Maurici v Chief Commissioner of State Revenue

[2002] HCATrans 381

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S107 of 2002

B e t w e e n -

ANTHONY PHILLIP MAURICI

Appellant

and

CHIEF COMMISSIONER OF STATE REVENUE

Respondent

GLEESON CJ

McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 4 OCTOBER 2002, AT 10.18 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR I. McN. JACKMAN, SC, for the appellant.  (instructed by Speed & Stracey)

MR B.J. PRESTON, SC:   Your Honours, I appear in this matter with MR J.B. MASTON, for the respondent.  (instructed by the Crown Solicitor for the State of New South Wales)

GLEESON CJ:   Do you think Mr Jackman is going to insist on following you, Mr Walker?

MR WALKER:   He may try to insist.  I do not think he will succeed, your Honour.

GLEESON CJ:   Yes, Mr Walker.

KIRBY J:   Mr Walker, I asked the Registrar to notify both parties that in respect of my property in Sydney I am subject to land tax and I have not really thought it all through but I may be affected in some indirect way by the matter under consideration.  At one stage I objected to my land tax assessment, though I did not take the objection further.  As you can see, all available Justices of the Court are sitting and I understand neither party raises any objection to my participating in the case and that is why I am here, but I put it on the record.

MR WALKER:   Thank you, your Honour.

McHUGH J:   I have not raised it with the parties but I pay land tax on property interests I have in New South Wales.  May I put that on the record.

GLEESON CJ:   Mr Walker, before you get into the substance of your argument, I would be assisted if you could just briefly explain the procedural background to what went on here.  I am just not sure I am entirely clear about it.

KIRBY J:   In doing that, if you would explain what the second appeal was that was dismissed at the special leave hearing.  I do not quite understand what that was about.

MR WALKER:   The second appeal concerned a costs decision.

KIRBY J:   I see, we are not concerned with that.

MR WALKER:   And may now be disregarded.

KIRBY J:   Quite rightly so.

MR WALKER:   Your Honours, so far as procedure is concerned, the valuation and assessment to land tax gave rise to appeals pursuant to ultimately section 38A of the Land Tax Management Act to the Land and Environment Court under the general appeal provision of section 96 of the Taxation Administration Act.

GUMMOW J:   Wait a minute.  What was the first section?

MR WALKER:   Section 38A of the Land Tax Management Act.  Now, these were repealed as at 13 December 2000.  The effect of section 38A of the Land Tax Management Act as it stood was to direct to the Land and Environment Court the appeal, the right to which had been granted under section 96 of the Taxation Administration Act, which directed an appeal to the Supreme Court.

GLEESON CJ:   What is the nature of the appeal?

MR WALKER:   It is at the first level – your Honour it is, as it were, a rehearing, a fresh determination.  The appeal thereafter to the court, which I apprehend is the one your Honour asked me about, is ‑ ‑ ‑

GLEESON CJ:   I am still interested in the first one, in other words the one to Commissioner Nott, is it?

MR WALKER:   Yes, your Honour.

GLEESON CJ:   Section 38A sent that off to the Land and Environment Court.

MR WALKER:   The Valuation of Land Amendment Act of 2000 inserted into the Act sections 37 and 38 relevantly, which describes the reference that your Honours will find in the appeal book at page 171, paragraph 1 of Commissioner Nott’s decision.  That was an appeal as it then stood where an owner was dissatisfied with the determination of an owner’s objection.  The first step is the making of an objection.

GLEESON CJ:   Well, the first step is presumably the making of that to which objection is taken.

MR WALKER:   There is an assessment based upon a valuation.

GLEESON CJ:   And where do we find that?

MR WALKER:   Your Honour will find that at page 3 annexed as required by court rules to the first appeal.  The first appeal is found at page 1.  The assessment is found at page 3 to tax.  The objection is found at pages 4 and 5.  The dealing with the objection is found at page 6 and at line 27, the determination of the objection reads as follows:

The land tax assessment is therefore considered correct and your objection has been disallowed.

At line 24 there is reference to:

The Valuer‑General’s Department has reviewed the land value to which you have objected . . . has accepted advice that the land value not be altered.

GLEESON CJ:   Now, when the taxpayer exercised his right of appeal to the Land and Environment Court, you say it was a complete rehearing.

MR WALKER:   Yes.

GLEESON CJ:   And where do we get that from?  I am not doubting it, but I just want to know.

MR WALKER:   It comes originally, your Honour, from the terms of the grant of the right of appeal, namely section 96 of the Taxation Administration Act:

(1) A taxpayer may appeal to the Supreme Court if:

(a) the taxpayer is dissatisfied with the Chief Commissioner’s determination of the taxpayer’s objection ‑ ‑ ‑

GLEESON CJ:   Section 38A substitutes Land and Environment Court for a Supreme Court.  My recollection is that the Land and Environment Court legislation has provisions that talk about classes of procedures.

MR WALKER:   Yes.  This is a class 3 application, as one sees from the title at page 1 in the book.

GLEESON CJ:   What is the statute that will tell us what those classes are?

MR WALKER:   The Land and Environment Court Act.  I will give your Honours the particular provision if I may take that on notice.  Section 16 is for the general classification.  I am obliged to my friend.  We think it is section 19 for class 3.

HAYNE J:   Section 102 of the Taxation Administration Act bears on it, does it not?

MR WALKER:   Yes, your Honour.

HAYNE J:   Section 102 is the powers of the Supreme Court, that plus 38A(2).

MR WALKER:   Yes, and I was about to point out that those powers, which are why I say it is in effect a redetermination, your Honours will see that it involves confirming, revoking, making “an assessment in place of the assessment”, et cetera, and very broad other powers.  For those reasons, one finds that the Commissioner in the court at page 187 of the appeal book alters by order 2 the land value.

GLEESON CJ:   Is the taxpayer confined to his grounds of objection?

MR WALKER:   No, your Honour.  That comes from section 100 of the Taxation Administration Act.

GLEESON CJ:   So what used to be called the assessor and what is apparently now called the Commissioner, Commissioner Nott, of the Land and Environment Court, stood in the place of the what?

MR WALKER:   Of the Chief Commissioner.

GLEESON CJ:   Now, what gave the right of appeal from Commissioner Nott to Justice Cowdroy, and what was the nature of that appeal?

MR WALKER:   Your Honour, that is given by section 56A of the Court Act, that is, the Land and Environment Court Act.  Your Honours see that was cited in paragraph 1 of Justice Cowdroy’s decision at page 194 of the appeal book.

GLEESON CJ:   The Land and Environment Court Act?

MR WALKER:   Yes, your Honour.

GLEESON CJ:   I just want to look at that.

MR WALKER:   The Court Act confines that to a matter of law.

GLEESON CJ:   I have not seen section 56A of the Land and Environment Act.  Could you read it out?

MR WALKER:   Just one moment, your Honour.  I think neither of us have it here at the Bar table.  May I have that obtained forthwith?  Your Honours will ‑ ‑ ‑

GLEESON CJ:   Just a second, someone is going to get it.  Can you tell me the full description of the Act is the Land and Environment Court Act of what year?

GUMMOW J:   1979.

MR WALKER:   1979.

GLEESON CJ:   1979, thank you.

MR WALKER:   Your Honours will also find reference to this at the next stage of procedure which is in the Court of Appeal at paragraph 1 of Justice Handley’s reasons, pages 215 and 216 of the appeal book:

Leave to appeal from the decision of Cowdroy J is required by s 57(3)(b) of the Land and Environment Court Act (Court Act) because –

as his Honour points out, the appeal into Justice Cowdroy himself was restricted to “a question of law”.

GLEESON CJ:   I would like to identify the question of law.

MR WALKER:   The question of law upon which we now rely, that is after the leaving behind as matters of history of other matters argued in the Court of Appeal, is whether or not the scarcity value as explained in the reasons of all the decisions below was capable of being taken into account by way of deduction in the assessment of land value under section 6A of the Valuation of Land Act.

GLEESON CJ:   I have a couple of problems about that.  One is that I am not sure that scarcity value is a term of art or that I understand exactly what is meant by it.  The origin of this is, is it not, on page 172 in paragraph 6?  That is the revenue authority’s valuer arrived at the land value in dispute by comparing the:

subject land with sales of other waterfront properties in the locality, being properties he regarded as vacant land sales or sales where any improvements on the land had little or not value.

MR WALKER:   If the matter had rested there, that is if that were a complete statement of what Mr Croker said and did, then it would reveal nothing about the role of so‑called scarcity value in the exercise.

GLEESON CJ:   I understand that.  Then if you go to page 185 you see Commissioner Nott giving his reasons for arriving at the land value and in effect he looks at those comparable sales.

MR WALKER:   In particular, in paragraph 62 one sees that he has “deducted”, as he puts it, the:

estimated added value of the improvements (other than land improvements) from the contract price ‑ ‑ ‑

GLEESON CJ:   All he has done is what on the face of it looks like a very straightforward thing.  He said, “I am trying to work out the unimproved value of the taxpayer’s block of land at Woolwich and the method I use to do that is to look at recent sales of vacant land in the area”.  Full stop.

MR WALKER:   Yes.

GLEESON CJ:   That does not sound as though it gives rise to a question of law.

MR WALKER:   If that was where the full stop stays or if that is the last full stop, we would respectfully accept what your Honour has put.

GLEESON CJ:   Then, on the top of page 187, Commissioner Nott refers to a “A novel submission” that had been made to him by counsel and as I understand it that is the way this concept of scarcity value came into the discussion.  Counsel, observing the way the valuer had gone about his business, made us raise an argument.

MR WALKER:   Yes.  It is difficult to tell from the transcript whether the idea is sourced in counsel or witness, it is given all its content by the witness, it is presented as an argument obviously by counsel.  That passage commencing at page 56 of the appeal book.

GLEESON CJ:   But all the valuer had done was to say, “In order to infer what the value of the taxpayer’s property would be without improvements on it, I have looked at six sales of vacant or virtually vacant land in the area in recent times and made a comparison.

MR WALKER:   Yes.  He also says that it is the way the Act is worded which drove him to exclude a matter he had knowledge of, namely the scarcity factor about which this appeal revolves.

GLEESON CJ:   Yes, but the so‑called scarcity factor is just a reference to the forces of supply and demand, is it not?

MR WALKER:   It is a reference to a particular effect by reason of the desirability of this suburb to the forces of supply and demand, yes, your Honour.

CALLINAN J:   And you say that that is an irrelevant factor, do you not?

MR WALKER:   Yes, we say the ‑ ‑ ‑

CALLINAN J:   Mr Walker, I would not make the concession too readily about whether if one stopped at the full stop he would not have a point of law.  Can I give you a reference to Melwood Units Limited v Main Roads Commissioner [1979] AC 426 at 432, which was an appeal from the Land Court at first instance, the Land Court in Queensland, on a point of law and their Lordships said there:

If it should appear that the Land Appeal Court ignored a principle of assessment of compensation for compulsory acquisition (resumption), such as for example that commonly known as the Point Gourde principle, that in their Lordships’ opinion would be an error in law.  So also if the Land Appeal Court rejected as wholly irrelevant to assessment of compensation a transaction which prima facie afforded some evidence of value and rejected it for reasons which were not rational, that in their Lordships’ opinion would be an error of law.

In effect, it is very difficult to find a valuation methodology which does not involve the application of some legal principle.

MR WALKER:   May we put it this way?  First, we adopt, with respect, what your Honour Justice Callinan has said in relation to the character as an error of law when a person responsible for valuing under a statute fails to take into account something which is relevant and, in particular, that is clearly so where the person has expressly directed himself, as Mr Croker reveals, that the thing is irrelevant or impermissible to be taken into account under the Act.

GLEESON CJ:   Now, do you say there is here a principle that was overlooked or misapplied or do you say that there was a failure to take into account an irrelevant consideration, or both?

MR WALKER:   Both.

GLEESON CJ:   What is the principle?

MR WALKER:   The principle is that in applying the assumption which has fictitious elements, or a fictitious character, it must not be applied beyond the evident purpose of its statutory creation.

GLEESON CJ:   And what is the assumption?

MR WALKER:   There is also the principle ‑ ‑ ‑

GLEESON CJ:   What is the assumption?

MR WALKER:   The assumption is that contained in section 6A(1) of the Valuation of Land Act, namely, and I quote:

assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner’s predecessor in title had not been made.

So it is counterfactual.  It takes that which has been made and asks or demands that it be assumed that it had not been made.

GLEESON CJ:   And in the case of residential land, and leaving aside the complication about the retaining wall with which we are not concerned ‑ ‑ ‑

MR WALKER:   No concern here at all, your Honour.

GLEESON CJ:   ‑ ‑ ‑ the relevant assumption is that it did not have the house on it.

MR WALKER:   Yes.

McHUGH J:   Mr Walker, one of the things that concerns me about the case is whether the focus is not too narrow.  For instance, the respondent asserts that the only relevant section to look at is 6A but perhaps you have to look at this Act in its context.  The theory of the Act is that ‑ ‑ ‑

MR WALKER:   McGeoch’s Case supplies a summary of that, yes, your Honour.

McHUGH J:   All the land is being looked at or the land value is being looked at as though all the land in New South Wales was vacant.

MR WALKER:   Can I address that proposition at slightly more length a little later on, your Honour.  There are huge problems of principle, practicality and authority, we submit, posed by the respondent’s contention which might in effect go as far as the way your Honour has just put it.  I will come to it after first of all showing how Mr Croker directed himself and trying to elaborate the ramifications of the respondent’s position.

McHUGH J:   What happens if you are valuing land in say Carlton in Melbourne or Surry Hills in Sydney where there is perhaps no vacant land at all?  Do you have some nominal idea of sales?  This idea of even taking comparable sales of vacant land in what is ‑ ‑ ‑

MR WALKER:   We challenge that, as your Honour knows.  Now, Mr Croker, whose evidence is most commendably frank, volunteers a lot of the language we use against his argument.  In relation to the last point your Honour Justice McHugh has made, he himself volunteers the language of remote in time and space.  “Remote” is his word.  He actually posits as a priority that rather than ever look at land of the kind actually being valued, you would move to a place remote in time, remote in space, with then the comparability adjustments that they require to be made, in order to use actually vacant land.

GLEESON CJ:   Mr Walker, the best evidence of the value of land is what somebody has actually agreed to pay for it.

MR WALKER:   Yes, and no one pays for land value.

GLEESON CJ:   Now, suppose there was a dispute about the value of a block of land in Paddington in Sydney that had a house on it – as far as I know there is no vacant land in Sydney – and suppose the Valuer‑General called to the witness box a man who said, “I hereby offer to pay a million dollars for Blackacre in Paddington and I tell you that if my offer is accepted, the first thing I am going to do is knock the house down.”

MR WALKER:   Your Honour, that is Fenton’s Case to a “T”.

GLEESON CJ:   Suppose that evidence was given in a case.  Would that prove, or be some evidence tending to prove, that the unimproved value of Blackacre in Paddington is $1 million?

MR WALKER:   Yes.  Fenton’s Case in this Court, which both sides have cited, is a particularly good example of the circumstances – and I stress “the circumstances” – in which that would arise and be true.  That was a case in Mt Gambier where the question was land value, unimproved value, of parcels of land in the township upon which there was to be erected a supermarket, a new development.  In order for the supermarkets to be erected of course, first the land had to be made vacant if it were not already.  The comparables used receiving the complete approbation of this Court were other parcels of land in the same township at more or less the same time with perfectly serviceable improvements held by people who were, as it were, reluctant vendors almost but who came under the market pressure, no doubt created by the town planning legislation, which made the highest and best use a supermarket rather than a cottage or a small retail premise.  It was clear that those purchases, those other comparable purchases, were precisely what your Honour the Chief Justice has posited.

KIRBY J:   That happens all the time around me.  Did any of the evidence in respect of Hunters Hill refer to such ‑ ‑ ‑

MR WALKER:   No.

KIRBY J:   Many waterfront properties in Sydney which are the subject of this tax are very old and decrepit and they belong to old people and when they die, the land is bought and the place is knocked down.  It is a very common development.

MR WALKER:   There is a principle that is not in question in this case but which informs probably both sides’ contentions – certainly ours – and that is that highest and best use is a relevant factor in considering what the market history tells one by reference to prices of comparable properties ought to be assigned as the value first to the improved land and second to the unimproved land.

GLEESON CJ:   But that is the entire theory underlying the use for a hundred years in New South Wales of unimproved value as a basis of taxation.  I entirely understand the political arguments against it but the origin of the theory is clear enough.  It is to force people to develop their land to its highest and best use.

MR WALKER:   They were in fact clear political arguments, as the travaux preparatoires to which your Honours’ attention has been drawn in writing make clear from the 1890s.

GLEESON CJ: That is the reason the central business district of Sydney has a lot of big glass boxes on it, but in the example that I gave which requires nothing but the assumption that the building has been knocked down, which is that required by section 6A, you do not have to make any assumptions about anything, do you? You have a man who has actually come along and said, “I’ll pay a million dollars for Blackacre in Paddington”.

MR WALKER:   Can I answer that by pointing out that the Parliament actually requires an assumption to be made about the land value of which is to be assessed.  What your Honour says, with respect, is true if you use “assumption” in a slightly different way.  There is no assumption, estimate or guesswork when one comes to look at the near or virtually similar comparable in the case your Honour puts.

GLEESON CJ:   But you would need a comparable.  If you had evidence in a particular case, if Mr Croker  ‑ ‑ ‑

MR WALKER:   I am sorry, your Honour was talking about one only block of land.

GLEESON CJ:    ‑ ‑ ‑ if Mr Croker in the present case had said, “I, Mr Croker, am willing to pay $2 million for this block of land, I”  ‑ ‑ ‑

MR WALKER:   For Mr Maurici’s land, yes.

GLEESON CJ:    ‑ ‑ ‑ yes, “I offer to do so now and I also tell you that the moment I become the owner of that land I am going to flatten the house on it”, what more evidence would you need to work out the unimproved value of the land?

MR WALKER:   You would need to know something about the response of the market to that, including the response of other bidders who have the same ambition of flattening the mansion.

GLEESON CJ:   Subject to the possibility that that is an underestimation of the value of the land, you would not make any deductions from $2 million, would you, by reference to the fact that the reason Mr Croker is willing to pay $2 million is because land is so scarce.

MR WALKER:   The reverse, your Honour, you would add something for demolition and clearing.

HAYNE J:   Which invites attention to the comparison.

MR WALKER:   Yes.  It is ‑ ‑ ‑

HAYNE J:   But the example given by the Chief Justice, powerful as it is, simply leads, does it not, to further questions about the validity of the comparison which is sought to be made.

MR WALKER:   Quite, quite.  If one eliminates where most of the work for a professional valuer is and for cross-examiners of valuers in valuation challenges, if one eliminates the adjustments or contested comparability of the evidence relied upon and posits a case where, as it were, neatening up what we have in Fenton’s Case from Mt Gambier supermarket developments and you posit a case where something which will be treated as comparable has actually been sold – so we are not talking about being prepared to offer, you have to have somebody being prepared to accept – has actually been sold for a price to which they are then going to add the costs of demolition and clearing for the purpose of rendering it vacant, then you have got, by coincidence of those circumstances, a most serviceable, perhaps an ideal piece of evidence, for the valuation of the land in question obeying the statutory command to assume that its improvements had not been made.

GLEESON CJ:   Would you make a deduction from the value thus deduced by reference to the fact that the forces of supply and demand, including scarcity, have produced that consequence?

MR WALKER:   Not at all, your Honour, because there would be nothing in the quality of the improved land whose perfectly good houses or shops are going to be knocked down which leads to the scarcity in question in this case.  The scarcity in question in this case is not actual scarcity.  It may be actual scarcity in Mt Gambier because of town planning.  The streets that were once zoned for single residencies or small shops is now zoned for large commercial development.  That is precisely what the 1960 Report relied upon by our learned friends of the Committee reporting to the New South Wales Parliament, chaired by Mr Bridge, QC, that is precisely what they are talking about in their Chapter XIII.  It has nothing to do with the scarcity factor at play in this case.  It has to do with the actual scarcity of land zoned for particular lucrative uses and there is no question but that if the facts of the Mt Gambier or your Honour the Chief Justice’s example ‑ if the facts of that included something about the restricted zone in which such purchase and demolition of perfectly good houses made economic sense to purchasers, then there would be no deduction required.  It would be contrary to principle to make any deduction when using that evidence as a comparable for land which is required to be assumed not to have had any improvements made in the same zone, and I stress “in the same zone”. 

Now, the scarcity factor in this case, contrary to principle, is fictitious.  Amounts from tracing through ramifications of an ‑ ‑ ‑

GUMMOW J:   What constitutes the fiction?

MR WALKER:   The fiction is that this land, my client’s land, which does have the perfectly serviceable house on it, not a vandalised house and not vacant land, is to be treated as a vacant lot in a highly desirable suburb surrounded by the neighbours’ mansions ‑ ‑ ‑

KIRBY J:   But you could make it any block ‑ ‑ ‑

MR WALKER:    ‑ ‑ ‑ which is the scarcity value because those things do not exist.

KIRBY J:   But you could make any block at all, anywhere, subject to any restrictions to the National Trust or things of that kind, you can make them vacant overnight.  The demolishers come in, bang, gone.

MR WALKER:   If one wants to live on it, however, one has to build something afresh and then the question will be, and I do not mean to be facetious, but it shows how it is a question of practical reality as to whether your spouse, your children, your doctor, your banker, your architect, your builder will, as it were, co‑operate in the exercise of paying top dollar for a mansion in Hunters Hill to knock it down and spend several million dollars on building a new one.

KIRBY J:   People do it all the time, for waterfrontage.

MR WALKER:   Depending on market, your Honour.

GLEESON CJ:   There are plenty of people in Sydney who live in real estate on which there is an expensive house that would be expensive to replace but whose real estate would be no less valuable if the house collapsed.

MR WALKER:   Yes, your Honour, and in those cases there is nothing untoward in principle about treating the market experience showing that to be so as relevant to the question called for in section 6A. We do not challenge using the approach shown in Fenton’s Case which is exactly what your Honour has put to me.  Perfectly good houses, knocked down because the state of the market is such that there are purchasers willing to spend as much as somebody who wants to live in the property is willing to spend and then render it vacant.

GLEESON CJ:   The most important factor in the state of the market would be scarcity, supply.

The balance between supply and demand for those building sites has altered enormously and against purchases since presumably 1850.  They are now very scarce and I am going to value every house in Hunters Hill, every house in Hunters Hill, on the basis that because I deduce from the very few actual vacant land sales that I can find, albeit remote in time or space, that they have the premium added by the huge imbalance of supply and demand.  Every house in Hunters Hill will have included in its land value the component driven by supply and demand which, in fact, comes from the very opposite of their characteristic.  Their characteristic as houses in Hunters Hill is that they are the new universal state of land in Hunters Hill.  The characteristic which drives their land value up is that they are not land with house on it.

CALLINAN J:   Mr Walker, can I put to you what troubles me – I think it probably helps you, but there may be a problem about it.  You have to value this site as if it was stripped of the improvements.  Let us say that that is what you have to do under the Act, but you have to value every other block of land in the same way.

MR WALKER:   Yes, this is a general public statute.

CALLINAN J:   So if you do that, as I think you must, then it seems to me that scarcity cannot be a relevant factor.

MR WALKER:   Well, that is our point, your Honour.  That is our point.

CALLINAN J:   It is.  Your point is as simple as that, is it not?

MR WALKER:   Yes, your Honour.

McHUGH J:   That is why I mentioned Surry Hills and Carlton, places like that where there may be no vacant land.

CALLINAN J:   Mr Walker, let me ask you about this.  Scarcity in another respect may be very relevant.  For example, this is waterfront land and waterfront land is scarce and you do not have any problem with that.

MR WALKER:   North aspect in a peninsula mostly facing south.  Waterfront where most of us live inland.  That is genuine actual scarcity value.

CALLINAN J:   It is scarcity on the very basis that the Act commands the taxing authority to value all land cannot be a factor.

MR WALKER:   That is right.

CALLINAN J:   That is your argument, is it not?

MR WALKER:   Yes, it is, and we develop it by referring to the necessity, uncontroversial, we submit, to construe this legislation which contains such an important counterfactual purposively.

GLEESON CJ:   Now, I suppose the assumption that you do not have any other houses means you do not have any neighbours.

MR WALKER:   That is right.

GLEESON CJ:   You do not have any shops.

MR WALKER:   You do not have surrounding mansions.  You do not have well‑tended gardens.

GLEESON CJ:   Do you have the wharf down at Woolwich Point?

MR WALKER:   You would not have a wharf for commuters, because there would not be commuters.

GLEESON CJ:   Do you have a sealed road?

MR WALKER:   You probably do not have a sealed road.

GLEESON CJ:   No schools nearby?

MR WALKER:   You certainly do not have milk bars, delicatessens, pubs and schools.

GLEESON CJ:   No doctors in the neighbourhood?

MR WALKER:   Not unless they were permits.

GLEESON CJ:   You value Hunters Hill in its pristine state.

MR WALKER:   Yes.

CALLINAN J:   Well, with respect, is that right? 

MR WALKER:   No, it is wrong, which is why we say the respondent’s argument fails.

CALLINAN J:   But you do not, because the Act does not say anything about ignoring services.

MR WALKER:   And the law and principle ‑ ‑ ‑

CALLINAN J:   And the services are there.

MR WALKER:   Yes, the purpose and history of these provisions shows that the extension to absurdity that the Chief Justice, with respect, has raised ‑ ‑ ‑

CALLINAN J:   Can I come back to the statute?  The statute says nothing about unimprovement by way of lack of services and facilities, does it?

MR WALKER:   No.

CALLINAN J:   Is that right?  There is nowhere in the statute that says you ignore the roads.

MR WALKER:   No, no, that is right.  The statute ‑ ‑ ‑

GLEESON CJ:   The statute says nothing about improvements other than improvements on the land.

MR WALKER:   On the land.  The statutory assumption is designed to achieve, by way of a definition of the expression which is now called land value and is more familiar as unimproved value, for a purpose which will be applied for a number of different things, admittedly mostly tax in the case of unimproved value, is designed to achieve the assignment by the State of a value to actual land and in the actual state it is, but certain things for political reasons evident from the mischief supposedly addressed in the 1890s and repeated in the early 20^th century and adopted elsewhere, so as to distinguish between what is called or what was called – I think it probably goes back to, as the 1960 report suggests, Henry George, the earned and unearned increments.  There is a deal of moralistic social theory involved in it.

GLEESON CJ:   This is legislation constructed on a social theory and I do not need to be persuaded that there are a lot of weaknesses in the social theory.

MR WALKER:   I am not going to try and persuade your Honour of it.  What seems, with respect, nonetheless incumbent on us is to draw to attention that this is without any doubt legislation that has a purpose to distinguish between that which is - we will use the modern expression - the land value where there was perceived to be social or political purpose or justification in having contributions to the revenue levied at whatever rate was struck by reference to the value where, as it were, everyone comes along for the ride.  As the community is enhanced supposedly, as physical development is improved supposedly, so the desirability of the land and thus the willingness of buyers to bid more – the supply/demand exercise because God does not make any more land – is said to be appropriately put into the pot.

GLEESON CJ:   This point goes well beyond scarcity, does it not?  It would apply to any block of land that had a beautiful home erected on either side of it.

MR WALKER:   Your Honour, as soon as one considers that which seems to drive literature, law and business in Sydney namely views, water views, as soon as one considers that, then the assumption, if treated absurdly, has the most extraordinary matters going on.

GLEESON CJ:   Just come back to a simple example.  Vacant land in a nice neighbourhood is usually more valuable than vacant land in a neighbourhood that is not nice.

MR WALKER:   Yes, your Honour.

GLEESON CJ:   Now, consistently with your argument as I would understand it, if you are working out the unimproved capital value of Blackacre in a nice suburb of Sydney, you have to disregard the fact that the purchaser of that land might be willing to pay more for it because of the beautiful homes on either side.

MR WALKER:   That is right.  Exactly so.  Now, your Honours, if you go to that which the learned author calls his very full index in Bennion’s Statutory Interpretation under the heading “Fiction” one finds three of the entries, which are all cross‑references:  “Absurdity”, “Deeming” and then the expression “Asifism”.  This is a case, in effect, about asifism.  For the reasons that we will seek to develop by reference to some of the material that your Honours have just been handed, it is clear that the first question which arises when a counterfactual hypothesis – call it a fiction, call it an asifism – is used in a statute, is there a limit of the ramifications which the lively imagination would supply to the consequences of the assumed counterfactual?

HAYNE J:   Again, do we not from the premise that the market hypothesised by section 6A(1) is not a real world market, because the subject matter is not that which exists?

MR WALKER:   One starts with the proposition that 6A does not command any departure as to the principles of valuation from reference to real market.  Then one comes to exactly, with respect, what your Honour has raised, that land value is not offered, is not put on the auction block, that is land which is improved is not put on the auction block without the improvements.

HAYNE J:   At least valuation is not by reference to the subject matter as it exists.

MR WALKER:   It is by reference to the subject matter as it actually exists, assuming the improvements were not there.  Now, the “as it actually exists” that I put in there, your Honour, comes because the exercise has been held authoritatively not to involve what is called “prairie value”.  Your Honours will recall that expression being used by Lord Dunedin in Toohey’s Case, that it is discussed in two other decisions which are germane to this argument:  the decision of this Court in McGeoch’s Case and the decision of the Privy Council in Tetzner’s Case.

In McGeoch’s Case the particular passage, which also contains reference to the purpose and the origin of this admittedly artificial assessment of value, your Honours will find in 43 CLR 277. The particular passage is in the joint judgment of Chief Justice Knox and Mr Justice Dixon at pages 290 and 291. In the main paragraph starting one and a half inches down on page 290 one finds, for example, about three‑quarters of the way down the page the reference to:

we think the unimproved value –

that is after the reference to Mr Justice Hosking –

which is the subject of taxation under this Act is the value at the relevant date of the land in its natural state as for the time being affected by extrinsic circumstances of every kind, as, for example, those above mentioned –

Those above mentioned includes - your Honours will pick it with the numeral (2) in the middle of the page:

the portion of the value at such date attributable to extrinsic circumstances, such as public roads or railways, increased settlement in the neighbourhood ‑ ‑ ‑

GLEESON CJ:   Pausing there, “increased settlement in the neighbourhood”, does that include other houses?

MR WALKER:   Yes, it does.  It includes mansions and gardens:

public services brought within reach and other causes not brought about by the operations on the land of successive occupiers.

Then at the foot of that page they turn to an argument which had been ‑ ‑ ‑

GLEESON CJ:   Just a moment before you go over the page.  You have to value:

the land in its natural state as for the time being affected by extrinsic circumstances . . . above mentioned –

which includes your neighbour’s house and garden.

MR WALKER:   Your neighbour’s house.  When the neighbour’s time comes to be valued, conversely it applies.  Your house which has been notionally raised is re‑erected; his land which was actually there and had to be taken into account is notionally raised.  The Valuer‑General says when you raise a house you have that rarest of things:  vacant land ready for building in Hunters Hill.  But in fact you never do and the Parliament does not say you ever did, because you are not valuing land deemed to be vacant land.  That is what perhaps would have brought about the effect for which the Valuer‑General contends.  You are valuing the land, assessing the land value by an assumption.  At the foot of page 290 their Honours turn to the question which had been raised in argument based upon Lord Dunedin’s dictum in Toohey’s Case which starts, disappointingly, with the proposition that:

“What the Act requires is really quite simple.

GUMMOW J:   That is always a threat.

GLEESON CJ:   Or a challenge.

MR WALKER:   Yes.  Then goes on with an example which at the very foot of the page includes this statement:

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.”

Their Honours express the view that that is entirely consistent with their approach.  They go on:

In our opinion the expression “prairie value” in this quotation was used as denoting the value of the land on the assumption that there was to be excluded from such value not only any portion resulting from improvements made on the land by its successive owners but also the portion attributable to extrinsic circumstances existing at the relevant date.  In other words, we think the ‑ ‑ ‑

GLEESON CJ:   Just before you go any further, is that not saying in terms you do not value a block of land in Hunters Hill on the assumption that nobody has ever built any buildings in Hunters Hill?

MR WALKER:   Quite, but if you follow the consequences of the assumption by pretending that a real market was actually assessing a really vacant land, no reason is supplied by the Valuer‑General’s approach for stopping at that point.  They say, “Pretend this is vacant land”.  In fact, the words of Parliament are different:  “Assess land value”.  Land value is that which comes from the actual market experience, what prices are achieved for the land as it actually is surrounded by all the amenity of the community, assuming the improvements had not been made.

HAYNE J:   That is, do you read “assuming that” as meaning excluding from, as their Honours choose in this passage from McGeogh?

MR WALKER:   Yes, your Honours.

GLEESON CJ:   First of all, you are not suggesting, are you, that the taxpayer’s land in the present case should have been assessed on the basis of what here is described as “prairie value”.

MR WALKER:   No, that would be the error.

GLEESON CJ:   And, a way to value its prairie value would be to assume that there are no other houses in Hunters Hill.

MR WALKER:   That is right.

GLEESON CJ:   You are not contending for that.

MR WALKER:   The very opposite.  What we are saying is that for the same purposive reason as underlies the conclusion against prairie value in Toohey’s Case and in McGeoch’s Case, exactly the same purposiveness requires that you not deem this to be vacant land with a scarcity factor created by the fact that that person, and his predecessors, and all his neighbours and their predecessors, have in fact built, because that would be to include in the land value – the unearned increment – the benefit of everybody’s earned increment, that is, the building.  That is why, in our submission, when one supposes, as the Valuer‑General did here, that the land is simply vacant land and restricts oneself to vacant land what you actually do is to inflict upon everybody that which in valuation reality is available only to a very few people, namely, scarcity factor of actual vacant land in Hunters Hill and everybody gets that.  So, the paradox is created that under the assumption which says nothing about this ‑ ‑ ‑

KIRBY J:   What is the marginal value of vacant land?  Is it simply that you do not have to pay demolishers to reduce the improvements, is that what gives it a premium?

MR WALKER:   Yes, your Honour.

KIRBY J:   Is there anything else.

MR WALKER:   It is more than that, it is also that there is more demand for a building site in Hunters Hill than there is supply ‑ ‑ ‑

KIRBY J:   I may be wrong but I just do not think that is how people buying waterfront land think.  They think, “This is going to be a good investment, it is going to go up in value out of proportion to other land in other even nearby places and therefore you just get it and then you demolish anything you do not like and build your own property.

MR WALKER:   Only if you have no fear of overcapitalising because you are surrounded ‑ ‑ ‑

GLEESON CJ:   If you have a wife who does not want somebody else’s architectural tastes forced on her then you may be prepared to pay a premium ‑ ‑ ‑

MR WALKER:   And overcapitalise.

GLEESON CJ:   For vacant land which will give you the capacity not only to build on it but to build to your own choosing.

MR WALKER:   Quite.  That may or may not be overcapitalising.  The vacant land may or may not, in the particular desirable vicinity, be worth as ‑ ‑ ‑

KIRBY J:   I just find it hard to believe that you would pay more than the value of the land.  You do get blocks of vacant land in these areas where, for example, tennis courts fall victim to the land tax and people sell that and that becomes a separate…..development.

MR WALKER:   Could I put it this way, your Honour.  There are two pieces of land ‑ ‑ ‑

KIRBY J:   It is very rare in these suburbs we are actually talking about in the real world.

MR WALKER:   In the real world there can be two blocks of land next door to each other, one is vacant and one is not vacant.  The one that is not vacant has a mansion on it with all the trappings.  In order to get to anything vaguely comparable to that state of affairs a lot of money has to be spent on the vacant land and at the end of spending all that money it will look comparable, it will look the same, have all the amenity the same as and no better than the first one.  Question – what rationality lies behind the purchaser contemplating the vacant land of paying the same for the vacant lot as the lot that already has the mansion on it?  Use figures which may not ‑ ‑ ‑

KIRBY J:   Because this is a peculiar purchase, it is a very peculiar and limited purchase, there are only 500‑odd properties ‑ ‑ ‑

MR WALKER:   Your Honour, could I try to put some assumed facts on that example because I think it answers your Honour’s point.  There are two blocks of land, and we will posit them next door to each other so there is no difference of aspect and we will assume they are the same size, difficulties of access are the same, one is vacant and one is not.  It may arise, as your Honour points out, from a subdivision.

There is already a mansion in splendid order on one of them.  Be it assumed that modern builders could achieve the same splendour as builders of yesteryear.  It is going to cost money, builders do not do it for nothing.  So that means that the cost to the would‑be purchaser who wants to be a neighbour in this desirable area is going to be the cost of the vacant land because of preparing it and building on it, using figures $2 million  for the land, $2 million to prepare and build on it, a $4 million outlay.  Meantime, it can be seen from the market that the land with mansion is going for $2.5 million.  At that point, to pay $2 million for the vacant land may not appear such a good proposition, perhaps to the wife, not to the banker, because you will end up for an outlay of $4 million with something completely comparable with something that other people are only prepared to pay $2.5 million for.  That is an illustration of why one cannot assume that in desirable places every improved property already has achieved in its fully improved state its unimproved value.  That will happen from time to time, Mt Gambier Supermarket was an example, but it is not universal.

GLEESON CJ:   Is what appears on the top of page 187 in paragraph 72 a fair statement of the proposition for which you contend?

MR WALKER:   Yes, the emphasis being on the word “vacant” in the expression “vacant land”. 

GLEESON CJ:   But that proposition on page 187 in paragraph 72 fairly expresses what you want us to decide?

MR WALKER:   Yes, I want your Honours to decide a negative that it was not impermissible, not irrelevant to consider that matter.  It is the self‑denying ordinance that raises the question of law where we say error was committed.

GUMMOW J:   Yes, now, can we get back to the Act.

MR WALKER:   Yes, your Honour.

GUMMOW J:   Because we can talk about valuation from here until the drought breaks, it seems to me.  You said there was a paradox presented by 6A?

MR WALKER:   Yes.

GUMMOW J:   In framing that paradox what significance does the massage in McGeoch at 290 to 291 have about “prairie value”?

MR WALKER:   Your Honour, if one takes the assumption required by subsection 6A(1) and, as one might do uninstructed by authority, spells out all its consequences and gives them effect, then one would have valuation by valuation over the peninsula, every landowner having included in his land value an amount referable to a quality, namely scarcity, which by definition appertains only to scarce commodities, vacant land in Hunters Hill, and the paradox is that everybody will have that attributed to their land value.

GLEESON CJ:   Yes.

MR WALKER:   The anti-purposiveness comes in because by so doing, there is precisely the discouragement to development, that is, the tax on the earned increment which this law was designed to prevent.

GLEESON CJ:   But that is only another way of saying that if each individual who owns real estate in Hunters Hill sells his or her real estate individually over a long period of time, the aggregate amount they will get for their sales will be much more than it would be if they all sold all their land on the same day.

MR WALKER:   No, your Honour, because this is a notional exercise.  The vice is worse than what your Honour has just posited or at least it has this vice, I should say, that there is no flooding of the market, that is, there is no undoing of the scarcity value by allowing for the fact that there is suddenly a peninsula of vacant lots.  Rather, simultaneously, there is a notional according to every house and land on the peninsula of that which could appertain only to a very few at any time.

GLEESON CJ:   I understand that.  I understand why you say it is an unfair tax.

MR WALKER:   No.  I have tried to avoid the word “unfair”.  I have tried to avoid the word “bad” and we are, after all, talking about a valuation of a component called “land value” rather than the imposition of the tax.  The tax, after all, will be approved or not approved depending upon its rate which is not in question and is not justiciable.

Simply we are saying that it is a paradox which defeats the purpose and takes the assumption too far.  That the assumption is not to be spelled out literally and in a consequentialist matter is claimed from the rejection of prairie value, to which I have pointed in McGeoch and Toohey’s.

GLEESON CJ:   But you sound as though you want to return to prairie value.

MR WALKER:   No, your Honour, not at all. We simply want that which market supplies by way of valuation. Section 6A(1) does not say abandon everything to do with evidence of how the market reacts in valuing this land. Rather, we say, you have to deduct or exclude that which is attributable to the specified category of improvements by various methods, there being none uniquely correct.

GLEESON CJ:   What does the expression “the land” mean in 6A(1) in line 2?

MR WALKER:   It means the land as it is.

GLEESON CJ:   Which land?

MR WALKER:   Your Honour is talking about land where it second appears?

GLEESON CJ:   I am talking about the expression “the land”, which are the first two words in line 2.

MR WALKER:   I am sorry.  No, the word “land” there is an epithet.  That is in a ‑ ‑ ‑

GUMMOW J:   It is an estate.

MR WALKER:   Land value – it is the word where it second appears, “The land value of land”, that last use is the whole land as improved.

GLEESON CJ:   Maybe we have different versions of the print, but there is an expression “the fee‑simple of the land”.  Do you see that?

MR WALKER:   Yes, your Honour.

GLEESON CJ:   My question is, what is the land to which that refers?

MR WALKER:   That is the land as it actually is.

GLEESON CJ:   Which land?

MR WALKER:   The land whose land value is being assessed.

GLEESON CJ:   The taxpayer’s land?

MR WALKER:   Yes.  Well, depending upon other events, yes.  The person who may become a taxpayer.  But land value, we know, is not the value of the land.

GLEESON CJ:   Now, the word “thereon”, where it appears further down, relates back to “the land”, the taxpayer’s land.

MR WALKER:   Yes, and so does “thereto” following the word “appertaining”.

GLEESON CJ:   Right, so the improvements that you have to assume disappear are the improvements on the taxpayer’s land.

MR WALKER:   Yes, I am not sure whether you assume they disappear, that is are removed.  You assume they were not made.

GLEESON CJ:   The improvements the subject of the assumption, whatever exactly the assumption is, are the improvements on the taxpayer’s land.

MR WALKER:   Yes.  As your Honour knows, there is a lot of qualification that has been relevant in other decisions as to whether they still have effect, whether they are still visible, whether you go back to the original land clearing, et cetera.

GLEESON CJ:   Leaving that to one side, does the section either require or entitle you to make any assumption about any other improvements on any other land?

MR WALKER:   No, that is why prairie value is not right as well as the purposive reason that we have already put.

GLEESON CJ:   In particular, it does not either require or entitle you to assume that the neighbour’s house is not there.

MR WALKER:   No.  Now, the respondent seeks to draw strength from that and says, “Aha, that means in this highly desirable neighbourhood, suddenly there appears on the market” – there has to be a market in order to be a valuation – “on the market there appears a vacant block”. 

HAYNE J:   Can I slow you down because there is a great risk in this area that the jargon takes over.  Can I keep you at 6A(1) a moment.  What does the clause “assuming that the improvements”, et cetera, qualify?  Does it qualify ‑ ‑ ‑

MR WALKER:   It is the capital sum which it might be expected to realise if offered for sale on such reasonable terms as a bone fides seller would require, and then all of that combined concept is on an assumption that the improvements had not been made.

GUMMOW J:   Does not “assuming that” qualify “is” in the first buyer?

MR WALKER:   Yes.

HAYNE J:   The value of land “is” something “assuming” that.

MR WALKER:   Yes, it qualifies the whole of that which is said to define the statutory term “land value”.  Land value is an amount reached by an assumption via a market.  The terms preceding the words “assuming” not merely do not dispel the reference to market which is the heart of valuation but positively emphasise it.  It is the land in question, the actual land, the land value of land - that means the real actual piece of land - is something assuming a fictitious counterfactual state.  It is counterfactual because the assumption actually says “assume that which has been made”, admittedly if any, “has not been made.”

Now, the counterfactual, like all counterfactuals, like all asifisms, raises the question how far do you trace through the ramifications?  On how many different players do you assume the effect of that state of affairs contrary to the truth?

GLEESON CJ:   Mr Walker, it is not such a weird assumption, is it?  We all know that there is plenty of land - described earlier by Justice Kirby in one of his questions for example - which would be attractive to buyers whose intention on buying it would be to demolish the existing improvements.

MR WALKER:   Hence the result and reasoning in Fenton.

GLEESON CJ:   So it is not an assumption that departs a great distance from reality.  It is an assumption that is a very practical assumption for many people.

MR WALKER:   In what I will call “potential demolition redevelopment sites” it is an assumption which amounts to a market intention.

GLEESON CJ:   If you were a land developer it would be an assumption of the kind that you would make every day.

MR WALKER:   Yes, and no doubt it is what you do when you figure out whether it is worth paying the same price or perhaps more than people who just want to live in the house are prepared to pay.

HAYNE J:   And the question becomes is it applicable to this land?

MR WALKER:   That is right.

HAYNE J:   Or is it to be applied to this land?

MR WALKER:   Yes.

HAYNE J:   The two questions invite different answers.  Is it applicable?  I understand this is not a demolition site.

MR WALKER:   That is right.  Nor is ‑ ‑ ‑

HAYNE J:   Is it to be applied, is the subject for debate.

MR WALKER:   Yes.  The precise question though, your Honour Justice Hayne is was it forbidden to consider the fact that actual vacant land commands a premium in making the adjustments, which may be numerous in nature, between the so‑called comparables and that at which you are aiming, the land value of this lot.

GLEESON CJ:   When you say “commands a premium” that must mean a premium above something.

MR WALKER:   Yes, your Honour.

GLEESON CJ:   Premium above what?

MR WALKER:   Your Honour, a premium above what would be the case if it were not so scarce.

GLEESON CJ:   So supply and demand.

MR WALKER:   Yes.

KIRBY J:   I have just made a note to myself of the sort of reasons that could give a premium value.  You do not have to pay to the demolisher, you do not have to employ an architect, you do not have to pay a builder, you do not have to get alternative accommodation whilst you are building, you do not have to run the risk of a building dispute, and if you are in the market for a modern house then you either have it in an improvement or you do not.

MR WALKER:   There is another one, your Honour, which will vary in its worth according to the balance of supply and demand in a particular discrete locality, that is, in a locality about which it is sensible to speak comparably.

HAYNE J:   And is the consideration of, do you put up the mock Georgian Tudorbethan palazzo, instead?

MR WALKER:   That is right, but there is also this.  If you want to put up the gorgeous edifice Justice Hayne proposes, you want to put it up, and because it is vacant land you do not face competing with buyers who actually like the lovely mansion on it and would not be demolishing and would not be facing that expense.  If it is vacant land you do not have that kind of competing buyer.  Of course, as the land gets scarcer and scarcer, and this is a common phenomenon that Mr Croker found almost axiomatic.  As it gets scarcer and scarcer in very desirable places one will get to the point which your Honour Justice Kirby has illustrated where, perhaps oddly but in fact highly rationally, the unimproved value of certain pockets of highly desirable sites will equate to the improved value because people are not deterred by the fact that they are going to knock a lovely mansion down and spend all the money on putting up another one.

The expression “overcapitalise” may sound like jargon but it simply is a polysyllabic way of saying, “Can I pay this amount of money, spend all this money on the land and end up with something which the market for improved land would reward me by giving me at least as much as I spent on it?”.  Those sort of questions are obviously asked by people, not least of which lenders, if there are lenders in question.

GLEESON CJ:   Mr Walker, can I come back to what you say is your proposition which is on page 187 and I want to be sure I understand it accurately.  The second half of the proposition is:

that such a deduction would not have to be made if sales of improved properties were used –

We know that your client’s valuer endeavoured, unsuccessfully, to persuade Commissioner Nott to value this land by taking the market value of the land in its improved state and deducting the cost of improvements.

MR WALKER:   I am not here to argue for that being uniquely correct or any other version of correct.

GLEESON CJ:   Plainly erroneous I would have thought. It is the sort of exercise you might go through if the land was burned down and you had a claim on a fire insurance company or something but in relation to that part of your proposition how do you say you would deduce the land value for purposes of section 6A from information about the sale of improved land, if you do not do it the way your valuer did it?

MR WALKER:   The first thing is that the obvious soft spot in our valuer’s approach is the real possibility that there has been made the very dubious assumption that there is a dollar for dollar addition to value, accretion to value, in building and development cost.  That needs to be explored and can be by valuers’ expertise who can opine by comparables as to how much, for example, a particular job – be it renovation, extensive rebuilding or slight improvement – added observably in the market to a comparable parcel of land’s value, price.  No doubt, by reference to what quantity surveyors, builders and valuers can therefore tell you, something can be opined ‑ and all of this is estimate and adjustment ‑ about the increment of value which can be deduced from the nature of the improvement which is actually on the land.

It will have a relation, albeit virtually never direct, in an evidentiary sense to how much it would cost.  That is why in, for example, the Privy Council decision to which we next wish to turn, it is simply put as looking at the value of the land in Lautoka with the sugar mill on it and deducting from that the value of that improvement, the sugar mill, a deceptively simple phrase which hides no doubt evidentiary difficulties, contestable adjustments and matters of conflicting opinion.  But that is, after all, usual in the area of valuation.

Your Honours, it is only by that means that you obey the statutory assumption for the purpose it is intended to serve, which is to take land which is in fact not divided into improvements and bare land but in fact comes as a package of real estate, and divide its value which is realised by price for a valuation exercise of part of that value, being this artificial notion of land value.  Unless you do it that way, you are in fact valuing something different from the land in question, namely not the land assuming its improvements have not been made but vacant land upon which improvements had never been made.

MR PRESTON:   The answer to that is, I think, yes, but there may be when your Honour used the words “this approach”  ‑ ‑ ‑

KIRBY J:   You had better get it clear.

MR PRESTON:   That is what I am just trying to understand ‑ ‑ ‑

GLEESON CJ:   It depends what you mean by “that approach”.

MR PRESTON:   Yes.

GLEESON CJ:   There are two rather different approaches that have emerged.  One is the approach that Mr Walker has been putting to us and the other is the approach that I have been putting to you.

MR PRESTON:   Correct, and that why I am just having a little difficulty in trying to work out what is the proper course. 

GLEESON CJ:   Well, take them both in turn.

MR PRESTON:   If Mr Walker’s approach is that there is the Valuer‑General at first instance, the Commissioner on appeal and Mr Justice Cowdroy and working up through the Land and Environment Court, all were bound to deduct a component for scarcity, then if that is the law and how the section is construed, then the appellant succeeds and the matter has to be remitted to be dealt with in accordance with that and that is just the normal course of ‑ ‑ ‑

GLEESON CJ:   What if the approach I put to you is the correct approach?

MR PRESTON:   If the approach is that there be a mix of things taken into account and in that mix one would use improved sales less value of improvements, then there is, in my respectful submission, no error of law involved in this case.  All that has happened is it hit an evidentiary hurdle in that in the facts of this case there was not any evidence from which the

value could be determined.  It was not that the Commissioner said he would not do that; he was quite happy to do that and, indeed, he tried to do it.  So, with respect, it is not an error of law which would entitle the setting aside of the various decisions so as to command the Commissioner to go again and call further evidence ‑ ‑ ‑

GLEESON CJ:   All right, I think you have clarified your position, thank you.  Yes, Mr Walker.

MR WALKER:   Your Honours, the relief we seek in the notice of appeal is at 242 and by reason of that, which requires incorporation of what happened in the Court of Appeal, the order of Justice Cowdroy which was overturned by the Court of Appeal found at 202 amounts to a remitter.  A remitter on what?  In our submission, a remitter on the question of the proper value of land value.

As to the difference posited by my learned friend in his last answers, could we immediately draw to attention in relation to the way in which your Honour the Chief Justice has put the matter to appeal book 186, paragraph 71 where Commissioner Nott deals with our valuer Mr Byron’s second method of valuation.  That involved, see line 36:

estimating the improved value of the subject land itself by reference to –

certain comparables which were improved –

and deducting from the improved value of the subject land the estimated value –

I pause with emphasis on the word “value”, not “cost” –

of the improvements.

Then the next sentence would appear, with great respect, to positively mandate a remitter if the Court were inclined to the view, as suggested as a possible one by the Chief Justice.

GLEESON CJ:   Now, did Mr Byron put forward any method of estimating the value of the improvements, except what was called reconstruction costs?

MR WALKER:   No, it is fair to say that at the relevant passages your Honours will find at 86 and 87 in the book, it may be unfair simply to say “reconstruction costs” because there is another element taken into account, namely, the cost of renovating the actual improvements to an as‑new position.  But in essence and as a matter of principle, it is as your Honour has put it and as I have agreed.  Page 86 shows that what he was trying to do there was to make, see line 34:

due allowance for the added value of improvements on the land.

Precisely, with respect, what we submit principle and authority requires. 

GLEESON CJ:   Yes, but you can understand the attraction to a taxpayer of working out the extent to which the improvements add value to the land by taking the replacement cost.

MR WALKER:   I was about to say the optimism of the approach attracts this comment:  if he is that optimistic, why did he not assume that for every dollar he outlaid he got two dollars back in increased value?  There was a modesty about it, perhaps.

Your Honour, there is no such assumption in fact explicit but it is true, and this issue is not before this Court and it is a matter of fact, that the approach was rejected as confusing cost and value.  That comes to another point.  Your Honour Justice McHugh asked about Justice Gibbs’ well‑known statement.  It is found in Collins v Livingstone Shire Council (1972) 127 CLR 477 at 500, as my friend said, and significantly, picking up on my last point, that was cited by Commissioner Nott at appeal book 177, paragraph 35.

At the outset of my learned friend’s address today it was said, and I protested as a form of travesty of our argument, that we were saying that scarcity value directly, as it were, needed to be deducted from the subject lands value as shown by comparable prices.  As an ellipsis that may well be right, as a criticism, we say, of the other side’s argument, but it is not correct as to the approach by which one reaches that.  It is the scarcity value or factor appertaining to land radically different from my client’s land, namely the so‑called or alleged comparables which were vacant which required to be deducted by way of a familiar adjustment in order to be fairly comparable which is in question.

Therefore, and with respect to your Honour Justice McHugh’s suggestion that the wrong question has been posed by us as to the error of law, ground 2 of our notice of appeal at 241 line 40 captures the point concerning what is to be deduced or adjusted for from what.  It has to do with making sure that vacant land, if it be used at all, has to have that kind of adjustment considered.  In our submission, that does belong in the same category as your Honour Justice McHugh’s somewhat different formulation doubting the propriety of using vacant land as a comparable at all.  The short answer is that if you are to use it as a comparable, adjustments must be made to render it comparable.

There has been reference to the decisions of Toohey’s and Tetzner and how they may interrelate.  Your Honours will pick up a reference to that as a matter of what I will call New South Wales practice and law in Mr Handley’s article at 113 and your Honours will there note the citation of the same authorities that we cite in our written submissions in paragraphs 20 and 21, namely Mr Justice Roper’s statement in the Estate of James and Mr Justice Sugerman’s statement in the Estate of Robertson.

Your Honour the Chief Justice raised with me, and I have told my learned friend in advance of this, a case concerning the Wynyard site where they both burrowed and went up.  There are two decisions, the first in the Privy Council which is Wynyard Holdings Case was not, in our submission, of assistance on the precise point in question and that citation is The Commissioner of Railways v The Valuer‑General (1973) ALJR 103.

Of rather more significance is an authority, which I will hand up to your Honours.  It is cited by Mr Handley at the top of page 115 of his article.  It is Sydney City Council v Valuer‑General [1956] 1 LGRA 172. It is a decision of Mr Justice Hardie, being a judge about whom, I think, your Honour the Chief Justice asked me in‑chief. That is a case where contrary to answers I gave to your Honour the Chief Justice, by reason of the assumption which his Honour was expounding and applying in what is plainly an ex tempore judgment, plain not only from the dates recorded, but from the content of the second‑last paragraph on page 176, his Honour made it plain, at the foot of page 175, that an assumption had to be made:

that the excavation of the area occupied by the –

underground –

shops and offices had not been made at the relevant date.

He does not go on to say what exact the effect that has.  What is important however, in relation to what has been criticised, on the basis, as we understand it, what we characterise is a misapplication of Toohey’s Case, is the comment by his Honour at the foot of page 176 and the top of page 177:

For the reasons indicated above I am of opinion that in arriving at the unimproved value the assumption must be made that the excavation of the subject area has not been made –

and then comes the important part –

putting it another way, assuming that the question of unimproved value is determined by first calculating the improved value by a capitalization of net rents, and then deducting there from the cost or adjusted cost at the relevant date of effecting the improvements, the cost of excavating the site, that is to say the sub‑surface strata in question, constitutes one of the items to be deducted.

That would appear to be one of those cases where the nature of the project rendered immaterial in the experience of opinion of that highly experienced land and valuation judge, a distinction between cost and value.  It may, by the peculiarity of the site, have been a matter which was virtually axiomatic.

Your Honour Justice Gummow asked that we check that the appropriate parts of Bennion have been handed up.  Those pages already handed up are the best.  There are others.  The index entries to which I made reference, you can start at “Fiction” or “Absurdity” or “Deeming” or “Asifism” - they go around in a circle - have a variety of references.  On our examination of them the ones we are about to hand up are the only ones, your Honours, that advance the matter.  They contain a reference not only to “Statutory Interpretation Third Edition” but also by reason of a footnote within that to his other book, “Statute Law, Third Edition”.  I will put those in pairs for your Honours.  In the latter in particular your Honours may or may not be assisted by a citation the learned author makes from A.P. Herbert’s Lord Mildew about Deeming.

Your Honours, my learned friend referred by way of argument to what would be done in giving effect to the assumption to the heritage value which inheres in the very improvement, namely a sandstone mansion or a Georgian villa, that may be the improvement that must be assumed not to have been made.  There is a variety of ways in which that might be addressed.  An example - we do not suggest that it has a particular effect on the arguments of principle put by the parties in this case - can be exemplified in South Australia, McEwin v The Valuer‑General [1993] 80 LGRA 12 at 18 where Justice Mullighan refers to highly specific South Australian provisions which deal with that question.

Your Honour Justice Hayne raised with my learned friend the fact that what was said to be impractical was nonetheless in the practical world essayed from time to time in such a way as to suggest that there may be difficulty, there may be estimates but that does not mean that it is an insuperable objection to reading the statute as we would put it.  It is not only in the insurance context which your Honour raised.  It is familiar that one as a developer, whether commercial developer or certainly a person privately improving land, goes back to the mortgagee after completing the work to say in effect, “Look what it’s now worth.  Advance me more.”

It is absurd to suggest that people in that intensely practical commercial setting find it impossible to distinguish between the builder’s bills presented on the one hand and the appreciation the not so dewy-eyed market might have, on the other hand, after you have built your dream palace.  In short, valuing for the increment added by improvements, if not an everyday occurrence, is by no means so odd as to attract the opprobrious epithet “impractical”. 

The cross‑check from improved sites – I think my learned friend, by a slip, suggested that that had been done in this case.  In fact, when one goes to appeal book 185 to 186 to see what Commissioner Nott did, it is clear, at the first of those pages, paragraph 62 of his reasons, that it was only “sales 1 to 6” that the Commissioner used:  “to infer a land value”. 

GLEESON CJ:   What is said on page 187 – and I am not sure exactly what this means – is: 

I have made a direct comparison of the subject land with the comparable sales, principally sales 1-6 ‑ ‑ ‑

MR WALKER:   It turns out that “principally” means only in the following way.  Paragraph 62 – they are the ones talked about, and then he talks about some of the others as well, for example, paragraph 66 – 1, 3 and 10.  Then, over the page, paragraph 67, he refers to the “schedule”.  Now, that the schedule of what I will call his comparables, but it turns out his comparables plus: 

what I infer to be an indicated land value for the subject land from each of sales 1 to 6.  In considering all the sales –

now, whether that is 1 to 6 or all of them, it does not matter, because of what follows.  He has: 

given greater weight to the first sale of 30B Viret Street than to the second sale –

et cetera.  It sounds as if it is only 1 to 6.  Paragraph 68: 

Having regard to my comments –

sales 7 to 15 –

unable to reliably infer a land value from those sales –

So he was not, in fact, using them, and one then sees that on page 188, from which it can be seen there was not the cross‑check.  In deference to what Justice Callinan said in relation to forensic experience, in our submission, it is commonplace that when one does not have an abundance – and one seems never to have an abundance – of direct comparables to the land being valued, something in the nature of hybrid vigour – a robustness ‑ is added to the exercise by approaching the question in a number of different ways, including land which may be of a different kind:  improved land, similarly improved land, differently improved land and vacant land. 

In relation to the comment by your Honour the Chief Justice concerning a way of avoiding the perhaps invidious expression “scarcity factor” introduced by a witness and artlessly adopted by us, the notion of seeking to obtain the reflex by reference to an actual market can be seen in paragraph 23 of our written submissions.

In relation to the way in which my learned friend puts the example of the last available vacant block, raised with him by the Chief Justice, in our submission, it can be seen both from that answer and from the way in which it was informed and substantiated by the whole of the respondent’s argument, that the way in which my friend deals with that proposition, on its face, startling, is to say, in effect, of those who may be lucky enough to own land in Vaucluse, for example, or Bellevue Hill, all of us, all the time, do have the last available vacant block.  It just so happens it is a different one for each of us, notwithstanding no new land is being made.

Now, absurdities can be compelled by the words of Parliament, but for the reasons we have put in‑chief, when it seems not to serve but rather to disserve the evident purpose, it is, in our submission, a reason to pause at the consequentialist’s outcomes of fictions.

Finally, my friend asked by way of a challenge, what does one do in order to try and assess this scarcity factor or scarcity value, that which might be supposed and which the valuer, Mr Croker, had no doubt about – he was vehement about its actual existence – to appertain increasingly as the supply of actual vacant land in Hunters Hill declined in number.

One possibility would be, of course, to observe the difference between unimproved land and improved land as if somebody spent money to improve it and that unless it has been a disaster it makes it more attractive, thus, at what might be a notional starting point, there is a relation that might be observed between otherwise comparable pieces of land, between what is realised if it is improved and what is realised unimproved.  That can still be seen nowadays on bare subdivisions.

One can then see that there is, once comparability is otherwise assured, a relation, a proportion, between the improved and unimproved blocks of land ‑ let us say for ease of reference 40 per cent.  If one can see over time that the same pairs, notional pairs of equally comparable land but for the existence of an improvement, shows a change in that relativity so that as scarcity becomes the case for the vacant land instead of the acres and acres of unsold lots when the subdivision first starts and one sees that it climbs up to, say, 70 per cent, then one can see that there has been a scarcity.  So long as one assured of comparability otherwise, then reasoning in a practical sense, valuing being an art not a science, would suggest that it is the scarcity value which has been responsible for the enhancement of the proportion or ratio which the price of a vacant block bears to the price of an improved block.

Obviously enough there will come a time when the relationship entirely changes, at which point the suburb is according to the market, and subject only to artificial land use controls, about to be rebuilt because everybody’s house will be worth more with the improvements demolished than with the improvements intact.  That has happened, as history and memory tells us.

Another way, as it happens retrospectively, to find out what the scarcity value might be arithmetically is if one assumes that that which the authorities suggest is the practical way of going about answering 6A, namely, take away or eliminate the value which has been added by the improvements, if you assume that that has been done correctly and you happen then to look at an otherwise comparable piece of vacant land, if there is a difference, for exactly the same reason and by the same logic, you would then have your measure of the scarcity factor.  That would only be for curiosity sake because that is a process which assumes you were correct in your first derived approach.

But, in our submission, scarcity factor can certainly be taken account of and what it underlines is the error of law involved when Commissioner Nott said the second approach was wrong, namely you should not do that, that is, deduct the value added by the improvements, and that Commissioner Nott was wrong when he said that you may not take into account the scarcity factor which Mr Croker had so clearly emphasised was special to these very unusual vacant blocks.  May it please, your Honours.

GLEESON CJ:   We will reserve our decision in this matter.

AT 3.58 PM THE MATTER WAS ADJOURNED