AMP Henderson Global Investors Ltd and Ors v Valuer-General

LEGISLATION CITED: Supreme Court Rules 1970 Pt 72 rr 2, 13 Valuation of Land Act 1916 ss 4(1), 6, 6A

AMP Henderson Global Investors Limited & Ors v Valuer General; [2004] NSWLEC 19; AMP Henderon Global Investors v Valuer General (2004) 134 LGERA 426; Bankstown Football Club Ltd v CIC Insurance Ltd (1998) 10 ANZ Ins Cas 61-406; Blair and Ors v Curran and Ors (1939) 62 CLR 464; Blue Mountains City Council v Mulcahy (1998) 100 LGERA 193; Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170; Collins and Anor v Council of the Shire of Livingstone (1972) 127 CLR 477; Homebush Abbatoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605; Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd and Anor [1983] 3 NSWLR 378; Leichhardt Municipal Council v Seatainer Terminals Pty Ltd and Anor (1981) 48 LGRA 409; CASES CITED: Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111; Maurici v Chief Commissioner of State Revenue [2005] NSWLEC 559; Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426; Minister Administering the Heritage Act 1977 v Haddad (unreported, CA(NSW), No 40577/90, 4 February 1991); Morrison v Commissioner for Main Roads (1964) 10 LGRA 314; Perry Properties Pty Ltd v Ashfield Municipal Council (No 2) (2001) 113 LGERA 301; Seven Sydney Pty Ltd v Fuji Xerox Australia Pty Ltd [2004] NSWSC 902; Sher v Commissioner for Main Roads (1975) 24 The Valuer 150; Super Pty Ltd (formerly known as Leda Constructions Pty Ltd) v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Wilson v Madden (unreported, CA(NSW), 40313/91, 5 June 1992); Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156

DATES OF HEARING: 05/04/2005, 07/04/2005, 11/04/2005, 15/04/2005, 21/04/2005, 10/05/2005, 21/07/2005, 19/08/2005, 01/11/2005

APPLICANT M G Craig QC with J Jagot SOLICITORS LEGAL REPRESENTATIVES: Mallesons Stephen Jaques RESPONDENT J B Maston SOLICITORS Crown Solicitors Office

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

AMP HENDERSON GLOBAL INVESTORS LIMITED First Applicant

255 GEORGE STREET INVESTMENT A PTY LIMITED Second Applicant

255 GEORGE STREET INVESTMENT B PTY LIMITED Third Applicant

AMP HENDERSON GLOBAL INVESTORS LIMITED Applicant

JUDGMENT 1 Cowdroy J: On 18 February 2004 the Court delivered judgment in these proceedings in which it ordered that the appeal in proceedings number 31066 of 2002 and in proceedings 31069 of 2002 be dismissed (see AMP Henderson Global Investors Limited & Others v Valuer General [2004] NSWLEC 19, hereafter referred to as the "original proceedings"). 2 The applicants in both proceedings ("AMP") appealed from this decision to the New South Wales Court of Appeal. On 6 August 2004 judgment was delivered by that Court (see AMP Henderson Global Investors v Valuer General (2004) 134 LGERA 426). The Court of Appeal made the following relevant orders: (a) Appeals allowed. (b) Set aside the orders made by Cowdroy J on 18 February 2004 and 3 June 2004. (c) Order that the appeals be remitted to the Land and Environment Court for determination by that court in accordance with the decision of this Court. 3 Upon remitter to this Court, a statement of questions was formulated with the consent of all parties. Pursuant to Pt 72 r 2 of the Supreme Court Rules 1970 ("SCR") on 10 May 2005 the Court appointed the Honourable John Clarke QC as senior referee and Mr Peter Inglis as referee to enquire into and report upon the questions. 4 On 11 August 2005 the referees provided the Court with their report ("the Report"). The Report (at p 22) concluded: Our resultant land value range for each of the subjects sites confirms the Valuer General's Land Values and, if an upward time adjustment was applied, would be conservative. 5 The Valuer-General moves for the adoption of the Report pursuant to Pt 72 r 13 SCR which, although now repealed, continues to have application in this Court. Alternatively, the Valuer-General submits that if any part of the Report is not adopted, that portion of the Report should be remitted to the referees pursuant to Pt 72 r 13(c). 6 That course is opposed by AMP which challenges the validity of the conclusions contained in the Report. AMP says that the referees erred in six respects:- (i) by making use of four of the seven sales which occurred during 1995-1997 ("the historic sales"); (ii) by rejecting the improved sales; (iii) by using straight line depreciation in the valuation of 200 George Street; (iv) by equating cost with value with respect to the value of excavation carried out on the subject land; (v) by not taking into account the scarcity premium applying to sales of vacant land in the CBD; (vi) by rejecting 232 Pitt Street on the basis that it was not a comparable sale. Principles relating to adoption of a referee's report 7 The principles relating to the adoption of a referee's report under Pt 72 SCR have been conveniently summarised by McDougall J in Seven Sydney Pty Ltd v Fuji Xerox Australia Pty Ltd [2004] NSWSC 902 at [12]. The principles of particular relevance to the present dispute are: (3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation; that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest. (4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. … (6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection … 8 In Super Pty Ltd (formerly known as Leda Constructions Pty Ltd) v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Gleeson CJ said (at 562): I am unable to accept, either as an absolute rule, or as a prima facie rule subject to defined or definable exceptions, that a party who is dissatisfied with a referee's report is entitled as of right to require the judge acting under Pt 72, r 13, to reconsider and determine afresh all issues, whether of fact or law, which that party desires to contest before the judge. 9 In Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 the Court of Appeal, when considering the requirements of Pt 72 SCR said (at 609): In our opinion therefore the court in deciding what action to take on a referee's report is both entitled and bound to decide for itself whether the referee has erred in law and to correct any such error. 10 It follows from the above that AMP must establish that there is an error of law, or a finding of fact which is manifestly unreasonable, for the Court to reject the report. In the context of these proceedings, an error of valuation principle is an error of law: see Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd and Anor [1983] 3 NSWLR 378; Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426; Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156.

1. USE OF HISTORIC SALES 11 In the original proceedings before this Court, Mr Hill, the Valuer-General's valuer, had relied upon the historic sales, which were seven land sales made between November 1995 and June 1997 as comparable sales. These sales were at 400 George Street, 363 George Street, 35-43 Clarence Street, 60 Castlereagh Street, 11-19 Jamison Street, 88 Phillip Street and 126 Phillip Street. 12 In the original proceedings this Court held that such sales were too dated to be of use, since each sale had occurred several years prior to the date of valuation in the present proceedings, which was 1 July 2001 ("the base date"). 13 Following AMP's successful appeal of that decision, the referees were asked (a) whether there was a change in the economic circumstances between the time of the historic sales and the base date and (b) if yes, whether the historic sales should be relied upon in the valuation. 14 The Report (at pp 2-6) considers the changes in the economic and property market circumstances between 1995-1997 and the base date. The Report considered that the most important statistic was the movement in prices over the period, to which the best guide was the movement in the effective rents/growth and capital value movements. It noted that effective rents grew by 17.1% between 1997 and 2001, and that capital values of Premium/A Grade properties increased by 22%. 15 The referees rejected Mr Jackson's opinion that the Sydney CBD office market was weaker in 2001 than it had been in 1995-1997. Instead the referees, whilst noting several changes in the economic conditions, agreed with Mr Hill's conclusion that the market was at least as strong in 2001 as it had been during the earlier period (Report p 2, para 1.1). The referees provided detailed reasons for such finding (Report pp 2-6). 16 As a check on its analysis with respect to price movements, the Report considered the sale and resale of 712-722 George Street, which showed an increase of 25% between 1996 and 2001. 17 The Report also specifically considered leasing demand for Premium/A Grade space, referring to three major pre-lease commitments in 2001 as evidence of the demand for Premium/A Grade space at that time. 18 The Report then examines each of the sales put forward by Mr Hill, and rejected three on the basis that they were not intended for commercial redevelopment in the near future and so were not comparable to the subject properties. 19 The Referees (at p 7) concluded as follows: In normal valuation analysis it would be unnecessary to rely on sales up to six years before the relevant base date. However, there is only one "land sale" at around the July 2001 base date, in an inferior mid-town precinct location (232 Pitt Street), requiring significant adjustments and therefore not comparable. In our view it is therefore reasonable & necessary to consider these dated sales of prime CBD vacant land, provided the economic & property market changes can be reasonably compared. … Our conclusion is that, notwithstanding the lack of prime CBD vacant land sales in 2001, site values were at least equivalent to and maybe up to 20% higher than 1995-1997 levels. AMP's submissions 20 AMP submits that the referees erred in using the historic sales. 21 Firstly, AMP submits that the Court's finding in the original proceedings that the historic sales were not comparable was not challenged on appeal, and accordingly it was not open for the referees to make use of these sales. 22 Secondly, AMP submits that the referees' use of the historic sales is inconsistent with their own conclusion that they could only be used "provided the economic & property market changes can be reasonably compared". AMP says that other parts of the report concluded that the economic and market circumstances at the time of the historic sales were different to those at the base date. AMP specifically refers to the referees' observations that "The property market dynamics were quite different between the time of the 1995-1997 historic site sales and the valuation date" (Report p 3); that development interest was increasing in 1995-97 "which led to the development boom in the 1998-2000 period" (Report p 4); and that "Market dynamics in 2001 were quite different" (Report p 4). 23 AMP submits that the only rational conclusion available on the basis of these findings was that the economic and property market changes could not be reasonably compared, and that accordingly the historic sales were not comparable. AMP refers to Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170 at 179 where Wells J said that, to be comparable, a sale must be sufficiently similar to warrant a Court reasoning that the price paid for the subject land would be similar.

24 AMP also submits that the reliance by the referees on rents/growths and capital value movements as indicators of changes in economic circumstances was a fundamental error. It says that those indicators relate to the investment and not to the development market, a distinction which was in other parts of the report recognised by the referees (Report pp 9-10). 25 AMP says that the sale and resale used by the referees as a check upon their analysis of price movements, namely 712-722 George Street, was not a sale of a comparable property. It was affected by the same defects which had led the referees to reject the Jamison and Phillip Street properties for lack of comparability, because it was likely to attract a different class of buyer. AMP refers to Sher v Commissioner for Main Roads (1975) 24 The Valuer 150 at 151 and Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at 121. In these circumstances, AMP submits it was an error of law for the valuers to have made use of the 712-722 George Street sale. Valuer-General's submissions 26 The Valuer-General submits that AMP's written submissions misquote the Report. AMP quotes the Report as referring to the "property and market changes" being capable of comparison, whereas in fact the Report refers to the "economic and property market changes". The Valuer-General contends that the difference is significant and justifies the approach adopted by the referees. The referees decided that the historic sales could be used because the changes in economic and market circumstances could be compared. 27 The Valuer-General submits that the referees were entitled to have regard to movements in rents/growth and capital value movements. For the purpose of identifying global changes in economic and property market circumstances, the referees were entitled to consider aspects of the property market outside of the development market. Price movements were only one of a number of different elements considered by the referees and in the context in which they were used, the referees were entitled to have regard to them. The findings of the referees that "property market dynamics" were different did not preclude the ultimate conclusion by the referees that the changes in economic and market circumstances could be reasonably compared. 28 The Valuer-General submits that 712-722 George Street was not used as a comparable sale, but rather as a check on the conclusion of the referees with respect to general price movements in between 1995-1997 and the base date. It was not necessary for the property be intended for an identical purpose in order for it to be validly used in this way. 29 The Valuer-General submits that in any event, the 712-722 George Street sale confirmed an upward movement in price of approximately 20% which was not in fact adopted by the referees. The Report (see p 7) concluded that by 2001 the CBD site values were "at least equivalent and maybe up to 20% higher than 1995-1997 levels". However, in arriving at their ultimate valuation figure, the referees did not adopt an increase of 20%, but treated the market at the base date as equivalent to that of 1995-1997. 30 In answer to the submission that the referees erred in adopting the historic sales, the Valuer-General submits that the Court of Appeal, by the order for remittal, reversed the decision at first instance. The referees were entitled to consider the evidence afresh: Perry Properties Pty Ltd v Ashfield Municipal Council (No 2) (2001) 113 LGERA 301; Minister Administering the Heritage Act 1977 v Haddad (unreported, CA(NSW), No 40577/90, 4 February 1991). Findings: Use of Historic Sales Issue Estoppel

31 AMP has submitted that the referees' findings with respect to the historic sales should be rejected because they were "contrary to the unchallenged conclusions of the trial Judge at first instance". Although it was never specifically articulated in AMP's submissions, it appears that AMP is alleging that issue estoppel prevents the referees from relying upon the historic sales. 32 In Blair and Ors v Curran and Ors (1939) 62 CLR 464, Dixon J explained the concept of issue estoppel as follows (at 531-2): A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared … Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. 33 The question of issue estoppel arising on remission of a matter following an appeal was considered by the Court of Appeal in Wilson v Madden (unreported, CA(NSW), 40313/91, 5 June 1992). In that case, a matter had been remitted to the Licensing Court "for determination in accordance with" a decision of the Supreme Court: per Handley JA. At the second hearing of the application, further evidence relating to factual matters was adduced "by agreement or at least without objection": per Mahoney JA. On the basis of the additional evidence, the second Licensing Court decision reversed an original finding of fact which the Supreme Court had found was not legally erroneous. The Licensing Court's second decision was challenged on the basis that it was not open to the Court to revisit any questions of fact which were not overturned by the Supreme Court decision.

34 In rejecting the challenge to the Licensing Court's decision, Handley JA, with whom Kirby P and Mahoney JA agreed, stated:- In my opinion the majority of the Licensing Court were entitled to reverse findings of fact made by them in their first decision. The orders made by Sully J involved the first decision being set aside and the proceedings remitted "for determination in accordance with the decision of this Court" … Following the orders that were made the position in my opinion is that, in the words of Moffitt P in Martin v Green (1984) 1 NSWLR 148 at 154, "the magistrates' jurisdiction was to rehear the case and hence review the facts" …

The first decision having been wholly set aside on appeal it ceased to have any binding force and could not ground any issue estoppel.

See also Bankstown Football Club Ltd v CIC Insurance Ltd (1998) 10 ANZ Ins Cas 61-406 which followed the approach adopted in Wilson v Madden .

35 The orders of the Court of Appeal in these proceedings were that "the appeals be remitted to the Land and Environment Court for determination by that court in accordance with the decision of this Court". AMP consented to the statement of questions which was referred to the referees under Pt 72 r 2 SCR. On the basis of the above, the Court considers that this order entitled the Court to review facts even if those facts were not challenged in the Court of Appeal proceedings.

36 Even if the Court were not so entitled, the Court of Appeal specifically considered this Court's finding in relation to the historic sales, and at [20] and [21] stated:- There are some difficulties with his Honour's reasoning ... On the one hand, he seems to consider that Mr Hill's historic land sales were too remote in time from the base date to be comparable. He expresses this view "[d]espite the above economic evidence" …

On the other hand, his Honour seems to have accepted Mr Jackson's evidence that the market in 1995-1997 for properties in the CBD was different to that in 2001. If that is so, then the differential in time between the historic land sales relied upon by Mr Hill and the base date would not, of itself, be a basis for the rejection of those sales. However, there appears to be some inconsistency between this conclusion and that articulated by his Honour in [69] …

37 In view of the above, the Court considers that the Court of Appeal did not leave undisturbed this Court's finding in the original proceedings with respect to the historic sales.

38 It is apparent from the referees' conclusion that it was important to consider changes in economic and property market circumstances between 1995-1997 and the base date in order to adjudge the comparability of the historic sales. In the course of this exercise, it was open for the referees to consider a wide range of material relating both specifically to Premium/A Grade properties as well as to the economy and the property market more broadly. The material relating to price movements, whether relating to the investment or the development market, clearly falls within these parameters. 39 Furthermore, whilst it may be true that the investment and development market attract a different class of purchaser, this is not to say that the two markets are unrelated. The Court considers that not only was it open to the referees, but it was necessary for them to consider changes in price movements in the Premium/A Grade CBD office market in order to measure properly the changes in the economic circumstances and the property market. 40 The referees used the sale and resale at 712-722 George Street as a check on their findings in relation to the overall movements in economic and property market circumstances. It was used because it had been originally sold in 1996 and then resold in 2001, and so provided guidance in respect of the relationship between overall price movements and the property market during that period. 41 When the Report is analysed, it is apparent that the referees used 712-722 George Street for a specific and limited purpose, being to check their analysis of movements in the property market as a whole. The referees did not use that property as a comparable sale. Accordingly AMP's challenge to the use of the sale does not succeed. 42 The referees came to their decision that the economic and property market changes could be reasonably compared after having considered both general circumstances and the specific situation relating to the Premium/A Grade CBD market. They accepted that the market "dynamics" were different at the time of the historic sales. However, they considered that this was balanced by the significant price movements which had occurred in the Premium/A Grade market between the time of the historic sales and the base date. On the basis of these considerations, they concluded that site values in the CBD were equivalent or up to 20% greater in 2001. That was a finding which was open on the evidence before the referees and the Court does not consider it contains any error of law. 2. IMPROVED SALES 43 In the original proceedings AMP's valuer, Mr Jackson, relied upon a number of sales of improved CBD properties for the purposes of comparison with the subject sites ("the improved sales"). He deducted the value of the improvements from the sale price to arrive at a value for the land. Those sales were at 233 Castlereagh Street, 23-25 O'Connell Street, 92 Pitt Street, 14 Martin Place, 25 Bligh Street and 200 George Street.

44 In the original proceedings this Court rejected those sales on a number of grounds. Firstly, several of the sales post-dated the base date. The Court held that AMP had provided no evidence that market conditions had not changed between the base date and the time of the sales. Secondly, the Court held that the depreciation used by Mr Jackson, being a single figure rate for an entire building, was too simplistic.

45 The Court of Appeal overturned these findings, stating that there was evidence before this Court of the economic circumstances subsequent to the base date, and that the Court erred in finding that the adoption of a single depreciation rate for improvements was not appropriate.

46 As a result of the findings of the Court of Appeal, the referees were asked to consider whether the sales relied upon by Mr Jackson were comparable. The Report agreed with the submissions of both parties that there was no significant change in the economy or the CBD office market between the base date and the sales relied upon by Mr Jackson (see Report p 7, para 1.2). The referees then considered whether the improved sales were comparable sales. With the exception of 200 George Street, the referees rejected all of the improved sales.

47 The Report accepted that "improved sales may be regarded as comparable sales for the purpose of determining CBD land values". However, in relation to the improved sales generally, it stated (at pp 9, 10):

… it is only a truly "representative group of comparable sales" to which regard should be had. The High Court [in Maurici ] itself adverted to this in paragraph 18 when it referred to the principle that for sales to be treated as comparable they need to be truly comparable. And later, in referring to Waddell J's statement in Sher v Commissioner of Main Roads - "sales of property of a different character are likely to attract a different class of buyer and are unlikely to provide a reliable indication of value" - implicitly approved that statement. In this regard we consider that the "improved sales" relied on by Mr. Jackson are not comparable as they are of a different character and purchased by a different class of buyer than the subject sites (Sher's Case) and therefore difficult to regard as a representative group of comparable sales. They are different in character being primarily investment properties as opposed to the subject properties being redevelopment sites. The class of buyers of the "improved sales" are different being primarily investors contrasting with the hypothetical class of buyers of the subject sites being developers.

In this case, as will appear, many improved properties have been put forward by the applicant as comparable which we do not regard as truly comparable upon an analysis of the sales. In each case, there are features which call for a number of adjustments to an extent which render reliance upon them as comparables as completely unsafe.

48 The Report (at p 12) also referred to the difficulty and subjectivity involved in the valuation of improvements, particularly in relation to "multi-storey office buildings in the CBD" as compared to the relatively "simple residential improvements" in Maurici. The Report states (at p 12): … where there are "land sales" which provide a reasonably "representative group of comparable sales", it may not, and usually will not, be necessary to have regard to "improved sales". That is because in the case of the latter a very subjective deduction has to be made for the value of the improvements. The complexity and wide disparity of such deductions was clearly evident in both valuers submissions. Because this exercise involves a subjective judgment, its intrusion into the valuation process will tend to make the resulting valuation less reliable than it would be based upon a truly comparable set of "land sales".

49 The Report added that when further adjustments in addition to depreciation, for example because of location or size of the property, need to be made to make an improved sale comparable, this will render the improved sale even less reliable (see p 12).

50 The Report then considered each of Mr Jackson's improved sales individually. In relation to Castlereagh Street, O'Connell Street and Pitt Street, the referees noted that several of the sales relied upon were of significantly smaller parcels of land outside the core CBD area, the buildings relied upon were of a lower standard than the subject properties, and the land had no underlying redevelopment potential.

51 The referees considered that the Martin Place and Bligh Street sales were more comparable to the subject sites in terms of size and location. However, both were buildings of a lesser grade and generated less income on a $/m2 basis. The referees also considered that these sites would have been purchased as an investment, and therefore by a different class of buyer to the subject sites.

52 For these reasons, the referees said that a "the 'improved sales' should be disregarded or, at least, used only as a very secondary check" (Report p 12) and that the comparable land sales should be preferred. AMP's submissions 53 AMP submits that the rejection of the improved sales was materially dependent on the referees' acceptance of the historic sales. If, as AMP submits, the historic sales should not have been adopted, this will affect the conclusion of the Report concerning the use of the improved sales. 54 AMP says that the referees' rejection of the improved sales was based upon the belief that such sales are inherently less reliable indicators of value than "land sales". AMP says that this is contrary to valuation principle and more specifically, contrary to the decision of the Court of Appeal (see at [53]-[57]). The mere fact that subjective assessments are required should not lead to the rejection of sales which provide some evidence of value. To do so would constitute an error of law: see Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426 of 432; Leichhardt Municipal Council v Seatainer Terminals Pty Ltd and Anor (1981) 48 LGRA 409 at 434; Maurici at 116 and the Court of Appeal decision at [52]. 55 AMP also submits that the underlying reason for the Report's rejection of the improved sales was the notion that improved sales attracted a different class of buyer to land sales. However, AMP says that to reject improved sales on this basis is erroneous, and is contrary to the authorities of Maurici and of the Court of Appeal decision. AMP submits that the referees misapplied Sher's case. Valuer-General's submissions 56 The Valuer-General submits that the referees were not in error in accepting the historic sales, and accordingly AMP's first objection to the Report's treatment of the improved sales should be rejected.

57 The Valuer-General says that the Report considered the comparability and weight of the evidence offered by the improved sales before rejecting them. The referees did not consider the improved sales as inherently unreliable, but undertook an analysis of their comparability with respect to size, location and the like, before rejecting them. The Valuer-General says that Maurici and Melwood did not require the referees to take into account every single sale which was put to them: see Maurici v Chief Commissioner of State Revenue [2005] NSWLEC 559 per Talbot J. The Valuer-General says the referees were entitled to reject the improved sales provided that they properly considered the evidence and that their reasons for rejection were rational.

58 The Valuer-General says that the referees did not misapply Sher's case. In Sher's case, a distinction was drawn between a house with heritage value which was likely to be preserved, and a house with no heritage value which would be bought for renovation or demolition. The Valuer-General says that Sher's case specifically deals with a distinction between purchase for redevelopment and for other purposes, and was correctly applied by the referees.

59 The Valuer-General says that there is a relevant distinction to be drawn between high rise commercial offices sold as investments from which to derive an immediate income stream, and a land sale which involves the risks and delay of new development. It says that different parameters drive the formulation of sale prices in relation to each of these types of property, and accordingly they are of a different character. Findings 60 The Court has found above that the referees were entitled to consider the historic sales. Accordingly, the first ground of objection raised by AMP does not succeed. 61 AMP alleges that the referees' findings are contrary to the Court of Appeal's decision. The Court of Appeal found that this Court's rejection of the improved sales on the basis that the calculation of depreciation was too subjective was contrary to valuation principle and irrational: see at [57]. Tobias JA stated (at [54]) that as part of valuation practice, valuers were required to use their judgment in determining the appropriate rate of depreciation to be adopted. However, the Court of Appeal's decision did not bind the referees to using the improved sales. It bound them to consider the improved sales as prima facie evidence of value, and not to reject them without rational reasons for doing so. 62 Similarly, the principle in Maurici does not require that improved sales be used in all circumstances. In Maurici, the High Court observed (at 121) that "sales to be treated as comparable sales need to be truly comparable" and stated: A fair estimate could only be made here on the basis of a fair, that is to say, a reasonably representative group of comparable sales. A group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land. That is not to say that sales of comparable vacant land may not provide useful evidence of value. But … "sale evidence [must be] relevant and sufficient in volume " (emphasis added). The decision in Maurici requires that a reasonably representative group of comparable sales be taken into account in assessing value, but does not necessarily require improved sales to be used in all circumstances. 63 In Maurici v Chief Commissioner of State Revenue [2005] NSWLEC 559 Talbot J referred to the fact that the Commissioner had decided not to adopt certain properties. His Honour said (at [43]): Once the decision maker concludes that the evidence is irrelevant, or of so little weight or reliability that it should be ignored, then unless that determination is so implausible and irrational that it is manifestly unreasonable for it to be sustained, the Court cannot set it aside on appeal as an error of law. 64 In the Report, the referees expressly referred to Maurici and the decision of the Court of Appeal and acknowledged that "improved sales" may be comparable sales (Report pp 8-9). They stated, however, that, where available, it was preferable to use comparable land sales which usually required fewer subjective adjustments. The Court does not consider that the judgment of the Court of Appeal or of the High Court in Maurici is inconsistent with this finding. The Court accepts that it may be necessary on some occasions to use sales which require many subjective adjustments in order to value a property, as found by the Court of Appeal. Improved sales prima facie provide some evidence of value. However, it remains the case that sales requiring numerous subjective adjustments are less reliable than sales without such adjustments. Where a representative group of comparable sales exists which requires limited subjective adjustments, the Court agrees with the statement of the referees that such sales are to be preferred. 65 Furthermore, the referees also considered the sales individually, and found that they were not truly comparable because their size, location and/or building type were markedly different to those of the subject properties. These are clearly highly relevant matters in considering the comparability of a sale, and the Court considers this was a valid basis on which to give little weight to the improved sales. 66 In addition, the referees considered that the improved sales were likely to be less comparable than the land sales because the improved sales would attract a different class of buyer: see Waddell J in Sher at 151. The referees believed that buyers of existing high rise commercial tower buildings for investment represented a different market to those purchasing a building for the purpose of demolition and redevelopment. Accordingly, they considered that, in the circumstances of commercial tower buildings, improved sales would provide less reliable evidence of the value of land than simple land sales. 67 The High Court in Maurici observed (at 121) that "sales relied on, such as of scarce vacant land, are likely to be a special and different class of buyers of improved land". The Court accepts that where vacant land is sufficiently scarce to attract a scarcity premium, it may appeal to a different class of buyer. However, in the present case, and for the reasons set out at [99] below, the Court accepts the referees' conclusion that although there were few sales, vacant land was not sufficiently scarce to command any premium. Furthermore, the dynamics of the market with respect to Premium/A grade commercial buildings in the Sydney CBD are considerably more complex than those in the residential market at Hunters Hill, as considered in Maurici. The Court accepts that the dynamics of the investment market are different to those in the development market, and the prices achieved in the investment market may reflect many factors other than the value of the land. Accordingly, the Court considers that a representative group of comparable CBD land sales would provide the most reliable indication of the value of CBD land without improvements. 68 The Court accepts that improved sales afford some evidence of value. However, the referees considered that, given the existence of a reasonably representative group of sales, namely the historic sales, which required fewer subjective adjustments, and in particular, the lack of improved sales which were comparable in terms of size, location and building type, there was no need to use the improved sales, which were less reliable.

3. USE OF STRAIGHT LINE DEPRECIATION 69 The referees were asked to consider the appropriate method for determining the rate of depreciation for buildings in the Sydney CBD office market. Because in previous sections of their report, they had rejected all the improved sales except 200 George Street as not comparable, the referees considered the rate of depreciation only with respect to this property.

70 The Report stated (at p 15) that there was no accurate mathematical method to determine an appropriate depreciation rate. They found that as a matter of valuation principle an arbitrary assessment of accrued depreciation is not an acceptable method. The Report (at p 15) quoted the relevant passages of Rost and Collins (at pp 218-9) as follows: … A problem, sometimes insoluble, inherent in this and similar methods centres on the estimated life attributed to the building … but estimates as to the numbers of years a city building might last or continue to economic, may ultimately prove to be very wide off the mark. A soundly constructed and effectively maintained building might have a structural lift of 100 years or more … The economic utility of a building, particularly one of the investment type, is just as unpredictable as is the cost of its replacement in the distant future. Because of these unknown factors, the straight line method allowing for future depreciation is not favoured in land valuation practice … [weighted rate method] although this procedure may well be more realistic than the straight line method, it cannot be used in making a valuation because the percentage rate which might be appropriate in the future would not be known …

71 The referees stated that there were three main elements to be considered in adopting a rate of depreciation, namely the remaining economic life of the building in the context of its location, the building age and physical depreciation, and the functional and economic obsolescence of the building.

72 The referees noted that 200 George Street had been earmarked as part of a future redevelopment site. The referees considered that this indicated a high level of economic obsolescence which should be represented in a high depreciation rate. This was a significant factor in calculating the remaining economic life of the building. The referees considered that this factor was not sufficiently reflected in the rate adopted by either valuer (Report p 16).

73 The referees considered that in the specific circumstances, the life expectancy of the building at 200 George Street was no more than 10 years. They then adopted a straight line depreciation method to this life expectancy and arrived at a depreciation rate of 74%. This rate produced a higher resultant land value than either valuer had obtained. However, consistent with their previous findings, the referees noted that they did not consider that the use of improved sales to be desirable where comparable land sales were available (Report p 16). AMP's submissions 74 AMP submits that the referees' use of the straight line method of depreciation in respect of the 200 George Street sale was erroneous, and relies upon the observations of the Court of Appeal at [44], [45] and [46]. It submits that after the referees had recognised the straight line method was inappropriate, it was irrational for them to adopt that method. Valuer-General's submissions 75 The Valuer-General submits that in adopting the straight line depreciation method, the referees had regard to its appropriateness in the circumstances. The Report pointed out that the land at 200 George Street was earmarked as part of a future redevelopment site, which had implications for depreciation in terms of economic and functional obsolescence. The straight line method was adopted because the building had limited future utility, with a maximum of ten years future life, and accordingly a more complex approach to the depreciation rate was unwarranted. Findings 76 With respect to depreciation, the Court of Appeal observed (at [45]-[47]) that: It is clear from the part of Rost & Collins referred to that the depreciation of improvements is one of the skills that a qualified valuer is required to bring to bear in an appropriate case in the valuation exercise. In terms of that exercise, the learned authors state that depreciation: "may be measured by the difference between the value which a building or other improvement adds to the land at the time of valuation and the amount it would cost to replace it (new) at that time". Physical deterioration, functional and economic obsolescence must all be taken into account. At page 125 the authors make this statement: "In assessing loss as a value due to physical, functional or economic depreciation, the objective is to ascertain the market value of the improvement. If market transactions do not provide evidence of such value, the valuer must rely largely on his own judgment and experience supported by such tests as may be practicable and taking into account wear and tear, standard of maintenance and degree of obsolescence of each improvement." Nowhere do the learned authors suggest or comment upon the wisdom or otherwise of adopting a single depreciation rate or as to whether there are differences between depreciating the value of buildings of different types. In particular, they do not suggest that it is outside a valuer's expertise and/or unreliable to adopt a single depreciation rate in respect of a high-rise commercial office building. 77 The referees (Report p 15) set out the factors to be taken into account in arriving at a depreciation rate, which are in accordance with the observations of the Court of Appeal outlined above. The referees also note the subjectivities involved in assessing depreciation rates, stating (at p 16): Both valuers in their adopted rationale and assumptions are required to undertake many subjective assumptions including building life expectancy, actual deterioration and extent of refurbishment. These assumptions can be very sensitive to minor variations and utilised to achieve a required result. For example a higher depreciation rate equates to a higher land value and vice versa. A single rate is probably more appropriate as it requires a single subjective opinion however is still not considered acceptable. 78 AMP submitted that the referees' approach was inconsistent with the passage which they had quoted from Rost and Collins. That passage refers to the problems with adopting a straight line depreciation approach because of the difficulties in estimating the structural and economic life of a building. 79 However, in the present case, the referees did not simply apply straight line appreciation based upon a arbitrary notional life of the building. They specifically considered the economic obsolescence of the building in the context of the Sydney CBD development market. They took into consideration the fact that 200 George Street had been earmarked for future redevelopment. In assessing the remaining life of the building as 10 years, the referees were making a judgment as to its economic and functional obsolescence, based upon actual information regarding the building's future. 80 The Court does not consider that the adoption of straight line depreciation in these circumstances was inappropriate. It is notable that although Rost and Collins state that the straight line method is not favoured, they also reject the other methods discussed. Further, Rost and Collins rejected the straight line method at least in part because the remaining life of a building is unpredictable. In the present case, because the building was actually earmarked for future redevelopment, its future life was predictable. 81 The referees were aware of the competing approaches to depreciation and believed that the approach adopted represented the most accurate measure of depreciation. As noted by the Court of Appeal, the assessment of a rate of depreciation is largely a matter of judgment. In these circumstances the Court is unable to find any error in this approach.

4. COST EQUALS VALUE OF EXCAVATION 82 The referees adopted the approach of Mr Hill to calculate the costs of excavation works for the purpose of calculating the benefit to be added to the land value. The Report (at p 22) stated: As we are assuming that the existing development is optimum for the site in accordance with Section 6A(2), then, clearly the site excavation is a benefit to be added to the level site land value and quantified ideally from market evidence. In the absence of direct market evidence and assuming cost equals value then I am of the opinion that the method adopted by Mr. Hill of calculating the cost of the excavation works is the most appropriate method to adopt. AMP's submissions 83 AMP submits that the referees have assumed that the costs of excavation is equivalent to its value and have thereby made an error of valuation principle. AMP relies upon Morrison v Commissioner for Main Roads (1964) 10 LGRA 314 per Else-Mitchell J at 317. AMP also refers to the observations of the Court of Appeal in Blue Mountains City Council v Mulcahy (1998) 100 LGERA 193 at 200. It is submitted that as the referees noted that there was no direct market evidence, there is therefore no sound basis upon which the referees could conclude that any premium would be paid for excavated land: see Toohey's, Limited v The Valuer-General [1925] AC 439 at 443. AMP says it cannot be inferred that the excavation would be perceived as a benefit to the land. Valuer-General's submissions 84 The Valuer-General submits that in adopting the approach of Mr Hill, the referees were not simply adopting the principle of "cost equals value". They say that in reading the report, AMP has ignored the fact that Mr Hill adopted a value for the excavations which was lowest of a possible range of cost. The Valuer-General says that it is an accepted principle that cost may be persuasive of value, and refers to Collins and Anor v Council of the Shire of Livingstone (1972) 127 CLR 477 and Leichhardt Municipal Council v Seatainer Terminals Pty Ltd and Anor (1981) 48 LGRA 409 per Hope JA at 437-8.

85 The Valuer-General says that in the absence of any other credible evidence of the value of the excavation, it was open to the referees and not irrational to draw the inference that the excavation added value to the land. Findings 86 Section 6A of the Valuation of Land Act 1916 ("the Valuation Act") which provides that in determining the land value, improvements "other than land improvements" are to be excluded from consideration. "Land improvements" is relevantly defined in s 4(1) of such Act as follows: (d) the restoration or improvement of land surface by excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation, Since the excavation considered was for the purpose of the erection of a building or structure, the referees were entitled to assess its value. 87 The authority relied upon by AMP, namely Toohey's, Limited v The Valuer-General was decided under s 6 of the Valuation Act. There was no provision equivalent to s 6A and accordingly the decision is of no assistance. 88 The referees clearly considered that the excavation added value to the land, on the basis that it added value to the existing development, and the existing development was the optimum for the site. Accordingly, the referees were required to assess the added value as accurately as possible. 89 In Morrison, Else-Mitchell J said at 317 that "the use of expensive materials and fittings will seldom be adequately reflected in the market value of a completed building". However his Honour recognised that a Court would not disregard "the high quality of the materials and finish of the plaintiff's cottage". In Blue Mountains City Council v Mulcahy at 200, the Court of Appeal determined that cost and value were different concepts. However, the Court of Appeal noted the observations of Barwick CJ in Collins (1972) 127 CLR 477 at 484, where his Honour said that in certain circumstances, cost may be persuasive of value. 90 In Leichhardt v Seatainer Terminals, Hope JA at 437 said: If the cost of the site improvements would necessarily be reflected in the value of the land, then to pay no regard to that cost would have been an error of principle and hence an error of law. But a view that was open in the present case was that the value of the site would not reflect, wholly or proportionately, the actual or adjusted cost of the site improvements. Whether the value of the land would reflect those costs or any part of them was a matter of judgment. 91 The referees clearly understood that cost and value were not necessarily equal. However, it is clear from High Court's decision in Collins that cost may provide evidence of value: see Menzies J at 489 and Gibbs J at 500. It appears to the Court that the referees did not simply equate cost with value, but decided that in this instance, an estimate of the costs in the lower range, as assessed by Mr Hill, approximated the value of the excavations. This was not contrary to valuation principle. 5. SCARCITY PREMIUM 92 The referees were asked to consider whether a scarcity premium should be taken into account in the analysis of 232 George Street. The Report concludes that there was no supporting evidence for the existence of a scarcity premium. AMP's submissions 93 AMP says that whilst calculation of any scarcity premium was a matter of fact for the referees, the conclusion reached by the referees that there was no evidence of a scarcity premium was not open. 94 AMP says that there was undisputed evidence that there had been only one land sale in the CBD in the period from January 2000 until January 2002, compared to 73 improved sales. Further, the fact that the referees accepted only four sales as comparable over the seven year period between 1995 and the base date indicated that there was a scarcity of land for development in the CBD. The result was that the land sales relied upon were not truly representative of the market as a whole, and an adjustment needed to be made to reflect that fact. AMP refers to the decision of the Court of Appeal at [68]. Valuer-General's submissions 95 The Valuer-General submits that the conclusion of the referees was not a "no evidence" conclusion; rather, the Report states that the referees could find no evidence which supported the existence of a scarcity premium. Findings 96 The absence of a large volume of sales of itself does not necessarily give rise to the existence a scarcity premium. Before a scarcity premium is to be included in a valuation, there must be evidence that the price of land is inflated because of a shortage of suitable property. Accordingly, notwithstanding that there were only a few sales of vacant CBD land around the base date, it remained open to the referees to find that there was in fact no scarcity premium. 97 The referees did not suggest that they had not been presented with evidence relating to a scarcity factor. They referred to the fact that Mr Jackson relied upon two pairs of sales to reach his conclusion that a scarcity premium existed, namely 232-248 Pitt Street/233 Castlereagh Street and 35-43 Clarence Street/14 Martin Place. However, the referees said (Report p 19): In our opinion, the sale of the Pitt and Castlereagh Street properties provides an unsound basis for making any such comparison. That is because it was a complicated sale which required the making of many adjustments in deriving a land value. There was not in fact one sale but four entered into at different times; there were two separate heritage constraints which required substantial adjustment; rental was being derived from buildings on the sites so that the sales were not pure land sales; and complications arise from the issue of transferable heritage floor space cost and/or value. The improved sale at 233 Castlereagh Street did not involve any of these issues and quite apart from the fact that the 232 Pitt Street sale was, at best, a very special type of land sale which was more in line with the sale of 200 George Street, it is difficult to consider it a true comparable with 233 Castlereagh Street. Quite apart from those factors neither of the properties under consideration were situated in the core area of the CBD and provide little assistance in determining whether there was a scarcity in that area. 98 At p 20 the referees, having also considered the comparison made between 14 Martin Place and 35-43 Clarence Street, concluded that it would be "very unsafe to make conclusions on scarcity from the limited comparisons carried out here". The referees also noted that both of the comparisons undertaken by Mr Jackson involved properties which the referees considered were likely to attract a different class of buyer (Report, p 20). They noted that the Martin Place property was an investment purchase, whereas Clarence Street was a development purchase, and said: Those features make it quite unsound, in our opinion, to derive any conclusion as to scarcity and we do not ourselves find any supporting evidence for that factor. 99 The findings of the referees with respect to the scarcity premium are consistent with their earlier findings that many of the improved sales relied upon by Mr Jackson were not truly comparable with the subject properties. Accordingly, they were of little relevance in determining whether a scarcity premium existed with respect to the land in the nature of the subject properties. The referees did not ignore the decision in Maurici, but determined that the evidence did not justify a conclusion that a "scarcity premium" existed. Accordingly, the Court does not find any error by the referees.

6. REJECTION OF 232 PITT STREET 100 The valuers agreed that 232 Pitt Street was a comparable sale, but disagreed as to the appropriate adjustments to be made to the render the sale comparable to the subject properties. Accordingly, the referees were asked to determine the appropriate adjustments. 101 The referees came to the conclusion that because of the number of subjective adjustments which would be required, a comparison between the subject properties and the sale at 232 Pitt Street would be unreliable. Adjustments would be required because of differences in the location, the site characteristics and the land improvements (see Report pp 20-21). 102 AMP submits that the referees' decision that the sale of 232 Pitt Street, which both valuers accepted had accepted was comparable, was not comparable to the subject sites was in error. AMP claims that such conclusion was not open on the evidence and that the referees should have adjusted that site to the subject sites. 103 The Court provides that the referees provided valid reasons for the rejection of 232 Pitt Street as a comparable sale. They were not bound to agree with the valuers. The referees considered it was not a truly comparable because of its location outside the core CBD area in particular. Given the existence of more comparable sales evidence, the referees were entitled to reject 232 Pitt Street. SHOULD THE REPORT BE ADOPTED? 104 The Court finds that the referees has demonstrated a "thorough, analytical and scientific approach" to the assessment of the subject matter of the Report: see Seven Sydney at [12]. AMP's challenges to it have not succeeded in demonstrating any error of principle. The Court is satisfied that the referees have discharged the duties imposed upon them pursuant to Pt 72 r 2. Pursuant to Pt 72 r 13(1)(a), the Court adopts the Report in whole. 105 The adoption of the Report determines all of the remaining issues in these proceedings. Accordingly the Court will make final orders. Orders 106 The Court will make the following orders in each proceeding:
7. The report of the Honourable John Clarke QC and Peter Inglis dated 11 August 2005 ("the Referees' Report") be adopted.
8. The applications be dismissed.
9. Costs reserved.
10. The exhibits be returned, except the Referees' Report.

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