Court of Appeal (WA)|2003-12-04|Before: McLure J, Anderson J, Steytler J

Duffy v The Minister for Planning [2003] WASCA 294 (4 December 2003)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DUFFY -v- THE MINISTER FOR PLANNING [2003] WASCA 294

Real property - Compulsory acquisition - Valuation of land - Comparable sales method - Whether sales comparable - Weight to be given to zoning and market demand - Adequacy of disclosed reasoning of valuer - Adequacy of trial Judge's reasons

Public Works Act 1902 (WA), s 47D(6)

Bronzel v State Planning Authority (1979) 21 SASR 513

Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; (1981) 146 CLR 336

Commonwealth v Milledge (1953) 90 CLR 147

Commonwealth v Reeve [1949] HCA 22; (1949) 78 CLR 410

Crompton v Commissioner of Highways (1973) 5 SASR 301

Emerald Quarry Industries Pty Ltd v Commissioner of Highways (SA) [1979] HCA 17; (1979) 142 CLR 351

Flotilla Nominees Pty Ltd v Western Australian Land Authority & Anor [2003] WASC 122

In the Marriage of Borriello (1989) 97 FLR 211

In the Marriage of Goodwin (1990) 101 FLR 386

Kiama Constructions Pty Ltd v Davey (1996) 40 NSWLR 639

Magenta Nominees Pty Ltd v Webb, unreported; FCt SCt of WA; Library No 980622; 29 October 1998

Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426

Minister for the Environment v Florence (1979) 21 SASR 108

Players Pty Ltd v Corporation of the City of Adelaide [2001] SASC 369

Redeam Pty Ltd v South Australian Land Commission (1977) 17 SASR 508

Toohey's Ltd v Valuer General [1925] AC 439

Wilsher v Essex Area Health Authority [1987] UKHL 11; [1988] AC 1074

WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489

1 ANDERSON J: I have had the advantage of reading in draft the judgment of McLure J. I agree with it and there is nothing I can usefully add.

2 STEYTLER J: I have had the advantage of reading the judgment of McLure J. I agree with it and with her Honour's conclusion that, while certain of the grounds of appeal have been made out, the judgment of the trial Judge should not be disturbed, with the result that the appeal should be dismissed. There is nothing I wish to add.

3 This is an appeal from the decision of McKechnie J as to the compensation payable by the Minister for Planning (respondent) to Mr Patrick Duffy (appellant) under the Public Works Act 1902 (WA) for the compulsory acquisition of the appellant's land in Northbridge ("Duffy land"). The Duffy land was situated on the south side of Newcastle Street between Lake Street and William Street in Northbridge. It comprised two lots with a combined area of 1,748 square metres. The Duffy land was compulsorily taken for public works on 27 October 1995 ("valuation date").

4 The appellant and the respondent each called two expert valuation witnesses at trial. The appellant called Mr Stephen McMahon and Mr Terrence Dix. The respondent called Mr Jeffrey Spencer and Mr Geoffrey Elliott. The respondent also called another valuer, Mr Brian Zucal who had jointly authored valuation reports on the Duffy land with Mr Elliott. Although he was not called by the respondent to give expert valuation evidence, he was extensively cross-examined on the valuations jointly prepared with Mr Elliott and the trial Judge concluded that he was able to act upon his evidence as an expert valuer.

5 All valuers agreed that the appropriate method of valuation was the comparable sales method. There was a wide range of valuations as follows:

$6,895,000 unimproved value $7,020,000 improved value

6 The trial Judge rejected the valuations of Messrs McMahon and Dix. He accepted Mr Spencer's March 1997 valuation of the Duffy land at $1,354,000.

7 In summary, the appellant contends that the trial Judge erred by applying wrong principles of law as to what is required of an expert valuer and of a trial Judge in a valuation case involving the comparable sales method. It is also contended that the trial Judge erred in accepting Mr Spencer's valuation evidence and in not accepting Mr McMahon's valuation evidence, alternatively, Mr Dix's valuation evidence.

8 In support of his appeal, the appellant relies in part on the statement and application of legal principles in the judgment of Pullin J in Arcus Shopfitters Pty Ltd v Western Australian Planning Commission [2002] WASC 174. That case concerned the compensation payable to the plaintiff under the Public Works Act for the compulsory acquisition of its land on the corner of Palmerston and Aberdeen Streets Northbridge ("Arcus land"). That acquisition also occurred on 27 October 1995.

9 The Western Australian Planning Commission has appealed from the decision of Pullin J and that appeal was heard by the Judges constituting the quorum in this appeal.

10 In August 1963, the Metropolitan Region Scheme ("MRS") was made and published in the Government Gazette under s 30 of the Metropolitan Region Town Planning Scheme Act 1959 (WA). The MRS applies to all land in the metropolitan region. The Duffy land was in the metropolitan region. Provision was made in the MRS for land to be reserved for public purposes, one of which was for "controlled access highways". Land was reserved for controlled access highways in a strip to the north of the Perth city centre. The reservation is known as the City Northern Bypass Reservation ("CNBR"). For relevant purposes, the CNBR runs in an east west direction and covers the land between Newcastle Street and Aberdeen Street, Northbridge. The Duffy land and the Arcus land were in the CNBR. The location of the CNBR between Newcastle and Aberdeen Streets did not alter from the date of the publication of the MRS in 1963. The Graham Farmer Freeway (also known as the Northbridge Tunnel) now runs within and under the CNBR.

11 The trial Judge noted that the existence of the CNBR had "blighted" the land within and around it. That is, it had adversely affected and thus decreased the value of the land. It was not in dispute that the valuers had to approach the valuation of the Duffy land without regard to any increase in value occasioned by the proposed public works and by making allowance for any decrease in the market value of the land as a result of the CNBR.

12 Newcastle Street and the blight are described in a document adopted by the City of Perth in 1991 called the Northbridge Study Final Report. The Report states:

"Although Newcastle Street forms the northern boundary of the Study Area it has strong vehicular and pedestrian links with the area to the north. These links form major threshold points for entry into Northbridge. The City Northern Bypass road reservation, combined with industrial zoning to the north, has resulted in serious blighting of Newcastle Street. The footpaths are inadequate, the built form uncohesive, there are no street trees and powerlines occupy both sides of the road. It carries through traffic bypassing the city centre and it is this traffic (in even greater volumes) that the City Northern Bypass is intended to absorb if it is built. Traffic volumes in Newcastle Street may decrease substantially if the Bypass is constructed."

13 Land on the south side of Newcastle Street is in the municipality of the City of Perth. Land on the northern side of Newcastle Street is, and was at the material time, in the municipality of the Town of Vincent. Save for the land the subject of the CNBR, the City of Perth Town Planning Scheme No 1 ("City of Perth Scheme") applied to Northbridge and, in the relevant period, to land in the Town of Vincent.

14 The City of Perth Scheme divides the Scheme area into the Central Area and the Suburban Area. Northbridge is in the Central Area. Land to the north of Newcastle Street is in the Suburban Area. Newcastle Street forms the outer boundary of Northbridge as well as the Central Area.

15 Within Northbridge there are different zones. They include general commercial (CC) and commercial industrial (CI). The land in the Suburban Area immediately to the north of Newcastle Street is zoned general commercial (suburban) (C3).

16 The trial Judge in his reasons identifies the differences between the CI, CC and C3 zonings. For example, there are no specific requirements in the City of Perth Scheme for setbacks or landscaping for land zoned CC and CI whereas for C3, there is a minimum 4.5 metre setback as well as landscaping requirements. The residential density (ie dwellings per hectare) is R160 in the Central Area and R80 in the Suburban Area.

17 As for parking, there is no obligation to provide car parking spaces on site in the Central Area other than in residential zones, whereas in C3 there are specific requirements for car parking. The plot ratios (the ratio of the gross lettable floor area to the area of land) are 3:1 east of Lake Street, 2:1 west of Lake Street (with a discretion that applies both east and west of Lake Street to increase the plot ratio by 20 per cent) and 2:1 in C3 (with no provision for any discretionary increase). However, there is no material difference in the permissible uses in the Central and Suburban Areas.

18 The trial Judge found that, in the absence of the CNBR, the Duffy land would have been zoned CC under the City of Perth Scheme. The trial Judge also found that the improvements on the Duffy land had reached the end of their useful life and that the land was ripe for development. He concluded that it was appropriate to value the Duffy land as vacant land. These findings are not contested. One of the central issues in the appeal is whether sales of land outside Northbridge, in particular sales in the Suburban Area, are comparable sales.

19 There are 11 grounds of appeal. Grounds 10 and 11 concern costs and were not addressed by the parties in their written or oral submissions on the basis that they be stood over until the substantive grounds of appeal are determined. The other grounds of appeal are lengthy, detailed and involve a degree of overlap. However, as other Northbridge compensation actions and appeals are on foot, it is appropriate to set out the grounds of appeal in full. The appellant contends that the trial Judge erred in law and in fact in that, having accepted the basis of valuation of the Duffy land as the comparable sales method:

"1. His Honour failed to apply to the facts of the case the correct legal principles when deciding upon the value of the appellant's resumed land and which of the valuations given in evidence should be accepted or rejected; in particular His Honour erred in the following respects;

(a) His Honour incorrectly acted on the basis that a valuer's opinion as to value which is 'little more than an estimate or guess' may be accepted as valid notwithstanding that the valuer had difficulty in articulating the reasoning process which led to the opinion.

(b) The correct principles are:

(i) That a Court should not act on an opinion, the basis of which is not explained by the witness expressing it; and

(ii) The process of inference that leads to the conclusions of the valuer must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about their reliability; and

(iii) Unless the process of inference by which an opinion is reached is capable of scrutiny and a judgment made as to its reliability, the opinion can carry no weight.

(c) His Honour incorrectly found it unnecessary to analyse each claimed comparable sale relied upon by the valuers called by each party, selecting those which he regarded as comparable and rejecting those he did not.

(d) The correct principle is that when the accepted basis of valuation is the comparable sales method the Court should decide whether particular sales put in evidence were comparable, which sale or sales are the most comparable and, upon the basis of that conclusion on the evidence, decide the value of the resumed land.

(e) His Honour, however;

(i) without individual scrutiny of claimed comparable sales or testing of the particular valuer's process of reasoning found that the comparable sales put forward by the respondent's valuer Mr J Spencer were 'reasonable' and accepted that witness' valuation of the resumed land; and

(ii) Save with respect to the matters referred to in Grounds 6 and 7(a) below (which are challenged by this appeal), without proper analysis or explanation of particular sales, rejected the comparable sales proposed by the valuers McMahon and Dix as being not comparable or 'not really appropriate' comparable sales.

2. His Honour erred in his consideration of the relevance of zoning as a determining factor of market value in that he held zoning carried less or no more weight than market demand as a factor in the market value of a particular parcel of land when:

(a) His Honour should have held zoning necessarily affected the comparability of other sales and the value of the resumed land irrespective of market demand; and

(b) The zoning of the resumed land is a determining factor of great weight in deciding which other sales are comparable and what is the market value of the resumed land.

2A. His Honour wrongly refused to admit into evidence the Master Plan for the development of the land over the Northbridge Tunnel which includes a multi storey car park for 550-600 cars to be built upon the resumed land.

3. His Honour, in substance and effect, and contrary to principle allowed himself to become the Third Valuer in the case.

4. His Honour erred in accepting the valuation by Spencer as the value of the resumed land by reason that:

(a) The 'basket of sales evidence' used by Spencer as the basis for valuing the resumed land should not have been accepted by His Honour because:

(i) Spencer did not identify within the 'basket of sales evidence' what sales (if any) were comparable or what were not comparable;

(ii) the 'basket of sales evidence' included non comparable sales, namely

(a) Sales of land blighted by the proposed public work.

(b) Sales of land remote from the location of the resumed land.

(c) Sales of land north of Newcastle Street in the Town of Vincent in an entirely different town planning zone; namely a Suburban Area

(d) Sales of land of less development potential than the resumed land.

(e) Sales of land remote in time from the date of resumption.

(iii) The 'basket of sales evidence' did not include sales of land comparable with the resumed land.

(iv) Spencer did not identify any particular sale or sales as the most important comparable sale to the value of the resumed land from which he concluded that the resumed land had the particular value given to it by him.

(v) Spencer could not explain what adjustments he had made or that any adjustments had been made by him for time of sales, improvements, magnitude of area, exposure or other relevant characteristics;

(vi) Spencer did not disclose a process of reasoning, capable of being tested, from his 'basket of sales evidence' by which he placed a value on the resumed land.

(b) His Honour did not identify any particular sale within the 'basket of sales evidence' presented by Spencer as comparable or the most important of the comparable sales to the resumed land from which His Honour could conclude that the resumed land had the particular value given it by Spencer.

(c) His Honour failed to decide which, if any, of the sales in the 'basket of sales evidence' were in fact comparable to the resumed land.

(d) His Honour accepted Spencer's valuation of the resumed land when, for the reasons set out in (a) above, his valuation was unreliable.

5. His Honour erred in not accepting the valuations of McMahon or, alternatively, Dix, for the reasons that:

6. Mr S B McMahon

(a) His Honour wrongly labelled and understood McMahon's method of adjustment of comparable sales to be an 'arithmetic approach'.

(b) McMahon's methodology in approaching adjustments for time, location, improvements, magnitude, exposure and other characteristics was part of the revealed process of reasoning capable of being scrutinised and tested, unlike the absence of a revealed process of reasoning in the 'basket of sales evidence' approach adopted by Spencer.

(c) McMahon identified relevant comparable sales together with disclosed adjustments upon which he relied in arriving at a value for the resumed land according to the different relevant characteristics of the sales and the resumed land.

(d) His Honour wrongly concluded:

(i) That there was no evidence to support McMahon's opinion that land in east Northbridge had a higher value than land in west Northbridge when there was evidence to this effect.

(ii) That the adjustment factor of 50% applied by McMahon to the comparison of a contemporary sale in west Northbridge to the appellant's land in east Northbridge was arbitrary when McMahon disclosed in evidence his reasoning for assigning that adjustment factor.

(iii) That an adjustment factor of 15% (or some other factor) should not be made on the difference in exposure between the Roe and Milligan Street comparable sale and the resumed land in Newcastle Street: and

(iv) Moreover, His Honour indulged in irrelevant rhetoric thereby clouding his judgment in observing 'Roe Street is hardly a side street' when no evidence suggested it was when comparing the factor of exposure;

(v) That adjustments made by McMahon for such matters as location, zoning, exposure and other relevant factors when comparing sales in west Northbridge (or other locations) with the resumed land, were inappropriate;

(vi) That the adjustments made by McMahon for relevant comparable factors were arbitrary and speculative rather than the exercise of considered professional judgment as a valuer;

(vii) That there was no evidence of the exercise of professional judgment by McMahon to support the adjustments he made to comparable sales in arriving at his valuation of the resumed land when McMahon's report and evidence revealed an appropriate process of reasoning in making his judgments;

(viii) That McMahon adopted a technique of adjusting the sale price of comparable properties when in fact McMahon was applying a reasoned process of adjustment of relevant characteristics of compared sales and the resumed land

(ix) That McMahon arbitrarily excluded sales in the Town of Vincent, north of Newcastle Street as comparable when upon a proper understanding of the principles of comparability His Honour should have concluded sales in the Town of Vincent were not comparable.

(x) That McMahon's evidence lacked credit and on occasions in his evidence (not identified by His Honour), he dissembled, when McMahon's evidence shows that he was forthright and explanatory in his evidence as an expert witness should be.

(xi) That the principal basis upon which McMahon valued the appellant's land was by use of the Aberdeen Hotel when the evidence was that, as an actual sale, it was only one of the factors of the valuation.

(xii) That McMahon was a partial witness because he had been engaged by the Appellant to negotiate settlement of the Appellant's claim for compensation when His Honour should have concluded on the evidence that McMahon had acted within acceptable practice standards for a valuer as the Appellant's advocate and valuer having regard to all the circumstances surrounding his engagement, the negotiations and his valuation.

7. His Honour wrongly rejected as evidence of a comparable sale, the sale of the Aberdeen hotel in that:

(a) The Aberdeen Hotel land adjoined the resumed land at the rear thereby by location and zoning being the most comparable land to the resumed land;

(b) The resumption of the appellant's land occurring in October 1995, the Aberdeen Hotel land, buildings and business had been shortly thereafter purchased by the Commissioner of main Roads in November 1995;

(c) His Honour had before him evidence from the valuer Elliottt of the separate value of the land, buildings and goodwill components of the Commissioner of Main Roads' purchase of the Aberdeen Hotel and land from which to compare the value of the resumed land.

8. His Honour should have concluded that the methodology and disclosed reasoning for McMahon's valuation was soundly based on an application of correct principles for valuation on the comparable sales method.

9. Mr T R Dix

Alternatively to the valuation by McMahon His Honour should have, at least, accepted the valuation of Dix in preference to that of Spencer or the respondent's further valuers Elliottt and Zucal (whose valuations His Honour did not accept) by reason that His Honour's decision not to accept the valuation by Dix failed to disclose any credible reasoning justifying the rejection, in that:

(a) His Honour failed to identify sales he said, or provide any reasons for saying Dix had ignored sales which were closer to the appellant's land and closer in time to the date of resumption;

(b) His Honour misinterpreted Dix' (sic) report and evidence concerning vacant land in Francis Street which His Honour said showed Dix was inconsistent in selection of comparable and non-comparable sales;

(c) Whilst His Honour asserted that some sales used by Dix in his valuation had 'questionable comparability' and Dix had excluded properties which were 'apparently comparable' His Honour failed to identify any such property in either category or disclose which properties he had examined for comparability nor did His Honour provide any reason for his conclusion.

(d) In criticising the reliance by Dix, in His Honour's opinion, on a 'combination of sales' which Dix had identified in his report and evidence instead of reliance on one particular sale to support his valuation, His Honour failed to disclose any credible reasoning to justify the criticism and, furthermore, displayed an inconsistency of reasoning from that which led to His Honour's acceptance of Spencer's 'basket of sales evidence' approach to his lower valuation of the resumed land.

(e) His Honour's finding that Dix was 'unable to justify his assumed value of $1500 per square metre for relevant portions of the Northbridge area' was clearly against the evidence.

(f) His Honour did not disclose any basis for his finding that 'two (unidentified) sales' on which His Honour said Dix had principally relied were 'not really appropriately comparable sales'.

(g) The methodology and disclosed reasoning for Dix' (sic) valuation was soundly based on the application of correct principles for valuation on the comparable sales method."

20 The first ground of appeal concerns three broad issues. Firstly, the conditions that must be satisfied before expert valuation evidence using the comparable sales method can, or should, be accepted by a trial Judge. More specifically this issue focuses on the methodology and disclosed reasoning of Messrs McMahon, Dix and Spencer. The second and third are related. They concern the extent to which the trial Judge must consider, alternatively, disclose in his reasons and make findings on the sales claimed by the valuation experts to be comparable.

21 There is a significant overlap between the grounds. I propose to deal firstly with the general legal principles raised in the first ground of appeal and then address the application of those principles in the context of the grounds relating to Mr McMahon, Mr Dix and Mr Spencer in that order. I have approached the matter in this way because the difficulties occur not in the statement of the legal principles but in their application. I start with the theory of the comparable sales method.

22 The test of market value is what in all the relevant circumstances would be the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the land: Commonwealth v Arklay [1952] HCA 76; (1952) 87 CLR 159 at 169-170; Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418 per Griffiths CJ at 432.

23 One method of ascertaining market value is the comparable sales method. That method requires that the sales evidence relied on be relevant and sufficient in volume: Maurici v Chief Commissioner of State Revenue [2003] HCA 8 at [18]; [2003] HCA 8; (2003) 195 ALR 236 at 242 [18].

24 A helpful description of what the comparable sales method involves was given by Wells J in Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170. He said (at 179-180):

"It is general valuation practice for sales characterized as comparable sales to be used as bases for the valuation of lands said to be similar. But allowances must always be made before such sales can be so used. No two parcels of land are identical in all respects: the sale price of any given piece of land is not necessarily the price at which it ought to have been sold, or the same thing as its true value. Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances ... appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v The Commonwealth of Australia ... to warrant a court's reasoning from the sale price paid under the allegedly comparable sale, with or without other evidence, to a value for the subject land. Adjustments must, of course, be made every time reasoning of that kind is undertaken. For example, in relation to the land itself and the circumstances appertaining to it, it may be necessary to consider such matters as topography, location, size, shape ... land use (actual and potential), scope for, and difficulties of, development, ...; and in relation to the transaction of sale, the valuer must weigh such things as the character, business and relationships of the parties, their motives, the terms and conditions in their contract of sale, and any other special considerations that induced or may have induced them to conclude the contract at the selling price agreed, as well as the dates when the contract of sale and the transfer were concluded or effected."

25 There is no hard and fast rule by which a valuer can draw the line that clearly separates sales that are comparable from those that are not. It is a matter of degree. Some adjustment is always necessary but too much adjustment may render it unsafe to use a sale. Where the line is to be drawn is a matter for the expert valuer to determine. Further, just because a sale is excluded from use in the comparable sales reasoning process does not necessarily mean that it is irrelevant: Brewarrana (supra) per Wells J at 180.

26 The general principles relating to the admissibility of and weight to be given to expert evidence are not in dispute. The basic principle is that an expert must either prove by admissible means the facts on which the opinion is based or explicitly state the assumptions as to fact on which the opinion is based: Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370; Pollock v Wellington (1996) 15 WAR 1; Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705.

27 Further, the process of inference that leads to the opinions of the valuer must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about their reliability. If not, the opinion can carry no weight: Pollock v Wellington (supra) at 4 per Anderson J; Makita (Australia) Pty Ltd v Sprowles (supra) at 741.

28 The expert must fully expose the reasoning relied on in reaching his or her opinion and the opinion must be rationally based: Maurici v Chief Commissioner of State Revenue (supra).

29 However, those principles have to be applied in the context of the valuers "art". The established principles were stated in Spencer v Commonwealth (supra) where Isaacs J quoted with approval the following passage in Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [1901] AC 373 at 391:

"It is quite true that in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity. In such an inquiry as the present, relating to subjects abounding with uncertainties and on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusions arrived at."

30 An illustration of the practical application of the principles is seen in Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409. In that case the subject land to be valued was a container terminal site. It was common ground that that was the best and highest use for the land. Notwithstanding that there was no sales evidence of container terminals, one expert used the comparable sales method and the basic sale he relied on was of industrial land with no water frontage. The valuer added between $100,000 - $120,000 per hectare as an adjustment for the subject land's water frontage. It was common cause that the expert did not have any sales evidence on which to rely for his quantification of the water frontage adjustment and he said it was fixed as a matter of judgment. The appellant in that case submitted that while judgment based on experience is a permissible method of making adjustments in the course of valuing, the selection of a figure based on nothing could not alter its character as in essence a guess or an arbitrary figure. The Court held that the need to make adjustments to values to arrive at the true valuation of subject land does not preclude the valuer or the Court who has the task of valuing the land from making adjustments which may be nothing more than the best guess that can be made in the circumstances. The Court also rejected an argument that a judgment of that nature was not valid unless there was evidence to establish the upper and lower limits within which the judgment must operate.

31 An opinion that is not based on sales or other empirical evidence is often referred to as a judgment, usually said to be based on skill and experience. Sometimes it may be difficult to draw the line between judgment and mere speculation. A rule of thumb is that a judgment formed without some disclosed rational basis will be speculation to which little, if any, weight should be given. However, generalised statements of principle are best avoided because whether and if so what weight should be accorded to a valuer's opinion will depend on the facts and circumstances of each case.

32 As to what is required disclosure, the appellant relies on a statement by Pullin J in Arcus (supra) (at [78]) that:

"It is not satisfactory, in my opinion, for a valuer who values land using the comparable sales method, to list a number of comparable sales, each one suggesting a different value for the subject land and each of which requires some adjustment, and then simply to state an opinion about the value of the subject land. Such an opinion will only have any value if the valuer explains which is the most important of the comparable sales, why that is so, and what adjustments have been made to reach a conclusion about the value of the subject land."

33 The first sentence is uncontentious. The second sentence is not. Insofar as it is contended that the second sentence states an absolute requirement with automatic consequences as to weight, that cannot be so. The formation of an opinion on value has been likened, correctly in my view, to the exercise of judicial discretion. Rules affecting weight must be sufficiently generalised to allow for different methodologies and circumstances.

34 The legal principles are well known and not in dispute. A Judge must adequately disclose the intellectual process which results in a particular determination. That does not mean all of the evidence and every submission must be alluded to expressly or even by implication in the course of giving reasons. It is sufficient if the reasoning process which led to a result is disclosed with sufficient certainty to enable a litigant to know why it is that the result ensued and to ensure that the statutory right of appeal has been secured: Garrett v Nicholson [1999] WASCA 32; (1999) 21 WAR 226 at 248; Charleston v Smith [1999] WASCA 261 per Malcolm CJ at 14-15.

35 In valuation cases in particular, where there is large scope for judgment and judicial impression it is unnecessary to refer to every step in the Judge's reasoning: Yates Property Corp Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 161, 170-172, 182-183.

36 However, it is conventional for a trial Judge in a case such as this to analyse each sale relied on by the various valuers in order to select those that are comparable and make a finding on value based on the expert evidence adduced in the case. Examples of the conventional approach abound and include Stephen J's judgment in River Bank Pty Ltd v Commonwealth (1974) 31 LGRA 244 and Pullin J's judgment in Arcus (supra). However, in deciding whether a Judge has given sufficient reasons it is necessary to determine what and why it was so decided.

Mr McMahon's Valuation/Evidence - Background

37 Mr McMahon provided two valuation reports, the first is dated March 1995 and the second is dated January 1999. In his January 1999 report he valued the Duffy land at $6,895,000 (unimproved) and $7,020,000 (improved). Those figures were significantly in excess of his March 1995 valuation of $2,640,000. The appellant relied on Mr McMahon's January 1999 valuation which was based on 11 sales that were, in his opinion, comparable. Mr McMahon defined a comparable sale as follows:

"A comparable sale is a contemporary sale of land of similar quality to the subject land and which may be used by way of adjustment, to compensate for any differences in quality, in order to estimate the market value of the subject land."

38 Of the 11 sales relied on by Mr McMahon in his 1999 valuation, six were also in Mr Dix's list of comparable sales, one was in Mr Spencer's list and none in the Elliott/Zucal list.

39 All of the sales relied on by Mr McMahon were in Northbridge. In his opinion, sales in the Town of Vincent were not comparable because of the town planning scheme differences that affected the nature and extent of permissible development. The differences included matters such as plot ratio and zoning related differences relating to residential density, setbacks, landscaping requirements and parking.

40 It was accepted by all experts that for the purposes of valuing the Duffy land, they had to assess its "highest and best" use. Mr McMahon, uncontroversially it appears, relied on the Valuers Professional Practice definition of highest and best use to the effect that it is the most probable use which is physically possible, legally permissible, financially feasible and which results in the highest value of the land.

41 Applying a maximum plot ratio of 3.6 to 1 (by assuming approval of the discretionary 20 per cent bonus) Mr McMahon concluded that the highest and best use of the Duffy land would at a minimum be a multi-storey mixed commercial and residential use up to an 8-10 storey building such as a hotel.

42 Mr McMahon prepared an assessment sheet for each of his comparable sales. In the assessment sheets he identified the nature and extent of the adjustments he made for differences which in his opinion affected the relative value of the Duffy land and the comparable sale. The following is Mr McMahon's assessment sheet for sale number 1 on his list being the land at the corner of Roe and Milligan Streets, Northbridge.

Subject land Unimproved Value = 1,748.5 sqm x $2,300 = $4,021,550

43 Each of his assessment sheets for his 11 comparable sales identified all of the adjustments he thought should be made so that the actual rate per square metre disclosed by the sales evidence of the contemporary (comparable) sale could be quantitatively adjusted to reflect the value of the subject land. That is, Mr McMahon determined the price per square metre of the comparable sale and multiplied that figure by the total of the percentage adjustments. In the result, the sales figures of the contemporary sale were adjusted to reflect the value of the subject land as follows:

Unadjusted rate per square metre for unimproved value of comparable sale

44 Mr McMahon acknowledges in his report the very wide range of adjusted prices which he said was not surprising "because of the arbitrary nature of the adjustments made to the comparable sales". Of the 11 sales, Mr McMahon adjusted four (sales numbered 1, 3, 4 and 8) by a factor of plus 50 per cent because the comparable sales were of land to the west of Lake Street. He explained the adjustment on the basis of factors described in the Northbridge Study and because the emphasis in western Northbridge had been on the use of land for residential development whereas the emphasis in eastern Northbridge had been on the use of land for commercial purposes. The Northbridge Study was published in 1991. It refers to eastern Northbridge (identified as being between Russell Square and William Street) as follows:

"The multicultural character of eastern Northbridge and its plethora of eating establishments and entertainment venues has made it a very popular centre for entertainment for both residents and visitors to Perth. This popularity has inspired confidence in business proprietors and the council and has seen improvements in the form of footpath widening, tree planting and alfresco dining facilities."

45 In relation to western Northbridge (identified as being between Russell Square and the Mitchell Freeway) the Study states:

"The character of western Northbridge is less easy to define. Over the years much of the housing has been displaced by light industrial activities. A long standing road widening reservation on Fitzgerald Street has resulted in the gradual deterioration of building stock along its route."

46 However, it is apparent from the evidence accepted by the trial Judge that west Northbridge, particularly around Russell Square, was by 1995 being used for high density residential and compatible commercial uses. Further, Mr McMahon applied his 50 per cent adjustment where the comparable property was west of Lake Street rather than west of Russell Square, I assume because of the difference in plot ratio west of Lake Street. Sales 3 and 4 are west of Lake Street but east of Russell Square.

47 Mr McMahon adjusted all of his comparable sales except numbers 8 and 10 for exposure: six sales by plus 25 per cent and three by plus 15 per cent. His explanation was that commercial land with higher exposure is usually in greater demand and of higher value than commercial land with less exposure and he gave as an example land on Stirling Highway, Claremont with a high traffic flow compared with the value of land in an adjacent side street. He states in his 1999 report:

"In the same way land on Newcastle Street has a higher exposure and a higher value than the land in Parker, Lake, Francis and Aberdeen Streets."

48 Mr McMahon also adjusted 10 sales (1, 2, 3, 5, 6, 7, 8, 9, 10 and 11) for size ranging from plus 5 per cent (1), plus 10 per cent (2) plus 15 per cent (1), plus 20 per cent (1), plus 30 per cent (1) and plus 50 per cent (4). His explanation for the adjustment for size was that a larger area allows a wide range of uses which may not be available for small areas. Thus, in sales where the Duffy land was greater in size than the comparable land, Mr McMahon increased the rate per square metre disclosed by the sales evidence by a premium of between 5 and 50 per cent per square metre. In the case of the only sale where the comparable land was greater in size than the Duffy land (the ATO) he also made a positive adjustment to the value of the Duffy land.

49 Messrs Spencer, Elliott and Zucal gave evidence of a principle of valuation whereby the converse is the case namely there is a discount for sales of larger parcels relative to smaller parcels. Mr Dix's opinion was that there was no evidence to support such a discount in this case but did not suggest that it was appropriate to add a premium where the size of the subject land was greater than that of the comparable sale.

50 Mr McMahon states in his report that by far the most significant sale for the purposes of determining the value of the Duffy land was that of the Aberdeen Hotel. As shown above, the value per square metre of the Aberdeen land as adjusted produced an unimproved value of the Duffy Land of $6,901,330 and an improved value of $7,026,330. Mr McMahon's opinion as to the value of the Duffy land was $6,895,000 (unimproved) and $7,020,000 (improved).

51 The trial Judge rejected Mr McMahon's valuation and evidence for a number of reasons. Firstly, he concluded that Mr McMahon principally relied on the sale of the Aberdeen Hotel in his valuation of the Duffy land and that his use of a valuation of the hotel's business and land for that purpose was invalid. Secondly, the trial Judge was critical of Mr McMahon's methodology and analysis of his sales evidence. In particular, he concluded that the quantitative adjustments were arbitrary and not supported by evidence. Thirdly, he rejected Mr McMahon's evidence that the highest and best use is a function of zoning and his conclusion that all sales north of Newcastle Street were not comparable. Fourthly, the trial Judge concluded that in the circumstances of the case, Mr McMahon's use of the ATO, Economic House and the Roe/Milligan Street property did not provide a proper basis for comparison with the Duffy land. This finding is not challenged. Finally, the trial Judge concluded that Mr McMahon lacked credibility, that his independence as an expert had been compromised and that he was a partial witness.

The Aberdeen Hotel Sale - Grounds of Appeal 6(d)(xi) and 7

52 There is no substance in ground of appeal 6(d)(xi) that the trial Judge wrongly concluded that the principal basis of Mr McMahon's valuation of the Duffy land was by use of the Aberdeen Hotel sale. Mr McMahon states in his January 1999 valuation that "by far the most significant sale" for the purpose of valuing the Duffy land was the Aberdeen Hotel. Further, Mr McMahon's assessment of the unimproved and improved value of the Aberdeen Hotel land as adjusted is very close to that adopted by Mr McMahon as his valuation of the unimproved and improved value of the Duffy land.

53 The next issue ground is whether the trial Judge wrongly rejected the sale of the Aberdeen Hotel as comparable. The finding was that Mr McMahon's reliance on a valuation of the business was invalid. As the trial Judge found, the Duffy land and the Aberdeen Hotel land are broadly similar. They abutted each other, having a common rear boundary. The Duffy land faced Newcastle Street and the Aberdeen Hotel faced Aberdeen Street.

54 The Aberdeen Hotel was sold in November 1995 as a going concern on a walk-in walk-out basis to Main Roads Western Australia ("MRWA") under threat of resumption for $7,700,000. Mr McMahon relied on a valuation prepared by Mr Elliott for the MRWA. Mr Elliott valued the hotel at $6,825,000 including $5,555,500 for the land and improvements and the balance of $1,269,500 for the license, goodwill, furniture, fittings and equipment. The difference between Mr Elliott's valuation and $7,700,000 was thought by Mr McMahon to be for solatium and other heads of compensation. Mr McMahon concluded that the hotel was a substantial underdevelopment of the land which added very little value to it. He valued the improvements at $1,230,000 and the unimproved value of the land at $4,325,000 which he adjusted upwards by 20 per cent because the Duffy land had better exposure and was larger.

55 Mr McMahon was the only valuer who relied on the Aberdeen Hotel sale. The overwhelming preponderance of expert evidence was to the effect that the walk-in walk-out value of the Aberdeen Hotel bore no relationship to the value of the hotel land and could not be used to derive the value of that land. The trial Judge accepted the evidence of Mr Elliott and Mr Wilkinson concerning this matter. Mr Wilkinson, a very experienced valuer of licensed premises, said:

"The sale of the Aberdeen Hotel was based on a walk-in-walk-out figure and assessed accordingly. Walk-in-walk-out includes both the freehold and leasehold (business) interest and therefore extracting the value for different components becomes a theoretical exercise. In fact, it would not be considered normal practice to use sales of licensed premises - especially a sale which incorporates a business component -for other valuation exercises. The value is based on the profitability of the operation and a goodwill factor is therefore inherent in the total property and impacts on the value of the land and buildings.

As further evidence of the inherent business component in the assessment of land and buildings, it should be noted that when valuing the land and buildings a fair market rental must be firstly assessed. This rental is assessed using a profitability factor and then capitalised at an appropriate yield to arrive at the freehold value. Normal practice when adopting a fair market rental is to compare with other hotel rental evidence which is generally based on a percentage of the net operating profit or turnover.

The land and building component is therefore relied on the operation being carried out and has no relevance to surrounding properties in terms of land values or depreciation rates for the improvement. To further support these comments is the fact that a summation method is never used to assess the market value of licensed premises. This is fundamental and is well documented in all texts relating to valuation methodology of this category of real estate."

56 The summation method is where land and improvements are separately valued, the latter usually by identifying the depreciated replacement cost of the building. A valuation on a walk-in walk-out basis is a function of the profit being earned by the business carried on on the relevant property. Mr Elliott's evidence, accepted by the trial Judge, was that the Aberdeen Hotel was at the material time trading at over 30 per cent in terms of net profit to turnover which was significantly higher than the majority, if not all, of the properties Mr Elliott had analysed and that there had been a sustained level of profitability over a period of three years at a very high level. Mr Elliott's figure of $5,555,500 on which Mr McMahon relied was based on the capitalisation of the net rental of the hotel. Mr Elliott agreed that it is not valid to arrive at the value of the unimproved land on which the Aberdeen Hotel stood by taking his figure based on the capitalisation of net rental and deducting from it either the replacement cost of the buildings or the depreciated cost of the buildings because his figure reflected the success of the business of a trading hotel. It was clearly open on the evidence for the trial Judge to conclude that Mr McMahon's use of Mr Elliott's valuation was invalid.

Methodology - Grounds of Appeal 6(a), 6(b), 6(c), 6(d)(i)-(viii) and 8

57 The trial Judge was critical of Mr McMahon's method of assigning to various matters a percentage difference between the Duffy land and the compared property which approach he said he would refer to as the "arithmetic approach". He concluded that such an approach is likely to mask error, that adjusting the sale price of the comparable property builds into the process an assumption masquerading as a fact and the attempt at arithmetical precision is designed to obscure the uncertainty inherent in many of his assumptions. He concluded that Mr McMahon adopted a method calculated to maximise the value of the Duffy land inflating its value beyond its fair market value.

58 The advantage of Mr McMahon's approach is that he clearly identified what he regarded as all the relevant adjustments to be made and provided a percentage adjustment from which the dollar figure effect could be calculated. To that extent he revealed his process of reasoning as a result of which the trial Judge identified aspects of the analysis which he concluded had undermined the reliability of the conclusion as to value.

59 The first matter identified by the trial Judge was the upward adjustment of the sales price of land in west Northbridge by 50 per cent. The trial Judge did not conclude that there was no evidence to support Mr McMahon's opinion that land in east Northbridge had a higher value than land in west Northbridge. Rather, he found that there was no evidence to support Mr McMahon's opinion that the value of land in east Northbridge was 50 per cent greater than that in west Northbridge and therefore the conclusion was arbitrary and speculative. Such a finding was open on the evidence. Mr McMahon referred in his report to the "arbitrary" nature of his assessments. In cross-examination he agreed that the 50 per cent adjustment between east and west Northbridge was an arbitrary assessment. Although he also said it was based on his knowledge of sales activity in the area, he did not refer to any sales evidence to justify an adjustment of that magnitude. Nor is the size of the adjustment supported by his narrative explanation or the difference in plot ratio between east and west, even assuming that the Duffy land would or might be developed to its full plot ratio potential. Even if Mr McMahon's adjustments could be described as a matter of judgment, the disclosed reasoning does not support the size of the adjustment. The effect of the adjustment was that, all other variables being equal, land in east Northbridge was 50 per cent more valuable than land in west Northbridge. If indeed that be so, it is difficult to understand why land in west Northbridge would be regarded as comparable.

60 The trial Judge was also critical of Mr McMahon's adjustment for exposure in his assessment of the Roe and Milligan Streets sale. Mr McMahon assigned a high exposure to the Duffy land and a medium exposure to the Roe and Milligan Street land and made a positive adjustment of 15 per cent in favour of the Duffy land. As the trial Judge noted, there was no evidence to justify the figure. Although evidence was given of the volume of daily traffic in Newcastle Street there was no such evidence in relation to Roe Street. He also concluded that the explanation in Mr McMahon's report for the exposure adjustment (where he refers to commercial land on Stirling Highway compared with the value of adjacent land in a side street), had no application to the relativities between Newcastle Street and Roe Street. In the absence of evidence of traffic flows in Roe Street, the trial Judge considered Mr McMahon's disclosed rationale and commented on it. I am not persuaded that the reference to the example is irrelevant.

61 It should also be noted that Mr McMahon made positive adjustments in favour of the Duffy land for exposure notwithstanding his assessment of its highest and best use was different than the highest and best use of the comparison land, such as for example land in west Northbridge around Russell Square. His approach to exposure resulted in his conclusion that the Duffy land had a higher value than land in, inter alia, Lake, Francis and Aberdeen Streets.

62 Mr McMahon agreed that a consequence of his adjustments was that land in Newcastle Street was worth 75 per cent more than land of the same size in James Street between William and Lake Street. These conclusions on relativities are inconsistent with the other expert evidence. The other valuers agreed that, all other matters being equal, land closer to the heart or core of Northbridge (around James Street) was more valuable than land on the periphery of Northbridge, such as in Newcastle Street.

63 Finally, although Mr McMahon identified and quantified the adjustments he made, the relevance and use he made of the sales in his list, other than the Aberdeen Hotel, remained unclear. A satisfactory explanation was called for because of the very wide variation in the size of the adjustments from the sale price of the comparable sales as well as the significant variation between the adjusted sale prices. The percentage adjustments ranged between plus 20 per cent (Aberdeen Hotel) to plus 118 per cent (Shenton Street). The range of adjusted prices is between $2,816,833 to $6,901,330. Those figures reinforce the acknowledged arbitrariness of the exercise.

64 The gravamen of the trial Judge's criticism of Mr McMahon's approach to the adjustments to which he directed his attention is that he allocated a percentage figure without any adequate evidentiary foundation. Each of Messrs Spencer, Elliott and Zucal were critical of Mr McMahon's methodology describing this approach as arbitrary because of the lack of evidence to support the size of his adjustments. The trial Judge said in referring to the location adjustment:

"Although expressed as an opinion, there is no evidence to support it. It is not therefore an opinion, only speculation. ... Evidence of speculation or guess is inadmissible or alternatively to be given no weight."

65 It is difficult to reconcile this statement with an earlier observation that a conclusion as to value may at times be little more than an estimate or guess. In addition, it is not clear from his Honour's reasons whether he considered whether the adjustments could be supported as a matter of reasoned judgment. If not, in my respectful opinion he should have.

66 Further, it is the case that the trial Judge confined his consideration of Mr McMahon's adjustments to the location adjustment in general and the exposure adjustment for one sale. From that he concluded:

"The arithmetical approach is used throughout Mr McMahon's assessments of properties in the Northbridge area and therefore the error of approach infects all of his 'comparable' sales. As a result, I find it unnecessary to deal in detail with every sale identified by Mr McMahon as 'comparable' because of this fundamental flaw."

67 In my view, a finding that the location adjustment (affecting four sales) and the exposure adjustment for one sale were not supported by evidence does not of itself justify a criticism of the general approach or provide a proper basis for rejecting all of the sales in Mr McMahon's list.

68 However, I am satisfied that it was open to the trial Judge to reject Mr McMahon's valuation without a detailed consideration of all of the adjustments or all of the sales on which Mr McMahon relied having regard to the finding that Mr McMahon principally relied on the Aberdeen Hotel sale, the trial Judge's rejection of that sale and three other sales in the list, the acknowledged arbitrariness of the adjustments he made, the magnitude of the total adjustments and the wide range of adjusted prices.

69 Finally, although aspects of the trial Judge's criticism of Mr McMahon's use of the quantitative approach in this case were appropriate, it should not be taken as a justifiable criticism of quantitative approaches in general. They are used and approved of in other jurisdictions. The disadvantages identified by Gobbo J in R K Morgan Holdings Pty Ltd v Melbourne & Metropolitan Board of Works (1992) 77 LGRA 102 can or may be obviated: see Rowland P, "The Use of Comparable Sales for Market Valuations", The Valuer, February 1991, 332 at 333.

Zoning and Market Demand - Grounds of Appeal 2 and 6(d)(ix)

70 The trial Judge concluded that Mr McMahon arbitrarily ruled out of consideration all sales occurring to the north of Newcastle Street on the basis that they were zoned C3. This ground of appeal overlaps with ground of appeal 2 which concerns the relative weight to be given to zoning and market demand. These matters are relevant because they impact on the highest and best use of the subject land which in turn impacts on whether or not a sale is comparable.

71 The trial Judge did not accept the evidence of Mr McMahon and Mr Dix that the highest and best use of land is primarily a function of the town planning zone in which it is situated. He accepted that zoning is an important factor but only one of a number of factors which together allow a valuer or court to reach a conclusion as to the highest and best use. The trial Judge concluded that market demand is capable of being a factor of equal or greater weight than zoning. It is for that reason the trial Judge concluded that Mr McMahon arbitrarily ruled out of consideration all sales occurring north of Newcastle Street. He said (at [160-161]):

"The difference in zoning is significant and is certainly a factor to be taken into account. It makes reliance on comparable sales within the Town of Vincent an exercise demanding caution. However, I do not agree that the difference in zoning necessarily renders all sales within that area incomparable.

There are commercial and residential developments within the Town of Vincent which are suitable for a comparison. I found some comparisons to be of considerable use especially those on similar roads, such as William Street and Beaufort Street. They were used by Mr Spencer and, to a degree, by Mr Elliott."

72 I understand the trial Judge to mean that not all sales in the suburban area will be comparable and accordingly caution is required. Those that are comparable will be commercial and residential developments on similar roads. This conclusion is referable to the trial Judge's finding as to the sort of thoroughfare Newcastle Street would have become by 1995 had the CNBR not existed. He found that it would have been a likely link road carrying a substantial volume of traffic and that the traffic volume would have affected the uses to which the Duffy land could have been put and while it may have benefited from increased exposure, its use for residential units or a hotel may have been inhibited. There is no challenge to this finding.

73 Messrs Spencer, Elliott and Zucal differed from Messrs McMahon and Dix on the weight to be given to zoning. Mr Spencer's evidence was that although zoning was a relevant factor, the major determinant of market value was the state of the market or market demand. He did not agree that the highest and best use of the Duffy land was a six or more storied commercial development and that the market was more amenable to a modest sized development. He said that most of the development in Northbridge utilised a plot ratio of less than 1:1 which was significantly below what was permitted. In his estimation, market demand did not require anything more than 1:1 ratio as a result of which sales of land zoned C3 were important for comparison purposes.

74 Mr Elliott's evidence was that zoning matters, including plot ratio, only affect the maximum development potential of the site. He described the valuer's task as follows:

"... a property can be zoned to give a maximum development potential for the piece of land but, as valuers, it's our task to analyse whether or not that development or potential development is one which marries with market circumstances at the time ..."

75 In his opinion, market demand in October of 1995 would not have supported an office building of six or more storeys on the Duffy land.

76 Mr Zucal also accepted that zoning is an important consideration in valuing property but that in the case of the Duffy land it had no impact on value because of market considerations. Mr Zucal's assessment was that notwithstanding the Duffy land was zoned CC, the use of the land would not be altogether different to the land use prevailing on the northern side of Newcastle Street and in Beaufort Street, Stirling Street and Lord Street. In his opinion, high rise residential would be unsuited to that locality. According to Mr Zucal, but for the CNBR, the Duffy land would have been used for single level showroom/warehouse/factory/retail type developments with sufficient on site car parking to attract customers.

77 Although the trial Judge does not make an express finding as to the highest and best use of the Duffy land, it is implicit firstly from his acceptance of the evidence of Messrs Spencer, Elliott and Zucal that market demand is a relevant factor that impacts on the highest and best use and secondly in the trial Judge's conclusion that it was an error to exclude sales to the north of Newcastle Street in the suburban area, that the highest and best use of the Duffy land would not exceed the development permitted in the C3 zone.

78 That market demand is a relevant consideration in this context is supported by authority: Spencer v Commonwealth (supra) at 441 and 443 per Isaacs J. However, the weight to be given to zoning and market demand considerations will vary according to the circumstances of each case. It is likely that in many situations zoning will be the more important factor because regard must be had to development potential and zoning may stimulate demand. However, the expert evidence in this case of the general failure to develop land in Northbridge to its maximum development potential is a logical explanation for the approach taken by the respondent's valuers. Accordingly, it was open to the trial Judge to make his findings relating to the use of sales in the C3 zone and the relevance of and weight to be given to market demand.

Credibility/Reliability - Grounds of Appeal 6(d)(x) and 6(d)(xii)

79 These grounds of appeal concern the trial Judge's findings that Mr McMahon lacked credibility and that he was a partial witness.

80 A trial Judge is entitled to make judgments concerning the credibility or reliability of an expert witness in the same way as with other witnesses: Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167 at 178-179; Ahmedi v Ahmedi (1991) 23 NSWLR 288 per Clark JA at 299-300. Accordingly, for the appellant to succeed he must show that the trial Judge failed to use or palpably misused his advantage or has acted on evidence that was inconsistent with facts incontrovertibly established: Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479; Abalos v Australian Postal Commission (supra); Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434.

81 The trial Judge's assessment was based on a number of grounds. Firstly, that Mr McMahon was deliberately evasive in giving his evidence. The trial Judge stated that Mr McMahon had great difficulty in answering directly the questions asked of him and in the main that was his general mode of speech. There are indeed many examples of Mr McMahon failing to answer directly a question asked of him in cross-examination. However, in the trial Judge's view, on occasions Mr McMahon was dissembling and deliberately not answering a question in order to disguise the fact that the question exposed a weakness in his valuation approach. The trial Judge is describing an impression he formed of the witness rather than rejecting any particular aspect of his evidence. In those circumstances he is not required to identify the particular occasions on which he based his impression. An appellate court is in no position to itself assess the correctness of the trial Judge's impression.

82 The trial Judge also drew an adverse inference affecting Mr McMahon's credibility because of the very large difference between his 1995 valuation ($2,640,000) and his January 1999 valuation. Mr McMahon's primary explanation for the difference was that in his first valuation he assumed the zoning of the Duffy land would be C3 and in his second valuation he had regard to the sale of the Aberdeen Hotel. As Mr McMahon admitted that for the purposes of his first valuation he had relied on core Northbridge sales, it is difficult to see that any significance can be attached to his assumption that the zoning would be C3. As to the use of the Aberdeen Hotel sale, it was clearly outside standard valuation practice. In my assessment it was open on the evidence for the trial Judge to conclude that Mr McMahon had not provided a satisfactory explanation for the significant variation in value.

83 In my view, there is no substance in ground of appeal 6(d)(x). It is incorrect to say, as the appellant does, that the trial Judge concluded that Mr McMahon was a partial witness because he had been engaged by Mr Duffy to negotiate settlement of his claim for compensation. The trial Judge reached that conclusion having regard to a number of factors including Mr McMahon's evidence as to his fee arrangement with Mr Duffy, his evasive demeanour in giving evidence on that subject and the trial Judge's impression, based on Mr McMahon's evidence at the hearing and his correspondence, that he at times adopted positive advocacy of his client's case.

84 I am not satisfied that the trial Judge failed to use or palpably misused his advantage in reaching his findings on Mr McMahon's valuation opinions and his evidence.

85 For these reasons I would dismiss grounds of appeal 2, 6, 7 and 8.

86 In a report dated 8 May 2000 Mr Dix reviewed and commented on Mr McMahon's second valuation dated January 1999. Mr Dix disagreed with aspects of Mr McMahon's valuation including his assumed plot ratio of 3.6:1, which was predicated on the exercise of the discretion, and his highest and best use of the Duffy land. He listed Mr McMahon's 11 comparable sales according to his view of their relative comparability. In Mr Dix' opinion the sales of Economic House, the ATO and Marco Polo were not comparable. Further, in his assessment he did not have sufficient information to determine the unimproved value of the Aberdeen Hotel land. Mr Dix placed the sale of Y51 Francis Street as the most comparable of the sales in Mr McMahon's list. He stated in closing:

"In summary we are of the opinion that the report of [Mr McMahon] adequately identifies a range of values applicable to the subject acquisition ... Although we may place more importance on one or other of the sales or reach a different conclusion in our analysis before arriving at a different value we consider that to be simply a matter of opinion."

87 It is difficult to reconcile this support for Mr McMahon's January 1999 valuation with Mr Dix's valuation in his report dated 31 August 2001. Relying on the evidence of a town planner (Mr Adams), called by the appellant, Mr Dix based his valuation on the assumption that the Duffy land would have been in great demand as a site for residential apartments above ground level commercial use or owner occupied offices or lettable offices with or without commercial use at ground floor level or hotel/serviced apartments with or without commercial use at ground level, and that would translate into a building of up to six storeys with basement car parking and almost certainly utilising a plot ratio of 3:1 or perhaps higher.

88 Mr Dix identifies as a valuation difficulty the absence of directly comparable sales and the lack of unimproved sales which required him to make assumptions based on evidence provided by earlier and later sales. He regarded that as an acceptable method of determining the value of the Duffy land whilst acknowledging that it would be far more preferable to have comparable sales at the relevant date. The sales evidence specifically referred to by Mr Dix was:

89 Mr Dix in his valuation commentary states that as a consequence of the lack of reliable evidence in the central core area of Northbridge he looked at the purchase price of land in the lower density area west of Lake Street and in particular at sales 1 and 2 as they represented the best evidence of value of the lower density land. He continued:

"Sale 1 has the benefit of proximity to core Northbridge although it is on a single title and this limits the flexibility of the site. It has the benefit of a frontage facing Russell Square however the subject land has the benefit of exposure to a major thoroughfare. The sale needs adjustment for the lower density and for time and it is our opinion that the adjustment to $1,500/m2 is supported by other information in the market place ... (emphasis added)

Sale 2 lacks the direct exposure to core Northbridge however it is in close proximity to it and has the benefit of a wide frontage facing Russell Street. It also has a secondary road frontage that provides easy access to the site. We consider the value of $1,500/m2 we have adopted for this site reflects our assessment of its comparison with Sale 1 at the date of valuation after adjusting for time."

"We considered that the plot ratio of 3.0 applicable to the subject site, compared with the plot ratio applicable west of Lake Street of 2.0, in both cases ignoring any bonuses or discretion by Council, would be reflected in the sale price. Based on our assessment of the value of land west of Lake Street at $1,500/m2, it is our opinion that the subject land would have sold for $2,000m2, or thereabouts, ignoring the evidence of the sale of the Aberdeen Hotel. It is therefore our opinion that the vacant land value of the subject site was $3,494,000 as at 17 October 1995."

91 Based on that commentary, there appears to be a double counting of the adjustment for the difference in plot ratio. It emerged in cross-examination that Mr Dix's reasoning was as follows. He rejected (in the sense that he did not base his conclusion of value on) sales:

(a) 8, 11 and 13 because they were sales of improved property;

(b) 4 and 5 because they were too distant in time after the valuation date;

(d) 9 and 10 because they were to the resuming authority;

(e) 6, 7 and 12 because in his view they were under market value.

92 Sales 6, 7 and 12 were of land in east Northbridge which in his assessment were (leaving aside the sale price) more comparable with the Duffy land than sales in west Northbridge. The basis for his conclusion that the three sales in east Northbridge were under market value was because they sold for less than his assessment of the value of sales 1 and 2.

93 The appellant's case is that in the event the trial Judge did not err in rejecting Mr McMahon's evidence he should have accepted the evidence of Mr Dix rather than the valuers called by the respondent and that the trial Judge failed to disclose credible reasoning for his rejection of Mr Dix's evidence. I start with the challenge to the trial Judge's reasoning and reasons.

94 What is adequate will depend upon how the individual valuer has approached his task and the trial Judge's response to it. The trial Judge concluded that Mr Dix's valuation was flawed because "in the end, it chiefly relies on one property", the analysis of which was flawed. The sale to which the trial Judge refers is of Lot Y104 James Street. There is no challenge to the finding that Mr Dix chiefly relied on this sale. The trial Judge identified two matters on which he relied to impugn Mr Dix's analysis of that sale. The first related to Mr Dix's adjustment of the sale price per square metre of the land at Lot Y104 James Street from $1,312 to $1,500 for "the lower density and time". His Honour said that there was a degree of circularity in the conclusion that the adjusted price of $1,500 was fair and reasonable. The circularity to which the trial Judge refers is Mr Dix's evidence in cross-examination that he was of the opinion based on sales evidence that land in west Northbridge was $1,500 per square metre in October 1995 and he relied on that opinion for the upward adjustment of the sale price of Lot Y104 James Street to $1,500. However, he also acknowledged that his opinion was based on the sale of Lot Y104 James Street and he did not identify any other sales evidence to support his opinion. There is a proper basis for criticism of this approach. Although it is not of itself a significant matter, it is linked with the second criticism.

95 The second matter was that the sale of Lot Y104 James Street on which Mr Dix relied was a sale to an adjoining owner. His Honour stated "[s]uch sales should be viewed with caution because it may be that an adjoining owner is prepared to pay a premium in order to acquire the land. Nevertheless, this was one of two sales which Mr Dix nominated as most useful". His Honour's conclusion that such a sale should have been viewed with caution is amply supported by the evidence of Messrs Spencer, Elliott and Zucal. There is also authority to that effect: Brewarrana Pty Ltd v Commissioner of Highways (supra) at 180; Minister of Environment v Petroccia (1982) 30 SASR 333 at 345. The rationale for caution is because there is always the potential for an element of special value in a sale to an adjoining owner.

96 Whether to give any, and if so what, weight to a sale to an adjoining owner is a matter that has to be considered in the context of the evidence in each case. In the absence of evidence that the sale price was unaffected by the purchaser's position as an adjoining owner, it would be unsafe to rely on a sale to an adjoining owner as one of only two sales on which a valuation was primarily based. The situation would or may be different if such a sale was included in a basket of sales and it was given appropriate weight having regard to the inferences that could be drawn by reference to the other sales in the basket as to whether the sale price reflected market value.

97 The second sale on which Mr Dix relied was the sale in June 1997 of the International Food Hall. Mr Dix's selection of $1,500 per square metre as the value of the International Food Hall land in October 1995 was based on a comparison with the sale of Lot Y104 James Street which has its own problems in view of the trial Judge's assessment of the circularity of Mr Dix's reasoning in reaching his conclusion as to the value of that property. Further, the trial Judge found that the June 1997 sale of the International Food Hall took place between two parties resident in Singapore rather than on the open market, that there was substantial improvements on the land (by which I understand the trial Judge to mean they added value, as was the evidence of the respondent's experts, but which were valued at nil by Mr Dix) and that the sale price included an amount for chattels. No challenge is made to these findings. Finally, the trial Judge referred to Mr Dix's assessment of the value in October 1995 of the International Food Hall in his first report in May 2000 at $1,371 per square metre and his second report at $1,500 per square metre. As the trial Judge observed, that is a significant variation and it was unexplained. It is clearly apparent that the trial Judge regards Mr Dix's analysis of the two sales as being fundamentally flawed.

98 Having considered and stated his conclusion as to the flawed analysis of the two sales on which Mr Dix principally relied for his valuation, it was open to the trial Judge to reject Mr Dix's valuation. That is particularly so having regard to Mr Dix's methodology. He considered each sale in his list and determined whether it should affect his assessment of the value of the Duffy land. In substance, he treats the rejected sales as non-comparable leaving only two sales as comparable. That approach, which may be described as linear, is different from the "basket of sales" approach taken by the respondent's experts. I refer to it in detail later. Suffice to say, for present purposes, it involves looking at all of the sales collectively to assess for consistency within the sample, assessing the weight to be given to individual sales and then making any necessary allowances to draw an inference of value. Having regard to the factors identified by the trial Judge in relation to Mr Dix's sales 1 and 2, it cannot be said that he relied on sales evidence that was rational or representative.

99 However, the trial Judge referred to other matters. He stated without elaboration or explanation that Mr Dix had ignored a number of sales closer to the Duffy land and closer in time to the date of resumption. Having regard to Mr Dix's sales list and his evidence in cross-examination that may be a reference to sales 6, 11 and 12 in his list. Sales 6 and 12 were in east Northbridge and acknowledged by Mr Dix (on his evidence) to be more comparable than sales 1 and 2 but which he rejected because in his opinion, the sale prices were below market value. However, it is difficult to be satisfied that they are the properties the trial Judge had in contemplation.

100 He also said that Mr Dix was inconsistent in his selection of comparable and non-comparable sales and gave as an example the sale of Lot Y51 Francis Street. In May 2000 Mr Dix regarded this as the most comparable sale but he subsequently rejected it because he became aware that the correct sale price was lower than he had previously thought. Sales 6, 7 (Lot Y51 Francis Street) and 12 were, on his evidence, more comparable than the other sales in his list save for the fact that the sale prices did not reflect his opinion of the market value of the land at the time it was sold. It is not rational to reject otherwise comparable sales simply because of a valuer's opinion, unsupported by sales or other evidence, that the sale price is below market value.

101 The trial Judge also found that Mr Dix's chosen rate per square metre for the Duffy land "is not able to be supported, especially where it relies on inclusion of some properties with questionable comparability and exclusion of other properties apparently comparable". I take the first reference to be to the two properties on which Mr Dix principally relied. I am not able to identify the excluded "apparently comparable properties".

102 However, the trial Judge concluded that he was unable to accept Mr Dix' valuation as reliable and identified the grounds for that conclusion as follows:

"I reject the evidence of Mr Dix in part because of the disparity between his approach when commenting on Mr McMahon's report as to what is comparable land and his subsequent rejection without significant explanation, of such land in his subsequent valuation. He was unable to justify his assumed value of $1500 per square metre for relevant portions of the Northbridge area despite extensive cross-examination on the point. The two sales upon which he principally relied are not really appropriately comparable sales."

103 I have already referred to the reasons given by the trial Judge for the conclusion as to the inappropriateness of the two sales on which Mr Dix principally relied. Although aspects of the trial Judge's reasons are deficient, in particular in identifying the comparable properties said to be wrongly excluded by Mr Dix, the error does not go to the central matters on which he rejected Mr Dix's evidence.

104 I now deal specifically with each of the subparagraphs of ground of appeal 9 as follows:

(a) the trial Judge erred in failing to identify the sales closer in distance and time said to have been ignored by Mr Dix;

(b) it was open to the trial Judge to conclude that the selection of the Francis Street property showed Mr Dix was inconsistent in his selection of comparable and non-comparable sales. It also demonstrates the flaw in Mr Dix's methodology which is to exclude comparable sales if the sale price is out of line with Mr Dix's opinion as to what the sale price should have been;

(c) the trial Judge's reference to the sales of questionable comparability is a reference to the two sales on which Mr Dix relied. Otherwise the trial Judge erred in failing to identify the comparable sales excluded by Mr Dix;

(d) this ground is misconceived. The trial Judge was critical of Mr Dix's reliance on two sales which for stated (and sustainable) reasons he regarded as not truly comparable;

(e) it was open on the evidence for the trial Judge to be critical of Mr Dix's selection of $1,500 per square metre for land in west Northbridge;

(f) this ground is without foundation. The trial Judge disclosed his basis for rejecting the two sales relied upon by Mr Dix;

(g) for the reasons already given Mr Dix's valuation was not soundly based on the application of correct principles of valuation based on the comparable sales method.

105 The errors made by the trial Judge are not such as to impugn the decision to reject Mr Dix's valuation. Accordingly, I would dismiss ground of appeal 9.

Messrs Spencer, Elliott and Zucal - Background

106 Mr Spencer prepared three valuation reports. His first, dated 19 May 1995, valued the two lots comprising the Duffy land separately, one at $450,000 ($590 per square metre) and the other at $550,000 ($560 per square metre) totalling $1 million. His second report is dated 8 January 1996 and valued the individual lots at $740 per square metre and $710 per square metre for a total of $1,265,000. On 10 March 1997 he revised his valuation again and assessed the value at between $750 - $800 per square metre and adopted a mean value of $775 per square metre or $1.354 million.

107 In his first valuation Mr Spencer assessed that the zoning of the Duffy land would be C3. He relied on 10 sales, two of which were omitted from his second valuation. In his second valuation, Mr Spencer still assumed the zoning of the Duffy land would be C3. He again relied on 10 sales (two new sales were added) which reflected rates per square metre of between $350 to $1,200. In his view, because of a lack of direct evidence along the relevant section of Newcastle Street because of the blight it was necessary to apply "a reasonable degree of subjectivity" to draw inferences from the higher and lower range of sales to determine the fair market value. He concluded that the Duffy land would not achieve the same level as in the prime areas of Northbridge but would generally be greater than the rate achieved for properties that had recently been sold in the area immediately north of Northbridge.

108 Mr Spencer's final report is dated 10 March 1997. He states:

"The previous values I had assessed on this property were affected by a great deal of subjectivity concerning the likely development and market demand applicable to the south-side of Newcastle Street in the event that it had not been 'blighted' by the road reservation over the past three decades. Whereas I held the view that a similar sized parcel of land in Aberdeen or Francis Street would command values in the vicinity of $1,000 - $1,100 per square metre of site area, I had applied an approximate 31% lower figure for the Newcastle Street land. This large downwards adjustment was based on the rationale that Newcastle Street was peripheral, a very busy traffic route and likely to have lower exposure to pedestrian flows owing to the lower grade development on the north side etc.

Through this further review and reconsideration of the evidence ... I decided that the valuation expressed any doubts too severely in favour of the resuming authority - particularly in relation to the discount for size, and the discount between Aberdeen Street and Newcastle Street values.

I have now reassessed the property's value as being in the range of $750 - $800 per square metre of site area with no variation in the rate per square metre for the individual lots, adopting the mean value at $775 per square metre ...

The reviewed figures represent a 26.2% differential on a similar Aberdeen Street - Francis Street lot's value ..."

109 Mr Spencer does not expressly indicate in his reports that he had altered his position to accept that the probable zoning of the Duffy land would have been CC. However, he said in cross-examination that by the time of third report he was assuming that the zoning would be CC. In his first two reports, he applied a discount for size to the larger block but abandoned that approach in his final report.

110 For the purposes of giving evidence at trial, Mr Spencer prepared a schedule of the sales evidence on which he relied:

Unimproved rate per square metre (unless otherwise stated)

Duffy v The Minister for Planning [2003] WASCA 294

At a glance

Court

Decision date

Before

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Judgment (261 paragraphs)

Duffy v The Minister for Planning [2003] WASCA 294 (4 December 2003)

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Legislation Cited (2)

Cases Cited (27)