Giusida Pty Ltd v Commissioner for Act Revenue (Appeal)
[2019] ACAT 100
•15 November 2019
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
GIUSIDA PTY LTD v COMMISSIONER FOR ACT REVENUE (Appeal) [2019] ACAT 100
AA 39/2013
Catchwords: APPEAL – administrative review – assessment of rates – unimproved land value – comparative sales – risk of site contamination – inadequate evidence – remittal to original decision maker
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 s 68, 92
ACT Civil and Administrative Tribunal Procedure Rules 2009 (No 2) s21
Taxation Administration Act ss 101, 104
Cases cited:Chakravarty v Commissioner for ACT Revenue [2013] ACAT 11
English Exporters (London) Ltd v Eldonwell Ltd [1973] 1 Ch 415
Giusida Pty Limited v Commissioner for ACT Revenue [2016] ACTSC 275
Giusida Pty Limited v Commissioner for ACT Revenue [2013] ACAT 59
Giusida Pty Limited v Commissioner for ACT Revenue [2014] ACAT 50Mansour v Dangar [2017] ACAT 49
Planet Red Pty Ltd v Commissioner for ACT Revenue [2017] ACAT 18
Re Gaider (78/5004)
Spencer and the Commonwealth (1907) 5 CLR 418
List of
Texts/Papers cited: Professor RTM Whipple, Property Valuation and Analysis, 2nd ed
Tribunal: Presidential Member E Symons (Presiding)
Presidential Member MT Daniel
Date of Orders: 15 November 2019
Date of Reasons for Decision: 15 November 2019
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AA 39/2013
BETWEEN:
GIUSIDA PTY LTD
Appellant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL:Presidential Member E Symons (Presiding)
Presidential Member MT. Daniel
DATE:15 November 2019
ORDER
The Appeal Tribunal orders that:
The Tribunal’s orders of 10 September 2013 are set aside and following order substituted.
Pursuant to section 68 of the ACT Civil and Administrative Tribunal Act 2008 the reviewable decision is set aside and the matter the subject of the decision is remitted to the respondent for reconsideration in accordance with the Appeal Tribunal’s recommendations.
………………………………..
Presidential Member MT Daniel
For and on behalf of the Appeal Tribunal
REASONS FOR DECISION[1]
Background
[1] Theses reason were reissued on April 2, 2020 to correct typographical errors.
The applicant is the owner of a property situated at 3 Lonsdale Street, Braddon in the Australian Capital Territory, being Block 11 Section 28 Braddon (the block). The respondent is the Commissioner for ACT Revenue (Commissioner).
On 18 December 2009 a new crown lease was issued for the block, adding to the existing permissible uses “residential use PROVIDED THAT the site is decontaminated to the satisfaction of the Territory”. This variation triggered the question: what was the block now worth for land rates purposes?
An assessment of rates had previously been issued for the 2009 year based on an assessed unimproved land value of $1.379M (as at 1 January 2009), and the same value had been applied for the 2010 year (as at 1 January 2010).
The Commissioner conducted a reassessment of rates for the years 2009, 2010 and 2011, and on 16 September 2011 re-determined land values of $4.35M, $5M and $5M (respectively) were adopted for that reassessment.
The objection to the assessment (reviewable decision)
On 14 November 2011 Mr Phil Green, valuer, of Jones Lang LaSalle ACT Pty Limited, lodged an objection to the reassessment on behalf of the applicant. In the letter of objection, Mr Green, provided his expert opinion, recommending that the previous unimproved value of $1.379M be retained. Mr Green stated that when reduced to a value per square metre of gross floor area (GFA) the re-determined values were in excess of the values shown by any comparable land sales. Mr Green said that the addition of residential use had potentially increased the GFA by only 50%, which did not warrant a 300% increase in unimproved value. Finally, Mr Green pointed out that the block could not be used for residential purposes until decontaminated, because there was known contamination on the site, and decontamination could not occur until after 31 May 2014 as the block was leased to the Commonwealth of Australia until that date.
The Commissioner requested a report from the Australian Valuation Office to investigate the matters set out in the objection. That report, written by Mr Ian Robertson, a Senior Valuer, was provided on 1 March 2012. Mr Robertson noted that Mr Green had not provided any sales evidence in support of his assertions about market value; and went on to provide four comparable sales which he said confirmed the re-determined values. The report also referred to case law which established that the percentage increase over previous rates values is not relevant to the re-determination[2].
[2] Re Gaider (78/5004)
Section 101(3) of the Taxation Administration Act 1999 (TAA) provides that the burden of showing that an objection should be sustained lies with the taxpayer making the objection. Section 104(1) of the TAA then provides that after considering an objection, the Commissioner must allow the objection either in whole or in part or disallow the objection.
On 3 March 2012 the Commissioner disallowed the objection, confirming the reassessment of rates based on the re-determined values. In its reasons for decision, the Commissioner stated that the comparative sales method was the preferable method of determining the value of the block at the relevant times, and relied upon the reasoning and comparable sales evidence provided by Mr Robertson to confirm the re-determined values.
The decision of the Original Tribunal
The applicant applied to the ACAT for review of the Commissioner’s decision.
For the review, the applicant relied upon a report about possible site contamination by Dr Christopher Gunton, a contaminated land consultant[3], dated 16 July 2012, and a further valuation report of Mr Green dated 27 September 2012.
[3] Dr Gunton’s qualifications as a geologist with 12 years’ experience, including five years as a contaminated land consultant in the ACT, were also set out in his report
Dr Gunton’s report addressed the environmental assessment and remediation works necessary for the block to be suitable for residential use. Dr Gunton relied upon information publically available to him about the block, and his own experience and knowledge. Dr Gunton made it clear that he had not undertaken any specific testing or examination of the block to verify its condition. He outlined that contamination might occur on a site through contaminants being physically present in the soil, through contaminants being present in the soil as dissolved in water/groundwater, or through soil vapour – where contaminants are present as a gas in a pore space in the soil. Dr Gunton set out the current legislation and industry guidelines for assessment of such contamination and noted that possible sources of contamination on the block consisted of:
(a)underground fuel storage tanks (USTs) located on the block (now filled with sand) which would require removal, and might have leaked contaminants to adjoining soil;
(b)contaminated groundwater possibly migrating from the service station located adjacent to the north boundary;
(c)contaminated groundwater possibly migrating from a drycleaners previously operating about 200 metres to the north of the block; and
(d)contamination due to contaminated soil possibly being imported onto the block during construction of previous buildings.
Dr Gunton stated that there were generally four stages to remediation. He set out the estimated cost of each stage for the block:
(a)Stage 1 environmental site assessment (ESA) being a preliminary desktop study (taking 4-5 weeks and cost $4,000);
(b)Stage 2 ESA detailed assessment with sampling (taking 6-8 weeks and costing $60,000);
(c)drawing up a remedial action plan ($7,000); and
(d)the remedial work itself (totalling $963,000) assuming a worst case scenario of approximately 3,920 cubic metres of soil requiring disposal to landfill as contaminated soil.
Dr Gunton, in conclusion, noted that many variables could change the cost of remediation work, with the consequence that predicting that cost ‘at this stage’ was ‘extremely difficult’[4].
[4] Page 14 Dr Gunton report Exhibit A13
In his September 2012 report Mr Green relied upon the comparative sales identified in Mr Robertson’s March 2012 report, but opined that the value of those sales, taken collectively, should be adjusted downwards by 27% because of a number of factors applying to some or all of the sales[5], and then a further deduction of the total estimated costs of decontamination ($1.034M) applied. Mr Green stated that when the 27% discount and $1.034M deduction were applied, the unimproved land values for the 2009, 2010 and 2011 years should be set at $2.1415M, $2.616M and $2.616M respectively.[6]
[5] Report from Phil Green, dated 27 September 2012, page 4 Exhibit A9
[6] Mr Green attached advice from the ACT Planning and Land Authority dated 5 May 2009 advising that the Environment Protection Agency’s records indicated that fuel storage tanks located on the property have been abandoned and filled with sand and there are no records of an environmental assessment being undertaken.
For the review, the Commissioner relied upon a statement from Mr David Power of the Environment and Sustainable Development Directorate, dated 26 October 2012, about risks of contamination of the block[7], and a further valuation report of Mr Ian Robertson dated 26 October 2012[8].
[7] Exhibit R7
[8] Exhibit R5
Mr Power provided a copy of correspondence relating to consultation for the lease variation, and advised that the Environment Protection Authority (EPA) had no evidence of actual contamination of the block other than the USTs. Mr Power noted that the adjacent service station groundwater had been tested, and that testing indicated the groundwater plume extended down gradient towards Cooyong Street and not towards the block. Mr Power commented that Mr Gunton’s opinion was based on a very conservative approach.
Mr Robertson, in his October 2012 report, again referred to the comparable sales[9], providing an assessment of each sale. Mr Robertson referred to the factors identified by Mr Green, but disagreed with Mr Green’s assessment of those factors and the global reduction of 27%. Mr Robertson made no allowance in relation to decontamination of the block. Mr Robertson repeated his opinion that the unimproved land values should be $4.35M, $5M and $5M for the respective years.
[9] In this report Mr Robertson included 6 Watson Street, Turner and did not include 5-7 Torrens Street, Braddon (Blocks 8 and 11, Section 29 Braddon) which he had included in his March 2012 report.
The four witnesses gave evidence before the Original Tribunal and were cross examined.
The Original Tribunal at [67] – [72] of its reasons for decision[10] directed that the unimproved land values should be set at $4.2256M, $4.88244M and $4.88244M respectively, less $64,000 and the cost of removal of the USTs. In reaching these values, the Original Tribunal adopted a price per square metre of the gross floor area (GFA) derived from the comparative land sales. The Original Tribunal accepted that $64,000 would need to be deducted from any potential sale price, because a stage 1 and 2 assessment would necessarily need to be conducted in order for residential development to occur. The Original Tribunal also concluded that the costs of removal of the USTs should be deducted. Because there was no evidence before the Original Tribunal of the costs of removal of the USTs separate from the costs of decontamination of the entire block, the Original Tribunal ordered that the decision to disallow the objection be set aside, and the matter remitted to the Commissioner for reconsideration in accordance with the Original Tribunal’s directions.
The ACAT Appeal
[10] Giusida Pty Limited v Commissioner for ACT Revenue [2013] ACAT 59
The applicant appealed to the Appeal Tribunal. The appeal was conducted as a review on the evidence before the Original Tribunal. On 31 July 2014 the Appeal Tribunal gave its decision[11], finding that the Original Tribunal had not made any errors and dismissing the appeal.
The appeal to the Supreme Court
[11] Giusida Pty Limited v Commissioner for ACT Revenue [2014] ACAT 50
The applicant then applied for leave to appeal to the Supreme Court, and leave was granted on 21 September 2016.[12] On 21 June 2018, after hearing the appeal, the Court found that the Original Tribunal had made errors in the way it dealt with the evidence, and the Appeal Tribunal had erred in failing to identify the more significant of those errors. The Court set aside the orders of the Appeal Tribunal, and remitted the matter to the Appeal Tribunal to be dealt with in accordance with the Court’s decision.
[12] Giusida Pty Limited v Commissioner for ACT Revenue [2016] ACTSC 275
While the Court found there were a number of areas in which the Original Tribunal had erred, the most significant was the way in which the Original Tribunal dealt with the twin issues of the risk of contamination of the subject land, and risk of contamination for each of the comparable sales. His Honour wrote:
28. The Original Decision states at [43]:
Except for the UST there is no evidence of a potential primary contamination source of the subject land. More importantly, there is no evidence of actual contamination on the subject land.
29. There is, I think, an inconsistency in allowing the above deduction but at the same time proceeding on the basis that there was no actual contamination. The allowance for investigation, in the order of $64,000, is a recognition that the risk of contamination is real.
30. I think a consequential finding of a real risk of contamination must be reflected in the assessment of the unimproved value of a property. The Tribunal’s answer to this conclusion was that, at [63]:
…the general risk of contamination in Braddon has been absorbed into the price structure for the area and that a hypothetical informed purchaser would know this.
31. The difficulty with this answer is that it is based on the assumption that the risk of contamination will be consistent across the whole of Braddon. If the risk is not consistent, then it must be an erroneous step to conclude that the contamination risk would have been accepted across the board and, in effect, in every sale in Braddon.
32. The Original Decision included a specific acceptance that the risk was evenly spread across Braddon. The Appeal Decision noted this and stated at [30]:
Mr Robertson’s evidence was that he made no allowance in his valuation for contamination because contamination has not been proved to exist. He had assumed that the risk was the same throughout Braddon and any sale that has occurred will have assumed that risk. The Original Tribunal accepted Mr Robertson’s evidence when it said at paragraph 63:
…The Tribunal accepts the proposition that the general risk of contamination in Braddon has been absorbed into the price structure for the area and that a hypothetical informed purchaser would know this.
33. It was not the evidence, and as a matter of logic it cannot be the case that the risk of contamination would be equal in every block in Braddon. Each block, each street and each premises has a different history. There are of course features that are common to all of them but there must also be individual features. These could be derived from previous uses of the premises or from neighbouring premises or perhaps the course of the aquifer beneath the premises. For example, not every site in Braddon was once a service station, or has or had a service station next door.
34. In my view, it is an error to apply an equal assumption across the whole of Braddon. This was, however, the approach taken in the Original Decision and confirmed in the Appeal Decision. This is a fundamental element in the two ACAT decisions. The finding of error in relation to Question 1 alone dictates that the matter must be remitted back to ACAT.
35. Once remitted, the approach to be taken by ACAT should involve a specific determination of the extent of the risk of contamination and, if there is such a risk, the likely extent of the contamination itself.
36. Specifically, ACAT should not proceed on the assumption that all sales in Braddon include an allowance for contamination in the purchase price and that the risk of contamination is uniform through the suburb.
The Court also found that there were other errors by the Original Tribunal, not identified by the Appeal Tribunal. Because of the conclusion we have reached, it is not necessary to outline those errors in full here, although we touch upon some in the reasons that follow.
The orders of the Court were:
(a)The appeal is allowed.
(b)The decision of the ACT Civil and Administrative Tribunal is set aside.
(c)The matter is remitted to the ACT Civil and Administrative Tribunal to be dealt with in accordance with this decision.
(d)The respondent is to pay the appellant’s costs of the appeal.
The proceedings before the Appeal Tribunal on remittal
Due to member unavailability, the Appeal Tribunal was reconstituted for the remittal.[13]
[13] Section 92 of the ACT Civil and Administrative Tribunal Act 2008
The appeal application had been conducted as a review on the previous occasion, and there was no suggestion from either party that this should not be the process on the remittal. It was anticipated that each party would submit further evidence addressing the matters identified by the Court, and directions were made for this to occur.
On the remittal, the Appeal Tribunal had before it the written evidence that had been before the Original Tribunal, and the transcript of the hearing before the Original Tribunal. There were no supplementary reports by either Mr Green or Mr Robertson, and neither was made available to cure the defects in the evidence or conduct of the review by the Original Tribunal that had been identified by the Court.[14]
[14] Such as the failure to afford procedural fairness to Mr Green, or the lack of evidence about contamination risk for the comparable properties
Mr Carlo King, a valuer from the ACT Valuation Office, provided a valuation report for the Commissioner dated 3 October 2018[15], a witness statement of 19 November 2018[16], some supplementary documents[17] and a table which summarised his revisited valuation dated 23 November 2018.[18] Mr King referred to six[19] sales as comparable and made some adjustments before reaching a value based on site area of $4.35M for 1 January 2009 and $4.8M for the following two years.
[15] Exhibit R-12
[16] Exhibit R-14
[17] Exhibit R-13
[18] Exhibit R-19
[19] 27 Lonsdale St (our SALE 1), 43-45 Torrens St Braddon (our SALES 3 and 4), 28 Mort St (our SALE 2), 32 Mort St (Sale Oct 13), 16 Lonsdale St (sale Dec 13) & 40 Mort St (Sale Aug 14). He refers to 16, 32 and 28 Lonsdale in his Reconciliation. In the first Robertson report Sale 3 was 5-7 Torrens St Braddon which he does not refer to in his later report and we note was not picked up by the later valuers)
In reaching his conclusion, like Mr Robertson before him, Mr King did not make any adjustments for decontamination of the block. He considered that this would result in double counting of that element, because in his view each of the comparative sales included the impact of risk of contamination on price, albeit in an unquantifiable way[20]. He stated that there was “insufficient evidence available in the Precinct to detail value adjustments associated with the level of site contamination.”
[20] Paragraph 36, Exhibit R12
In his report, Mr King made a number of other points. He commented that the approach applied by Mr Green, of deducting entire possible costs of decontamination, had not been adopted in other valuation reports for sites in the precinct, whether by Mr Green or other valuers. Mr King noted that both the applicant’s valuation report and the Australian Valuation Office[21] report for the change of use charge for the block did not apply any adjustment for risk of contamination. Finally, Mr King summarised a number of sales in the Braddon Precinct for subsequent years, which he said demonstrated that the methodology he had used was to be preferred, and specifically that the market was highly knowledgeable about potential contamination associated with previous site use.[22]
[21] Which was sent under cover of a letter from Mr Shadbolt, the applicant’s latest valuer witness
[22] Paragraph 35, Exhibit R12
Mr Matthew Shadbolt, a valuer from Jones Lang LaSalle (ACT) Pty Limited, provided a valuation report for the applicant dated 9 November 2018[23] and an addendum report of 22 November 2018[24]. Mr Shadbolt adopted and built upon the opinion of Mr Green; he agreed Sales 1 – 4 of Mr King were comparable sales[25] to which he made adjustments as suggested by Mr Green, and at his own instigation. Using site area Mr Shadbolt thus obtained values of $3.45M, $3.75M and $4.25M for the three relevant dates, from which he said the full possible costs of decontamination should be deducted because ‘the degree of contamination is unknown and therefore any doubt must err towards the top end of assessment’.[26]
[23] Exhibit R-29
[24] Exhibit R-28
[25] Sales 1 - 4
[26] Exhibit A-29 page 9
Mr Shadbolt’s report also contained a response to the report of Mr King and provided answers to a number of questions posed. Mr Shadbolt queried the usefulness of sales data two or more years post the relevant date.
Other new evidence before the Appeal Tribunal consisted of documents. One such document was an email from Mr Green dated 14 March 2012 to one of the officers of the applicant[27], in which he asserted the block was worth $5M[28].
[27] Exhibit R-16
[28] The Appeal Tribunal would have benefitted from hearing from Mr Green the reason why he ascribed such a value to the block on 14 March 2012, given that both four months earlier and six months later he wrote to the Commissioner providing his expert opinion that a $5M value was incorrect. In the absence of Mr Green being called before the Appeal Tribunal to give evidence and provide an explanation for his emailed opinion (notwithstanding that one appeal ground was a lack of procedural fairness in relation to Mr Green) it is difficult to have much confidence in Mr Green’s various opinions and reasoning in this matter.
Further additional evidence consisted of a valuation report by Mr Green in relation to 16 Lonsdale St Braddon, dated 18 April 2017[29]; aerial photographs of the Braddon area dated 2004 and 2012[30]; and extracts from the subpoenaed material.[31]
[29] Exhibit R-17
[30] Exhibit R-18
[31] Exhibit R-20
Despite the very clear comments of the Court at paragraphs 35 and 36 of the judgment, no new documentary evidence as to the known risk of contamination (and thus possible need for remediation) for each of the comparable sales was put before the Appeal Tribunal. Nor did Mr King or Mr Shadbolt provide any oral evidence in this regard.
In the final stages of the hearing, counsel for the applicant called oral evidence from an officer of the applicant, Mr Cataldo, about the change of use charge paid for the block upon the variation of the lease. Mr Cataldo confirmed that no investigations have been able to be carried out to confirm the extent of contamination on the block. From his knowledge of sales in the precinct, Mr Cataldo said that Sale 1, to his recollection, had been on the market prior to the sale, and that it was well known that the vendor of Sale 4 retained a one-third interest in the sold property.
At the conclusion of the hearing both parties made oral submissions. In addition the Appeal Tribunal made directions for each party to file written submissions. These were subsequently filed as directed. The applicant also filed written submissions in reply. It is well-established that after a hearing is concluded, submissions may be filed only with the leave of the Tribunal. Accordingly, the Appeal Tribunal has not had regard to the submissions in reply which were filed without leave.
Consideration
The role of the Appeal Tribunal
Ordinarily, the role of the Appeal Tribunal when conducting an appeal by way of review is to determine whether the Original Tribunal has erred in fact or in law in a way which is material to the outcome[32]. Where such error is identified, the Appeal Tribunal’s next task is to rectify the error, most commonly by putting in place the orders that would have been made had the Original Tribunal not erred. In this case, the Court has identified errors by the Original Tribunal, and found their impact on the Original Tribunal’s decision to be material. The matter has been remitted to the Appeal Tribunal ‘to be dealt with in accordance with [the Court’s] decision’. It thus falls to the Appeal Tribunal on remittal to undertake the second part of the process, and put in place the orders that should have been made if there had been no error. To do this, the Appeal Tribunal must:
(a)Make the necessary findings of fact. Many facts have already been established and were not challenged on appeal. However, because the state of the evidence before the Original Tribunal was inadequate, and further evidence has now been admitted, the Appeal Tribunal is required to evaluate the evidence as it currently stands, including deciding whether to prefer evidence of one witness over another[33], making findings of fact, and inferring facts from established facts. In finding the facts, the Appeal Tribunal must be conscious of the matters set out in the Court’s decision, however may not be bound by the Court’s findings of fact (if any) where the state of the evidence is changed.
(b)Form a view, as a ‘reference point’[34], as to the unimproved value for the block for each of the relevant years. The Appeal Tribunal may inform itself by the opinions of the valuers and their reasoning but is not bound to adopt one opinion or another in toto. It is not performing the function of a court, bound by the rules of evidence, and required to prefer one expert opinion over another. Rather it is replicating the role of the Commissioner in ascribing a value to the unimproved land, in order to decide whether the re-determined values are incorrect[35]. In doing so, the Appeal Tribunal must ensure that it acts consistently with the reasoning set out in the Court’s decision.
(c)Decide by reference to these values whether the applicant has met the test of showing that the objection should be sustained – most commonly this would be achieved if the re-determined values ascribed by the Commissioner are so far removed from the value now ascribed by the Appeal Tribunal that the Commissioner’s value as a discretionary decision can be said to be incorrect for any of the relevant years.[36]
(d)Make appropriate orders under section 21 of the ACT Civil and Administrative Tribunal Procedure Rules 2009 (No 2) to dispose of the appeal. Because error has already been found, this would involve first setting aside the orders of the Original Tribunal and then making orders under section 68 of the ACAT Act either varying the decision of Commissioner to disallow the objection, setting aside that decision and substituting a fresh decision, or setting aside that decision and remitting the matter to the Commissioner for reconsideration.
The correct approach to determining value
[32] Chakravarty v Commissioner for ACT Revenue [2013] ACAT 11, Mansour v Dangar [2017] ACAT 49
[33] Ordinarily an Appeal Tribunal would be reluctant to interfere with findings of fact by an Original Tribunal, particularly where based on the preference for one witness over another, however in this case this approach is necessary because of the deficiencies identified by the Court.
[34] Planet Red Pty Ltd v Commissioner for ACT Revenue [2017] ACAT 18, at [24]
[35] Counsel for the applicant at several times during the hearing cautioned the Appeal Tribunal against ‘conducting its own valuation’. We do not accept that submission has force given the particular function required of the Original Tribunal, and now to be performed by the Appeal Tribunal.
[36] Planet Red Pty Ltd v Commissioner for ACT Revenue [2017] ACAT 18 paragraphs 23-26
The task is to find the unimproved value of the land as at the relevant dates. The legal framework is set out comprehensively in the earlier decisions and need not be repeated here.
The parties and all of the valuers agreed that the unimproved value of the block required that it be valued for its highest and best use[37] of mixed commercial and residential use. Both parties, and all of their valuers, submitted that the comparative sales approach was to be used. As described by Whipple[38], this is a process of inference in which one infers probable price from past transactions:
First, ascertain the class of properties to which the subject property belongs. This will be that set of recently sold properties which the valuer believes are close substitutes for the subject property.
Secondly, interview recent buyers of that class of property to ascertain their price fixing regime. Others may well have done this satisfactorily – for example, recent surveys of locational choices made by manufacturers…
Thirdly, abstract that information into a set of general principles which may be applied to the subject property and those selected in step one.
Fourthly, proceed with the work by analogy using as criteria of comparison the outcome of the third step. Part of this process may entail discarding some of the sales identified in the first step.
A strategic weakness in most valuations is the neglect to derive the set of general principles by ascensus from individual responses. The valuer should never assume knowledge of the crucial elements whereby comparisons are to be effected without reference to those articulated by recent buyers. To do so is to run the risk of using criteria of comparison that are irrelevant.[39]
[37] Spencer and the Commonwealth (1907) 5 CLR 418
[38] Professor RTM Whipple, Property Valuation and Analysis, 2nd ed
[39] Professor RTM Whipple, Property Valuation and Analysis, 2nd ed Chapter 9, Page 252
We did not have any explicit evidence as to how the valuers derived the factors upon which they said sales were to be compared. Given that the task is to value the land in its unimproved state, it is well accepted the characteristics and circumstances of the subject land are key. The starting point for a sale to be considered comparable is that it must be a sale in the relevant market – it must at a minimum be similar to the subject site in both time and place. It should generally be an arms length transaction so as to be a true indication of the price the market would pay.
In terms of time, Mr Shadbolt gave evidence that sales up to three or six months either side of the valuation date would be considered comparable in time. Mr King, although providing evidence of much later sales, relied upon those sales to demonstrate that his methodology was proven correct, rather than as comparable sales for the relevant years. In his oral evidence, he accepted that the later two of his six comparable sales should not be considered comparable for the valuation exercise itself but only as an indication of later points in the market.
In terms of place, one would look to sales in the same physical location with similar crown lease conditions and zoning. So for example, the earliest valuations of the block identified a sale of a commercial zoned site in Turner as comparable for determining a commercial rate for GFA, however by the end of the proceedings a site area approach for the Braddon precinct was preferred and the Turner sale was considered no longer relevant.
So, the first part of the process is the identifying of comparable sales and the features of those sales leading to the price paid, and screening of those sales to exclude sales that are not a true indication of the market. To quote Whipple again:
The valuer must be constantly on the lookout for sales data. The sources of information will vary from State to State. The Land Titles office in some States… Such information usually provides only basic data such as the parties to the transaction, date of transfer, title details, postal address of the property and consideration.
While this is of the greatest importance to the valuer, it needs to be augmented from other sources. At the minimum, the sold properties should be inspected from the outside. …
If the selling agent is known, perhaps listing information can be obtained from that source and further inquiry made as to whether the transaction had any peculiar features, and so forth. …
Auction sales are also a valuable source of information …
Media reports are another source of information …
Information scarcity means that valuers must develop their own contacts with reliable market participants and fellow professionals. …
It is important (no matter the area) to speak to people who make pricing decisions and those who make decisions affecting market participants. Among the former are buyers and sellers, lenders and brokers. Among the latter are local politicians, town planners and employers.[40]
…
When a set of observations has been assembled for a class of property, it should be submitted to a preliminary screening to assess its possible accuracy to search for relationships and to identify that characteristic of productivity most closely related to price.[41]
[40] Professor RTM Whipple Property Valuation and Analysis 2nd ed pages 254-255 (Whipple)
[41] Whipple, page 256
After identification of potentially comparable sales and the bases on which they may be compared, a screening process should be adopted to exclude those sales which are not an accurate reflection of market price at the time. After this screening for ‘tainted’ transactions is conducted[42], the remaining sales may be reliably drawn upon to derive a value for the subject land.
[42] Whipple, page 260
The approach urged by the parties and their valuers, which we accept, is that once a comparable sale is identified for the relevant date, one must make adjustments to take account of any unique features and bring that sale price to the value of an unimproved site equivalent to the block. These might include, for example, adjusting for the site having a more desirable location. From this value, a price per square metre for site area[43] can also be obtained.
[43] The parties agreed that the approach of deriving a value referable to site area rather than GFA was appropriate in the Braddon precinct.
A second series of adjustments would then be made to the value of the equivalent site, to address factors specific to the block and bring the value to a value for the block, as uncontaminated. So, for example, the parties agreed we should apply a deduction in value to address demolition of existing buildings on the block.
The parties differed on the adjustment approach to risk of contamination of the block. The applicant submitted that a deduction in value to the extent of 66% [44]of the possible costs of remediation should also be made to address the risk of contamination specific to the block. The Commissioner submitted that if a deduction in value was to be made, it should, at a maximum, be merely the costs of the Stage 2 assessment and removal of the underground storage tanks.[45] In this approach, the Commissioner seem to implicitly adhere to the view that the risk of contamination was built into the price structure of the comparable sales.
[44] Applicant’s submissions filed 21 December 2018 at [37]
[45] as per the Original Tribunal decision, although based on additional evidence.
It is important to bear in mind that although there was evidence that most sites in Braddon have a risk of contamination[46], as noted by the Court there was no evidence that the risk is spread consistently[47]. Mr Robertson’s evidence on this point was that he made this assumption. He was not recalled before the Appeal Tribunal to be asked questions about whether the basis of his assumption was his observation of past sales and experience. The evidence of Mr King assessing multiple past sales was to the effect that risk of contamination is factored in to every sale, but he did not say that it is factored in consistently in terms of a dollar amount, or a percentage. Consequently, the evidence does not allow us to conclude that, at the times in question, the market adopted a uniform approach to contamination risk as a price factor.
[46] Carlo King’s report dated 3 October 2018 [13] The sale properties generally include some form of contamination in the sale price. Dr Gunton said that Phase 1 and Phase 2 testing for contamination was standard for Braddon where there was a change to residential use, but he was not asked if that was standard in 2009, 20101 or 2011. Transcript 22 February 2013 p. 92, l. 3-4
[47] At [33] and [34]
This means that the approach directed by the Court should be followed: one must first make adjustments to each comparative sale derived from its own perceived risk of contamination and the effect of that risk on its sale price, in order to derive an uncontaminated land rate. That rate should then be used to calculate a value for the block (uncontaminated), and then in the second series of adjustments an adjustment must be made to take account of the known contamination and risks of contamination of the block.
We turn then to consider the block and the comparable sales.
Characteristics of the subject block
The block was described by the Original Tribunal as follows:
45. The subject land is situated at the southern end of Lonsdale Street close to Cooyong Street and Civic and is well placed for commercial including retail use. Braddon is rapidly developing into an area of medium density mixed residential and commercial use. The parties agree that the H&B use of the subject land is retail commercial on the ground floor, offices on the first floor with residential on the floors above. They did not agree on the details of a development on the subject land. They agree that the area of the subject land is 1254 square metres and that is in the CZ3 zone which permits a plot ratio of 3:1 provided that residential use is not less than 1254 square metres which results in a gross floor area (GFA) of 3762 M2. The land has a frontage of 30.8 metres to Lonsdale Street and a depth of 40.6 metres. The building height is restricted to 22 metres. It is next to an operating service station.
With these characteristics in mind we turn to finding comparable sales for the relevant dates.
Comparative sales for 1 January 2009
The valuers identified the sale of 27 Lonsdale St Braddon (Block 14 Section 20) (Sale 1) in August 2008 for $4.3M as the only comparable sale for the block for this date if a site area comparison was to be made.
The site is 1,252 square metres, with a GFA of 2,504 square metres. The lease purpose clause at the time did not permit residential use, other than for one residence. The site was previously the location of a motor vehicle tyre and service centre, known as Goodyear Tyres. It is adjacent to the Telstra depot and close to two service stations to the north – Caltex and Shell on blocks 21/21 and 1/20 respectively. Mr King inspected the site before the improvements were demolished and it was submitted that he noted signs of possible contamination.[48]
[48] Report of Carlo King Exhibit R12, page 9, although we note this was not expressed in his report
In his report dated 26 October 2012, Mr Robertson stated that the purchaser had been interviewed[49], and that he had purchased the property for redevelopment purposes rather than for the net yield from existing rent. The purchaser was aware he would have to pay a change of use charge to obtain residential use. The purchaser advised there had been another prospective purchaser, however the purchaser was able to complete settlement earlier and thus achieved the sale. This information is consistent with the oral evidence given by Mr Cataldo that the property was listed with an agent and suggests it was an arm’s length transaction.
[49] Although he does not say that he interviewed the purchaser himself.
It was not apparent to us that any of the other valuers obtained any information about the circumstances of this sale directly from the purchaser, notwithstanding the importance of such inquiries to the comparative sales method of valuation, the later criticism of the information relied upon by Mr Robertson as ‘hearsay’, and the deficiencies of the evidence about the known risk of contamination of this site.
We consider that this sale is comparable to the block, and is not a tainted transaction. It is appropriate to proceed to make adjustments to this sale to derive a value for the block as at the relevant time.
All valuers agreed that a sum of $150,000 should be added to the sale price as the cost of demolition.
All valuers agreed that some adjustment for an adjoining owner influence should be made. The purchaser owned the properties on either side of 27 Lonsdale St. Mr Green and Mr Shadbolt felt a 10% adjustment should be made, as a 5% adjustment is accepted practice in the industry for a single adjoining property, and 10% would better reflect the value of obtaining the middle property of three. The Commissioner’s valuers took the view that only a 5% adjustment needed to be made, because that is what the purchaser said he had paid as a premium. Counsel for the applicant objected to any weight being put on this statement, which was described as ‘hearsay on hearsay’.
There are authorities to the effect that facts relied upon by a valuer should be established, and hearsay is not acceptable via the medium of a valuer’s opinion[50], however the rules of evidence do not apply in the Tribunal. Much of the general market information relied upon by a valuer may be technically hearsay, it is not inadmissible in the Tribunal on that basis. However, where a fact on which a valuer relies is contested, it must be established to the satisfaction of the Tribunal. The Tribunal will take into account the nature of the evidence, in deciding whether it is satisfied of the contested fact to the required standard[51].
[50] Hyam, Law Affecting Valuation of Land in Australia, referring to the English case of English Exporters (London) Ltd v Eldonwell Ltd [1973] 1 Ch 415 where Megarry J said at 422 I know of no special rule giving expert valuation witnesses the right to give hearsay evidence of facts.
[51] In any event, the comment by the purchaser here referred to is not a fact, but rather a rationalisation of the makeup of the purchase price.
It seems to us that if 5% is accepted in the valuation industry as an appropriate adjustment for a single adjoining property, then a higher percentage is required to acknowledge the additional value obtained by securing the middle property. While information provided by the purchaser as to factors considered in making their successful offer is grist to the valuers’ mill, we do not consider that it must be slavishly followed, particularly in matters of detail. A purchaser, explaining why they paid the price they paid, and a valuer deducing the price the market would pay, may reach the same end point but through different weighting of factors. We would apply the 10% adjustment[52].
[52] Our attention was drawn to previous decisions of the Tribunal in which a 5% adjoining owner allowance was made in relation to this property. While consistency in decision-making is important, in the end a tribunal must make what it considers to be the correct decision on the most current information before it.
Mr Shadbolt considered that the property at 27 Lonsdale Street, now known as NIBU, had a preferable location and made a 10% adjustment on that basis. Mr Shadbolt gave his view that it was preferable due to being located closer to an area now described as the ‘hub’ in Braddon. The respondent submitted that the NIBU might have been considered preferable for commercial purposes, but the block was in a superior location for residential purposes. On this basis, Mr King made no adjustment for location. We do not accept proximity to ‘the hub’ was a factor in 2008; at that time ‘the hub’ as it is now did not exist. We consider that overall no adjustment for location should be made; indeed if any adjustment were to be made on the basis of location it should be only small, and in favour of the subject block which was located closer to Civic.
Mr Shadbolt also identified that there would be a change of use charge, which he estimated at $383,000, by addition of residential to the lease purpose clause in order to access the highest and best use of the land at 27 Lonsdale St. He said that that sum should also be added to the purchase price for Sale 1. Mr King said that there was much uncertainty at the time about change of use charges, and their precise amount. For that reason, he did not make any adjustment for a change of use charge. Counsel for the Commissioner pointed to the 2009 policy documents under which change of use charges were waived for certain developments in the Braddon area. Although this was certainly a clear policy in relation to former service stations, its application to other sites in Braddon at the time was not certain. We consider the prudent purchaser would have factored in the risk of a change of use charge, of unknown value[53]. This would have affected the price paid, however there is no evidence before the Tribunal as to whether the purchaser of this site anticipated an amount of $383000 or a different amount. We do not consider that it is appropriate to apply the change of use charge ultimately paid, given the evidence of general uncertainty at the time, and the lack of any evidence that the purchaser contemplated paying a charge in this amount.
[53] This is because the change of use charge would be calculated on the basis of the difference between the unimproved land value before the change and after the change. As this case demonstrates, there was a paucity of sales at the time and owners seeking a change of use would have had no certainty as to their before and after values.
Finally, Mr Shadbolt and Mr Green both made no adjustments to the price for Sale 1 on the basis of decontamination costs; on the contrary they assumed the land was not contaminated and made an adjustment of 10% due to a consequent lack of finance limitations, and 2% for a consequent lack of delays in development. Counsel for the applicant took the Appeal Tribunal to the lease variation approval issued on 11 August 2010[54], which he noted did not include any requirement for remediation of soil, and referred to advice from the EPA addressing only noise. It was submitted that this demonstrated that, in fact, the site was not contaminated in August 2010 and it could be inferred that it was not contaminated at the time of the sale in 2008. It was further submitted that as owner of the two adjoining properties, the purchaser would have had ample opportunity to test his own properties and thus be confident when making the purchase that the site was not contaminated.
[54] Exhibit A-6
Counsel for the Commissioner submitted that given the location of the site in proximity to previous service stations, and its past use, a contamination risk would have been present at the time of sale. Counsel submitted that there was no evidence the purchaser had done any testing on the blocks he owned, and it remained supposition that he might have done so.
We are unable to form a concluded view on the extent to which the purchase price for Sale 1 incorporated an allowance for risk of costs of decontamination. We are satisfied of the following facts. First, that as a starting point every block in Braddon, due to the past uses in the precinct and potential for contamination to migrate, has a risk of contamination. On its face, a risk of contamination applied to 27 Lonsdale St in 2008: the site had been used for auto service purposes, it was also situated in proximity to two service stations and the Telstra depot. We are satisfied that in 2010 a development approval allowed lease variation to add residential use, without including a requirement for remediation of the soil. We are not confident in drawing the conclusion that this means that the site did not have any contamination in 2010, and are even less confident in drawing that conclusion for 2008. We do not know what has happened to the site between 2008 and 2010, and we do know that in a busy government department, mistakes can occur[55].
[55] For example, in this case we were advised that the development approval for one site in the precinct ultimately permitted a GFA sizeably in excess of that permitted by the lease. This was attributed to human error in the approval process.
Even if we were satisfied, as a matter of fact, that the site was not contaminated in 2010, and therefore not contaminated in 2008, this does not mean that the purchaser in 2008 had such a view. While the purchaser may have had the opportunity to test his own properties prior to purchase[56], that does not mean that he did so, nor does it, of itself, mean that those tests showed no contamination. Even if they had, that would not rule out contamination on the middle block, but only make contamination from those offsite sources less likely.
[56] An ability to test one’s own property is not a given, the Counsel for the applicant asked the Appeal Tribunal to accept that in this case, the applicants had been unable to test the block for contamination for years due to the presence of a tenant. This was ultimately the evidence given by Mr Cataldo.
It seems to us that there are multiple scenarios that are consistent with the facts as established. It is possible that the purchaser was, or was not, permitted to conduct some soil testing on his properties or the site. Testing may or may not have shown contamination. He may have not been able to test the site, but was cautiously optimistic that any contamination was confined to a small area and would be removed in excavation for little cost. The purchaser may have found evidence of contamination and been deeply concerned by the grim spectre of decontamination costs. Alternatively, the purchaser may have been blithely unaware of the potential costs of remediation – after all, this purchase occurred in August 2008, prior to some of the environmental framework referred to by Mr Gunton coming into effect[57].
[57] We have no evidence as to whether purchasers generally in 2008, or this purchaser in particular, were aware of the significance of contamination and costs of decontamination in the Braddon precinct.
The terms of the sale might provide some guidance in excluding the possible inferences. For example, there may have been a guarantee given by the vendor, who may have tested the site, that the land was not contaminated. We would have benefitted from information from the purchaser, either directly or by one of the valuers, as to what was known about the risks of contamination, how that risk was perceived in monetary terms, and whether and how it was accommodated in the price paid.
We simply do not have sufficient evidence to make an adjustment to Sale 1 on the basis of perceived risk of contamination, however we do not feel that the need for an adjustment can be ruled out on the current evidence given the history of use of the site, and its location. For the reasons set out at paragraph 49, we do not believe it is open to us to simply approach this Sale 1, and the block, as being entirely equivalent in terms of risk of contamination and perceived potential costs of decontamination for the relevant year. A specific adjustment must be made.
We are unable to draw, with the necessary level of confidence, the inference of lack of contamination that the applicant has invited. No doubt in valuation, which is described as both an art and a science, there are times when a broad brush approach must be taken, especially where no data or limited information exists. However, we are reluctant to take such an approach where the ramifications are substantial and common sense says the data or information does exist, but the parties or their valuers have simply failed to obtain it.
It follows that while we would make a 10% adjustment for adjoining owner influence, and deduct $150,000 for demolition, we are unable to complete the adjustment process due to insufficient information about the purchaser’s perceived liability for a change of use charge, and the perceived risk of expenditure on decontamination.
Comparative sales for 1 January 2010
There were no sales of comparable properties in the Braddon Precinct between July 2009 and June 2010.
In March 2011 28 Mort St (Block 5 Section 28) (Sale 2) was sold for $5M. The parties submitted that this sale was negotiated in July 2010, with the purchaser being effectively given the option to buy the property should the purchaser be successful in a development application to add residential use to the crown lease purpose clause[58]. It transpired that a development application to vary the lease to add residential use was approved in September 2010, and a further development application increasing the gross floor area was approved in March 2011. The binding contract was not entered into until March 2011. Shortly thereafter the sale was effected.
[58] Notwithstanding that this was hearsay from an unknown source, it was accepted by all of the valuers and both Counsel urged the Appeal Tribunal to accept this as a fact.
The non-binding nature of the agreement in 2010 makes this sale questionable as a comparative sale for the 1 January 2010 date. However given the date of the contract it may be considered for the date of 1 January 2011.
The details of the handshake arrangement we know only as reported by the valuers. The source of their information is unclear. Mr King noted that a number of aspects of the arrangement between vendor and purchaser remain unknown. What were the costs of the development process – noting that in the end there were two development applications. Did the handshake agreement include any terms other than price? Was a warranty or indemnity provided by the vendor in relation to potential contamination or costs of decontamination at the time of the handshake or of the contract? Who was to pay the change of use charge, if any?[59]
[59] These uncertainties were touched upon by the Original Tribunal at paragraph 57 of its decision, nonetheless the Original Tribunal ultimately relied upon this Sale in the valuation process.
The property was previously used as a mechanics workshop known as Dynotune. It is 1,517 square metres in size and is located not far from the block. It also had USTs which had been removed from the site in 2000.[60] The development approvals for variation of the lease and subsequently for demolition and development each imposed conditions in relation to assessment and remediation of any contamination on the site.
[60] Development Approval dated 8 December 2010, Exhibit A4, page 7
The parties agreed $100,000 should be added to the price paid for demolition costs. We accept such an adjustment should be made.
Mr Shadbolt made an adjustment of -10% on the basis that this site was a superior location to the block. No satisfactory rationale was provided for this opinion. Mr King, Mr Robertson and Mr Green made no allowance on the basis of location. Counsel for the Commissioner submitted that on the contrary, the location of the block on Lonsdale Street was considered by the other valuers to be superior for the compulsory ground floor commercial space. We would make no adjustment on the basis of location.
Mr Shadbolt also made an adjustment to the purchase price of -5% because this site is 20% larger than the block. It seems to the Appeal Tribunal that the greater value for greater size is already factored in once the price is reduced to a rate per square metre. Mr Shadbolt was unable to provide a convincing explanation as to why an additional weighting for size should be applied, let alone in rate of 5%. Mr King stated that in his longitudinal review of sales in the Braddon precinct, value per square metre of site area decreased as a site became larger, rather than increasing.[61] No other valuer suggested such a loading for size was warranted. We would not apply this adjustment suggested by Mr Shadbolt.
[61] Report Carlo King 3 October 2018 Paragraphs 27, 39
In relation to the perceived risk of contamination and any impact of same on the purchase price, both Mr Shadbolt and Mr Green stated this site had no risk of contamination so no adjustment on that basis was required. Further, Mr Shadbolt and Mr Green opined that a 10% deduction for a lack of finance limitations, and 2% deduction because there would be no time delays, should both be applied as a consequence of the lack of contamination. Counsel for the Commissioner submitted that there was a clear risk of contamination of the site due to its past use, and a clear requirement for decontamination assessment and remediation imposed in the development approval, notwithstanding that the USTs had been removed.
Given Dr Gunton’s alarming evidence as to multiple sources of contamination throughout Braddon in close proximity to the block, the accepted past use of this site, and the terms of the development approvals issued in relation to this site, we find the opinion of Mr Shadbolt and Mr Green that a prospective purchaser in 2010 or 2011 would have considered the site carried no risk of contamination and thus costs of decontamination, extraordinary.
We consider that when the price was agreed in 2010 there was a risk that contamination existed and decontamination expenses would be incurred. Sadly, despite the Court’s injunction that we engage with the specific risks of contamination we have been given no information (either directly or indirectly) from the ultimate purchaser of 28 Mort Street, Braddon as to how real that risk was perceived to be, the extent of the perceived risk, and how any perceived potential costs of decontamination were quantified and taken into account in the sale price ultimately reached.
Like the Original Tribunal[62] we are concerned that significant pieces of information about this sale are missing. Those missing pieces prevent the Appeal Tribunal being able to confirm that this sale should be treated as a comparable sale using purchase price alone, and, if so, to make necessary adjustments to it. We do not know whether this was a sale where the property was on the market, or whether this was a private sale and the market was not tested. The circumstances of the handshake deal suggest the latter. We do not know what the terms of the agreement in 2010 or contract in 2011 were. We do not know how the risk of contamination or potential cost of decontamination was addressed in the oral agreement, or in the subsequent written contract. We do not know what the developer’s costs of the development application and other processes, such as change of use charges, were. Such costs may be added to the purchase price where paid by the purchaser; without certainty on these points we cannot be sure that the sale price reflects the true value of the transaction. We would have benefited from further information from the purchaser, either directly or through one of the valuers, on all of these points.
[62] Giusida Pty Limited v Commissioner for ACT Revenue [2013] ACAT 59 at [57]
Consequently, we remain concerned that the handshake arrangement and subsequent written contract were so unique, apparently occurring in a setting between parties known to each other, that this sale should be regarded as a ‘tainted’ transaction. Further information about the circumstances and terms of the sale might allay those concerns.
Comparative sales for 1 January 2011
The valuers identified the sales of 43-45 Torrens St Braddon (Block 23 Section 21) as a comparable sale for the 1 January 2011 date. The valuers stated that this property was sold twice in the relevant period: in March 2010 the two adjacent blocks being sold for a total of $5M and in 2011 sold again for $6.45M as a residential development site with commercial ground floor space. By this time, the improvements had been demolished.
Block 23 originally comprised Blocks 1 and 2 Section 21 Braddon. Block 1 was sold to Mazdem Group Pty Ltd for S3.25M in March 2010 and settlement occurred on 21 February 2011. On 21 February 2011 Mazdem Group Pty Ltd sold Block 1 Section 21 to PKT Group Pty Ltd for $3.33M. Settlement occurred on the same day. On 22 February 2011 Mazdem Group Pty Ltd sold the adjoining block, Block 2 Section 21, to PKT Group Pty Ltd for $3.12M. Settlement occurred in August 2011. The total sale price of Blocks 1 and 2 in 2011 was $6.45M. These two blocks were consolidated as Block 23 Section 21 Braddon. [63]
[63] Exhibits R-2, R-3, R-4 and R-15
Mr Robertson stated that on records of his office the purchaser bought the properties for the purpose of redevelopment. In 2010 the lease purpose clause was commercial with limited residential use. In 2011 the properties were sold as residential development sites with commercial ground floor space.
A curious factor of the second sale is that the vendor effectively retained a one third interest in the property.[64] The sale was approached by all of the valuers on the basis that the $6.45M represented the value of the entire interest in the block, however this assumes that the purchase price was contributed by all purchasers in equal shares. We do not know if this was the case. [65]
[64] Zdravko Tokic was the Director and equal one half shareholder in Mazdem Pty Ltd and he was one of the three Directors and shareholders of PKT Group Ltd.
[65] For example, on a purely mathematical basis, if only the two incoming owners pay the purchase price and receive only 2/3 of the interest in the block, a true purchase price for the full block might be extrapolated as $9.675M.
Because of these peculiarities, the Original Tribunal did not consider this sale, at the submission of the applicants. Counsel for the Commissioner submitted that the Court noted and accepted this approach. However, before the Appeal Tribunal, Mr Shadbolt and Counsel for the applicant submitted that these sales could be relied upon. We do not agree.
We do not consider that the sales of this site can be taken into account until further, reliable, information about the terms of the sales is obtained. This information should address what the true value of the transaction was, and whether the terms and circumstances of the sale are such that it should be excluded from consideration. The opportunity should also be taken to obtain any information about the incoming purchasers’ perception of the risk of contamination, especially from the adjacent service station, and the potential costs of decontamination, that may have had an impact upon the price paid or the terms of the sales.
The Tribunal notes the statement by Professor Whipple[66] Good clean data is the staff of life to a valuer. Regrettably, it appears to the Appeal Tribunal, for the reasons set out above, that the absence of relevant data, notwithstanding the clear directives in the Court’s decision, has plagued this matter.
Conclusion regarding comparative sales
[66] Professor RTM Whipple Preperty Valuation and Analysis 2nd ed. Page 254
For the reasons above, we are unable to reach a rate per square metre of site area from the comparative sales, for each of the relevant dates.
While information about the sale of 27 Lonsdale St is likely to be available and allow that sale to be utilised, the further information obtained about the sales of 28 Mort St and 43-45 Torrens St may lead to those sales being excluded as comparable sales. If this were to occur, as in other cases where there is a paucity of contemporaneous sales, one would need to draw upon evidence as to the state of the market more generally in the 2009, 2010 and 2011 years, to predict from the 2009 value a value for the later dates, or alternatively apply a different valuation approach for those years.
Contamination adjustment and demolition adjustment for subject block
Because we have not reached a site area value for the relevant dates, we cannot complete the task of making the second series of adjustments to derive the unimproved value of the block as at those dates. Nonetheless, for completeness, we will set out where we have come to on the matter of adjustments to the block.
All valuers agreed that a sum of $150k should be added for demolition. We would adopt that amount.
Because of the requirement to demonstrate decontamination prior to residential use, the prospective purchaser will anticipate costs of demonstrating the block is not contaminated, to the satisfaction of the Environment Protection Agency. We accept that would, in 2012, have involved at least the Phase I and Phase II testing as explained by Dr Gunton. The evidence of Dr Gunton, however, did not expressly cover whether such steps were industry practice, and thus in the contemplation of the prospective purchaser, on the relevant dates[67]. Nor did he express the costs of those steps in 2009, 2010 or 2011 terms. We are not satisfied that a prospective purchaser on 1 January 2009, 2010 or 2011 would have contemplated the requirements for Phase I and II testing as such, although we are satisfied the prospective purchaser certainly would have anticipated some costs for some process. We do not know what the prospective purchaser would have thought, at those times, those costs would be.
[67] This is because it seems much of the process set out by Mr Gunton was required by legislation or documents postdating 2009, some dated as late as 2012.
We are satisfied that the costs of removal of the USTs, as estimated by the prospective purchaser on 1 January 2009, 1 January 2010 and 1 January 2011 must be deducted. However, as the Original Tribunal found, there is no evidence of what the prospective purchaser would have thought that cost would be, on each of the relevant dates. In practical terms, the purchaser might have anticipated that this amount would be subsumed within the necessary cost for excavation of basement carparking or within a sum allowed for the potential cost of other remediation measures.
We consider that the prospective purchaser was also likely to pay less for the block because of the risk of contamination elsewhere on the block from the USTs or other sources. Mr Shadbolt and Mr Green both said that the estimated $1.034M costs of remediation should be deducted in full. Counsel for the Commissioner submitted that this could not be correct, as this would pass the entire risk of contamination to the vendor. Counsel for the applicant initially submitted that the entire $1.034M should be deducted, but in final submissions submitted that two thirds or $650,000[68] could be applied as a “tempering of the prospective purchaser’s prudence” by the need to strike a commercial bargain. No valuer provided any evidence that such a particular percentage adjustment had been observed to operate in the market – although Mr King opined that sales in the precinct indicated some unquantifiable allowance for risk of contamination.
[68] Applicant’s Submissions filed 21 December 2018 at [37]
We accept the Commissioner’s submission in this regard. We consider that $650,000 is excessive, given Dr Gunton’s oral evidence that it was unlikely that the entire site was contaminated. We also do not consider that the same percentage discount, 66%, should necessarily be applied for each of the three years. It seems to us likely that, over the three years in question, the market’s knowledge of the extent of contamination and costs of decontamination in the precinct was developing, and thus the extent to which that risk was incorporated into price structures for a sale may have varied. Information from the purchasers of the comparable sales may provide some basis on which to adduce the approach of a prudent purchaser in the market at the relevant times.
It is, in any event, immaterial what discount we would apply to address the fact that decontamination beyond removal of the USTs is not a certainty, because the cost of such decontamination using a 2009, 2010 and 2011 process, and prices, is unknown.
Conclusion
In a technical sense, because we cannot ascribe a value to the block, it could be argued that the applicant has failed to discharge their onus of demonstrating that the Commissioner’s re-determined values are incorrect. However, it seems to us that if the Commissioner’s re-determined values are in fact correct, it is by mere coincidence rather than a full process of reasoning from established facts. We recommend that a comprehensive valuation be undertaken based upon more complete information to address the deficiencies we have identified.
We have contemplated reopening the hearing and requiring further evidence to be obtained. However, we consider the cost to the parties of that course is prohibitive, given the extent of the further information to be obtained. We have thus decided not to recall the parties and reopen the hearing, but instead to remit the matter to the Commissioner to re-decide the objection, by reference to the Supreme Court’s decision and these reasons.
This is not a conclusion that the Appeal Tribunal comes to easily. The cost to the parties of these protracted proceedings can only be imagined. Our preference had been to complete the valuation task and give the parties certainty and, one would hope, an end to the matter. We foreshadowed our concerns about the sufficiency of the evidence during the hearing, and urged the parties to consider an agreed outcome which would give some closure to the sorry saga. But no agreement was reached.
Accordingly, we have reached the conclusion that the decision of the Original Tribunal must be set aside, and replaced with a decision to remit the matter to the Commissioner to reconsider the objection in accordance with this decision. We anticipate that this would be with regard to further opinion from Dr Gunton or a like expert, and further opinion from the valuers, drawing on reliable oral or contemporaneous written information about the terms of the comparative sales, their perceived risks of contamination at the time of sale and perceived costs of decontamination, and accurate information about the 2009, 2010 and 2011 processes and prices for decontamination. In undertaking that task, the Commissioner will be alert to the issues identified by the Court, and the views now reached by the Appeal Tribunal.
………………………………..
Presidential Member MT Daniel
For and on behalf of the Tribunal
HEARING DETAILS
FILE NUMBER: | AA 39/2013 |
PARTIES, APPLICANT: | Giusida Pty Ltd |
PARTIES, RESPONDENT: | Commissioner for ACT Revenue |
COUNSEL APPEARING, APPLICANT | Mr Arthur |
COUNSEL APPEARING, RESPONDENT | Dr Jarvis |
SOLICITORS FOR APPLICANT | Bradley Allen Love |
SOLICITORS FOR RESPONDENT | ACT Government Solicitor |
TRIBUNAL MEMBERS: | Presidential Member Symons (Presiding) Presidential Member MT Daniel |
DATES OF HEARING: | 21-23 November 2018 |
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