave was granted to Fortson to file the supplementary notice of appeal.
Both the notice of appeal and supplementary notice of appeal filed by Fortson are inordinately lengthy. Much of what purports to be grounds of appeal is, in fact, argument. The grounds of appeal can be distilled to one main ground, namely, that Judge Lee had erred in finding that the price which should have been obtained for the hotel property was $870,000. Fortson contends that its value was at least $1.5 million. The rest of the notice of appeal sets out asserted errors on the part of the judge in reaching his conclusion and in weighing the evidence of the witnesses, Mr Burton and Mr Williamson, and an asserted failure of the judge to apply correctly the evidence of Mr Stefanovic, an employee at the Plaza Hotel. Fortson seeks an order from the Full Court that the sale price be fixed at $1.5 million or, in the alternative, that the question of the sale price be remitted to a different judge of the District Court for yet another hearing.
Fortson’s supplementary notice of appeal essentially complains of the non‑disclosure that Mr Burton was an employee of the Bank when he gave his evidence. It is not entirely clear what relief Fortson seeks on that ground.

In the result, four broad questions fall for consideration on this appeal. They are:
1Did the judge err in determining the question he had to consider?
2Did the judge err in assessing the market value of the hotel?
3What are the consequences of the failure to disclose that Mr Burton was an employee of the Bank when he gave his evidence before Judge Lee?
4What orders should be made as to the costs of the actions?
Market Value
Judge Lee found that the hotel property had market value. There is no appeal from that decision nor indeed could there be. There can be no doubt that the hotel property had market value. Indeed, the parties have proceeded on the footing that the hotel property had market value. However, for the reasons which follow, the judge erred in his approach to the question he had to decide.
As the hotel property had market value, the provisions of 420A(1)(a) of the Corporations Law applied and the issue for determination was what was the market value of the hotel property. Although the use of market value in s 420A has been the subject of comment in decisions such as Skinner v Jeogla Pty Ltd (2001) 37 ACSR 106; GE Capital Australia v Davis; and Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54, none of the issues discussed therein affect the issues for determination in this case. All that has to be determined in this case is the market value of the hotel property.
The classic definition of market value is that expressed by Griffiths CJ and Issacs J in Spencer v The Commonwealth (1907) 5 CLR 418. Griffiths CJ said at 432.
In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e, whether there was in fact on that day a willing buyer, but by inquiring “What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?” It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.
At 441 Issacs J said:
To arrive at the value of the land…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.
It is implicit in these remarks that the land has been advertised for sale on the open market. The remarks of Issacs J, in particular, denote a prudent vendor cognisant of all circumstances which might affect the value of its land. One means of ensuring that the highest price is obtained is to put the land for sale on the open market and to advertise it for sale. It is also implicit that the vendor and purchaser are dealing at arms length. Market value is, therefore, the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the land: Commonwealth v Arklay (1952) 87 CLR 159 at 170.
The duty expressed in s 420A(1)(a) is a duty to take all reasonable care to sell the property for not less than market value. This duty is the same duty as the statutory duty imposed in some States upon mortgagees that requires them, when exercising the power of sale, to take reasonable care to ensure that the property is sold at market value. In Commercial and General Acceptance Ltd v Nixon (1983) 152 CLR 491 the content of that duty was considered. It requires the mortgagee to put the property on the open market and bring it to the attention of potential purchasers by advertising and responding to all enquiries and expressions of interest: Commercial and General Acceptance Ltd v Nixon at 495 per Gibbs CJ and at 505 per Mason J; see also Emerson v Custom Credit Corporation Ltd [1994] 1 Qd R 516. That same duty is imposed upon a controller by s 420A(1)(a): Kyuss Express Pty Ltd v Sellers (2001) 37 ACSR 62 at [93] to [95]. That duty also required the Bank to take reasonable steps to ascertain the value of the hotel property before selling it: Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309. The prudent vendor as described by Griffiths CJ and Issacs J is a person who is cognisant of current land values and all circumstances which affect that value, either advantageously or prejudicially, and of the then demand for land of that kind. By this means, an objective determination of market value may be made. It is what Spigelman CJ called “determinable value”: Skinner v Jeogla Pty Ltd at [40]; Kyuss Express Pty Ltd v Sellers at [93].
It is against that background that the remarks of Besanko J in paragraphs [117] and [118] must be understood. In the first part of paragraph [117], Besanko J is drawing a contrast between what the Bank in fact did, namely, offer the hotel property privately to one person for sale and what it ought to have done, namely, put the hotel property on the open market and advertise it for sale. As His Honour noted, the measure of the compensation is the difference between the price which would have been obtained had that been done and the price in fact obtained, together with appropriate adjustments in relation to the expenses of sale. It is appropriate to add that, even if the controller did not exercise reasonable care but the property was in fact sold for its market value, the mortgagor will not have suffered loss and will not succeed. It will be a case of injuria sine damnum: Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646 at [69]. Kyuss Express Pty Ltd v Sellers is an example of such a case.
It is apparent from the reasons of Judge Lee that he believed that in the balance of paragraph [117] and in paragraph [118] Besanko J was drawing a distinction between market value and the price that would have been achieved if the property had been sold on the open market with appropriate advertising. It is not clear why Besanko J added those comments. Two witnesses as to value were Mr Burton and Mr Williamson. Both had given evidence before Judge Lowrie. Both had adopted a similar definition of market value. Mr Williamson adopted the definition promulgated by the Australian Property Institute, namely:
Market Value is the estimated amount for which an asset should be exchanged on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion.
That definition accords with the views expressed by Griffiths CJ and Issacs J in Spencer v The Commonwealth. Mr Burton adopted a definition in almost identical terms.
The last sentence in paragraph [117] is, with respect, expressed a little unfortunately and is capable of being misunderstood. It has the capacity to suggest that there is a difference between market value and the sale price achieved by a sale on the open market. That is not correct. In the ordinary course, the sale price achieved on the open market is market value. The price paid by the prudent purchaser will be the price negotiated by voluntary bargaining between the vendor and purchaser, both willing to trade, but neither so anxious that either will overlook any ordinary business consideration. Alternatively, it will be the price paid at auction by a prudent purchaser. There are, of course, exceptions to that general rule. The purchaser may not be prudent and so pay a price higher than market value or there may be circumstances which constrain the vendor to sell so that he has no alternative but to accept a price less than market value. In some instances at an auction, two or more bidders may be so anxious to purchase the land that the sale price is a price above market value. In the last case, the purchasers have put ordinary business considerations to one side because of the desire of each to purchase the land. The only purpose of the last sentence in paragraph [117] is to draw a distinction between the definition of market value adopted by one of the valuers and market value as it should ordinarily be understood. I do not understand the reasons of Besanko J to suggest that there is a distinction to be drawn between market value and the price secured on the open market. Furthermore, when the reasons of Besanko J are read as a whole, it is apparent that his intention was that there be a determination of market value in the conventional sense. In paragraphs [95] and [96] of his reasons he refers on several occasions to market value.
95The judge discussed the scope of the section briefly. He noted correctly that the section does not stipulate a correct method of sale. He referred to the decision of Campbell J in Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16, and noted that in that case it was said that in deciding whether there has been a breach of the section the court will look at the process the holder of the power goes through in selling the property. That is no doubt correct. The market value may be a relevant item of evidence on the question of whether there has been a breach of duty, but it is by no means decisive. It may be possible, although I would have thought fairly rare, that a controller would take all reasonable care to sell the property for not less than market value, and yet, for some reason outside his or her control, not obtain not less than market value. It is certainly possible that a controller might not take all reasonable care to sell the property for not less than market value and yet be fortunate enough to obtain market value. In that situation, those to whom the duty is owed may establish a breach of duty but no entitlement to relief.
96In the context of his discussion of s 420A of the Corporations Law, the judge referred to a passage in Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd (supra) that suggested that the relevant question in determining breach of duty was whether “any departure from reasonable standards [was] so serious as to be properly characterised as unconscionable, in order to render the mortgagee accountable”. However, that comment was made by Campbell J in the context of a discussion of the relevant equitable duty, not the duty in s 420A. The judge erred insofar as he said that it was the relevant question for the purposes of s 420A. The relevant question for the purposes of s 420A is whether the controller has taken all reasonable care to sell the property for not less than its market value and that in turn involves a consideration of whether the controller:
“has failed to do what a reasonable and prudent person would do, or has done what a reasonable or prudent person would refrain from doing in the circumstances”.
(Commercial and General Acceptance v Nixon (at 501) per Mason J (as he then was) at 501).
It is apparent from those passages that he is using the expression “market value” in the sense defined in Spencer v The Commonwealth.
The reasons of Judge Lee published on 22 December 2005 disclose that he misunderstood the effect of paragraphs [117] and [118] of the reasons of Besanko J. He drew a distinction between market value and the price which would have been obtained had the Bank sold the property on the open market with a proper marketing campaign. The passages already quoted from the reasons of the judge demonstrate his misunderstanding of the issues. It is appropriate to refer to other passages from his reasons of 22 December 2005 when ruling that the three witnesses who had given evidence as to the market value of the hotel property could be recalled. The judge said:
26As for the conditions upon which further evidence is to be called, I rule that the parties should not call other than the witnesses who gave oral evidence before the primary judge, namely Messrs Burton, Williamson and Taylor. The ultimate question for the witnesses to consider is: “What price would have been obtained for the freehold title of the property in July 1997 had the Bank appointed an agent, conducted a proper marketing campaign and put the freehold title of the property to the market?”
27As I have already said, this question would permit consideration of information that a buyer was prepared at the relevant time to pay more than market value. It would be necessary, however, that there be reliable information upon which a positive finding could be based. Mere conjecture would not be enough. Moreover, any such buyer would had to have been genuine and at arms length. I would not attach any weight to any offers said to have passed between the Govedaricas and the Jovanovics.
Nowhere in the judge’s reasons published on 22 December 2005 nor in his later reasons for judgment did the judge consider the definition of market value in Spencer v The Commonwealth.
For these reasons, the judge fell into error in drawing the distinction between market value and the price obtained after appointing an agent, conducting a proper marketing campaign and putting the freehold title of the property to the market. Instead of determining market value, he has sought to determine the best price which might have been achieved. That is not what s 420A(1)(a) requires. See Ultimate Property Group Pty Ltd v Lord (supra); Kyuss Express Pty Ltd v Sellers (supra); Florgale Uniforms Pty Ltd v Orders (supra). There is no duty to sell for more than market value. That is an obligation not capable of objective determination. The task the judge should have undertaken was first to determine market value. Once that task was completed, the judge would be in a position to determine what, if any, remedy was available to the appellant.
The judge’s error was to infect the conduct of the re-hearing and the judge’s reasoning when determining market value. Although the judge erred in his approach on the question of market value, the evidence is sufficient to enable this court with the assistance of some aspects of the judge’s reasons to determine market value. It is desirable that it should do so to avoid the parties having to incur the cost of yet another hearing. I will return later to that question after a review of the evidence.
The Valuers
Although Judge Lee had ruled that the three valuers called before Judge Lowrie could give further evidence on the re-hearing, only two were called. They were Mr Burton who was called by the Bank and Mr Williamson who was called by the appellant. The appellants did not recall Mr Taylor.
Mr Burton prepared his valuation in May 1997. He therefore had the advantage of making his valuation at or about the time when the hotel property was to be sold. At that time, Mr Burton was a valuer employed by Knight Frank (SA) Pty Ltd, licensed real estate agents and valuers. Mr Burton’s valuation was in a conventional form. It described the subject property, it listed the factors affecting value, it described the valuation method, listed comparable sales and concluded with an assessment of value. In 1999, Mr Burton left Knight Frank and was employed by Deutsche Bank and later by ABN AMRO Morgans. In 2004 he became an employee of the Bank. I deal later with the question whether the failure to disclose his employment by the Bank has any consequences for the issues in this appeal.
Mr Williamson had trained as a valuer and for a time conducted a valuation practice. In more recent years he has acted as a sales consultant and agent for the sale of hotel properties. He is extensively involved in that business and in consequence has not in recent years undertaken valuation work. Mr Williamson conceded both before Judge Lowrie and before Judge Lee that his report was not a valuation. As he said, he had not prepared a valuation. Instead, he had been asked to examine and comment on Mr Burton’s valuation. There can be little doubt that Mr Williamson has an extensive knowledge of hotel properties and of the means of selling them. Both his report and his initial evidence read like a report of a salesman. As will appear, his approach was over-optimistic. The difference between his report and Burton’s valuation was not as marked as it became at the re-hearing. That was the result of the fact that Williamson abandoned a number of the facts and propositions on which he relied in his initial report. He sought to justify his later approach on the basis of the evidence of a Mr Stefanovic to which the judge had referred in his reasons of 22 December 2005. That evidence did not justify discarding his initial approach. In my view, there was a degree of opportunism in his evidence. Another defect in Mr Williamson’s report stems from the fact that he was not instructed to prepare it until May 2002, some five years after the sale. He did not, therefore, have the advantage available to Burton of making his report in light of a knowledge of current factors affecting value. I later make some other criticisms of Mr Williamson’s evidence.
Judge Lee expressed some general remarks about the reliability of the evidence of Mr Burton and Mr Williamson. He acknowledged that Mr Burton was a licensed valuer who had practised in that field. He described Mr Williamson as a “sales consultant with considerable experience in the tourism and hospitality industry”. He described him in his reasons as a valuer merely for convenience.
The judge considered that the weight of Mr Burton’s evidence was diminished by his “professed inability to reconsider his earlier views”. He gave some illustrations. However, it must be appreciated that Mr Burton was in an extremely difficult position. His original valuation report was written in May 1997 when he was in active practice as a valuer with Knight Frank (SA) Pty Ltd. After he had left Knight Frank in 1999 and moved to Sydney, he did not conduct a valuation practice. He had given evidence before Judge Lowrie in March 2003 and was required to give evidence before Judge Lee in May and June 2006. At that time he was no longer practising as a valuer.
It is apparent from his evidence before Judge Lee that Burton did not have access to his notes and working papers of nine years earlier. He believed that the matter had been resolved. He therefore had difficulty in recalling the detail of some of the enquiries he had made for the purpose of his valuation. He was not giving evidence of a current valuation. He was justifiably not prepared to adjust his valuation on facts of which he was not aware and which he had had no opportunity to verify. It was therefore not surprising that he was reluctant to depart from his opinions formed in 1997 after due enquiry. He cannot reasonably be criticised for that.
Judge Lee rejected Mr Williamson’s evidence as to the likely average room rate for the Plaza Hotel, a rate which was in excess of that used by Mr Burton. The Judge in fact adopted a range less than that of Mr Burton.

The judge rejected Mr Williamson’s evidence as to occupancy rates and, as will be seen, based his conclusion on inadmissible evidence. He also rejected Mr Williamson’s evidence as to the rent to turnover rate and without justification adopted a rate not supported by either valuer.
The judge was unable to resolve the differences between the two witnesses as to capitalisation rate by accepting the view of one and rejecting the other. On that topic the Judge ultimately selected his own capitalisation rates for different categories of purchaser and conducted an averaging exercise.
As will later be seen, the process adopted by Judge Lee in arriving at the answer to what he perceived to be the question posed by the Full Court was flawed. At no relevant point did it involve acceptance of Mr Williamson’s evidence. It did involve, to a significant extent, the acceptance of Mr Burton’s figures or of figures which had the effect of lowering Mr Burton’s final figure.
Given all the factors I have addressed, and for reasons that will become apparent, the evidence of Mr Burton is the more reliable notwithstanding that he made a few errors (mainly mathematical) to which I will later refer. To act on his evidence in the circumstances I have described is not to usurp the function of the trial Judge in assessing the credit or reliability of witnesses.
The Hotel Property
It was common ground that at the date of sale the hotel property was in a very poor state of repair. The retail shops which had a frontage to Hindley Street were of a basic standard and in some disrepair. The hotel itself was in a very poor state of repair. There was evidence of roof leaks in the ceilings of some rooms located on the top floor. Some of the rooms could not be used because of those leaks. Other rooms offered a very basic level of accommodation. In Burton’s opinion, considerable money would have had to be spent in order to upgrade the retail shops and the hotel premises. That was not disputed by Williamson.
The hotel is located some 250 metres west of the intersection of Hindley Street and King William Street. It is, therefore, not far distant from Rundle Mall. The hotel was an unlicensed hotel providing accommodation at budget tariffs. Judge Lee described it as an “unlicensed budget style hotel”. Mr Williamson described it as an hotel at the lower edge of the accommodation spectrum. It is within walking distance of the campus of the University of South Australia in Morphett Street. The development surrounding the hotel property comprises a variety of older style retail strip shopping and a variety of entertainment venues. The hotel itself comprises some 67 rooms at three levels. The building is an older style building constructed with a combination of clay brick and bluestone. The bedroom accommodation is on the upper two levels. Fourteen rooms have en-suite facilities. When inspected by Mr Burton, one of the three shops was vacant. The Jovanovics operated one shop as a newsagency and a tenant occupied the third shop.
Mr Burton expressed the view that in the years prior to 1997, Hindley Street had deteriorated in terms of its value and as a source of entertainment. While it had been a centre for night time entertainment in Adelaide, that function had shifted to premises in Rundle Street. In Mr Burton’s view, Hindley Street was not an attractive area for investment. He said:
Despite the opening of the University of South Australia campus further along Hindley Street, there appears to be little increase in activity in Hindley Street east of Morphett Street. The lack of activity is evident in the fact that the hotel located on the corner of Hindley and Morphett Streets is vacant. Furthermore, building owners along Hindley Street have not upgraded their premises and this creates a negative perception of the street as old and in disrepair.
All of these factors lessen the chances of a purchaser being found for the Plaza Hotel. However a positive aspect is the fact that there are a number of investors who own properties along Hindley Street. They may seek to expand their holdings further and it is to these investors that the Plaza Hotel may appeal.
MARKET POTENTIAL
Given the state of disrepair of the premises, the lack of trading details available from the Plaza Hotel operation and the fact that there are vacancies on the ground floor, we consider that the subject property would have very limited appeal in the current market place. The lack of trading details for the Plaza Hotel raises questions concerning the profitability of the business, especially given the disrepair of the premises. At present an investor would be faced with a substantial cost to upgrade the premises, with only minimal rental income provided. The Game Quest tenancy, which is the only formally leased portion of the premises, is due to expire on the 4^th September 1997. While we do not know whether the tenant will vacate, it does raise the question and therefore lower the marketability of the premises.
Any property investor would be very wary of the income producing potential of the hotel and the fact that Hindley Street as an entertainment venue has deteriorated in recent years. Consequently the purchaser would be faced with an initial capital expenditure with the prospect of vacancies in the short term and what may be an enviable (sic) hotel operation. We do not consider that this scenario would appeal to many investors in the market place and consequently an extended selling period of in excess of six months may well be required in order to dispose of the property.
I do not understand the evidence of Mr Williamson to call this assessment into question.
Valuers Confer Before Re-Hearing
Judge Lee had directed that the valuers should confer under the supervision of a Master of the District Court before the resumption of the re-hearing. The purpose of the conference was not to negotiate a compromise but, instead, to enable the witnesses to identify those matters on which they agreed and those matters on which they differed. The witnesses were to prepare a joint statement concerning those matters which was to be signed by each. The conference took place before Master Norman on 15 February. A statement was prepared and signed by both Burton and Williamson and delivered to the judge.
In his reasons published on 22 December 2005, Judge Lee had referred to evidence given before Judge Lowrie by Mr Stefanovic. Mr Stefanovic had been employed at the hotel as a night manager between March 1992 and June 1998. His duties included checking lodgers in and out of the hotel. Judge Lee summarised his evidence and expressed the view that the occupancy rate was 79 per cent. Later, when he made his final decision, the judge reduced that assessment.
At the conference before Master Norman, Mr Williamson noted the evidence of Mr Stefanovic and said that in his view the occupancy rate was 75 per cent. That caused him to adjust his estimated rental to $115,000 in lieu of his earlier assessment of $75,000. Mr Burton, however, maintained his estimate of $70,000. In his view, the evidence of Mr Stefanovic could not be looked at in isolation. Other relevant issues discussed at the conference are noted later in these reasons.
When the valuers were called on the re-hearing, their evidence was not taken in the usual way. Instead, both were sworn and counsel were then given the opportunity to examine them in turn on a series of issues. While this procedure might in some circumstances be suitable, it proved to be entirely inappropriate on this occasion when the issues were at large. It would have been preferable if the two valuers had been examined, cross-examined and re-examined in the usual way.
The Method of Valuation
Judge Lee did not make any formal ruling as to the extent to which the evidence before Judge Lowrie should be evidence before him. It appears to be implicit in his preliminary reasons published on 22 December 2005 that the re-hearing should proceed on the evidence before Judge Lowrie supplemented by evidence from the three valuers. Indeed, the evidence of Mr Stefanovic on which Mr Williamson relied was only given before Judge Lowrie. However, as already mentioned, the appellant did not recall Mr Taylor. Judge Lee did not refer to Taylor’s evidence. Neither the appellant nor the Bank have asked the court to refer to it. I have had regard only to the evidence of Burton and Williamson as they were the only valuers whose opinions were again tested in the course of the re-hearing.
Mr Sallis submitted on more than one occasion that Mr Burton had done a valuation on the basis of a forced sale, what Mr Sallis called “a valuation for mortgage purposes”. The criticism is entirely unfounded. A glance at Mr Burton’s valuation shows that he determined market value and added a note as to the value of the hotel property on a forced sale.
Both Burton and Williamson agreed that the market value should be assessed by capitalising the rental of the hotel, an approach frequently adopted in respect of premises which are rented or hired when there is little or no evidence of comparable sales of like property. As this hotel was not let to a person who operated the hotel business, it was necessary to estimate the rental. Both valuers based their calculation of the imputed rental upon their estimate of the revenue of the hotel (determined by applying an occupancy rate to an average rate per room) to which they added the rent for the three shops. They then used an industry standard called “the rent to turnover rate” to convert that revenue to the imputed rental.
A major difficulty acknowledged by both valuers was the absence of reliable financial and other information. No financial records nor any other records were presented to them. They did not have the register of lodgers nor any other primary documents from which room tariffs, occupancy rates and other information could be extracted. As will shortly be noted, records of lodgers were available at court but neither party tendered them.
On their initial approach, both valuers used an occupancy rate of 50 per cent.
Mr Burton adopted an average room rate of $30 per night. Applying the occupancy rate of 50 per cent, a rate stated by the hotel operator, he calculated an annual income of $366,825. He applied the rent to turnover rate which he determined to be 20 per cent of turnover. On that footing, he calculated the rent for the hotel to be $73,365 per annum which he rounded to $73,000. At the re-hearing, Burton was not prepared to qualify that figure.
Mr Williamson’s initial assessment of the hotel rental was very similar. He believed that the average room rate would have been $25 per night “up to perhaps $30” per night. He believed an occupancy rate of 50 per cent was likely. On that footing, the annual revenue was $305,687 (at $25 per night) or $366,825 (at $30 per night) which, of course, was Mr Burton’s figure. Williamson then adopted a rent to turnover rate of 20-25 per cent, yielding a rental between, he said, $70,000 and $80,000. In his report he said that he believed that the hotel could have justified a higher rate per night and achieved a higher occupancy than 50 per cent. On that basis, he adopted an imputed rental of $75,000 per annum.
There was, therefore, little difference between the initial approaches of both Burton and Williamson on their estimate of the imputed rental for the hotel. It is common experience that reasonable valuers both applying correct valuation principle might reasonably disagree on value or rental income. It is fair to treat it as no more than a difference within an acceptable range.
Messrs Burton and Williamson also differed on their assessment of the shop rental. Mr Burton’s assessment was that the three shops would yield an annual return of $38,750. Mr Williamson estimated it to be $45,000. At the conference before Master Norman, they agreed that the difference between them was within an acceptable range and neither was prepared to alter his opinion.
Thus, the imputed rental to which the capitalisation rate was to be applied was $108,750 for Burton and $120,000 for Williamson. Burton made a deduction of $5,825 for land tax but Williamson did not. It is appropriate to make a deduction for land tax in order to arrive at the net rental. The following table sets out the position of Messrs Burton and Williamson before the application of any capitalisation rate.
Burton  Williamson
Hotel rental                   73,000   75,000
Shop rental                   38,750   45,000
111,750   120,000
Less land tax                   5,825
105,925
If land tax is deducted from Mr Williamson, the difference between them narrows.
On being given the opportunity to take into account the evidence of Mr Stefanovic, Burton was not prepared to amend his valuation because he was not in a position to check that evidence. That is a reasonable approach. If that information had been available earlier, he could have called for records against which to check it. At the conference before Master Norman, Mr Williamson made a substantial adjustment to his initial assessment. Williamson said that, on the evidence of Stefanovic, he believed that the occupancy rate was, in fact, 75 per cent which increased the imputed rental for the hotel from $75,000 to $115,000. A re-calculation of his assessment of value resulted in the market value of $1,460,000.
In his evidence before Judge Lee, Williamson adopted an occupancy rate of 79 per cent. In doing so, he relied on the comment of Judge Lee in his preliminary reasons published on 22 December 2005 that the occupancy rate was 79 per cent. He used a rent to turnover rate of between 20 and 25 per cent to calculate an imputed rental for the hotel in the range of $95,000 to $140,000. He settled on an imputed rental of $120,000. To that he added the shop rental of $45,000 producing a total rental income of $165,000. He capitalised that sum at 11 per cent to reach a market value of $1,500,000. Williamson was critical of the methodology of using a rate per room as Mr Burton had done but it must be noticed that Williamson had himself used such an approach in his initial valuation.
The judge made two critical adjustments to the evidence of both Burton and Williamson. They concerned the average nightly room rate and occupancy rate. In making these adjustments, the judge revised his assessment of the evidence of Mr Stefanovic and amended his assessment of the occupancy rate.
Occupancy Rate
In his report, Burton had said that the hotel operator had informed him that the hotel had an occupancy rate of “between 50 per cent and 55 per cent” of which 90 per cent represented permanent occupants. He adopted a rate of 50 per cent. He added that an occupancy rate of 50 per cent was supported by what he called “industry parameters”.
In his initial report, Williamson had adopted an occupancy rate of 50 per cent but had said that the hotel should have been able to achieve a higher rate. In that report, he referred to a report on rates of hotel occupancy prepared by Jones Lang Wootton and called “Hotel Market Commentary – Adelaide JLW Transact” (“the JLW report”). The JLW report was not attached to his valuation and was not tendered in evidence. However, at the re-hearing before Judge Lee, Williamson was permitted, over objection, to give evidence of the content of the report. That evidence should not have been admitted. Instead, the document should have been produced. The JLW report listed occupancy rates for the years 1995, 1996 and 1997. According to Williamson, the rate for hotels in the upper segment in 1995 was 65.8 per cent. Williamson’s evidence was that the Plaza Hotel would have had occupancy rates between 50 and 65 per cent. Burton disagreed stating that 65 per cent in the JLW report could not be related to hotels of a poorer standard like the Plaza Hotel. As will be noted shortly, the judge relied on the hearsay evidence of the JLW Report. He should not have done so. Apart from the fact that it was hearsay evidence, the evidence of both Williamson and Burton was that the JLW Report was expressed in general terms, a fact which only served to emphasise the fact that the report should have been produced so that its relevance and weight could have been assessed.
The judge criticised Burton’s adoption of an occupancy rate of 50 per cent stating that it was inconsistent with the evidence of Mr Stefanovic which, on one view, suggested an occupancy rate of 79 per cent and because the evidence was that the hotel had a high proportion of permanent residents. However, as will shortly be noted, the judge himself resiled from a rate of 79 per cent after reconsidering the evidence of Mr Stefanovic.
The evidence of Mr Stefanovic on which the judge relied was as follows
Q.    You had some permanent residents.
A.    Actually, most of the rooms were occupied by permanent residents.
Q.    Roughly how many.
A.    I would say about 40 to 45 rooms.
Q.    This is permanent residents.
A.    Yes.
Q.    What do you mean by permanent residents.
A.    People that actually paid weekly, a weekly amount and actually lived in the hotel.
Q.    Were they on a weekly rate.
A.    Yes, they were.
Q.How much did they pay at that time, that is about August 1997, per week for a single standard room.
A.As far as I remember, about $91 a room.
Q.And for a room with an ensuite.
A.$130 to $140 per week.
Q.Usually, around about August 1997, around about that time, usually what was the general occupancy of the hotel, in other words, roughly how many rooms on average were let out at any one time. Did that include permanent residents as well as non-permanent residents.
A.In percentage or - ?
Q.If you are able to give an approximate room number.
A.Let’s say out of the 67 you said the hotel had probably about 15 rooms on an average.
Mr Stefanovic went on to say that on average one or two rooms were not fit for letting.
As the judge himself noted, the reference to 15 rooms in the last answer is ambiguous. It may have been a reference to casual guests, that is to say, guests who were not permanent residents. It was not responsive to the question “roughly how many rooms on average were let out at any one time?” In addition, Mr Stefanovic was not asked to express the occupancy rate in terms of a percentage. Finally, one important fact must be noted. It is that Fortson had discovered daily records of lodgers. However, they were not tendered. Neither Fortson nor Mr and Mrs Jovanovic, who controlled Fortson, prepared any document which extrapolated from those primary records a summary showing either the number of rooms occupied or the tariff for each of those rooms. Such a summary would have been the best evidence of occupancy rates. The only evidence on that question is the relatively vague evidence of Mr Stefanovic, evidence which he gave in 2003, some six years or more after he had ceased employment in the hotel and some eight years after 1995, the year to which the evidence related. The judge, therefore, had sound reasons for deciding that he should not adopt an occupancy rate of 79 per cent or a higher rate for which Fortson was contending. He found that the occupancy rate was between 55 and 65 per cent.
It is apparent that the judge has relied on the evidence of Williamson as to the content of the JLW report when making that finding. Any reliance on the JLW report was misplaced given that the report was not tendered. The judge was not in a position to know what the report had said as to occupancy rates of hotels at the lower end of the market. The judge’s rejection of Burton’s evidence that the occupancy rate was 50 per cent appears to be founded on the evidence of Mr Stefanovic. I repeat, that was not the most reliable evidence especially given that the actual records of lodgers were available and were not tendered nor any summary of them. Among the inquiries that a prudent purchaser of the hotel would have made was to see the daily accommodation records. The failure of Fortson to produce the best evidence of the occupancy of the hotel calls into serious question its assertions and Williamson’s opinions as to high occupancy rates. Having been instructed by Fortson, Williamson was in an excellent position to examine the records and determine the actual occupancy rate. He did not do so. The Jovanovics had told Burton that the occupancy rate was between 50 and 55 per cent and he adopted a rate of 50 per cent because it accorded with industry parameters. Williamson himself had initially adopted a rate of 50 per cent. His increase to 75 per cent and then to 79 per cent was based on the ambiguous and unreliable evidence of Mr Stefanovic. It was not based on accommodation records. In the absence of the accommodation records and any other reliable evidence, there was no justification for departing from the initial assessment of both Burton and Williamson that the occupancy rate was 50 per cent.

Mr Williamson’s assessment of value is grounded on the evidence of Stefanovic. As Williamson himself said, the evidence of Stefanovic is crucial. However, there was nothing against which that evidence could be tested. Fortson had the accommodation records but did not tender them nor any summary of them. Williamson was Fortson’s witness but he did not refer to those records.
Mr Williamson also sought to justify his imputed rental of the Plaza Hotel by reference to some figures obtained by Mr Burton concerning West’s Private Hotel, another budget priced hotel in Hindley Street, but further from King William Street. Burton had ascertained that the average annual room rental rate for that hotel as at January 1995 was $1,760. Although the style of hotel was comparable, he had adjusted that room rate to $1,000 for the purpose of applying it to the Plaza Hotel for several reasons. The Plaza Hotel had twice the number of rooms. He also took into account subjective factors such as the quality of and fittings in the rooms, the very poor sate of repair of the property and associated increased operating costs. However, without having inspected West’s Hotel or having made any enquiries of his own, Williamson merely took Burton’s ascertained figure of $1,760 per room and multiplied it by 67, being the number of rooms in the Plaza Hotel, in order to arrive at an imputed rental of $117,920, close to his ultimate figure of $120,000. In that respect Williamson’s evidence cannot be treated as that of a valuer. He conducted a purely mathematical exercise without bringing into play any of the skills or expertise one would expect of a valuer.
All these factors call Williamson’s assessment of occupancy rates and imputed rental into serious question and indicate that Burton’s assessment should be preferred.
For these reasons, the judge’s finding that the occupancy rate was 55 to 65 per cent is open to the criticism that it is too high, especially given that both Burton and Williamson had initially proceeded on the footing that the occupancy rate was 50 per cent. In my view, the judge should have found that the occupancy rate was 50 per cent. There was nothing which positively demonstrated that the initial assessments made by both Burton and Williamson were in error. However, it is not necessary to correct the finding because the judge, in fact, averaged the occupancy rates of 55 per cent and 65 per cent when calculating the imputed rental so that, as will later appear, even if one adopts the imputed rental as calculated by the judge, in the ultimate result the market value of the hotel is less than the price for which it was sold.
Both Mr Sallis and Mr Stevens, who appeared respectively for Fortson and the Jovanovics, attacked the finding that the occupancy rate was 50 per cent. Their submissions were without foundation. In any event, whatever force their submissions might have had is blunted by the fact that the accommodation records were in the possession of Fortson and of Mr and Mrs Jovanovic who failed to tender them or any extrapolation of them. Notwithstanding that the best evidence was in their possession, they failed to prove it.
The Average Room Rate
In adjusting the average nightly room rate, the judge again relied on the evidence of Mr Stefanovic. His evidence was that most of the rooms occupied each night were occupied by permanent residents at a rate of $91 per week ($13 per night) in the case of standard rooms and $130-140 per week ($18 to $20 per night) in the case of rooms with an en suite bathroom. There were 14 rooms with an en suite bathroom.
The judge then noted that the relatively small number of rooms occupied by casual lodgers were let a rate of $25 per night for one person to $35 to $40 per night for two persons in the case of standard rooms. In the case of rooms with en suite bathrooms the rate was $35 per night for one person and $40 to $50 per night for two persons. The judge assumed that the use of a room by three persons was uncommon. There is no attack upon these findings. Using those figures, the judge estimated that the average rate per room was between $15 to $20 per night and concluded that the estimate of Burton that the average rate was $30 per night and the estimate of Williamson that the average rate was $25 to $30 per night were too high.
Mr Sallis and Mr Stevens both attacked the finding that the average room rate was $15 to $20 per night. Having examined that finding closely by a number of cross checks, I am satisfied that the judge was entirely justified in making the adjustment and in finding that the average room rate was between $15 and $20 per night. That is a direct consequence of the fact that the greater number of rooms were let at the cheaper rate to permanent residents. The average room rate would be higher only if there were a greater proportion of casual lodgers. The evidence is to the contrary.
For these reasons, there is no ground for disturbing the findings of the trial judge that the average room rate was between $15 and $20 per night. While the finding that the occupancy rate was between 55 per cent and 60 per cent is generous, it is not necessary to interfere for, in the end result, it will not affect the outcome.
The Rent to Turnover Rate
The next component in the calculation of the imputed rental is the rent to turnover rate. The judge explained that rate in this way in his reasons published on 30 November 2006:
24[T]his rate reflects the costs which must be deducted from turnover to arrive at a rental to be imputed to the property. Those costs would include cleaning, light and power, laundry, telephone, repairs and maintenance, and fixed costs such as advertising, insurance, interest, and accounting and licence fees.
25Obviously enough, the rent to turnover rate will vary from hotel to hotel. A hotel with a high ratio of permanent to casual residents will attract, generally speaking, a higher rate than a hotel with a low ratio of permanent to casual residents.
The valuers agreed that the industry standard was 20 per cent to 25 per cent of total revenue. Burton had adopted a rate of 20 per cent and was prepared to amend it to adopt a range of 20 to 25 per cent. He agreed with the proposition that the higher the percentage of permanent residents, the lower the cost per room.
Williamson’s evidence was that the rate might be higher where there was a high proportion of permanent residents because the cost of servicing each room would be likely to be lower. He said that it is cheaper to run an hotel with permanent lodgers than with casual lodgers. He pointed to two hotels in the vicinity where the rate was 30 to 40 per cent. That evidence must be weighed with the fact that Williamson’s initial valuation used the industry standard of 20 to 25 per cent. He did not amend that figure. The reference to a rate of 30 to 40 per cent was made in answer to a question from Mr McCarthy, counsel for the Bank. Later questioning disclosed that the rent at the two hotels to which Williamson had referred was an uneconomic rent for the lessee in that the rent was very high having regard to turnover. As Burton pointed out the two hotels did not reflect the market position as to the rent to turnover rate. On examination, Mr Williamson’s rate of 30 to 40 per cent is unrealistic and should be discarded.
The judge concluded that the rent to turnover rate in this case should be 25 to 30 per cent. He did not explain why he increased it to 30 per cent. It seems to be based on Mr Williamson’s evidence which, as just explained, does not justify a rate of 30 per cent to 40 percent. There is no reason for departing from Burton’s evidence at a rate of 20 to 25 per cent is reasonable, evidence which is consistent with Williamson’s initial valuation. In my view, the judge erred in his finding and should have found that the rate to be adopted was 25 per cent, the rate consistent with the evidence of both Burton and Williamson. In the result, this is another error that does not affect the outcome of this appeal.
Capitalisation Rate
The capitalisation rate has a very significant bearing on the assessment of market value in that a variation of one or two per cent results in a substantially different value. The valuers disagreed on the capitalisation rate, Burton adopting a rate of 13.5 per cent and Williamson a rate of 11 per cent. (Mr Burton’s valuation refers on occasions to a capitalisation rate of 13 per cent. He acknowledged in evidence that was an error and it ought to have read 13.5 per cent. His final assessment of value used a capitalisation rate of 13.5 percent.) The difference between the witnesses was the result of their differing views as to the likely purchaser of the hotel. Burton believed that the likely purchaser was an investor who would continue to use the property as a private hotel. In his view, any property investor would be very wary of the income producing potential of the hotel and the fact that Hindley Street had deteriorated as an entertainment venue. Williamson believed the purchaser would be a developer.
For the purpose of making his valuation, Burton examined sales of investment properties within the City of Adelaide. This was the only detailed evidence on which an estimate of the capitalisation rate could be made. He did not have regard to the sale of the Plaza Hotel in 1995. That was a proper view to take as the evidence suggests that it was not an arm’s length sale. In his valuation he listed four properties which had been sold in 1995 and 1996 where the rental income was known and a fifth property subject to an option to purchase. They were:
59-11 Hindley Street
It was sold in August 1995 for $1,100,000. It was a retail and commercial property comprising a basement, ground floor retail space with upper floor commercial space. It had a total floor area of 1,560 square metres and a passing net income of $138,698, a yield of 12.61 per cent. It was common ground that it was located in a superior position to the Plaza Hotel and had secure tenants in place.
412-16 Hindley Street
It sold in March 1996 for $1,475,000. It is the former Miller Anderson store and two adjoining buildings. The total site area is 2,017 square metres with a building area of 6,613 square metres. At the date of sale, it had a holding income of $108,360 per annum, that is to say, a yield of 7.3 per cent. It was common ground that it was purchased for redevelopment and that it was located in a superior location to the Plaza Hotel. Like the property at 9-11 Hindley Street, it is much closer to King William Street.
5110-112 Franklin Street
It sold in March 1996 for $1,055,000. The property comprises an older style commercial and retail building and provided lodgings for backpackers. At the date of sale it was fully leased to three tenants and had a passing income of $154,575 per annum, a yield of 14.65 per cent.
6125-127 Pirie Street
It was sold in July 1996 for $845,000. It comprised a restaurant with a net lettable area of 625 square metres. It was leased for a term of 10 years with a right of renewal for a further 10 years, the rent being subject to annual review based on movements in the Consumer Price Index. The yield was 13.15 per cent. It was located in a good position in Pirie Street.
788-90 Hindley Street
This is a former Greater Union Cinema complex. It is almost opposite the Plaza Hotel. It has a gross building area of 330 square metres and a site area of 1,355 square metres. It was subject to an option to purchase for $720,000. The option price represented a price of $132 per square metre of the site area. At the time of Burton’s valuation, the property had been vacant for some time. The site is some 200 square metres larger than the Plaza Hotel. The utility of this property lies in it being an indicator of the likely value of a development site at this location in Hindley Street. It is very comparable to the Plaza Hotel being a site of similar area and in the same part of Hindley Street, some distance from King William Street. It provides a kind of cross check on a comparable sales basis.
Burton had regard to the four sales and determined at page 17 of his valuation that the appropriate capitalisation rate was 13.5 per cent. In his view, the properties at 9-11 Hindley Street and 110-112 Franklin Street were “major benchmarks”. Burton’s capitalisation rate of 13.5 per cent realised a capital value of $762,407. From that sum, Burton deducted $50,000 to allow for repairs to the hotel and a further $55,000 as a letting up allowance. He also added back the present value of the rental surplus for one tenancy, namely, $866. This resulted in a capital value of $658,273 which he rounded up to $660,000. Burton regarded the Greater Union site as a development site and used it as a cross check against his valuation of the hotel by reference to the basic plot ratios of each site. On this basis his estimate of market value was $660,000. The market value of $660,000 equated to $142 per square metre for the site area which is comparable to the $132 per square metre for the Greater Union site at 88-90 Hindley Street.
In his initial report, Williamson did not examine capitalisation rates in any detail nor did he identify property from which comparisons could be drawn. His report baldly states:
It is our view that capitalisation rates for investment city properties ranged from 10-12% in broad terms. Hotel related properties were considered a little more risky and therefore attracted a higher capitalisation rate.
Notwithstanding, there was interest at that time by investors to acquire properties which have development potential.
For an issue as important as the correct capitalisation rate is to the process of valuation in this case, that is a remarkably casual observation. It does not demonstrate any thorough consideration of the issue. It is, no doubt, a consequence of the fact that Williamson was not asked to prepare a valuation. His report contains no examination of factors affecting the determination of a capitalisation rate. Williamson’s report stands in stark contrast to Burton’s more thorough analysis. In addition, it must be noted that Williamson acknowledged that hotel related properties were a little more risky and had a higher capitalisation rate. In that state of the evidence, Burton’s assessment of the capitalisation rate of 13.5 per cent is likely to be more reliable than Williamson’s rate of 11 per cent. That is particularly so given that the yield on the site in Franklin Street was 14.65 per cent in respect of premises providing budget price accommodation similar to that provided by the Plaza Hotel. It was unlikely that the rate for an hotel such as the Plaza Hotel would be less than the rate for the commercial and retail property located at 9-11 Hindley Street, a property in a superior position to the Plaza Hotel. The yield on the Miller Anderson site must to be put to one side. That property is quite different from the Plaza Hotel. It is a much larger site and more suitable for re-development. In addition, the evidence suggested that there were factors affecting the income which, in turn, affected the yield from those premises. It is also a superior site to the site of the Plaza Hotel being much closer to King William Street. The property at 9-11 Hindley Street and the property at Franklin Street provided the range in which the capitalisation rate should be determined. Given the evidence of the capitalisation rate of comparable properties, Mr Burton’s capitalisation rate of 13.5 per cent was a reasonable assessment.
In his evidence before Judge Lee, Williamson identified four possible kinds of purchasers, asserting that the likely purchasers would be in categories two or three.
1.Traditional investors who are risk averse and looking for a higher yield of between, say, 12 to 13% to 13.5%.
2.Investors with development experience who are prepared to take a risk to obtain a yield of between 11 and 12%.
3.Developers and/or entrepreneurs and/or builders, generally of some wealth and ability, who would be satisfied with a yield of 10 to 11%, with holding income a bonus.
4.Premium paying purchasers with ‘blue sky visions’ for property, who would see more potential than most buyers and who would be content with a yield of 9%.
He said that his marketing campaign would be aimed at persons in all four categories but especially those in categories two and three. As the judge noted:
41Mr Williamson said that, whilst the full range within which the property would have been sold is 1.23 million to 1.77 million, buyers in categories 2 and 3 would have shown enough interest to pay:
Category 21.33-1.43 million (assuming a 75% occupancy rate)
1.375-1.5 million (assuming a 79% occupancy rate)
Category 31.45-1.6 million (assuming 75%)
1.5-1.65 million (assuming 79%)
A number of observations must be made about this evidence. First, it is not so much valuation evidence as the evidence of a sales consultant. As already noted, although Williamson had qualified as a valuer, most of his professional experience and, in particular in his recent experience, had been as a sales consultant. Secondly, it did not purport to be valuation evidence. Thirdly, it failed to have regard to the fact that at a public auction, the successful bidder has only to pay a little more than the previous bidder to purchase the property. In theory, this amount could be as little as one dollar more than the previous bidder. In reality, it will be more than that sum. The point simply is that Williamson’s categories had little regard to that fact and lack utility. Fourthly, the occupancy rates on which he relied are substantially higher than the occupancy rates as found by the judge, a fact which further weakens the validity of his evidence. Finally, it must be noted that Williamson believed that investors who are averse to risk would look for a return between 12 and 13.5 per cent. That evidence re-inforces Burton’s assessment of the capitalisation rate.
Williamson’s assertion that a likely purchaser would be a developer can be tested with the benefit of hindsight. It is legitimate to use hindsight in this way. There has been no re-development of either of the Greater Union site or the Miller Anderson site. That points to the conclusion that Williamson has adopted an unduly optimistic view in believing that developers or entrepreneurs would have been likely purchasers. His evidence also fails to have regard to the fact that this site is not an attractive development site.
Given the difference of opinion on capitalisation rates, it was necessary for the judge to determine that rate. Instead of determining the rate which should be adopted by reference to the evidence, the judge undertook an unusual exercise. He said:
69I have reached the conclusion that the buyer of the hotel at the auction would have come from one of Mr Williamson’s categories 1, 2 and 3, and that as between those categories the degrees of probability of that event occurring were as follows:
category 150%
category 235%
category 315%
70As for the capitalisation rate for each category, I select 13.5% to represent category 1, bearing in mind that Mr Burton’s range of 12.5% to 14.5% seemed to be reasonably based upon the sales of the income producing properties mentioned earlier in these reasons. I select 11.5% to represent category 2 and 10.5% to represent category 3. I conclude that, as an investor, a buyer from category 1 would have made the deductions deposed to by Mr Burton.
71On that approach, the arithmetic for each of the categories is as follows:
category 1
$115,730 (hotel and shop rental) - $5825 (land tax) = $109,905
¸ 13.5% (cap rate) = $814,111 - $104, 134 (repairs and letting up allowance less rental surplus) = $709,977 (capital value)
category 2
$115,730 (hotel and shop rental) ¸ 11.5% (cap rate) = $1,006,348 (capital value)
category 3
$115,730 (hotel and shop rental) ¸ 10.5% (cap rate) = $1,102,190 (capital value)
72Having established capital values for the categories, I now multiply each by the chance that the eventual buyer would have come from that category.
Category 1 - $709,977 x 50% = $354,988
Category 2 - $1,006,348 x 35% = $352,222
Category 3 - $1,102,190 x 15% = $165,328
$872,538
73The final figure needs to be rounded off to avoid contributing even further to the undesirable but unavoidable appearance of mathematical precision.
I am not aware of any instance where this kind of weighted average has been applied for this purpose. There is nothing in the evidence which justifies the approach. What the judge has done is, in fact, to determine an average of the valuations of Burton and Williamson. It is well established that a judge must not determine value by averaging the valuations of the valuers who have been called: Commonwealth v Milledge (1953) 90 CLR 157 at 160 to 161 where Dixon CJ and Kitto J described the process of averaging as “fallacious”; see also Brewarrana Pty Ltd v Commissioner of Highways (No 2) (1973) 6 SASR 541 at 578; Anderson Stuart v Treleaven (2000) 49 NSWLR 88 at 109.

Another reason why the approach is fallacious is that the capitalisation rate adopted by a valuer is that valuer’s assessment of the likely purchaser and the risk inherent in the intended use of the land by that purchaser. It also reflects the general level of investment. The selection of the capitalisation rate is an exercise of valuation skill and judgment based upon the attributes of the property being valued and is determined by reference to the yield on that property.
For these reasons, the approach which the judge adopted is invalid. Instead of proceeding as he has, the judge should have adopted an appropriate capitalisation rate and applied it to the imputed rental. As he did not do so, this court must assess what the capitalisation rate should be.
The evidence as to capitalisation rates in Burton’s valuation was not seriously challenged. All of the evidence points to the conclusion that the capitalisation rate of 13.5 per cent adopted by Burton is correct. Burton’s is also the more thorough and more carefully analytical approach. In his evidence before Judge Lowrie, Williamson conceded that 13.5 per cent was a capitalisation rate consistent with Burton’s view that this was an investment property.
Letting Up Allowance
It is standard valuation practice to make an allowance for any period in which rental income might be lost where there will be a gap in the tenanting. It is called “the letting up allowance”. That could occur upon expiry of leases or upon a change in ownership if registered leases do not exist or by tenants quitting the premises. A prudent purchaser will make such an allowance, especially if that purchaser is a developer who does not have tenants ready and able to take possession upon completion of the development. As the leases for the shops were due to expire it was prudent to make the allowance. The allowance includes not only an amount for lost rent but also expenditure incurred in the process of finding tenants. That expenditure includes advertising and other marketing costs, commissions to an agent and legal fees.
Burton made a letting up allowance for rental income lost and the cost incurred in re-leasing the three retail shops. He made the allowance because the leases of the shops were due to expire. Burton made the allowance on the footing that it would take up to 12 months to find tenants for all three properties. He assessed the expenditure incurred in locating and installing new tenants as being 10 per cent of the rental income.
Burton calculated the letting up allowance to be $55,000. The calculation is in error. He had assessed the rental from the shops in a total sum of $38,750. One year’s lost rental is, therefore, $38,750. To that must be added the costs incurred for leasing fees, $3,875. When the leasing fees are added to one year’s rental income, the result is $42,625. The letting up allowance should be $42,625 and not $55,000 as calculated by Burton.
Mr Williamson did not make this allowance in his valuation but did so in his oral evidence. This is but another indication that Williamson’s report was not a valuation but something more akin to a sales report.
Although Williamson allowed a six month period for the letting up allowance, the judge’s calculation demonstrates that he accepted Burton’s assessment. In my view the judge was correct to do so, although he should have reduced the allowance to $42,625. The sum of $42,625 must, therefore, be deducted after the capitalisation rate has been applied to the imputed rental.
Repairs
Burton made a deduction of $50,000 to allow for necessary repairs to the hotel. It was common ground that this hotel was in poor condition. At any one time two rooms for lodgers could not be used because of water or other damage. It was not disputed that repairs were necessary if the hotel was to be sold to an investor. However, Fortson contended that a deduction for repairs should not be made if a developer were to acquire the site, demolish the building and erect a new building. The sum of $50,000 was accepted by the judge and is a reasonable sum to allow for repairs if a deduction for repairs is to be made.
The Assessment of Market Value
Burton’s assessment of market value was $660,000. His calculations for the purpose of determining that value contain the errors already mentioned. First, although Burton had calculated the rental of the hotel to be $73,000 per annum he reduced it to $70,000 per annum. Secondly, he erred in his calculation of the letting up allowance. Once those two figures are corrected the market value is increased to $695,000.

Hotel income 73,000

Shop income
38,750

Total imputed income 111,750

Less land tax     5,825

105,925

Capitalised at 13.5%
784,630

Less letting up allowance     42,625
Repairs   50,000
92,625

692,005

Add rental surplus       866

692,871
Rounding those figures, the market value would be $695,000.

If the capitalisation rate is reduced to 13 per cent, the value is increased.

Total imputed income
105,925

Capitalised at 13%
814,807

Less letting up allowance     42,625
Repairs   50,000
92,625

722,182

Add rental surplus       866

723,048

Rounding those figures, the market value would be $725,000.

This assessment can be checked by using the judge’s figures adjusted for the reasons already given. The first task is to determine the imputed rental. For the reasons already expressed, I am prepared to accept the judge’s assessment of the occupancy rate of 55 per cent to 65 per cent, his average room rate of $15 to $20, and that the rent to turnover rate should be 25 per cent. On that footing the range for the imputed rental for the hotel will be calculated as follows:
At the rate of $15 per night and at an occupancy rate of 55 per cent, it is
15 x 65 x 365 x 0.55 x 0.25 = $48,932
At the rate of $20 per night and at an occupancy rate of 65 per cent, it is
20 x 65 x 365 x 0.65 x 0.25 = $77,106
The judge averaged the two figures and then added the shop rental as assessed by Williamson at $45,000. The approach is consistent with that adopted by both valuers and is appropriate to continue to use it. On that footing, the total of the imputed rental income for the hotel is $108,019. From that sum, it is necessary to deduct land tax of $5,825, resulting in a net rental of $102,194.
For the reasons already expressed, I adopt a capitalisation rate of 13.5 per cent. Applying that rate to the sum of $102,194 the result is $756,992, an amount less than that for which the hotel property was sold.
Even if a rent to turnover rate of 30% is adopted, the market value remains less than the price for which the hotel was sold. In that case, the higher income is 20 x 65 x 365 x 0.65 x 0.30 = $92,528. The average of that sum and the lower income is $70,729.75, say $70,730. The total income from the hotel and shops would then be $115,730. From that the land tax must be deducted to produce a net rental income of $109,905, which capitalised at 13.5 per cent is $814,111. That sum must be adjusted by deducting the cost of repairs $50,000, the letting up allowance of $42,625 and by adding the rental surplus of $866. That produces a market value of $722,352, an amount less than the price for which the hotel property was sold. If a capitalisation rate of 13 per cent is used, the ultimate market value is $753,664. Thus, even if Burton’s assessment is adjusted in accordance with the amended findings of the trial judge and using either a capitalisation rate of 13.5 per cent or of 13 per cent, the market value of the property remains less than $800,000 for which the hotel was sold. On that footing, Fortson did not suffer loss.
For these reasons, the findings of Judge Lee as to the value of the hotel property should be set aside. Instead, the hotel was sold for more than its market value.
For all of these reasons the proceedings before Judge Lee were seriously flawed because the wrong question was answered. The question whether this court should remit the matter for re-hearing yet again for the purposes of determining market value or determine the issue itself is capable of clear answer. For the reasons which follow, the court should determine the market value of the hotel property on the basis just expressed.
First, it has not been suggested by either party that the conduct of the case would have been any different if Judge Lee had identified the correct question. The kind of considerations that arose in Stead v State Government Insurance Commission (1986) 161 CLR 141 do not in any respect apply. In this respect, it must be noted that, after Mr Forster SC, counsel for the Bank, had contended that this court should determine market value, neither Mr Sallis nor Mr Stevens contended to the contrary.
This is a case where the issue of market value had been canvassed at length before Judge Lowrie. There was the viva voce evidence given before both Judge Lowrie and Judge Lee. In addition, there was the valuation of Mr Burton and the report of Mr Williamson. Further, although Judge Lee had posed the wrong question, much of the evidence led on the issue he identified was also germane to the question of market value. In the result, there was a considerable volume of evidence before Judge Lee on the question of the market value of the hotel property as is demonstrated by the preceding review of that evidence.
In his evidence before Judge Lee, Burton did not change his approach and gave his reasons for doing so. He adhered to the view that the market value of the hotel property should be determined on the basis set out in these reasons. In other words, in his view market value and the price obtained after properly advertising the property was the same. He also expressed opinions on Williamson’s revised views. In his evidence before Judge Lowrie, Williamson had expressed his opinion on the question of market value. He departed from that evidence before Judge Lee especially in respect of occupancy rates, an issue germane principally to the issue of market value. For the reasons already given, he erred in reaching those conclusions.
One major difference between Burton and Williamson related to the capitalisation rate. The reasons for preferring the evidence of Burton have already been noted. He had made a more thorough analysis based on comparable sales. The rate adopted by Williamson before both Judge Lowrie and Judge Lee was the same, a rate of 11 per cent. His consideration of the question posed by Judge Lee merely re-inforced his view that 11 per cent was the appropriate rate. In short, all relevant information was before Judge Lee and is now before this court. Had Judge Lee addressed the correct question, he could have done so on the basis of the evidence which had been adduced before him. It should also be noted that although leave was given to recall Mr Taylor, he was not called. Although the appellant knew that the Bank had a valuation with an assessment higher than that of Burton, it did not apply to Judge Lee to call that valuer. Their evidence, if called, would have been relevant to market value. It would also have been relevant to the issue posed by Judge Lee.
In addition to all of these important considerations, regard must also be had for the fact that this is the second appeal to the Full Court and the fourth hearing in this action. Given the evidence available to it, this court should not put the parties to the cost and expense of yet another hearing.
Failure to Make Disclosure
I turn to the appellant’s complaint that the Bank failed to disclose the fact that Mr Burton was an employee of the Bank at the time he gave his evidence on the re-hearing before Master Norman and Judge Lee.
When Mr Burton was initially retained, he was a valuer employed by Knight Frank (SA) Pty Ltd, a company engaged in a number of real estate activities. Its business included that of real estate agents and valuation. In 1999, he left Knight Frank (SA) Pty Ltd and was employed by Deutsche Bank and, later, by ABN AMRO Morgans. It was not until 2004, after he had given evidence before Judge Lowrie, that he became an employee of the Bank. The Bank is a large employer. It has more than 35,000 employees. He was employed in various departments of the Bank. At the time he gave his evidence, his role was entitled “Executive, Investment and Development Finance, Institutional and Business Services”. He worked in what was called the Wholesale Funds Management Unit of the Bank. He was employed at the Bank’s office in Pitt Street, Sydney. The department in which he worked at the time of the trial had no connection with the Bank’s debt collection and recovery processes. Some time after the trial, Mr Burton was transferred to Colonial First State, a subsidiary of the Bank. In addition, after he had been employed by the Bank, Burton refinanced an existing mortgage by taking out a new mortgage with the Bank.
In November 2005, Mr Leydon, a solicitor employed by the solicitor for the Bank, contacted Mr Burton to make arrangements for him to give evidence on the re-hearing. Mr Burton then informed Mr Leydon that he believed that the action was at an end.
Mr Leydon and Mr McCarthy, counsel for the Bank, met Mr Burton in February 2006, prior to a conference before Master Norman, and to explain the procedure ordered by Judge Lee. Leydon and McCarthy checked that Burton had a copy of Practice Direction 46A, which prescribes guidelines for expert witnesses. Leydon’s evidence is that he decided that it was not necessary for Burton to disclose that he was employed by the Bank. In his affidavit, Leydon said:
7.After giving the matter careful consideration, and consulting with Mr McCarthy, I reached the conclusion that in the circumstances, the identity of Mr Burton’s employer was not relevant, and that there was no obligation on the Respondent or its legal representatives, or indeed on Mr Burton to specifically disclose that he was now employed by the Respondent.
8.In the course of that discussion Mr McCarthy also explained clearly to Mr Burton that even though he was called at trial as a valuer and not as an expert witness, Judge Lee was treating him as such by his reasons. I recall Mr McCarthy then referred to Practice Direction 46A and spoke to Mr Burton about a number of the requirements in that document. I recall Mr McCarthy advised Mr Burton to the effect that Mr Burton would have to disclose the identity of his then current employer if either:
8.1 He considered it was in any way relevant or significant to any opinions he would express or be asked about at the conference; or
8.2 He was asked by another party or a judicial officer about his employment.
9.I also recall that Mr McCarthy discussed with Mr Burton the relevant rules in relation to experts, and explained that Mr Burton’s primary obligation was to assist the Court. Mr Burton did not express any concern about his employer or employment to me or to Mr McCarthy.
Leydon and McCarthy took similar action immediately prior to Burton giving evidence before Judge Lee.
Neither Rule 38 nor Practice Direction 46A expressly state that an expert who has a relationship with a party, other than that of being retained as an expert, is required to disclose that fact. However, expert evidence should be entirely objective and dispassionate. The expert should not have an interest of any kind in the litigation. The expert should be independent, that is to say, the expert should not have any kind of relationship with the party by whom the expert is called. The expert’s evidence should be prepared by that expert independently or uninfluenced by that party. As Lord Wilberforce said in Whitehouse v Jordan [1981] 1 WLR 246 at 256-257:
While some degree of consultation between experts and legal advisors is entirely proper, it is necessary that expert evidence presented to the court should be, and should be seen to be, the independent product of the expert, uninfluenced as to form or content by the exigencies of litigation. To the extent that it is not, the evidence is likely to be not only incorrect but self-defeating. (Emphasis added)
There will be occasions when the expert will, for some reason, not be entirely independent of the party calling the expert. That does not have the consequence that the evidence of the expert is inadmissible. The issue is whether Burton had the competence to give this valuation evidence. Plainly, he was competent to do so by virtue of his qualifications and his inspection of the hotel property. His evidence was of probative value. If evidence is of some, albeit slight, probative value, it is admissible unless some principle of exclusion comes into play to justify withholding from the court’s consideration: Festa v The Queen (2001) 208 CLR 593 at [14] per Gleeson CJ. There is no principle that disqualified Burton from giving evidence. The issues were examined at length in FGT Custodians Pty Ltd v Fagenblat [2003] VSCA 33, by Ormiston JA, with whom Chernov and Eames JJA agreed. Ormiston JA concluded at [29]:
However desirable it may be, as a matter of common sense in the presentation of a party’s case, that an expert witness be seen to be independent, there is therefore no authority requiring this Court to hold that an “interested” expert’s evidence be rejected because of a “perception” that the witness might favour the party seeking to adduce that evidence.
I respectfully agree. In Flavel v South Australia (2007) 96 SASR 505, Bleby J also agreed with that reasoning and noted other decisions to like effect in the Supreme Court and the Court of Appeal in New South Wales as well as in the Federal Court of Australia. I respectfully agree with the reasons of Bleby J for concluding that the decision in Liverpool Roman Catholic Archdiocesan Trustees Inc v Goldberg (No 3) [2001] 1 WLR 2337 should not be followed. As Bleby J noted, that decision was also disapproved by the Court of Appeal in R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381. The fact that Burton was employed by the Bank did not mean that he could not be called as an expert.
Nevertheless, it is essential that an expert witness disclose any relationship with the party calling him. The interests of justice and fairness require no less. Disclosure is necessary so that the judge may determine whether any and, if so what, weight should be given to the evidence of the expert.
Burton was called as the valuer who had prepared a valuation on which the Bank had relied in 1997. He was called to defend his valuation and proffer other relevant evidence. He was giving evidence as to his opinion of the market value of the hotel premises. As such, it was expert evidence. Mr McCarthy erred in advising Burton that he was not giving evidence as an expert. Notwithstanding that Burton had not been employed by the Bank when he prepared the valuation, the fact of his employment by the Bank at the time of the hearing was a fact going to the weight of the evidence that Burton was to give. That fact ought to have been disclosed at the outset. Mr McCarthy, therefore, erred in giving the advice noted in paragraph 8 of Leydon’s affidavit. He should have advised Burton to disclose that he was employed by the Bank. Such a disclosure would also have been fairer to Burton in that he would have had an opportunity to explain his position. His employment by the Bank would not have affected his evidence. The failure to make disclosure denied Burton that opportunity.
It is not entirely clear what relief the appellant seeks for the non-disclosure. Mr Sallis vacillated between an argument that the non-disclosure required that the appeal be allowed, the judgment of Judge Lee set aside and a re-hearing on the one hand and, on the other, an acknowledgement that the non-disclosure went only to the weight of the evidence. In his final submission, he seemed to contend for the former result.

The non-disclosure does not mean that this Full Court should order a re‑hearing. The important fact is that Burton prepared his valuation when he was an independent expert and not employed by the Bank. He was doing no more than defending the conclusions he had reached in 1997, long before he was employed by the Bank. Furthermore, Burton had given evidence to Judge Lowrie at a time when he was not employed by the Bank. Before Judge Lee, he was repeating that evidence and defending the opinions he had earlier expressed. The court should proceed on the footing that the fact that Burton was employed by the Bank at the time he gave his evidence is a material fact which concerns the weight to be given to his evidence. At the same time, the court will have regard to the fact that the valuation was initially prepared long before Burton was employed by the Bank and that Burton had already given evidence to Judge Lowrie before, at a time when he was not an employee of the Bank. If Burton’s employment by the Bank had been disclosed, it would have made no difference to the weight to be attached to his evidence. The facts of the case are of a kind which do not require his evidence to be discounted. It is apparent from the review of the valuation evidence that the opinions which Burton reached were justified by the evidence. The failure to make full disclosure does not require a re-hearing. In the result, it does not affect the outcome of this appeal.
Mr Sallis submitted that, as the opinions of valuers were finally balanced, Judge Lee would have rejected Burton’s evidence and relied on Mr Williamson’s assessment of value. The submission fails for several reasons, not the least because it cannot be said that the issues between the valuers were finely balanced. As is apparent from the reasons above, the valuers were a long way apart in their respective assessments of value.
An Amended Judgment
The judgment of Judge Lee proceeds on the footing that Fortson suffered loss. As Fortson did not suffer loss, that judgment must be set aside.
The amount due by Mr and Mrs Jovanovic on the guarantee as at 3 March 2003 was $77,643.93, the amount as assessed by Judge Lowrie. I would give judgment for the Bank in the sum of $77,643.93 plus interest from 3 March 2003. It is appropriate to fix a lump sum. I would allow $25,000 for interest.
For these reasons, I would dismiss the appeal and allow the cross-appeal. I would set aside the judgment of Judge Lee and in lieu thereof order that Mr and Mrs Jovanovic pay the Bank the sum of $77,643.93 plus interest in the sum of $25,000. I would wish to hear the parties on the question of the costs of the hearings before Judge Lowrie, Judge Lee and of this appeal.
BLEBY J. I agree with the orders proposed by Debelle J and with his reasons. There is nothing I can usefully add to these reasons

Hotel income	73,000
Shop income	38,750
Total imputed income	111,750
Less land tax	5,825
105,925
Capitalised at 13.5%	784,630
Less letting up allowance 42,625 Repairs 50,000	92,625
692,005
Add rental surplus	866
692,871

Total imputed income	105,925
Capitalised at 13%	814,807
Less letting up allowance 42,625 Repairs 50,000	92,625
722,182
Add rental surplus	866
723,048