The expert evidence
61Now that valuation issues have been introduced, it is convenient to continue with the same topic by considering and expressing conclusions on the expert valuation evidence.
The land that was valued
62So far, I have not been specific about the parcel of land, the valuation of which is in dispute.
63The land that Llerevni had under option comprised in substance three parcels. Overall, the land was bounded by Ocean Street to the east, Robertson Street to the south and Pittwater road to the west. To the north, the boundary was a "dogleg" with no street frontage.
64When Llerevni entered into the agreements including the put and call options, the substantial improvements on the site overall comprised a hotel known as the Royal Antler Hotel. There were, I think, other improvements on the southern portion of the land, to the south of the hotel.
65The proposal was to resubdivide the overall parcel. A two lot stratum development was to be carried out on the southern part of the land. The ground floor of that stratum development (lot 1) would comprise a hotel, or tavern, which would be used in place of the Royal Antler Hotel (which was scheduled for demolition). The upper stratum (lot 2) would comprise motel accommodation. That parcel of land (ie, lots 1 and 2) was bounded by Ocean Street to the east, Robertson Street to the south, Pittwater Road to the west and, to the north, the land that would be redeveloped for the construction of residential apartments.
66The site for the residential apartments includes the residue of the Royal Antler site, known as "lot 3". Lot 3 was to be amalgamated, on the north, with land known as "lot A".
67The valuation which is in dispute relates to lot 3 and lot A: that part of the overall parcel of land that was to be redeveloped for residential apartments. For convenience, I shall refer to this as "the apartment site". LMW valued the apartment site at $12,000,000, inclusive of GST.
68The two stratum lots, 1 and 2, were also to be valued. However, nothing turns on those valuations.
The expert valuers' assessments
69Each of the expert valuers was instructed to assess the market value of the freehold interest in the apartment land as at 25 June 2007 (the date of the LMW valuation). They agreed on the appropriate definition of "market value" (which was, if not identical to, then not substantially different from, the definition used by LMW). They agreed that their instructions to value the property "as is" required a valuation on the basis of its highest and best use. Again, the LMW valuation had proceeded on that basis.
70Messrs Davis and Panopoulos agreed on the appropriate valuation methodology. Mr Davis called it "comparison sales analysis". Mr Panopoulos called it the "direct comparison method". In substance, as either name suggests, the methodology involves analysis of sales of land that the valuer thinks to be comparable, with a view to deducing a value for the land that is to be valued.
71Although, in their reports, Messrs Davis and Panopoulos had relied on somewhat different comparable sales evidence, they were able to agree, in the joint report, on the seven most relevant comparable sales.
72From those beginnings, the paths taken by Messrs Davis and Panopoulos diverged markedly. As I have indicated above, Mr Davis had been given the Colliers valuations. He had also been given valuations prepared prior to 25 June 2007 by another firm of valuers, Landsbury Valuations, for GST purposes, although I do not think much turns on the Landsbury material. Mr Davis had been given also a bundle of documents including a draft deed with AV Jennings Properties Limited. Those documents referred to an offer of $19 million, said to be non-binding, made for the site.
73Thus, Mr Davis was in possession of a substantial amount of material, either expressing opinions as to value or otherwise capable of giving rise to an inference of value, that had not been given to LMW.
74By contrast, Mr Panopoulos did not get any such material. In his first report he confirmed, to the solicitors instructing him, "that you have not provided me with any documents which refer to the value attributed to the Subject Property". As Mr McCulloch put it, Mr Panopoulos was asked to value the property "blind" and did so; Mr Davis was not, and did not.
75There is a further matter of considerable significance. I have referred to that in passing at [16] above. When Mr Kenna started work on valuing the apartment site, he came to the view that the existing development consent, for 48 three bedroom units with associated car parking, did not represent its highest and best use.
76Mr Kenna performed a residual cash flow analysis. That analysis was based on a total development cost of almost $41 million. It suggested to him that the value to be attributed to the apartment site was $4,425,000. That, in his view, was clearly too low, and reflected the fact that the 2005 consent did not represent "the property's highest and best use" (the phrase is taken from his email to Mr Ferrier of 31 May 2007, which I set out in the next paragraph).
77Accordingly, on 31 May 2007, Mr Kenna sent an email to Mr Ferrier. Omitting formal parts, that email reads:
As discussed earlier today.
1) The quantity surveyors report prepared by Tony Makin Associates has resulted in a total development cost of $40,895,995. The development costs associated with the current DA, In my opinion, suggests this proposal is not the property's highest and best use.
2) My enquiries with Warringah Council failed to determine the optimum development scenario of the site and as a property valuer it is beyond my realm of expertise to do so. Any such attempt would be highly speculative.
3) In order for me to derive the market value of the property I would require advice from an expert town planner or professional in this field as to what is the property's optimum potential is under the current zoning. Someone with extensive experience in the Warringah council area would be recommended.
4) Once an optimum scenario is determined, further professional advice on expected construction costs and time would be required.
78Mr Ferrier forwarded that email to Messrs Cahill and Bega, and sought their instructions. Mr Cahill supported the engagement of a town planner, and recommended Mr Geoff Goodyer. Mr Bega did not agree to the engagement of a town planner as requested by Mr Kenna. He insisted that Mr Kenna should do the job with the material he had available.
79Accordingly, Mr Ferrier instructed Mr Kenna to proceed without town planning advice, and to use the direct comparison method.
80Mr Davis said in his first report at para 3:
3. I note that my valuation of the Site has been conditional upon receiving expert town planning advice, to which I refer later in this report. I note that no such advice is referred to in the Landmark Report. Notwithstanding that town planning advice does not appear to form part of Landmark's instructions, I note that I would not have accepted an instruction of the nature of Landmark's instruction in this instance without the benefit of expert town planning advice. I expand on the rationale of this opinion later in the report.
81Mr Goodyer was engaged to provide the town planning advice that Mr Davis requested. That advice suggested that the site could be developed to allow about 9,600 square metres of floor area (internal and external), compared with the approximately 8,252 square metres available under the 2005 consent. On that basis, Mr Goodyer suggested that the site could accommodate about 80 two bedroom units or 64 three bedroom units.
82Ultimately, Mr Davis prepared his valuation on the basis of a "conjectural concept" (his words), that there would be about 75 units, comprising a mix of one, two and three bedroom units. I note at this point that there was no town planning advice which suggested that such a development would be approved, nor any architectural or other design showing how such a mix of units could be accommodated on the site.
83By contrast, Mr Panopoulos did not have the benefit of town planning input. He was not given Mr Goodyer's report.
84The valuations prepared by Mr Davis and Mr Panopoulos were widely divergent. Mr Davis valued the site at $20 million exclusive of GST. Mr Panopoulos valued it (relevantly) at $12,150,000 including GST.
85I prefer the evidence of Mr Panopoulos to that of Mr Davis. There are five broad reasons for coming to this conclusion:
(1) Mr Davis did not perform the same task that LMW was instructed to perform and had performed. He was given information that was not available to LMW. By contrast, Mr Panopoulos' "blind" valuation methodology more effectively replicated, in approach, the task given to LMW. Mr Panopoulos' methodology is more appropriate than Mr Davis', in assessing the work done by LMW and Mr Kenna.
(2) Following on from the first reason, some of the material that Mr Davis had and LMW did not have was of key importance for Mr Davis' conclusion. I refer to the town planning advice given by Mr Goodyear as to the highest and best use of the apartment site. Mr Davis had the advantage of working on the basis of that material. It - in particular his conjectural concept based on it - was essential to his reasoning and conclusion.
(3) Further, although Mr Davis said (and I accept) that he sought consciously to exclude material indicating opinions or conclusions as to value, that had not been given to Mr Kenna, I think that it must have had some at least subconscious impact on Mr Davis' opinion.
(4) In my view, there are real difficulties in the way that Mr Davis used the advice given by Mr Goodyer; and there are problems within Mr Goodyer's advice itself.
(5) Quite apart from the divergences in methodology that I have outlined above, there were other differences between the methodology employed by Mr Davis and the methodology employed by Mr Panopoulos. In my view, Mr Panopoulos' methodology was more precise, and better equipped him to perform the fundamental task of comparing the apartment site to the comparable sales, so as to derive a value for the apartment site.
86I expand on those reasons below. Before doing so, it is necessary to say something about planning controls affecting the apartment site and the impact they had on the use of comparable sales.
Highest and best use, planning controls, FSR and ILAR
87At one point in his evidence, Mr Kenna appeared to suggest that the highest and best use for the land should be stated simply as use for residential apartments, and that how that highest and best use might be most satisfactorily exploited was a matter for detailed design. However, Mr Goodyer, the town planning expert, appeared to adopt a more precise concept of highest and best use: namely, the maximum development that could be permitted on the land consistent with relevant planning controls. Messrs Davis and Panopoulos worked on the basis of that more specific concept, and I should do likewise.
88It was common ground that, at the valuation date:
(1) the relevant town planning instrument applicable to the apartment site was the Warringah Local Environmental Plan 2000 (WLEP);
(2) the WLEP did not impose density restrictions by reference to floor space ratios or minimum site area per dwelling; and
(3) instead, the "built form controls" related to matters of building height, setbacks, building envelope, landscaped area and car parking.
89It was common ground that the WLEP imposed height restrictions. For the apartment site, it was three storeys. For some of the comparable sales relied upon, it was two storeys.
90Where planning instruments specify floor space ratios, or minimum site areas per dwelling, it is somewhat easier to use comparable sales evidence for the purpose of valuing a particular site. That is because, where there is a fixed floor space ratio (or minimum area), it is relatively easy to see what is the maximum possible built area that could be constructed on a particular site. The sale price can then be converted to a rate per square metre of allowable development, or a rate per dwelling. Assuming that the sites are otherwise comparable in terms of location, aspect, amenity and the like, the rate so derived may be applied, with analysis and where necessary adjustment, to the site to be valued.
91Where there are no fixed floor space ratios or minimum areas per dwelling, that method of analysis is unavailable.
92Accordingly, as everyone appeared to recognise, it was not an easy task to translate the sales evidence into a format that would enable it to be applied with some degree of utility to the task of valuing the apartment site.
93Mr Panopoulos said that in his practice he used an analytical tool known as the "Internal Living Area Ratio", or ILAR. That, he said, was important because internal floor space was "the key driver of sales revenue".
94Mr Davis criticised the ILAR, on the basis that it was a "calculation... which was in the nature of a due diligence exercise, free of the constraint of competitive bidding for the Land".
95Mr Davis said that, to his knowledge, the ILAR was not a measuring device, or metric (my word, not his), used by developers. It turned out, however, that Mr Davis had had no direct experience of working with developers. Mr Panopoulos, who had had such experience, said that it was. I prefer the evidence of Mr Panopoulos on this point.
96Further, to say that it is a "calculation... in the nature of a due diligence exercise" does not seem to me to be a criticism. One might think that a developer contemplating spending $12 million, or $20 million, on a parcel of land to be developed would want to undertake as much "due diligence" as possible before outlaying its (or its financier's) cash.
97Nor do I think that "the constraint of competitive bidding" is a consideration of great relevance. Mr Panopoulos estimated that it could take 12 to 18 months to sell the apartment site (or the overall site). I do not think that Mr Davis disagreed with this, although he did say that, if one took too long to assess the site, there was always a risk that another developer might come in and buy it. Regardless, the sale of a large and extremely valuable parcel of land does not seem to me to be analogous to a Saturday auction sale of a residential property where (in the recent market, at least) there are frequently several purchasers each clamouring for the one property, and each apparently capable of buying it.
No comparison of like with like; extraneous material
98Mr Davis said at para 88 of his first report that his instructions were to value the apartment site based on the instructions given to LMW. However, as is clear from the evidence overall for the reasons that follow, he did not do so.
99In my view, the basis on which Mr Davis was instructed, the material with which he was instructed and, thus, the way that he carried out the valuation exercise makes it difficult to accept that the result produced by him can form the basis for a valid criticism of the work done by Mr Kenna.
100Mr Davis knew, from the matters to which I refer in the following paragraphs, that the LMW valuation was the subject of the proceedings in which his advice was sought. Accordingly, and accepting as I do that Mr Davis sought to discharge his duties honestly and impartially, he knew that the LMW valuation was, as it were, "under attack".
101The letter of instructions to Mr Davis was dated 30 August 2011. However, as became apparent in the course of cross-examination (I set out the relevant passage a little later in these reasons), Mr Davis had been first instructed well before then. Indeed, as the letter of instructions noted, there had been a conference with the instructing solicitor Mr Levitt and a Mr Paul Yap of Levitt Robinson, Mr Pritchard of Senior Counsel and Mr Davis on 19 August 2011.
102The letter of instructions stated:
I confirm our request for you to provide a further valuation of the subject property, solely upon the instructions which Greg Kenna of LandMark White actually disclosed as having received in the Valuation Report. [Emphasis supplied.]
103The letter of instructions attached what was said to be a summary of LMW's instructions, prepared by Mr Levitt. However, the "summary" was far more than that. It included not only extracts from the instructions that were said to have been given to LMW (as they appeared from the valuation prepared by LMW) but also commentary on the work done. Further, the summary referred to a controversy as to the basis on which Mr Kenna had valued the property and to correspondence, expressly said to have been "without prejudice", dealing with that issue:
(It is controversial whether Mr Kenna has valued the property on the basis of highest and best use or with its current DA or some hybrid of both). Just what "site value" on an "as is basis" means, in light of the requirement that "the valuation would be prepared in accordance with API Professional Manual Standards and Guidelines," is not clear.
In correspondence written by DLA Phillips Fox for LandMark White, on 5 September 2007, and sent to Freehills, acting for Mr Cahill ("without prejudice"), the following was written at paragraphs 25.10
"(by) its very nature, ... (the Valuation) ... was qualified to the extent that the valuation may not necessarily reflect the highest and best use of the property and as such, its optimum site value 'as is'".
The DLA Phillip Fox author continues:
"Rather it does, in our opinion, highlight the fact that it is, by its very nature, that is, by its clearly stated qualified basis, totally inconsistent as a valuation upon which the parties could have ever intended would resolve any dispute".
This seems to be an overstatement of Kenna's position. The Valuation strives to "be all things for all men" rather than to state that the valuation did not purport to value the property according to its "highest and best use".
104In my view, it was inappropriate for the letter of instructions to attach what purported to be a summary of the instructions given to LMW but which in fact was in some respects an argumentative or polemic document. It was no doubt appropriate to give a dispassionate and even-handed summary of the instructions. The document that purported to summarise the instructions did not, in my view, answer that description.
105The matters to which I have referred were the subject of cross-examination (T167.17-169.28):
MCCULLOUGH: Returning then to the question of when you were first instructed, I am now dealing with those matters I flagged earlier on your Honour relating to the objections I took earlier. You were first instructed in 2010. At the time you were first instructed you were informed that there was a potential dispute involving the valuation performed by Landmark White, is that correct?
WITNESS DAVIS: Yes.
MCCULLOUGH: You were provided with a copy of the Landmark White valuation?
WITNESS DAVIS: Indeed.
MCCULLOUGH: You read it?
WITNESS DAVIS: Yes.
MCCULLOUGH: Were you informed that litigation was contemplated?
WITNESS DAVIS: I believe so, yes.
MCCULLOUGH: You were informed, weren't you, that so far as Mr Cahill was concerned first the value derived was too low?
WITNESS DAVIS: That was his opinion.
MCCULLOUGH: Yes, and that the wrong approach had been taken.
WITNESS DAVIS: Yes, because the proposition was that the valuation was based on the existing DA.
MCCULLOUGH: In addition, still dealing with the point of time in 2010, you were also provided with a valuation prepared by Colliers which had a date of
8 January 2007, weren't you?
WITNESS DAVIS: Correct.
MCCULLOUGH: You read that?
WITNESS DAVIS: Yes.
MCCULLOUGH: It contained, did it, evidence of comparable sales?
WITNESS DAVIS: It did.
MCCULLOUGH: Did you use some of those comparable sales in preparing your report?
WITNESS DAVIS: Some of them, yes.
MCCULLOUGH: No doubt that saved you some work later on, is that a fair way of putting it?
WITNESS DAVIS: Well, it was useful to the extent that it did point to comparison sales, yes.
MCCULLOUGH: You were also provided with some material from a firm called Landsbury Valuations dealing with a GST margin question?
WITNESS DAVIS: Yes.
MCCULLOUGH: And you read that material?
WITNESS DAVIS: Yes.
MCCULLOUGH: You were also provided with some material relating to a confidential offer for the land by AV Jennings?
WITNESS DAVIS: Yes.
MCCULLOUGH: You read that material?
WITNESS DAVIS: Yes.
MCCULLOUGH: You had a conference didn't you with Mr Paul Yap(?) of Mr Levitt's firm, and Mr David Pritchard of counsel senior counsel?
WITNESS DAVIS: Yes.
MCCULLOUGH: And the purpose of that conference, as you understood it, was to discuss and settle your letter of instructions for the preparation of your report?
WITNESS DAVIS: That I don't remember.
MCCULLOUGH: Do you remember being present at a conference to discuss the way in which the instructions to Landmark White should be reasonably interpreted?
WITNESS DAVIS: Yes, in fact my first task in this was to opine as to whether or not they had been reasonably interpreted.
MCCULLOUGH: Do you agree that if you had been afforded the opportunity, the most accurate method by which to approach the valuation of this land as at 2007 for comparison purposes, that is to compare the valuation of Landmark White, was to perform what is known as a blind retrospective valuation?
WITNESS DAVIS: Yes, with a valuation like this I have to approach the matter fresh and put out of my mind any information that post dates the valuation, and put myself into the shoes of the valuer in effect.
MCCULLOUGH: In the events that have happened, as I have taken you through them reasonably chronologically I hope, you were not afforded that opportunity because you had been given, and had read, a great deal of material a number of them expressing opinions by other valuers, relating to the subject land at about the time of the valuation, isn't that correct?
WITNESS DAVIS: Well, that's correct to the extent that, yes, I was given that material. To the extent that I had regard to it, and relied on it, no, I didn't rely at all on the Colliers valuation. And in terms of the Landmark White valuation I made my comments on it formally and in valuing it I looked at the matter fresh.
106This passage of evidence shows that Mr Davis had been instructed at some time in 2010, and had been told that there was a dispute involving LMW's valuation. He was told what Mr Cahill's complaints were, including that the value was too low. It seems that Mr Davis then prepared a draft valuation. That draft was not in evidence, nor was there evidence as to its purpose. It may have been prepared so that Mr Cahill could consider whether to commence proceedings. If that were the case, it is hard to see how Mr Davis could make the transition from being part of the "team" on which Mr Cahill relied for advice in relation to the proceedings to being an independent expert witness owing his primary duty to the Court.
107Further, in my view, it was inappropriate to brief Mr Davis with the Colliers valuations. Again, accepting that he sought honestly and impartially to discharge his duties, and to put the Colliers valuations out of his mind, it is inconceivable that they could not have had any at least subconscious effect on his thought processes.
108Again, and for exactly the same reason, I think it was inappropriate to brief Mr Davis with the Jennings material. That material told him that there had been a purchaser prepared to offer $19 million for the apartment site. The overwhelming probability is that this, too, had some at least subconscious effect on Mr Davis' thought processes.
109I now turn to the town planning report that Mr Davis requested and was given (Mr Goodyer's report). As I have noted, Mr Kenna requested that he be given the assistance of a town planner. That assistance was refused. Mr Kenna was instructed to proceed with the material that was then available to him. That material included the 2005 consent and the Makin report, which costed the development the subject of that consent.
110Mr Davis criticised Mr Kenna for proceeding in those circumstances. He said that he would have refused to accept instructions on that basis. No doubt, it would have been open to Mr Kenna to do this. But the alternative, which he pursued, was to record the omission in his report, and to record the alternative assumption, as to highest and best use, that he made. That assumption he summarised as follows:
In the absence of expert planning advice, I have based my assessment upon the foundation that an incoming purchaser is likely to achieve council approval for an alternate [sic] residential development yielding and equivalent 48x3 bedroom units. This purchaser would likely and appropriately alter the current design, so as to develop a more cost effective proposal to warrant a profitable outcome, thus reflecting the sites [sic] actual underlying value.
111Whether or not Mr Kenna was correct to proceed rather than to refuse to continue is not the point for present purposes. The point is that, he having chosen to proceed, he did so without the benefit of town planning advice. Mr Davis did have that benefit. It is clear from Mr Davis' first report that he regarded the town planning advice as being of key importance. It is, when one reads his reports and Mr Panopoulos' reports (and Mr Kenna's report) the key difference between them, and I think at least on the face of the reports the key driver of the disparate views as to value.
112By contrast, although Mr Panopoulos was asked to perform a retrospective valuation, he did so without any of the material given to Mr Davis to which I have referred above. He did not have the LMW valuation. He did not have the Colliers valuations. He did not have the Jennings material. Nor did he have any town planning advice.
113Thus, the position adopted by Mr Panopoulos was directly comparable to the position with which Mr Kenna was faced. They were required to value the same parcel of land. They worked on the basis of the same consent - the 2005 consent. They had the Makin report (which estimated overall construction costs, for the development the subject of the 2005 consent, at close to $41 million). They had available to them the same comparable sales evidence, although, in respect of their choice of appropriate comparable sales, Messrs Davis and Panopoulos are closer than are Messrs Panopoulos and Kenna.
114Regardless, the exercise that Mr Panopoulos was asked to and did undertake was in substance a recreation of the task that Mr Kenna undertook. In my view, the results produced by Mr Panopoulos from undertaking that task are far more relevant to a consideration of any deficiencies in the work undertaken by Mr Kenna.
115Those are the more detailed reasons underlying the summary given at [85(1), (2), (3)] above.
Mr Goodyer's advice and the use made of it
116I have referred to Mr Goodyer's analysis of the "built form controls". After setting out those controls, Mr Goodyer attempted to assess what might be built. As he pointed out, if the building envelope complied only with the setback requirements, the result would be that less than 30% of the site would be available for landscaping, compared to the requirement that there be 50% landscaped open space.
117Thus, as Mr Goodyer said, the "key determinant of the development potential" of the apartment site was the requirement that 50% of the site be landscaped open space.
118Allowing for hard surface areas (which did not count towards landscaped open space) Mr Goodyer reasoned that some 3217 square metres "is considered the maximum potential, assuming a development that complies with the development standard". That was his calculation of the site area that could be built upon, not of the total floor area that could be built.
119Mr Goodyer said that, taking into account the three storey height limit and "assuming no articulation", the maximum floor area that could be built would be 9651 square metres.
120Mr Goodyer then pointed out that there should be deductions made for "circulation areas". He estimated that that would reduce "the floor area available for apartments" to 8686 square metres. I take that to encompass both internal and external floor space (see at [127] below).
121Mr Panopoulos said that in his view it was reasonable to assume that each apartment would have, on average, 20 square metres of external living space (decks, terraces, balconies of whatever). If, as Mr Goodyer posited, there could be 80 apartments in the development, that would reduce the internal living area by 1600 square metres. Alternatively, if as Mr Goodyer posited, there might be only 64 apartments, that would reduce it by 1280 square metres.
122I interpose at this stage that Mr Davis worked on a conjectural, or "indeterminate" (also his word), concept of some 75 apartments. That would equate to 1500 square metres of external space, or a reduction in the internal living area to 8186 square metres.
123However, Mr Goodyer considered that it might be possible to secure Council's approval for variations to the built form controls. After acknowledging that "it is difficult to anticipate the extent to which variations to built form controls will be permitted", Mr Goodyer "considered" (without being unkind, "speculated" might be a better word) "that some variation to the landscaped area control could be justified".
124If such a variation were approved, then Mr Goodyer considered that there could be "a total floor area available for apartments of... 9601m²".
125Again, as I understand it, Mr Goodyer was referring to internal and external area. Thus, again, to obtain a net internal area, allowance would need to be made for external living areas as set out already.
126The result of this, according to Mr Goodyer, was that some 80 apartments each averaging 120 square metres (as he said, "suitable for an average 2 - bedroom apartment") could be constructed. Allowing 150 square metres each ("suitable for an average 3-bedroom apartment") then, Mr Goodyer said, some 64 apartments could be constructed.
127Mr Panopoulos said that 120 square metres was an unusually large internal floor area for a two bedroom apartment. On that basis, he said, he understood Mr Goodyer's views to indicate that he had not separated out internal and external living area. I accept that evidence.
128Mr Davis did not attempt any such rationalisation of Mr Goodyer's evidence, perhaps because he did not regard ILAR as a useful or commonly used metric. On the contrary, Mr Davis took the results appearing from Mr Goodyer's report and conjectured a development comprising "approximately 75 apartments", comprising a mix of one, two and three bedroom apartments.
129In his second report, Mr Davis characterised this as "an indeterminate development of the Property site" and a "conjectural concept". In his first report, Mr Davis had referred to his projected configuration as "indeterminate". He speculated "that a reasonable proportion of them would have the benefit of unimpeded beach and ocean views to the east".
130As I have said, Mr Davis did not work on the basis of an architectural sketch that would show how his conjectural concept could be realised. Nor was his concept sufficiently determinate to show how many apartments, or of what size, would have the benefit of ocean views.
131I have a number of concerns with both Mr Goodyer's evidence and Mr Davis' use of it. The overarching concern is of course that no such analysis was made available to Mr Kenna. But putting that aside, my concerns are:
(1) Mr Goodyer's view, that the Council might allow some relaxation of the built form controls, depends entirely on the nature of the development that is proposed. There was no development concept. There were no architectural sketches. Thus, there is no way that the Court can assess the likelihood that any relaxation of those controls would be allowed. As I have suggested already, I think that this is more in the nature of speculation on Mr Goodyer's part than expert evidence which involves the application of specialised skill or knowledge to assumed or proven facts. If it were to rise above the level of speculation, there would need to be evidence of a specific form or concept of development that might justify relaxation of the controls and, thus, provide "a total floor area available for apartments" remotely close to Mr Goodyer's figure.
(2) Likewise, there is no rational basis for assessing the likelihood that Mr Davis' "indeterminate" or "conjectural" concept might ever be approved, so as to yield anything like the number of apartments that Mr Davis suggested.
(3) In this context, Mr Davis has not simply taken the data (and opinions) presented by Mr Goodyer's report. Mr Davis has instead sought to use that data to construct an alternative, although almost entirely undefined, model, and to use that model as a central element in his reasoning.
132In short, I do not accept that the evidence of Mr Goodyer, and the evidence of Mr Davis based upon it, provides any safe foundation for concluding that what Mr Goodyer projected, or what Mr Davis adapted from it, demonstrates in any reliable or acceptable way the highest and best use of the land.
133I accept, as all the valuers agree, that the development the subject of the 2005 consent does not represent the highest and best use of the land. I am not satisfied, and do not find, that the evidence of Mr Goodyer and the evidence of Mr Davis founded on it demonstrates in any persuasive way what might be the highest and best use of the land.
Mr Panopoulos' methodology
134I have referred already to what I think is one important feature of that methodology: namely, Mr Panopoulos' use of ILAR. To my mind, that is a valid analytical tool, and the way in which Mr Panopoulos used it leads to some significant undermining of Mr Goodyer's evidence and the evidence of Mr Davis based upon it.
135Mr Panopoulos worked off the plans attached to the Makin report to assess that the development the subject of the Makin report (i.e., a development for 48 three bedroom apartments in accordance with the 2005 consent) would have a total internal living area of 6096 square metres and a total external living area, or terraces, of 2156 square metres. I note, in passing, that this would yield an average terrace size of 45 square metres, or double the size that Mr Panopoulos said one might expect. Presumably, this reflects a particular design concept inherent in the development the subject of the 2005 consent.
136If one adds the internal and external living areas together, the result is 8252 square metres. That is not radically different from the base figure derived by Mr Goodyer, before he moved to consider what might happen if some variation to the built form controls were allowed. That figure, as set out above, was 8686 square metres.
137If, as Mr Goodyer's calculations show, the total floor area (internal and external) available for apartments, before variations to the built form controls, is 8686 square metres then, absent any variation to those controls, this should be taken to represent, in terms of density at least, the highest and best use of the land.
138If one compares that figure to the total (internal and external) floor area calculated by Mr Panopoulos from the Makin report, the difference is some 434 square metres. That is approximately 5% of the floor area, whether as calculated by Mr Goodyer (before consideration of variations) or as calculated by Mr Panopoulos.
139This analysis indicates that, at least in terms of floor area for apartments, there was no significant difference between the development the subject of the 2005 consent and the floor area available for apartments as calculated by Mr Goodyer before considering the question of possible variations to the built form controls.
140The essential difference between the two proposals is that the development the subject of the 2005 consent seems to have minimised the number of available apartments, so as to allow a larger terrace area for each. That is why it produces 48 apartments rather than the 58 which would be available on Mr Goodyer's "pre-variation" calculations, utilising his allowance of 150 square metres for each apartment (8686/150 = 58).
141It may be accepted, as the experts all agreed, that the development the subject of the 2005 consent did not represent the highest and best use of the land. I repeat that this was the development that Mr Kenna was instructed to take into consideration in performing his valuation. However, the difference between that development and a hypothetical development that might be possible under Mr Goodyer's pre-variation calculations reflects the design choice to allocate floor area to terraces rather than internal living area. It was not put to Mr Kenna that he should have carried some notional redesign so as to rectify this possible imbalance.
142It may be that Mr Panopoulos was being somewhat conservative in some of the assumptions that he made. Undoubtedly, there were differences in approach that he and Mr Davis took to the comparable sales evidence. I deal with these in the following paragraphs.
143However, even taking into account those matters, I prefer Mr Panopoulos' evidence as to and based on ILAR to that of Mr Davis.
The approach to comparable sales
144This exposes one of the major points of difference between Messrs Davis and Panopoulos. Mr Davis extolled the virtues of the apartment site, which he described variously as a "gateway" or "landmark" site. He was moved at one point to compare it, close to Narrabeen beach as it is, to sites at Bondi or Manly. If I may say so, I think the comparison was a little fanciful.
145Mr Davis used his assessment of the virtues of the apartment site to justify assigning to it a value at the upper end of the range of values shown by the comparable sales.
146Mr Panopoulos, on the other hand, was less entranced by the charms of the apartment site. That was his stated reason for declining to assign to it a higher value (on a per square metre or per unit site basis) than the comparable sales suggested.
147In short, I think, Mr Davis over-praised the apartment site and Mr Panopoulos under-praised it. The truth lies somewhat between the two approaches. However, Mr Panopoulos in effect compensated for his conservatism in the way described at [152] below.
148Mr Davis emphasised the site's proximity to Narrabeen beach and the ocean views (that could not be built out, because there was a public reserve opposite) that some of the apartments would enjoy. How many might enjoy that view is, as I have said, unknown.
149Mr Panopoulos emphasised that many of the apartments would not enjoy those views, but would instead front onto Pittwater Road. That is, of course, a major arterial road, carrying heavy traffic at all hours of the days but particularly during peak hours.
150The development the subject of the 2005 consent had been planned so as to orientate all the apartments towards the ocean views. That may be one reason why it yielded only 48 (3 bedroom) apartments.
151The Pittwater Road frontage is more extensive than the Ocean Road frontage. It is inherent in Mr Davis' concept that, to get 75 units including a mix of 1, 2 and 3 bedroom apartments, the majority will of necessity front onto Pittwater Road. If the Ocean Road frontage is devoted to the superior, three bedroom, apartments, then by hypothesis the majority of the lesser apartments will front onto Pittwater Road. Thus, a minority of the apartments would enjoy the amenities of view extolled by Mr Davis. Of course, all the apartments would enjoy swift access to the beach.
152Mr Davis treated the site as homogeneous. Mr Panopoulos estimated that about 35% of the site could be said to be the "Ocean Road frontage" portion, and the remaining 65% could be said to be the "Pittwater Road frontage" portion. That does seem to me to be a realistic assessment of the site. Accordingly, Mr Panopoulos said, it was appropriate to apply higher values per square metre only to the Ocean Street frontage portion, and to apply lower values to the Pittwater Road portion, so as to produce an overall blended rate. Again, that seems to me to be logical.
153By contrast, Mr Davis' analysis attributed the same value to each square metre of the site on the Pittwater Road frontage, as it did to each square metre on the Ocean Road frontage, and eschewed the concept of a blended rate. That does not seem to me to be logical, at least when the value selected is at the upper end of the range emerging from the comparable sales, and said to be justified by the virtues of the ocean view.
154This is one of the ways in which I regarded Mr Panopoulos' analysis as more precise. It seems to me to be a more rigorous approach to the task of attempting to ascertain a blended value (in terms of dollars per square metre or dollars per unit site) for the whole of the apartment site.
155Thus, putting aside the way in which Mr Davis sought to extol, and Mr Panopoulos to depreciate, the virtues of the apartment site, I think that Mr Panopoulos' analysis is the more logical and rigorous. I am comfortably satisfied that it produces a more correct reflection of the value of the site overall, because it allows a more precise application of data obtained from comparable sales.
Conclusions on the valuation evidence
156As I have said, I accept the evidence of Mr Panopoulos in preference to that of Mr Davis. It may be that, overall, the value derived by Mr Panopoulos is a little pessimistic. Nonetheless, the fact is that it derives from a "blind" valuation, performed on the same basis as that which Mr Kenna had been asked to perform, and utilising the same data. Thus, I regard it as a more reliable guide to the value of the site as at 25 June 2007, than I do Mr Davis' valuation.
157I am not satisfied that, as at 25 June 2007, the apartment site had anything like the value attributed to it by Mr Davis.
158Further, I am not satisfied that correcting any conservatism within the confines of Mr Panopoulos' methodology would produce a value any higher than the figure of $14,500,000 which in effect Messrs Cahill and Bega attributed to the apartment site in the deed of restatement.