Secretary to the Department of Economic Development, Jobs, Transport and Resources v Caradi Pty Ltd

[2018] VSC 696

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

VALUATION, COMPENSATION AND PLANNING LIST

S CI 2015 02923

BETWEEN:

SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT & RESOURCES, A BODY CORPORATE ESTABLISHED UNDER SECTION 451A OF THE PROJECT DEVELOPMENT AND CONSTRUCTION MANAGEMENT ACT 1994	Applicant
v
CARADI PTY LTD (FORMERLY SCARED BEAR PTY LTD)	Respondent

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JUDGE:	QUIGLEY J
WHERE HELD:	Melbourne
DATE OF HEARING:	12-16, 19-23 February 2018
DATE OF JUDGMENT:	15 November 2018
CASE MAY BE CITED AS:	Secretary to the Department of Economic Development, Jobs, Transport and Resources v Caradi Pty Ltd
MEDIUM NEUTRAL CITATION:	[2018] VSC 696

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LAND ACQUISITION AND COMPENSATION – Compulsory acquisition of the whole of land for the Melbourne Convention Centre Development – Market value of the land at the date of acquisition – Comparability of sales – The use of sales evidence which occurred after the date of acquisition – Land purchased as a long term real estate investment – Impact of remediation costs – Effect on the highest and best use of the land – Claim for disturbance – Whether applicant entitled to compensation for replacement land costs where replacement land has not been purchased – Claim for professional expenses – Claim for solatium – Land Acquisition and Compensation Act 1986 ss 40, 41(1)(d), 41(1)(f), 44 – Valuation of Land Act 1960 s 5A.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr J Delany QC with Ms J Trewhella	Corrs Chambers Westgarth
For the Respondent	Mr S Morris QC with Ms M Foley	Minter Ellison

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Summary of the claim....................................................................................................................... 2

Background to the acquisition......................................................................................................... 5

Legislation........................................................................................................................................... 9

Market value claim.......................................................................................................................... 10

The judicial task........................................................................................................................... 10

The valuation evidence.............................................................................................................. 14

Mr Torr................................................................................................................................ 18

Mr Murray.......................................................................................................................... 18

Mr Dudakov....................................................................................................................... 19

Mr Brown............................................................................................................................ 20

The Joint Valuers’ Report................................................................................................. 20

Comparable sales methodology................................................................................................ 23

Dollar per square metre method..................................................................................... 24

Secondary methods of analysis....................................................................................... 25

(a)....... Dollar per apartment method.............................................................................. 26

(b)...... Price per gross floor area method....................................................................... 29

(c)....... Plot ratio based analysis....................................................................................... 30

Conclusion on appropriate method................................................................................ 30

Relevance of transactions which are not completed sales.................................................... 31

Significance of the Hydrox Contract............................................................................... 32

60–82 Johnson Street, May 2014 ‘Transaction’............................................................... 34

The valuers’ consideration of comparable sales..................................................................... 38

Sales of directly comparable properties......................................................................... 38

(a)....... 85–93 Lorimer Street, February 2014.................................................................. 38

(b)...... 60–82 Johnson Street, December 2012................................................................. 43

(c)....... 60–82 Johnson Street, May 2014........................................................................... 44

(d)...... 60–82 Johnson Street, December 2016................................................................. 44

(e)....... Conclusion on sales of directly comparable properties................................... 44

Embryonic market in the FBURA................................................................................... 46

Sales after the relevant date............................................................................................. 50

Other comparable sales..................................................................................................... 54

(a)....... 93–119 Kavanagh Street, June 2014..................................................................... 54

(b)...... 6–78 Buckhurst Street, September 2014.............................................................. 54

(c)....... 134–150 Buckhurst Street, August 2012.............................................................. 55

(d)...... 89–103 Gladstone Street, December 2012........................................................... 55

(e)....... 15–87 Gladstone Street, April 2015 and March 2016........................................ 56

(f)....... 91–95 Montague Street, May 2015....................................................................... 56

(g)...... Conclusion on other comparable sales............................................................... 56

Date of acquisition and the rear-view perspective................................................................. 57

The impact of remediation costs............................................................................................... 61

(a)....... Evidence in relation to remediation costs.......................................................... 62

(b)...... Highest and best use............................................................................................. 68

(c)....... Approach to remediation costs............................................................................ 69

(d)...... Agreed remediation costs..................................................................................... 71

Conclusion on market value...................................................................................................... 74

Other claims...................................................................................................................................... 76

Disturbance loss.......................................................................................................................... 76

Replacement land claim.................................................................................................... 77

Lost opportunity to invest in a higher yield asset........................................................ 80

Agent’s Commission......................................................................................................... 83

Costs incurred by reason of the acquisition............................................................................ 83

Solatium........................................................................................................................................ 88

Overall conclusion........................................................................................................................... 93

HER HONOUR:

Introduction

1. This proceeding involves a claim for compensation pursuant to the provisions of the Land Acquisition and Compensation Act 1986 (the ‘LAC Act’) for the compulsory acquisition of land situated at 11–31 Montague Street, Southbank[1] (the ‘Land’).  On 19 December 2013 (the ‘Relevant Date’), the Land was compulsorily acquired by the Secretary to the Department of Economic Development, Jobs, Transport and Resources (the ‘Authority’) for the purposes of the Melbourne Convention Centre Development.

   [1]Crown Allotment 104B, City of South Melbourne, Parish of Melbourne South and otherwise known as the land described in Certificate of Title Volume 10294 Folio 632.

1. The claimant, Caradi Pty Ltd (formerly known as Scared Bear Pty Ltd) (the ‘Claimant’), was the registered proprietor of the Land, having held the Land since 1996 after purchasing it for around $4 million.[2]  At that time, the Land was zoned General Industrial and was developed with a large factory building occupied by a tyre manufacturer.  Shortly after taking occupation, the buildings on the site were demolished and, save for periods of occupation by Vic Roads[3] and the Authority, the Land has generally been used for car parking.

   [2]Transcript of Proceedings, Secretary, Department of Economic Development, Jobs, Transport and Resources v Caradi (Supreme Court of Victoria, S CI 2015 02923, Justice Quigley, 12–16, 19–23 February 2018) 124–5 (Hubay) (‘T’).

   [3]VicRoads occupied the Land between 2007–2010, during construction of the freeway, and paid rental of approximately $430,000 per annum together with rates, tax, and outgoings.

1. The Claimant is one of two trustees of the Ballah Family Trust.  The Land was purchased by the Claimant and held as a long-term real estate investment, or ‘land bank’, with the aim of obtaining a mixed-use residential and commercial rezoning to gain an uplift in value.[4]

   [4]T 125 (Hubay).

1. The Land is a large irregularly-shaped parcel adjacent to the West Gate Freeway Montague Street interchange in South Melbourne.[5]  It has frontages to Montague Street, Munro Street and Ford Street.  At the time of acquisition, most of the Land was bitumen sealed and was used for at-grade car parking.  The northern section of the Land was separately fenced and had a surface finishing of crushed rock.  The Land is 15,900 m² in area, of which 2,796 m² is encumbered by easements, including three for electricity-related purposes.  It is also subject to a freeway-related acquisition of a stratum of the Land (air rights) previously held in the title.[6]

   [5]The Land has a Southbank address, but land to the south of the Westgate Freeway is generally recognised as being in the South Melbourne locality.

   [6]Compensation of $1 million was paid by VicRoads for the air rights or strata acquisition.  592m² of the Land was restricted by the strata acquisition, and 2,204m² by other easements.

1. The Land is located within the Montague Precinct of the Fishermans Bend Urban Renewal Area (the ‘FBURA’).  The FBURA is an area of approximately 250 hectares.  On 5 July 2012, the FBURA was declared to be an area of State Significance by the Minister for Planning and was rezoned from Industrial 1 Zone to Capital City Zone — Schedule 1 (‘CCZ1’) under the Port Philip (the ‘Council’) Planning Scheme.  This rezoning caused a significant uplift in value of real estate in the FBURA.  At the Relevant Date, the Land was zoned CCZ1.

1. Despite the favourable development rezoning in mid-2012, there had been little development activity in the Montague Precinct as at the Relevant Date, and the locality was characterised by industrial land uses.  The timeframe for development of the FBURA is expected to take place over the next 50 years.

1. At the request of the parties and accompanied by counsel, I undertook a view of the subject Land and key properties relied on as comparable properties including, in particular, 85-93 Lorimer Street, Docklands.  The view followed an itinerary prepared by the parties and which is recorded as Exhibit C-10.

Summary of the claim

1. In summary, the key issues in dispute arising from the claim are:

(a)the market value of the Land at the Relevant Date, having regard to the comparable sales and the weight to be accorded to relevant transactions, in particular:

(i)the most appropriate comparative sales method in the circumstances (dollar per square metre of land (‘$/m²’), dollar per apartment (‘$/apartment’), or otherwise);

(ii)the relevance of transactions which were not completed, being the $24.5 million ‘Hydrox Contract’ and the $55.5 million[7] 60–82 Johnson Street transaction in May 2014;

[7]Mr Torr stated in his valuation report dated 30 March 2016 that the sale price for this transaction was $55 million.

(iii)the comparable sales relied upon by the respective valuers (including locational difference considerations, market maturity in the FBURA, and the ‘low sale’ theory);

(iv)the use of evidence of sales that occurred after the Relevant Date; and

(v)the impact of remediation costs (ie, the effect on the highest and best use of the Land and the appropriate treatment of the agreed figure for remediation);

(b)whether the Claimant is entitled to compensation for replacement land costs in circumstances where replacement land has not yet been purchased;

(c)whether the claimed financial loss, alleged to have been incurred as a result of the Claimant’s inability to invest the initial sum of the initial offer into a higher return asset due to the inadequate amount of the Authority’s offer, is a compensable disturbance loss under s 41(1)(d) of the LAC Act;

(d)whether the professional expenses incurred fall within the scope of s 41(1)(f) of the LAC Act; and

(e)whether compensation for the non-pecuniary disadvantages suffered by the Claimant as a consequence of the loss of the Land should be awarded by way of solatium.

1. The principal issue in this proceeding is the market value of the Land acquired.  This is the issue on which the parties’ positions significantly diverge.

1. At the commencement of the hearing, the parties’ positions in relation to market value were that the amount claimed by the Claimant had been revised to $56 million, whilst the Authority’s formal offer remained at $16.15 million.  The Authority contended that the appropriate award should be in accordance with the later valuation assessments provided by its valuers, being Mr Brian Dudakov at $24.61 million, or Mr Les Brown at $25.3 million.  Also in issue was the Claimant’s entitlement to the following:

(a)loss attributable to disturbance;[8]

(b)legal, valuation, and other professional expenses;[9] and

(c)solatium.[10]

[8]Land Acquisition and Compensation Act 1986 (Vic) s 41(1)(d).

[9]Ibid s 41(1)(f).

[10]Ibid s 44.

1. There have been several iterations of the particulars of claim since 27 October 2014, with the most recent particulars dated 21 April 2016 (the ‘Further Revised Particulars of Claim’).  The respective positions of the parties at the commencement of the hearing (taking into account the parties’ outline of submissions) are summarised in the following table:

Item	Claimant	Authority
Market value	$60,000,000 In light of the amended valuations of Mr Murray and Mr Torr, this item of claim was revised to $56,000,000.	$16,150,000 Submissions based on the Authority’s valuers’ latest assessments put amount between $24,610,000 and $25,300,000.
Disturbance Loss of use of money caused by delay in payment of compensation. Costs of replacement Land Agent’s commission Architect’s fees Loss incurred as a result of the Claimant’s inability to invest the initial offered sum into a higher return asset, due to the Authority’s inadequate offer.	$89,767.45 $3,350,000 $177,650 $31,053 $1,546,700 (to 21 April 2016) and continuing to the date of judgment at 0.0126849315% per day.	This item of claim has been accepted by the Authority in its written submissions served 2 February 2018. Nil Nil This item of claim has been accepted by the Authority in its written submissions served 2 February 2018. Nil
Legal, valuation and other professional expenses pursuant to s 41(1)(f)	$290,378.12[11]	Nil, subject to review.
Solatium	$1,500,000	Nil, subject to review.

[11]Court Book, Secretary, Department of Economic Development, Jobs, Transport and Resources v Caradi (Supreme Court of Victoria, S CI 2015 02923, Justice Quigley, 12–16, 19–23 February 2018) 49-152, 613-639 ‘GEH-21’–‘GEH-22’ (‘CB’), being the evidence in support of the claim filed 31 March 2016, spreadsheets of expenses, and copies of invoices relating to these expenses.

Background to the acquisition

1. In early 2010, the Secretary to the Department of Innovation, Industry and Regional Development (as the Authority was then known) and Major Projects Victoria began investigating the potential future use of the Land.

1. On 29 January 2010, a Notice of Temporary Occupation was served on the Claimant by the Authority.  The notice identified that access to the Land was required for the purposes of the Melbourne Convention Centre Development.  The notice stated that the Authority intended to occupy the Land from 5 February 2010.

1. On 5 February 2010, the Authority entered into occupation of the Land and remained in occupation until 13 April 2011.  During its occupation, the Authority compensated the Claimant at the market rental rate, by payment of approximately $470,000 per annum plus outgoings, taxes, and rates.

1. The Claimant says that it was given little detail as to why the Authority’s occupation needed to continue over such an extended period.  The Claimant said that, as a consequence of the uncertainty surrounding the acquisition, it had a reduced capacity to deal freely with the Land, including negotiating with potential purchasers.

1. In late 2009, the Claimant commenced negotiations with the Woolworths Group (‘Woolworths’) regarding purchase of the Land for a proposed ‘Masters’ branded hardware store.  The negotiations with Woolworths continued during the period of temporary occupation by the Authority.

1. On 17 August 2011, the Claimant entered into a contract for the sale of the Land to Hydrox Nominees Pty Ltd (a Woolworths’ nominee company) (‘Hydrox’) for $24.5 million (the ‘Hydrox Contract’).  Clause 24 of the Hydrox Contract provided that the purchase was subject to due diligence to be conducted within 90 days of the date of entering the Hydrox Contract.[12]

   [12]Ibid 401 ‘GEH-6’.

1. By letter dated 5 October 2011, the solicitors for Hydrox, Allens Arthur Robinson, advised that due to Major Projects Victoria’s intention to acquire the Land, their client was not satisfied with the outcome of its due diligence and was terminating the Hydrox Contract.[13]  The letter further stated that if Major Projects Victoria decided not to proceed with the acquisition, then Hydrox would be interested in reconsidering the purchase of the Land.

   [13]Ibid 432 ‘GEH-7’.

1. Following termination of the Hydrox Contract, the Claimant said that it continued to explore investment and development options for the Land.

1. On 20 April 2011, after the Authority had vacated the Land, the Claimant entered into a licence agreement with Care Park Australia Pty Ltd (‘Care Park’), which allowed Care Park to operate a car parking facility on the Land pursuant to the licence.[14]

   [14]Ibid 433 ‘GEH-8’.

1. On 14 November 2011, the Claimant entered into an exclusive sale agreement with a commercial real estate agent, Fitzroys Pty Ltd (‘Fitzroys’), for sale of the Land.[15]

   [15]Ibid 446 ‘GEH-9’.

1. In June 2012, a background paper for the Montague Precinct prepared by David Lock and Associates, and Charter Keck Cramer, for the City of Port Phillip identified that the Land was within a sub-precinct known as the ‘Northern Neighbourhood’.  The Northern Neighbourhood was identified as having significant opportunity for substantial scale development and was proposed to feature high-rise residential towers with heights of up to 28 storeys or 100 metres.[16]

   [16]Ibid 465, 539, 546–7 ‘GEH-12’.

1. On 5 July 2012, the Minister for Planning amended the Port Phillip Planning Scheme, rezoning the Land to CCZ1.  The rezoning triggered a substantial uplift in the value of the Land by virtue of the significant opportunities for development as there were no built form controls imposed by the rezoning which would restrict the height and the density of permissible development.[17]

   [17]Noting also that the then Minister for Planning, Matthew Guy, became the relevant responsible authority for this type of development in Fishermans Bend.

1. In the absence of a decision on acquisition by the Authority, the Claimant says that it continued to look at opportunities for the Land.  It obtained advice on maximising the potential use of the Land following the FBURA rezoning.  Mr Berryman of Fitzroys advised that a high-rise residential development would be the highest and best use of the Land.  Mr Berryman’s advice was that the Land was the most prominently positioned development site within the Northern Neighbourhood of the Montague Precinct, that it was most closely connected to the CBD, that it was of a substantial size so as to make it a highly attractive development proposition and that it was highly likely that potential purchasers/developers would have a very positive medium to long-term view of the Land.  Mr Berryman recommended that the Claimant proceed with the planning and design of a development for the Land.[18]

   [18]CB 552 ‘GEH-13’.  Mr Berryman did not give evidence at the trial.

1. The Claimant subsequently engaged architects, Rothe Lowman, to prepare concept drawings and designs for a high-rise residential development on the Land.  It was intended that these drawings and plans would form the basis of a planning application to the relevant responsible authority for such applications.[19]  Rothe Lowman provided the Claimant with concept drawings dated 18 June 2013, which depicted several options for a five-tower residential complex for the Land[20] (the ‘Rothe Lowman Scheme’).

   [19]In these circumstances, the relevant responsible authority was the Minister for Planning.

   [20]Ibid 556–75 ‘GEH-14’.

1. The Rothe Lowman Scheme — and another similar, though more intensive, scheme for the land prepared by Hayball Architects (the ‘Hayball Scheme’) — were agreed by the parties to be reasonable responses to the planning regime for the development of the Land for the purposes of the compensation assessment.[21]

   [21]Mr Biasci for the Authority and Mr Milner for the Claimant; see also CB 1663.

1. A Notice of Intention to Acquire the Land was issued by the Authority on 14 June 2013.  The Land was subsequently acquired on 19 December 2013 when the Authority published a Notice of Acquisition in the Government Gazette.

1. The LAC Act requires the Authority to provide an offer of compensation within 14 days of the date of acquisition.[22]  The Claimant’s solicitor raised the Authority’s failure to provide an offer of compensation within time on 9 January 2014.

   [22]Land Acquisition and Compensation Act 1986 s 31 provides that the initial offer of compensation ‘must be made within [14] days after the date of acquisition’.

1. Subsequently, on 24 January 2014, the Authority advised the Claimant that it hoped to provide an offer of compensation within two weeks and invited the Claimant to agree to an extension of time under the LAC Act for an offer to be made. The Claimant declined.[23]

   [23]CB 582 ‘GEH-16’, being copies of the correspondence between the parties dated 9 January 2014, 24 January 2014, and 12 February 2014.

1. On 28 March 2014, the Authority made an initial offer of compensation in the amount of $16.15 million. On 3 April 2014, the Claimant requested payment of the initial offer amount by way of advance of the compensation offered pursuant to s 51 of the LAC Act. This was paid on 3 May 2014.

1. On 22 May 2014, the Claimant rejected the initial offer of compensation and advised that it had engaged professional advisers to assist with the assessment of its compensation claim.

1. On 27 October 2014, the Claimant filed a response to the Authority’s offer.  It rejected the Authority’s offer of $16.15 million and claimed the sum of $61.5 million plus expenses and interest to be confirmed.[24]

   [24]Ibid 12–17.

1. The major item claimed was for market value.  This was based on a certificate of valuation by Mr Mark Murray at $60 million.  A second certificate of valuation by Mr Christopher Torr was provided to the Authority with the Claimant’s response to offer.  Mr Torr’s assessed the market value of the Land at $57 million.

1. On 28 May 2015, the Authority referred the disputed claim for compensation to the Court for determination.

Legislation

1. Section 90(2) of the LAC Act provides that the Court must determine the compensation payable in the particular circumstances of the case having regard to the provisions of the LAC Act.

1. Section 41 of the LAC states:

41       General principles on which compensation is to be based

(1)Except as otherwise provided in this Part, in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired under this Act, regard must be had to the following factors—

(a)       the market value of the interest on the date of acquisition;

(b)       any special value to the claimant on the date of acquisition;

(c)       any loss attributable to severance;

(d)      any loss attributable to disturbance;

(e)the enhancement or depreciation in value of the interest of the claimant, at the date of acquisition, in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired;

(f)any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.

(2)...

Market value claim

The judicial task

1. Section 41(1)(a) of the LAC Act requires the Court to have regard to the ‘market value’ of the interest being acquired on the date of acquisition.[25]

   [25]Here, being 19 December 2013 (the ‘Relevant Date’).

1. The LAC Act defines ‘market value’ at s 40 as:

market value, in relation to any interest in land on a particular date, means the amount of money that would have been paid for that interest if it had been sold on that date by a willing but not anxious seller to a willing but not anxious purchaser

1. No other assistance is provided as to the process for determining the market value of the Land under the LAC Act. Consequently, the Court must look to the Valuation of Land Act 1960 (the ‘VL Act’).

1. ‘Market value’ is not defined in the VL Act, but s 5A provides:

5ADetermining value of land

(1)Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.

(2)In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.

(3)Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account—

(a)the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;

(b)the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;

(c)the shape size topography soil quality situation and aspect of the land;

(d)the situation of the land in respect to natural resources and to transport and other facilities and amenities;

(e)the extent condition and suitability of any improvements on the land; and

(f)the actual and potential capacity of the land to yield a monetary return.

1. Section 5A of the VL Act applies as the LAC Act does not ‘otherwise expressly provide’ the matters or things which are to be taken into account when determining market value.

1. Section 5A(2) of the VL Act, and the definition of market value in the LAC Act, directs the Court’s attention to the evidence of sales of other land, to factors such as the time at which sales took place,[26] the terms of such sales, the degree of comparability of the land in question, and other relevant circumstances.

   [26]The Court will have regard to comparable sales taking place at or around the relevant date: see Brisbane City Council v Mio Art Pty Ltd [2012] 2 Qd R 1, 26–7 [79].

1. In Spencer v The Commonwealth (‘Spencer’), in discussing market value, Griffith CJ commented that:

[T]he test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring ‘What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?’[27]

[27](1907) 5 CLR 418, 432.

1. Isaacs J later stated:

To arrive at the value of the land at that date, we have … to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration.  We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as to the value of the property.[28]

[28]Ibid 441.

1. Each of the factors set out above in s 5A of the VL Act must be considered collectively by a valuer when taking comparable sales into account. The method of deducing market value from the sales of comparable land involves making adjustments to allow for differences from the land to be valued or timing differences. The more adjustments that must be made, the less comparable the transactions relied upon.[29]

   [29]Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156, 177.

1. Where the adjustments are too extreme, the particular sale may no longer have any utility as a comparable sale.  In RK Morgan Holdings Pty Ltd v Melbourne & Metropolitan Board of Works, the use of adjustments was cautioned:

It will be seen that that there are a large number of adjustments made in each case.  Each adjustment is a matter of judgment with a potential for error.  The figure arrived at is designed to relate to the sale parcel to the subject land so as to make the eventual rate reflect the various differences between the sale land and the subject land.  The rate arrived at after such a process therefore has an illusory appearance of certainty and accuracy about it.[30]

[30](1992) 77 LGRA 102, 108; see also discussion in Mario Piraino Pty Ltd v Roads Corporation (No 2) [1993] 1 VR 130.

1. To similar effect were the observations of Payne J in The Trust Company Ltd v Minister Administering the Crown Lands Act 1989:

If comparable sales are to be used these must be truly comparable ... Further a process of reasoning is required where sales differ in substantial ways from a subject site in order to apply these ... Adjustments made to comparable sales can be explicit and implicit to reflect adjustments for differences.  Too much adjustment renders the use of comparables unsafe.[31]

[31](2012) 211 LGERA 158, 182–3 [99] (citations omitted).

1. In Challenger Property Asset Management Pty Ltd v Stonnington City Council, Croft J described both the role of the court in assessing valuation evidence and in making findings as to the value of land:

It is clear from the authorities that the role of the Court is not ‘to bring a third set of opinions into the arena’ or to ‘piece together a valuation of [its] own’.  Further, in circumstances where there is a disparity between valuers’ valuations, the court must subject each valuer’s evidence to critical evaluation.  Additionally, it is clear that it is not permissible to average valuations because the result ‘would be a figure not arrived at by the application by the court of the established principles of valuation’.

This does not mean, however, that the evidence of one valuer must be accepted on all issues.  It is open to the court to accept the evidence of one valuer on one issue and the evidence of another valuer on another, separate, issue.[32]

[32](2011) 34 VR 445, 453 [17]–[18] (footnotes omitted).

1. In Electricity Commission of New South Wales (t/as Pacific Power) v Arrow, Kirby P (as he was then) observed:

Valuation is not a science.  It is an imprecise, opinionative activity involving the consideration of many variables, sometimes with equally legitimate outcomes.[33]

[33](1994) 85 LGERA 418, 419 (citation omitted).

1. The same point was made by Isaacs J, in Spencer, quoting the Privy Council in The Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co:[34]

It is quite true that in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others.  Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity.  In such an inquiry as the present, relating to subjects abounding with uncertainties and on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusions arrived at.[35]

[34][1901] AC 373, 391.

[35]Quoted in Spencer (1907) 5 CLR 418, 442–3.

1. Differences of opinion in the conclusions reached by valuers in their valuations require the Court to determine which matters on which the valuers agree and on which matters they differ.  It may be a conflict of facts, of the relevance of facts, of inferences from facts or opinions or of law.  The differences may lie in the assumptions that the valuers have made.  It is not uncommon for valuations to widely differ.  That does not mean that the valuations have not been carried out objectively.[36]

   [36]Duffy v Minister for Planning (2003) 129 LGERA 271.

1. The task of the Court in respect of differences of opinion is to listen to the experts’ opinions, and then select those which are deemed for one reason or another to be the most persuasive and credible.  The Court’s task is to scrutinise the differences of opinion given by the valuers, and to arrive at its own conclusion on the amount of compensation due, based on the evidence.

The valuation evidence

1. The evidence before the Court as to the market value of the Land consisted of the evidence of four individual valuers, their respective reports, and a joint report prepared by all four valuers (the ‘Joint Valuers’ Report’).[37]

   [37]CB 1662.

1. The Claimant relied on the evidence of two valuers, being Mr Torr and Mr Murray.  The Authority relied on the valuation evidence of Mr Dudakov and Mr Brown.

1. Each of the valuers used the comparable sales method to ascertain the value of the acquired Land.  Similarly, each of the valuers considered a basket of sales primarily in Southbank, Docklands, Port Melbourne, and South Melbourne.  The earliest sale recorded was July 2010 and the latest was November 2017.

1. A table of the various properties considered by the valuers in their respective reports was produced in final submissions by counsel for the Authority. It provides a convenient summary.  I have reproduced the table (with modification[38]) for convenience.  I have added the sale price, land area and $/m² analysis as additional columns to aid the task of comparison.  The premises in bold are ‘key sales’ identified by the valuers as explained below.

   [38]The content of the address and date columns have been modified to note discrepancies between the valuers’ reports.  The price, area and $/m² columns have also been added. Any comments contained in the table were removed for simplicity.  Where there were discrepancies between the valuers reports in addresses, dates, prices, areas and rate $ / m², these are noted.

Address	Date	Price (mill’n)	Area (m²)	$ / m2	Dudakov			Brown		Torr		Murray
					Nov2013	Mar 2014	Feb2016	Dec 2013	Mar 2016	Mar 2016	Jan 2018	Mar 2016	Jan 2018
830 Lorimer St, Port Melbourne	Jul 2010	$8.35	14,300	$584	X	X
123-135 Montague St, South Melbourne	Sep 2010	$12.7	5,711	$2,224	X	X	X
2-4 Vaughan Tce and 101 Canning St, North Melbourne	Sep 2010	$16.2	8,066	$2,008	X	X
411-451 Docklands Dr, Docklands	Dec 2011	$21.92[39]	16,303	$1,345	X	X
332 Plummer St, Port Melbourne	Jan 2012	$4.65	8,062	$626	X	X
880 Lorimer St, also referred to as Part 25 880 Lorimer St, Port Melbourne	Jan 2012 Mar 2012*	$3.15 $3.5*	4,160	$788 $841*	X	X	X	X
19-35 Flemington Rd, North Melbourne	Apr 2012	$22	4,056	$5,424	X	X	X
164 Ingles St, also referred to as 14 Woodruff St, Port Melbourne	Jul 2012	$25	39,406 40,000§	$634 $646§	X	X	X	X	X	X
1 Rogers St & 237-245 Boundary St, Port Melbourne	Aug 2012	$4.6	3,924	$1,172	X	X
134-150 Buckhurst St, South Melbourne	Aug 2012 Apr 2013§	$11 $11.05‡	5,457 5,466‡	$2,016 $2,025‡	X	X	X	X	X	X
60-82 Johnson St, South Melbourne	Dec 2012 Nov 2012*	$10.1	9,776	$1,033 $1,045	X	X	X	X	X	X
89-103 Gladstone St, South Melbourne	Dec 2012	$3.42	813	$4,207	X
15-35 Thistlethwaite St, South Melbourne	Apr 2013	$4.4	1,194	$3,685	X	X	X	X[40]	X[41]
125-133 Thistlethwaite St, South Melbourne	Apr 2013	$4.125	1,211	$3,406	X	X	X	X	X
250 Spencer St, Southbank	Jun 2013	$75	11,755	$6,380	X	X	X
Address	Date	Price (mill’n)	Area (m²)	$ / m2	Dudakov			Brown		Torr		Murray
					Nov2013	Mar 2014	Feb2016	Dec 2013	Mar 2016	Mar 2016	Jan 2018	Mar 2016	Jan 2018
6-22 Pearl River Rd, Docklands	Jul 2013	$28.8	3,795	$7,589	X
25-27 Coventry St, Southbank	Jul 2013	$9	1,139	$7,902	X
57-61 City Rd, Southbank	Jul 2013	$11.9	910	$13,077	X
25 Queensbridge St, Southbank	Oct 2013	$30	1,653	$18,149	X
38 Freshwater Pl, also referred to as 38 Freshwater Pl & 25 Power St, Southbank	Oct 2013	$30	3,096	$9,690	X	X	X	X	X
42-48 Balston St, Southbank	Oct 2013	$6.9 $7*	1,455	$4,742 $4,811*	X	X	X	X
351 Plummer St, Port Melbourne	Oct 2013	$4.8	5,946	$807	X	X
63-65 Kings Way & 127-129 Kavanagh St, Southbank	Oct 2013	$39	3,041	$12,825	X
8 Hopkins St, Footscray	Dec 2013	$17	13,180	$1,290	X	X
158 City Rd, Southbank	Dec 2013	$22.5	1,297	$17,348	X
84-90 Queensbridge St, Southbank	Jan 2014	$18	940	$19,149	X
70 Southbank Blvd, Southbank	Jan 2014	$42.3	2,642	$16,011	X
87-89 Queensbridge St, Southbank	Feb 2014	$18	1,006	$17,893	X
85-93 Lorimer St, also referred to as 85 Lorimer St, Docklands	Feb 2014 Jan 2014§	$18.25 $18.5	8,847 8,857§	$2,063 $2,091 $2,061§	X	X	X	X	X
37 Park St, South Melbourne	Feb 2014	$2	178	$11,236	X
39 Park St, South Melbourne	Feb 2014	$7.1	1,078	$6,586	X
60-82 Johnson St, South Melbourne	May 2014 Jun 2014§	$55.5 $55‡	9,776	$5,626 $5,677§	X	X	X
Address	Date	Price (mill’n)	Area (m²)	$ / m2	Dudakov			Brown		Torr		Murray
					Nov2013	Mar 2014	Feb2016	Dec 2013	Mar 2016	Mar 2016	Jan 2018	Mar 2016	Jan 2018
308-320 City Rd, Southbank	May 2014	$23.5	1,242	$18,921	X
54-68 Kavanagh St, Southbank	May 2014	$27	2,659	$10,154	X
93-119 Kavanagh St, also referred to as 97-117 Kavanagh St, Southbank	Jun 2014	$145	19,648 20,259§	$7,380 $7,157§	X	X	X
6-78 Buckhurst St, South Melbourne	Sep 2014	$42 $43§	9,600 9,356§	$4,375 $4,596§	X	X	X
51-65 Clarke St, Southbank	Sep 2014	$28.9	1,790	$16,126	X
91-95 Montague St, South Melbourne	Jun 2015 May 2015§	$6.08	631	$9,635	X	X
256-266 City Rd, Southbank	Oct 2015	$27	1,265	$21,344	X
15-87 Gladstone St, also referred to as 15-85 Gladstone St, South Melbourne	Apr 2015 Mar 2016‡	$37 $52‡	5,984	$6,183 $8,690‡	X	X
85 Lorimer St, Docklands	Apr 2016	$60	8,847	$6,782	X
12 Thistlethwaite St, South Melbourne	Jun 2016	$6	909	$6,601	X
18 Moray St, Southbank	Sep 2016	$8.8	446	$19,731	X
31-41 Buckhurst St, South Melbourne	Sep 2016	$8	1,000	$8,000	X
60-82 Johnson St, South Melbourne	Dec 2016	$40.65	9,776	$4,158	X
248-250 Sturt St, Southbank	Jan 2017	$10.9	834	$13,070	X
54-56 Clarke St, Southbank	Feb 2017	$9.2	597	$15,410	X
202-214 Normanby Rd, Southbank	Mar 2017	$13	1,518	$8,564	X
48 Moray St, Southbank	Apr 2017	$16.61	1,173	$14,160	X
268 Sturt St, Southbank	May 2017	$50	3,626	$13,789	X
199-201 Normanby Rd, Southbank	Nov 2017	$13.5	1,220	$11,066	X
Address	Date	Price (mill’n)	Area (m²)	$ / m2	Dudakov			Brown		Torr		Murray
					Nov2013	Mar 2014	Feb2016	Dec 2013	Mar 2016	Mar 2016	Jan 2018	Mar 2016	Jan 2018
6-78 Buckhurst St, South Melbourne	Nov 2017	$60	9,478	$6,330	X

[39]$31,795,854 not having regard to the additional open space contribution payment.

[40]While this sale was recorded in the Authority’s Table, this sale was not recorded in Mr Torr’s report.

[41]While this sale was recorded in the Authority’s Table, this sale was not recorded in Mr Murray’s report.

*           Date or figure adopted by Mr Dudakov.

Date or figure adopted by Mr Brown.

‡           Date or figure adopted by Mr Torr.

§           Date or figure adopted by Mr Murray.

Mr Torr

1. Mr Torr prepared two reports in the proceeding.  The first, dated 30 March 2016, assessed market value at $52.4 million.[42]  The second report, dated 22 January 2018, revised his market valuation to $53.5 million (‘Mr Torr’s Supplementary Report’).[43]

   [42]CB 1146.

   [43]Ibid 2855.

1. Mr Torr’s key sales were identified as:

(a)85–93 Lorimer Street, Docklands[44] (February 2014);

(b)60–82 Johnson Street, South Melbourne (Contract, May 2014);

(c)6–78 Buckhurst Street, South Melbourne (September 2014); and

(d)93–119 Kavanagh Street, Southbank (June 2014).[45]

[44]Whilst this  property has a Docklands address it is quite close to the Subject Land but on the north west side of the Westgate Freeway.

[45]Mr Torr’s report stated the address of this premises as 97-117 Kavanagh Street, Southbank.

1. Mr Torr considered 30 sales and resales of high-intensity development sites in the CBD, and surrounding precincts, between 2008 and 2017.  The extended date range sought to emphasise the escalating prices for such sites over that period.[46]

   [46]Ibid 2864.

Mr Murray

1. Mr Murray also prepared two reports in the proceeding.  The first was dated 31 March 2016 and assessed the market value of the Land at $55 million.[47]  His second report, dated 24 January 2018, revised his estimate of market value to $56 million (‘Mr Murray’s Supplementary Report’).[48]

   [47]          Ibid 1385.

   [48]Ibid 2882.

1. Mr Murray’s key sales included:

(a)85–93 Lorimer Street, Docklands (February 2014);[49]

(b)60–82 Johnson Street, South Melbourne (Contract, May 2014);[50]

(c)134–150 Buckhurst Street, South Melbourne (August 2012);[51]

(d)93–119 Kavanagh Street, Southbank (June 2014);

(e)6–78 Buckhurst Street, South Melbourne (September 2014);

(f)15–87 Gladstone Street, South Melbourne (April 2015 and March 2016);

(g)89–103 Gladstone Street, South Melbourne (December 2012); and

(h)91–95 Montague Street, South Melbourne (May 2015).

[49]Mr Murray’s report stated that this sale occurred in January 2014.

[50]Mr Murray’s report stated June 2014.

[51]Mr Murray’s report incorrectly stated that this sale occurred in April 2013.

Mr Dudakov

1. Mr Dudakov was familiar with the Land as he had provided earlier valuation advice to the Authority prior to and at the acquisition.  He prepared five reports overall, with three valuation reports filed in the proceeding.[52]  Those filed in this proceeding are:

(a)Report dated 27 November 2013, just prior to the Relevant Date, which assesses the market value of the acquired Land at $16.5 million;[53]

(b)Report dated March 2014, which confirmed his assessment of the market value of the acquired Land at $16.15 million;[54] and

(c)Report dated February 2016, which reassessed the market value of the acquired Land at $21.71 million.[55]

[52]Mr Dudakov had prepared earlier reports which were before the Court, and which are referred to in relation to the remediation cost issue at paragraphs [246]–[276].

[53]          CB 878.

[54]Ibid 983.

[55]         Ibid 1020.

1. As set out in the table above, Mr Dudakov considered a number of sales, but his key sales were:

(a)60–82 Johnson Street, South Melbourne (December 2012), in his first two reports dated 27 November 2013 and March 2014; and

(b)85–93 Lorimer Street, Docklands (February 2014), in his final report dated February 2016, after the sale came to his attention.

Mr Brown

1. Mr Brown prepared two reports which were filed in the proceeding.  The first, dated 17 December 2013, assessed the market value of the Land at $14.5 million.[56]  This report was prepared very close to the Relevant Date.  The second report, dated 30 March 2016, reassessed the market value at $21.4 million.[57]

   [56]Ibid 924.

   [57]          Ibid 1075.

1. Like Mr Dudakov, Mr Brown considered a range of sales, but ultimately his key sales were:

(a)60–82 Johnson Street, South Melbourne (December 2012); and

(b)85–93 Lorimer Street, Docklands (February 2014).  As with Mr Dudakov, when he became aware of the 85–93 Lorimer Street sale, he took this sale into account.

The Joint Valuers’ Report

1. Mr Torr, Mr Murray, Mr Dudakov, and Mr Brown participated in a joint valuers conference ordered by the Court which was held on 14 December 2016 (the ‘Valuers Conference’).[58]  A joint report was prepared and formed part of the evidence before the Court (that is, the Joint Valuers’ Report).[59]

   [58]The participants were Mr Dudakov and Mr Brown for the Authority, and Mr Torr and Mr Murray for the Claimant.

   [59]CB 1662.

1. The Joint Valuers’ Report identified the two most comparable properties, and the key differences in approach between the valuers.  Whilst counsel for the Claimant sought to make a distinction between the valuation reports filed and the Joint Valuers’ Report — the former being a valuation report, the latter not being so — he correctly conceded that the Joint Valuers’ Report was evidence upon which I could rely.

1. At the commencement of the Valuers Conference, each valuer tabled his adopted valuation as at the Relevant Date.  I note that, at that point, each of the respective valuers had revised their assessment figure from that which was stated in their earlier valuation reports.  This was done primarily because of variations in remediation cost advice over time.  The implications of this are discussed in detail at paragraphs [244]–[305].  The respective assessments of market value are as follows:

Mr Torr  $52.4 million
Mr Murray               $55 million
Mr Dudakov            $21.71 million

Mr Brown                 $21.4 million

1. The Joint Valuers’ Report states that all valuers generally agreed that:

The highest and best use for the land was for high-rise residential development.  Whilst there was some divergence as to the likely timing of development ultimately nothing in each of the valuers respective valuations turned on this point as all valuers relied on analysis of comparable sales in determining value.  The exception to that statement is that the respective valuer’s perception of the likely timeframe until development does influence the way in which they treat contamination remediation costs in the calculations: Murray/Torr applied a full impact, Dudakov/Brown applied a deferred/diluted impact.

The properties at 85–93 Lorimer Street and 60–82 Johnson Street were considered to be directly comparable in terms of location, size and development potential.  However the valuers diverged in the respective interpretation as to the weight to be given to the various dealings and transactions relating to these properties.

The proportion of the subject property affected by the previous strata acquisition for the widening of Citylink had a significantly reduced value.

The planning experts of both parties agree that the development schemes proposed by Rothe Lowman and Hayball are reasonable responses to the planning regime at the relevant date.

The Joint Statement of the environmental consultants included the following, summarised, estimates of remediation costs (no basement scenario):

Mr Clark                   $2,432,000
Mr Parker                 $3,766,000
Mr Pump                  $3,606,000
Mr Scoffern               $7,204,110[60]

[60]Ibid 1663.

1. Additionally, all valuers acknowledged that 2014 was a period characterised by a rapidly rising market.[61]

   [61]Ibid 1669, 1670.

1. The Joint Valuers’ Report identified the following matters which gave rise to substantial differences between their respective assessments:

(a)the impact of site contamination on value and the various environmental reports, and the subsequent return of the Joint Expert Report;[62]

(b)the relevance and application of the sale of 85–93 Lorimer Street in February 2014;

(c)the relevance and application of the conditional contract of sale of 60–82 Johnson Street, in May 2014, which ultimately did not proceed to transfer; and

(d)the relevance of the various development schemes postulated for the Land.

[62]Referring to the Joint Expert Report of the environmental consultants dated 16 November 2016: CB 864.

1. As a result of the Valuers Conference, having been able to consider the information provided in the joint statement of the environmental consultants and the agreed development scenario the respective valuers then reviewed their opinions and amended their market valuations.  These figures are set out in the Joint Valuers’ Report as follows:[63]

Mr Torr$53.9 million (an increase of $1.5 million)

Mr Murray$56 million (an increase of $1.0 million)

Mr Dudakov        $24.61 million (an increase of $2.9 million)

Mr Brown$25.3 million (an increase of $3.9 million)

[63]Ibid 1665.

1. The issues which were focussed on at the trial concentrated on 85–93 Lorimer Street and 60–82 Johnson Street properties as comparable sales.  Examination of other information at the trial about sales and the state of the market essentially revolved around the positions put by the parties which aimed to respectively demonstrate or undermine the Claimant’s point of view based on the evidence of Mr Torr and Mr Murray that:

(a)the 85–93 Lorimer Street sale, in February 2014, for $18.5 million was a ‘very low sale’;[64]

(b)notwithstanding the sale of 60–82 Johnson Street in December 2012 (12 months prior to the Relevant Date) for $10.1 million, the re-sale on 18 May 2014 (6 months after the Relevant Date) subject to a conditional contract of sale which did not complete for $55.5 million was a reliable indication of market value.

[64]Ibid 1667-8.

1. After the Joint Valuers Conference, the parties agreed to a figure for the cost of remediation at $3,686,250.00.  The figure was based on an average of the estimates of Mr Parker and Mr Pump, being the two middle estimates of those provided by the environmental consultants.  The agreed remediation costs meant that no evidence was required to be called in relation to the quantum of the remediation costs at trial.  The issue of how the cost of remediation factored into the respective valuations remained an issue, but more as a criticism by the Claimant of the Authority’s valuers’ respective approach.

Comparable sales methodology

1. It has long been established that, in normal circumstances, the best evidence of market value is that of comparable sales.  Market value is measured by consideration of prices that have been obtained for land of similar quality and in similar position.  The market value is determined by making adjustments to the amounts paid for properties in actual dealings that are comparable.[65]

   [65]River Bank Pty Ltd v Commonwealth (1974) 4 ALR 651, 653.

1. It is a question of fact whether a certain property is comparable to the property being compulsory acquired.  For the sale to be most relevant, the valuer needs to establish that the land is similar to the land acquired in all the many respects and that it was sold in the open market at a date close to the acquisition.  A sale of the comparable land should be sufficiently close to the date of acquisition that the market price could not have changed to any significant extent.[66]  The physical characteristics, amenity, and tenure need to be as closely alike as possible.

   [66]See Douglas Brown, Land Acquisition: An Examination of the Principles of Law Governing the Compulsory Acquisition or Resumption of Land in Australia (LexisNexis Butterworths, 6^th ed, 2009) 227–8.

1. One comparable sale may have appreciably more weight than another.  The sale of land made within one week of the acquisition may carry greater weight than the sale made six months earlier or later.  The greater the difference, in time or other attributes, the greater the adjustment which needs to be made.  Usually, the longer the distance of time to the relevant date, the lesser the weight that can be attached to the comparable sale.

1. There will also be a line of demarcation between evidence that is admissible, but entitled to little weight, and evidence which is not admissible at all.  In a situation where there is an acknowledged rapidly-rising market, the comparable land sales closest in time will be the most useful and should be accorded the greatest weight.

Dollar per square metre method

1. There was no issue between the valuers that the direct comparison method was the method which should be used to determine market value in this case.  All four valuers proceeded on the basis that analysis of comparable sales evidence may be undertaken, analysing vacant or near-vacant land sales by dividing the sale price by the number of square metres.  This is the conventional method of comparable sales analysis.  It was the primary method relied upon by Mr Torr and Mr Murray, and was the sole method relied upon by Mr Dudakov and Mr Brown.

1. The dispute lay in the respective valuers’ approaches to the transactions, which ought to be taken into account as ‘comparable sales’ and, additionally, the analysis and adjustment to the comparable sales so as to compare like with like.

1. However, as there was considerable time spent in evidence, and submissions, on which other forms of comparison might be useful and appropriate in the circumstances of this assessment, I will briefly discuss the merits of these secondary methods of analysis below.

Secondary methods of analysis

1. It was acknowledged by the valuers that there are a number of secondary methods of comparable sales analysis of property transactions.  Common methods were analysing sales on a $/m² basis, by $/apartment, by dollar per floor space yield ($/gross floor area) and, if the information is available, on a $/m² of net saleable floor area.  There are issues with each of the methods which require adjustment.  Whilst each valuer used the $/m² method, Mr Torr also particularly relied on a $/apartment comparison, as he considered the $/m² approach problematic for a number of reasons, including the ‘newness of the FBURA’.[67]

   [67]Ibid 1667. Other reasons given were differing development yield, sales locations, and fast changing market.

1. In his November 2013 and March 2014 reports Mr Dudakov reported that he researched and analysed the sample of sales considered capable of comparison on a $/m² basis.[68]  He made specific comments, including the following:

Given the speculative nature of the current planning permit applications within the Fishermans Bend precinct and the fact that most of the applications have not been approved, we are of the view that analysing sales and valuing sites on a rate per dwelling or per GFA should be treated with caution.

We are of the view that the primary approach to analysis and valuation ought to be on a rate per m² of land area.[69]

[68]CB 910, 1016.

[69]Ibid.

1. Mr Dudakov adhered to this view throughout the various reports that he prepared, in his part of the Joint Valuers’ Report, and in evidence at trial.[70]  He gave consideration to the appropriateness, or otherwise, of both the $/apartment and $/gross floor area method at the time of his report.  This is apparent from the sales evidence which, where available, was also analysed on that basis.[71]  Whilst Mr Dudakov said that he commonly used both methods, his preference was to use the comparison of net saleable area,[72] acknowledging that there were sometimes information availability limitations with the use of that method.[73]

   [70]T 448.3–13 (Dudakov).

   [71]CB 1009–11.

   [72]T 513.15–17 (Dudakov).

   [73]Ibid 521.5–10 (Dudakov).

1. In his expert reports, Mr Brown did not refer to the alternative methods of analysis.  However, when cross-examined, he said that he was familiar with those methods and that he preferred the $/gross floor area method to the $/apartment method, but considered it was not appropriate to use either method in this case.  His reason was as follows:

In terms of the analysis, it seemed to me in this particular matter, as I have explained before about the Fishermans Bend area, there was not a lot of information specifically about what was being developed on various sites and at that point in time my recollection is there weren’t many or any permitted sites in the Fishermans Bend area so given that degree of uncertainty, it was more speculation as to what could or couldn’t be put on sites.  As I discussed yesterday, in relation to Lorimer Street, there was 1,500 apartments sought at one point and Littles were talking about 7 to 800 apartments.  So it seemed to be very fluid.  Whereas if one goes to Southbank which is more stable area in terms of development, there is probably more consistency in terms of the manner in which buildings have been approved and the number of units to site areas.  I just didn’t think it was a useful measure at that point in time in Fishermans Bend.[74]

(a)      Dollar per apartment method

[74]Ibid 660.1–17 (Brown).

1. As was the evidence of Mr Dudakov and Mr Brown, no planning approvals had issued in the FBURA including, in particular, the Montague Precinct of that area at the Relevant Date.  There was no established or known pattern of development.[75]

   [75]Cf Southbank proper: Ibid.

1. I accept that, given the ‘embryonic’ state of the market for this location,[76] the use of the $/apartment analysis is not appropriate in this case for the reasons articulated by Mr Dudakov and Mr Brown.  The inherent difficulties with such an approach are clearly demonstrated in the case of the 85–93 Lorimer Street transaction where, according to which development scheme is assumed for the purposes of the analysis, the result varies from $11,672/apartment based on 1,585 apartments being the initial Elenberg Fraser 4-tower plan (the ‘Elenberg Fraser Plan’), through to $20,556/apartment based on 900 apartments, being the actual approved plan as at 10 September 2014.[77]

   [76]Discussed at paragraphs [173]-[ 193].

   [77]Exhibit ‘A31’; T 290.6–22 (Torr).

1. This issue is also illustrated by the May 2014 60–82 Johnson Street example, where the vendor prepared a plan for 1,585 apartments, and the purchaser anticipated 700 to 800 apartments.[78]  In circumstances where there is no permit in place at the time of sale, it will be difficult to reliably assume that the later permitted number of apartments accorded with the number of apartments which form the basis of the contract of sale.[79]

   [78]CB 308.

   [79]T 223.15–224.3, 226.21–227.12 (Torr), 406.11–18 (Murray); see also CB 1667.

1. In Mr Torr’s Supplementary Report, Mr Torr sought to undertake a comparative analysis based upon $/apartment between FBURA sales and non-FBURA sales which he listed.[80]  When cross-examined he was unable to say of the analysis in his table which of the transactions were based upon actual permits issued and which were based upon other information.[81]  If the $/apartment method is to be used, then consistency of input is essential for any meaningful comparison.

   [80]Supplementary Court Book, Secretary, Department of Economic Development, Jobs, Transport and Resources v Caradi (Supreme Court of Victoria, S CI 2015 02923, Justice Quigley, 12–16, 19–23 February 2018) 2865–6 (‘SCB’).

   [81]T 282.1–5 (Torr).

1. The Authority submitted that the two sales in Thistlethwaite Street demonstrate the perils of the application of the $/apartment method in an immature market.  Mr Dudakov referred to both Thistlethwaite Street sales in his reports prepared at the time of acquisition.[82]  Both sites sold in the same street in April 2013.  Both were in the same zone and subject to the same overlays: 15–35 Thistlethwaite Street analysed at $3,685/m², and 125–133 Thistlethwaite Street analysed at $3,406/m².  The first site was 1,194m² in area and the second was 1,211m² in area.  The first site, 15–35 Thistlethwaite Street, applied for development of a 36-level tower comprising 280 apartments.  The second site, 125–133 Thistlethwaite Street, applied for a more modest 20-level tower comprising 88 apartments.  The simple fact of different heights of tower as the subject of development application meant that, if the sales were analysed on a per dwelling basis, the sale at 15–35 Thistlethwaite Street showed $15,714/apartment, whereas the sale at 125–133 Thistlethwaite Street showed $46,875/apartment.[83]

   [82]See CB 1009.

   [83]Ibid 1047; see also T 237.9–24 (Torr), 355.11–357.8 (Murray).

1. A simple comparison of these two sales shows that the method is not reliable when seeking to determine the value of the Land in this case.

1. The comparative analysis that Mr Torr sought to undertake in his Supplementary Report[84] suffered from the further problem identified by Mr Brown, namely, that Mr Torr was seeking to compare FBURA and non-FBURA sales in 2016 and 2017, which involved very different market conditions, very different considerations, and were sales which occurred three years after the Relevant Date.[85]  The exercise in Mr Torr’s Supplementary Report is unhelpful and I give it no weight.

   [84]SCB 2865–6.

   [85]T 597.7–22 (Brown).

1. Mr Murray also used the $/ apartment method as a ‘check’ when he prepared his March 2016 valuation.  However, he only included a short reference to that method on the last page of his report.  He included this statement:

I have adopted a rate of $30,000 per potential dwelling … I note this calculates to a sum of $63,000,000.[86]

[86]CB 1417.

1. When he prepared his draft report in October 2014, Mr Murray attempted a regression analysis of the five sales upon which he relied for his opinion, using the number of apartments analysis approach.[87]  He spread the sales into two groups; those prior to the Relevant Date and those after the Relevant Date.  There were three in the latter category.[88]  He discerned a close correlation using a regression analysis between the three sales after the Relevant Date but, essentially, found no relationship whatsoever if all five sales were taken into account.  Using those three later sales, he arrived at a figure for the subject property of $73 million.[89]  He did not include this analysis or discussion in his final report.  The analysis that he undertook clearly showed the method was not reliable.

   [87]Exhibit ‘A40’; T 404 (Murray).

   [88]Exhibit ‘A40’, 28–30.

   [89]Ibid 30.

1. If one were to seek to apply the method, it would be necessary to have regard to the analysis of sales that occurred at or around the Relevant Date.  I note that, in the sales listed in Mr Torr’s Supplementary Report, 85–93 Lorimer Street showed $18,814/apartment and 134-150 Buckhurst Street showed $17,132/apartment.[90]

   [90]CB 2867.

1. However, based on the analysis above, I do not rely upon this method for the assessment of market value in this case.

(b)      Price per gross floor area method

1. No valuer placed any reliance upon this method until belatedly.  Following the Joint Valuers’ Report, Mr Torr referred to this method in his Supplementary Report.[91]

   [91]Ibid.

1. The 15–35 and 125–133 Thistlethwaite Street sales, in April 2013, again provide a convenient demonstration of why this method was not appropriate to assist in arriving at the value of the Land at the Relevant Date.  The property at 15–35 Thistlethwaite Street, with the 36-level tower, showed $166/m² of gross floor area.  The property at 125–133 Thistlethwaite Street, with the 20-level tower, showed $852/m² of gross floor area.[92]

   [92]Ibid 904.

1. Another example of the unreliability of the method in an emerging area concerns the 85–93 Lorimer Street property.  The various schemes for development on the 85–93 Lorimer Street site revealed a difference between the gross floor area of 123,677/m² for the Elenberg Fraser Plan, and 76,678/m² for the plan ultimately approved.[93]

   [93]Exhibit ‘A31’; T 289–290 (Torr).

1. I do not accept that the use of the dollars per gross floor area is appropriate in these circumstances.

(c)       Plot ratio based analysis

1. Whilst comparative plot ratios between comparable sales and the property to be valued may be a relevant consideration, comparative plot ratios cannot be viewed in isolation from other information concerning otherwise comparable properties.

1. Again, by way of example as submitted by the Authority, 15–35 Thistlethwaite Street showed a ratio of four square metres of land area per apartment.  The 20-level tower development at 125–133 Thistlethwaite Street showed a ratio of fourteen square metres per apartment.

1. All valuers were aware of the ability to compare based upon density or land area to number of dwellings.[94]  None of the reports include this method of comparison as a material matter, when comparing the critical sale sites at 85–93 Lorimer Street and 60‑82 Johnson Street.  Although considerable time was spent in cross-examination of Mr Dudakov and Mr Brown on this topic, it is not of significance in weighing the evidence of the respective witnesses.

   [94]See, for example, CB 1048.

Conclusion on appropriate method

1. In my view the $/m² of land area comparison was the most robust method in the circumstances of the location, maturity of the market, and the availability of suitably comparable sales within a reasonable time frame around the Relevant Date.

1. The $/apartment method has too much variability due to variation in apartment size and quality of finish, as well as other amenity features of each particular development being compared.  In my view, there was too much variation for a useful and compelling comparability to be drawn.  I do not find it of sufficient consistency to be useful.

1. The other methods, for the reasons set out, are of no relevant probative or persuasive value.

Relevance of transactions which are not completed sales

1. I was not referred to any binding authority which would suggest that an uncompleted contract of sale must be taken into account as direct evidence of market value.

1. The Claimant seeks to rely upon two transactions which fall into this category, being the $24.5 million Hydrox Contract in 2011, and the $55.5 million 60–82 Johnson Street transaction in May 2014.

1. In McDonald v The Deputy Federal Commissioner of Land Tax for New South Wales[95] (‘McDonald’), the High Court considered the admissibility of an offer that leads to a concluded contract and an offer that does not:

When the matter has reached the point of a concluded contract, there has been a definite concrete fact established, which not only evidences value, but to some extent helps to create or modify it.  Where an owner has actually parted with his land for a fixed sum and a buyer has parted with his money for the land, a clear event has arisen, which, based on the ordinary instincts and pulses of human nature, indicates a consensus of opinion between two adverse parties in the community respecting the value of similar lands.

…

But if the negotiations do not end in a concluded bargain, the field is at once open to a multitude of other considerations before the same point of opinion is reached.  Excursions into the realm of collateral circumstances would be endless.  They would so add to the cost, delay and uncertainty of litigation as on the whole to render a great disservice to the cause of justice.

[95](1915) 20 CLR 231, 239–40.

1. In Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd[96] (‘Cordelia Holdings’), after referring to the above passage in McDonald, the full Federal Court said that whatever weight might be properly given to evidence of offers for limited or general purposes, it is clear that such evidence is not permissible as direct evidence of value.

   [96][2004] FCAFC 48 (5 March 2004) [128]–[129].

1. In Warner v Ulysius International Trading Pty Ltd,[97] after referring to the proposition that an offer to buy is not admissible as direct evidence of the value of shares, the New South Wales Supreme Court noted that this was not a universal rule and, in some cases, an offer may be taken into account.[98]

   [97](2011) 6 BFRA 24.

   [98]Ibid 32 [36]–[37].

1. In MMAL Rentals Pty Ltd v Bruning,[99] in relation to the fair market value of shares, the New South Wales Court of Appeal reviewed the authorities on offers as evidence of value.[100]  The issue on appeal was the relevance of the appellant’s offer to purchase the respondent’s shares.  In this context, Spigelman CJ considered that he was not bound by McDonald, as McDonald did not involve an offer of sale or purchase of a particular property being the subject of the valuation.[101]  His Honour referred to the conclusion of the Full Court of the Federal Court in Cordelia Holdings and said, for present purposes, it was not necessary for him to qualify that conclusion.[102]

   [99](2004) 63 NSWLR 167.

   [100]Ibid 182–5 [84]–[102].

   [101]Ibid 184 [93].

   [102]Ibid 184 [95].

1. In Marroun v Roads and Maritimes Services,[103] the New South Wales Land and Environment Court considered that a genuine offer to purchase the subject property, which did not proceed to completion of contract due to compulsory acquisition, might be admitted as evidence as to the value of land.[104]  This distinction is consistent with the earlier authorities set out above.  However, there is a distinction between offers to purchase the subject property and offers, whether conditional or otherwise, to purchase allegedly comparable properties (which is what is being sought to be relied upon by the Claimant here) with reliance upon the 60–82 Johnson Street transaction in May 2014.  Consistent with the above authorities, I am of the view that such evidence is not and should not be treated as direct evidence of value.  In this case there is no evidence of any offer to purchase the Land at or near the Relevant Date.

   [103][2012] NSWLEC 199 (30 August 2012).

   [104]Ibid [185].

Significance of the Hydrox Contract

1. It was argued by the Claimant that a number of matters arise in relation to the sequence of events surrounding entry into the Hydrox Contract and its termination.  These are that:

(a)the reason for the termination of the Hydrox Contract was the likelihood of the acquisition of the Land by the Authority;

(b)there is no evidence that market conditions deteriorated subsequent to the termination of the Hydrox Contract; and

(c)the contracted price of $24.5 million should thus be viewed as informing the market value of the Land as at October 2011, providing a ‘floor’ to the value of the Land in December 2013, notwithstanding that the land at the earlier time was zoned for industrial purposes and not zoned for CCZ1 purposes.

1. The Authority argued that the evidence of Mr Dudakov and Mr Torr demonstrated that reliance on this contract to set the ‘floor’ to the value of the Land was not borne out by the objective facts.

1. Mr Dudakov’s evidence was that he placed no weight on the Hydrox Contract because the ultimate use for the site had changed dramatically to residential as a result of the designation for urban renewal.[105]  He also gave evidence that he considered the sale price of the Hydrox Contract to be above market for an industrial use, which was another reason to disregard the contract.[106]  Mr Torr also regarded the contract as irrelevant, as he regarded it as a sale of land for industrial purposes, and that it took place three years prior to the Relevant Date in a different sector of the market.[107]

   [105]        T 431 (Dudakov).

   [106]Ibid 530–1 (Dudakov).

   [107]Ibid 190-1 (Torr).

1. I have concluded that the transaction ought to be disregarded as a factor relevant in assessing the market value of the Land as at the Relevant Date based on the evidence of Mr Dudakov and Mr Torr as referred to above.

1. I note that the information provided to both Mr Dudakov and Mr Brown was that the contract had not proceeded, because satisfactory vehicle access for the proposed Masters store on the site was not achievable.  A contrary reason relied upon by the Claimant — that the Hydrox Contract did not proceed because of the proposed acquisition — seemed dubious to me as the Hydrox Contract itself expressly referred to the potential acquisition and dealt with the topic of entitlement to compensation.[108]

   [108]        CB 385–430, 902, 1296–1314.

1. It is difficult to give any weight to the letter dated 5 October 2011 from Allens Arthur Robinson purporting to terminate the Hydrox Contract.  This is because the Hydrox Contract provided no right of termination for threatened compulsory acquisition, and also because the clause relied upon in the letter provided for the contract to lapse and come to an end, unless the purchaser positively gave notice that it wished to proceed to settlement.

1. In my opinion, the matters sought to be established by the Claimant in respect of the Hydrox Contract are not borne out by the weight of the evidence.

60–82 Johnson Street, May 2014 ‘Transaction’

1. 60–82 Johnson Street was the subject of a contract for $55.5 million in May 2014, which was conditional upon the issue of a permit ‘generally in accordance’ with plans lodged mid-2013.  The site has an area of 9,776 m², resulting in a rate of $5,677/m².  Mr Torr and Mr Dudakov agreed that the benefit of having a permit would have added approximately 10% to the sale price of this site.

1. Both Mr Torr and Mr Murray have placed weight on this sale as being a directly comparable sale, even though it was not completed.

1. The Authority argued that, by examination of the circumstances of this ‘sale’, no weight ought to be given to it.  The Authority argued that the $55.5 million contract was unreliable as a comparable sale because it was not in fact a concluded contract of sale.

1. The history of this site was that MaxVic Holdings Pty Ltd (‘MaxVic’) purchased the property by contract, dated 3 December 2012, for the sum of $10.1 million.[109]  This contract was completed in September 2013.[110]

   [109]See sale agreement for the purchase by MaxVic Holdings Pty Ltd of the property located at 60–82 Johnson Street, South Melbourne, dated 3 December 2012:  SCB 2937–83.

   [110]Ibid 2985–6.

1. On 18 May 2014, MaxVic entered into a contract with Shao Huang or nominee.[111]  It was a term of the contract that it was subject to a 14-day due diligence, at the conclusion of which the purchaser could withdraw from the contract, and the 1% deposit would be refunded in full.  It follows that the purchaser could walk away from the contract to purchase without penalty at the time up to and including 1 June 2014.  In addition, the original terms and conditions of the 18 May 2014 contract permitted either the vendor or the purchaser to walk away if a permit did not issue before the specified date.[112]

   [111]Ibid 3062.

   [112]Ibid 3060, 3068; T 256–8 (Torr).

1. On 30 May 2014, before the purchaser became bound to proceed,[113] special conditions were agreed to replace existing special conditions in the 18 May 2014 contract.  The special conditions conferred an absolute discretion on the purchaser to ‘walk away’.  Neither of the Claimant’s valuers, Mr Torr nor Mr Murray, were aware of the terms of the special condition that allowed this situation until they gave evidence or until shortly prior to them doing so.[114]

   [113]SCB 3078.

   [114]T 391.6-9 (Murray); T 257.31-258.2 (Torr); T 397.13-16 (Morris).

1. There were delays in obtaining the planning permit for the site.  Despite the parties extending the contract three times, they eventually agreed to ‘walk away’ in April 2015.  The permit was issued by the Minister for Planning in May 2015.

1. There was no contract of sale which was binding or enforceable upon both the vendor and the purchaser until December 2016, when a different contract was entered into for the sale and purchase of the property for $40.65 million.

1. When Mr Murray was confronted with the terms of the 60–82 Johnson Street transaction and the non-binding nature of clause 23.4, he recognised it to be a ‘walk away’ contract.  Nevertheless, he continued to rely upon that transaction.

1. The Claimant submitted that a review of the history of the 60–82 Johnson Street property, after the May 2014 sale failed to be completed, suggested that there was continued interest in the market for the property at a price above $50 million.  As to why the subsequent attempts at sale of the property remained unsuccessful (until December 2016), the Claimant suggested that it was possible that the remediation cost estimate of $7.06 million for a ‘commercial’ type development may have provided a significant disincentive to purchasers.

1. The Authority identified a number of unusual features of the transaction, including: the ability to ‘walk away’ from the contract absolutely without any reason or penalty; the deposit of 1% with a balance of 10% payable on acceptance of the contract at the conclusion of the due diligence period;[115] and the agreement was extended on three occasions in what was acknowledged by all valuers to be a rapidly-rising market, but without any change in price or fee being paid for the extension.[116]

   [115]SCB 3062.

   [116]19 August 2014, 26 September 2014 and 19 March 2015: SCB 3091–2.

1. Additionally, the comparison between the $55.5 million price and the actual price paid in December 2016, at $40.65 million, more than two and a half years later in what all valuers agree was a rising market is compelling evidence that, even if the $55.5 million transaction was a standard contract of sale, it was significantly out of line with the actual market value of 60–82 Johnson Street in May 2014.

1. Finally, I am asked to take into account the bona fides or reliability of the parties to the transaction under consideration.  This is a consideration which was acknowledged by Mr Torr in his cross-examination that, ‘if… you are looking into a sale and you are aware that one or both of the parties in it are dodgy, you will certainly treat that [sale] with some scepticism’.[117]  I agree that such circumstances undermine the weight that could be given to this transaction as evidence of market value.

   [117]        T 264-5 (Torr).

1. The 60–82 Johnson Street transaction in May 2014 was not a ‘sale’.  No actual transfer took place.  The terms of the 5 May 2014 original contract did not bind the purchaser to proceed during the due diligence period.[118]  After 30 May 2014, replacement special terms and conditions allowed the purchaser to ‘walk away’ in its absolute discretion, even after a permit was obtained which was generally in accordance with the application issued.[119]  As accepted by Mr Torr, such an agreement was worthless to the vendor.[120]

   [118]SCB 3078.

   [119]Ibid 3077 cl 23.4.

   [120]        T 258–9 (Torr).

1. A contract for sale of land requires the vendor and purchaser to be bound to the transaction, although there may be particular terms that make the obligation of the purchaser contingent.  That was never the case, either in relation to the original contract, or in relation to the substituted special conditions of sale.  In analysing the facts and circumstances of this transaction, it is clear that there was never a commitment to the contract.

1. I am of the view that, in principle, evidence of market transactions which fall short of a completed sale might be relevant depending on the circumstances. This view is supported by s 5A(1) of the VL Act, which provides that every matter or thing which a court considers relevant to determining the value of any land may be taken into account.

1. However, in this case, the facts do not bear out the robustness of such a price and I cannot give the $55.5 million Johnson Street May 2014 ‘transaction’ any weight.  This transaction did not complete and the eventual completed transaction in December 2016, at $40.65 million, more than two and a half years later, when all of the valuers have agreed that the 2014 period was one of a rapidly rising market,[121] demonstrates that the transaction was one of pure speculation rather than a transaction that demonstrated market value.  The context and circumstances of the transaction are such that, in my view, it would be unsafe for the Court in these circumstances to rely on it.

   [121]        T 439–40 (Dudakov).

The valuers’ consideration of comparable sales

1. Each of the valuers considered a basket of sales primarily in Southbank, South Melbourne, Docklands and Port Melbourne.  These are discussed below.

Sales of directly comparable properties

[224]Love v Roads Corporation [2011] VSCA 434 (16 December 2011), [96].

[225]Roads Corporation v Schembri (2009) 28 VR 229, 234 [25].

[226]Secretary to theDepartment of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd [2016] VSC 358 (24 June 2016), [44] (Emerton J), citing Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280, 303–4 (Batt J).

[227]Secretary, Department of Economic Development, Jobs, Transport and Resources v Stella (2016) 215 LGERA 314, 324 [39].

Replacement land claim

1. The Claimant sought $3.35 million for replacement land costs.  This includes $3.3 million with respect to stamp duty and $50,000 in relation to legal costs.  The Authority denies that the Claimant is entitled to any compensation under this head of claim.

1. As at the date of trial, no replacement land has been purchased.  The fact is not conclusive of the issue and it does not necessarily mean that replacement land costs are not recoverable.  It does mean that it is necessary to look closely at the evidence in support of this claim.

1. The Claimant argued that it intended to use the compensation received for the acquisition of the Land to purchase a replacement property.  It was argued that, due to the significant disparity in the value of the Land as assessed by the experts for the Claimant and the Authority’s offer, the Claimant was unable to determine how much money it had available to spend on property to replace the Land until the proceeding has been resolved.  Due to this uncertainty, it was argued that it has been premature for the Claimant to undertake a detailed investigation of potential replacement properties to date, although members of the board regularly received material regarding available properties.  The Claimant’s board considered that there was little point in looking at properties in and around the $15–20 million dollar range, if the amount of compensation awarded by the Court (as is the position contended by the Claimant) is significantly higher.

1. To ensure that the Claimant has preserved its ability to invest in a replacement property without paying significant capital gains tax on the compensation sum awarded, it sought and obtained a private ruling from the Australian Taxation Office (‘ATO’) on 7 July 2015 which provides the Claimant with a period until 30 June 2019 to acquire a replacement asset without triggering a capital gains tax liability (the ‘CGT Private Ruling’).[228]  The CGT Private Ruling outlines the relevant facts and circumstances justifying the request for rollover relief, including the difficulty in obtaining a replacement asset where the discrepancy between the compensation sum offered and that claimed by the Claimant is substantial and unresolved.

   [228]CB 601-11.

1. The Claimant seeks the cost of securing a replacement asset namely, stamp duty and legal expenses, which have been calculated by reference to the purchase of an asset valued at $60 million as an item of claim.  It was submitted that:

(a)the Land was the major investment vehicle of the Claimant and therefore it is a natural, direct, and reasonable consequence of the acquisition that it be replaced;

(b)the consequence of the low offer made by the Authority is that it has not been possible for the Claimant to initiate the process of securing a comparable replacement asset until the issue of compensation is resolved;

(c)the evidence of Mr Hubay, director of the Claimant, was that the Claimant intends to secure a replacement asset as soon as the issue of compensation is resolved.  This is a position which has been forced upon the Claimant because of the compulsory acquisition of its key asset;

(d)the Claimant’s intention to secure a replacement asset is evidenced by the steps taken to preserve its eligibility for CGT rollover relief in obtaining a CGT Private Ruling from the ATO; and

(e)the Claimant should be entitled to replace its investment and to delay doing so until such time as the issue of compensation has been resolved.

1. In Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd (‘Manor Lakes’),[229] the Court of Appeal upheld the finding of the Court below that it was plainly open to conclude that the purchase of replacement land, which was the stock in trade of a developer, was a direct consequence of the compulsory acquisition, and thus compensable as a disturbance loss.  In that case, Mr Marshall Dennis gave evidence that he had been and was continuing to actively look for replacement land of the same type as, and suitable to replace, the land that had been acquired.  He had kept a dedicated file of replacement properties that he had considered.[230]

   [229](2017) 224 LGERA 195 (Warren CJ, Osborn JA and Ferguson JA).

   [230]Ibid 219 [111].

1. The Claimants have had the benefit of the advance payment by the Authority since May 2014. The fact that it is more than four years between the Relevant Date and the trial is not helpful to this claim, notwithstanding the arguments put as to delay. This timeframe, in association with the scant evidence of action in pursuit of replacement property, does not assist in convincing me that this aspect of the claim can be properly held to be a claim which meets the LAC Act causal connection test.

1. I do not give significant weight to the CGT Private Ruling which gives the Claimant CGT relief until 30 June 2019 as being determinative of the Claimant’s intention to purchase a replacement property.  In my opinion, this step was a prudent one to protect the Claimant from CGT taxation implications, but does not prove an active intention to purchase replacement land.  Rather, it is consistent with keeping that option open to it, nothing more.  This is particularly so given that I have determined that the compensation for market value was not significantly higher than the market value conceded by the Authority, and not in the realm of the $60 million claimed by the Claimant in their initial claim, nor the amount of the amended claim.

1. There was no oral evidence given in support of an active effort to search for replacement property at all, let alone that which would be in the range of the offer form the Authority, or that within the aspirations of the Claimant’s claim.

1. The evidence in terms of the search for replacement land is scant and superficial; it falls well short of the evidence as to intention to replace relied upon in Manor Lakes.  I am of the opinion that the Claimant sat on its hands and effectively punted that the claim for market value would be significantly more than the Authority’s offer.  I do not accept on the evidence that the Claimant has taken sufficient steps to convince me that replacement land will be purchased.

1. As a consequence, I do not find that this claim is made out.

Lost opportunity to invest in a higher yield asset

1. As a further item of disturbance loss, the Claimant seeks compensation for the alleged loss incurred as a result of the inability to invest the initial offered sum into a higher return asset due to the Authority’s inadequate offer.  The sum claimed is $1,546,700.00 to 21 April 2016, and continuing to the date of judgment at 0.0126849315% per day.

1. It is claimed that there is a material difference in the investment potential associated with properties within different price brackets.  To invest the compensation advanced in a property with a lower yield would result in the Claimant ultimately foregoing higher yields on a higher priced property, assuming significantly higher compensation is awarded.

1. The Claimant’s evidence is that the financial return associated with the purchase of property at prices ranging from the $15–20 million dollar range is less than those in the $50–60 million range.[231]  It also argued that a higher yield (that is, a better investment return) would apply to properties in the higher price bracket.  The claimed differentiation in yields is between 0.25% and 0.5%.

   [231]CB 595-600.

1. The explanation for this difference was that within the lower price category of $15‑20 million the market would be much deeper and there would be many more buyers actively competing in that price category including high net worth individuals looking to add to their superannuation fund.  In contrast, a well-located, well-tenanted investment property used for a similar purpose in a similar location but in a price bracket at or around $60 million is likely to attract interest from fewer potential purchasers who are more likely to be ‘institutional investors’ who may be driven by different and potentially more sophisticated investment criteria.  It was argued that the depth of potential purchasers in the market can play a significant role in influencing the yield of investments.  All else being equal, it was said that  the resultant impact is that there is a slightly higher yield for higher priced properties, particularly when comparing price categories of $16 million and $50–60 million.

1. In circumstances where the Claimant has had to effectively ‘park’ the compensation sum advanced in a term deposit account, it was argued that this has had the direct consequence that the Claimant has been denied the opportunity to invest in a higher value, higher yield replacement asset valued in the order of $60 million.  It is argued that this has resulted in a loss of $1,546,700.00 to 21 April 2016, and continuing to the date of judgment at 0.0126849315% per day.

1. This claim is creative.  There was no cogent evidence given to justify this claim.  At best, it was explained in submissions both oral and written by counsel for the Claimant. Mr Hubay’s evidence did not assist in supporting this claim either.

1. In order to prove a further item of disturbance loss, it is necessary not only for there to be sufficient evidence to support the pecuniary loss, but that the loss must also be one which is the natural, direct, and reasonable consequence of the acquisition.  I find that the loss is at best, theoretical and speculative.  An alleged loss in these circumstances cannot be one which is a natural, direct, and reasonable consequence of the acquisition.

1. I agree with the Authority that this claim assumes that there was an obligation on the Authority to assess the claim at the then claimed amount of $53.5 million, when it acquired the Land in 2013 and that, having done so, the Claimant would have invested that amount immediately in an investment property which would have given it the assumed return.  In essence, a failure to assess the market value at $53.5 million, at the date of acquisition, has caused the loss and that such loss is a natural, direct, and reasonable consequence of the acquisition.  This scenario demonstrates the speculative nature and the creativity inherent in the claim.

1. Further, the Authority argued that in effect what the Claimant wants is interest on interest. The obligation on the Authority under the LAC Act is to make an initial offer of compensation accompanied by a certificate evaluation, to which the Authority has had regard. The LAC Act does not create a right of action recoverable as a disturbance loss for failure to comply with those obligations. It imposes no duty giving rise to a private right of action.

1. The Claimant has an entitlement to interest for the difference between the last offer made by the Authority and the amount awarded by the Court. This is specifically provided for by the LAC Act and, as it is provided for at the rate prescribed in the Penalty Interest Rate Act 1983. It has a compensatory element to it.

1. The Court has assessed market value at $25.3 million which is less than half the amount sought.  It is a figure nowhere near the amount sought by the Claimant for market value which was well in excess of $50 million and was argued to put the Claimants into another sphere of the investment market.

1. This item of the claim is not made out.

Agent’s Commission

1. In the Further Revised Particulars of Claim, an agent’s commission was claimed in the amount of $177,650.  However, this claim was not pursued at trial.[232]

   [232]T 20.14-20 (Morris).

Costs incurred by reason of the acquisition

1. Under s 41(1)(f) of the LAC Act, in assessing the amount of compensation payable to a claimant, regard must be had to ‘any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition …’.

1. The Claimant claims to have incurred substantial costs in relation to preparing a detailed response to the offer, obtaining advice on the appropriate level of compensation for the Land, and preparing its claim for compensation.  All of the costs itemised were argued to be necessarily (that is, reasonably) incurred by the Claimant by reason of the acquisition of the Land.

1. The amount claimed was $290,378.12, which was revised to $284,754.94 at trial.  Some invoices were ambiguous as to whether they related to the acquisition of the Land and the Claimant did not pursue them.  Of this, $242,689.49 constituted invoices addressed to the Claimant, and $42,065.45 constituted invoices addressed to Ballah Nominees Pty Ltd (‘Ballah Nominees’).

1. The Claimant prepared and submitted spreadsheets identifying the work undertaken by the various professionals including valuers, planners, architects, accountants, and lawyers.  Copies of supporting documents, including invoices relevant to the work, were filed with the Court on 31 March 2016[233] and on 8 December 2017.[234]  The affidavit dated 21 February 2018 of Mr Mark Kornhauser, a director of the Claimant, on this issue was filed on 22 February 2018.

   [233]CB 49-152.

   [234]CB 339-639.

1. The Authority accepted that the Claimant necessarily incurred legal, valuation, and other expenses by reason of the acquisition of the Land. However, the Authority submitted that the Claimant has not demonstrated that expenses claimed by it under s 41(1)(f) of the LAC Act are costs ‘incurred by the claimant’ as required under s 41(1)(f). That is, the Authority submitted that the Claimant has failed to demonstrate that the expenses claimed were incurred by the Claimant, in its own right, or as trustee for the Ballah Trust.[235]

   [235]Authority’s Closing Submissions 73 [248].

1. In oral submissions, the Authority argued that the Claimant held the Land in its capacity as trustee of the Ballah Trust and that it is therefore necessary to show that the Ballah Trust has incurred these expenses[236] and that there was no evidence that the Ballah Trust itself incurred or paid those expenses.[237]

   [236]T 842.30–843.3 (Delany).

   [237]Ibid 844.13–14 (Delany).

1. The evidence to support the Claimant’s claim for these costs was unclear.

1. Mr Kornhauser’s evidence was that:[238]

(a)the Claimant does not operate its own bank account;

(b)invoices issued to the Claimant, or to Ballah Nominees for services provided to the Claimant, are paid by Ballah Nominees;

(c)expenses are recorded in the special purpose accounts of the Claimant;

(d)the Claimant is owed in excess of $11 million by Ballah Nominees (the ‘Ballah Nominees Liability’); and

(e)the Claimant offsets the payment made by Ballah Nominees on its behalf against the Ballah Nominee Liability.

[238]Exhibit ‘R53’ [22].

1. Mr Hubay swore in his affidavit dated 8 December 2017 that the Claimant held the Land on trust in its capacity as the trustee of the Ballah Trust.[239]  This was supported by a Deed of Appointment dated 12 June 2015, which appointed the Claimant as an additional trustee of the Ballah Trust and confirmed that event as having taken place on or around 17 May 1996.[240]  The other trustee was Ballah Nominees.  In addition, the relevant background facts to the CGT Private Ruling also provide that, ‘[the Claimant] is a trustee of the Ballah trust’;[241] and Mr Kornhauser gave evidence, although somewhat hesitantly, that the Claimant was the trustee of the Ballah Trust.[242]

   [239]CB 340.

   [240]Exhibit ‘R53’, ‘MK4’.

   [241]CB 603.

   [242]T 802.21–25 (Kornhauser).

1. However, Mr Kornhauser also gave evidence that the Claimant was a nominee of Ballah Nominees and that a number of special purpose financial statements, which were either exhibits to Mr Kornhauser’s affidavit[243] or filed in court[244] described the Claimant as the nominee for the Ballah Trust, and only Ballah Nominees as the trustee for the Ballah Trust.

   [243]Exhibit ‘R53’, ‘MK5’.

   [244]Exhibit ‘R54’.

1. I was provided with:

(a)the unaudited special purpose financial statement of the Ballah Trust for the year ended 30 June 2015, with expenses in FY2015 of $440,375 and in FY2014 $338,038, although these expenses predominately related to ‘Salaries and wages’;

(b)the unaudited special purpose financial statement for the Claimant as nominee for the Ballah Trust for the year ended 30 June 2015, with expenses in FY2015 of $223,999 referable to the compulsory acquisition; and

(c)a spreadsheet prepared by Pitcher Partners which records the reduction in the loan balance for Ballah Nominees between 2014 and 2015.

1. The spreadsheet identifies the specific expenses referable to the payment by Ballah Nominees and the corresponding reduction in the amount of the Ballah Nominees Liability for the financial year ending 30 June 2015.  The amount (disregarding BAS payments and refunds) is $223,576.  The evidence of Mr Kornhauser was that the discrepancy between the $223,576 figure, and the $223,999 shown in the expenses in the profit and loss statement for FY2015, is referrable to a miscalculation of GST.

1. While there appears to be some similarity between invoices addressed to the Claimant, being $242,689.49, and the expenses shown in the FY2015 special purpose financial statement referable to the compulsory acquisition, being $223,999, these figures are irreconcilable.  The invoices addressed to the Claimant span a period of 20 January 2014 to 4 December 2017 (as opposed to only FY15), while the expenses relate predominately to Fitzroys’ commission for which there is no invoice.

1. However, I accept the submission of the Claimant that to make good this claim it is not necessary to demonstrate payment.[245] The word ‘incurred’, as it appears in s 41(1)(f) of the LAC Act, is to be distinguished from ‘paid’ or ‘made’.[246]  Payment of an incurred expense is relevant in terms of calculating any interest payable under s 56 of the LAC.[247]  Further, in an income tax context, where payment is not made, a presently existing pecuniary liability is a necessary prerequisite to an expense being ‘incurred’.[248]

   [245]T 814.2–3 (Morris).

   [246]See W Nevill & Company Ltd v Commissioner of Taxation (1937) 56 CLR 290, 302, where it was said that: ‘The word used is “incurred” and not “made” or “paid.” The language lends colour to the suggestion that, if a liability to pay money as an outgoing comes into existence, [the section is satisfied] even though the liability has not been actually discharged at the relevant time. ... It is only the incurring of the outgoing that must be actual; the section does not say in terms that there must be an actual outgoing — a payment out’.

   [247]The inference in s 56(c)(iii) of the LAC is that expenses under s 41(1)(f) do not need to be paid for those expenses to be incurred.

   [248]Coles Myer Finance Ltd v Commissioner of Taxation (1993) 176 CLR 640; Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation (1981) 144 CLR 616.

1. Under s 3 of the LAC, ‘claimant’ means a person who makes or is entitled to make a claim for compensation under the LAC.  There has not been any suggestion that the Claimant is not entitled to make the claim for compensation, the subject of this proceedings.  Nor is there any suggestion that the invoices addressed to the Claimant were not genuine.

1. On the foregoing analysis, I find that the amount of $242,689.49, being the amount of the invoices addressed to the Claimant, is ‘incurred’ by the Claimant and within the scope of s 41(1)(f). I accept the invoices as evidence of an existing liability.

1. In relation to the invoices addressed to Ballah Nominees, I am not satisfied that these expenses are incurred by the Claimant.  I do not accept that an ‘inference’ should be drawn that expenses were incurred by the Claimant, because the invoices were addressed to Ballah Nominees.

1. Counsel for the Authority submitted that it is not necessary, indeed, that it is inappropriate, for the Court to look into the trust relationships that sit behind the Claimant.[249]  However, the Claimant does have the onus of demonstrating that the expenses were incurred by it, and it may have been necessary to clarify this relationship in order to properly establish that the Claimant had incurred these expenses.

   [249]T 851.11–13 (Morris).

1. The unaudited special purpose financial statements were prepared exclusively for the purpose of preparing income tax returns.  A mere record in a financial statement does not change the liabilities between the parties.  In the absence of evidence of a liability owed by the Claimant to Ballah Nominees, or any agreement to offset mutual liabilities, I do not accept that the expenses relating to the invoices addressed to the Ballah Nominees were incurred by the Claimant.

1. Consequently, I find that the amount of compensation payable pursuant to s 41(1)(f) of the LAC Act is $242,689.49.

Solatium

1. An award of compensation under the LAC Act includes the potential for an award under s 44(1).

1. Section 44 of the LAC Act provides:

(1)The amount of compensation may be increased by such amount, not exceeding 10% of the market value of the land, by way of solatium as is reasonable to compensate the claimant for intangible and non-pecuniary disadvantages resulting from the acquisition.

(2)In assessing the amount payable under subsection (1), there must be taken into account all relevant circumstances applicable to the claimant including, without limiting the generality of the foregoing—

(a)the interest of the claimant in the acquired land; and

(b)the length of time during which the claimant had occupied the land; and

(c)the inconvenience likely to be suffered by the claimant by reason of removal from the land; and

(d)the period of time after the acquisition of the land during which the claimant has been, or will be, allowed to remain in possession of the land; and

(e)the period of time during which, but for the acquisition of the land, the claimant would have been likely to continue to occupy the land; and

(f)the age of the claimant; and

(g)where the claimant at the date of acquisition is occupying the land as the claimant’s principal place of residence, the number, age and circumstances of other people (if any) living with the claimant.

(3)If no solatium is paid to a claimant, a person other than a claimant who, at the date of acquisition, had occupied the acquired land for a continuous period of not less than 12 months before that date as the person’s principal place of residence may claim from the Authority such amount, not exceeding 10% of the market value of the land, by way of solatium as is reasonable to compensate the person for intangible and non-pecuniary disadvantages resulting from the acquisition.

(4)In determining the amount payable under subsection (3), there must be taken into account all relevant circumstances applicable to the person, including the matters referred to in subsection (2)(b), (c), (d), (e), (f) and (g).

(5)If the Authority rejects a claim for solatium made by a person under subsection (3), that person is to be taken to be a claimant and the claim to be a disputed claim for the purposes of this Act.

1. In an award for solatium all relevant circumstances applicable to the Claimant, including those factors enumerated at s 44(2), must be taken into account. In my view, a number of the s 44(2) factors are either inapplicable or have little bearing on my assessment by reason of the Claimant’s circumstances including being a corporate entity holding the Land with the intended purpose of on-selling the Land in due course for its development potential.

1. The Claimant says that the acquisition of the Land, including the process leading up to it, warrants a significant award for non-pecuniary loss.  The Claimant argued that the compulsory acquisition and compensation process has been disruptive and inconvenient to it, and the nature and magnitude of the Claimant’s loss is referrable to the following:

(a)the length of connection to the Land;

(b)the Claimant’s desire to maximise the value of the Land to realise maximum return on the long-held investment;

(c)the impact that the acquisition, including the protracted process leading to the acquisition and the unsatisfactory responses from the Authority prior to any formal steps being taken to acquire the Land, created commercial uncertainty and effectively left the Claimant in a state of ‘limbo’.  The lengthy period of investigation by the Authority about the prospects of acquisition have been regular and frustrating topics of discussion by the Claimant’s board in relation to the future use of the Land;

(d)the threat of acquisition caused the loss of the sale of the Land to Hydrox, which was also a considerable waste of the time spent by the Claimant (over a period of more than 18 months) in negotiating terms of the sale;

(e)the acquisition has resulted in disappointment for the Claimant as it destroyed its long-standing re-sale and/or development expectations for the Land.  The consequence of the acquisition was not only to sever the connection with the Land, but to end their efforts to use the Land to plan for the future of the Claimant; and

(f)the radically altered statutory and strategic planning context of the Land opened up many possibilities for the Claimant, and would have allowed it to either develop the Land with a high density residential development, or to choose the right price at the right time.  Those opportunities were denied to the Claimant with the acquisition of the Land.

1. The Claimant argued that the determination of an appropriate figure for solatium can be difficult, as what is being compensated is ‘non-pecuniary loss’ expressed in pecuniary terms.  The sum of $1.5 million, which represents approximately 2.67% of the market value of the Land (on an assumed award of $56 million for market value based on Mr Murray’s assessment) was argued by the Claimant to be the appropriate award in the circumstances.

1. The Authority submitted that the amount in respect of solatium, based on the factors in s 44(2), should be a significantly more modest sum, if any award at all were to be made. The Authority argued the following factors were relevant to my assessment:

(a)the subject Land was purchased by the Claimant on 23 September 1996 for a purchase price of $4.035 million;[250]

(b)the Land was purchased in order to make a profit either by selling it on or redeveloping it, taking into account all options;[251]

(c)the Claimant is a sophisticated commercial entity involved in property development;[252]

(d)the Claimant had never occupied the Land;

(e)the Claimant received rental from the Authority for the period that the Authority was conducting its investigations on the subject Land (1 February 2010 to 13 April 2011); initially at $430,000 per annum, which was subsequently increased on 31 July 2010 to $470,000 per annum,[253] and which provided a rental return of 10.7% and 11.6% respectively. Beyond this time, the Claimant had a license agreement with Care Park Pty Ltd, which provided an excellent return on the Land; and

(f)in his oral evidence, Mr Hubay observed that an award of any amount above $22 million was a bonus to the family.[254]

[250]T 124.16-17.

[251]Ibid 143.4-9 (Hubay).

[252]Ibid.

[253]Exhibit ‘A17’.

[254]T 146 (Hubay).

1. The Authority submitted that it is questionable whether any solatium payment at all should be made and, if an award for solatium were made in these circumstances, then considering the range of solatium awarded in other cases, an allowance of $50,000 would be generous.[255]

   [255]Authority’s Closing Submissions 77 [258]–[259].

1. Solatium is an award for intangible and non-pecuniary loss disadvantage.  In the circumstances here, it is difficult to identify separate intangible or non-pecuniary loss which is not already bound up in compensation encompassed by the pecuniary amounts represented by the market value at highest and best use, and by the various claims made out, or agreed, for disturbance.

1. I am of the opinion that the extent of delay and frustration, which the Claimant argues supports its claim for solatium, is not of such impact to support a claim for solatium other than a nominal award of compensation.  The period of time between when the Land was identified as a prospect for acquisition in January 2010 and its ultimate acquisition in December 2013 was not in the circumstances extensive, nor was the period of temporary occupation excessive.  As noted, the Claimant was fully compensated for that temporary occupation.  In respect of the delay in making an offer within the time permitted by the legislation, the Claimant has already been compensated for this financial loss.

1. As previously noted, I am not convinced that the Hydrox Contract’s failure to proceed was related to the acquisition, so I do not consider that a factor which aids a claim for solatium.

1. The Claimant continued to earn a very significant rental from the Land over the period between its nomination as a potential acquisition and its eventual acquisition.

1. Further, the Claimant held the Land for investment purposes with the ultimate intention to sell the Land at an enhanced value after rezoning.  There is no evidence of particular attachment to the Land.  The steps taken by the Claimant to engage expertise to prepare the Land for sale, including the preparation of a scheme for development of the Land (such as the Rothe Lowman Scheme), are actions consistent with its ambition to seek to enhance the value of the Land to achieve its best price at its intended sale.  The rezoning of the land (including the subject Land) within the FBURA, in July 2012, significantly increased the value of the Land, and this is taken into account in the assessment of market value for which the Claimants are to be fully compensated.  On the evidence before me, the uncertainty the Claimant alleges leading to an inability to sell the land has allowed it to benefit by reason of the  increase in land values in the 2013–2014 period, including by reason of  the rezoning of the land to CCZ1.  The delay in the sale of the land (ultimately to the State by way of acquisition) given the movement in the market which followed only enhanced the Claimant’s position.

1. The Claimant is entitled to be compensated fairly and fully for its loss, and with all of the generality that the statutory words permit, but the Claimant is not entitled to receive more than fair compensation.[256]

   [256]McCann v Roads Corporation [2011] VSC 96, [18] (Osborn J).

1. Whilst there is no bar to a corporation receiving an award of solatium, in my opinion, in the circumstances of this case, an award beyond a nominal amount is not appropriate. It is not a correct approach to start the assessment of the amount to be awarded by looking at what percentage of the market value the award represents. The correct approach is to determine an amount which is reasonable in the circumstances. The task then is to consider whether the amount falls within the cap set in s 44(1) of the LAC.

1. Whilst acknowledging that the acquisition would have caused some frustration and annoyance, the circumstances here are such that the claim for $1.5 million is manifestly excessive.  Such a claim is no doubt based on the inflated expectation of the market value of the Land.  In any event, I do not find that the factors identified above are factors that would support a claim for an award other than for a nominal amount.

1. In my opinion, there ought to be an award of solatium but, in my view, the award should be a modest one. In the exercise of my discretion to award an amount of compensation in respect of solatium based on all the relevant factors in this case I assess the amount payable under sub-s 44(1) of the LAC Act to be $50,000.

Overall conclusion

1. There were two items of claim that were agreed between the parties:

Loss of use of money caused by delay in payment

of compensation  $           89,767.45

Architect’s fees  $         31,053.

1. Of what remained in dispute, I make the following assessment:

Market Value  $         25,300,000

Disturbance s 41(1)(d)

Cost of replacement land  Nil

Loss incurred as a result of inability to invest initial

offered some in a higher return asset  Nil

Agent’s commission   Nil

Legal, valuation and other professional expenses

Pursuant to s 41(1)(f)  $         242,689.49

Solatium  $50,000

1. I will hear the parties further on the question of costs and the final form of order.