ISPT Pty Ltd v Melbourne City Council

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No. 3721 of 2007

ISPT PTY LTD
ISPT PTY LTD	Applicant
v
MELBOURNE CITY COUNCIL	First respondent
and
VALUER-GENERAL OF VICTORIA	Second respondent

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JUDGES:	WARREN CJ, KELLAM JA and OSBORN AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	12 March 2008
DATE OF JUDGMENT:	19 September 2008
MEDIUM NEUTRAL CITATION:	[2008] VSCA 180

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VALUATION OF LAND – Application for leave to appeal decision of Victorian Civil and Administrative Tribunal – Role of the Tribunal – Whether expert tribunal – Whether Tribunal pieced together own valuation.

VALUATION OF LAND – Highest and best use – Whether single precise use or combination of uses.

VALUATION OF LAND – Comparable sales – Improved and unimproved sales – Vacant land sales – Weight to be given to valuer’s evidence.

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APPEARANCES:	Counsel	Solicitors
For the applicant	Mr J Delany SC with Mr D Batt	Gadens
For the Council	Mr JH Gobbo QC with Mr J Pizer	Maddocks
For the Valuer-General	Mr C Caleo SC with Mr C Horan	Victorian Government Solicitor

WARREN CJ:
KELLAM JA:
OSBORN AJA:

This is an application for leave to appeal and, if leave is granted, an appeal from a decision of the Victorian Civil and Administrative Tribunal (‘VCAT’), pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act (‘the VCAT Act’). For leave to be granted, the applicant must identify a question of law which is relevant to the granting of the relief sought on appeal and show that there is a real or significant argument to be put on that question of law.[1]
[1]Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331.

This proceeding concerns the site value of the land at 114 William Street, Melbourne. It is located on the north-east corner of William Street and Little Collins Street and comprises 1,858 square metres. It contains a building with a ground level foyer and retail tenancies, 25 storeys used for office purposes and two basement car parking levels. The zoning of the land permits a variety of uses including commercial office development and residential uses.

The Melbourne City Council (‘the Council’) provided two valuations of the land, one as at 1 January 2002 and the other as at 1 January 2004, of $5,568,000 and $5,940,000 respectively. ISPT, the owner of the land, objected to the valuations as being too high. The Council disallowed the objections. Subsequently, pursuant to s 22(1) of the Valuation of Land Act 1960 (VLA)[2] as it then stood, ISPT gave notice to the Council that it required the Council to refer ISPT’s disallowed objections to the Tribunal. Before the Tribunal, ISPT contended that as at both 1 January 2002 and 1 January 2004 the site value of the land was $3,720,000.
[2]Section 22. Right of review or appeal (1) Subject to section 23, if—(a) an objector is dissatisfied with the determination of the Commissioner, a valuer or the valuer-general on the objection; … — the objector may lodge with the rating authority a written notice requiring the rating authority to refer the matter to the Tribunal or to treat the objection as an appeal and cause it to be set down for hearing at the next sitting of the Supreme Court.

Around the same time, several proceedings were commenced in the Tribunal disputing the Council’s assessed site value of various properties. All raised similar issues as to the proper approach to the valuation of such land. In the course of interlocutory hearings dealing with the various proceedings together, the Tribunal ordered that this proceeding be heard first, with the remainder held in abeyance pending its determination.

At the hearing, the valuers were confronted with two threshold questions affecting their methodology. First, they disagreed as to the highest and best use of the land and, consequently, which sales could be regarded as usefully comparable for the purposes of the valuation exercise. Secondly, they were required to form a view as to the relevance (if any) and appropriate analysis of sales of improved land as a basis of comparison with the subject land.

ISPT relied on the evidence of Mr Jackson, a valuer with ‘m3 property’. His opinion was that the site value of the land was $2,000 per square metre, i.e. $3,720,000. Mr Jackson used the depreciated replacement cost method to adjust evidence of such sales and deduce a site value. He used this evidence as a significant indicator of value in conjunction with his analysis of vacant land sales in order to arrive at an assessment of value in relation to the subject land.

The Council relied upon the evidence of Mr Karutz, a valuer with the Council. The Valuer-General relied upon the evidence of Mr Kensley, a valuer with Charter Keck Cramer. Leaving aside certain minor differences on matters of detail, both of them were of the opinion that the site value of the land was $3,000 per square metre, i.e. approximately $5,500,000. Like Mr Jackson, Mr Karutz also relied on sales of both unimproved and improved properties in arriving at his valuation, but placed principal reliance upon unimproved sales. Mr Kensley adopted a similar approach.

At the conclusion of the hearing, the Tribunal confirmed the Council’s valuation of the land as at 1 January 2002 of $5,568,000 and varied the Council’s valuation of the land as at 1 January 2004, reducing it to $5,568,000,[3] which equates to approximately $3,000 per square metre.
[3]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652; VLA s 25(1).

The issues before the Tribunal and on appeal

Three main issues were raised at the hearing below as bearing on the site values. The first issue concerned the identification and relevance of the highest and best use of the land, about which the Tribunal stated:

in the circumstances of this case, it is not necessary to identify a precise highest and best use of the land in order to assess site value. I would add that if the highest and best use must be ascertained, it might be identified in general terms: such as an intense use for office, residential, hotel, club or retail purposes (or some combination of these); without specifying a single, precise use.[4]

[4]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [67].

The Tribunal went on to find that the highest and best use of the land was for

intensive development with a tower building (of a similar volume to the existing building) and underground car parking, to be used for either office purposes or residential purposes or institutional purposes or some combination of these. I accept that the most probable of these uses would be an office use.[5]

[5]Ibid [93].

The second issue concerned the weight to be given to the valuers’ evidence in relation to improved sales. On this point, the Tribunal concluded that the improved sales analysis by each of the valuers was unreliable and that it could not rely upon improved sales as comparable sales. Furthermore, there had been sufficient sales of vacant, or near vacant, land to provide a sound guide to the site value of the land.

The third issue concerned the valuers’ evidence in relation to sales of vacant, or near vacant, land. The Tribunal considered the extensive evidence and found that as at both 1 January 2002 and 1 January 2004 the land had a site value of $3,000 per square metre.

In turn, ISPT now contends that the Tribunal erred in law with respect to the resolution of each of the three main issues before the Tribunal. It also makes the overarching complaint that the Tribunal carried out its own valuation of the land when this was not its proper role.

The issues on appeal, if leave is granted, are:

a)   whether the valuation exercise performed by the Tribunal was permissible as a matter of law;
b)     whether the Tribunal erred in law in its treatment of the issue of the highest and best use of the land;
c) whether the Tribunal failed to have regard to considerations which ISPT submits it was required, under section 5A(2) of the VLA, to take into account in analysing comparable sales; and
d)     whether the Tribunal erred in law in its treatment of valuation evidence making use of the depreciated replacement cost method of valuing the land component of sales of improved land.

The role of the Tribunal

The proceeding arose in the Land Valuation List of VCAT which is the successor to the Land Valuation Board of Review. Section 64 of the VCAT Act provides that, subject to the Rules of the Tribunal, the Tribunal is to be constituted for the purposes of any proceeding by one or up to five members. Section 64(2)(a) provides that if the Tribunal is to be constituted by one member only, that member must be a legal practitioner. Section 64(2)(b) provides that if the Tribunal is to be constituted at the hearing of a proceeding by more than one member, at least one of the members sitting must be a legal practitioner. However, s 64(2) does not apply to proceedings brought in the Tribunal under the VLA.[6] Furthermore rule 2.06 of the Victorian Civil and Administrative Tribunal Rules 1998 provides that the President, in assigning members of the Tribunal to a particular list, must have regard to any special knowledge or experience relevant to determining the class of matters in respect of the functions which may be exercised by that list.
[6]Clause 95 of Schedule 1 of the Victorian Civil and Administrative Tribunal Act 1998.

The functions of the Land Valuation List of VCAT are allocated to the Tribunal by a variety of enabling Acts of Parliament.[7] In general it might be said that those functions are related to the specialist function of the valuation of land. For this reason the personnel of the list comprises a small number of lawyers who have a knowledge of the principles of administrative review processes and experience in land valuation matters together with members who are properly qualified as valuers of land and each of whom has considerable experience in land valuation. In addition to the fact that proceedings may be heard in the Land Valuation List by valuers sitting without a legally qualified member, the VCAT Act provides that in proceedings under the VLA, if a question of law arises, that question may be decided by the presiding member if the parties agree.[8] This is a clear distinction from the usual process of the Tribunal in other types of proceedings which by reason of s 107 of the VCAT Act require a question of law to be decided by a judicial member or by a member who is a legal practitioner. For the above reasons we consider it is clear that in exercising its function of review under the Land Valuation Act 1960 the Tribunal, when constituted by both legally qualified persons and qualified valuers or by qualified valuers alone, is an expert tribunal in the sense discussed by Stephen J in Spurling v Development Underwriting (Vic) Pty Ltd.[9] In that case Stephen J said:

… it is important to appreciate the nature of the Tribunal whose decision I am called upon to review. Its composition indicates that it is an expert tribunal … the members of which are no doubt expected to bring to their task of adjudication those qualities which have qualified them for membership. One member is to have experience in town and country planning and another a knowledge of and experience in public administration, commerce or industry; accordingly in reviewing the findings of the Tribunal on matters of fact those findings cannot be viewed in quite the same light as findings of fact by a non expert tribunal.[10]

In dealing with the issue of disclosure of expert knowledge to parties in order for a hearing to be fair Stephen J said:
… I would adopt the view … that where only general expert knowledge of an expert tribunal is in question there need not be disclosure of that expert knowledge to parties in order for the hearing to be fair in the sense of complying with both the requirements of natural justice and with the terms of s 21(1) of the Town and Country Planning Act – “the experience of an expert tribunal such as this is part of its equipment for determining the case”: R v City of Westminster Assessment Committee [1941] 1 KB 53 per du Parcq LJ at 69.[11]

[7]Flora and Fauna Guarantee Act 1988 s 43(12) (Claims for Compensation); Health Services Act 1988 s 67 (Compulsory Acquisition of Land); Land Acquisition Compensation Act 1986; Land Tax Act 1958 s 25(1)(a); Local Government Act 1989 s 183 (Differential rating); Mildura College Lands Act 1916 s 2(ec) (Decision of the Valuer-General on value of land); Mineral Resources Development Act 1990 s 88 (Compensation for loss caused by work under a licence); Pipelines Act 1967 s 22B (Objections to compulsory acquisition of Native Title rights and interests); Planning and Environment Act 1987 ss 95(5) and 105 (Claims for compensation); Subdivision Act 1988 s 19 (Valuation of land for public open space); Valuation of Land Act 1960 Part III (Disputes on the value of land); Water Act 1989 s 266(6) (Setting of tariffs, fees and valuation of equalisation factors).

[8]Victorian Civil and Administrative Tribunal Act 1998 sch 1 clause 98.

[9](1973) VR 1.

[10]Ibid 11.

[11]See also R v Industrial Appeals Court; Ex parte Maher [1978] VR 126, 143.

In the case being considered by us, the Tribunal was constituted by the President of VCAT, who was a judge of the Supreme Court of Victoria, sitting alone.It is clear that in determining the case, his Honour took the view that he was sitting as an expert tribunal. He said:[12]

In vesting power in the Tribunal to review a valuation the Parliament should be taken to understand the structure and the nature of the Tribunal. In particular, it should be taken to understand that the Tribunal is an expert tribunal where the practice is to assign cases for lists where the members hearing a case have knowledge or experience of matters likely to arise in the list. Furthermore, the Parliament should be taken to have contemplated that the review of a matter would involve a complete reassessment, and the exercise of a judgment, in respect of the matter; and not just the acceptance of one side or another. Hence, subject to natural justice considerations, there was clearly some role for the Tribunal to use its expert knowledge and skill in the review of a valuation.

[12]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [17].

We have no doubt that those words are applicable to a Tribunal reviewing a decision under the VLA when constituted by both legally qualified persons and qualified valuers or by qualified valuers alone. However there may be some doubt as to whether the Tribunal might be regarded as an expert tribunal in all circumstances where it is constituted by a legal member sitting alone.

Certainly Wells J, when serving as the judicial head of the Land and Valuation Division of the Supreme Court of South Australia, did not consider himself to be sitting as an expert tribunal. He gave consideration to the functions of the judge in charge of that division in dealing with claims for compensation of land compulsorily acquired in Brewarrana v Commissioner of Highways (No 2):

What is the true function and duty of a Land and Valuation Court when it is confronted with irreconcilable differences between the opinions of expert valuers – not only in result, but in reasoning and precept, too – for the resolution of which the evidence as a whole provides little or no assistance?
The question just formulated rests on the assumption that it is to the evidence that, at all events in the first instance, the Court ought, and is entitled, to have recourse, in order to resolve the differences of opinion. I have always taken the view, and shall continue to do so unless directed by a superior Court to do otherwise, that the creation of a special Division in a Court to deal with a particular class of case is not intended to turn the presiding judge into an independent expert in the very field in which testimony will be tendered to him that he will be called on to evaluate. It would never occur to a trial judge who, for example, had heard many cases in which expert medical evidence had been tendered, to choose between the conflicting testimony of two medical witnesses by applying to it his own medical knowledge. That knowledge would, no doubt, have been of inestimable value in understanding the testimony; in suggesting questions; in comparing one set of opinions with another. But it would be quite contrary to principle, I apprehend, for the judge to bring a third set of opinions into the arena, and to supplement or condemn testimony properly adduced before him in reliance on his own theoretical grasp of principles and precepts of medicine. A judge may have proper and rational grounds for preferring one expert to another; such grounds are well known and accepted. He may, by consideration of the whole of the evidence, expert and non expert, be able to conclude that one opinion is more likely to be sound than another or others, even though both or all opinions are given by men of integrity, learning and skill, and are supported, within self-ordained limits, by impeccable reasoning. He may, because he has been persuaded by the evidence of one expert, find that there is a fatal flaw in the reasoning of another. It may appear that, having regard to the whole of the evidence, certain facts or assumptions, and hence the opinions based on those assumptions, are not well founded. But the judge cannot arrogate to himself the role of an expert who is, in any respect, primus inter pares. In the Land and Valuation Court I seek to be informed and, as best I can, to evaluate; I do not sit to use such acquired knowledge of valuation principles as I have acquired in order to confirm or to condemn. I must act on the evidence, and if any of it is, in any wise, defective, incomplete or irreconcilable then I must make such use as I can of what other evidentiary material is available to correct, complete or reconcile. [13]

[13](1973) 6 SANSR 541.

Whilst the definition of the role of the presiding judge by Wells J in Brewarrana referred to above was made in reference to his position as a sitting judge in a particular division of the Supreme Court of South Australia, nevertheless it is worthy of consideration in relation to the role of legal members sitting alone in the specialist Land Valuation list of VCAT. Furthermore, the above quoted statement of Wells J in Brewarrana is not to say that a judge sitting on a land valuation matter, or a legal member of VCAT sitting alone, is not entitled to accept part of the evidence of one expert valuer and part of the evidence of another valuer and make appropriate adjustments in arriving at the true valuation. As Batt J (as he then was) said in 101 Collins Street Pty Ltd v City of Melbourne:

Although on some aspect or aspects the evidence may be unsatisfactory to my mind, the fact is that the evidence cannot now be supplemented and I am bound to reach a decision overall and thus on the aspect or aspects in question, having regard, if it should be appropriate to do so, to the onus of proof. Whilst I cannot piece together a valuation of my own (Brewarrana at 545) it appears to me that I am entitled, by reference to evidence of one valuer, to adjust on a number of aspects the valuation of another valuer, provided that I make allowance for the fact that one variable in a component consisting of several variables may in fact have been balanced in the latter valuer’s valuation by one or more of the variables.[14]

[14](Unreported, Supreme Court of Victoria, 2 April 1996).

Of course it is accepted that a specialist tribunal should not be prevented from using its acquired technical expertise in the resolution of a dispute before it.

As Lowe J have said in relation to the Milk Board in R v Milk Board:[15]

Where an arbitrator is chosen for his special knowledge, eg, where a medical question comes before a medical man, or an engineering question comes before an engineer, such an arbitrator is not bound to accept evidence, even if uncontradicted, which his experience makes him think is incredible. In all such cases the special knowledge of the tribunal cannot be separated from it and is part of the equipment of the Tribunal.

[15][1944] VLR 187, 197.

We are satisfied that in exercising its function of review under the VLA, the Tribunal, when constituted by qualified valuers or by both legally qualified persons and valuers, is an expert tribunal in the sense that we have discussed above. We have some doubt whether this is necessarily so if the Tribunal is constituted by only legally qualified members or a legally qualified member sitting alone. That said however, there can be little argument that the Tribunal as constituted in the case before us was by reason of the experience of his Honour in land valuation matters, an expert tribunal in the sense discussed by Stephen J in Spurling v Development Underwriting (Vic) Pty Ltd.[16]
[16](1973) VR 1.

Nevertheless, the Tribunal expressly stated that it proposed to decide the case as if it were a judge sitting in a valuation court:

Counsel for the council and the applicant referred to the South Australian decision in Brewarrana Pty Ltd v Commissioner of Highways (No 2)[17] where Wells J cautioned against a valuation court making its own valuation and said it was not the role of the court to “bring a third set of opinions into the arena”.[18] It may be that an expert tribunal is in a different position; and the tribunal’s role in conducting a review is subtlety different to a body such as the Supreme Court. I would think that the tribunal may suggest an approach not taken by any valuer called to give evidence and, subject to hearing the parties and affording them natural justice, then adopt that approach. But I do not need to determine this, as it is a moot point in this case. This is because I propose to proceed on the basis outlined by Batt J in 101 Collins Street Pty Ltd v City of Melbourne, where his Honour said:
Whilst I cannot piece together a valuation of my own (Brewarrana at 545), it appears to me that I am entitled, by reference to evidence of one valuer, to adjust on a number of aspects the valuation of another valuer, provided that I make allowance for the fact that one variable in a component consisting of several variables may in fact have been balanced in the latter valuer’s valuation by one or more of the other variables. In such a case it might, depending upon the circumstances, be necessary to refrain from making the adjustment and to adopt the component in full or not at all.[19]

[17](1973) 6 SASR 541.

[18](1973) 6 SASR 541, 544-545.

[19](Unreported, Supreme Court of Victoria, 2 April 1996) [83]; ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [18].

Subsequently, it stated the task on which it embarked as follows:

Counsel for the applicant submitted that I should prefer the evidence of Mr Jackson to that of the other two valuers. I accept that of the three valuers who gave evidence, Mr Jackson was the most polished and the valuer who demonstrated the closest familiarity with the Melbourne commercial market. I also accept that he was the valuer who had the most experience in relation to the valuation task at hand. But I am not persuaded that this case is to be resolved on that basis. Rather it is to be resolved by the tribunal considering the intellectual foundation of each valuation and the evidence supporting each valuation. Not only is this the most reliable method to ascertain the correct answer, but also it acknowledges the possibility that an expert might be tempted to promote the case of the party on whose behalf they appear.[20]

[20]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [92] (emphasis added).

Both the evaluation of the theoretical intellectual basis of an expert’s evidence, and the probative force of the evidence founding the expert’s opinion, are proper inquiries, directed to the foundations of opinion evidence.[21]
[21]As to which see Makita (Australia) Pty Ltd v Sprowles (2001) 25 NSWLR 705, 743-744 [85].

The overarching complaint

An overarching complaint was submitted for the applicant that, despite the above statements, the Tribunal in part conducted its own valuation of site value.

To succeed in establishing a factual basis for this complaint, the proposed grounds of appeal[22] must confront the following:
[22]Ground 1: Having correctly identified the task to be undertaken by the Tribunal as constituted when determining an appeal in respect of site value by reference to the decision in 101 Collins St Pty Ltd v City of Melbourne, the Tribunal: (a) acted contrary to that decision and pieced together a valuation of its own; (b) acted as if an expert Tribunal notwithstanding that the Tribunal was not so constituted and was constituted by a legal member sitting alone; and (c) impermissibly conducted its own valuation.

(a)the Tribunal stated at the outset that it did not propose to act other than on the basis of the evidence;
(b)it went on to describe its approach to the valuation issues as “considering the intellectual foundations of each valuation and the evidence supporting each valuation”;[23]
[23]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [92].
(c)it summarised the evidence of each valuer and proceeded entirely by reference to comparable sales identified in the valuers’ evidence;
(d)it made intermediate conclusions of fact at [96] to [99] which reflected the evidence of Mr Karutz and Mr Kensley with respect to the key sales identified by them;
(e)in turn, its conclusion with respect to the RACV land was “thus I would accept the rate ascribed to the site by Mr Kensley”;
(f)with respect to the Bunnings site the Tribunal summarised the analyses of Mr Karutz and Mr Kensley and assessed the factors that might bear on that analysis. It gave rational reasons for agreeing that it supported a valuer of significantly greater than $3,000 per square metre for the land component of the sale and that this rate was relevant to the subject land;
(g)the Tribunal characterised the above sales as ‘key sales’ on the evidence and addressed each of the valuer’s evidence with respect to 565 Collins Street, Melbourne and concluded that it would not be prepared to accord the sale significant weight;
(h)the Tribunal summarised its conclusions with respect to the sales evidence in relation to other sales;
(i)the Tribunal ultimately concluded:
My conclusions are largely consistent with the evidence of Mr Karutz and Mr Kensley, particularly the latter. In essence I accept their evidence as to value insofar as it relies upon the sales of vacant, or near vacant, land; and I would note that this was the foundation of their evidence, rather than their evidence about improved sales. (Our emphasis)

In our view the last sentence quoted above makes clear that the exercise undertaken by the Tribunal was one of evaluation of the valuers’ evidence. Its ultimate conclusion was that the evidence of two valuers as to value, insofar as they relied upon the sales of vacant or near vacant land, should be accepted.

It follows that the overarching complaint that the Tribunal undertook its own valuation must fail unless it can be demonstrated that the manner in which it dealt with one or more of the significant evidentiary issues before it involved going beyond the role which it expressly undertook. It is accordingly appropriate to deal with each of the remaining issues in the appeal both on the basis that they raise specific complaint about aspects of the valuation and on the basis that they are said to reflect an improper approach by way of a valuation exercise undertaken independently of the evidence.

If as the applicant submits the Tribunal rejected the valuers’ evidence as to comparable sales and made its own findings as to questions such as highest and best use, then that would itself be materially indicative that it pieced together its own valuation.

The statutory concepts

The remaining three issues are the identification and relevance of highest and best use; the valuers’ evidence on improved sales; and the valuers’ evidence on unimproved sales. Relevant to the determination of these issues are the following statutory concepts.

As the Tribunal observed, the definition of site value contained in s 2(1) of the VLA is at the heart of this case:

site value of land, means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made.

This definition requires improvements extant at the date of valuation to be disregarded. In turn, improvements are defined as follows:

improvements, for the purpose of ascertaining the site value of land, means all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land and the benefit is unexhausted at the time of the valuation, but, except as provided in subsection (2AA), does not include—
(a)work done or material used for the benefit of the land by the Crown or by any statutory public body; or

(b) improvements comprising—
(i)the removal or destruction of vegetation or the removal of timber, rocks, stone or earth; or
(ii)the draining or filling of the land or any retaining walls or other works appurtenant to the draining or filling; or
(iii)the arresting or elimination of erosion or the changing or improving of any waterway on or through the land—

unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation.

Section 5A sets out general principles relating to valuation of land:

5A Determining value of land
(1)Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.
(2)In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.
(3)Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account—
(a)the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;
(b)the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;
(c)the shape size topography soil quality situation and aspect of the land;
(d)the situation of the land in respect to natural resources and to transport and other facilities and amenities;
(e)the extent condition and suitability of any improvements on the land; and
(f) the actual and potential capacity of the land to yield a monetary return.

Section 2(2) further provides as follows:

(2)In estimating the value of improvements on any land for the purpose of ascertaining the site value of the land, the value of the improvements is the sum by which the improvements upon the land are estimated to increase its value if offered for sale on such reasonable terms and conditions as a genuine seller might in ordinary circumstances be expected to require.

The first threshold issue - Highest and best use

The concept of highest and best use is implicit in the theoretical basis of assessment of market value at a given point in time. Such value is understood to be ascertainable in accordance with the formulation of Isaacs J in Spencer’s case:[24]

To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.

[24]Spencer v Commonwealth (1907) 5 CLR 418.

It is implicit in this formulation that both vendor and purchaser are to be regarded as aware of the potentially most advantageous ongoing use of the land and not simply its current use, when formulating the relevant value. Such potential is a circumstance which necessarily affects the value of the land either advantageously or prejudicially.

Further, in Turner v Minister of Public Instruction[25] Dixon CJ stated:

After all the purpose (of valuation) is to ascertain the full return which may reasonably be expected from the sale of the land, not the most conservative value.

[25](1956) 95 CLR 245.

In Commonwealth Custodial Services Ltd v Valuer-General (NSW)[26] Biscoe J elaborated the concept by reference to relevant authority in the following terms:

There is no statutory definition of “highest and best use”. It has been described in the High Court as “the most advantageous purpose for which [the land] was adapted”: Spencer v The Commonwealth[27]. It “is the present value alone of such advantages that falls to be determined”: Cedar Rapids Manufacturing and Power Co v Lacoste[28]. In Park v Allied Mortgage Corporation Ltd[29] Hill J said at [70]: “As Spencer’s case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land”. In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources [30] Jacobs J said:
Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says — the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value.

[26](2006) 148 LGERA 38, [15].

[27](1907) 5 CLR 418, 441 (Isaacs J).

[28][1914] AC 569, 576 (Lord Dunedin).

[29](Unreported, Federal Court of Australia, 5 July 1995).

[30](1988) 65 LGRA 410, 415 (SC/SA).

In the present case the Tribunal summarised the underlying concept as follows in terms with which, with respect, we agree:

Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why highest and best use is relevant in assessing value, whether improved value or site value.[31]

[31]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [62]. See Spicer v Valuer General (1963) 10 LGRA 319, 320 (Else-Mitchell J).

It also expressly referred to the notion of most advantageous use articulated by Jacobs J in the passage quoted above from the Adelaide Clinic case. Such a notion takes account of all factors relevant to the land affecting its present and future potential.

Further, as the Tribunal recognised in the course of its judgment, the highest and best use of a particular piece of land is flexible and may, at a particular point in time, be to ‘bank’ the land with a view to future development rather than to use it actively.[32]
[32]Thus it has been recognised in respect of land which has the potential for development for urban purposes that there is a clear distinction which may be drawn between land ripe for subdivision and land having the potential for future subdivision and ‘banked’ for that purpose. Crompton v Commissioner of Highways (1973) 32 LGRA 8, 25.

By reference to s 5A,[33] it can be seen that the Tribunal was required to take into account the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use where it was relevant. In the present case the question of highest and best use was potentially relevant both to the question of valuation generally pursuant to s 5A(1) and more specifically to questions of comparability of sales of other land pursuant to s 5A(2).
[33]See above [35].

The language of the subsections is in our view deliberately flexible and capable of application to a potentially wide variety of circumstances as they may develop over time.

The role and weight to be given to the factor of highest and best use in a valuation exercise must in turn logically depend upon its relationship to other relevant factors disclosed by the evidence and affecting value.

This said, it was common ground between the parties that the proper ascertainment of the highest and best use of the subject land in the present case was a necessary preliminary step to its valuation. As Jacobs J stated in the Adelaide Clinic case in the passage already cited:

The first task of the valuer is to determine what that [highest and best] use is and then to value the land on that basis. [34]

[34](1988) 65 LGRA 410, 415.

It was submitted by the applicant to the Tribunal and in turn to us that it was necessary to identify a precise highest and best use for the land being valued before embarking on the process of ascertaining and considering comparable sales.

In responding to this submission at first instance the Tribunal correctly identified the essential nature of the concept of highest and best use in the terms set out above and then observed that although the highest and best of land will often be obvious, this will not always be so. In particular, in a mixed use zone such as that applicable to the subject land, different categories of buyers of land may compete for opportunities. Because the land is assumed to be without improvements for the purposes of the ascertainment of site value, such land may attract not simply buyers seeking to maintain land in its present condition and seek a rental return but also potentially land bankers, office developers and residential developers. The Tribunal went on to state:

67The applicant’s submission does not recognise the reality of the marketplace. In my opinion, at least, in the circumstances of this case, it is not necessary to identify a precise highest and best use of the land in order to assess site value. I would add that, if the highest and best use must be ascertained, it might be identified in general terms: such as an intense use for office, residential, hotel, club or retail purposes (or some combination of these); without specifying a single, precise use.
68I accept that in identifying comparable sales it will be relevant to consider what uses are likely to be most profitable for the subject land and to look for sales of land with similar characteristics in that respect. And if a sale was in respect of land with a different use profile, then it might be disregarded or be accorded less weight. But where realistic options for the development of land might be a residential tower or an office tower, the sale of such land is likely to be relevant even if the actual purchaser had one or other type of development in mind when the land was purchased.^[35]

[35]The Tribunal further stated by way of footnote: ‘I am not persuaded that the decision of the Land Appeal Court of Queensland in Department of Natural Resources and Mines v QNI Metals Pty Ltd [2002] QLAC 71 affects this analysis. In this respect I adopt what was said in Multiplex 240 Queen Street Landowner Pty Ltd v Department of Natural Resources, Mines and Water [2007] QLC 10. Nor am I persuaded that section 5A of the Valuation ofLand Act affects the analysis.’

After summarising the evidence as to the characteristics of the subject land and of the market over the period of time which might potentially be thought relevant for the purpose of identification of comparable sales, and the evidence of the three valuers who gave evidence before it, the Tribunal then made the following finding with respect to highest and best use:

93Assuming that the improvements on the subject land had not been made, I find that the highest and best use of the land was for intensive development with a tower building (of a similar volume to the existing building) and underground car parking, to be used for either office purposes or residential purposes or institutional purposes[36] or some combination of these. I accept that the most probable of these uses would be an office use. I also find that the ground floor level of any such intense development would most probably be used for a retail or quasi retail purpose.

[36]‘I include in this category a use for a club or a government entity, such as a large tribunal.’

It can be seen that this finding dealt with the question of highest and best use at a series of levels potentially relevant to the valuation exercise:

(a)It was a very specific finding in terms of the form of the potential physical redevelopment of the land, namely, that the highest and best use was for intensive development with a tower building (of similar volume to the existing building) and underground car parking.
(b)It was a more general finding as to the potential highest and best use of the land, in that the Tribunal found that such a development had the potential to be used principally for either office, residential or institutional purposes or some combination of these.
(c)Nevertheless, the Tribunal found that the most probable of these potential uses was that of office use.
(d)It further found that the ground floor of any such intensive development would most probably be used for a retail or quasi retail purpose.
(e)It specifically rejected the proposition that at the relevant times there were two separate and distinct markets for vacant land in the central district of Melbourne, one for office and the other for residential redevelopment. (This being a factor bearing directly on the issue of highest and best use.)

The issue of highest and best use was a significant one from the applicant’s point of view. If the highest and best use of the land was to be regarded as confined to development for office purposes then the use by the respondents’ valuers of the two key sales supporting a value for the subject land in the order of $3,000 per square metre became problematic.[37]
[37]It was not suggested on behalf of the applicant that highest and best use was the sole indicator of relevant comparison, but it was submitted that if the highest and best use of two properties were not properly to be regarded as the same, then the sales evidence of the comparator would require significant deconstruction to afford information relevant to the value of the first.

It must be accepted, as the applicant acknowledged during the course of argument, that the notion of highest and best use permits a combination of uses.

The question raised by the applicant is whether it must be a precise combination of uses or whether it is open to leave a key component of that combination expressed in terms of a potential range of uses. This question in turn is said to raise the following questions of law:

(e)whether the Tribunal was required in law to identify the highest and best use to which the subject land might reasonably have been expected to be put at the valuation date as referred to in section 5A(3) of the VLA and determine the value of the subject land on that basis;
(f)if so, whether the Tribunal determined the value of the subject land on that basis;
(g)whether the Tribunal failed to take into account relevant considerations, being considerations relating to the highest and best use to which the subject land might reasonably have been expected to be put at the valuation date as referred to in section 5A(3) of the VLA.

In our view it was open as a matter of law for the Tribunal to find that the highest and best use of the subject land extended to a range of potential uses for four reasons:

(a)the language of the section is apt to embrace the possible identification of a range of potential uses;
(b)the precision with which highest and best use is to be defined must ultimately turn upon the extent to which the evidence permits this to occur;
(c)the finding of the Tribunal was one of fact; and
(d)such finding was open to it and it is not open to agitate the weight of the evidence bearing on such finding of fact in an appeal on a question of law.

In our view the language of s 5A(3) is apt to embrace the potential description of highest and best use in terms of alternatives. First, in the absence of an apparent intention to the contrary, the use of the singular in the phrase ‘the highest and best use’ should be understood to embrace the plural.[38] Secondly, subsection 3(a) couples the phrase highest and best use with the phrase ‘and potential use’. Further, subsection 3(f) required the Tribunal to take into account the actual and potential capacity of the land to give a monetary return. It seems to us that the notion of potential use applicable to vacant land must have the theoretical capacity to embrace potential alternatives if such alternatives are proven to exist. Thirdly, the underlying notion of highest and best use takes account of all factors affecting its present and future potential and there is no sensible a priori reason for necessarily excluding alternative uses from such concept.
[38]Interpretation of Legislation Act 1984 s 37(c).

Whether the highest and best use is in fact proven to be a single use or a package of alternative uses will depend on the evidence. What use or uses are properly described as highest and best use will be a question of fact. It will also be a question of fact as to what degree of precision can be achieved in this description. Thus, in different strip shopping centres it may be possible to describe the highest and best use of a vacant block of land in one as ‘commercial development’, or in another ‘retail development’ (a specific form of commercial development) or in yet another as ‘supermarket development’ (a specific form of retail development).

Whether it is possible to be more rather than less precise will be governed by the evidence. Likewise, the relevance of precision to the valuation exercise in issue will be governed by the evidence. It may be irrelevant for valuation purposes in one case to distinguish between a site having the potential for commercial development generally or retail development in particular, but in another case highly relevant to ascertain whether the site has the capacity to accommodate a particular type of shop by reason of characteristics (such as size) not common in the market.

It follows that the evidence may or may not permit a description of highest and best use other than in terms of generality which embraces alternatives and may or may not demonstrate that for valuation purposes it is necessary to do otherwise than so describe the highest and best use. These questions will always be questions of fact.

It may also be that it is relevant to identify alternative highest and best uses because the most profitable potential use is attended by serious risk. Such risk may arise with respect to the development of vacant land for any number of reasons, but those which have been illustrated by fact situations arising in litigation in this Court in recent times include the potential cost of clean-up for environmental purposes, the need to obtain planning permit approval in contentious circumstances, or the need to obtain services as a precondition to development in circumstances where the provision of such services is uncertain.

There are a wide variety of other evidentiary considerations which may bear on the ascertainment of highest and best use. We have mentioned the above examples to demonstrate: first, that it is relatively easy to hypothesise factual situations that illustrate the proper characterisation of the highest and best use of land may involve questions of fact and degree on the evidence in a given case and, secondly, that such characterisation may involve contextual considerations which support the view that the articulation of potential alternatives is logically relevant.

It follows that in our view the question of what constituted the highest and best use of the land was one of fact to be resolved on the whole of the evidence before the Tribunal. In turn, the question whether such use was in part comprised of potential alternatives was a subsidiary question of fact to be resolved on the evidence.

Once the question in issue is characterised as a question of fact then the proper approach to be adopted upon an appeal on a question of law is well established.

In S v Crimes Compensation Tribunal[39] Phillips J stated:

The determination of that question of fact may depend upon the acceptance or rejection of evidence that is led; it may depend upon a choice between witnesses, and an assessment of their credibility or reliability; or it may depend more directly upon the sufficiency or insufficiency of the evidence that is given. All these things are committed to the tribunal, and not to the court; and although I speak of evidence, the same is true where the tribunal is authorised to obtain information otherwise than from witnesses on oath or to act upon its own expertise. Essentially, the question whether the particular circumstances of the claimant are such as to bring his or her case within the statutory description is a question of fact, not law.

[39][1998] 1 VR 83, 89; see also Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280; Collector of Customs v Agfa-Gevaert Ltd (1996) 1 86 CLR 389, 395; Myers v Medical Practitioners' Board of Victoria [2007] VSCA 163 (Unreported, Warren CJ, Chernov JA and Bell AJA, 23 August 2007).

In turn, nevertheless, if in determining whether the particular circumstances of a case are such as to fall within a relevant statutory description, the fact finding tribunal arrives at a conclusion which was simply not open to it, that is an error of law.[40]
[40]S v Crimes Compensation Tribunal [1998] 1 VR 83, 89-92 and the authorities there cited.

This principle has been consistently applied to decisions of the Victorian Civil and Administrative Tribunal and its predecessors. In Spurling v Development Underwriting Vic Pty Ltd[41] Stephen J referred to the underlying concept as articulated in another context, when dealing with a town planning case:[42]

In the case of decisions of magistrates the position in Victoria is well established by a line of decisions culminating in Taylor v Armour and Co. Pty Ltd[43], in which the Full Court of this State held that in the case of any question of fact the Court should treat the matter as an appeal from the verdict of a jury and should not make up its own mind upon the evidence but rather confine itself to seeing whether there was evidence upon which the magistrate might, as a reasonable man, come to the conclusion to which he did come. In saying this the Full Court stated that it was following the view of Herring CJ in Young v Paddle Bros. Pty Ltd[44]. The Chief Justice, in that case, adopted as the test whether "on any reasonable view of the evidence that decision can be supported"; a party aggrieved can thus only succeed if a decision contrary to the view of the magistrate is "the only possible decision that the evidence on any reasonable view can support.”

[41][1973] VR 1.

[42]Ibid 11.

[43][1962] VR 346.

[44][1956] VLR 38.

The question of whether there is evidence that as a matter of law supports a jury verdict, to which the above passage refers, falls to be approached in the manner described by McHugh J in Swain v Waverley Municipal Council:[45]

The common law draws a distinction between evidence that, as a matter of law, entitles the jury to find a verdict for the plaintiff and evidence that supports a verdict claimed to be unreasonable or against the weight of the evidence. In the former case, the court looks only at the evidence and the inferences most favourable to the plaintiff. In the latter case, the court not only looks at the whole of the evidence but also examines its weight and quality in order to determine whether the verdict returned was reasonable or in accordance with the evidence.

[45](2005) 220 CLR 517, 530 [32] in dissent.

In Transport Accident Commission v Hoffman[46] Young CJ and McGarvie J stated of an appeal on a question of law against a decision of the predecessor to VCAT:

How then is it to be construed? It is not to be construed as limited to an appeal from a decision of the Tribunal on a question of law. Nor is it to be construed as granting an appeal from any decision which involves a question of law. The via media we think is to construe the section as granting a right of appeal from any decision of a Tribunal on a question of law which is involved in the Tribunal's decision. See per Deane J in Director-General of Social Services v Chaney.[47] This construction would exclude an appeal upon such questions as whether a particular decision was against the evidence and the weight of evidence: see Collins v Minister for Immigration and Ethnic Affairs.[48] It would, however, allow an appeal upon the question whether there was any evidence upon which the Tribunal could have reached the decision which it did reach. In Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (NSW) (No.2)[49] the Full Court of the Federal Court held that in order to succeed, an appellant would have to show that there was no basis on which the Tribunal could reach the conclusion which it came to: see especially per Fisher J. [50]

[46][1989] VR 197.

[47](1980) 3 ALD161, 181.

[48](1981) 4 ALD 198.

[49](1980) 3 ALD 38.

[50][1989] VR 197, 199.

The fundamental question of law raised by the Tribunal’s decision as to highest and best use in this case is thus in our view simply whether it was open to the Tribunal on the evidence before it. Further, that question is to be decided on the evidence and inferences most favourable to the respondents.

In the present case it was in our view clearly open to the Tribunal to reach the view it did as to the potential for redevelopment for more than one use. His Honour’s conclusion was founded upon evidence as to what he called ‘the reality of the market place’. Before expressing his conclusions as to highest and best use he summarised the evidence of each of the valuers including that of Mr Karutz, the valuer called on behalf of the municipality, to the following effect:

Mr Karutz took the view that land having the character of the subject land might be used for offices, residential purposes, hotel purposes or retail purposes, or some combination of these purposes. He stated that these various land uses had been undertaken in the locality over the last few years and concluded that the best direct comparison was for sales of land with similar potential: that is, sales of similarly zoned land offering comparable amenity and suitable for some form of intensive development. He did not confine himself, like Mr Jackson, to the sale of land having potential for a commercial office. However he did acknowledge that the most probable use of the subject land would be for an office development.[51]

[51]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [88].

In our view it is clear that there was evidence both from Mr Karutz and Mr Kensley, the valuer called on behalf of the Valuer-General, to support the conclusions the Tribunal reached. For present purposes it is sufficient to quote from the evidence in chief comprised in the initial report of Mr Karutz:

There are no longer areas in the city which can be defined specifically as “office”, “retail”, or “residential” with developers considering all sites for their developments. The map contained within Appendix F demonstrates this fact showing the distribution of residential properties across the city.
As such “highest and best use” is very difficult to define with regard to one specific property use. Correlation analysis of sales against property characteristics indicates that CBD values correlate with “location” but little with “use” or “proposed development”. This may partly be due to the many mixed use developments, as allowed by the zoning; for example the Herald and Weekly Times site on the corner of Flinders Street and Exhibition Street site has been developed as a mix of offices and residential accommodation.
…
This is further enforced by observing the pattern of development within the city over the last 10-15 years. The structure of the city has changed considerably, and can no longer be simplistically delineated between office and retail. As a result, property developers have had to compete with each other across the city for sites, with each developer assessing the location of sites for their proposed purposes. As the Residential Development Location Map in Appendix F shows, residential land use has infiltrated practically every CBD block. Who buys a particular development site and develops it to a specific purpose ultimately reflects the prevailing economic conditions of demand and supply, the developers’ area of expertise/specialisation, and the need to maintain a supply of projects to their business and it is not unheard of for developers to change their project to an alternate use during the project, say from residential to office. The result is a competitive bidding process which will require the buyer to meet the market for a given location.
The “most probable use” of the subject site would probably be for an office development, however, given the central location a Hotel/Serviced Apartments complex, styled towards business users, could also be a possibility, or some other mixed use development. A residential use cannot be dismissed, given the topography of the site.

The matters which the applicant seeks to agitate in attacking the Tribunal’s finding on the facts are in our view matters which go to the weight of the evidence founding that finding. They go principally to concessions made in cross-examination by Mr Karutz and Mr Kensley that the most probable redevelopment use of the subject land was that of office. First, it is to be observed that his Honour so found in express terms as a component of his finding as to highest and best use. Secondly, and more fundamentally, such an attack is not open upon an appeal on questions of law. The relevant principle was reiterated by Kirby P in Azzopardi v Tasman UEB Industries Ltd:[52]

The court is limited, relevantly, to points of law. The finding of what have been called the primary facts of a case does not, in itself, expose the trial judge to review on a point of law, unless it can be shown that there is no evidence of a primary fact and that, this being crucial to his decision, the judge's fact finding has involved an error of law. If there is evidence, or if there are available inferences which compete for the judge's acceptance, no error of law occurs simply because the judge prefers one version of the evidence to another or one set of inferences to another. This is his function. The evaluation of competing evidence and inferences is reserved in compensation cases to the judge of the Compensation Court. Even if the evidence is strongly one way, the appeal court may not intervene simply because it reaches a different conclusion and this even if it regards the conclusion of the trial judge as against the weight of the evidence.[53]

[52](1985) 4 NSWLR 139, 151.

[53]Applied in Myers v Medical Practitioners’ Board of Victoria [2007] VSCA 163.

For the above reasons we would not grant leave to appeal on the basis of suggested errors of law by the Tribunal with respect to the question of highest and best use:

(a)in our view it is plain the Tribunal did address and make findings of fact as to the highest and best use of the subject land at the relevant date;
(b)further the Tribunal so addressed the question of highest and best use before embarking on the examination of comparable sales evidence, in accordance with the approach envisaged by Jacobs J in the Adelaide Holdings case;
(c)it was open to the Tribunal to find the highest and best use of the land was as a matter of fact to be characterised in the terms it did; and
(d)the Tribunal’s findings were evidence based and do not reflect an improper arrogation to itself of the role of the valuers.

In turn, it follows that the Tribunal was entitled to analyse the evidence of comparable sales within the broader framework adopted by Mr Karutz and Mr Kensley and not to exclude sales to which they attributed significance, but which were disregarded as irrelevant by Mr Jackson.

More particularly, it was permissible to have regard to the sales of the Bunnings site and the RACV site.

The second threshold issue – Improved sales

The second threshold issue bearing on the applicant’s case was the Tribunal’s rejection of a deconstruction of sales of improved land, as usefully supporting a conclusion as to site value in the present case.[54]
[54]See ground 1 set out above in footnote.

The Tribunal addressed the leading authorities bearing on the proper assessment of site value at [40] to [60] of its decision. It referred to the observations of the Privy Council in Toohey’s Ltd v The Valuer-General with respect to the concept of “unimproved value” (a similar concept to site value):[55]

Words could scarcely be clearer to show that the improvements were to be left entirely out of view. They are to be taken, not only as non-existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvement; what would it fetch in the market? It will be observed that the value is not what has been sometimes designated by the expression "prairie value." The land must be taken as it exists at the date of the valuation.

[55][1925] AC 439, 443.

The Tribunal then noted the qualification to this approach expressed by the Privy Council in Tetnzer v The Colonial Sugar Refining Company Ltd[56] that the assumption required by the statute was that the improvements “had not been made” – not that “they had never existed”. It followed that improvements on all other land should be taken into account in assessing the unimproved value of a particular property, even if those improvements were consequential on the improvements required to be disregarded.
[56][1958] AC 50.

The Tribunal observed:

The “simple” method identified in Toohey’s Ltd is not always easy to apply in practice. This is because there may be few, if any, sales of vacant land which are comparable to the subject land when the latter is assumed to be without improvements. Hence it is now recognised that it is also legitimate to assess site value by assessing the value of the land as improved, calculating the value of the improvements, then deducting the latter from the former to deduce site value.

The Tribunal then considered the effect of s 2(2) of the VLA quoted above. It concluded, correctly in our view, that this subsection does not imply that site value must be calculated by the “improved sales” method. The purpose of the subsection is to emphasise that when using this method, the value of the improvements is not the cost of those improvements (or the current day cost of those improvements), but the sum by which the improvements increase the value over the value the land would have if it were vacant.

The Tribunal then turned to the decision of the High Court in Maurici v The Chief Commissioner of State Revenue.[57]That decision concerned the application of s 6A of the Valuation of Land Act 1916 (NSW) and was concerned with the fixing of the unimproved value of a parcel of waterfront land at Hunter’s Hill, a residential suburb of Sydney.
[57](2003) 212 CLR 111.

The concept of unimproved value fell to be determined within essentially the same framework as the concept of site value pursuant to the Victorian legislation.

The Court held that although the traditional and usually appropriate method of valuing land in a notionally unimproved state is to seek out relatively contemporaneous sales of comparable properties between parties at arm’s length, unaffected by special circumstances, that approach had miscarried in the circumstances of the case. More particularly, it had led to reliance on a very small basket of sales which were not representative of the value of the land in issue, because vacant land was very scarce. It said:

In valuing the land, the respondent's valuer, to use the language of the Privy Council in Melwood, "ignored a principle of assessment of [value]", the principle being, that sales to be treated as comparable sales need to be truly comparable; or, to put it another way, in valuing the land the respondent's valuer did not proceed rationally, in that he was unreasonably selective in ultimately confining himself to two sales of scarce vacant land for the purposes of the comparison. The respondent could not, and did not suggest that he would be performing his statutory duty if he made other than a fair estimate of the value of the subject land. A fair estimate could only be made here on the basis of a fair, that is to say, a reasonably representative group of comparable sales. A group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land. That is not to say that sales of comparable vacant land may not provide useful evidence of value. But as JFN Murray observes in Principles and Practice of Valuation[58] in discussing valuations under federal land tax legislation of land in its notionally unimproved state, "sale evidence [must be] relevant and sufficient in volume" (emphasis added). So too, sales relied on, such as of scarce vacant land, are likely to be to a special and different class of buyer from buyers of improved land. As Waddell J said in Sher v The Commissioner for Main Roads[59], sales of properties of a different character are likely to attract a different class of buyer and are unlikely to provide a reliable indication of value.[60]

[58](4th ed, 1969) 120.

[59](1975) 24 The Valuer 150, 151.

[60](2003) 212 CLR 111, [18].

As the Tribunal observed, no party in the present proceeding sought to submit any argument based upon the “scarcity” factor.

The Tribunal further referred to the decision of the New South Wales Court of Appeal in AMP Henderson Global Investors v the Valuer-General.[61] In that case Tobias JA speaking for the Court said that the decision in Maurici stood for the following propositions:

(a)Section 6A(1) of the Act does not require when utilising the comparable sales method of valuation that only sales of vacant land should be considered.
(b)Confining one’s consideration to only sales of scarce vacant land and disregarding sales of improved land which would otherwise be as comparable as the vacant land sales in terms of timing, location, outlook and other relevant features, offends the principle that a reasonably representative group of comparable sales should be considered when applying that methodology.[62]

[61][2004] NSWCA 264.

[62]Ibid [3].

After addressing various factors affecting the comparison of sales of land, the Tribunal turned to the reliability of different valuation methods. The Tribunal expressed the view that if evidence were available of sufficiently comparable vacant land sales, such evidence will usually be more reliable than the indirect method of analysis of improved sales involving the deduction from a global value of the value of the improvements. In so stating, however, the Tribunal went on to say:

Of course this will depend on the availability of sales of vacant, or near vacant, land which is comparable to the subject land. And this observation does not justify a disregard for relevant and credible evidence based upon improved sales.[63]

[63]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [55].

It is apparent that the Tribunal accepted that the question of appropriate methodology must ultimately turn upon the evidence available in a particular case.

The Tribunal stated that the underlying difficulty with the estimation of site value by way of the deduction of the added value of improvements is that there is no separate market for improvements. If the value of a building is assessed by depreciating its cost, the adopted depreciation necessarily involves a significant element of judgment. The Tribunal then referred to decisions of the New South Wales Land and Environment Court and the Land Court of Queensland supporting these general observations.[64]
[64]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [59] - [60].

These observations reflect analogous concerns with respect to valuations based on hypothetical subdivisional analysis of the value of broadacre land, compared with the analysis of comparable in globo sales data.

In Coastal Estates v Bass Shire Council[65] Gobbo J stated:

The reason why the broadacre sales approach rather than analysis should ordinarily be the primary or even sole approach is that the task of valuation is to be addressed by an analysis of comparable sales. The alternative view submitted on behalf of the claimants is that in every case of valuation of land that is more or less ripe for subdivision, the land should be valued by the use of the hypothetical analysis method. There is some support for this argument in those cases which discuss the use of the hypothetical analysis method where the land is ripe for subdivision. See, for example, Brewarrana Pty Ltd v Commissioner of Highways [No 2];[66] Turner v Minister of Public Instruction;[67] Waalt Homes Pty Ltd v Road Construction Authority.[68] But even in land that is clearly ripe for subdivision, it does not follow that the analysis method must always be employed. This is so, where the entire holding of subdivisional land was acquired so that no issues of severance, injurious affection or enhancement could arise and where there was ample sales evidence as to what was being paid at the relevant time by subdividers for equivalent parcels of land. In such an example, the broadacre sales approach should in my view be preferred, for it will reflect a valuation that is founded on sales evidence.[69]

[65][1993] 2 VR 566.

[66](1973) 6 SASR 541; 32 LGRA 170, 181-2.

[67](1956) 95 CLR 245.

[68](1987) 64 LGRA 346.

[69]Ibid 577.

Having made the introductory observations referred to above as to the potential difficulties inherent in the analysis of improved sales, early in its analysis of the valuation evidence, the Tribunal came to the question of the reliability of the improved sales analysis in the present case.

For reasons relating to circularity of reasoning which are not presently relevant, it rejected the improved sales analysis used as a cross-check by Mr Karutz and Mr Kensley as unhelpful. It then turned to the evidence of Mr Jackson upon which the applicant seeks to rely.

Mr Jackson relied upon evidence of improved sales at 40 Market Street, 555 Collins Street, 589 Collins Street and the subject land itself. He used a “cost less depreciation” method to determine the added value of improvements, which (together with other deductions in respect of existing tenancies and holding costs) was subtracted from the sale price of the property to deduce site value. The Tribunal identified two main problems with this method. First, the selected depreciation rate is not based upon market evidence. Secondly, when there are substantial improvements on the land, the method is extremely sensitive to the selection of the depreciation rate. The Tribunal elaborated the sensitivity of the methodology by reference to Mr Jackson’s calculations. It pointed to the 70% rate adopted for 555 Collins Street, and observed that if 67.5% was selected, the resulting land value would have been 50% lower than that assessed, while a 75% rate would result in a value more than double that assessed.

The Tribunal noted that the rates adopted for the three properties analysed vary from 40% to 70% and observed that this underscored the qualitative nature of the exercise.

The Tribunal further noted that Mr Jackson’s assessment of site value at 555 Collins Street of $1,539 per square metre and 589 Collins Street at $1,537 per square metre did not sit comfortably with his assessment of the site value of 565 Collins Street at $2,156 per square metre.

Further, the Tribunal noted that the method of analysis adopted also required adjustment for a letting up period, interest charges and holding costs, and required a judgment to be made about whether a developer’s margin was to be added. In the Tribunal’s view these factors added further uncertainty to the resulting calculation.

Lastly, the Tribunal noted that although initially Mr Jackson did not use his methodology to analyse the sale of the subject property in October 2002, when he did so, he derived a figure of $1,566, significantly below his valuation of $2,000. The Tribunal observed that this difference illustrated the inherent difficulty in using this method for assessment of site value of land containing major buildings.

It is not to the point to submit that valuing property is not an exact science.[70] The Tribunal was faced with conflicting opinions. It was bound to resolve which it regarded as having the more satisfactory basis. The Tribunal’s observations as to the sensitivity of Mr Jackson’s calculations to different depreciation rates did not, as it expressly recorded, show Mr Jackson to be wrong. They underscored the qualitative nature of the judgment underpinning the method. The Tribunal did not reject the usefulness of the improved sales analysis method of valuation in a general sense, but as it had been applied in the present instance.
[70]Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575, [277]ff (Callinan J).

In our view it is clear that the Tribunal’s rejection of the methodology in issue was entirely evidence based.

The Tribunal was entitled to examine the logic and the evidentiary basis of Mr Jackson’s opinion evidence. It cannot be said to have erred in law in reaching the conclusions which it did. Those conclusions were essentially factual. It was for the applicant to persuade the Tribunal of the reliability of this evidence and it did not. The Tribunal gave rational reasons for rejecting the evidence and it is not open on this appeal to re-open a judgment which went essentially to questions of weight and persuasiveness.[71]
[71]A court may not reject as wholly irrelevant “for grounds which are not rational” a sale or sales which prima facie afford some evidence of value. AMP Henderson v Valuer-General (2004) 134 LGERA 426, 437 [52] (Tobias JA) and the cases there cited.

Likewise, the Tribunal’s approach to this issue does not demonstrate that it pieced together its own valuation. It did not engage in some improved sales valuation of its own. It simply evaluated the opinion evidence before it.

It follows from the above analysis that the Tribunal has not been shown to have erred on the threshold valuation issues of highest and best use or the analysis of improved sales.

It also follows that it is the manner in which it dealt with the evidence as to sales of vacant land which is critical to the remaining proposed grounds of appeal. Those grounds relate to criticisms of the Tribunal’s analysis of comparable sales and the further question whether that analysis demonstrates that the Tribunal engaged in a valuation of its own.

Unimproved sales

The Tribunal set out the unimproved sales referred to by the valuers and highlighted three sales which received particular attention from the valuers and that the Tribunal considered to be most relevant. Those sites were the RACV sale, the Bunnings sale and the 565 Collins St sale.[72]
[72]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [96-97].

It was submitted that the Tribunal pieced together its own valuation and that this can be seen from viewing the decision as a whole and from observing the pattern of language used in expressing the conclusions reached.

We do not accept this submission. The Tribunal considered the evidence before it and, for each sale, stated which evidence it accepted. In summary:

·For the RACV site, it accepted the evidence of Mr Kensley;
·For the Bunnings site, it accepted the evidence of Mr Karutz and Mr Kensley;
·For the Grand Central site, it accepted the evidence of Mr Karutz;
·For the Southern Cross site, it accepted the evidence of Mr Kensley;
·For the BCL site, it accepted the evidence of Mr Kensley and Mr Karutz;
·For the 180-200 Spencer Street site it referred to the analysis of Mr Karutz;
·For the Savoy site (677-689 Bourke Street) it referred to the analysis of Mr Karutz;
·For 9-27 Downie Street, Melbourne the Tribunal referred to the analysis of Mr Kensley;
·For 52-64 LaTrobe Street and 9-39 Mackenzie Street, Melbourne the Tribunal referred to the rate analysed by Mr Jackson but expressed reservations as to the utility of this analysis; and
·For 374-384 LaTrobe Street (the AWB site) the Tribunal referred to the analysis of Mr Karutz but expressed reservations as to the utility of the analysis.

We now turn in greater detail to the challenges to the Tribunal’s findings on the sites that it considered most relevant.

The RACV site (483-501 Bourke Street)

This site was purchased by the RACV in November 1999 for $20 million. The land has an area of 6,209 square metres with extensive frontages to both Bourke Street and Little Collins Street. It is close to the subject land. Mr Jackson analysed the sale at $3,221 per square metre, Mr Karutz at a similar figure and Mr Kensley at $3,000 per square metre.

There was dispute between the valuers as to whether this price reflected a ‘premium’ for special value to the purchaser (Mr Jackson) or a reflection of the special value to the adjoining owner (Mr Karutz) or should not be regarded as requiring an adjustment (Mr Kensley).

Summarising the submissions for the applicant, four statements or conclusions of the Tribunal in relation to this site were challenged:

·First, the Tribunal stated that ‘I find that the sale of the RACV site … supports the adoption of a rate of $3,000 per square metre of the subject land’;[73]
·Secondly, the Tribunal stated that if the RACV paid a premium or ‘excess’ for the site, it was unlikely to be greater than 10% of the purchase price and purported to accept Mr Kensley’s evidence on this point;[74]
·Thirdly, the Tribunal held that the RACV site was likely to attract a deeper market because the site was smaller and therefore the overall price was likely to be lower and purported to accept Mr Kensley’s evidence on this point; and
·Fourthly, the Tribunal stated that, also in relation to the RACV site, it had ‘taken into account the time of the sale’.

[73]Ibid [144].

[74]Ibid [123].

The applicant submitted that the first statement demonstrates that the Tribunal valued the subject land at $3000 per square metre and then looked to the RACV site to support it and that there was no evidence for the other three statements.

As we have indicated the principal disputes as between the valuers with respect to the RACV site were firstly, the relevance of the sale having regard to questions of highest and best use (which we have discussed above), and secondly, whether the sale required adjustment for a premium. In this regard the Tribunal had before it Mr Kensley’s evidence justifying the view that it should not be so adjusted.

Insofar as the Tribunal went on to refer to the potential range of any premium, that finding was a subsidiary finding supporting, but not essential to, the acceptance of Mr Kensley’s figure. It was open to the Tribunal to evaluate the opinions as to a premium, to reject the basis for a premium suggested by Mr Karutz (as he did) and come to a view as to the potential effect of the premium contended for by Mr Jackson.

In our view the Tribunal’s findings in this regard were made within the framework of the valuers’ evidence and were directly responsive to it.

The Tribunal ultimately expressed its conclusion with respect to the RACV site as follows:

I find that the sale of the RACV site in September 1999 supports the adoption of a rate of $3,000 per square metre for the site value of the subject land. In making this finding I regard it as significant that the subject land is located very close to the RACV site and has many of the locational attributes of that site. I have taken account of the fact that the RACV site has a Bourke Street frontage. On the other hand, I have also taken into account the fact that the subject land is smaller in area and, as Mr Kensley has observed, is likely to attract a deeper market because the overall price is likely to be lower. I have also taken into account the time of the sale.

Insofar as it referred to the smallness of the site, it is plain that it did so by reference to its understanding of Mr Kensley’s evidence. Whether this understanding was correct, is a question of fact. Further, and more significantly in terms of the applicant’s case, it does not suggest the Tribunal made its own valuation, if anything it erred in its application of the valuers’ evidence.

The reference to time of sale in the passage quoted above, relates back to the Tribunal’s earlier findings at [74]-[79] of its decision, with respect to the relevant market over time. Its findings in this respect were made after canvassing the evidence of the valuers and were squarely responsive to them.

It follows that none of the matters raised on behalf of the applicant in our view substantiate the conclusion that the Tribunal acted other than on the evidence before it.

The Bunnings site (393-403 Bourke Street)

This land was sold in September 2002 for $17,131,000. It has an area of 4,942 square metres and fronts Bourke Street, with a secondary frontage to Little Collins Street. It was purchased for residential redevelopment, and following the sale, the improvements upon it were demolished, save for a four level façade retained pursuant to heritage controls.

Mr Karutz analysed this sale at between $3,500 and $4,000 per square metre. He adopted a value of $3,700 per square metre. Mr Kensley analysed the sale at $3,458 square metres. Mr Jackson did not regard it as comparable, having regard to its highest and best use.

The Tribunal found that the Bunnings site could be equally considered a residential or commercial site, that it was closer to the retail precinct than the subject site, but comparable in terms of the quality of location.[75] It concluded that it was not as good a comparator as the RACV site and that some downward adjustment was required to reflect its closeness to the retail precinct. The Tribunal accepted that the Bunnings site was approximately three times the size of the subject site and that generally a larger site will attract a lower rate per square metre as there are likely to be fewer buyers and a shallower market.
[75]Ibid [130].

The Tribunal concluded that the Bunnings sale supported a finding of $3000 per square metre of the subject site, taking into account the ‘complexities in analysing the sale’ and ‘its location closer to the retail core’.[76]
[76]Ibid [145].

It was submitted that the Tribunal’s use of this site provides a further demonstration that it undertook its own valuation by concluding that the figure of $3000 per square metre was appropriate for the subject site and then marshalling the evidence to support it.

In our view it is apparent that the Tribunal in substance accepted the views of Mr Karutz and Mr Kensley that it was relevant to have regard to this sale in forming a view as to the value of the subject land. It further accepted evidence that there were nevertheless a series of factors which meant the value analysed required adjustment before it could be regarded as an indicator of the value of the subject land. Further, as the Tribunal recognised, these factors necessarily raised issues of real complexity. In turn, the identification and consideration of these factors by the Tribunal was responsive to the evidence and constituted a legitimate forensic assessment. It did not demonstrate the piecing together of a new valuation. It demonstrated an analysis of the evidence supporting the opinions of Mr Karutz and Mr Kensley.

565 Collins St

The 565 Collins St site was sold in 2003 at a rate of $2156 per square metre. It was sold at the same time as 555 Collins St to the same vendor. It was sold again in 2006 at a rate of $6340 per square metre, after the conclusion of the hearing below but before judgment was given. The Council applied to the Tribunal to reopen the hearing to allow evidence of the recent sale. The Tribunal granted the application and in its ruling stated that:

The 2003 sale of this property for approximately $8 million was the key sale relied upon by Mr Jackson, the valuer called on behalf of the applicant in the proceedings. The council says that the recent sale was for a sum in the order of $25 million and is thus highly probative. The council says that the recent sale affects the reliance that the tribunal should place upon the 2003 sale of that property.
…
I think that the evidence could be probative; and, if believed, could most probably affect the result. Whether this is so it will depend upon the detailed nature of the evidence; and it may depend upon evidence that is given as to movements in the market between 2003 and 2006 (or, possibly, 1 January 2002 and 2006; or 1 January 2004 and 2006). The reason why I think the evidence could be material is because, as Mr Horan put it for the Valuer-General, the May 2006 sale may be relevant to the weight and reliability of the evidence concerning the April 2003 sale; and, further, because the April 2003 sale was regarded as the key sale by the valuer for the applicant. I recognise that it is possible that the admission of further evidence might ultimately not be probative. But I think that the course that I should adopt now should be guided by the probabilities, rather than by the need to be certain about whether or not the evidence would, in fact, ultimately be determinative.[77]

[77]ISPT Pty Ltd v Melbourne City Council and Valuer-General of Victoria [2006] VCAT 1304, [3],[9].

In addition to the further evidence of Mr Karutz for the Council and Mr Kensley for the Valuer-General, the Valuer-General called to give evidence one Mr O’Sullivan, who was the selling agent in the 2006 sale. Mr O’Sullivan gave evidence, first, that the two properties were sold together and, secondly, that whilst he could not remember precisely, the offer came to be arranged as a ‘package’ because:

either, the land was too difficult to sell and we had to package it up with the building or the office was too difficult to sell and we had to package it up with the land, so you can use your own judgment there but either way it had to sell together. I know we had offers substantially less on the land as a stand alone and we were able to then get a satisfactory price by packaging it.

However, under cross-examination, Mr O’Sullivan agreed that the properties could have been bought by different purchasers and there was no contract condition requiring the purchase of one upon the other.

Thirdly, when it was put to Mr O’Sullivan under cross-examination that one of the reasons the land was difficult to sell was because of its location, Mr O’Sullivan agreed but continued that the ‘major factor [causing the land to be difficult to sell] was the market was depressed.’

Fourthly, contrary to Mr Karutz’s evidence, he was not aware of any artificial adjustment between the prices of the two properties, ie apportioning a greater amount to 565 and a lesser amount to 555 Collins St.

At the conclusion of the reopened hearing, the Tribunal reserved its decision.

In its written reasons for judgment, the Tribunal found that the 565 Collins St site was ‘important, but hardly decisive’.[78] It held that it was important because it was the sale of vacant land, suited to development and occurred around the relevant valuation dates.[79] It held that it was not decisive because it was just one sale, occurring in circumstances that gave rise to ‘doubt upon its reliability’ and located in an inferior location.[80] The Tribunal held that it accepted Mr Kensley’s evidence that the 565 Collins St site was used as an enticement for the purchase of the 555 Collins St site and as such the sale was affected by the combined purchase. The Tribunal stated that

No doubt the vendor would have focused on the bottom line of the two transactions, whereas the purchaser would naturally have sought to structure the arrangement in a way that suited its own commercial ends, including maximising the depreciation tax benefits that flow from improved properties.[81]

[78]ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652, [133].

[79]Ibid [135].

[80]Ibid [135].

[81]Ibid [136].

It continued that of more significance was the inferior location and stated that it accepted Mr Kensley’s evidence that the locational attributes of the two sites (565 Collins and the subject site) were ‘oceans apart’.[82] The Tribunal also found that as the 565 Collins St was larger than the subject site a downwards adjustment was required, but then stated that it placed no reliance on this factor.[83]
[82]Ibid [137].
[83]Ibid [138].

The Tribunal referred to the evidence of Mr Karutz who stated that there had been positive movement in the market since the first sale and this was reflected in other comparable sales. However, he did not consider that this completely explained the substantial increase in price. The Tribunal also referred to the evidence of Mr Jackson who stated that market conditions had changed dramatically between the two sales and that this, coupled with the planning permit attached to the land at the second sale, explained the increase.

The Tribunal concluded that the resale ‘confirmed [its] doubts as to the reliability of the earlier sale as a comparable sale’[84] and that it:

would not be prepared to accord the sale of 565 Collins St significant weight in assessing the site value of the subject land, without making adjustments for both location and the circumstances of the sale. When such adjustments are made, the sale of 565 Collins Street should be seen as in line with the sales of the RACV site and the Bunnings site.[85]

[84]Ibid [142].

[85]Ibid [143].

It was the applicant’s case that the one relevantly comparable sale of unimproved land was that of 565 Collins Street. The applicant submits that both the Tribunal’s rejection of 565 Collins Street as a comparable sale at $2,156 per square metre and its subsidiary finding that that sale ‘occurred in circumstances that cast doubt on its reliability’, demonstrate that the Tribunal pieced together its own valuation.

More particularly, it is submitted that the Tribunal’s findings did not take account of the evidence of Mr O’Sullivan as to the circumstances of the sale.

By paragraph 143 of its reasons, the Tribunal found that when two adjustments were made, namely first for location and secondly for the circumstances of the sale, the sale of 565 Collins Street was in line with the sales of the RACV and Bunnings sites, upon which the Tribunal held it was proper to place reliance.

In our view it is plain that the Tribunal placed greatest reliance upon the locational attributes in issue in making this judgment, and did so squarely by reference to evidence before it. It said:

More significantly, I find that at the time this sale was effected there was a strong market perception that land in the central business district west of King Street was inferior to land east of King Street. In particular, I find that the subject land was significantly better located and was more attractive as a development site, whether for office or residential purposes, than 565 Collins Street. In this respect, I do not accept that a Collins Street address is everything; rather, I find that it depends where in Collins Street the land is located. I accept Mr Kensley’s evidence that, at the relevant dates, the locational attributes of the two sites were “oceans apart”. The fact that 565 Collins Street has remained undeveloped for several decades – and through several property cycles - tends to confirm this observation.

Once this is accepted, then it was plainly open to the Tribunal to reject the evidence of Mr Jackson as to comparability. Insofar as the further factor of the circumstances of the sale is concerned, the applicant, as we have said, complains that due regard was not given to the evidence of Mr O’Sullivan and conversely the Tribunal wrongly accepted Mr Kensley as to his belief that the sale price of the vacant land was affected by the fact the purchaser also purchased the office building at 555 Collins Street from the same vendor.

In our view Mr O’Sullivan’s evidence did not compel a different view from that taken by the Tribunal:

(a) Mr O’Sullivan gave evidence as the selling agent and not as a valuer;
(b)he did not give evidence with a great degree of certainty as to the precise basis of the sale (see above);
(c)although uncertain as to the reason for packaging the land with the adjacent office building for sale purposes, the clear thrust of his evidence (at least at one point) was that it was so packaged;
(d)the resale of the land in May 2006 for more than three times the initial sale price, involved an increment capable of being regarded as casting doubt on the probative value of the initial sales. It was open to the Tribunal to prefer the evidence of Mr Karutz to that of Mr Jackson in this regard, and the Tribunal expressly relied on the evidence of Mr Karutz with respect to this circumstance.

On an appeal such as this, it is only if the Tribunal’s view was not open that an error of law will be made out. In our view the Tribunal’s conclusions were open to it and were reached on the basis of the evidence before it.

Other sales of unimproved land

If it be accepted that the Tribunal was entitled to accept the evidence of Mr Karutz and Mr Kensley and have regard to the sales of the RACV and Bunnings site (rejecting Mr Jackson’s views that they were not comparable having regard to considerations of highest and best use), and if it be accepted conversely the Tribunal was entitled to treat 565 Collins Street as of limited probative value, but on proper analysis in line with the RACV and Bunnings site sales, it is apparent that the other sales referred to in the evidence by the valuers were essentially contextual and of significantly less relevance. They do not provide the essential basis of either of the competing valuation opinions as to the appropriate level of value.

Nevertheless, the applicant relies upon the Tribunal’s treatment of other sales as providing a further basis for the view the Tribunal pieced together its own valuation. We do not accept that this is so. As we have already indicated, the Tribunal stated its conclusion with respect to other sales of which there was evidence, directly by reference to the assessment of one or other of the valuers before it.

In addition to the three sales already mentioned, the RACV, Bunnings and 565 Collins St sales, there were a further three sales the subject of specific submission by the applicant before this Court. Each of these sales was referred to in the Tribunal’s ultimate assessment of value of the subject land as being consistent with that value.

The Grand Central site (corner Bourke and William Streets)

The Tribunal found that the rate of $3,000 per square metre was consistent with the sale of the Grand Central site.[86] Mr Jackson valued this site at $1,888 per square metre and Mr Karutz valued it at $3,000 per square metre. There was evidence that the site contained three substantial buildings, one of which was Jetset House, and underground car parking. The Tribunal did not regard the Grand Central site sale as one ‘where the improvements of the site added much’[87] and that ‘notwithstanding that the Grand Central site is clearly a better site than the subject land, the sale occurred as early as April 1998 and this is a factor working in the other direction’ – implying that these two factors, one increasing the rate and one decreasing the rate, effectively cancel each other out.
[86]Ibid [147].
[87]Ibid [147].

Counsel for the applicant highlighted that there was evidence in the hearing below that Mr Jackson was heavily involved in the detailed negotiations of the sale of the site and his evidence was that the buildings added substantial value. In contrast, Mr Karutz was not involved in the objection process or in the sale and was living interstate at that time.

The reasoning of the Tribunal on this point is unclear. The evidence of neither witness is referred to nor is there an explanation as to why Mr Karutz’s evidence was accepted over that of Mr Jackson.

However, even if we were persuaded the Tribunal’s findings were against the weight of the evidence, this would not demonstrate an error of law. It was open to the Tribunal to accept the figure of Mr Karutz of $3,000. Ultimately, the Tribunal was confronted with different characterisations of the factors influencing the sale. It preferred the view of Mr Karutz to that of Mr Jackson. In so doing, it adverted to the matters put forward by Mr Jackson and it is apparent that it has formed a view with respect to questions of contested fact. Its conclusions do not demonstrate an error of law.

BCL car park

In relation to this site, the Tribunal found that

For what its worth, the adoption of a rate of $3,000 per square metre for the site value of the subject land is also consistent with the sale of the BCL car park site in October 2001.[88]

[88]Ibid [149].

This finding was challenged on two fronts. First, it was submitted that the use of the phrase ‘for what its worth’, whilst a matter of language, is another indicator that the Tribunal undertook the valuation for itself. Secondly, it was submitted that it was inconsistent with the evidence in relation to this site. Mr Jackson said that the site was not relevant to the subject site. Mr Karutz valued the site at $2,971 per square metre, but considered that positive adjustments were required to be made to the subject site. Mr Kensley valued the site at $3,000 per square metre and considered that the benefit of that site having the certainty of a relevant planning permit would not affect markedly the valuation. Further, it was submitted that the finding was inconsistent with the Tribunal’s comments in the appendix. Those comments stated the values attributed by Mr Kensley and Mr Karutz and continued that the site was affected by two factors: the inferior location to the subject site and the positive attribute of the planning permit. The Tribunal posited whether these cancel each other out and concluded it was ‘difficult to make the required adjustments with confidence’.[89]
[89]Ibid [163].

On its face, this submission is weak. The two valuers did conclude approximately $3,000 per square metre was to be derived from the sale, and expressed the opinion that there were relevant adjustments but they were difficult to make. The Tribunal noted this in the appendix. The words ‘for what its worth’ in the context of these comments may be interpreted as acknowledging the rough nature of the estimates and demonstrate that the Tribunal did not place material weight on this sale. Having regard to the evidence, it was justified in taking this view, particularly where Mr Jackson took the position that the sale was of no relevance. In our view the words ‘for what it’s worth’ do not demonstrate the Tribunal went beyond assessing the evidence of the valuers. Rather, they demonstrate an awareness of qualifications inherent in the evidence bearing upon its potential weight.

The Southern Cross site (95-129 Bourke Street)

The Southern Cross site was assessed by Mr Jackson as being approximately $3000 per square metre. In argument it was submitted that this was ‘an important’ site for Mr Jackson and it comprised one of the three vacant land sites he relied upon. It was submitted that Mr Jackson considered it to be better than the subject site by approximately one third, due to its greater size and better location. Mr Kensley agreed that it was in a better location. Notably, however, Mr Kensley also stated that notwithstanding the better location

It nevertheless sort of in my mind provides comfort to an overall assessment for a good CBD site of [$]3000 [per] square metre.

The Tribunal found that:

The adoption of a rate of $3,000 per square metre for the subject land might be thought to be a little high having regard to the sale of the Southern Cross site in July 2001. There is no question that the Southern Cross site is in a better location. On the other hand the land area was very large (five times the area of the subject land) and it is difficult to know on the evidence what, if any, adjustment needs to be made for this factor. Bearing these matters in mind, I do not regard this sale as requiring a different answer than that indicated by the more comparable sales.[90]

[90]Ibid [148].

It further found that

The circumstances of this sale were unusual in that the property was sold in an off-market transaction based upon the averaging of valuations. I regard this sale as a relevant sale, however it cannot be applied directly because it is in a quite different part of the city.[91]

[91]Ibid [161].

It was submitted that, contrary to this finding, it was not ‘difficult’ to know the adjustment factor as Mr Jackson had provided the assessment of one third and, further, that no evidence was given in relation to the ‘different part of the city’.

It is correct that Mr Jackson gave evidence as to the adjustment to be applied, but it was open to the Tribunal to conclude the adjustment in issue was not able to be made confidently despite his evidence. Moreover, both Mr Jackson and Mr Kensley gave evidence that the site was in a better part of the city than the subject land. The Tribunal accepted that the Southern Cross site sale did suggest $3,000 per square metres for the subject land was ‘a little high’ but was not persuaded that a lower value could confidently be inferred from it for the subject land. It was open to the Tribunal to regard the evidence as ‘not requiring a different answer than that indicated by the more comparable sales’. In effect the Tribunal was confronted with different opinions as to where this site sat in the relevant basket of sales. The Tribunal’s reasoning does not demonstrate that it did other than evaluate the contentions of the valuers.

Conclusions

For the above reasons we do not accept that the applicant has demonstrated error of law on the part of the Tribunal. In our view it was open on the evidence for the Tribunal first, to take the view it did on the question of highest and best use; secondly, to evaluate the evidence as to improved sales and arrive at the conclusions which it did; and thirdly, to take the view that an analysis of the valuers’ evidence as to unimproved land sales supported the opinions of Mr Karutz and Mr Kensley.

Further, we are not persuaded that the language, structure or individual sales analyses contained in the Tribunal’s decision, demonstrate that it pieced together its own valuation. In our view a careful reading of the decision supports the contrary conclusion namely, that the Tribunal formed a view as to the probative weight of the valuers’ evidence and preferred that adduced on behalf of the respondents against that adduced on behalf of the applicant.

Accordingly, the application for leave to appeal should be dismissed.

[2008] VSCA 180

19 September 2008