Port of Portland Pty Ltd v State of Victoria (No 2)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7842 of 2002

PORT OF PORTLAND PTY LTD	Plaintiff
v
STATE OF VICTORIA	Defendant

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JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	15 - 17 May 2012
DATE OF JUDGMENT:	23 August 2012
CASE MAY BE CITED AS:	Port of Portland Pty Ltd v State of Victoria (No 2)
MEDIUM NEUTRAL CITATION:	[2012] VSC 337

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DAMAGES – Damages for failure by the State to refund to the plaintiff a sum equivalent to land tax paid in excess of land tax that would have been paid had legislative amendments been made to the Land Tax Act 1958 in conformity with the terms of an Agreement by the State – Valuation of the subject land at the relevant times for the purposes of the Agreement by the State – Whether valuations to be made by reference to Valuer-General valuations, and applying equalisation factor or on an assessment of other expert valuation evidence – Time from which or times during which interest on damages calculated – Land Tax Act 1958, ss 3(2), (2A) – Valuation of Land Act 1960 ss 2(1)(2AA), 5A(1), 13DF – Supreme Court Act 1986, ss 58(1) and 60(1) – Port of Portland Pty Ltd v State of Victoria [2007] VSC 488 – Port of Portland Pty Ltd v State of Victoria [2009] VSCA 282; (2009) 27 VR 366 – Port of Portland Pty Ltd v State of Victoria (2010) 242 CLR 348.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M.R Pearce SC with Mr S.T Pitt	Mills Oakley Lawyers
For the Defendant	Ms C.M. Kenny SC with Dr C.O.H Parkinson	Victorian Government Solicitor

TABLE OF CONTENTS

Introduction......................................................................................................................................... 2

The Agreement................................................................................................................................... 4

Procedural history.............................................................................................................................. 5

Legislative developments and factual matters.............................................................................. 7

Valuation evidence in the proceeding......................................................................................... 12

Summary of evidence................................................................................................................. 12
The Valuer-General’s valuation................................................................................................ 16
Valuation evidence at trial........................................................................................................ 20

Land tax passed on to the tenants................................................................................................. 24

Interest................................................................................................................................................ 27

Costs.................................................................................................................................................... 38

Conclusions and orders.................................................................................................................. 38

HIS HONOUR:

Introduction

This proceeding now has a long history, beginning with a trial before Mandie J (as his Honour then was) which was decided in 2007[1] in a judgment which was affirmed by the majority in the Court of Appeal;[2] but the decision on appeal was reversed by the High Court of Australia in 2010.[3] In reversing the decision of the Court of Appeal, the High Court remitted the case to the Trial Division of this Court for an assessment of damages for breach of an agreement made between the parties.
[1]Port of Portland Pty Ltd v State of Victoria [2007] VSC 488.
[2]Port of Portland Pty Ltd v State of Victoria [2009] VSCA 282; (2009) 27 VR 366.
[3]Port of Portland Pty Ltd v State of Victoria (2010) 242 CLR 348.

The agreement between the parties which is the subject of these proceedings is an agreement dated 15 February 1996 whereby Port of Portland Pty Ltd purchased the assets and business of the Port of Portland Authority from the State of Victoria (“the Agreement”).

The High Court upheld the plaintiff’s claim that the State had breached the Agreement by failing to pay to the plaintiff the difference between:

(a)land tax actually paid by the plaintiff in the period 1997 to 2001; and
(b)land tax which the plaintiff would have paid had the legislation imposing land tax been amended by excluding from the assessment of the unimproved value of the land the value of port improvements.

Legislative amendments for the purposes of the Agreement were enacted in 1996, but did not become operative, in the sense of applying to the assessment of unimproved value of the subject land (“the Port land”), for the purpose of land tax assessments until 2002. The usual process for the assessment of land tax under the Land Tax Act 1958 was followed during the period 1997 to 2001, and subsequently, being assessment on the basis of the unimproved value of the Port land; based on the site value of land as assessed by the Valuer-General under the Valuation of Land Act 1960. The legislative amendments contemplated by the Agreement were directed to the basis upon which land tax was assessed, namely the site value of the land assessed under the provisions of the Valuation of Land Act, hence the amendments were made to that legislation.

In order to assess the damages for breach of the Agreement, it is necessary to determine the unimproved value of the Port land in the period 1997 to 2001 on the assumption that the statutory amendments contemplated by the Agreement had been operative throughout that period. This requires a determination of the site value that the Valuer-General would have ascribed to the land during that period had the contemplated legislation been in force, which would have required him to exclude from the site value the port improvements.

The plaintiff submits that the strongest evidence in this respect is the site value actually ascribed to the Port land by the Valuer-General for the purposes of the general valuation in 2000, which was the first time the Valuer-General determined the site value excluding the port improvements. Using the Valuer-General’s own equalisation factors, the plaintiff submits that the 2000 site value of the Port land can be adjusted to produce, for each year from 1997 to 2001, the amount of land tax for which the plaintiff would have been assessed had the contemplated statutory amendments been operative throughout that period. The State, on the other hand, submits that this approach is not appropriate, for various reasons including, it is said, that it is not sanctioned by legislation, and, further, that the question is to be determined on the basis of the valuation evidence before the Court in the trial before Mandie J.

The remaining issues for determination are interest and costs. In relation to the question of interest, the parties are at odds in relation to the date upon which the plaintiff made a “demand” on the State; in the sense of clearly articulating, first, that the plaintiff was making a claim for breach of the Agreement and, secondly, that the basis and extent of the claim was made clear to the State. In relation to costs, the State submitted that the plaintiff’s case was won in the High Court on a basis not argued below, with implications in relation to the determination of costs. Apart from rejecting this submission, the plaintiff reserved its submissions on costs until the amount of damages is known. In my view, this is a desirable approach as it enables the question of costs to be approached by the parties in the knowledge of the substantive outcome of the proceedings. Consequently, I have reserved the question of costs in all its aspects.

The Agreement

As outlined in broad terms, the plaintiff’s claim arises out of the provisions of the Agreement. The Agreement was made between Port of Portland Authority, then a statutory authority constituted under the Port of Portland Authority Act 1958 as vendor and Infratil Australia Ltd and Ascot Investments Pty Ltd as joint purchasers, with the State also a party.

The Agreement was entered into on 15 February 1996. On the preceding day, 14 February 1996, a written direction was made by the then Treasurer of the State, The Hon Alan Stockdale MP, pursuant to s 4A of the Port of Portland Authority Act, which directed the Port of Portland Authority to sell its assets and business on the terms and conditions of the agreement dated 13 February 1996.

At the time the Agreement was entered into, Infratil Australia Ltd and Ascot Investments Pty Ltd held the shares in the plaintiff equally. Prior to completion of the Agreement, on 1 March 1996, Infratil Australia Ltd and Ascot Investments Pty Ltd nominated the plaintiff, in writing, as the purchaser under the terms of the Agreement. The plaintiff was then incorporated under the name Poltroon Pty Ltd, but its name was changed, on or about 8 March 1996, to Port of Portland Pty Ltd.

For present purposes, the critical provision of the agreement is clause 11.4, which provides as follows:

“(a)The State has agreed with the purchaser that it will effect an amendment to statutes governing the assessment and the imposition of Land Tax to ensure that the unimproved site value used as the basis for assessment of land tax liability for the Real Property excludes the value of buildings, breakwaters, berths, wharves, aprons, canals, or associated works relating to a port.
(b)In the event that, before or after completion the relevant statutory amendments do not become law and, as a result of that the purchaser is assessed to land tax on the Real Property at a higher rate than would have been the case if the relevant statutory amendments were law, the State will refund or allow to the purchaser the difference between the two amounts.”

The plaintiff’s claim is for damages for breach of clause 11.4 of the Agreement.

Procedural history

At first instance, the plaintiff failed because Mandie J held that clause 11.4 of the Agreement was unenforceable as constituting a promise by the State to release the plaintiff from liability to taxes imposed by Parliament. This was in the context of a plea by the State that clause 11.4 of the Agreement was void or beyond the power of the State as it was a ministerial or executive act that purported to bind Parliament. The fundamental constitutional principle relied upon in this respect was the prohibition contained in s 12 of the Bill of Rights[4] that no executive, “dispensation by non-obstante of or to any statute or any part thereof shall be allowed but that the same shall be held void and of no effect except a dispensation be allowed by the statute itself”.[5]
[4](1688) 1 Will & Mar Sess 2 c 2; and see Port of Portland Pty Ltd v State of Victoria (2010) 242 CLR 348 at 358.
[5]Port of Portland Pty Ltd v State of Victoria (2010) 242 CLR 348 at 358.

Further, and more particularly, Mandie J held that the State was purporting to promise, without Parliamentary approval, to dispense with the provisions of the legislation governing land tax insofar as the legislation was not amended as promised by the Agreement and that this was something which the Executive could not do; and if the amendments to the statute failed to satisfy the requirements of clause 11.4(a), then that must be taken to be the intention of Parliament.[6] Additionally, Mandie J held that if clause 11.4 was enforceable, the State had, with its 1996 amendment to the Valuation of Land Act, only partly complied with its requirements. His Honour held that there was compliance in respect of that part of the land which was occupied by the plaintiff, not in respect of the balance of the land, which was occupied by tenants from the plaintiff.[7]
[6]Port of Portland Pty Ltd v State of Victoria [2007] VSC 488, at [75].
[7]Port of Portland Pty Ltd v State of Victoria [2007] VSC 488, at [84].

On 6 December 2007, Mandie J ordered that there be judgment for the State; no order as to costs of the parties prior to 1 June 2006; and that the plaintiff pay the State’s costs of the proceeding (including any reserved costs) incurred on or after 1 June 2006.

On appeal to the Court of Appeal, the unanimous view of the members of the Court (Maxwell P, Buchanan and Nettle JJA) was that clause 11.4(b) was unenforceable on the basis that it operated as an unlawful dispensation from the obligation to pay land tax pursuant to the Land Tax Act.[8] However, dissenting, Nettle JA held that clause 11.4(a) of the Agreement constituted a promise by the State “to do whatever it can lawfully and effectively do”[9] to procure the necessary legislative amendments and, further, that clause 11.4(b) was void but could be severed from the other provisions of the Agreement, leaving clause 11.4(a) to operate according to its terms.[10] The Court of Appeal was, nevertheless, unanimous in the view that the State had not complied with clause 11.4 of the Agreement. Consequently, had the Court of Appeal held clause 11.4 to be enforceable, it would have held the State to be in breach of its provisions with respect to all of the Port land, the land the subject of the Agreement.
[8]Port of Portland Pty Ltd v State of Victoria [2009] VSCA 282, at [2].
[9]Port of Portland Pty Ltd v State of Victoria [2009] VSCA 282, at [87].
[10]Port of Portland Pty Ltd v State of Victoria [2009] VSCA 282, at [89].

On 10 December 2009, the Court of Appeal ordered that the appeal be dismissed; that the application for leave to appeal against paragraph 2 of the order of Mandie J (that there be no order as to costs of the parties prior to 1 June 2006) be refused; and that the applicant, the present plaintiff, pay the respondent’s costs of the appeal.

On 23 April 2010, the High Court (Gummow and Hayne JJ) granted special leave to the plaintiff to appeal the whole of the judgment and orders of the Court of Appeal. On 8 December 2010, the High Court (French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ) unanimously allowed the appeal. In concluding, the High Court said:[11]

“The factum specified in para (a) of cl 11.4 was not satisfied, para (b) of cl 11.4 is not void or ineffective for conflict with any constitutional principle, para (b) was engaged and the appeal should be allowed. The measure of recovery by the appellant under para (b) remains for determination.”

[11]Port of Portland Pty Ltd v State of Victoria (2010) 242 CLR 348 at 372, [64].

The authenticated orders of the High Court, made on 8 December 2010, were published by the Deputy Registrar on 5 April 2011 in the following terms:

“1.The appeal against the whole of the judgment of the Court of Appeal of the Supreme Court of Victoria made on 10 December 2009 be allowed.
2.Paragraphs 1 and 3 of the order of the Court of Appeal of the Supreme Court of Victoria made on 10 December 2009 be set aside and, in lieu thereof, order that:
a.the appeal to that court be allowed with costs;
b.the judgment of Mandie J made on 6 December 2007 be set aside; and
c.the proceeding be remitted to the Trial Division of the Supreme Court of Victoria for an assessment of damages and consequential orders, including as to costs of the whole of the proceedings in the Trial Division.

3.The respondent pay the appellant’s costs of the appeal.”

Legislative developments and factual matters

Following the entering into of the Agreement on 15 February 1996 and as a result of the provisions of that Agreement, the plaintiff was, as at 31 December 1996, the registered proprietor of the Port land; being the land described in Crown Grants Volume 10269 Folios 217, 218, 219, 220 and 221 and Certificates of Title Volume 8225 Folio 414 and Volume 8101 Folio 471. The plaintiff remains the registered proprietor of the Port land to date.

A critical legislative provision, in the present context, is s 2(2AA) of the Valuation of Land Act which was, on 25 January 1996, inserted into that Act by operation of the State Taxation (Omnibus Amendment) Act 1996. This sub-section provides as follows:

“(2AA) Works relating to a port being buildings, breakwaters, berths, wharves, aprons, canals or associated works are improvements within the meaning of the Act.”

These provisions need to be read with the definition of “improvements” contained in sub-s 2(1) of the Valuation of Land Act. These provisions are as follows (with amendments made to these provisions by the 1996 amending Act indicated by underlining):

“’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 filing 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;”

The 1996 amendments to the Valuation of Land Act were intended to satisfy the obligations of the State under clause 11.4(a) of the Agreement. As indicated previously, these amendments came into force on 25 June 1996 but, as held unanimously by both the High Court and the Court of Appeal, the new sub-s 2(2AA) of the Valuation of Land Act did not achieve the objective of satisfying these obligations until the 2002 land tax assessment as a result of the valuation timing and applicability provisions contained in the legislation. More particularly, this result followed because the 1993 general valuation of the Port land continued to be the governing valuation for the plaintiff’s land tax assessments until 2002. This was because no supplementary valuation which took account, or could take account, of sub-s 2(2AA) was permissible until after the next general valuation. The next general valuation was returned in 2000, but there is a time lag under the legislation which meant that the 2000 general valuation – which did take account of sub-s 2(2AA) did not govern the land tax assessment until 2002. This position, now settled by the High Court, was a position which the State had contested throughout the proceedings. The effect of the time lag could have been ameliorated, if not avoided, had the State taken steps to carry out a supplementary valuation under s 13DF of the Valuation of Land Act.

The valuer for the Glenelg Shire Council (“the Council”). Mr McDonald, provided the Council with a valuation report in respect of that part of the Port land occupied by the plaintiff which was known as Barton Place; land which had not previously been rated and which comprised 49.1429 hectares out of a total of 114.99 hectares of the Port land. The report, which was provided on 7 March 1997, assessed the site value of Barton Place as $2,050,500. The balance of the Port land was tenanted and had previously been rated.

On or about 22 August 1997, the State Revenue Office (“the SRO”) issued a 1997 land tax assessment notice assessing the plaintiff for land tax in the sum of $2,406.38 and, in so doing, adopting an unimproved value of the land subject of the assessment as $595,564. The plaintiff paid the sum assessed for 1997 land tax on 15 September 1997. An amended 1997 land tax assessing the plaintiff for land tax in the sum of $24,569.58 and adopting an unimproved value of the land the subject of the assessment of $1,414.532 was issued by the SRO on or about 17 February 1998. A 1998 land tax assessment notice was issued by the SRO on or about 24 April 1998. This notice assessed the plaintiff for land tax in the sum of $15,638.83 and adopted an improved value of the Port land, the subject of the assessment, of $1,371,230. The plaintiff paid the 1998 land tax assessment on 9 June 1998. In July 2000, the Council returned a valuation of the Port land as at 1 January 2000 which specified a site value of $5,653,000.

This process culminated when, on or about 10 July 2000, the SRO issued land tax assessment notices for the years 1997 to 2000 (inclusive), as follows:

(a)a second amended 1997 land tax assessment notice assessing the plaintiff for land tax in the sum of $156,827.17 and adopting an unimproved value of the Port land of $4,584,048;
(b)an amended 1998 land tax assessment notice assessing the plaintiff for land tax in the sum of $142,066 and adopting an unimproved value of the Port land of $4,443,720;
(c)a 1999 land tax assessment notice assessing the plaintiff for land tax in the sum of $151,421.20 and adopting an unimproved value of the Port land of $4,630,824; and
(d)a 2000 land tax assessment notice assessing the plaintiff for land tax in the sum of $144,404.80 and adopting an unimproved value of the Port land of $4,490,496.

The plaintiff, on 22 August 2000, objected to the SRO in respect of these land tax assessments for the 1997 to 2000 land tax years; an objection pursuant to s 24A of the Land Tax Act. The SRO, on 18 September 2000, disallowed the plaintiff’s objections on the basis that s 24A of the Land Tax Act precluded the Commissioner from considering an objection where the valuation was prepared by a rating authority under the Valuation of Land Act.

The Council, on 20 September 1999, issued a valuation rate notice to the plaintiff for the rating year 1 July 1999 to 30 June 2000. On 30 October 2000, the plaintiff lodged an objection with the Council to the assessment of capital improved value, net annual value and site value shown in a notice received by it and described as “July 7 Supplementary Valuation” and “20 Sept Rates Notice”. In November 2000, the plaintiff also objected to the July 2000 general valuation of the Port land. In the meantime, on 30 September 2000, the plaintiff paid $579,080.33, being land tax assessed for the 1997 to 2000 years, inclusive.[12]
[12]The sum of $579,080.33 paid in respect of these land tax assessments was made up of $156,827.17 for the 1997 land tax assessment; $126,427.16 for the 1998 land tax assessment; $151,421.20 for the 1999 land tax assessment; and $144,404.80 for the 2000 land tax assessment; and see Port of Portland Pty Ltd v State of Victoria [2007] VSC 488 at [49].

Negotiations were conducted between the plaintiff and the Council concerning the plaintiff’s objection to the July 2000 general valuation of the Port land. These negotiations, which continued between December 2000 and June 2001, were conducted by Messrs Wallace and McGregor and Ms Mibus on behalf of the plaintiff, and Messrs Hornby and McDonald on behalf of the Council.

The SRO issued a 2001 land tax assessment notice assessing the plaintiff for land tax in the sum of $194,126.25 and adopting an unimproved value of the Port land of $5,484,925. This assessment notice was issued on or about 9 March 2001 and on 3 May 2001 the plaintiff wrote to the SRO objecting to this assessment pursuant to s 24A of the Land Tax Act.

The plaintiff and the Council reached an agreement, in June 2001, in relation to the plaintiff’s objection to the July 2000 general valuation of the Port land. The Council agreed to reduce the site value of the Port land from $5,653,000 to $1,002,600, together with an agreement as to the apportionment of the site values of the rateable properties. The approach adopted by the Council’s valuer, confirmed by the Valuer-General, was as required by sub-s 2(2AA) of the Valuation of Land Act, which was to value the land as if it were sea bed and virgin coast line.[13] On 6 June 2001, Mr McDonald, on behalf of the Council, issued recommendation notices to the Valuer-General, recommending a site value of the Port land at $1,001,500 pursuant to sub-s 21(3)(b) of the Valuation of Land Act. Subsequently, on 25 June 2001, the Valuer-General issued confirmation notices confirming the reduction to the value of the site value of the Port land to $1,001,500 pursuant to sub-s 21(4) of the Valuation of Land Act.
[13]Court Book pp 493-4 (email from Tony McDonald to Hubert Savoy dated 14 June 2001).

Meanwhile, on 19 June 2001, the plaintiff’s objections to the 2001 land tax assessment were disallowed by the SRO. On 1 March 2002, a 2002 land tax assessment notice was issued by the SRO which adopted a total unimproved value of the land of $1,186,500 and assessing the plaintiff for land tax in the sum of $10,558.75. The significant drop in the unimproved value of the land and the consequent reduction in land tax in 2002 is because this was the first year in which the 1996 amendments to the Valuation of Land Act became operative.

On 29 November 2001, the plaintiff wrote to the then Treasurer, the Hon John Brumby MP, making a claim under the provisions of clause 11.4 of the Agreement.[14] The Treasurer rejected the plaintiff’s claim, replying to this effect on 7 March 2002. The content and effect of these and similar communications between the parties is considered further, below, in relation to the issue of interest.[15] Nevertheless, for present purposes, it is sufficient to note that the plaintiff’s claim under clause 11.4 was rejected and, consequently, an assessment of damages for breach of these provisions is required. This, in turn, involves a determination of the amount of land tax that the plaintiff would have paid from 1997 to 2001 had the 1996 amendments to the Valuation of Land Act become operative in 1997.
[14]Court Book pp 530-531 (letter from John Wallace to the Hon John Brumby MP dated 29 November 2001); and see below, paragraph 66, where the letter is set out.
[15]See below, paragraphs 64 to 77..

Valuation evidence in the proceeding
Summary of evidence

Land tax was assessed under the Land Tax Act by applying a statutory formula to the “unimproved value” of the land. The unimproved value was taken from the ”site value” determined by the Valuer-General under the Valuation of Land Act. Accordingly, in order to determine the level of land tax payable on certain land, it is necessary to determine what site value the Valuer-General would ascribe to that land in accordance with the Valuation of Land Act. At trial before Mandie J, each party adduced expert valuation evidence of the site value of the land. The plaintiff’s case was, however, that the best evidence of the site value of the subject land in the period 1997 to 2001, excluding the port improvements, was the Valuer-General’s own valuation for the year 2000. The plaintiff relied on its own expert valuer to support the Valuer-General’s valuation.[16]
[16]See Court Book p 132 (Plaintiff’s Outline of Submissions (8 August 2007), paragraph 75); and see Court Book pp 1204-5 (Transcript of Hearing before Mandie J (8 August 2007), pp 501-2).

A summary of the valuation evidence of the Port land, which was tendered at trial, is as follows:[17]

(a)The plaintiff’s expert, Ronald Courtney, prepared a report in which he arrived at a site value of the Port land of $602,500.[18]
(b)The State’s first expert, Mark Holland, valued the land at $3.4 million, but on the erroneous basis that all the reclaimed land (including reclamation works under berths, piers, breakwaters and the like) did not constitute improvements to be excluded in the assessment of site value. On the basis of including such works as improvements within sub-s 2(2AA) of the Valuation of Land Act (as amended in 1996), Mr Holland valued the site value at $1.3 million. He said that the value of the land as virgin coast could be less than $1 million.[19]
(c)The State’s other expert, Alistair Kensley, valued the Port land at $3.027 million. However, Mr Kensley failed to disregard certain land reclamation as improvements. If that work were to be regarded as improvements within sub-s 2(2AA) of the Valuation of Land Act, Mr Kensley produced a site value of $2.883 million.[20]

[17]See Plaintiff’s Outline of Submissions on Assessment of Damages (20 June 2011), paragraph 60.

[18]Court Book pp 550-612 (Statement of expert evidence of Ronald Luke Courtney and attached report dated 25 June 2007, Exhibit C).

[19]Court Book pp 745-851 (Further Witness Statement of Mark Andrew Holland and attached valuation report dated 31 July 2007, Exhibit 6).

[20]Court Book pp 616-724 (Further Witness Statement of Alistair John Kensley and attached valuation report dated 31 July 2007, Exhibit 7).

Evidence at trial was that the first general valuation of the Port land to be performed after the 1996 amendments to the Valuation of Land Act was conducted in 2000. Both the High Court and the Court of Appeal held, unanimously, that the 1996 amending legislation did not occasion a supplementary valuation of the subject land. Consequently, as noted previously, the first time that a valuation of the subject land was undertaken which took account of the 1996 amendments to the Valuation of Land Act and, therefore, which excluded port improvements from the site value, was the 2000 general valuation.

The original 2000 site value was determined as $5,653,000. This was slightly higher than the previously assessed site value. The plaintiff objected on the basis that the valuer had ignored the 1996 amendments to the Valuation of Land Act and, subsequently, the site value was reduced to $1,001,500. Both the valuer, Mr McDonald, in recommending the reduction in site value, and the Valuer-General, in accepting it, acted pursuant to the statutory requirements that they be satisfied that the amended value was correct.[21] In cross-examination, Mr McDonald accepted that the reduced value was correct and resiled from his evidence-in-chief that he had accepted it simply because it was part of the objection process.[22]
[21]See Valuation of Land Act 1960, sub-ss 21(4) and (6); and see below, paragraph 43.
[22]Court Book pp 1039-41, 1045-7 and 1049 (Transcript of Hearing before Mandie J (6 August 2007), pp 301-3, 307-9 and 311).

The plaintiff submitted that the 2000 amended site value of $1,001,500 can be used to determine the unimproved value for land tax purposes for the years 1997 to 2001, for the following reasons:[23]

“(a)Under the land tax legislation, the governing valuation was the most recent general valuation, which was conducted in 1993.
(b)Mr Courtney gave evidence which was unchallenged that there had been no movement in land prices in Portland between 1993 and 2000; see para 4.0 of his report (Exhibit C).
(c)The Valuer-General’s equalisation factor, which measures changes in land values between general valuations, was 0.96 for the 2000 land tax assessment. This implies that the value of the subject land in 2000 was, according to the Valuer-General, 96% of the value in 1993. This implies an unimproved value in 1993 of $1,043,229.
(d)The annual equalisation factors can then be applied to the 1993 valuation to ascertain the unimproved value of the land for each year from 1997 to 2001. See the attached table of calculations applying this method of assessment.”

[23]Plaintiff’s Outline of Submissions on Assessment of Damages (20 June 2011), paragraph 64.

The State, on the other hand, rejected this approach which is, nevertheless, based on its own Valuer-General’s statutory valuations and equalisation factors. Instead, the State relied at trial on the evidence of its expert valuer, Mr Kensley, who assessed the site value of the subject land at $3,027,000, approximately three times more than the Valuer-General’s assessment. The State contended in the Court of Appeal that the Valuer-General’s valuation should be disregarded because it merely reflected settlement of an objection.[24] As submitted by the plaintiff, it might be said that this is a serious adverse reflection by the State on its own Valuer-General and the performance of his statutory duty under sub-s 21(6) of the Valuation of Land Act, and should not be accepted.
[24]Respondent’s Written Outline of Submissions (2 September 2008), paragraph 57.

The State, on many occasions, argued against reliance on the Valuer-General’s assessment as advocated by the plaintiff on the basis that there was no legislative warrant for so doing. In discussion of this point which was being made by the State, I noted and accepted that the legislation contemplated use of the equalisation factor going forwards, rather than backwards, because its usual purpose is to adjust assessments of value on an annual basis without the need for a fresh valuation more frequently than every five years – assuming no occasion for a supplementary valuation in accordance with s 13DF of the Valuation of Land Act. Although the State could not point to any prohibition on utilising the Valuer-General’s equalisation factor as submitted by the plaintiff, it reaffirmed its position that such a course was not permitted by the legislation and was a matter outside the functions of the Valuer-General.[25]
[25]See Aide Memoire – The role of the Valuer-General (undated) which was provided by the defendant in the course of its submissions.

In my view, there is a great deal of force in the plaintiff’s submissions in favour of relying on the Valuer-General’s assessments and the Valuer-General’s equalisation factor. I am strengthened in this view as the State could offer no reason addressing the substance of the matters now under consideration and why, in all the circumstances, it was not appropriate to utilise the Valuer-General’s assessment and then apply the Valuer-General’s equalisation factor back in time to determine the unimproved value for land tax purposes for the relevant previous years. My reasons for this view are now discussed in detail.

The Valuer-General’s valuation

The Valuer-General is a statutory officer of the State who is appointed by the State under s 3 of the Valuation of Land Act. The Valuer-General’s duties include, among other things, a duty to make general valuations of land[26] and to make supplementary valuations of land.[27] The Valuer-General’s valuations are used for the purpose of levying municipal rates and also for the purpose of levying land tax by the State. Clearly, these functions are performed for and on behalf of the State. They are performed for the State’s own purposes in terms of the levying of land tax and also for purposes essential to the operation of local government in Victoria; which is ultimately administered and controlled by the State and performs functions which are an intrinsic part of the structure of regulation, control and services provided by the State. Additionally, it should be observed that, under sub-s 3(5) of the Land Tax Act, the Valuer-General’s “prescribed equalisation factor” is prescribed by regulations at a date determined by the Treasurer after consultation with the Commissioner of State Revenue.
[26]Valuation of Land Act 1960, sub-s 5(1)(a)(b).
[27]Valuation of Land Act 1960, sub-s 13DA(3).

As has been mentioned briefly previously, in 2000, the valuer appointed by the Valuer-General to conduct a general valuation in the Shire of Glenelg, Mr McDonald, originally returned a site value of the subject land of $5,653,000. After objection by the plaintiff, it was reduced to $1,001,500.[28] The valuer recommended this reduction to the Valuer-General and, in so doing, certified under sub-s 21(3)(b) of the Valuation of Land Act that he considered the adjustment to be justified.[29] Mr McDonald gave evidence on behalf of the State and, in the course of this evidence, said in cross-examination that the adjustment of the valuation was justified and reflected the proper valuation of the land.[30] On 25 June 2001, the Valuer-General confirmed the adjusted valuation and, in so doing, determined that he considered it to be correct for the purposes of sub-s 21(4) of the Valuation of Land Act.[31]
[28]Court Book pp 493-4 (email from Tony McDonald to Hubert Savoy dated 14 June 2001 in which this revised valuation is explained); see also Court Book pp 1042-3 (Transcript of Hearing before Mandie J (6 August 2007), pp 304.10 – 305.12).
[29]See Court Book pp 497-512 (Recommendation Notices to Valuer-General from Tony McDonald dated 21 June 2001).
[30]Court Book pp 1042-3, 1051 (Transcript of Hearing before Mandie J (6 August 2007), pp 304.3 - .19, 305.5 - .17 and 313.18 - .22).
[31]Court Book pp 513-529 (Confirmation Notices by Valuer-General dated 25 June 2001).

The Valuer-General determined an “equalisation factor” under sub-s 3(5) of the Land Tax Act. The equalisation factor, which measures fluctuations in the value of land since the last general valuation, is applied under provisions of sub-s 3(4) of the Land Tax Act to adjust the unimproved, or site, value of land in the annual land tax assessments. In the plaintiff’s 2000 land tax assessment, the equalisation factor applied to the 1993 valuation, the year when the last general valuation was conducted, was 0.96.[32] This implies that the Valuer-General considered that the Port land in 2000 was worth 96% of its value in 1993. Consequently, the Valuer-General’s opinion as to the site value of the land in 1993 can be determined by taking this 2000 valuation and dividing it by the 2000 equalisation factor to arrive at the 1993 site value of $1,043,229. Applying the same methodology, the equalisation factors can then be applied in each year from 1997 to 2001 to the 1993 unimproved value of $1,043,229 to determine the adjusted unimproved values for each of those years. The appropriate rates of land tax can then be applied to the unimproved values to arrive at the tax that would have been paid. This can then be deducted from the amount actually paid to produce damages of, the plaintiff submits, $745,987.79. These calculations are set out in Appendix 1 to these reasons for judgment.
[32]Court Book pp 380-384 (2000 Land Tax Assessment Notice),

On this basis, the plaintiff submits that this is the best evidence of damages, based on what the Valuer-General is likely to have fixed as the site value of the Port land had he conducted a valuation of it in 1997 and taken account of sub-s 2(2AA) of the Valuation of Land Act. It is submitted that this is supported by Mr Courtney’s evidence in the sense that Mr Courtney assessed the site value at a lower amount than the Valuer-General and also in the sense that Mr Courtney gave unchallenged evidence that there was little movement in the value of land in Portland between 1993 and 2000. Additionally, there was no evidence to suggest any facts or circumstances which would, in any other respect, have affected the value of land in Portland over this period of time which would call into question the application of the equalisation factor in previous years as the plaintiff advocates. Moreover, the Valuer-General’s valuation was also supported by the State’s expert witness, Mr Holland, who assessed the site value of the Port land, on the basis of the port improvements being ignored, at $1 million or less.[33] Only Mr Kensley’s valuation is out of step with the Valuer-General’s valuation on this basis.
[33]Court Book p 1066 (Transcript of Hearing before Mandie J (6 August 2007), pp 363.13 - .18).

On the other hand, the State, in effect, sought to attack the Valuer-General’s valuation because it was not arrived at on the basis of comparable land values or sales but, rather, was that it was derived from negotiations between Mr McDonald, the Council valuer, and a representative of the plaintiff on some basis about which little was known. Thus, the State submitted:[34]

“16.The Valuer General was not called by the plaintiff to give evidence. He also did not file an expert report in accordance with Order 44 of the Supreme Court Rules. What little is known about the valuation shows that it derived from negotiations between Mr McDonald, the council valuer, and a representative of the plaintiff. The evidence was that Mr McDonald returned a valuation for the 2000 general valuation for the Port land of $5,557,600. The plaintiff objected to the assessment, and following negotiations Mr McDonald reduced the assessment to $1,001,500.[35] Mr McDonald gave evidence in cross examination that he agreed to the lower figure in discussions with Mr Wallace, a valuer for the plaintiff, on the basis that Mr Wallace put forward a figure of $1m and Mr McDonald could not ‘prove’ that his higher valuation was ‘true and correct’.[36] Mr McDonald also explained the reduction on the basis that he was ‘endeavouring to resolve the differences with the valuation’.[37] Mr McDonald then gave evidence that Mr Savory of the Australian Valuation Office, who was Mr McDonald’s supervisor and performing functions of the Valuer General, did not adjust the amount.[38] Thus, unlike the valuations submitted by the experts, the Valuer General did not arrive at a value based on comparable land values or sales.”

[34]Defendant’s Outline of Submissions on Assessment of Damages (1 August 2011), paragraph 16.

[35]Port of Portland v State of Victoria [2007] VSC 488, [46].

[36]Court Book p 1041 (Transcript of Hearing before Mandie J (6 August 2007), p 303.25 - .28).

[37]Court Book p 1046 (Transcript of Hearing before Mandie J (6 August 2007), p 308.13 - .15, 22-23).

[38]Court Book p 1042 (Transcript of Hearing before Mandie J (6 August 2007), p 304.5 - .29).

In response to these submissions, the plaintiff drew attention to the fact that the Valuer-General is a statutory officer of the State and “plainly in the defendant’s camp”, as was Mr McDonald.[39] Further, the plaintiff submits that:[40]

“It is scarcely credible for the defendant to submit that the plaintiff should have called the Valuer-General as a witness so that the defendant could cross-examine its own statutory officer and put to him that his 2000 valuation was out by a factor of three, that his equalisation factor could not be relied upon and that, in accepting the adjustment to the 2000 valuation, he breached his statutory duty under s 21(4) of the VLA”.

[39]See Plaintiff’s Outline of Submissions in Reply on Assessment of Damages (15 August 2011), paragraph 11.

[40]Plaintiff’s Outline of Submissions in Reply on Assessment of Damages (15 August 2011), paragraph 11.

In my opinion, the absence of any evidence or submissions from the State which cast doubt on the methodology argued for by the plaintiff involving the application of the equalisation factor to the Valuer-General’s valuation in 2000 and the support for the figure thus derived by its consistency with the position reached by two of the three expert valuers supports the plaintiff’s position in this respect. Further support is, in my view, gained when further consideration is given to the reason for the divergence in the valuations provided by the expert valuers. For reasons which I now examine in more detail, I am of the opinion that the valuations of Mr Courtney and Mr Holland are to be preferred to that of Mr Kensley. Additionally, in terms of the best evidence, it should, in my view, be remembered that the purpose of the expert evidence is to establish the likely valuation which the Valuer-General would have placed on the subject land for land tax purposes for each year from 1997 to 2001. Here, we have a situation where the person whose assessment of value is critical, the Valuer-General, has expressed his opinion in 2000 and by use of an objective measure, the equalisation factor, a tool readily accepted for use in the assessment of value in subsequent years, can be applied to produce a valuation for these earlier years.

Further, there is, in my view, no basis in the evidence for the State’s submissions that the 2000 valuation by the Valuer-General is somehow “tainted” as a result of it being fixed as a result of discussions with Mr McDonald, particularly in the absence of support from the valuation evidence of Mr Courtney or Mr Holland to suggest that this valuation cannot be accepted as accurate or that there are other factors at play which ought to be taken into account in valuing back from 2000 on the basis of the equalisation factor.

Valuation evidence at trial

Although Mandie J dealt briefly with the valuation evidence, expressing a preference for the evidence of the State’s expert, Mr Kensley,[41] no assessment of damages was made having regard to the position reached with respect to the enforceability of clause 11.4 of the Agreement. As Mandie J did not have to decide this issue, it was addressed relatively briefly in the reasons for judgment. For this reason, and also having regard to the position taken by the State in the present stage of the proceedings, which is to invite me to consider the valuation evidence put before Mandie J in some detail, it is, in my view, appropriate that I form my own opinion in relation to the weight to be given to the valuation evidence given at trial.
[41]Port of Portland Pty Ltd v State of Victoria [2007] VSC 488, [57].

The State’s case on the valuation evidence is, in effect, that in determining what the Valuer-General is likely to have done in terms of valuation of the Port land at the critical times, the Court should ignore what he actually did do, in terms of the 2000 valuation and determination of the equalisation factor, and, instead, rely on the valuation of a private valuer engaged by the State to give evidence on its behalf in mitigation, even though that valuation is out of step by a factor of at least three with all other evaluation evidence in the case; not only that of the State’s official valuer, the Valuer-General, but also its other expert witness, Mr Holland.

As I have said, and the plaintiff emphasises this point in its submissions, the case is about what site value the Valuer-General is likely to have ascribed to the Port land had he valued it in 1997 applying sub-s 2(2AA) of the Valuation of Land Act. It is not a case about what the “correct” site value of the land was – it is not a valuation case in the usual sense; though it is not suggested, by implication or otherwise, that the Valuer-General’s assessments, directly or indirectly, are not accurate. It follows that it is scarcely credible to say that Mr Kensley’s valuation is likely to be a better guide to what the Valuer-General would have done than what the Valuer-General actually did do on the basis of his valuation conducted in 2000; particularly given its consistency with the other expert valuation evidence.

Further, and in my view, the State has failed to answer the criticisms made of Mr Kensley’s evidence; criticisms which are conveniently and concisely summarised in the plaintiff’s submissions:[42]
[42]Plaintiff’s Outline of Submissions in Reply on Assessments of Damages (15 August 2011), paragraphs 14-19.

“14.Furthermore, the defendant does not answer the many criticisms made of Mr Kensley’s evidence. It merely takes refuge in the trial judge’s preference for Mr Kensley’s evidence and submits that these criticisms are matters for appeal. This is a compelling reason for not remitting the matter to the trial judge. Indeed, the plaintiff sought to agitate these very matters in the Court of Appeal: see para 5 of its notice of appeal and paras 66-69 of its outline of submissions. Then, as now, the defendant offered no defence to the criticisms of Mr Kensley’s evidence. The Court of Appeal did not deal with these matters as it resolved the issue of liability against the plaintiff.
15.There is one particular criticism which now merits further consideration because of the defendant’s submissions. It is the absence of Schedule A from Mr Kensley’s report. We learn now for the first time that the missing Schedule A was the same Schedule A to Mr Holland’s report. In fact, there is no Schedule A to Mr Holland’s report; rather Appendix 7 also bears the title Schedule A. None of this was revealed at trial. Senior counsel did not open the case on that basis; no oral evidence-in-chief was given by Mr Kensley to that effect; nor was he re-examined on the missing schedule though its absence was conceded by Mr Kensley in cross-examination with the explanation that he was told it was the plaintiff’s representation as to port improvements: trans 366/15 – 367/4.
16.The defendant now says that Mr Kensley’s evidence is to be understood as being that, after valuing the land as virgin land, you add back the value of certain improvements on the land which are not truly port improvements, as disclosed by the missing Schedule A. This way his initial valuation of $2,883,000 is boosted to $3,345,000. Senior counsel for the defendant in opening said that they would contend that certain associated works should not be counted as port improvements: see trans 244/18-24. However, this was not related to Mr Kensley’s Schedule A or to any part of Mr Kensley’s report. In para 8.2 Mr Kensley said only that there were improvements in Schedule A ‘outside the definition of port improvements’ and then he purported to value them in section 8.3. However, without Schedule A no sense could be made of that. Nowhere in his report does Mr Kensley state that this is how he assessed the site value of the land.
17.In its written outline of closing submissions at trial in para 162 the defendant said that Mr Kensley arrived at a site value of $2,833,000 on the assumption that all the improvements were port improvements and that this increased to $3,027,000 (not $3,345,000, as the defendant now says) by adding back improvements at three properties. However, in oral closing submissions, in answer to a question from the judge whether Mr Kensley’s valuation was ‘$3 million or something’ senior counsel said ‘$2.8 million’: trans 457/14-16.
18.In any event the point that certain improvements disclosed in Schedule A were not port improvements is an entirely barren one. Senior counsel in oral closing submissions tried to persuade the judge that it was correct to add back the value of the improvements alleged not to be port improvements but the judge expressed the clear view that these improvements fell within the definition of port improvements as ‘associated works’: see trans 452/17 – 457/19 esp at 452/29-31; 453/10-16; 453/30 – 454/5; 454/28-31.
19.In these circumstances, the defendant’s attempt to boost Mr Kensley’s valuation in this manner should be rejected. If, contrary to the plaintiff’s primary case, Mr Kensley’s valuation is accepted as stating the likely site value the Valuer-General would have ascribed to the land in 1997 taking account of s 2(2AA), then that valuation should be set at $2,883,000.”

In its written response on this issue, the State submits:[43]
[43]Defendant’s Outline of Submissions on Assessment of Damages (1 August 2011), paragraphs 20 to 25.

“20.The approach adopted by Mr Kensley was to value the Port land on the basis that he disregarded all the port improvements or assumed they had not been made, such that ‘the properties would reflect their virgin state’.[44]
21.Undertaking that process, Mr Kensley valued the Port land at $2,883,000.[45]
22.Mr Kensley then identified whether any improvements to the Port land should be included in the ‘unimproved site value’ on the basis that the only improvements that should be excluded were ‘buildings, breakwaters, berths, wharfs, aprons, canals or associated works relating to a port’. Relevantly, Mr Kensley adopted the definition of port improvements in s 2(2AA) of the Valuation Act to undertake this assessment. The definition of port improvements in s 2(2AA) of the Valuation Act has the same meaning as ‘buildings, breakwaters, berths, wharfs, aprons, canals or associated works relating to a port’ in cl 11.4(a) of the Agreement. Mr Kensley understood the definition in s 2(2AA) to mean that the ‘improvements must be part of a harbour where ships load and unload’.[46] Mr Kensley was not challenged on this part of the report, nor was it the subject of adverse comment by the plaintiff in its closing address.
23.To undertake the task mentioned above, Mr Kensley used the improvements to the Port specified by the plaintiff in its Further and Better Particulars dated 29 September 2006 and its Further and Better Particulars dated 22 November 2006. The list was collated into a single document titled Schedule A. Schedule A was erroneously omitted from Mr Kensley’s report. It is identical to Schedule A to the report of Mr Holland.[47]
24.Mr Kensley identified 5 properties with improvements that were not port improvements (being not part of the Port or facility where ships load and unload),[48] and valued those improvements at $144,000.[49]
25.In addition, Mr Kensley identified 3 properties which were purchased by the plaintiff and which were excluded from Schedule A because they did not appear in the plaintiff’s Further and Better Particulars mentioned above. Their total site value was $318,000.[50]”

[44]Court Book p 638 (Final Valuation Report of Alistair Kensley dated 31 July 2007, page 17, Exhibit 7).

[45]Court Book p 645 (Final Valuation Report of Alistair Kensley dated 31 July 2007, page 24, Exhibit 7).

[46]Court Book p 646 (Final Valuation Report of Alistair Kensley dated 31 July 2007, page 25, Exhibit 7).

[47]A copy of Schedule A was left out of Mr Kensley’s report, although he was provided with it in his instructions. A copy is attached to Mr Holland’s report: Court Book pp 833-5 (Valuation Report of Mark Holland dated 31 July 2007, Appendix 7). The plaintiff’s counsel referred to Schedule A during cross examination of Mr Kensley (Court Book pp 1069-70 (Transcript of Hearing before Mandie J (7 August 2007, pp 366-7), and neither called for production of Schedule A, nor objected to the tender of the report with its numerous references to Schedule A.

[48]Court Book p 646-7 (Final Valuation Report of Alistair Kensley dated 31 July 2007, pp 25-26, Exhibit 7).

[49]Court Book p 646 (Final Valuation Report of Alistair Kensley dated 31 July 2007, pp 25, Exhibit 7).

[50]Court Book p 648 (Final Valuation Report of Alistair Kensley dated 31 July 2007, p 27, Exhibit 7).

In my view, these submissions do not address the specific criticisms of Mr Kensley’s evidence which were advanced by the plaintiff. Neither did the State’s oral submissions in this respect advance the State’s position in this respect. Rather, the oral submissions of both parties served to highlight a further matter which, to my mind, casts significant doubt on Mr Kensley’s assessment – namely, the valuation of the seabed component of the Port land.

Although Mr Kensley was the only valuer to rely on comparable sales of seabed, namely sales in the Ports of Melbourne, Geelong and Hastings, it is sufficient for present purposes to observe that Mr Kensley relied primarily on seabed sales of Victoria Dock and Webb Dock, in the Yarra River and the Yarra mouth in the heart of Melbourne. Given the differences in location and the general level of land prices in Melbourne, and the fact that these sales led Mr Kensley to value seabed land in Portland at approximately 33% - 40% of the value attributable to adjacent freehold land,[51] in contrast to the Valuer-General at $0.50 per square metre, and the views of Mr McDonald (who agreed the attributable value of seabed land was $0.50 per square metre),[52] Mr Holland (who stated in evidence in the trial before Mandie J the value of the virgin land would likely be less than the values of the port land stated in his valuation),[53] and Mr Courtney (who attributed little if any value to seabed land),[54] one would have to have considerable doubt in relation to Mr Kensley’s opinion; particularly as the seabed area is a significant proportion of the area of the Port land.
[51]Court Book p 639 (Final Valuation Report of Alistair Kensley dated 31 July 2007, page 18, Exhibit 7); and see Transcript, 15 May 2012, pp 85.05 – 96.02.
[52]Court Book pp 735-6 (Witness Statement of Anthony John McDonald, paragraphs 43-51). This was noted to be one-twentieth of attributable value given to the adjacent freehold land ($10 per square metre): Transcript, 15 May 2012, p 91.04 - .18
[53]Court Book, pp 745-851 (Further Witness Statement of Mark Holland and attached valuation report dated 31 July 2007 (Ex 6). And see Transcript of Hearing before Mandie J (7 August 2007), pp 361-2 (Mr Holland’s valuation provides two assessments – a valuation of the port land based on the improved value of the port land on the assumption the 15 year rule in the definition of improvements did not apply ($3.4M), and a valuation of the port land based on the assumption the 15 year rule did apply ($1.3M). In the trial before Mandie J, Mr Holland states he was not asked to undertake an assessment on the reclaimed and filled land with no improvements (a valuation of the ‘virgin land’). When asked if the value of virgin land would come out at a value of amount $1M, Mr Holland states ‘it may be less than that, but possibly, yes’.
[54]Mr Courtney ascribed little if any value to the value of seabed: (Court Book p 567 (Report of Ronald Courtney dated 25 June 2007)) . In his report, Mr Courtney concludes:
‘A major area of these lands comprised seabed in its original state. As such, it belonged to the Crown, it was outside the Shire of Glenelg boundary line and a Certificate of Title could not be issued. These lands had no commercial value. If my contention is incorrect and I am required to assume that titles would issue for the unimproved seabeds then they would have only a nominal value suffice only to be a peppercorn consideration for a sale to be effected’
And see Transcript, 15 May 2012, pp 70.21 – 73.15.

For these reasons, I accept the plaintiff’s submissions that the values to be ascribed to the Port land for the years from 1997 to 2001 are to be determined on the basis of the Valuer-General’s valuation in 2000 applying the Valuer-General’s equalisation factor, as discussed.

Land tax passed on to the tenants

The State submits that the plaintiff’s damages for breach of clause 11.4(b) of the Agreement should reflect its actual loss. In consequence, it submits that the plaintiff’s damages should be reduced by the amount of $275,000, being the amount it received from tenants for reimbursement of land tax for the period 1997 to 2001.

Particular reference is made by the State in its submissions to the words “allow” and “refund” which, it said, colour the word “assessed” as used in clause 11.4(b) of the Agreement. Consequently, it submits that on a proper construction of this clause, all the plaintiff is entitled to recover is its out of pocket tax expense. The High Court’s finding[55] that payments to be made under clause 11.4(b) was to adjust the purchase price by refunding overpaid land tax to the plaintiff if the legislation contemplated by sub-clause 11.4(a) was not enacted is relied upon in support of that construction. Further, the State argues that the parties could not have intended that the plaintiff would be entitled to adjust the purchase price by receiving a refund of land tax for which it was not out of pocket. It is said that the surrounding factual matrix is relevant to that interpretation and strongly supports the construction that the parties intended clause 11.4 to compensate the purchaser for actual loss.[56]
[55]Port of Portland v State of Victoria (2010) 242 CLR 348 at 360-361, [15] and [17].
[56]See Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 236 ALR 561, at [46]-[53] (Weinberg J).

In terms of the transaction itself, the State contends that its purpose was the sale of the Port of Portland and that clause 11.4 provided an adjustment to the purchase price by the State if the purchaser was required to pay more land tax than if a specified legislative amendment became law. Reference was made to the standard practice in Victoria whereby commercial tenancies generally provide for the tenant to pay all rates and taxes.[57] Additionally, it is said that the parties to the Agreement knew that existing tenants in at least some leases were paying land tax because the Agreement included a schedule listing those leases.[58] The further point made is that the plaintiff negotiated new leases after the purchase of the Port land that included terms for tenants to pay land tax, as indeed was standard practice.[59] Thus, the State submits that in circumstances where the parties knew and understood that land tax would be passed on to any tenants of the Port land, the fact that clause 11.4 was intended as an adjustment to purchase price strongly supports the position that the parties objectively intended that clause 11.4(b) was to operate only to put the purchaser in the same position as if the proposed legislative amendment in clause 11.4(a) had become law.
[57]See TT – Line Company Pty Ltd v Commissioner of State Revenue [2008] VSC 506, [16] (Mandie J).
[58]Referring, by way of example, to the lease agreement between Port of Portland Authority and the Grain Elevators Board.
[59]Referring, by way of example, to the lease agreement between Port of Portland Pty Ltd and Moyston Court Fisheries Pty Ltd.

I am of the opinion, however, that the factors which are relied upon by the State in this respect are, at best, equivocal. This is, in my view, particularly so when it is considered that the effect of clause 11.4 was not necessarily to render the Port land, hence the plaintiff, free of any land tax assessment or liability but, rather, that the effect of these provisions was to reduce that land tax liability significantly by excluding from site value the value of the port improvements. Thus, whilst I would accept the contention of the State that the plaintiff’s undertaking to repay the land tax paid by the tenants if it recovers its equivalent from the State would not alter the proper construction of clause 11.4, and I am not satisfied that the plaintiff’s entitlement under clause 11.4 is affected or circumscribed by the fact that its tenants may or may not have reimbursed it to a greater or lesser extent with respect to its land tax liability.

The plaintiff, in its submissions, emphasises its undertaking to the Court to reimburse to the tenants that portion of the overpaid land tax which is referrable to their respective tenancies, noting that it is likely that the plaintiff could be compelled to do so in an action by the tenants for moneys had and received. In this context, reference is made to the decision of the High Court in Roxborough v Rothmans of Pall Mall Australia Ltd[60] where a passing on defence was rejected in a claim for restitution of amounts paid pursuant to a contract which represented tax levied on wholesalers of tobacco which was later found to have been invalid. The wholesalers had included a charge in the contracts with retailers to recover the tax. When the tax was held to be invalid, the retailers successfully sued the wholesalers to recover the contractual charges. The wholesalers unsuccessfully argued that the retailers should not be permitted to recover the charges, as the retailers had, in turn, passed them on to their customers. The plaintiff submits that it follows from Roxborough both that the State’s passing on defence should not succeed and also that the plaintiff is probably liable to repay the tenants the land tax it recovers from the State under clause 11.4; hence its undertaking to reimburse.
[60](2001) 208 CLR 516.

The plaintiff also argues that the terms of clause 11.4(b) are clear, namely that the State’s repayment obligation is triggered where the plaintiff “is assessed to land tax”. The plaintiff contends that all the amounts which it seeks to recover are amounts to which it was “assessed”. The plaintiff observes in its submissions that clause 11.4(b) does not provide, as it might have, that the repayment obligation only arises where, or to the extent that, the plaintiff is ultimately out of pocket for the land tax. The failure of the clause to make such provision is, the plaintiff submits, explicable by desire of the contracting parties that the tenant should have the benefit of the repayment obligation. Further, it is observed that since the tenants are not privies of the State, and since they are not the taxpayers, they can probably only obtain the benefit of the clause by suit in the name of the plaintiff. Thus, the plaintiff says that its undertaking will ensure that they obtain that benefit. In my view, the plaintiff’s submission in this respect is supported by the language of clause 11.4(b), which is, in my view, sufficiently clear to render any excurses into the factual matrix at odds with more recent High Court authority to the effect that an ambiguity in the words of an instrument must first be found before that enquiry is undertaken.[61] Further, even if such excursus were to be permitted, it would yield little light having regard to the views I have already expressed in relation to the State’s arguments on the construction of clause 11.4 in relation to this particular issue.
[61]Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604.

Interest

The plaintiff submits that interest should accrue in its favour from 29 November 2001, being the date of a letter from Mr John Wallace[62] on behalf of the plaintiff to the Treasurer which the plaintiff submits should be characterised as a letter of demand.
[62]Court Book pp 530-531 (letter from John Wallace to the Hon John Brumby MP dated 29 November 2001.

The position with respect to entitlement to interest is provided for in sub-s 58(1) of the Supreme Court Act 1986, as follows:

“(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.”

The State submits that the letter of 29 November 2001 does not constituted a demand for the purposes of sub-s 58(1) of the Supreme Court Act. In support of this submission, the State says that the letter contained no request that it make payment of any sum for breach of contract but, rather, was concerned with requesting the Treasurer to direct the Office of State Revenue to make a refund “under the provisions of the Land Tax Act”. In view of the importance of this letter and, as discussed further below, documents flowing from it, it is helpful to set out its terms in full:

“29 November 2001
The Hon John Brumby MP
Treasurer – The State of Victoria
Department of Treasury and Finance
Treasury Place
MELBOURNE VIC 3000
Dear Minister
re:The Port of Portland Pty Ltd and the Assessment and Payment of State Land Tax to the State Revenue Office of Victoria

I write to you on behalf of clients, The Port of Portland Pty Ltd in relation to the following matter.
Since the privatisation of the port at Portland and its purchase in 1996 by The Port of Portland Pty Ltd, that company has paid land tax to the State Revenue Office at the demanded rate. The Port has appealed against the valuations and, as a result of these appeals, the Valuer for the responsible authority, being the Shire of Glenelg, has issued an amending and revised valuation which has been certified as being true and correct by the Valuer General’s Department of Victoria. This outcome should result in a nett refund to our clients, The Port of Portland, of approximately $750,000.00.
As a result of the appeal process, the State Revenue Office has agreed to repay the amount of overpayment since the date of appeal. However, they claim that under the provisions of the Land Tax Act, they are unable to refund monies back to the date of privatisation.
At our last meeting, where we discussed the history of the property, the valuation process, the successful outcome of our objections and the provisions of the enabling Act and the sale documents, the State Revenue Office’s representatives have taken the stance that while they are not disallowing our objection, they need direction from the relevant Minister for the Commissioner of State Revenue to be directed to make the refund.
As an alternative to this course, they have suggested we preserve our client’s rights by following the further provisions within the Land Tax Act 1958 in relation to our client’s statutory rights of appeal.
Our clients have approached the Minister for Ports as the responsible Minister but have been told that The Treasurer is the appropriate Officer of Parliament to resolve this matter.
To assist in your consideration of the dispute, I attach herewith correspondence of 8 August, 13 August and 15 August 2001. Following this correspondence, a further meeting was held with legal officers of the State Revenue Office and the request to have the matter treated as an appeal and to be set down in the Supreme Court was deferred until we had referred this dispute for your consideration and direction.
As to the sale agreement, we provided a copy of the asset sale agreement of The Port of Portland to the State Revenue Office. This is an agreement which was dated 15 February 1996 and signed by the then Treasurer, Allan Stockdale. Clause 11.4 titled ‘Land Tax’ clearly states that the State of Victoria would amend a statute governing the assessment and imposition of land tax to ensure that the unimproved site value is used as the basis for assessment. It then further goes on to state that if the amendment is not made and as a result the purchaser is assessed for land tax at a higher rate and without proper regard to the provisions of that clause, then the state will refund or allow to the purchaser the difference between the 2 amounts. I attach herewith copy of the relevant clause, 11.4, page 18.
We believe that, under Section 19 of the Land Tax Act the Commissioner does have the discretion and the opportunity to make the necessary adjustment and refund to our client. However, they do state that they require your direction in order for this refund payment to be made.
We now seek your urgent attention and action to resolve this dispute and to properly reflect the application of Section 19 of the Land Tax Act, the provisions and amendments made to the Valuation of Land Act and the asset sale agreement.
We shall be pleased to provide any further necessary detail, if so required.
Yours faithfully
WALLACE COMMERCIAL PTY LTD
JOHN WALLACE
F.A.P.I. (Val & Econ) Dip.Ag. F.R.M.I.T.
Certified Practising Valuer
Director
Valuer on Behalf of The Port of Portland Pty Ltd
Attachments: Correspondence of 8, 13 and 15 August 2001 together with schedule of land tax payments made by The Port”

The State submits that on the basis that this letter does not constitute a demand, the calculation of interest is therefore regulated by the provisions of sub-s 60(1) of the Supreme Court Act, which provides:

“(1) The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.” [Emphasis added in defendant’s submissions].[63]

[63]See Defendant’s Outline of Submissions on Assessment of Damages (1 August 2011), paragraph 40.

On this basis, the State submits that although this proceeding was commenced on 22 October 2002, there is “good cause” for the Court to allow interest to accrue only from 1 December 2005.

The State provided a helpful summary of the authorities in relation to the meaning of “good cause” in the present context:[64]
[64]See Defendant’s Outline of Submissions on Assessment of Damages (1 August 2011), paragraphs 42-46.

“42. In Clarke v Foodland Stores,[65] the Full Court stated at 394:
[65][1993] 2 VR 382 (Fullagar, Marks and J.D. Phillips JJ).
‘Thus, when good cause is shown, the court may refuse to award interest at all or may, if it sees fit, award interest on terms which are less, but not more, onerous than those laid down by the section. As the court always has a discretion as to the rate (subject only to the maximum imposed by s58), this means, in effect, that once good cause is shown, the court may allow interest to the plaintiff for a lesser period than that marked out by the section - as, indeed, was done in David Leahey’s Case. And it follows, we think, that “good cause to the contrary” means no more and no less than good reason, according to the justice of the case, for not allowing interest at all or, if interest is to be allowed, then for not allowing interest for the whole of the period marked out by the section.
What is “good cause” in any given case will therefore depend upon the particular facts and circumstances’.

43.In Willetts v Dimos,[66] Smith J considered whether there was ‘good cause’ pursuant to s 58(1) of the Supreme Court Act to reduce the period for which interest was payable. In that case, the matter was initially contemplated for a speedy trial in October 1991, but was finally set down for hearing on 21 October 1997. Smith J held that the plaintiff had been ‘guilty of excessive delay’ and hence that good cause had been shown for the purposes of s 58(1) of the Supreme Court Act. His Honour held that the excessive delay was three years, and in consequence awarded no interest for that period. On appeal, the Court of Appeal held that interest was not payable for other reasons, but the Court did not comment adversely upon Smith J’s approach to ‘good cause’ or his reduction of the quantum of interest.[67] On the issue of ‘good cause’, Smith J’s approach has been referred to.[68]
44.In Jonas (as liquidator of MGT Samorr Knitting Mills Pty Ltd) v Rocklea Spinning Mills Pty Ltd (No 2),[69] Byrne J held that there was ‘good cause’ not to award interest pursuant to s 58(1) of the Supreme Court Act for the period of delay to a trial caused by the plaintiff making late discovery. His Honour stated at [16] that he was satisfied that the Court should show its disapproval of the plaintiff’s conduct by denying him interest during the period lost as a consequence.
45.In Slaveski v Victoria,[70] Kyrou J held at [43] that good cause had been shown to depart from the terms of s 60(1) of the Supreme Court Act because the causes of action upon which the Plaintiff succeeded were not pleaded until five years after the commencement of the proceedings. His Honour awarded interest from the date when the successful claim was pleaded.
46.The cases suggest that a plaintiff’s delay will not constitute a ‘good cause’ not to award interest in circumstances where the defendant’s conduct caused the plaintiff’s delay, for example impecuniosity caused by the defendant’s conduct the subject of the proceeding.[71]”

[66](unreported, 27 February 1998, SCV, Smith J).

[67]Dimos v Willetts (2000) 2 VR 170, at 208 (Batt JA).

[68]University of Sydney v Raine & Horne Commercial (NSW) Pty Ltd [1999] VSC 123, at [42] (Hedigan J).

[69][2003] VSC 366.

[70][2010] VSC 569.

[71]See, eg, Watare Pty Ltd v Oddo (unreported, 6 March 1994, SCV, Eames J); Alucraft Pty Ltd (in liq) v Grocon Ltd (unreported, 13 May 1994, SCV, Smith J).

On the basis of the authorities, the State submits that interest should accrue in favour of the plaintiff from 1 December 2005 to the present because the plaintiff’s conduct in the proceeding between 22 October 2002 and 1 December 2005 caused unnecessary delay. It says that the State should not be penalised by having to pay interest for that period and that the plaintiff did not plead its successful claim until 1 December 2005. In this respect, the State relies upon the following:[72]
[72]See Defendant’s Outline of Submissions on Assessment of Damages (1 August 2011), paragraph 47.

“(a)On 29 November 2001, the Plaintiff wrote to the Treasurer seeking the Treasurer to direct the Office of State Revenue to make a refund ‘under the provisions of the Land Tax Act’;[73]
[73]See A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2009] VSCA 310, at [172]-[180] (Redlich and Dodds-Streeton JJA, Beach AJA).
(b)On 7 March 2002, the Treasurer replied rejecting the request;
(c)On 22 October 2002, the Plaintiff commenced proceedings against the ‘Government of Victoria’;
(d)On 3 December 2002, the Plaintiff amended the defendant to ‘State of Victoria’;
(e)On 10 February 2003, the State of Victoria entered an appearance;
(f)The Plaintiff filed and served six statements of claim, all of which were struck out;[74]
(g)On 1 February 2005, when Master Wheeler struck out the Plaintiff’s sixth statement of claim dated 23 December 2004, Master Wheeler stayed the proceeding;
(h)On 27 April 2005, Dodds-Streeton J dismissed an appeal from the orders made by Master Wheeler on 1 February 2005;
(i)On 19 August 2005, the Plaintiff sought leave to appeal to the Court of Appeal from the order of Dodds-Streeton J refusing leave to permit the Plaintiff to re-plead its case. The plaintiff did not contend that Master Wheeler or Dodds-Streeton J was in error;[75]
(j)The Court of Appeal allowed the appeal and permitted the Plaintiff to apply to the Master for leave to amend its case. Nettle JA stated at [11] in relation to the Plaintiff’s proposed pleading that it was ‘fundamentally to alter the nature of its claim’;[76]
(k)On 1 December 2005, after obtaining leave from the Master, the Plaintiff filed and served its Further Amended Statement of Claim.”

[74]Port of Portland Pty Ltd v State of Victoria (unreported, 19 August 2005, Buchanan and Nettle JJA), [3].

[75]Port of Portland Pty Ltd v State of Victoria (unreported, 19 August 2005, VSCA, Buchanan and Nettle JJA), [4].

[76]Port of Portland Pty Ltd v State of Victoria (unreported, 19 August 2005, VSCA, Buchanan and Nettle JJA).

Relying on these matters, and because an award of interest imposes a penalty component upon a defendant, the State contends that the plaintiff should not be awarded interest for the period of over three years in which it caused undue unnecessary delay by reason of its conduct in failing to plead its case properly and not identifying its successful claim until three years after the commencement of the proceeding. Further, the State submits that if, contrary to its primary submissions, sub-s 58(1) of the Supreme Court Act is found to apply instead of sub-s 60(1) of that Act, interest should accrue from 29 November 2001 to 22 October 2002 and then from 1 December 2005 to the present. The basis of this submission, as identified by the State, is that there is a good cause not to award interest from 22 October 2002 to 1 December 2005 for the reasons the State identified in its primary submissions.

The plaintiff conceded that the State is correct in saying that there was a lengthy period in which the plaintiff struggled to present its case, which resulted in a permanent stay being ordered. The stay was ordered to be lifted by the Court of Appeal upon a complete re-pleading of the case and thereafter the plaintiff’s case proceeded without undue delay. Nevertheless, the plaintiff submits that there are other factors to weigh in the balance, such as the State’s knowledge of and assessment of the plaintiff’s case from a very early stage.

In this respect, the plaintiff submits that materials discovered by the State and put in evidence at the trial disclose that before the State successfully moved to strike out and then permanently stay the plaintiff’s proceeding, the State had formed the view that the plaintiff had a good claim. This view was, the plaintiff submits, based on legal advice about the interpretation of the Valuation of Land Act which was advocated by the plaintiff, though opposed in the litigation by the State and ultimately accepted by both the Court of Appeal and the High Court. These materials were tendered without objection on the basis that they appeared to be internal legal memoranda and other documents internal to the State.[77] The early documents are undated, but I accept that it is reasonable to assume from such dates that do appear and the material contained in the documents that they were created some time in late 2001 or early 2002 when the plaintiff was putting its claim to the State.
[77]Court Book p 973 (Transcript, 15 May 2012, p 124.13 - .25.) The documents tendered in the trial before Mandie J are contained in the Court Book to this proceeding at pp 185-8; 189-90; 191-3; 532; 533; 534-7; 543; and 546-8.

The tendered materials show that there were competing views within the State with respect to the claim by the plaintiff for repayment of land tax under clause 11.4(b) of the Agreement but that, nevertheless, legal opinion was expressed that the plaintiff’s claim was good. In spite of this, the then Treasurer was briefed in February 2002 to write to the plaintiff rejecting its claim. It is a fair assessment, as submitted by the plaintiff, that this briefing paper to the Treasurer is entirely one-sided and presents none of the competing arguments contained in other documents. After the Treasurer’s letter of 7 March 2002 to the plaintiff rejecting its claim in terms recommended by his staff,[78] it appears that the State reconsidered its position, possibly prompted by the response to the Treasurer’s letter from Mr John Wallace on behalf of the plaintiff, by letter dated 15 April 2002.[79] In that letter, Mr Wallace pointed to a number of factual errors in the Treasurer’s letter of 7 March 2002 and continued:

“More importantly and secondly, your letter states that you were advised by the Municipal Valuer that he was aware of Section 2(2AA) of the Valuation of Land Act and his original valuation dated 1966. By correspondence and further enquiry, this is incorrect. Not only had I had meetings with Mr A.J. McDonald, Valuer for the Shire of Glenelg at offices of the council but also at the offices of the client with a number of witnesses present in both 1999 and 2000 when it became clear that Mr McDonald was unaware of the provisions of the relevant sections of the Act or the contract and he admitted publicly to this lack of knowledge thus had not properly applied the provisions of the Act or the contract in the present or prior valuation returned.
The simple question is, why else would the Site Value have been reduced as a result of our submissions to him when values generally, in the Shire of Glenelg at Portland, had on his view increased.
The correspondence received by your office from the Valuer for the Shire of Glenelg does not say that his valuation had proper regard to Section 2(2AA) of the Valuation of Land Act 1960. I had sought to rectify this flaw and shortcomings in the correspondence with your Mr Geoff Byrne, Director of the Revenue Policy Branch but he has not chosen to return my calls.
We ask that you address this mater with urgency as our client’s solicitors are now formulating which course of action should be taken in order to get the log overdue monies refunded.
Our client has requested that we advise you that they hold the State and your Department accountable for all costs in this matter.”

[78]Court Book p 543 (Letter from the Hon John Brumby MP to John Wallace dated 7 March 2002).

[79]Court Book pp 544-5 (Letter from John Wallace to the Hon John Brumby MP dated 15 April 2002).

The same State officer who said in his briefing note dated 11 February 2002 that the case was “quite clear cut” and that the plaintiff had no claim[80] took a completely different view in a memorandum dated 6 May 2002.[81] Not only did the State officer indicate that the plaintiff had a good claim and recommend that it be re-examined, he went further and indicated, in my opinion quite clearly, that the State understood the nature and basis of the plaintiff’s claim – which proved to be the nature and basis of the claim that was ultimately upheld by the High Court. The concluding material in that memorandum does, in my opinion, make this position very clear:[82]
[80]Court Book, pp 535-6 (Ministerial Brief to the Treasurer of Victoria from Michael Bloch dated 4 February 2002).
[81]Court Book, pp 546-8 (Department of Treasury and Finance Memorandum from Michael Bloch to Jeff Byrne and Phillip Flynn dated 6 May 2002).
[82]Court Book, pp 547-8 (Department of Treasury and Finance Memorandum from Michael Bloch to Jeff Byrne and Phillip Flynn dated 6 May 2002).

“Conclusion
The core issue is whether Section 2(2AA) was an effective amendment to ensure that the legal obligations undertaken by the Government would be discharged. If it was not, it would have to be concluded that the company has overpaid land tax.
An opposing line of argument could be the valuer made a mistake in the way he valued the land and that the company should therefore take action against the Shire of Glenelg. But the Shire of Glenelg has not benefited from the valuation (Shire rates are paid on capital improved valuations). The company has paid land tax to the State and it is the State that has benefited. Any restitution should therefore come from the State. It could also be argued that the Government had no business expecting a third party outside the State Government’s authority to act in a way so as to discharge the State’s legal obligations, particularly as the valuer would not have known what the State’s legal obligations were under the Contract of Sale.
It could also be argued that the company should have objected to the valuation under the objection procedures of the Valuation of Land Act 1960. The company did in fact object and certain amendments were made to the valuations. But the company apparently only became aware that the 1996 valuation might not have been based on Section 2(2AA) following the dramatic fall in site value in the 2000 municipal valuation, and the company is therefore only pursuing the matter now.
The essential point is that the original error seems to have been committed by the Government and that any subsequent errors of omission or commission by the valuer, the Shire of Glenelg and/or the company were made consequent upon the initial error of the Government. The issue therefore does not relate to land tax per se but to whether the Government has breached its contractual obligations under the Contract of Sale by the defective mechanism it created for the valuation of the land.
The SRO has made no error in the way it has assessed land tax on the given valuations and equalisation factors, and no further involvement of the SRO in the resolution of this matter is required. If the company is entitled to a refund, this will have to be done by way of an ex gratia refund, not a recalculation of its land tax.
Next Steps
(1)The Valuer General and DTF’s lawyers should be asked to review the arguments in this note.
(2)If necessary we might also have to go back to the Government Solicitor for definitive legal advice as to whether the State has a legal liability.
(3)If the arguments have merit, and ex gratia relief is considered appropriate, a way of calculating the amount of ex gratia relief needs to be developed.
(4)This will require the involvement of the Valuer-General.
(5)In the meantime, the applicant should be advised that the issues he has raised are being re-examined.”

I also note that paragraph (4) of “Next Steps” appears to indicate that the State’s officer contemplated the involvement of the Valuer-General in, it appears, calculating the amount of an ex gratia relief for the plaintiff, in spite of arguments now advanced by the State against the use or involvement of the Valuer-General for the purpose of calculating damages.

The plaintiff opened these materials at trial and submitted that they demonstrated that the State believed the plaintiff had a good case.[83] The State did not adduce any evidence to the contrary or otherwise dispute the contents of these materials. Consequently, while the State was successfully challenging the plaintiff’s pleadings and moving for a permanent stay of the proceeding, it actually held the view that the plaintiff had, or at least may have had, a good claim. In my view, it is very clear, looking at these documents and the history of this proceeding, that the State, as a model litigant, should not have taken this course and by so doing contravened paragraphs 2(c), (e), (g)(i), (ii) and (iii) and (iv) of its Model Litigant Guidelines.[84] It appears these provisions have been cited from the current version of the Model Litigant Guidelines available from the Department of Justice website, however these Guidelines were published in March 2011. Previous versions are unavailable on the Department of Justice website. However, a hard copy of the Model Litigant Guidelines which applied in 2002 (when the writ was issued), contain only sub-paragraphs 2(e), (g)(i) and (ii) as they appear in the March 2011 version. In any event, it would seem to be implicit in the 2002 version that the matters not contained in sub-paragraphs 2(c) and (g)(iii) and (iv) are implicit in the provisions as they appeared in 2002.[85]
[83]Court Book pp 970-9 (Transcript of Hearing before Mandie J (2 August 2007, pp 121.25 – 130.13).
[84]Model Litigant Guidelines – Guidelines on the State of Victoria’s obligation to act as a model litigant’ ; and see S. Lee, The State as a Model Litigant (Victorian Government Solicitor’s Office, 2006).
[85]For convenience, the relevant provisions of the March 2011 version of the Model Litigant Guidelines (as apparently referred to by the Plaintiff) are set out, as follows:
‘Model Litigant Guidelines
Guidelines on the State of Victoria’s obligation to act as a model litigant
…
2.The obligation requires that the State of Victoria, its Departments and agencies:
…
(c)deal with claims promptly and not cause unnecessary delay;
…
(e)pay legitimate claims without litigation, including making partial settlements of claims or interim payments, where it is clear that liability is at least as much as the amount paid;
…
(g)where it is not possible to avoid litigation, keep the costs of litigation to a minimum, including by:
(i)not requiring the other party to prove a matter which the State or the agency knows to be true;
(ii)not contesting liability if the State or the agency believes that the main dispute is about quantum;
(iii)taking such steps, if any, as are reasonable to resolve such matters as may be resolved by agreement and to clarify and narrow the remaining issues in dispute; and
(iv)monitoring the progress of the litigation and, where appropriate, attempting to resolve the litigation, including by settlement offers, offers of compromise and ADR. …’

In my opinion, the matters raised by the plaintiff are matters which are properly to be taken into account in determining whether interest should accrue for the period of delay caused by the plaintiff’s procedural difficulties. Having regard to the State’s conduct in light of its clear understanding of the nature and extent of the plaintiff’s claim, I am of the opinion that Mr Wallace’s letter of 29 November 2001 is to be regarded as a demand in the present context. Its only “deficiency”, though in my view, not a matter for criticism, is that it is a letter cast in polite form addressed to a very senior Minister of the State in circumstances where the plaintiff might reasonably have expected the State to resolve matters expeditiously and in good faith having regard to the provisions of the Agreement. In light of the State’s clear understanding of the nature of the plaintiff’s claim when, or shortly after, this letter was received, I reject the State’s submission that it should not be characterised as a letter of demand. In these circumstances, I am of the opinion that interest should accrue for the entire period since, what I do characterise as, the original demand on 29 November 2001.

Costs

For the reasons indicated previously, the question of costs is reserved.

Conclusions and orders

For the preceding reasons, I am of the opinion that damages should be assessed on the basis of the Valuer-General’s 2000 amended site valuation of $1,001,500. According to the Valuer-General’s equalisation factor, this value is 96% of the 1993 site value, giving a 1993 site value of $1,043,229. The Valuer-General’s equalisation factors can then be applied in each year from 1997 to 2001 to ascertain the site value for each of these years. Consequently, the land tax to which the plaintiff would have been liable in those years, had the 1996 amendments to the Valuation of Land Act been operative, can be ascertained. Those amounts can be aggregated and deducted from the total land tax actually paid in those years.

Using this methodology (as set out in Appendix 1), damages are assessed at $745,987.79.

Interest should accrue from 29 November 2001, the date of the plaintiff’s first demand.

I will hear the parties on the form of orders that should be made to give effect to these reasons.

APPENDIX 1

The amount of land tax actually paid by the plaintiff minus the amount of land tax which the plaintiff would have paid if the unimproved value of the Land used as a basis for assessing the plaintiff’s land tax liability in the years 1997, 1998, 1999, 2000 and 2001 excluded the value of the Port Improvements, as follows:

Land tax actually paid $ 791,251.79

Less land tax payable on an unimproved value as stated below calculated at the rates prescribed pursuant to the land tax legislation as follows: (Total valuations at Valuer General’s figure at 2000 year of $1,001,500 with 1993 year calculated by equalisation rate at .96 equals $1,043,229.

1997 total unimproved value $1,022,364.00 (Eq.98)

Unimproved value $0 - $199,999.00 $ Nil

Unimproved value $200,000.00 - $539,999.00 $ 740.00

Unimproved value $540,000.00 - $1,022,364.00

Being $482,364.00 x 3 cents/100 $ 14,470

Total 1997 Land Tax Payable at site value of $1,022,364.00 $ 15,210.00

1998 total unimproved value $991,067.00 (Eq.95)

Unimproved value $0 - $809,999.00 $ 2,905.00

Unimproved value $810,000.00 - $991,067.00

$181,067.00 x 1.75 cent per dollar $ 3,168.00

Total 1998 Land Tax Payable at unimproved value of

$991,067.00 $ 6,073.00

1999 total unimproved value $1,032,796.00 (Eq.99)

Unimproved value $0 - $809,999.00 $ 2,905.00

Unimproved value $810,000.00 - $1,032,796.00

$222,796.00 x 1.75 cent per dollar $ 3,989.00

Total 1999 Land Tax Payable at unimproved value of

$1,002,796.00 $ 6,803.00

2000 total unimproved value $1,001,500.00

Unimproved value $0 - $809,999.00 $ 2,905.00

Unimproved value $810,000.00 - $1,001,500.00

$191,500.00 x 1.75 cent per dollar $ 3,351.00

Total 2000 Land Tax Payable at unimproved value of

$1,001,500.00 $ 6,256.00

2001 total unimproved value $1,199,713.00

Unimproved value $0 - $1,079,999.00 $ 7,630.00

Unimproved value $1,080,000.00 - $1,199,713.00

$119,713.00 x 2.75 cents per dollar $ 3,292.00

Total 2001 Land Tax Payable at unimproved value of

$1,151,725.00 $ 10,922.00

Total Land tax that would have been payable therefore

1997 $15,210.00

1998 $ 6,073.00

1999 $ 6,803.00

2000 $ 6,256.00

2001 $ 10,922.00

Total $ 45,264.00

Total damages (est)$745,987.79

[2012] VSC 337

23 August 2012