Alpine Shire Council v MHSC Transportation Services Pty Ltd [2002] VSC 22

Supreme Court of Victoria|2002-02-25|Before: Balmford J

For the reasons given in [32] above for his adoption of the contractor's method of valuation, no check method of valuation was available to Mr Male. However, after discovery in this proceeding he was shown Exhibit K, a memorandum dated 30 October 2000 prepared by Ms Smith, a qualified chartered accountant who is chief accountant and joint company secretary for the MHSC group. That memorandum, which is considered further at [55] and following below, assesses the net present value of the airport at 30 June 2000 as follows:

On the basis of that document Mr Male said that he considered that the capital improved value of $12,638,000 was well within the range that a genuine seller would require, and accordingly an appropriate value for rating purposes at the relevant date.

Again, because he was using the contractor's method, he had not needed to consider who would be the hypothetical vendor or purchaser. Thus he had not considered the possibility of the operator of a competing ski resort elsewhere as a possible purchaser. Nor had he considered the possibility of the operators of the competing businesses on Mount Hotham joining together to purchase the airport. He said that in preparing his valuation he took into account that at the relevant date there would be purchasers of the airport in its improved state and one such purchaser would have been the MHSC group. In cross-examination he said that the MHSC group was the only purchaser which he considered, believing that it would buy the airport rather than see it close down. The hypothetical seller was not necessarily to be taken as being the actual ratepayer, but it could be.

Mr Male agreed that construction costs in the alpine areas might be greater than elsewhere, but did not consider that an investor in the alpine areas might therefore expect a lower rate of return. He did not agree that the facilities at the airport were an over-capitalisation; the MHSC group was trying to project an image of a high quality skiing experience and the high quality of the terminal was consistent with this. In his second affidavit he indicated that he had looked at a number of sales of airports which were considered by Mr Ross, and had concluded that they were not of assistance in determining the value of the Mount Hotham airport for rating purposes at the relevant date. He confirmed his opinion that the Mount Hotham airport was unique in all respects, and the contractor's method took into consideration its unique attributes and features.

Mr Male agreed that establishing the capital improved value of a property was an exercise in determining market value, as to which see [7] above. The meeting place between vendor and purchaser would be where the purchaser had offered an amount of money which it believed was reasonable, that saved it having to construct an identical facility itself. As to the situation of the vendor, he asked rhetorically why a person would construct an airport of this magnitude and facility in order to sell it at a loss.

Mr Bourke valued the airport on the basis of what he considered to be comparable sales of land. He noted, to begin with, that the locality in which the airport was situated was mainly Crown land, with a small number of what he described as "rural lifestyle allotments which previously formed part of a large cattle grazing property known as `Cobungra Station' ". He considered that in view of the current operating loss, and the distinct possibility that the position would not improve, the airport was unviable and an overcapitalisation of the land. He did not take into account the projections of income for future years which were available to him. He deposed that it was clear to him that as a stand alone facility the airport would continue to make substantial losses and in all likelihood would cease operations but for the existence of benefits to the MHSC group. It was reasonable to consider that the MHSC group or a member of it could be a prospective purchaser that might pay a premium over and above the fair market value in order to ensure the continued operation of the airport.

In his opinion, the highest and best use of the property was as a lifestyle rural allotment with a non-commercial airfield available only for private use, which might include promotional activities not requiring the engagement of airport staff. The circumstances of the MHSC group were not relevant to the determination of the highest and best use. It was doubtful that any purchaser could be found with the same capability or incentive to purchase the airport as the MHSC group or a company in the MHSC group, and he considered that the MHSC group was the most logical lessee or purchaser of the airport. In his view it was unlikely that there would be any other purchaser interested in buying the airport and operating it as an airport. However, this did not mean that the MHSC group would pay for the airport an amount equivalent to its construction cost or an amount significantly higher than its added value to the next most logical purchaser or lessee; namely the person wishing to use the property as a rural lifestyle allotment improved by a private airport or landing strip. The airport was not the highest and best use because it did not represent a need for the prospective purchaser.

Mr Bourke inspected the Mangalore, Leongatha, and Porepunkah airports, which had been sold in comparatively recent years, and had information available to him about the sale of the Whitsunday airport. He also considered ten sales of what he described as "vacant rural/lifestyle allotments", of areas between 35 and 80 hectares, which had taken place between October 1999 and January 2001, for prices between $140,000 and $205,000. The blocks of land were all located on the Great Alpine Road in the vicinity of the airport, and had formerly formed part of Cobungra Station. They were of a size which would permit the erection of a house, in accordance with local planning requirements.

He valued the airport on the basis of the sales of rural land, but said that he also had regard to the airport sales to which he had referred. In his assessment, the capital improved value was made up of three components:

(a) the value of the land on the basis of the sales of rural allotments in the area, which were comparable parcels: $175,000

(b) the added value of the airport having regard to the likely demand for such a facility for private use or promotional purposes: $225,000

(c) a premium of sufficient size to persuade a prudent vendor to willingly sell rather than treat with another purchaser who is unlikely to act with the same motives and incentives as a purchaser which has an interest in the Mount Hotham ski fields and which derives a benefit from the existence of the airport: $300,000

Thus Mr Bourke assessed the total capital improved value of the airport at $700,000, being the total of these three figures.

In evidence he said as to the hypothetical vendor, who has spent $16 million developing the airport, and knows that the MHSC group derives benefits from it:

He would know that there's no demand for the airport, he would know that there's no one pushing the price up, and he should realise or he would if he knew what the market was, that he is going to be lucky to get the $400,000 for this property from one of these alternate buyers. In other words, he shouldn't expect any more than market value.

In cross-examination he did not accept that a vendor in that situation would be anxious rather than willing.

He considered that any sale of an airport is comparable to some degree. As to that he said:

Airports, they have a planning permit to operate an airport, they have a licence to operate the airport, they have landing strips of varying length and quality, and they have terminal buildings, and they have associated improvements that go to make up an airport facility. In that area, there's in my opinion sufficient reason to consider them comparable. There are other reasons of course to make allowances because the airports are not the same as Mount Hotham, they are not located in an alpine resort area or at a level of 1300 metres, and they operate for 100 per cent of the year rather than 25 per cent of the year, so in that area Mount Hotham is unique, but in all other regards I think any comparable sale, it's hard enough to get comparable sales without disregarding sales of the same facility.

As to the relationship between the construction cost of the airport and his assessed value, he said that in his experience the added value of expensive improvements to construct specialised buildings could often be much less than their construction cost. A valuer was concerned with added value rather than construction cost, and added value was derived from comparable sales. He had read Exhibit K (see [36] above), but did not take it into account in making his valuation.

Mr Ross expressly said that in his opinion the airport should be valued on a stand alone basis, and not be grouped with other properties of the MHSC group (see Sculcoates Union v Dock Company at Kingston-Upon-Hull [1895] AC 136). This issue was not considered by any of the other valuers, but there was no attempt by any of them to value the airport on a grouped basis and that possibility can be disregarded here.

In cross examination, Mr Ross agreed that his objective was to fix the point at which the owner of the airport would become a willing but not anxious vendor. Like Mr Bourke, he valued the airport by reference to comparable sales, but his view was that comparable sales "necessarily means the sales of airports". For the purpose of his valuation he made the assumptions that the airport was to be valued as an operating airport and that its highest and best use was as an operating airport hypothetically trading at break-even or a small profit. I note that Mr Ross has considerable experience in the valuation of airports.

He considered that the contractor's method was only appropriate where there was insufficient evidence to value the property by reference to market activity, which was not the case here: airports are often traded, and the Mount Hotham airport could be utilised for its highest and best use. The contractor's method was usually reserved for infrastructure assets such as pipelines and railways, which are often not capable of valuation on a stand alone basis; that was not the case here. The profits method he considered to be appropriate where rental evidence, but not sales evidence, was available; but while airports were often sold, they were seldom, if ever, let. In this case there was no rental evidence, and the airport was not profitable; that being so, the profits method was not appropriate. He had seen Exhibit K, but did not consider it relevant to a rating valuation.

Mr Ross said that he investigated sales and market activity concerning a large number of airports in Australia, but concentrated on six, namely King Island, Flinders Island, Wynyard, Mangalore, Leongatha and Porepunkah, which he considered particularly relevant and having a "high degree of comparability" due to their relative isolation or proximity and their RPT status, as to which see [19] above. He concluded that airports are principally purchased on the basis of either their capacity to generate net profit or their underlying land value, although some were purchased by local councils in the interests of their communities when the Commonwealth was proposing to close them down.

After examining the sales evidence in relation to those airports, he formed the view that direct comparison with Mangalore airport, with adjustments, would provide the best guide to value. Mangalore airport was sold for $2.2 million in 1998, when it was operating at a profit, and it had sources of income, such as rental of sheds, which were not available to Mount Hotham airport. On that basis he began with the view that Mount Hotham airport had a value of $1.1 million, that is, half the Mangalore sale price, "disregarding the differences in location, the loss-making circumstances of the Mount Hotham Airport and the fact that Mangalore Airport was reporting a profit at the date of sale", and then deducted a total of 43% for "down-grading factors" made up as follows:

Factors affecting revenue: isolation 20%, elevation 5%;

Factors affecting expenses: climate 5%, maintenance of runway 5%, power costs or default payment 5%;

Factors affecting future development: topographical, environmental and cultural restraints 3%.

This calculation gave him a capital improved value for the airport of $625,000.

Mr Brown has been involved in valuations of Moorabbin and Essendon airports, and he had considerable experience in the past in valuing property in the alpine areas of Victoria. He did not consider that the sales of airports on which Mr Ross relied were comparable in the sense of being able to be used to compare with the Mount Hotham airport. He had information as to the operations of the ratepayer which had not been available to the other valuers when they prepared their valuations, and given the information that he had, he did not consider the contractor's method to be appropriate for the valuation of the airport. Based on the accounts of the MHSC group he found the total construction cost to be $15.8 million, not including such matters as rates and taxes and interest, and he adopted a total cost of $16 million.

The approach which he adopted, according to the profits method (see [108] below), was to establish a rental value which the airport could command, and then calculate the net present value of that rental value and capitalise it into a capital improved value. He considered that it could be argued that the airport would continue to operate at a loss. However, the effect of the construction of the airport as an infrastructure asset would be to increase the capital value of assets at Mount Hotham and Dinner Plain because of the role of the airport in increasing the number of skiers able to use the resort and accommodation, a concept calculated, as in Exhibit K, on the basis of "incremental skier days". In that context it was relevant that people who used the airport for transport to the mountain would be likely to have a high propensity to spend, and accordingly the businesses on the mountain would be anxious to continue to receive their custom. The contribution made by three of the companies in the group to the construction costs of the airport (see [25] above) recognised the benefit of the airport to those companies.

Mr Brown referred to the projections of incremental skier days forming part of Exhibit K, which assumed that there would be 15% annual growth in passenger numbers through the airport until 2005, when numbers would stabilise. On that basis he prepared a table extrapolating those projections over 20 years, using the same assumptions as Ms Smith, and calculating the resultant incremental earnings for businesses on the mountain deriving from the operation of the airport. That calculation took into account projected operating losses and capital expenditure, including an annual cost of $100,000 for resurfacing the runway (as to which see [17] above). He expressed the view that those earnings:

form the basis for the ability of these businesses in a co-operative manner to pay rental for the airport and thereby enable the establishment of the value of the airport in respect of its ability to generate additional earnings to the various businesses on the mountain.

He then set out a range of rentals calculated at 50%, 60% and 70% of those expected incremental cash flows over the next twenty years, being rentals which he considered that businesses benefiting from the incremental skier days generated by the airport might be willing to pay to keep the airport in operation rather than see it close. Exhibit K showed that the greater part of the benefit was derived by Mount Hotham Skiing Company Pty Ltd, the company which operated all of the ski lifts at the resort (see [22] above).

Capitalising those different rentals at different discount rates led to the conclusion that the capital improved value of the airport was in the order of $7,500,000 to $9,300,000. He was aware from Exhibit K that the ratepayer had valued the airport at $10,100,000 for accounting purposes with a view to increasing this value to $10,800,000 in the 2000 accounts. He was also aware that the decision to proceed with the airport was a fully informed decision (see [24] above). Basing his valuation on these considerations, he adopted $9 million as the capital improved value of the airport for rating purposes, noting that that amount was some 56% of the cost of development of the airport, which was a significant discount. In that context he noted that "the fact that someone has just expended that amount of money on an asset of this type is obviously a factor that bears quite heavily on one's mind." Although the most logical purchaser of the airport was the current owner, this did not require a valuer to discount the value of the airport. He was asked in cross-examination whether, in adopting that view, he was importing a concept of special value to the owner, which was relevant in a valuation on an acquisition, but not in a valuation for rating purposes. In reply, he said that the principle would be the same if the purchaser was a different organisation which owned the same assets. He agreed that the MHSC group was both vendor and purchaser in the hypothetical situation, but said that that only caused confusion, and he preferred to assume that they were separate entities.

Mr Brown was asked whether, in making his assessment, he had proceeded on the basis of the Spencer definition, and replied:

I believe I have. I believe that in undertaking the assessment that I have that the information particularly in relation to incremental skier days would be a factor that would be known by both parties. So the owner of the airport would be aware that the throughput from the airport would be enhancing the revenues being generated by operators on the mountain. Based on that circumstance, it would be then necessary for the parties to come to agreement at a point in relation to a rental which is what I have attempted to do, for that airport, having regard to that information.

In cross-examination Mr Brown agreed that money brought in to the resort by the incremental skiers resulting from the operation of the airport would benefit other businesses as well as those operated by the MHSC group. He agreed that the only way in which the property could generate an income would be by the operation of the airport. It was put to him that by fixing his valuation at $9 million he was effectively assuming that the owners of businesses would pay in rent 70% of the incremental income which they derived from the operation of the airport, and he replied that that did not seem unreasonable to him.

It is to be noted that both Mr Male and Mr Brown, having made their valuations of the airport by two very different methods, found comfort in the assessment of value appearing from Exhibit K (see [36] and [56] above). Mr Neville was apparently called to explain the purpose of the preparation of that document. Ms Smith, who prepared the document, was not called, nor was any other officer of the ratepayer or the MHSC group.

Mr Neville's firm has been since 2000 the auditor of the MHSC group, and he is the relevant audit partner. He deposed that Exhibit K had been prepared because the airport was carried at cost in the consolidated financial statements of the MHSC group, and it was necessary to determine the recoverable amount of that asset to see whether that amount was less than the book value of $8,915,245. The "recoverable amount" in respect of an asset is defined in Accounting Standard AASB 1010 as "the net amount that is expected to be recovered through the cash inflows and outflows arising from its continued use and subsequent disposal". In the case of a non-current asset, an auditor is required to ensure that the recoverable amount is greater than the book value. The airport was considered to have little or no market value due to its ongoing operating losses and required capital expenditure, so there was no determination of a value on disposal. He did not accept the view, with which Mr Ross had agreed in evidence, that the expression "recoverable amount" suggests a concept of recoverability on sale or disposition.

He said that the recoverable amount was determined, as appears in Exhibit K, by the calculation of expected additional income generated by the incremental skier days arising from the airport, less the ongoing operating losses and capital expenditure requirements of the airport, and the additional marketing expenditure to advertise both the airport and Mount Hotham in the initial years of its operation. He explained the concept of the yield from incremental skier days. He said that while the operating losses and capital expenditure would be incurred by the ratepayer, the additional income would be received by other members of the MHSC group.

He said that Exhibit K was not an expression of the market value of the airport. The accounting standard did not require the future cash inflows and outflows used in the measurement of the recoverable amount to be discounted, but in the calculation the net present value of future cash flows was used as this approach was believed to be appropriate in ascertaining the recoverable amount.

A document marked Exhibit S, which had been prepared under Mr Neville's supervision, was in evidence, summarising the audit work done in relation to the assessment in Exhibit K of the recoverable amount. That document concluded:

The calculations for the net present value of the airport project have been seen to be arithmetically accurate. In addition the figures and assumptions used in those calculations have been seen to be correct and reasonable based on supporting documentation.

Given the positive net present value calculated the carrying value in the accounts appears to be appropriate.

Thus the "recoverable amount" as determined in Exhibit K was found by the auditors to be greater than the book value at which the airport was shown in the accounts of the ratepayer, and accordingly the book value appeared to be appropriate. And this finding was made on the basis of what the auditors found to be accurate calculations and correct and reasonable figures and assumptions.

Exhibits AA and AB were updated versions of Exhibits K and S respectively, Exhibit AA having been prepared by Ms Smith, and Exhibit AB under the supervision of Mr Neville. Exhibit AA contains the following assessments of the net present value of the airport as at 30 June 2001, taking into account the dispute as to the amount of the Shire rates:

The conclusion of Exhibit AB is identical to the conclusion of Exhibit S. Mr Neville said in evidence that in respect of both Exhibit K and Exhibit AA he had considered a 12% discount rate to be appropriate. He said that in each document the assessment of value had been made on the basis of discounted cash flow, and bore no relation to costs or to market value.

Ms Murone deposed that she had been instructed to review Mr Brown's valuation and his use of, and reliance upon, the financial accounting information contained in his valuation report, not to prepare an independent valuation. Her evidence began with detailed criticism of the assumptions on which Mr Brown based his estimates of future cash flows, the appropriateness of his assumed rental as a percentage of cash flow, the absence of sensitivity calculations, and the discount rates which he adopted. Her own calculations, on the basis of some of the assumptions and approaches which she adopted, apparently led her to a valuation of the airport at between nil and $2.4 million. However, it was clear that she was not familiar with the concept of market value.

Mr Delany relied on the decision of the High Court in Jones v Dunkel [5] for his submission that the Court was entitled to infer that it was likely that valuations of the airport had been obtained by the MHSC group which were not before the Court; that there were material witnesses who had not been called; and that any such valuations, and the evidence of those witnesses, would not have assisted the ratepayer's case. In the event I have not found it necessary to consider that submission, and I make no finding thereon.

A large number of authorities were cited during the hearing. The distinction between on the one hand the authorities on valuation of land for rating or taxation purposes, as in the present case; and on the other hand the authorities on valuation for the assessment of compensation for acquisition of land, was summarised by Dixon J in Commissioner of Succession Duties (South Australia) v. Executor Trustee and Agency Co. of South Australia [6] in the following words:

... there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate.

A further aspect of that distinction is that while in acquisition cases the concept of special value to the owner is recognised as relevant to the assessment of value, this is not so in rating cases. In Montreal v Sun Life Assurance Co of Canada [7], a rating case, the Privy Council was concerned to find "the actual value" of an office building in terms of section 375 of the Charter of the City of Montreal. Lord Porter, described in the report as delivering the judgment of the Privy Council, said [8]:

There must always be a number of exceptional cases to which the ordinary rules cannot be applied. . . .

A theatre, a church, even a railway or land used as a water undertaking may give rise to peculiar difficulties and must be dealt with as best they can, . . .

All matters must be taken into account . . . [Commenting on a Minnesota case] The methods of arriving at a true conclusion are manifold and where the cost of construction is reduced by 50% in a case in which the assessed property is still in use solely for the purpose for which it was constructed, a fair result may well have been arrived at.

In these observations their Lordships are in no way acceding to a suggestion that the subjective value to the owner of the premises is to be regarded. Cases such as Great Central Railway Co v Banbury Union [1909] AC 78 show that such a consideration is inadmissible. It is the objective not the subjective value which has to be determined though, as has been said, the owner is to be regarded as one of a possible number of buyers, and subject to careful criticism and a sufficient qualification of price, the cost which he chose to incur is a relevant factor.

Thus in considering the relevance to the present appeal of cases relating to compensation for acquisition, the Court should adopt a conservative approach to the resolution of doubts, and should exclude the concept of special value to the owner. Subject to those two matters, the difference of purpose, as Dixon J said in the passage cited at [67] above, "cannot change the test of value". The test of value for present purposes depends on the definition of capital improved value in section 2 of the Act and on the method described by Isaacs J in Spencer's Case (see [6] and [7] above).

It is convenient to consider first the comparable sales method, which was adopted by both the valuers called for the ratepayer, Mr Ross and Mr Bourke. In Jowett v Federal Commissioner of Taxation [9], a rating case, Rich J said [10]:

A sale of the subject land, or of comparable land, affords the best means of arriving at the fee simple value of any land . . .

There are many similar statements in the cases, as for instance where Gobbo J said in Waalt Homes Pty Ltd v Road Construction Authority [11]:

I am satisfied that the acquiring authority's argument was correct, namely that as a rule the estimation of value should be arrived at primarily by recourse to sales. This does not mean that other methods may not be appropriate, but I accept that the first approach should be by resort to the sales.

However, as Stephen J pointed out in River Bank Pty Ltd v The Commonwealth of Australia [12], after referring to "the conventional valuation technique involving comparable sales":

even the first step of selecting sales of properties thought to be sufficiently comparable is attended with difficulty. But all this is the stuff of valuation, the reason why it is an art, not a science, and once recognized, it nevertheless does not detract from the character of this method of valuation as a proper one for use in determining, for the purposes of section 23(1)(a) of the [Lands Acquisition Act 1955-1973] "the value of the land at the date of acquisition".

Wells J said in Brewarrana Pty Ltd v Commissioner of Highways (No 1) [13]:

It is general valuation practice for sales characterised as comparable sales to be used as bases for the valuation of lands said to be similar. But allowances must always be made before such sales can be so used. No two parcels of land are identical in all respects: the sale price of any given piece of land is not necessarily the price at which it ought to have been sold, or the same thing as its true value. Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances (using that word in its broadest sense) appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer . .

Adjustments must, of course, be made every time reasoning of that kind is undertaken. For example, in relation to the land itself and the circumstances appertaining to it, it may be necessary to consider such matters as topography, location, size, shape, slope, view, land use (actual and potential), scope for, and difficulties of, development, services and amenities; and in relation to the transaction of sale, the valuer must weigh such things as the character, business and relationships of the parties, their motives, the terms and conditions in their contract of sale, and any other special considerations that induced or may have induced them to conclude the contract at the selling price agreed, as well as the dates when the contract of sale and the transfer were concluded or effected.

. . . there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from those that are not. It is, in my view, all a matter of degree: some adjustment is always necessary; too much adjustment will render it unsafe to use a sale, subject to such a degree of adjustment, for the purpose of the reasoning process in the comparable sales method. Just where the line is to be drawn is, it seems to me, the very sort of question that is fit for the expert valuer to determine; the assessment of the risks of adjustment is peculiarly within his sphere of skill.

The issue at this point is thus whether the sales relied upon by Mr Ross and Mr Bourke are sufficiently comparable, as required by section 5A(2) of the Act, to serve as a basis for the valuation of the airport. Mr Male and Mr Brown found that not to be the case (see [32] and [53] above). Section 5A(2) , cited in [9] above, requires that:

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.

Mr Bourke's valuation is described at [41] to [47] above. He commenced with a figure determined by reference to sales of vacant land in the area and then added amounts related to the airport. The basis of assessment of those amounts was not clear. Although he said that he had had regard to certain airport sales, he did not explain in what way those sales had been related to his valuation.

He described the highest and best use of the land as being a lifestyle rural property with an airstrip. However, in considering the sales of vacant land he did not refer to the sale to the ratepayer of Lots 1 and 6, as vacant land with a summer-use airstrip, which is described in [12] and [14] above. The sales of vacant rural lifestyle allotments of 35 to 80 hectares on which he relied cannot be regarded as comparable sales for the purpose of the valuation of an operating commercial airport.

Mr Ross's valuation is described at [48] to [52] above. Unlike Mr Bourke he relied directly on what he considered to be comparable sales of airports. The passage cited in [46] above from the evidence of Mr Bourke sums up the considerations relevant to the comparability of airport sales. I accept Mr Bourke's summary of the similarities between all airports. However, to say that all houses have walls, a roof, doors, windows, living and sleeping areas and cooking and washing facilities does not make all sales of houses comparable for valuation purposes. I note with some sympathy Mr Bourke's point that "it's hard enough to get comparable sales without disregarding sales of the same facility". Mr Gobbo submitted, somewhat tentatively, that there might be a different standard of comparability applied to airports than to residential or other commercial property. That proposition was put to Mr Brown in cross-examination and rejected by him and I would likewise reject it.

The adjustments which Mr Ross found necessary to make to the Mangalore sale are set out at [52] above, and in my view the extent of those adjustments is sufficient to indicate that that sale cannot be regarded as comparable for the purposes of the valuation of the Mount Hotham airport. However, that finding is reinforced by a consideration of the substantial differences between the two, which are apparent from Mr Ross's evidence as well as that of Mr Male, who as has been said, also inspected Mangalore. Mangalore is a large airport in north-east Victoria, with two sealed runways and a total site area of 182 hectares, considerably larger than Mount Hotham airport. An adjoining parcel of 40 hectares was included in the sale. Mangalore derives considerable income from fixed wing and helicopter flying schools (not available at Mount Hotham because of the altitude of the airport (see [19] above)) and from general aviation and non-aviation sources such as fuel sales, leasing of hangar space and residences, and conference facilities, which are not present at Mount Hotham. It has been used as the emergency airport for Melbourne, and thus has facilities to cater for larger aircraft than the Mount Hotham airport, but it is not, like Mount Hotham, an RPT airport, nor is it a destination airport. It is not in an area which would obtain tourism benefits from its existence. The improvements are old and of lesser quality than those at Mount Hotham. Mr Male noted that those improvements included five houses, thirty huts, ten hangars, workshops and shedding, a swimming pool, tennis courts, ablutions block and caravan park, and that the terminal building has been converted into a 300 seat reception centre. The far fewer improvements at Mount Hotham airport are described in [17] above. Mangalore has potential for subdivision and for industrial development, although a proposal for subdivision after the sale did not proceed. It also has potential for further development as a transport interchange between road, rail and air, being near the junction of two railway lines and (a matter of which I am entitled to take judicial notice) close to the Hume Highway, which connects Melbourne and Sydney, and to the Goulburn Highway. None of these circumstances apply to Mount Hotham. Mangalore is on a level site, with all services (save that it has a septic sewerage system) and is close to the major urban area of Seymour, in contrast to the alpine site, absence of externally provided services, and remoteness of Mount Hotham. Mangalore was sold for $2.2 million in August 1998 and Mr Male noted that the sale price included $500,000 worth of chattels such as graders and tractors. A major speculative factor influencing the purchase was the strong possibility at that time that Essendon airport would close down, thereby increasing revenue streams for hangars, landing fees and transfer of airside businesses to Mangalore. This is now seen as unlikely to eventuate. Mangalore breaks even financially, but the operator does not make wages.

Despite the large number of airports which Mr Ross investigated, the Mangalore sale was the only sale which he appears to have regarded as sufficiently comparable to rely upon in reaching his assessed figure of $625,000 for the capital improved value of the Mount Hotham airport. He did not seek to analyse and compare any of the other sales of airports, even the five others which he described as having "a high degree of comparability" (see [51] above). Accordingly, it is not necessary for me to consider the comparability of those other sales of airports and I do not do so.

It is not possible to ignore the relationship between cost and value, although that relationship may vary in importance from case to case. In Collins v Livingstone Shire Council [14] (an acquisition case, but the distinction is not here significant) Barwick CJ said:

Cost and value are not necessarily coterminous, however much, in some circumstances, cost may be persuasive of value. Nothing decided or said in the case of Geita Sebea v Territory of Papua [15] would support the proposition that, as a matter of law, the cost of construction was necessarily and inevitably the value of the structure.

The cost of construction is a fact which has achieved prominence in this case due, no doubt, to the decision in Geita Sebea v Territory of Papua. However, in that case a complete entity, a fully constructed aerodrome, was in question and in the circumstances there existing the cost of erecting the improvements of which that aerodrome consisted less an allowance for depreciation, was clearly of prime importance. What is here involved is an incomplete portion of a structure, its incorporation as an integral part of a completed reservoir may perhaps pose substantial engineering problems affecting its value to the respondent as a possible purchaser. The tribunal of fact will no doubt assess the weight to be given to the cost of construction in the light of this.

See also the consideration of the question by Else-Mitchell J in Seatainer Terminals Ltd v Valuer-General [17], where His Honour concluded, in the context of a valuation for rating purposes of a container terminal, "I do not think that, in a case like the present, an approach to value based upon cost must be excluded".

I also note Mr Brown's comment, as an experienced valuer, discussing the Mount Hotham airport, that "the fact that someone has just expended that amount of money on an asset of this type is obviously a factor that bears quite heavily on one's mind." To say that there is a relationship between cost and value is not to fall into the error of saying, in a rating valuation case, that the cost which has been expended on the construction of the asset creates a special value in the owner.

It is fundamental to the Spencer definition of the method of determining market value that neither of the hypothetical parties to the hypothetical sale should be so anxious to trade as to overlook any ordinary business consideration. The ratepayer acquired the land in 1996 and had completed the improvements by six months after the relevant date, the total cost of acquisition and construction being some $16 million. As a matter of language, a hypothetical owner of property who had so recently spent $16 million on the property, and who was prepared to dispose of it for $700,000 or $625,000, could hardly be described as other than extremely anxious to sell. It is not necessary to enumerate the ordinary business considerations which must be overlooked by such a hypothetical vendor. The hypotheses put forward by Mr Ross and Mr Bourke to support their valuation deal with artificial constructs and not, as the Spencer definition requires, with normal vendors and purchasers in a business context. As the Privy Council said in the passage from Montreal v Sun Life cited in [68] above:

the owner is to be regarded as one of a possible number of buyers, and subject to careful criticism and a sufficient qualification of price, the cost which he chose to incur is a relevant factor

It was hypothesised from time to time throughout the hearing, that there is only one possible vendor and only one possible purchaser of the airport, both being the MHSC group or a member thereof, (thus in effect the present owner, that is, the ratepayer). As the Privy Council said in Montreal v Sun Life [18]:

. . . the appointed Tribunal must take into account not only the amount which a buyer would give but also the sum at which the owner would sell. What that sum would be is, as the authorities have pointed out, best ascertained either by regarding him as one of the possible purchasers or by estimating what he would be willing to expend on a building to replace that which is being valued.

In the context of the hypotheses put forward by Mr Ross and Mr Bourke, I would note the passage from Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [19] (an acquisition case) cited by Williams J in Geita Sebea [20]:

. . . if the potentiality is of value to the vendor if there happen to be two or more possible purchasers of it, it is difficult to see why he should be willing to part with it for nothing merely because there is only one purchaser. To compel him to do so is to treat him as a vendor parting with his land under compulsion and not as a willing vendor. The fact is that the only possible purchaser of a potentiality is usually quite willing to pay for it.

Another aspect of the relationship between cost and value must be considered in the context of the purchase of the land on which the airport is situated. To repeat, with added emphasis, what was said by Rich J in Jowett [21]:

A sale of the subject land, or of comparable land, affords the best means of arriving at the fee simple value of any land . . .

The airport land consists of Lot 1 and Crown Allotment 44F, and the relationship between the airport land and the price paid for Lots 1 and 6 is discussed above at [12] to [14]. The price paid in 1996 for Lots 1 and 6, as vacant land, of which the only improvement was a summer-use airstrip, was $800,000, or, if Mr Brown's evidence is preferred, an effective amount of $670,000 for vacant land occupied by a summer-use airstrip and a quarry. There is no evidence before the Court as to the value to be attributed to the quarry, which was exhausted in the construction of the airport. Crown Allotment 44F was obtained in exchange for some other land and $24,000. As I have said (see [14] above) there is no evidence to suggest that the sale of Lots 1 and 6 to the ratepayer was anything other than a transaction between two willing but not anxious parties, in terms of the Spencer definition. It is to be remembered that there is evidence from sales that the value of property in the district has increased since 1995 (see [27] above). There was also evidence before the Court of growth in the tourism sector of the economy, which is the sector serviced by the airport.

The precise amount of the purchase price to be regarded as properly attributable to the whole of the effectively vacant airport land is, as appears from [14] above, uncertain. However, whatever that amount may be, it is relatively close to the amounts assessed by Mr Bourke and Mr Ross respectively for the capital improved value of the airport after the expenditure on construction of more than $15 million. Considering the sale to the ratepayer of the airport land as the best possible comparable sale of the land as it was in 1996, allowing for the increase since then in the value of property in the district, and bearing in mind that there must be some relationship, however vestigial, between cost and value (see [80] above), it is not possible to regard those assessments as appropriate for the airport land in its improved state.

Exhibit K, (see [36] above), which was prepared on 30 October 2000, sets out the net present value of the predicted future cash flows of the airport as at 30 June 2000, calculated by reference to two different discount rates, for the purpose of determining the "recoverable amount" appropriate to the airport. Despite the evidence of Mr Neville which appears at [60] above, I would find it difficult to believe that the concept of "recoverable amount" as defined in Accounting Standard AASB 1010, is not related to recoverability on sale or disposal, given the words used in the title of the concept and the specific inclusion in the definition of "the net amount that is expected to be recovered through . . . subsequent disposal". Mr Neville said that the standard did not require a discounted cash flow calculation, but that the recoverable amount was calculated on that basis because "it was considered to give a better projection of what the recoverable amount was".

There is good authority for the use of discounted cash flow as a method of valuation in certain circumstances and with an awareness of its limitations. In City of Adelaide v City of Port Adelaide Enfield [22] the Full Court of the Supreme Court of South Australia allowed an appeal from an assessment for rating purposes of land used for the disposal of waste. The judge at first instance had rejected a valuation based on discounted cash flow, but the Full Court was prepared to have regard to that valuation in determining the value of the land. Debelle J, with whom Olsson and Williams JJ agreed, examined at length the circumstances which rendered it appropriate in that case to employ that method, which he described [23] as "a valuation of the price which would be paid for the land and the business with a licence to carry on that business." He went on to say, in a passage which has relevance to the Mount Hotham airport [24]:

. . . land used for waste disposal usually has little intrinsic value, particularly if already used for that purpose. As the value of the land lies in the ability to earn income from the land, the price of the land is essentially determined not by any intrinsic value of the land but by the use to which the land can be put and the income derived by the owner of the land from that use, be that income royalties or, in the case of the owner-operator, profit.

His Honour continued [25], after setting out some of the circumstances which made the method of particular utility in the case before him:

It is, however, generally recognised that care should be taken when using the discounted cash flow method and the resulting valuation should be checked against other methods of land valuation ...

In Re Cyprus Anvil Mining Corporation and Dickson [26] the British Columbia Court of Appeal was in effect required to fix a "fair value" for a parcel of mining shares owned by dissenting shareholders, which were compulsorily acquired on a takeover. Lambert JA, with whom Hinkson JA concurred, said [27]:

. . . the discounted net cash flow method must always be viewed with care where there is no historical cash flow to use as the basis of the calculation, and the cash flow itself must be derived from a series of assumptions about gross receipts in a projected market for the product and hypothetical costs of production. A minor variation in assumptions about future metal prices, tonnage, metallurgy, mining plans or discount rates becomes magnified through the calculation into a gross distortion of the fair value.

Bearing all of those considerations in mind, and using the discounted cash flow calculations in Exhibits K and AA, which are set out in [36] and [64] above respectively, as a stick rather than a crutch, they support the capital improved values of the Mount Hotham airport as assessed by Mr Male and Mr Brown rather than the very different values assessed by Mr Bourke and Mr Ross. The differences between the two sets of values are so great that it would be difficult to make any reasonable adjustments of the discount rates or of the incremental skier days, or of the yield from those incremental skier days, on which the calculations in Exhibits K and AA are based, which would bring those calculations into any close relationship with the assessments of the ratepayer's valuers. Exhibit K is, of course, the more relevant to the present appeal, as it assesses the value as at 30 June 2000 (see [8] above).

Mr Gobbo submitted that Exhibit K could not be taken into account in this appeal, in that it was not in existence at the relevant date. However, I accept the submission in reply of Mr Delany that section 5A(1) of the Act, set out in [9] above, which entitles the Court to take into account "every matter or thing which such court . . . considers relevant to such determination", extends to matters or things not in existence at that time, at least on the basis that those matters or things confirm information that was already available at the relevant date. In this case, Exhibit K is based on assumptions as to projected incremental skier days which are broadly consistent with those in Appendix N-1 to the paper prepared in September 1998 for the Board of the MHSC group, and which the hypothetical vendor and purchaser must be assumed to have had available to them at the relevant date.

In summary then, I have for four reasons excluded from further consideration the valuations of Mr Ross and Mr Bourke. In the first place, I do not find the sales evidence on which those valuers relied to be relevantly comparable. In the second place, I cannot find that a vendor who has recently spent $16 million on the acquisition and construction of an asset would dispose of that asset for $700,000 or $625,000 without being "so anxious to do so that [it] would overlook any ordinary business consideration" with the result that such a sale would not come within the Spencer definition. In the third place, the airport land, as vacant land improved only by a summer-use airstrip and perhaps a quarry, was bought in a Spencer transaction for approximately $800,000 in 1996, and values for vacant land in the district have since increased. In the fourth place, I find, like Mr Male and Mr Brown (see [36] and [56] above) that it is appropriate to take into account the valuations by the ratepayer itself which are contained in Exhibits K and AA, and which are far closer to the values attributed to the property by the Shire valuers than to those assessed by Mr Ross and Mr Bourke.

Accordingly, having rejected the two valuations sought to be based on the comparable sales method, which is in principle the preferred method (see [70] and following above) of ascertaining the capital improved value of the airport at the relevant date, I now turn to consider, for the resolution of this difficult problem, the valuations of Mr Male and Mr Brown, both of whom found the comparable sales method to be inappropriate and accordingly approached the problem on the basis of other methods. Mr Delany indicated that the primary submission for the Shire was that Mr Male's valuation should be confirmed, but that in any event the valuation should not be reduced below the amount calculated by Mr Brown.

Mr Male had extensive local knowledge of the Mount Hotham area, acquired over a long period, both as a user of the resort and as a valuer based in north-east Victoria. None of the other valuers had comparable experience. He had inspected and considered Mangalore airport, which had been put to him as being comparable with the Mount Hotham airport, had considered, without inspecting, most of the other airports initially considered comparable by Mr Ross, and had rejected all of them. His valuation, which is described in [31] and following above, is broadly supported by Exhibits K and AA. The cost of funds to the MHSC group appears from the consolidated accounts for the years ending 30 June 2000 and 2001 to be 15%, and the construction cost (see [53] above) can be taken to be $15.8 million. Mr Male's figure (arrived at without access to the accounts, as to which see [33] above) of $16.3 million for the cost of construction can be taken therefore as including a notional component for cost of funds.

Mr Male needed to consider only one hypothetical purchaser, namely the present owner, that is the ratepayer, which would buy the airport rather than see it closed down. However, I am prepared, as was Mr Brown, to accept the possibility of the proprietors of those businesses on the mountain (and perhaps also at Falls Creek), which are not owned by the MHSC group, combining to purchase the airport rather than to see it close. Similarly, the owners of land in the district, at Dinner Plain and elsewhere, the value of whose land is increased by the existence of an airport close by, might combine in the same way. I am also prepared to accept the possibility, which was ventilated at the hearing, of the controlling operator of a competing Australian ski resort purchasing the airport for its own reasons.

As to the hypothetical vendor, Mr Male's assumption was that that vendor could be, but was not necessarily, the ratepayer, but that like the ratepayer, it had paid to build the airport. He agreed that it would be aware that related companies were obtaining substantial benefits from the operation of the airport. The meeting point between hypothetical vendor and hypothetical purchaser would be where the purchaser had offered what it felt to be an amount sufficient to avoid having to construct the facility itself.

As the Privy Council said in Montreal v Sun Life [28] in a passage part of which has already been cited [29] :

Their Lordships would agree that where no sale is contemplated and indeed any sale would be difficult what has been called the higgling of the market is not an element of much if any consequence, but nevertheless the ultimate aim is to find the exchange value of the property, i.e., the price at which the property is saleable. In reaching their result the appointed Tribunal must take into account not only the amount which a buyer would give but also the sum at which the owner would sell. What that sum would be is, as the authorities have pointed out, best ascertained either by regarding him as one of the possible purchasers or by estimating what he would be willing to expend on a building to replace that which is being valued. But the owner must be regarded like any other purchaser and the price he would give calculated not upon any subjective value to him but upon ordinary principles, i.e., what he would be prepared to pay, if he was entering the market, for a building to meet his requirements, or would be willing to expend in erecting a building in place of that which is being assessed.

I find that Mr Male's valuation, for the reasons set out above, complies with the requirements of the Spencer definition of the method of determining market value, and thus to the definition of "capital improved value" in section 2 of the Act.

Mr Male agreed that the amount which he allowed for depreciation and utilisation was arrived at by the exercise of professional judgment, rather than by some mathematical calculation of the division of costs into certain categories, and he was criticised for this. However, in that context, I would note the comments of Gobbo J in Mario Piraino Pty Ltd v Roads Corporation [30] where he said:

. . . detailed adjustments of unit rates derived from comparable sales wee used by the other valuers. Often there were as many as six or seven different percentage adjustments for such matters as time, size, shape, location, freeway exposure, planning permission and services. All of those adjustments were matters of judgment. Very few of them were capable of meaningful support by analysis sales evidence. The whole structure of percentage adjustments had an illusory air of certainty and reliability about it . . .

The detailed percentage adjustment analysis method . . . was not the method adopted by the experienced valuers of yesteryear . . . who . . . gave a reasoned explanation of the factors of similarity and dissimilarity and why in the light of those factors they settled upon their valuation figures.

It is ironic that [a witness] should be criticised for adopting a feasibility study on the grounds that this had too many variables and percentage assumptions that were mere matters of judgment that were open to error when in many respects this was very much true of the detailed percentage adjustment analysis method. I would reject the proposition that the use of this method is an essential ingredient to a competent valuation. It may on occasions be helpful but its value can be over-rated and it is certainly not essential.

His Honour was there speaking of the analysis of comparable sales, but I find, with respect, the view which he there expressed to be equally relevant to other methods of valuation involving adjustments to known amounts. It is not, in my opinion, a necessarily valid criticism of the exercise of professional judgment by a valuer to say that the matters allowed for are not separately or specifically quantified. This is another aspect of the principle, stated by Stephen J in River Bank [31], that valuation is an art and not a science.

Mr Male, as has been said, employed the contractor's method of valuation. That method was adopted by Gobbo J as a method of valuation for rating purposes in Esso Exploration & Production Australia Inc v Shire of Morwell [32] and was described by His Honour in the following terms [33]:

The gist of the contractor's method is that the capital value is fixed by reference to the replacement cost of the property, the argument being that the tenant would not pay more to rent a property than it would cost him to borrow capital to buy the land and construct an equivalent property.

Tadgell J in the Full Court in the Esso case [34] referred to:

. . . the deduced replacement cost of the property (referred to, during argument, for convenience, although not altogether accurately, as the contractor's method) . . .

His Honour's expressed view that in that case the profits method was preferable to the contractor's method turned on the fact that the property in question was the portion situated within the rating district of the Shire of Morwell of an undertaking (a pipeline) which extended over the municipal districts of more than one rating authority, a matter which is not relevant to the present appeal. The other two members of the Full Court did not consider the point.

The contractor's method was used by the High Court in Geita Sebea to determine the market value of an airport for acquisition purposes, in circumstances where the only legally permissible buyer was the Crown and thus there was no market. The distinction drawn in valuation law between rating and acquisition which is discussed at [67] to [69] above does not, in my view, affect the relevance of that decision to the present appeal. Starke J said [35]:

Some artificial method must be adopted, and the most satisfactory, to my mind, is to take the agricultural value of the land as fixed by the learned judge plus an addition measured by what it would cost to make or establish the improvements and structures existing upon and forming part of the land at the date of valuation but taking into account a proper deduction for obsolescence or depreciation.

Williams J, with whom Rich ACJ agreed, said [36]:

It is true that the Crown was free to acquire other suitable lands of the same dimensions and construct an aerodrome there, but to do so would require considerable outlay, so that the resumed lands had the potentiality that, having been improved to the extent already mentioned, the Crown would be willing to acquire them for their agricultural value plus the value of the expenditure already made rather than to have to purchase other lands at their agricultural value and then have the trouble and expense of improving them to the same extent. Assuming, therefore, that the appellants were willing vendors and the Crown was a willing purchaser the price would be determined having regard to the fact that the vendors would know that the Crown would pay this amount but no more, and the Crown would know that the vendors could reasonably expect this price. . . . Similar principles are applied where land used as a church or school is resumed, the compensation being fixed by ascertaining what it would cost to acquire an equally convenient site and erect equally convenient buildings there. . .

The contractor's method was also employed, this time in a rating valuation, by Else-Mitchell J in Seatainer (see [80] above). The property in question was an overseas container terminal, and distinctive factors were that there was no comparable sales evidence, the occupant, Seatainer Terminals Ltd, was a lessee from the Maritime Service Board but the valuation required was of the fee simple, and the zoning meant that the property could be used only for shipping berths.

Both Geita Sebea and Seatainer deal with properties where comparable sales were not available, as was the case with the present appeal. The absence of comparable sales is an indication of the uniqueness of the property in question, a characteristic of the Mount Hotham airport which was stressed by Mr Male throughout his evidence. All three properties, the airport in Geita Sebea, the container terminal in Seatainer and the Mount Hotham airport, could be properly described as infrastructure undertakings. The airport in Geita Sebea was operated by the Crown, but there is nothing in the Seatainer judgment to suggest that the operator of the container terminal was other than a commercial organisation, like the operator of the Mount Hotham airport and the owner of the pipeline in Esso. Thus in both Seatainer and Esso the contractor's method was applied to infrastructure undertakings which were privately, rather than publicly, operated.

Mr Gobbo relied on the comment of the Court of Appeal (Holroyd Pearce, Harman and Davies LJJ) in British Transport Commission v Hingley [37] that:

The contractor's basis has been consistently applied to cases where, for instance, a local authority has to provide sewage works that could not produce a revenue, or an educational institution whose object is not the collection of revenue. It is assumed that the authority which has to construct the works or the building would as a hypothetical tenant be prepared to pay as a rent a reasonable percentage on the cost of the works or building which it would otherwise have to construct.

He submitted that that method should not be used in the present case, because the airport was not a body that could not produce a revenue, or whose object was not the collection of revenue.

However, the Court of Appeal in Hingley does not state that the contractor's method is available only in the circumstances there described, and the Seatainer and Esso cases, as has been said, serve as examples of its application to a commercially operated infrastructure undertaking.

Mr Gobbo submitted that the cost of construction of the airport was increased by virtue of the inclusion of the various additional items referred to in [18] above, and that this increase had the effect of inflating Mr Male's valuation. However, as appears in that paragraph, all of the valuers (save Mr Bourke, who made no reference to construction costs) effectively included those items in their estimate of the costs. It is not in issue that by comparison with other airports, the Mount Hotham airport was expensive to construct; the additional items in question derived, directly or indirectly, from its location, and Mr Male agreed that construction costs in the alpine areas might be higher than elsewhere.

Mr Gobbo, referring to the fact that Mr Male's valuation had been carried out in the course of a revaluation of all properties in the municipality (see [1] above), sought to rely on a passage from the judgment of the High Court (Rich, Dixon and McTiernan JJ) in Deputy Federal Commissioner of Taxation v Gold Estates of Australia (1903) Ltd [38] which reads:

It is apparent that a valuation made in the ordinary course of routine administration is unlikely to have received the same consideration and care as had been bestowed by the witnesses called at the hearing upon the estimates to which they deposed.

Those estimates had been made after thorough inspections and a full examination of all the comparable sales that could be discovered. All the materials upon which they formed their opinions were laid before the Court and the reasoning upon which they proceeded was explained. We think that to substitute for this material an unexplained office assessment for a previous year and an estimated percentage reduction therefrom was to resort to a quite untrustworthy guide which was almost certain to prove fallacious.

It is apparent that their Honours' comment is not relevant to the valuation of Mr Male which was before the Court.

Mr Brown's valuation, and the profits method which he adopted, are described at [53] and following above. Gobbo J in Esso at first instance [39] described the profits method in the following terms:

The profits basis . . . in essence means that the profits of the undertaking are used to ascertain the annual rental value of those classes of property which are seldom, if ever, let. It is a method peculiarly suitable for the assessment of the value of public utility undertakings such as water, gas and electricity undertakings. It was designed to arrive at rental rather than capital value, though the rental could be converted into a capital sum. The method proceeds upon the basic proposition that as a matter of law profits must be regarded as affecting annual value just so far as those profits would, as a matter of fact, affect the rent which may reasonably be expected. The reference to profits is something of a misnomer since it is the trade that is to be valued, not the profits; the main enquiry is as to the receipts. The trade or receipts to be considered are those of the hypothetical tenant rather than those of the annual occupier.

However, I note the effective finding of Tadgell J in Esso [40] that the profits method was not limited to use in respect of public utility undertakings.

Mr Ross deposed that where comparable sales do not exist (as I have found to be the case here) the profits method has merit. In Geita Sebea [41] Williams J approved of its use as a check method in the following terms:

As a check to the amount of the valuation arrived at according to these principles [i.e. the contractor's method], it would be justifiable to assess the rental value of the resumed lands by estimating the amount which the Crown would be willing to pay to continue its occupation of the leased lands having regard to the extent to which they had been improved for the purpose of an aerodrome, and to occupy the additional lands rather than to have to go elsewhere, carry out similar improvements and remove the buildings thereto, and then to capitalise this rental value.

Ms Murone was called to review Mr Brown's valuation and did so (see paragraph 65 above). Without analysing her detailed criticisms, it can be seen that they serve to demonstrate the vulnerability of a method of valuation which is largely dependent on a number of assumptions as to different aspects of future events, particularly where, as in this appeal, almost no historical information is available. (See the extract from Re Cyprus Anvil Mining Corporation and Dickson in [88] above, which is as valid for the profits method as for the pure discounted cash flow method).

As Dixon CJ said in Turner v Minister of Public Instruction [42], "valuation cannot be made to depend entirely on a logical process or formula".

However, in contrast to the multiple uncertainties of the profits method, the contractor's method depends for its foundation on available historical information as to cost, which is coupled with the application of professional judgment to a limited number of factors affecting utilisation and depreciation. For that reason, and also bearing in mind Mr Male's local knowledge, I prefer, given all the distinctive circumstances of the present appeal, the valuation of Mr Male to that of Mr Brown. I accept nevertheless that the valuation of Mr Brown is, for reasons which will be apparent from the foregoing, preferable to those of Mr Bourke and Mr Ross. I note that, adopted as a check method for Mr Male's valuation, Mr Brown's assessment of the capital improved value of the airport at the relevant date is far closer to the valuation of Mr Male than to those of the ratepayer's witnesses.

Mr Gobbo suggested that the Court should embark upon the exercise, perhaps with the assistance of the parties, of reworking Mr Brown's calculations in the light of Ms Murone's criticisms. However, as Mr Delany pointed out, some of those criticisms, as Ms Murone conceded, were also criticisms of the assumptions contained in Exhibits K and AA, which had been approved by the auditors of the ratepayer (see [63] above), and it is clearly too late to rework those documents. The detailed spreadsheets which Ms Murone prepared were not examined in detail in her oral evidence. Moreover, I do not consider such reworking by the Court to be appropriate in a case such as this, where four separate valuations, differently based and leading to different results, have been put before it and thoroughly tested, and the hearing has concluded. I would note also the judgments of the Court of Appeal in 101 Collins Street Pty Ltd v City of Melbourne [43]. And finally, that submission only underlines the significance of what I have said in the preceding paragraph.

For the reasons given, the Shire valuation of the capital improved value of the airport will be confirmed. Counsel may wish to make submissions as to the details of the order and as to costs.

[3] Unreported, decided on 2 April 1996, at 73-80

[19] [1939] AC 302 at 316-317

[22] Unreported, decided on 15 June 2001

[30] Decided on 12 November 1990, unreported on this point, at 49-50

[32] Unreported, decided on 15 December 1983

[34] Esso Exploration & Production Australia Inc v Shire of Morwell [1986] VicRp 29; [1986] VR 289 at 302-303

[43] Unreported, decided on 16 June 1997

Collins v Livingstone Shire Council [1972] HCA 35; (1972) 127 CLR 477

Commissioner of Succession Duties (South Australia) v Executor Trustee and Agency Co. of South Australia [1947] HCA 10; (1947) 74 CLR 358

Deputy Federal Commissioner of Taxation v Gold Estates of Australia (1903) Ltd [1934] HCA 41; (1934) 51 CLR 509

Esso Exploration & Production Australia Inc v Shire of Morwell [1986] VicRp 29; [1986] VR 289

Geita Sebea v Territory of Papua [1941] HCA 37; (1941) 67 CLR 544

Jowett v Federal Commissioner of Taxation [1926] HCA 22; (1926) 38 CLR 325

Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302

Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418

Turner v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245

At a glance

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Judgment (162 paragraphs)

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Cases Cited (20)