116 We note that although the trial judge made a brief comment about this valuation (at [160] of his Honour's judgment, extracted above) which could be interpreted as indicative of his approval of the valuation or as indicative of his acceptance that the valuation was not negligent, misleading or deceptive, it is not clear from his reasons whether his Honour considered the approach taken by the valuer in detail, or to the same extent that he considered the approach taken by Mr Hughes and Mr Ross in their valuations.
117 Despite, however, the criticism by counsel for the appellants of the lack of detail in his Honour's judgment with respect to this point, we are not persuaded that it was inappropriate for the judge to take into account the Colliers Jardine valuation in making his finding about the value for the property. That valuation standing alone was, however, insufficient to support his Honour's conclusion that the value of the property was about $10 million, for the judge did not indicate that he adjusted it in any way to arrive at a lower value, only that he considered it as a factor which he took into account.
118 The next factor to which his Honour referred was his impression that Mr Hughes had not given due consideration to two aspects of the property. His Honour said (at [215]):
"Furthermore, I formed the impression that Mr Hughes had not given sufficient weight to two aspects of the Property. The first was that the Property was new in comparison to the hotels which comprised the five hotel sales which he analysed - a factor which he acknowledged (in cross-examination) made it more attractive to customers. The second was the high proportion of large rooms in the Property. Mr Hughes did not ascertain the room sizes in the five comparable hotels, but thought that they would be "regulation minimum size" of about 19 square metres. He had the room sizes at the Property available to him because he was provided with the plans. They showed that, of the 76 rooms in the Property, 18 were 50.25 square metres in area, which Mr Hughes agreed was "spacious", 18 were 36 square metres, 36 were 26.5 square metres and there was 4 penthouses ranging from 56 to 68 square metres."
119 It is difficult to tell from his Honour's reasons whether these factors led him to reject Mr Hughes' valuation or to arrive at a value of about $10 million or both. We consider, however, that the distinction is irrelevant because although there was no error in taking into account the deficiencies in Mr Hughes' valuation in making the finding about value, those deficiencies could not be said to be sufficient to found a conclusion as to the value. Specifically, this part of the reasoning does not disclose an approach by which his Honour might have arrived at the value of about $10 million. At most, it could be said to support a valuation higher than that contended for by Mr Hughes.
120 We have also considered whether the Colliers Jardine valuation, assessed together with the deficiencies in Mr Hughes' valuation, could be said to amount to a process by which his Honour arrived at a value of about $10 million for the property. In our view, however, even assessed cumulatively, these factors are insufficient to satisfy the principle in Milledge that a trial judge must use an accepted method to satisfy his or her mind as to the value of the property at the relevant time.
121 The remaining factor that his Honour noted consisted of the offers that had been made for the property. The appellants contended that his Honour erred in taking these into account. Although it might seem logical that a bona fide offer for a property is just as good evidence of the value of the property at the moment before the contract is concluded as the moment after, as the High Court noted in McDonald v Federal Commissioner of Land Tax (1915) 20 CLR 231 ("McDonald"), there is little doubt that an offer to purchase is not to be accorded the same significance as a concluded sale, and indeed may not be admissible at all.
122 In McDonald the trial judge had to assess the value of pastoral land for the purposes of the Land Tax Assessment Act 1910-1911. One of the issues raised on appeal was the trial judge's rejection of evidence of two offers. The first offer was evidenced by a letter from the owner's agent offering to sell the property to a named person for a specified price. The offer was not accepted. The High Court held that this was not evidence in the terms that the relevant statute required, that is, evidence of the price a buyer would give under reasonable conditions. At most, the Court considered, it was evidence of the owner's belief as to the value of the land and, as such, the trial judge was correct to reject it.
123 The Court then turned to an additional ground of appeal which related to a verbal agreement to purchase the land from the appellant at a specified price. No binding contract had resulted from the verbal agreement. In considering whether evidence of this offer was admissible, the Court referred to Harris v Municipal Council of Sydney (1910) 10 SR (NSW) 860 ("Harris"), which decided that evidence of an offer to buy a property in the vicinity of the subject land was not admissible as evidence of the value of the subject land. The Court in McDonald then framed the question as follows (at 238):
"We have to search for principles. On what principle is the act or opinion of a third person, manifested on some former occasion, respecting the value of other land, not on oath, not in presence of the parties, the opinion not capable of being tested by cross-examination, admissible at all to affect adversely one of the parties to the litigation?" [Emphasis added.]
124 Interestingly, although the offer in question in McDonald was an offer to purchase the subject land, the question to be addressed was framed in respect of an offer to buy land other than the subject land. The Court noted (at 239) that evidence of an actual sale of similar land was admissible "where [it] may be regarded as throwing light on the value of the subject land." The Court then considered the distinction between an offer that leads to a concluded contract and an offer that does not (at 239-240):
"When the matter has reached the point of a concluded contract, there has been a definite concrete fact established, which not only evidences value, but to some extent helps to create or modify it. Where an owner has actually parted with his land for a fixed sum and a buyer has parted with his money for the land, a clear event has arisen, which, based on the ordinary instincts and impulses of human nature, indicates a consensus of opinion between two adverse parties in the community respecting the value of similar lands. …
But if the negotiations do not end in a concluded bargain, the field is at once open to a multitude of other considerations before the same point of opinion is reached. Excursions into the realm of collateral circumstances would be endless. They would so add to the cost, delay and uncertainty of litigation as on the whole to render a great disservice to the cause of justice. The Court might have to inquire whether the owner or the other party really terminated the negotiations, and, if so, for what reason. Had either of the parties discovered the true worth of the property or been misinformed by some means as to its real value? Did the owner mistrust the ability of the purchaser, or did the latter find an adverse claimant to the property, or did his circumstances change, or was there a personal quarrel? Or did he learn of a still better bargain? Or… was the offer a sham on either side, or both sides? Such inquiries would render litigation intolerable, and defeat the purpose for which they were permitted." [Emphasis added.]
125 An issue here arises whether the decision of the High Court in McDonald excluding offer evidence is limited to offers to purchase similar properties in the vicinity of the subject land or whether it extends to offers to purchase the subject land itself. In McDonald, the offer under consideration was an offer to purchase the subject land. Although the discussion in the judgment was framed in terms of an offer to purchase a similar property, as in Harris, in McDonald the offer to purchase the subject land was not admitted as evidence of the value of that land.
126 In the present case, the trial judge said (at [216]):
"I also take into account, to a lesser extent, the various offers that were made for the Property which I have described above. I place their significance at the lower end of the scale of weight because they did not result in sales."
127 Although this part of his Honour's judgment does not specify the offers to which his Honour was referring, he had referred to the following offers in earlier sections of his reasons: City Inn's contracts with KPG and Keywest for a total of $11 million (at [4]); Arcadia's contract with City Inn for a total of $12.5 million (at [5]); Kirk Nominees Pty Ltd's offer to purchase from KPG and Keywest for a total of $11 million (at [157]); Australian Land Investments Pty Ltd's offer to purchase from Cordelia at $13 million (at [162]); PT Risjadson Pty Ltd's offer to purchase from Cordelia at $13.5 million (at [163]); Westralian Investments Pty Ltd's offer to purchase from Cordelia at $12.5 million (at [164]); and an offer from Mr Francis Choy to Cordelia for $12 million (at [165]). In respect of some of these offers, the trial judge noted that the cheque for the deposit was dishonoured, and in others that the prospective purchaser had failed to obtain the requisite finance.
128 It seems clear to us the decision of the High Court in McDonald, as applied by single justices of the High Court in James Patrick & Co Pty Ltd v Minister of State for the Navy [1944] Argus Law Reports 254 and Gregory v Commissioner of Taxation (Cth) (1971) 123 CLR 547, is determinative as to whether it is an error to take into account evidence of offers. Whatever weight may be properly given to evidence of offers for limited or general purposes, it is clear that such evidence is not permissible as direct evidence of value.
129 Insofar as the trial judge used the evidence in that way he was, we consider, in error in doing so. To the extent that such evidence may be admissible in a general way, as to which see Wilcox J in Goold v Commonwealth (1993) 42 FCR 51 at 60 ("Goold")and Heerey J in Henderson v Amadio (No 1) (1995) 62 FCR 1 at 122, it provided an insufficient additional basis upon which a conclusion as to value might have been arrived at. Moreover, even if such evidence is used in a general way, it would only be used if it were accompanied by an assessment of relevant factors such as the genuineness of the offer and whether it was made at arm's length (see Goold at 60). In this case, his Honour's findings do not disclose a consideration of that nature and we must conclude that the evidence of offers was wrongly taken into account and did not provide support for the judge's conclusion.
130 Having now examined the various elements that his Honour did take into account, it follows from our discussion that his Honour's conclusions about value cannot stand. Whilst we appreciate that his Honour, having rejected the valuation evidence as he did, faced a difficult task we nevertheless must conclude that that general and practical approach his Honour adopted was erroneous in point of principle.
131 It is unnecessary in these circumstances to consider separately the submissions about discounted cashflow which, in any event, were not developed in argument before us.
132 Our conclusion on the valuation issues will, however, have no significance to the outcome of the appeal unless we conclude that his Honour erred in refusing to allow the appellants to rely on the re-amended statement of claim and in his alternative finding that Mr Saffron did not rely on the Royal valuation in entering into the settlement.