ADC Buildings Pty Ltd v Barana Properties

ADC Buildings Pty Ltd v Barana Properties - [2009] WASC 79 - WASC 2009 case summary — Zoe

[88]

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387, 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch D 681, 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 LT 503, 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, 437.

[101]

In United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 (cited by Gleeson CJ in GR Mailman and Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80 at 86) Lord Salmon said (at 948):

[A rent review clause] is for the benefit of the tenant because without such a clause he would never get the long lease which he requires; and under modern conditions, it would be grossly unfair that he should. It is for the benefit of the landlord because it ensures that for the duration of the lease he will receive a fair rent instead of a rent far below the market value of the property which he demises. Accordingly the landlord and the tenant by agreement in their lease provide that at stated intervals during the term, the rent should be brought up to what is then the fair market rent. The revision clause itself lays down the administrative procedure or machinery by which the fair market rent shall be ascertained.

I accept that fairness, to the extent described by Lord Salmon, would ordinarily be the general purpose underlying a rent review clause. Nevertheless, the competing interests of ADC and Barana, as lessor and lessee, as to whether or not the land is to be valued without regard to encumbrances or restrictions on use, are irreconcilable. It is difficult - if not impossible - to attempt to resolve their opposing submissions on this issue by reference to fairness. The focus must be, rather on the actual meaning of the words used in their particular context.

As Giles JA in BBC Hardware Pty Ltd v Payce Properties Pty Ltd [2000] NSWCA 262; (2000) 50 NSWLR 66 at 72 noted, the normal commercial purpose of rent review provisions in long term leases is:

to keep the rent in line with current property values. Changes in the locality, in the planning instruments relevant to the land, and in the economically advantageous use of the land could be expected. No doubt the lessee would want to be protected from paying a greatly increased rent while still restricted in the use of the land. But the lessor would not want to be left with an inadequate return from land of greatly increased value. Their bargain must be found in the words they used.

[120]

In my opinion, under s 6A(1) land must be valued on the basis that the hypothetical purchaser is purchasing the land for the purpose of its highest and best use, which may not be its current use. 'The law is quite plain that under the Valuation of Land Act the unimproved value of land must be based upon the best or most profitable potential use and if the land was legally capable of being subdivided for residential purposes... it was proper to value it on a subdivisional basis': Spicer v Valuer-General (1963) 10 LGRA 319 at 320 per Else-Mitchell J. In Stubberfield v Valuer-General [1991] 1 Qd R 278 at 283 Carter J said: 'It is also a well recognised principle that land be valued for its highest and best use. What it can best be used for will be reflected in its true market value which takes account of any detriment the land possesses relevant to its use as well as any potential it has for its present or other use. Again the relationship between value and land use is immediately apparent'. In Goode v Valuer-General (1979) 22 SASR 247 at 256, 61 LGRA 424 at 434 Wells J said that: 'The sale referred to in the definition of unimproved value is a sale of the land in a market where at least some of the potential buyers are interested in making a use of the land that will realise the highest price'. Similarly in relation to compulsorily acquired land, 'It is now settled, and for good reason, that a dispossessed landowner should be compensated for the value of his or her land on the basis of its highest and best use': Boland v Yates Property Corporation Pty Ltd [1999] HCA 64; (1999) 167 ALR 575 at 649 [271] per Callinan J.

There is no statutory definition of _'_highest and best use'. It has been described in the High Court as 'the most advantageous purpose for which [the land] was adapted': Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418 at 441 per Isaacs J. It 'is the present value alone of such advantages that falls to be determined': Cedar Rapids Manufacturing and Power Co v Lacoste [1914] AC 569 at 576 per Lord Dunedin. In Park v Allied Mortgage Corporation Ltd (FCA, 5 July 1995, unreported) Hill J said at [70]: 'As Spencer's case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land'. In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 at 415 (SC/SA) Jacobs J said:

Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says - the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value.

[122]

In our view, the wife's intention in relation to the property was not relevant to the issue of fact his Honour was required to determine, namely its value. The passage relied upon by Counsel for the husband in Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418 is relevant in this context. Also relevant for present purposes is the reference to the valuation of land 'for the most advantageous purpose for which it was adapted' (Spencer at 441) which the learned authors, Rost RO & Collins HG, of Land Valuation and Compensation in Australia, 3rd ed, Australian Institute of Valuers, 1984 at 90 suggest gave rise to the 'principle' which is known widely as 'valuation for highest and best use'. The learned authors suggest at 90 that:

Recognition of the willing-selling-willing-buyer concept necessarily involves valuation for the highest and best use for which the land is adapted. The prudent and well-informed vendor (whose existence must be assumed) would not willingly part with his land for a price less than that appropriate to its highest and best use; and the well-informed buyer would not expect to be able to purchase it for less. Each party would take into account 'not only the present purpose to which the land is applied, but also any more beneficial purpose to which, in the course of events at no remote period it may be applied, just as an owner might do if he were bargaining with a purchaser in the market. This is the mode in which the land would be valued.' (Isaacs J in the Spencer case.)

The term 'highest and best use' appears to derive from the observation of Isaacs J in Spencer that:

... whatever the property might have fetched as a future factory site, the highest value of the land was for workmen's cottages.

The principle of 'highest and best use' finds repeated expression throughout the authorities relevant to the valuation of real property (see Brisbane City Council v The Valuer-General for the State of Queensland [1978] HCA 40; (1978) 140 CLR 41; Housing Commission of New South Wales v San Sebastian Pty Ltd & Others [1978] HCA 28; (1978) 140 CLR 196; and The Valuer-General v Fenton Nominees Pty Ltd [1982] HCA 46; (1982) 150 CLR 160. The principle was succinctly stated by Pullin J in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122; (2003) 129 LGERA 65; [2003] at paragraphs 18 and 19:

The test of market value is well known. It is what the hypothetical purchaser desiring to purchase the land would have had to pay for it on the date of resumption to a hypothetical vendor willing to sell it for a fair price but not desirous to sell: Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418.

Regard must be had to every element of value which the lands possess. Every such element must be taken into consideration insofar as they increase the value to the owner of the land: Minister of State for Home Affairs v Rostron [1914] HCA 66; (1914) 18 CLR 634 at 637. In short, regard should be had to the highest and best use of the subject land, meaning the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential: Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 at 415.

At a glance

Court

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Before

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Judgment (146 paragraphs)

PROGRAMME HOLDINGS PTY LTD -v- VAN GOGH HOLDINGS PTY LTD [2009] WASC 79 (31 March 2009)

Parties

Legislation Cited (2)

Cases Cited (26)