Isabella DIT Pty Ltd v The Owners - Strata Plan No 80988

Jurisdiction

1. It is necessary at the outset to deal with a submission from the respondent to the effect that the appeal ought to be dismissed upon the basis that there is no jurisdiction to appeal to the Tribunal. The basis for this submission is that s 189 of the Strata Act provides as follows: Unless specifically provided by this Act, an order made by the Tribunal is not capable of being varied or revoked by the Tribunal but this section does not prevent a subsequent order being made by the Tribunal under this Part or a fresh application. The respondent submits that "Tribunal" is defined in the CAT Act to mean the Civil and Administrative Tribunal and that there is no separate Tribunal constituted by the appeal jurisdiction of the Tribunal. The respondent also submits that the appeal is not "a fresh application" within the meaning of s 189.
2. Sections 190 and 191 of the Strata Act set out circumstances where an order may be varied or revoked, but the respondent submits that the present appeal does not enliven anything within those sections.
3. The respondent's submission is that the powers granted to an appeal panel by ss 80 and 81(2) of the CAT Act are powers which are prohibited by s 189 of the Strata Act. The submission goes on to argue that in assessing the conflict between the express prohibitive and specific provisions of the Strata Act and the broad and general enabling provisions conferring appeal jurisdiction to the Tribunal under the CAT Act, the specific words of the Strata Act must take precedence and any appeal must properly lie elsewhere because, otherwise, s 189 of the Strata Act has no specific work to do.
4. The appellant disputes the respondent's submissions. The appellant submits that ss 189 to 191 of the Strata Act deal with restrictions upon the ability of the Tribunal, as constituted in its original jurisdiction (or in its capacity as a reviewer of decisions made by an adjudicator), to make certain orders and engage in certain actions where circumstances have changed since the original application.
5. The appellant points to the history of the enactment of the CAT Act and, in particular, to the fact that prior to the establishment of the Tribunal, appeals from decisions of the Tribunal previously having the jurisdiction to make decisions under s 183 of the Strata Act (namely the Consumer, Trader and Tenancy Tribunal) were made to the District Court. That was provided for by s 200 of the Strata Act. That section was repealed upon the establishment of this Tribunal. Until 1 January 2014 (being the date upon which the Consumer, Trader and Tenancy Tribunal ceased to exist and being the date of the establishment of this Tribunal) s 189 to 191 of the Strata Act did not have any impact upon the existence or nature of an appeal because of the fact that s200 provided for appeals to the District Court.
6. Section 200 of the Strata Act was repealed cognate with enactment of the appeal provisions of the CAT Act. The appeal provisions in the CAT Act were enacted to replace appeals to the District Court. The effect of the CAT Act has resulted in appeals from decisions of the Tribunal being a province of an appeal panel of the Tribunal (see s 32 of the CAT Act) where the appeal concerns an appeal from a "general decision": (see s 29 of the CAT Act).
7. The appellant submits that there is no basis for concluding that provisions which previously dealt with applications for revocation or variation, and had nothing to do with appeals, were elevated to place restrictions upon the right of appeal as a result of the repeal of s 200 of the Strata Act.
8. The appellant submits that s 189 to 191 of the Strata Act continue to apply in circumstances where an applicant wishes to apply for an order to be revoked or varied and therefore it is not correct to say that s 189 would have no work to do if the appellant's interpretation were to prevail.

Decision on Jurisdiction

1. The Appeal Panel is of the view that the submissions of the respondent concerning jurisdiction are not to be accepted. The Appeal Panel agrees with the submissions of the appellant with respect to jurisdiction.
2. It is the opinion of the Appeal Panel that the provisions of the CAT Act provide for appeals from decisions made by the Tribunal pursuant to a power granted in the Strata Act and that s 189 of the Strata Act does not provide otherwise.
3. The Tribunal in this case was at first instance exercising a power granted to it by s 183 of the Strata Act. The exercise of that power is recognised by the CAT Act as an exercise of the general jurisdiction of the Tribunal (see s 29 of the CAT Act). The decision at first instance is a decision in respect of which the Tribunal has internal appeal jurisdiction (s 32 of the CAT Act). Section 189 of the Strata Act did not apply to appeals prior to 1 January 2014 and did not enlarge its scope from 1 January 2014. To the extent that there is any conflict between s 189 and s 29 and 32, the latter sections prevail because they were incorporated into legislation passed later in time than the legislation which introduced s 189. In any event we do not think that there is inconsistency because in our view s 189 is intended to address the scope of the Tribunal's jurisdiction at first instance and not the Tribunal's appeal jurisdiction. This view is supported by an examination of s 191 of the Strata Act. That section provides that the Tribunal may on application make an order varying or revoking an order made by the Tribunal under Part 5 of the Strata Act provided that the Registrar gives approval. The approval must not be given unless the Registrar is satisfied of certain matters identified in s 191(3). Section 191(7) provides that an order made under s 191 may not be varied or revoked by "another order made under this section". It is clear that the combined effect of s 189 and s 191 is to permit one application only for variation or revocation as regulated by s 191. A decision made under s 191 may not be varied or revoked by "another order made under this section". This leads to the conclusion that a decision under s 191 may be the subject of an appeal under the CAT Act. This reinforces the view that a decision under s189 may also be appealed under the CAT Act.
4. In the opinion of the Appeal Panel the effect of s 189 of the Strata Act is not to provide for a modification to those provisions of the CAT Act which otherwise would give to the Tribunal appeal jurisdiction following a decision made by the Tribunal pursuant to a power under the Strata Act.

The Grounds for Appeal

1. The appellant has put forward four grounds for appeal which the appellant argues constitute errors or law, and further grounds requiring leave under clause 12. We will describe each of the grounds separately.

Ground one - Failure to provide adequate reasons

1. The first ground of appeal is that there was a failure to provide adequate reasons. The appellant relies upon the decision of the Court of Appeal in Pollard v RRR Corp Pty Ltd [2009] NSWCA 110 in support of the proposition that adequate reasons must: 1. expose the reasons involved in the resolution of critical issues 2. the reasons must do justice to the issues posed by the parties' cases 3. reasons should not ignore evidence critical to an issue that is contrary to an assertion of fact made by a party that is accepted by the judge. 4. bald conclusions are to be avoided in favour of step by step reasoning.
2. The appellant argues that the principles described in the above case have been given statutory recognition in s 62 of the CAT Act.
3. The appellant points to three main findings by the Tribunal in respect of which it is submitted that the reasons were inadequate when measured against the principles described above.
4. The appellant's submission is that first, the Tribunal below concluded that it ought not accept the evidence of Mr Cesta (the appellant's expert valuer) (see paragraphs 90 to 94 of the decision below). The appellant states that in the decision below, the member could not, on the evidence before him, decide whether or not the unit entitlements had been allocated unreasonably. However, inadequate reasons were given for those conclusions particularly in light of the finding that there was "compelling evidence" that the unit entitlements for at least one of the units had been set unreasonably at the relevant time. Therefore, the appellant argues that it is unclear from the reasons why the Tribunal below concluded as it did.
5. Secondly, the appellant submits that to the extent any reasons were given for the rejection of Mr Cesta's evidence, those reasons appear to have been confined to statements that there was "insufficient reasoning" (see paragraph 94) in respect of the value ascribed by Mr Cesta to lot 3 and to demonstrate "that the relative values of all lots should be accepted where a valuation for one lot has not been satisfactorily explained" [94]. The appellant submitted that it is entirely unclear what the Tribunal meant by these statements particularly as Mr Cesta's evidence included very extensive reasoning when one has regard to his written report, his hand written workings and his cross examination.
6. Thirdly, the Tribunal found that Mr Cesta's evidence had not "satisfactorily explained what appears to be a 25% increase in m² value between lot 3 in the Strata Plan and the other lots to which he has been ascribed a substantially lesser value per m²" (see paragraph 87 of the decision below).
7. The appellant submits that no reasons were given for the above conclusion and that this is particularly concerning in circumstances where the conclusion was contrary to the evidence which established a multitude of reasons for Mr Cesta's valuation of lot 3. The appellant described one of these reasons as critical namely that the presale price for lot 3 was based upon substantially different specifications to what was included in the final plans, namely an extra 30m² of external area, an additional car space and additional storage.
8. The appellant submits that the decision below contained three critical findings referred to above for which the reasons provided were inadequate and that these findings were central to the ultimate determination of the issues in dispute. It was the appellant's case that unit 3 had initially been undervalued and accordingly had been given less unit entitlements then it should have been given had it been valued for a higher and correct value.

Ground two - Failure to take into account a relevant consideration

1. The second ground of the appeal was that the decision below failed to take into account a relevant consideration, namely the appellant's reply submissions.
2. The appellant relied upon the decision in Sean Investments Ltd v MacKellar (1981) 38 ALR 363 in which Deane J said: The ground of failure to take into account a relevant consideration will only be made good if it is shown that the decision maker has failed to take into account a consideration which he was, in the circumstances, bound to take into account for there to be a valid exercise of the power to decide.
3. The appellant submits that that principle has been included in s 38(5) of the CAT Act which in part provides, in summarised form, that the Tribunal is to take such measures as are reasonably practicable: … (c) to ensure that the parties have a reasonable opportunity to be heard or otherwise have their submissions considered in the proceedings.
4. In particular, the appellant asserted that when one has regard to its reply submissions below and compares those submissions with the decision below it is apparent that no regard was had by the member to those submissions. One submission concerned the proper application of the Spencer test (referring to the High Court decision in Spencer v The Commonwealth [1907] 5 CLR 418).

Ground three - constructive failure to exercise jurisdiction

1. The appellant submitted that s 183 of the Strata Act required the Tribunal to carry out the following tasks: 1. to determine whether the initial allocation of unit entitlements was unreasonable; and 2. to determine the correct unit entitlements on the balance of probabilities based on the evidence before it.
2. The appellant submitted that the Tribunal did not discharge either of the above two tasks.

Ground four - Application of the wrong test

1. The appellant first submits that the Tribunal below asked itself whether Mr Cesta's valuation was "reasonable" rather than asking whether the initial allocation of unit entitlements was unreasonable in accordance with the tests set out in s 183(2) of the Strata Act. The appellant relies upon paragraph 94 of the decision below in which the Tribunal stated: I am not persuaded that the reports of Mr Cesta establish his allocation of unit entitlement to be reasonable because there is, in my view, insufficient reasoning to demonstrate (a) that the value applied to unit 3 is appropriate; and (b) that the relative values of all lots should be accepted where a valuation for one lot has not been satisfactorily explained. The submission states that the test set forth in s 183(2) of the Strata Act did not require Mr Cesta's evidence to be "reasonable". The imposition of that requirement constituted an additional (and erroneous) barrier to the appellant's success.
2. In addition, the appellant submits that the Tribunal below erroneously applied s 192 of the Act (in its form at the time the application to the Tribunal below was originally lodged) to the application made by the appellant under s 183(6) of the Act (see paragraph 97 of the decision). The appellant submits that its costs should have been allowed under s 183(6)(a).

Leave grounds - clause 12

1. In addition to the submissions referred to above said to constitute errors of law, the appellant also relies upon the following two bases for appeal under clause 12, division 4 of the CAT Act: 1. that the decision under appeal was not fair and equitable or 2. the decision of the Tribunal under appeal was against the weight of evidence.

Ground five - not fair and equitable and against the weight of evidence

1. The appellant submits that the decision was not fair and equitable because its findings of fact were inconsistent with the ultimate decision of the Tribunal and also because the Tribunal below ought to have acted on its own findings of fact by reallocating the unit entitlements as sought by the appellant.
2. With respect to the second ground (ie against the weight of evidence) the appellant submits that there was extensive evidence that lot 3 had been allocated unit entitlements which were not in accordance with its true value relative to the other lots. The evidence upon which the appellant relies included the following: 1. The unit entitlements were set by reference to presales and not by reference to a "mortgage - purpose valuation" dated 23 July 2007 2. One of the presales involved a sale to the selling agent (Mr Dodds) at a substantial discount to market value 3. The mortgage - purpose valuation was infected by Mr Dodds below market purchase The appellant submits that the Tribunal made findings in accordance with the above facts but failed to then reallocate unit entitlements.

Failure to find the true values of the lots

1. In the appellant's fifth ground the appellant submits that Mr Cesta's evidence fully exposed his reasoning and that there was no proper basis for the Tribunal not to accept his evidence.
2. In addition the appellant submits that the effect of the evidence of Mr Dupont (being the expert providing valuation evidence for the respondent) was supportive of Mr Cesta's evidence and this adds to the conclusion that there was no proper basis for the Tribunal not to accept Mr Cesta's evidence. One of the critical pieces of evidence, according to the appellant, was that Mr Dupont accepted that the presale price for lot 3 was based upon substantially different specifications to what was included in the final plans, namely an extra 30m² of external area, an additional car space and additional storage. The appellant submits that Mr Dupont accepted that the presale price for lot 3 was $660,000.00, not $650,000.00 and that the price excluded commission which should have been taken into account.
3. The appellant submits that Mr Dupont agreed in cross examination that it would be unsafe to reply upon the "mortgage - only valuation" prepared at the development stage for the purposes of settling unit entitlements because: 1. it could be based on presales, which might not reflect what property could be bought and sold for in the open market; 2. there would be no prior comparable sales data for a property which was yet to be constructed; 3. market data relied upon would be comparable market data for other development sites, rather than individual units in their as-built state; 4. mortgage valuations are prepared for a lender so it can determine how much to lend based upon an expected gross realisation, not relative values within the subject development; 5. no physical inspection would be possible, despite this being a normal requirement of valuing any as-built property (and an essential requirement of any valuation for the purposes of s 183 of the Act: Riana Pty Ltd v Owners SP 22336 [2007] NSWSC 1033, [45] and [47] (Rothman J)); and 6. it might involve valuing property based upon plans which could subsequently change.
4. The appellant submits that Mr Dupont conceded that the internal area of lot 3 ought to be valued on at least the same basis as the highest-valued lots in the Strata Plan (and certainly not at a lower multiple), and that, as a result, he no longer considered that paragraph 78 of the Dupont Report was accurate. He then subsequently sought to retract that evidence. Ultimately, however, he conceded that his assigned value for the internal area of lot 3 should have been higher. Had the higher value for internal square meterage conceded by Mr Dupont in cross-examination been adopted in the Dupont Report, Mr Dupont would have: 1. exceeded the 10% maximum variance from the opinions he had originally expressed in the Mortgage Valuation; and 2. arrived at a value for lot 3 which reflected the actual specifications for it in its as-built state (i.e. the additional external area, carspace and storage space).
5. Ground six of the appellant's submission was not pressed and has therefore not been considered.

Ground seven (inconsistency between findings of fact and ultimate decision)

1. The appellant submits that there is an inconsistency between the findings of fact and the ultimate decision. In particular the appellant draws attention to the fact that there were findings that information relied upon for the establishment of the unit entitlements was inappropriate and unreasonable giving rise to the Tribunal's finding that there was "compelling evidence" that the value applying to lot 3 for the purpose of unit entitlement initially was inappropriate and unreasonable (paragraph 92). However, the Tribunal dismissed the application and the appellant argues that the decision to dismiss the application was inconsistent with the findings.
2. Elaborating on the submission referred to in the above paragraph the appellant says that the Tribunal found: 1. the sale of lot 3 to Mr Dodds has been at an undervalue ([47] of the decision) 2. Mr Dupont conceded that his valuation of lot 3 ought to have been approximately $745,000.00, not $650,000.00 originally adopted by him ([56] of the decision) 3. there was compelling evidence that the unit entitlements for lot 3 had been allocated unreasonably ([92] of the decision). Despite the above findings the Tribunal dismissed the application and the appellant submits that the decision to dismiss was inconsistent with the findings.

Ground one - alleged failure to provide adequate reasons

1. The respondent points to three findings of the Tribunal in relation to the appellants' expert valuer, Mr Cesta, which the appellant submits were inadequately reasoned. Those three findings were: 1. the non acceptance of the evidence of Mr Cesta, 2. the extent of the reasons given for not accepting Mr Cesta on the basis of insufficient reasoning, 3. no satisfactory explanation of the apparent increase in m² value for lot 3 by Mr Cesta.
2. So far as the last of the above three findings is concerned the respondent submits that the decision under appeal recorded in paragraph 87 that the Member observed an increase in the amount permitted by Mr Cesta for the internal areas of lot 3 as distinct to the other lots. The range was $7,000.00/m² for lot 3 as compared with the range of $5,000.00 to $6,000.00/m² for the other lots. As a matter of "mathematics, a 25% increase from $6,000.00/m² to $7,000.00/m² is an increase in ascribed value of 25%", the respondent submitted.
3. The respondent submits that the crux of the Tribunal member's analysis relates to the "sufficiency" of the explanation for this increase. The factual matters underpinning Mr Cesta's analysis were identified by the Tribunal member when assessing the submissions of Counsel for the respondent. These matters are referred to in paragraphs 61 and 62 of the decision and concerned the following evidence: 1. each of lots 1, 2 and 3 were proximate to the harbour front - although lot 3 had the best frontage, 2. lot 1 and lot 3 had three car spaces, 3. Mr Cesta used different rates for external areas but did not set that out in his report.
4. The respondent submits that the Member did more than simply rely on his analysis of the submissions to support his findings in relation to Mr Cesta. Paragraphs 89 and 90 of the decision below "grapple precisely with why it is that Mr Cesta's reasons were not sufficient" (to use the language of the respondent's submissions) namely: 1. even against Mr Dupont's concession of value, Mr Dupont's value for lot 3 remains substantially less than the value ascribed by Mr Cesta, 2. while that value was probably derived from a mortgage valuation, that fact alone did not support the valuation provided by Mr Cesta; and 3. while the subsequent sale may have been made by an overly anxious and extremely willing purchaser, the Tribunal could not speculate as to the basis of the respective sales figures as the appellant bore the onus.
5. The respondent submits that the above analysis highlights why it was that Mr Cesta had failed to satisfy the Tribunal of actual value. In short there were unexplained gaps in Mr Cesta's reasoning that were fatal to his opinion being accepted about the value of lot 3. The respondent submits that there is no error in either the logic of the Member's finding, nor its expression.
6. The respondent submits that the decision below correctly took the "careful view that while there was evidence that the value ascribed to lot 3 was initially inappropriate, he could not be satisfied of the true value in order to re-evaluate unit entitlements as required under S183 of the Strata Act".

Ground two - alleged failure to take into account a relevant consideration

1. The respondent summarises this complaint as, in essence, a complaint about a perceived failure by the Tribunal member to consider arguments advanced by the appellant set forth in the appellant's Reply Submissions. The respondent submits that the decision below expressly stated that the "detailed submissions of fact and law provided by the legal representatives have all been taken into consideration" (paragraph 82). The respondent also submits that the appellant cannot point to any matter raised in the reply submissions that were not taken into account.

Ground three - alleged constructive failure to exercise jurisdiction

1. The respondent submits that a finding that the allocation of unit entitlements was, at the point when the strata plan was registered, unreasonable is the beginning of the enquiry. The finding enlivens a power, but not a duty, to allocate unit entitlements under s 183. The respondent argues that a finding of error does not inexorably require that an order recalibrating the units should be made. A finding of "unreasonableness", like a finding of error, does not suggest, of itself, the correct answer.
2. The respondent makes the point that a unit reallocation is not a trifling matter. Unless a Tribunal Member can be satisfied of how a reallocation ought to be made, in substitution of the existing allocation, it ought not make an order. Here, the member was not satisfied on the evidence that a reallocation could properly be undertaken and declined to do so. There is no warrant for the appeal panel to find that the Tribunal member's reasoning to decline to interfere and substitute his own allocation was an error.

Ground four - alleged application of the wrong test

1. The respondent submits that the member did not apply the "wrong test". Before making an order reallocating unit entitlements, the member needed satisfactory evidence as to what constituted reasonable - as opposed to unreasonable - unit allocations. The member was not persuaded that Mr Cesta's valuation of lot 3 was reasonable. The member was not prepared to reallocate the unit entitlements. The reasoning is contained in paragraphs 94 where, in summary, the member said that he "was not persuaded that the reports of Mr Cesta establish his allocation of unit entitlement to be reasonable because there is, in my view, insufficient reasoning to demonstrate (a) that the value applied to unit 3 was appropriate and (b) that the relative value of all lots should be accepted where a valuation of one lot has not been satisfactorily explained."

Fair and equitable ground

1. The respondent submits that the appellant has failed to demonstrate that there has been a substantial miscarriage of justice and that the appellant bears the onus of demonstrating that the order made was not fair and equitable giving rise to a substantial miscarriage of justice. This is not an insignificant hurdle given that all relevant findings were explained in the reasons.

Decision against the weight of evidence

1. The respondent submits that for this ground to be satisfied there must be a finding that the evidence in its totality preponderates so strongly against the conclusion found by the Tribunal at first instance that it can be said that the conclusion was not one that a reasonable member could reach. Here, the member was required to choose between the evidence of two expert witnesses and otherwise be satisfied that the evidence was reliable. The member was not satisfied and that decision does not concern the preponderance of evidence but, rather, the reliability of it.

Alleged failure to find the true value of the lots

1. The respondent submits that the appellants' submission focused entirely on the evidence of Mr Dupont whereas the decision by the member to not make an order was based upon the member's lack of acceptance of Mr Cesta's valuation of lot 3. The respondent goes on to submit that whatever the Tribunal member thought of Mr Dupont's evidence, that was not relevant to his assessment and acceptance of Mr Cesta's evidence. The respondent submits that the member set forth, in some detail, his reasoning in failing to be persuaded that there was proper evidence before him to enable a reallocation of the units to be undertaken. In the decision at paragraphs 92 to 94 the member clearly articulated his position namely: 1. he was satisfied there was significant evidence that the initial values were unreasonable; 2. he was not satisfied that Mr Cesta's evidence had significantly explained a large increase in value in lot 3; 3. he was not satisfied that the appellant had discharged its evidentiary burden as to the true value of all the lots.
2. The respondent submits that at the conclusion of the cross examination of Mr Cesta there was an unexplained increase in Mr Cesta's valuation of lot 3 in the amount of 25% when compared with the other lots. The respondent submits that Mr Cesta sought to avoid answering some questions in cross examination directly and failed to given a convincing explanation as to why it was that lot 3 was an anomaly. In the result the member was not satisfied of two matters (see paragraph 94): 1. the value applied to lot 3 and 2. the relative values of all units as a result.

Ground seven - alleged inconsistency between findings of fact and ultimate decision

1. The respondent submits that the appellant has failed to cite the critical fact that even applying the formula conceded by Mr Dupont, the value given by Mr Dupont to lot 3 would have been higher than the value provided in his evidence but "critically substantially less than the value ascribed to it by Mr Cesta." The respondent relies upon paragraphs 55, 56 and 89 of the decision below. The respondent states that the member's reasoning at paragraphs 55, 56 and 89 precisely expresses what was before the Tribunal member when he came to make his decision, namely a series of concessions that the value of the lots was unreasonable, but a significant anomaly in the values provided by Mr Cesta for lot 3. The respondent goes on to say that as the appellant bore the burden but failed to carry it there is nothing inconsistent in any of the findings.
2. The respondent seeks its costs of the appeal. We will deal with that aspect separately.

Ground 1- failure to provide adequate reasons

1. The appellant submits that the findings relied upon by the respondent to support the decision below not to accept Mr Cesta's evidence are not in fact findings which support the conclusion not to accept Mr Cesta's evidence.
2. In particular the appellant points to the issue of the true value of the unit entitlements and submits that the decision below in paragraph 92 is a statement of conclusion, not a statement of reasons. In that paragraph the Member stated that he was not satisfied that the unit entitlements asserted by Cesta should be accepted and that the applicant has not discharged the onus of establishing the value to lot 3 ascribed by Mr Cesta. The appellant says that adequate reasons for these conclusions required an analysis of: 1. the significant alteration of Mr Dupont's opinion during cross examination, 2. the fact that Mr Dupont's opinion was based upon presales including the sale of lot 3 at an undervalue to Mr Dodds 3. the risks inherent in relying upon a mortgage valuation in setting unit entitlements 4. the fact that between the time the original price list for the units was issued and the time the Strata Plan was registered, there had been significant changes to the plans which involved enlarging lot 3 5. the fact that lot 3 had a better outlook and was a premium unit

Ground 2 - failure take into account a relevant consideration

1. The appellant says that the following matters in the appellant's "Reply Submissions" were not the subject of any reasoning or reference in the decision below: 1. the proper consideration and application of the Spencer Test 2. the response to the respondent's contentions that Mr Cesta's analysis was to be ignored 3. the relevance of the leases for the appellant's argument 4. the incorrect submission by the respondent that Mr Cesta had adopted a top rate of $6,000.00/m2 for the Strata Plan which was inconsistent with his valuation of lot 3, a submission which may have fed directly into the decision to reject Mr Cesta's evidence 5. the submissions by the respondent about when changes to the Strata Plan were made 6. the proper construction of the word "unreasonable" in s 183; and 7. the incorrect submission by the respondent that the developer had relied upon the mortgage valuation in setting the unit entitlements. 8. The respondent submits that no "active intellectual process" is disclosed in the reasons with respect to the appellant's reply submissions.

Ground 3 - constructive failure to exercise discretion

1. The appellant submits that the Tribunal below failed to exercise its jurisdiction judicially by failing to make a decision "either way".

Ground 4 - application of the wrong test

1. These submissions repeat what was submitted in chief. In essence the appellant submits that once the Tribunal decided that the original allocation of unit entitlements was unreasonable it must turn to the question of whether it ought to reallocate the unit entitlements. That task must be assessed by applying the civil standard of proof and not a more stringent test of what is reasonable.

Leave ground - not fair and equitable

1. The reply submissions repeats arguments submitted in chief.

Leave ground - against the weight of evidence

1. The appellant submits that when one considers the Dupont evidence following his cross examination the difference between his opinion and that of Mr Cesta's concerning the value of lot 3 had been substantially narrowed. The appellant submits that the effect of Mr Dupont's evidence was that in his view the correct value for lot 3 was $750,000.00 (compared with his original valuation of $650,000.00) as compared with Mr Cesta's $840,000.00. This suggests that the preponderance of evidence established that the original unit entitlements not only had been wrong but also that the actual value of lot 3 was significantly higher than reflected in those entitlements. That is sufficient to establish that the decision was against the weight of the evidence.

Ground 5 - failure to find the true values of the lots

1. The appellant takes issue with the respondent's submissions that Mr Cesta did not give an explanation for his valuation of lot 3. The appellant points to various matters which Mr Cesta identified in support of his view that lot 3 was worth more. The appellant also identifies documents demonstrating the calculations made by Mr Cesta. In short the appellant says Mr Cesta provided an adequate explanation and could not have done more. Accordingly, the Tribunal erred, the appellant submits, in failing to accept Mr Cesta's reallocation.

Ground 7 - inconsistency between findings of fact and the ultimate decision

1. The appellant asserts that the facts show that lot 3 was undervalued but failed to make its own decision.

Consideration

1. It is helpful in understanding our reasons if we firstly summarise the relevant findings in the decision the subject of the appeal.
2. It was common ground that the Strata Plan was registered on 28 May 2009. At the time of registration the unit entitlements were as follows (see column 1): Column 1 Column 2 Column 3 UE on registration UE assigned by Mr Cesta Value assigned by Mr Cesta Lot 1 345 306 $1,030,000.00 Lot 2 165 171 $575,006.00 Lot 3 204 249 $840,000.00 Lot 4 204 194 $655,000.00 Lot 5 82 80 $270,000.00 Total: 1000 10000 $3,370,000.00

1. The appellant's case relied upon the opinions of Mr Cesta, who reached conclusions as to the appropriate value of each lot and its appropriate unit entitlements. These values and unit entitlements are set out above in the second and third columns (see [22] of the decision).
2. The Tribunal found that in 2006 all lots had been sold "off the plan" ([71] of the decision). The sale of each of the lots was completed shortly after the registration of the Strata Plan on 28 May 2009.
3. The respondent relied upon the expert evidence of Mr Dupont who was the valuer who had earlier provided a valuation to the developer in 2007.
4. The significant point of difference between the opinions of Mr Cesta and those of Mr Dupont concerned the valuation to be ascribed to lot 3. Their respective opinions on the other four lots were not significantly different.
5. The decision records that Mr Cesta had elected not to rely on the initial purchase price of lot 3 [84]. His decision was based on the fact (which does not appear to have been contested by the respondent) that the sale of lot 3 in 2007 was to a company which shared a common director (a Mr Dodds) with the company which was the selling agent. The decision records that Mr Cesta thought it prudent to consider a resale of lot 3 in June 2009 rather than the "off the plan" sale in 2007 [25]. The 2007 "off the plan" sale price for lot 3 was $660.000.00 (clear of agents commission [5]). Lot 3 was resold in June 2009 for $885,000.00 [45] exclusive of GST or $973,500.00 inclusive of GST.
6. The decision records that Mr Cesta undertook the exercise of assessing the value which he had assessed for each lot by calculating the rates per m² based on the internal lot areas [27]. The Tribunal found that it was not satisfied that Mr Cesta had "satisfactorily explained what appears to be a 25% increase in the m² value between lot 3 and the other lots to which he has been (sic) ascribed a substantially lesser value per m²". Mr Cesta had allowed a sum of $7,500.00/m² for the internal area of lot 3 notwithstanding that his range of values was between $5,000.00 and $6,000.00/m² in relation to the other lots.
7. In paragraph 89 the Tribunal found that in cross examination Mr Dupont conceded that the internal area of lot 3 ought to be valued on the same basis as the other lots in terms of m² value. The Tribunal also found that Mr Dupont ultimately conceded that, upon reflection, the value he would have applied to lot 3 was greater than the value contained in his report. The Tribunal found that it is clear that in applying the formula used by Mr Dupont in respect of the other lots and reducing the rate per m² to 20% for the external areas the valuation of lot 3 at the relevant time would have been $30,000.00 to $40,000.00 higher than the value given to it in his report but it would have been substantially less than the value ascribed to it by Mr Cesta.
8. In paragraph 90 the Tribunal found that the initial unit entitlements were derived from a "mortgage valuation" which did not properly take into account some of the final attributes of lot 3. The reference to the "final attributes" of lot 3 appears to be a reference to evidence given by Mr Dodds (and which appears not to have been disputed) that after the initial price for lot 3 had been agreed the plans were changed and lot 3 acquired an extra 30m² of external space, another car park and a storage space [47].
9. Further in paragraph 90 the Tribunal referred to the subsequent sale of lot 3 and appears to have decided that it should be ignored because the "applicant bears the onus of establishing that the allocation of unit entitlements among the lots was unreasonable when the Strata Plan was registered."
10. In paragraph 92 the Tribunal found that there was "compelling evidence that the value applies (sic) to lot 3 for the purpose of unit entitlements initially was inappropriate and unreasonable". However, the Tribunal went on to say that the Tribunal was "not satisfied that the values and therefore unit entitlements described in the Strata Plan by Mr Cesta should be accepted". The Tribunal found only a small variation between the valuations of Mr Cesta and Mr Dupont applying to all lots, other than lot 3, but a significant difference between Mr Cesta and Mr Dupont in the value of lot 3. The Tribunal was not satisfied that the appellant had discharged the onus of establishing the value Mr Cesta ascribed to lot 3.
11. The Tribunal then stated that it followed that the Tribunal does not 'have reliable evidence of the respective values of each of the lots at the relevant date" [92].
12. The task of the Tribunal when considering an application under s 183 of the Strata Act has recently been considered by the Court of Appeal in Sahade v The Owners - Strata Plan 62022 [2014] NSWCA 208. The Court accepted that the making of an order under s 183 was a staged process which requires the following: 1. first the Tribunal must ascertain the respective values of the lots subject to the strata scheme 2. secondly the Tribunal must determine whether, having regard to the respective values of the lots at the time the strata plan was registered, the allocation of unit entitlements at that time was unreasonable 3. thirdly if the allocation was unreasonable at that time, the Tribunal must consider whether to make an order reallocating unit entitlements among the lots subject to the strata scheme. Additionally the Tribunal must take the respective values of the lots into account as a fundamental element in determining whether the allocation of unit entitlements among the lots was unreasonable when the plan was registered. However the respective values of the lots is not the exclusive consideration and the Tribunal may have regard to other matters that show or tend to show that the allocation of unit entitlements among the lots was or was not unreasonable. Finally, if the Tribunal finds that the original allocation of unit entitlements was unreasonable it has power to vary the allocation but is not bound to do so. Thus it may take other relevant factors into account in determining whether an order should be made varying the original allocation of unit entitlements: see Sahade [62] and [86].
13. In the proceedings below the appellant's case was that the value ascribed to lot 3 for the purpose of initially allocating unit entitlements was not the true or correct value of that unit. Accordingly, the appellant submitted that the Tribunal should ascertain and find the true or correct value of that unit by reference to the evidence before the Tribunal.
14. In performing the first of the staged processes described earlier, namely the ascertainment of the respective values of the lots, it is the opinion of the Appeal Panel that the Tribunal below did not make a finding as to the value of the lots. Rather, the Tribunal did not accept the evidence of Mr Cesta in respect of his valuation of lot 3. The only other evidence came from Mr Dupont and the Tribunal found that the value he initially ascribed to lot 3 for the purposes of the unit allocation was not a value which he (Mr Dupont) subsequently thought was the true or correct value. The Tribunal recorded that the effect of Mr Dupont's evidence was that lot 3 was valued by him at $30,000.00 to $40,000.00 higher than the value he had given in his report. That would result in a value of between $740,000.00 and $750,000.00 (based on the valuation of $710,000.00 contained in his report (see paragraph 51 of the decision)). In effect, in our view, the Tribunal found that the value of lot 3 was an amount greater than the amount used to allocate the unit entitlements. However, the evidence of Mr Cesta was not sufficient to enable the Tribunal to ascertain the value of lot 3.
15. The rejection of Mr Cesta's evidence appears to have arisen for two reasons. The first was that the Tribunal was concerned that the valuation of lot 3 ascribed by Mr Cesta revealed a much higher value per m² for internal space than that which he had applied to other lots. Secondly, to the extent that the sale of lot 3 in June 2009 was taken into account by Mr Cesta that sale should have been ignored because it was not a sale which had occurred when the strata plan was registered.
16. In relation to the second of the above reasons the Tribunal did not expand upon its decision to ignore the June 2009 sale of lot 3. However, it appears to have been based upon accepting the submissions of the respondent recorded in paragraph 57 of the decision. That submission referred to the High Court decision in Spencer v. Commonwealth (1907) 5 CLR 418 for the proposition that circumstances arising after the date of registration of the strata plan are to be ignored. The proposition decided in the Spencer case has been the subject of explanation in subsequent cases. In Challenger Property Asset Management Pty Ltd v Stonnington Council (2011) 34 VR 445. Croft J referred to cases where "post-valuation assessment date material" may be relied upon and stated that the leading authority on that subject is Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547 which Croft J said described principles which have become known as the "Falconer principles". In that case Croft J said that there were cases where it had been held that evidence of future events is admissible "not to prove a hindsight, but to confirm a foresight". The principle is that an assessment may be calculated in the light of any subsequent facts to the extent that they throw light upon the items to be valued. In the Falconer case Mahoney JA said that evidence of subsequent sales are not necessarily excluded because such sales are evidence of the price a relevant vendor and purchaser found acceptable at the relevant date for comparable land. The assumption of the law is that from that evidence it is possible to infer what the relevant vendor and purchaser would have found acceptable for the subject land. Croft J distilled the propositions referred to in the Falconer case by concluding that evidence of subsequent circumstances may only be used if it relates to a foresight, but may not be used if it merely constitutes a hindsight.
17. In Sahade v The Owners - Strata Plan 62622 [2014] NSWCA 208, Basten JA said at [32] that the principles in Spencer deal with the appropriate compensation payable by a public authority for a compulsory acquisition of privately held land, and that they do not dictate how land is to be valued in all statutory contexts.
18. In our view, the Tribunal was in error in ignoring the sale of lot 3 in June 2009 as evidence which would have assisted the valuer in inferring what the value of lot 3 was when the strata plan was registered in May 2009. Such evidence would in our view throw light on the question of the value of lot 3 approximately a month prior to the sale in June 2009.
19. In our opinion the decision to ignore the evidence of the sale of lot 3 in June 2009 was made without the provision of adequate reasons and resulted in a failure to take into account a relevant consideration because that evidence was evidence which the Tribunal was bound to take into account when considering whether to accept or reject the opinion of Mr Cesta.
20. Turning to the other basis for the rejection of Mr Cesta's evidence, namely the apparent anomaly in Mr Cesta's value on a per m² bases in respect of internal space between the value of that space for lot 3 compared with the other lots, it is our view that the Tribunal failed to provide adequate reasons for finding that Mr Cesta had not given a satisfactory explanation for valuing lot 3 in that respect substantially higher than the other lots. In paragraph 87 the Tribunal found that Mr Cesta had allowed $7,500.00/m² for the internal areas of lot 3 notwithstanding that his range of values otherwise was between $5,000.00 and $6,000.00/m² in relation to the other lots. It appears that this discrepancy was a significant factor in the Tribunal's decision to be dissatisfied with Mr Cesta's valuation of lot 3. However, there is no analysis of the other factors which Mr Cesta considered in calculating the rates per square metre. The decision records that Mr Cesta gave evidence that in calculating rates per square metre the rates need to be adjusted to reflect the variations of lot areas, car parking, outdoor areas and other relevant factors. These other factors were referred to by Mr Cesta in his evidence. For example, they included the fact that smaller areas produce higher rates per square metre, the proximity to the harbour front enjoyed by lot 3, the fact that of the lots of comparable internal size lot 3 had a much larger outdoor area with 3 car spaces and the fact that lot 3 had a much wider frontage.
21. It is our view that the Tribunal did not provide adequate reasons for its decision that Mr Cesta had not satisfactorily explained the apparent "25% increase in m² value between lot 3… and the other lots to which he … ascribed a substantially lesser value per m²" [87]. In paragraph 27 of the decision the Tribunal records that Mr Cesta adopted rates per m² based on the internal lots areas for the purpose of assessing the values he had assessed for each lot. He is recorded as stating that the rates need to be adjusted to reflect variations in respect of lot area, car parking outdoor areas and any other relevant factors. The evidence of Mr Dupont similarly recognised the need make adjustments to the calculation of the value of each lot having regard to the individual characteristics of each lot. For example the Tribunal records in paragraph 49 that Mr Dupont expressed the view that as lot 3 had a ratio of outdoor area to internal area of 2 to 4 times higher than the other lots, it would require specific adjustment.
22. In our view both valuers acknowledged that the valuations of the lots would not necessarily produce the same value per m² of indoor space because adjustments were required to be made to the values to have regard to a lot's individual features. That being so, the fact that Mr Cesta valued lot 3 on a higher per m² basis than he did for other lots is not remarkable. In our view if the Tribunal were minded to reject Mr Cesta's valuation of lot 3 by reason of the comparatively high value per m² for the internal area, the Tribunal ought to have considered and expressed a view on the factors which Mr Cesta had identified as justifying valuing lot 3 on a higher per m² basis than the rate given to the other lots. In our view the Tribunal's decision to reject Mr Cesta's valuation did not conform to the requirements set out in the decision of the Court of Appeal in Pollard v RRR Corporation Pty Ltd in that the reasons do not do justice to the issues posed by Mr Cesta's evidence and do not expose the Tribunal's reasons for not accepting Mr Cesta's evidence.
23. It is our view that it was appropriate for Mr Cesta to consider the sale for $973,500.00 of lot 3 in June and that the evidence discloses a number of reasons by which Mr Cesta was able to explain why his valuation of lot 3 resulted in the rate per m² for the internal space in respect of that lot being significantly higher than the rate per m² for the other lots. The reasons given by Mr Cesta were based on the individual attributes of lot 3 and there was consensus between the two valuers that the individual attributes of each lot needed to be considered by them.
24. It is our view that the appellant has successfully made out grounds one and two of the grounds of appeal and the appeal ought to be upheld. The error made in failing to take into account a relevant consideration led to the Tribunal making a decision against the weight of evidence and this ground of appeal is also upheld.
25. It is our view that the evidence of the June 2009 sale of lot 3 should have been taken into account and that there was enough evidence to explain why lot 3 was valued by Mr Cesta at a rate per m² higher than the other lots, that accordingly there was no basis for not accepting his valuation of lot 3. The alternative valuation put forward by Mr Dupont ultimately finished at $745,000.00 but Mr Dupont was not an entirely independent valuer because in some respects his earlier valuation from which the unit entitlements were allocated was under scrutiny.
26. We find that Mr Cesta's evidence as to the value of lots is to be accepted and we find that those values (which are set out in paragraph 70 of this decision) are the respective values of each lot at the relevant date. We also determine that the allocation of unit entitlements at the time of registration of the strata plan was unreasonable and that we should make an order reallocating the unit entitlements. Ground three of the appeal is also upheld.
27. Apart from the respective values of the lots, no other considerations were put by either party as factors to take into account in the allocation of unit entitlements.
28. As we find that the original allocation of unit entitlements was unreasonable we propose to make an order to vary the allocation of unit entitlements to give effect to the allocations proposed by Mr Cesta (see paragraph 70).

Costs

1. The appellant seeks an order pursuant to s 183(6) of the Strata Act that the second respondent, Hunter Development Corporation pay to the appellant the costs incurred by the appellant in the original application (and in the appeal) including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by the valuer Mr Cesta and legal costs and, in addition, the amount of additional levies paid by the appellant (in comparison with the levies that would have been payable pursuant to the correct unit entitlements) in consequence of Hunter Development Corporation's original unreasonable allocation of unit entitlements.
2. In the appellant's reply submissions the appellant submitted that the provisions of s 60 of the CAT Act apply to the costs of the appeal. That section contains an assumption that each party is to pay its own costs which is only displaced when there are "special circumstances". The appellant submitted there were no such circumstances in this case and that there is no reason to depart from the usual rule.
3. The respondent sought its costs of the appeal relying upon the provisions of ss (60)(3)(c), (d) and (g) of the CAT Act.
4. Section 183(6) of the Strata Act is in the following terms: (6) Ancillary orders that may be made if original valuation unsatisfactory The Tribunal may, if it makes an order allocating unit entitlements that were not allocated in accordance with a valuation of a qualified valuer and, in the opinion of the Tribunal, were allocated unreasonably by a developer, also order: (a) the payment by the developer to the applicant for the order of the costs incurred by the applicant, including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by a qualified valuer, and (b) the payment by the developer to any or all of the following people of such amounts as may be assessed by the Tribunal to represent any overpayments (due to the unreasonable allocation) for which liability arose not earlier than 6 years before the date of the order: the lessor of a leasehold strata scheme the owners corporation the owners of lots.
5. In the light of the conclusions we have reached that the unit entitlements ought to be reallocated it is also our view that the Appeal Panel ought to exercise its discretion and make an order under s 183(6) in the terms sought by the appellant (subject to the comments made below concerning the amount of additional levies). The Appeal Panel has power to make such an order by virtue of s 80(2) of the CAT Act which provides that the Appeal Panel may exercise all the functions that are conferred or imposed by the CAT Act or other legislation on the Tribunal at first instance when varying, or making a decision in substitution for the decision under appeal.
6. Section 183(6)(b) provides for the Tribunal to make an order for payment "of such amounts as may be assessed by the Tribunal to represent any overpayments (due to the unreasonable allocation) for which liability arose not earlier than 6 years before the date of the order". The appellant is the only applicant for such an order. There is no application by any of the other three potential beneficiaries for such orders as identified in s 183(6)(b). However, the Appeal Panel has no evidence as to the amounts which constitute the overpayments envisaged by s 183(6)(b). Accordingly, the Appeal Panel will make an order that the parties may provide such further evidence as is necessary for the Tribunal to make a determination to give effect to the order under s 183(6)(b).
7. Turning to the costs of the appeal, the appellant acknowledges that such costs are to be determined by reference to s 60 of the CAT Act and that, in this case, each party should pay their own costs. A order will be made accordingly.

Orders

1. The Appeal Panel makes the following orders: 1. The appeal is allowed. 2. The decision and orders which are the subject of this appeal are set aside. 3. Pursuant to s 183(1) of the Strata Schemes Management Act 1996 (NSW) the unit entitlements in strata plan 80988 are allocated as follows: Lot Number Unit Entitlement 1 306 2 171 3 249 4 194 5 80 Total 1,000

1. Pursuant to s 183(6) of the Strata Schemes Management Act 1996 (NSW) Hunter Development Corporation pay to the appellant: 1. the costs incurred by the appellant in the original application before the Tribunal including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by the valuer Mr Cesta and legal costs; and 2. the amount of any overpayments being additional levies paid by the appellant (in comparison with the levies that would have been payable pursuant to the correct unit entitlements) in consequence of Hunter Development Corporation's original unreasonable allocation of unit entitlements in strata plan 80988 and for which liability arose not earlier than 6 years before the date of this order. 1. The appellant and the respondents have leave to apply to the Consumer and Commercial Division of the Tribunal within 28 days from the publication of these orders for the purposes of making an order pursuant to s 183(6)(b) of the Strata Schemes Management Act fixing the amount of any over payments to be paid pursuant to order 4(b) hereof. 2. Each party is to pay their own costs of the appeal.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar

Amendments 28 September 2015 - Decision re-published with final amendments. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 September 2015