ISPT Pty Ltd v Valuer General

LEGISLATION CITED: Land and Environment Court Act 1979, s 57(1)

AMP Henderson Global Investors v Valuer General [2004] NSWCA 264; (2004) 134 LGERA 426; B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187; Deputy Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) 51 CLR 509; Goode v Valuer-General (1979) 22 SASR 247; Hope v Bathurst City Council (1980) 144 CLR 1; Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd (1983) 3 NSWLR 378; Leichhardt Municipal Council v Seatainer Terminals Ltd (1981) LGRA 409; Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111; CASES CITED: Melwood Units Pty Ltd v Commissioner of Main Roads (1979) AC 426; Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority of New South Wales [2006] NSWCA 314; Roads and Traffic Authority v Mosca [2006] NSWCA 159; (2006) 146 LGERA 335; Roads and Traffic Authority of New South Wales v Peak [2007] NSWCA 66; Royal Sydney Golf Club v Federal Commissioner of Taxation (1957) 97 CLR 379; Secretary of State for Foreign Affairs v Charlesworth Pilling & Co [1901] AC 373; Spencer v The Commonwealth (1907) 5 CLR 418; Tooheys, Ltd v The Valuer-General (1925) AC 439; Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156; (2006) LGERA 335;

PARTIES: ISPT Pty Ltd - Appellant in each matter Valuer General - Respondent in each matter

COUNSEL: J Griffiths SC & D Miller - Appellant in each matter T Hale SC & J Maston - Respondent in each matter

SOLICITORS: Gadens Lawyers - Appellant in each matter Crown Solicitors Office - Respondent in each matter

LOWER COURT JURISDICTION: Land & Environment Court

LOWER COURT FILE NUMBER(S): LEC 3018/06; LEC 30537/07

LOWER COURT JUDICIAL OFFICER: Lloyd J, Sheehan AC

LOWER COURT DATE OF DECISION: 28 February 2008

LOWER COURT MEDIUM NEUTRAL CITATION: ISPT Pty Limited v Valuer General [2008] NSWLEC 114

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40138/08 CA 40299/08 LEC 30818/06 LEC 30527/07

ALLSOP P GILES JA CAMPBELL JA

Monday 23 March 2009 ISPT PTY LTD v VALUER GENERAL Judgment 1 ALLSOP P: I have read the reasons of Giles JA. I agree with the orders proposed by his Honour and, subject to the comments below, I agree with his Honour's reasons. 2 The first comment is by way of elaboration, not qualification. The "appeal" to this Court under the Land and Environment Court Act 1979 (NSW), s 57 is: "against an order or decision … of the Court on a question of law" 3 The nature of this process was discussed at length in Maurici v Chief Commissioner of State Revenue [2001] NSWCA 78; 51 NSWLR 673 and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187 at [57]-[79]. It is the "decision" not the "appeal" which must be on a question of law: B & L Linings at [70], citing Roads and Traffic Authority of New South Wales v Peak [2007] NSWCA 66 at [139]. Such an appeal is "on" a question of law, not limited, however, "to an error of law": Mir Bros Unit Constructions Pty Ltd v Roads and Traffic Authority of New South Wales [2006] NSWCA 314 at [27]; and see Peak at [139]. 4 The second comment is by way of qualification and concerns the retail demographic evidence. The extent of the knowledge available for, and relevant to, the analysis of the hypothetical sale process for the ascertainment of value in accordance with Spencer v The Commonwealth (1907) 5 CLR 418 was not debated. I would reserve any comment as to the proper extent of information (assuming it to be reflective of the underlying condition of the land or of a circumstance that might affect its value: see Spencer at 441) that is assumed to be available to the hypothetical vendor and purchaser. The hypothetical nature of the enquiry may make it difficult to limit relevant material to what parties would be likely to see, though limits may need to be placed upon such material such as by reference to such considerations as an uncommon gift of foresight: see for example, Deputy Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) 51 CLR 509 at 515; and see generally Royal Sydney Golf Club v Federal Commissioner of Taxation (1957) 97 CLR 379 at 385 and Goode v Valuer-General (1979) 22 SASR 247 at 260. Whether the phrase "perfect knowledge" is apt may be open to debate. The extent of the knowledge contemplated by Isaacs J in Spencer at 441 may, in any given case, need to be carefully examined. It not having been debated here, I will say no more. 5 The third comment also concerns the retail demographic evidence and is by way of elaboration. In a jurisdiction where the Court is undertaking the task of valuation (being a task of evaluation and application of experience and, to a degree, impression, of the kind discussed by the Privy Council in Secretary of State for Foreign Affairs v Charlesworth Pilling & Co [1901] AC 373 at 391), the choice by the judicial valuer of relevant material to assist him or her in reaching a conclusion does not necessarily carry with it any legal question. If the judicial valuer rejects, as legally irrelevant, material which, in law, is demonstrably relevant, that may reveal a legal error in approach. However, the choice by the judicial valuer as to material of utility or weight will be, generally, a question of fact in the evaluative process. If not bound by the rules of evidence, a "rejection" of material by the judicial valuer may be seen as a judgment by him or her that a body of material is unlikely to be of utility and, as such, involve factual, rather than legal, considerations. 6 GILES JA: The respondent valued the appellant's land at 36 Station Street, Fairfield, on which there was a shopping centre known as Fairfield Forum, at $17,000,000 for each of the base dates 1 July 2005 and 1 July 2006. The Land and Environment Court (Lloyd J, assisted by Sheahan AC) dismissed appeals from the disallowance of objections to the valuations: ISPT Pty Ltd v Valuer General [2008] NSWLEC 114. The appeals from that dismissal are confined to appeal against a decision "on a question of law": Land and Environment Court Act 1979, s 57(1).

The decision below 7 The valuations were of land value in accordance with s 6A of the Valuation of Land Act 1916, relevantly - " 6A Land value

(1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made.

(2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and

(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made.

(3) ... " 8 The land had an area of 4.282 hectares. The trial judge described the shopping centre as an older sub-regional shopping centre, built many years ago, and said at [9] that it was - " … poorly designed, somewhat obsolete, drab and tired looking and, as a consequence, functions poorly and appears undoubtedly to be struggling. It does not represent the highest and best use of the land". 9 The land was within zone 3(a) Sub-regional Business Centre under the current Local Environmental Plan. A draft development control plan prepared in 2004 and adopted in late 2006 provided for a site specific development control plan to be prepared by the developer. The town planning experts agreed that the likely development was either a mixed retail and commercial development over the whole of the site, or a mixed retail and commercial development over the majority of the site and residential development on the remainder. 10 Two valuers gave evidence, Mr Grant Jackson for the appellant and Mr Adrian Watt for the respondent. They provided individual reports and two joint reports, and gave concurrent oral evidence. 11 The valuers agreed that the preferred method of valuation was by regard to comparable sales. In their individual reports each had regard to a number of sales, making adjustments for direct comparison with the land and deriving a range of values per square metre. From the range of values each then arrived at values of the land. Mr Jackson arrived at values of $10,280,000 as at 1 July 2005 and $11,130,00 as at 1 July 2006. Mr Watt arrived at values of $22,690,000 and $23,440,000 as at the respective dates. 12 In his report Mr Jackson had regard to vacant sites within the wider Sydney metropolitan area which had been purchased for development with a retail shopping centre. There were seven sales, none in Fairfield. He considered that the highest and best use of the land did not include partial residential development. 13 In his report Mr Watt had regard to both unimproved and improved retail sites within the Sydney metropolitan area and, since he considered that development would include residential development, some mixed use residential sites. There were eight retail sites, two being in Fairfield and known as Neeta City and Fairfield Chase, and eight mixed use sites. 14 Only one retail site, at Plumpton, was common to the two valuers. In the first joint report each commented on some of the sales to which the other had had regard, including its comparability, with extensive disagreement although Mr Jackson appeared to accept Mr Watt's regard to the Neeta City sale while disagreeing with his analysis of the site's land value. Agreement that the Neeta City sale was a comparable sale was later evident from the attention given to it in the oral evidence. In the second joint report the valuers agreed that the Fairfield Chase sale "due to its much smaller size, is not a comparable sale for reliable comparison with the subject property". 15 The trial judge gave an ex tempore judgment at the conclusion of the hearing. 16 Having come to the point of saying that "[t]he case … turns on the selection and adjustment of comparable sales", his Honour continued - "11 On the first day of the hearing, the court took a view of the subject property, its surrounding area and a number of other properties that are said to represent comparable sales. It did so with the legal representatives of the parties and the two valuers. There are no relevant sales of vacant land within the Fairfield Town Centre, although there are sales of improved properties and in particular two other shopping centres within that centre, one of which, known as Neeta Shopping Centre (or Neeta City), is a sub-regional shopping centre.

12 The other sales are of properties outside the Fairfield Town Centre and in most cases many kilometres away, such as at Kellyville and Plumpton. These areas bear little resemblance to Fairfield. Although many of these sales were of vacant land, most of them are considerably smaller than the subject site and have been developed or purchased for development as neighbourhood shopping centres based on a supermarket. They are not sub-regional shopping centres and do not have such retail outlets as discount department stores and the like, as are found in sub-regional centres.

13 Fairfield Town Centre, on the other hand, has been nominated by the State Government as one of the seven major sub-regional centres within the Sydney Metropolitan area. The court is of the view that the sales outside Fairfield are of properties that are simply not comparable to the subject site, either in size or location. Apart from their remoteness, they serve a different market. They are generally smaller than the subject site. As I have noted, they are mainly sales for the purpose of supermarket based neighbourhood centres and none of them is a major sub-regional shopping centre.

14 It follows that the most comparable and reliable sales are in Fairfield itself and particularly the Neeta Shopping Centre. … " 17 His Honour noted at [17] that both valuers accepted that the Neeta City sale, rather than the Fairfield Chase sale, was "the most relevant". He said that, being a sale of an improved site, the Neeta City sale had to be adjusted in accordance with the accepted valuation approach adopted by both valuers. He continued - "18 ... Adjustments, using a conservative 30% depreciation rate for the improvement known as Neeta City were made by Mr Watt, resulting in a deduced land value of $18,600,000, or $837 per square metre.

19 The depreciation rate adopted by Mr Watt was heavily criticised by Mr Jackson as overly cautious. He suggested that a depreciation rate of 20% rather than 30% was more appropriate. His reasoning was that Neeta City had been substantially refurbished and could now be regarded as a new shopping centre. The view of that centre by the court, however, confirms Mr Watt's assessment that, although substantial, the refurbishment of Neeta City has not corrected its inherent functional obsolescence. It is self evident that Neeta City presents as an old shopping centre with some design shortcomings. The court thus prefers the evidence of Mr Watt on this point.

20 The applicant offered no sales evidence that the court considers to be relevant, although Mr Jackson was critical of the analysis by Mr Watt of the Neeta City sale. In particular, Mr Jackson questioned Mr Watt's capitalisation approach, although his own approach appears, at least to this bench, to be novel. The capitalisation approach adopted by Mr Watt enables the earning capacity of an investment property such as Neeta City to be used directly in assessing the capitalised worth of the income stream. This resultant capital value, using an appropriate capitalisation rate, accounts for such matters as demographic movement, local economic circumstances and in particular broader economic issues such as interest rates. This is particularly so in the case of the Neeta City sale, since the demographic characteristics and economic circumstances are identical to those for the subject land.

21 The value of the leases is embedded in such an analysis and hence the reluctance of the court to accept Mr Jackson's approach in this area. The leases that Mr Jackson considers separately are not ground leases, but leases of an area or areas within the building known as Neeta City. The income stream generated on site is derived from these leases as a result of the construction of the retail premises. It is the view of the court that the removal of the buildings removes the leases conceptually, leaving a residual pure fee simple.

22 Being informed by the Neeta City sale, Mr Watt then deduced a land value of $22,690,000 for the 2005 base date and $23,440,000 for the 2006 base date for Fairfield Forum. I note that Mr Watt suggested that the highest and best use of the subject land was for the purpose of a sub-regional shopping centre over 70% of the site and medium to high density residential development over 30% of the site. However, the court is prepared to assume that the site would be used solely for the purpose of a sub-regional shopping centre as its highest and best use. The court otherwise accepts the evidence of Mr Watt, whose approach is consistent with and in accordance with valuation principle.

23 The appellant bears the onus of proving the appellant's case (s 40(2) of the Act). The approach of Mr Watt is, as I have noted, generally in accordance with valuation principle. Having rejected the approach of Mr Jackson, the court is not persuaded that the Valuer General's assessment of $17 million is wrong. On the contrary, the valuations of Mr Watt of $ 22,690, 000 and $23, 440, 000 respectively appear to be most conservative."

The ground of appeal 18 Appeal against a decision on a question of law is not the same as appeal for error of law in the decision below: Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority of New South Wales [2006] NSWCA 314 at [27]. However, the appellant appealed on the ground that "[t]he judgment below contained the following errors involving questions of law", and asserted errors in three respects. They were in relation to -

(b) the rejection of retail demographic evidence; and

Use of comparable sales 19 The appellant said that the trial judge had wrongly rejected or disregarded relevant evidence, being the sales outside Fairfield, and had wrongly undertaken valuation on the comparable sales method in the absence of a representative sample of sales. 20 His Honour was of the view that the sales outside Fairfield were "of properties that are simply not comparable to the subject site either in size or location" (at [13]). Evidence of the sales was not rejected, and the trial judge later said that "the most comparable and reliable sales are in Fairfield itself" (at [14]) and that it was "the Fairfield sales that provide the best indicator of value" (at [16]) (emphases added). However, it is clear that his Honour considered that the sales outside Fairfield did not provide a useful indication of the value of the land, and the appellant submitted that he was in error in putting them aside. 21 As stated by the trial judge at [11], the Court took a view. The transcript records that after the view the parties were informed of the Court's "impression", subject to being persuaded to the contrary, that the properties outside Fairfield were not comparable and their sales provided no assistance. 22 There was thereafter occasional reference in the oral evidence to sales other than the Fairfield sales, but neither valuer was asked questions directed to supporting comparability of those sales. The appellant's written submissions to the trial judge posed as an issue "the inquiry and identification of a reasonable and representative bundle of comparable sales". The submissions accepted that it was "a question of fact and degree in each case of identifying the bundle of sales to which adjustments can be made to result in a list of 'representative group of comparable sales'", and said that "Mr Jackson's evidence is simply that there is a representative bundle of improved or vacant retail sites that can be identified". There was no more forthright endeavour to persuade the Court to the contrary of the impression of which the parties had been informed, and in oral submissions counsel for the appellant said that he did not elaborate on the material pages which included "because … its evident that the court's taking a different view to us on a number of matters". 23 Comparability and concomitant adjustment involve matters of degree and judgment. In Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd (1983) 3 NSWLR 378 Hutley JA, with whom Samuels JA agreed, said at 383 that "[w]ithin limits, the decision as to what sales are comparable is a question of fact", and in Leichhardt Municipal Council v Seatainer Terminals Ltd (1981) LGRA 409 at 433 Hope JA said bluntly, "Whether sales are comparable is a question of fact". See also, referring to these cases, Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 177 and Roads and Traffic Authority v Mosca [2006] NSWCA 159; (2006) 146 LGERA 335 at [66]. Whether the sales outside Fairfield were sales which, with adjustment, could provide useful comparison and so assistance in valuing the land was a question of fact. 24 The trial judge, assisted by the Acting Commissioner with his valuation expertise, found that the sales outside Fairfield were not comparable. The valuers' regard to sales outside Fairfield did not take this outside any limit, particularly when at least initially all but one of the sales to which each valuer had regard was not taken up as comparable by the other. There could be error of law in rejecting as wholly irrelevant, for reasons which were not rational, a sale or sales which prima facie afforded some evidence of value: Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111 at [8], citing Melwood Units Pty Ltd v Commissioner of Main Roads (1979) AC 426; or put another way, if the finding that the sales were not comparable was not reasonably possible or open on the evidence: Leichhardt Municipal Council v Seatainer Terminals Ltd at 434, referring to Hope v Bathurst City Council (1980) 144 CLR 1. But no basis was shown for regarding the trial judge's finding as irrational or one not open to him. 25 If there was error, and I do not suggest that there was, it did not involve a question of law. 26 The appellant referred to Maurici v Chief Commissioner of State Revenue at [18] stating that for valuation on the comparable sales method there should be "a reasonably representative group of comparable sales", and submitted that the trial judge had wrongly relied solely on the Neeta City sale. The submission was not that the comparable sales method could not or should not have been maintained, or that the Neeta City sale should have been put aside, because as a single comparable sale the Neeta City sale could not provide a basis for valuing the land. No submission had been made to the trial judge, after the parties were informed of the Court's impression and the valuers had agreed that the Fairfield Chase sale was not a comparable sale, that regard only to the Neeta City sale could not satisfy a requirement for a reasonably representative group of comparable sales. The submission was rather that, in order to have a reasonably representative group of comparable sales, the Court should have striven to have regard to the sales outside Fairfield as sales which, with adjustments, could stand as comparable sales. 27 As was said by Tobias JA in AMP Henderson Global Investors v Valuer General [2004] NSWCA 264; (2004) 134 LGERA 426 at [68], Maurici v Chief Commissioner of State Revenue "is not authority for the proposition that if there be only one comparable sale and it is a sale of scarce vacant land, it is required to be disregarded and the comparable sales method of valuation rejected". The submission did not rise above a complaint that the trial judge should have found that the sales outside Fairfield were comparable, a complaint on a question of fact. It took the appellant no further, since it remains that whether the sales outside Fairfield were comparable sales was a question of fact. Indeed, it would have been wrong if the trial judge's fact-finding had been distorted by striving to use as a comparable sale one which was not comparable. 28 It was open in law to act upon the Neeta City sale as informing Mr Watt's valuation, and again if there was error it did not involve a question of law.

Retail demographic evidence 29 The appellant said that the court erroneously rejected what was described as retail demographic evidence. The evidence was that in a joint economic report of Messrs Dimasi and Hack, a report of Leyshon Consulting Pty Ltd and a report of Hill PDA. 30 The bases for the appellant's tender of the reports and their rejection must be gleaned from the transcript. 31 The Dimasi report was tendered on the second day of the hearing, after the view and after the Court had informed the parties that it did not consider comparable the properties outside Fairfield. It was not a joint report in the sense of an agreed report; rather, Messrs Dimasi and Hack explained their separate opinions on what they acknowledged were substantially different approaches and recorded the areas of agreement and disagreement (mostly the latter). The respondent objected on the ground of relevance. 32 According to counsel for the appellant, Mr Dimasi said "that the underlying market economic evidence the socio-demographic evidence" went to the intensity of the potential for development of the land seen by the hypothetical purchaser, which he submitted was relevant to the adjustment to be made in relation to comparable sales - " … ultimately you're going to be - whether it's within Fairfield or elsewhere you're going to - or shortly around Fairfield, you're ultimately going to be driven back to competing retail sites and you're going to have to make, at the end of the day, or come to a view on the adjustments to be made with respect to the underlying figures for those competing retail sites. The demographics of each catchment servicing each area inform the court as to which is the appropriate adjustment or which is not the appropriate adjustment." 33 The tender was rejected on the basis that the Court was only considering the Fairfield sales, and that those sales and a hypothetical sale of the land were within the same general catchment and therefore subject to the same demographic influences, so that (as Lloyd J said at T14) "We're comparing like with like". 34 The Leyshon report was tendered on the following day. Mr Watt's report had listed documents to which he had "had regard". They included the Leyshon report. Counsel for the appellant elicited from Mr Watt that in "conducting the exercise relating to comparable sales of improved sites" relevant demographics were a consideration, and in relation to the Leyshon report that he had "read it", without going further. Counsel tendered the report on the basis that - " … this document has informed the evidence that he has given about the relevance of demographics with a view to me tendering the document, the document that is referred to in his report. He says that demographics is one of a number of relevant considerations he may have regard to. The Leyshon report contains considerable information on that topics. He's had regard to it. I propose to tender it.

GRIFFITHS: For establishing the external relevant material relating to the demographics of this region." 35 After some discussion, the tender was rejected with the observation that the demographics "were reflected in the purchase price of the properties". The discussion included the Assistant Commissioner saying that they were "looking effectively at the one sale", and it is tolerably clear that the rejection was on a like basis to the rejection of the Dimasi report. 36 The appellant then re-tendered the Dimasi report "in the light of the evidence which has emerged concerning demographics being a relevant consideration". Counsel said that he did so "as a formality". The rejection of the report was confirmed. 37 Counsel for the appellant then tendered the Hill PDA report, again as a formality and in expectation of its rejection "on the same basis that your Honour has rejected the Leyshon report". The expectation was fulfilled. 38 The basis for rulings is reflected in the judgment, where it was said - "15 As I have noted, the parties' valuers accept that a direct comparison with sales evidence is the preferred method of valuation. That is, the views of the hypothetical seller and the hypothetical buyer of the subject land are best ascertained through comparable sales. Those sales in turn have taken account of such factors as demographic characteristics, local economic circumstances, and the li [sic: like.] As I have noted, the parties' valuers accept that a direct comparison with sales evidence is the preferred method of valuation. That is, the views of the hypothetical seller and the hypothetical buyer of the subject land are best ascertained through comparable sales. Those sales in turn have taken account of such factors as demographic characteristics, local economic circumstances, and the like, so that separate evidence of such characteristics or circumstances is, having regard to the approach of the valuers, irrelevant."

See also the concluding sentence of [20], set out above. 39 In its written submissions the appellant submitted that the rejection of the reports was in error because it was "based upon an anterior view that any retail sites outside of the Fairfield locality simply could not have relevance in a comparable sales analysis" and "necessarily reflected the Court's view … that comparable retail sites can only be within the same locality". That is an incorrect representation of the trial judge's reasons. His Honour was not of the view that comparable retail sites could only be within Fairfield and sites outside Fairfield had no relevance; rather, he found that the sales of properties outside Fairfield did not as a matter of fact provide comparable sales. The submission in this respect is without foundation. 40 The written and oral submissions went further. It was said that Mr Watt had agreed in his oral evidence that retail demographics play a material role in assisting a valuer to select comparable retail sales for analysis, and that the valuers had variously referred to the demographic information in their own reports or evidence. Mr Watt had contemplated higher density retail development on the land than Mr Jackson, and partial residential development when Mr Jackson had contemplated retail development alone, and it was said that the evidence was relevant to, and should have been received in order to resolve, these different views of the land's potential. Counsel for the appellant ultimately agreed with the President's summation that his point was that - "The demographic material is objective evidence, the resolution of any dispute about which is necessary in the process of identifying what might be said to be the perfect knowledge of the circumstances attending a site upon which the valuation exercise is undertaken." 41 Some more should be said of the reports in question, and of the references to them by the valuers. 42 The Dimasi report was on its face commissioned for the Land and Environment Court proceedings. It was lengthy and detailed, and relied on other materials (for example, a joint planner's report) also in existence for the purpose of the proceedings, but the sources of a deal of the underlying information are not clear. It does not seem likely that the report or a deal of the information in it were generally available. The Leyshon report was prepared for Fairfield City Council in June 2005, and was described in Dimasi report as being "readily available". Its stated objectives included the broad purpose of providing "a basis for development of a retail and commercial strategy to guide planning for the City to the period to 2011". The PDA Hill report was prepared for the Council in October 2003, its general availability being unclear. Its stated purpose was to "establish an understanding of [the Fairfield town centre's] current and future opportunities and constraints, and in turn a basis upon which an appropriate planning framework can be devised". 43 Mr Jackson said in his individual report that he "had regard to" the Dimasi report, and later referred to the other reports. He took from the Dimasi report figures for retail floor space of Fairfield Forum and of other shopping centres used by him as comparable sales, and drew upon all three reports in coming to the view that the highest and best use of the land was as a subregional shopping centre essentially of the same size as the existing shopping centre, and without residential development. In making adjustments to his comparable sales - which were all outside Fairfield - he referred to the "socio-demographic profile" for each, apparently from the Dimasi report. 44 In his individual report Mr Watt included the Dimasi report and the Leyshon report in the list of documents to which he had had regard. In a section of his report he preferred Mr Hack's assessment of the land's potential to that of Mr Dimasi, and came to his highest and best use for the land of a larger shopping centre plus residential development. He did not agree with the use of demographic analysis to compare Fairfield with other locations where Mr Jackson had found comparable sales. 45 In the first joint report there were references to the reports in similar manner, principally the Dimasi report, as the valuers maintained their respective positions. The second joint report, save for the agreement concerning Fairfield Chase setting out opposing views on a number of matters, did not invoke demographics. There was rather passing reference to demographics in the oral evidence when Mr Jackson spoke of the land's potential for development, the trial judge observing when objection was taken that Mr Jackson "gave that evidence in his report". As I have said, counsel for the appellant elicited from Mr Watt that relevant demographics were a consideration in "conducting the exercise relating to comparable sales of improved sites", but went no further. 46 Three things emerge from this. 47 First, there was a prior question which appears to have escaped attention, namely, the extent to which knowledge of the information in the reports should be attributed to the hypothetical purchaser. Perhaps that would be done in the case of the Leyshon report, but it may be (and there was no attempt to prove) that not all the information in the Dimasi report was "knowledge of the existing relevant circumstances" with which the hypothetical purchaser is equipped: Deputy Federal Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) 51 CLR 509 at 515 per rich, Dixon and McTiernan JJ. 48 Secondly, through the valuers' reports taking up information in the reports in question there was before the Court such retail demographic evidence as the valuers thought relevant. The Court was not bound by the rules of evidence (Land and Environment Court Act, s 38(2)), and the valuers' reports did not need the tender of the underlying material. Mere admission of the Dimasi report, for example, would not assist unless its additional information was brought within the valuers' valuation exercises. 49 Thirdly, the fact that the valuers had referred to the reports, and had taken up and used information in them, did not as the proceedings developed mean that even that information was relevant, let alone that the reports more generally were relevant. The appellant's point, as summarised by the President, did not provide reason to admit the reports, since perfect knowledge in the abstract was not to be attributed to the hypothetical purchaser and in this case relevant knowledge was confined when adjustment of comparable sales outside Fairfield fell away and only the Neeta City sale was under consideration. 50 The valuers had had regard to the reports when debating their comparable sales outside Fairfield, seen most plainly in Mr Jackson's adjustments to his comparable sale. But this does not remain once the Court had under consideration only the Fairfield sales and there was no occasion for adjustment of comparable sales occurring in locations possibly subject to other demographic influences. Further, any temporal significance in relation to the Neeta City sale was eschewed: the two Fairfield sales were in July 2005 and May 2006, and at the trial counsel for the appellant accepted that the demographics would not relevantly have changed. 51 In my opinion, the trial judge was correct in his reasoning. The Neeta City sale and the hypothetical sale of the land were both subject to the same demographic influences, which did not have to be explored through the reports. The same demographic influences would mould the hypothetical purchaser's anticipated potential for development, including its nature and intensity, as had contributed to the purchaser's arrival at the price for the Neeta City site, and the land value per square metre deduced by Mr Watt for the Neeta City site when applied to the 4,282 square metres of the land made it unnecessary to resolve the differing views as to intensity. 52 It could be said that the application of the reasoning was premature, because at the time it was still open to the appellant to persuade the Court that the impression of which the parties had been informed was incorrect. But it is necessary that the decision be vitiated by the error (Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority at 177; Roads and Traffic Authority v Mosca at [22]), and any error in that respect led nowhere.

Adjustment of the Neeta City sale 53 The appellant said, in the words of the ground of appeal - "The primary judge erred as a matter of valuation principle in failing to separately account for the value of existing leases and rental guarantees when seeking to identify the underlying value of the fee simple in "comparable" improved (ie, fully let and ongoing) retail sales, and thereby necessarily overstated the underlying value of that fee simple for the purposes of the purported comparable sales analysis that was undertaken." 54 This concerned the Neeta City sale. The sale price was $90,000,000. It was necessary to subtract the added value of the improvements, a well-recognised valuation exercise. Mr Watt subtracted $71,400,000, being the replacement cost of the improvements depreciated by 30 per cent, arriving at an unimproved value of $18,600,000 representing $837 per square metre, which he further adjusted for Neeta City's superior site and otherwise to $556 per square metre. He did not directly apply that figure to the land, but the trial judge observed at [22] that his land value was "informed by the Neeta City sale". Application to the land's 4,282 square metres would bring a value of $23,807,920. 55 Mr Jackson said in the first joint report that there should also have been subtraction of "a component of value attributed to the existing leases and a rental guarantee within the sale price". He said that the leases gave a gross income of $8,807,346 per annum, and included 17 years remaining of a lease to Big W and nine years remaining of a lease to Woolworths, and that a 12 month rental guarantee was given by the vendor to the purchaser. He would have subtracted an additional $8,682,589, described as representing the present value of the income of a notional 12 month leasing up period and as an allowance "reflect[ing] the circumstance that the purchaser acquire the property fully leased and therefore with the advantage associated of all leases being in place". The unimproved value of the Neeta City site would have represented $484 per square metre, after further adjustment by Mr Jackson becoming $315 per square metre. 56 Mr Jackson further explained his opinion in his oral evidence. He said that the sale of an investment property comprised the land, the buildings and the leases, and that in order to arrive at the land value it was necessary to "strip out" not only the buildings component but also the leases component. The existing leases were worth something to the purchaser, who would pay more for a fully let shopping centre, and that added value had to be subtracted. To ignore the leases, he said, assumed that a purchaser would pay the same price for a vacant shopping centre as for a fully tenanted shopping centre, which was incorrect. 57 Mr Jackson's reasoning could be thought to have required deduction of a capitalised income stream for the lifetime of the existing leases. It is important that in the result his deduction was confined to a capitalised income stream for a notional letting-up period. 58 Mr Watt regarded subtraction of the value of the leases as a novel concept in valuation practice. In the second joint report he understood Mr Jackson to advocate deduction of the present value of the letting up of all the leased areas at the time of sale, which as I have said Mr Jackson's reasoning could be thought to have required. He responded that the sale price of an investment property included the market's perception of the value of the lease income, that the yield return was the intrinsic value of the land and improvements, and that the value of the leases was "embedded in the land and improvements, as neither can exist without the other". He considered that Mr Jackson obtained his concept from the practice of developers including letting-up allowances in their developmental cash-flow analysis, by which he meant an allowance for lease incentives and/or rent free periods, which he distinguished from the present value of the leases. In his opinion, the income benefits and risks of the existing leases were "incorporated in the effective yield paid for the property", and there was "no additional or separate element of value as described by Mr Jackson"; although he appeared to accept some adjustment for the present value of letting up of leased areas associated with local retailers because there was "some risk with the leasing of specialties", but not for the value of letting to major tenants such as Coles and Woolworths because "there is little or no risk associated with the leasing up of major tenancies within a shopping centre". 59 Mr Watt said in the report that in any event "the generous elemental costings and the loading that I have included within each replacement cost schedule more than adequately accounts for any such adjustment that Mr Jackson might suggest is required." 60 Mr Watt also gave oral evidence on the matter. He said expressly that the loading he used was "sufficient to allow for any letting-up incentives that might be considered for a property of that nature". There was an exchange between Mr Jackson and Mr Watt about the rental guarantee, which appears to have moulded Mr Watt's response to an invitation to speak of "the 8% discount", that is, the capitalised income for a notional 12 month letting-up period. In his response he reiterated difficulty with Mr Jackson's concept as expressed in the first joint report, but repeated that "there are letting up allowances embedded within my new costs schedule in any event"; he appears to have seen the rental guarantee as an indication of a degree of difficulty in letting the Neeta City site. He questioned the basis for taking a notional letting-up period of 12 months rather than some other period, saying in effect that difficulty in letting was reflected in the purchase price and repeating his disagreement with a value of the leases as a separate deduction. 61 The trial judge favoured Mr Watt's approach; for convenience, [20] and [21] of the reasons are repeated - "20 The applicant offered no sales evidence that the court considers to be relevant, although Mr Jackson was critical of the analysis by Mr Watt of the Neeta City sale. In particular, Mr Jackson questioned Mr Watt's capitalisation approach, although his own approach appears, at least to this bench, to be novel. The capitalisation approach adopted by Mr Watt enables the earning capacity of an investment property such as Neeta City to be used directly in assessing the capitalised worth of the income stream. This resultant capital value, using an appropriate capitalisation rate, accounts for such matters as demographic movement, local economic circumstances and in particular broader economic issues such as interest rates. This is particularly so in the case of the Neeta City sale, since the demographic characteristics and economic circumstances are identical to those for the subject land.

21 The value of the leases is embedded in such an analysis and hence the reluctance of the court to accept Mr Jackson's approach in this area. The leases that Mr Jackson considers separately are not ground leases, but leases of an area or areas within the building known as Neeta City. The income stream generated on site is derived from these leases as a result of the construction of the retail premises. It is the view of the court that the removal of the buildings removes the leases conceptually, leaving a residual pure fee simple." 62 The reference to Mr Watt's capitalisation approach may need some explanation. He did not capitalise an income stream for Neeta City. However, in the course of the oral evidence the purchase price which he adjusted was spoken of, particularly by the Acting Commissioner, as representing the capitalisation of an income stream purchased by the purchaser, and I take his Honour to have had in mind in the paragraphs of the reasons set out above Mr Watt's opinion that the yield as so perceived by the purchaser represented the market value of the land and the improvements as let and that the leases or the income stream from the leases did not constitute a separate component of the purchase price of the shopping centre. 63 It may be accepted that the price in the Neeta City sale reflected the value to the purchaser of the income stream from the leases. It does not follow, however, that there must be the double adjustment (subtraction of the value of the improvements plus subtraction of a present value of the leases, or at least plus subtraction of the value of the lease income for a letting up period), as espoused by Mr Jackson. 64 In a sale of an unimproved site the purchaser would have in mind, and pay for, its potential to generate an income stream. In the sale of the Neeta City site the potential was in fact realised through the existing improvements and leases, but deduction of the value of the leases in addition to the value of the bare improvements would wrongly exclude from the deduced land value the contribution attributable to that potential. Indeed, deduction of the capitalised income stream from leases would often bring a deduced land value of nil or a minus figure, since a purchaser will often arrive at a purchase price representing that capitalised income stream. I take that to lie behind Mr Watt's rather Delphic statement that the value of the leases was embedded in the land and the improvements; that is, that the land and the improvements generated the income stream. 65 Conceivably, the value to the purchaser of the Neeta City site because there were existing leases providing an income stream could have materially exceeded the value to the purchaser of the potential for the income stream, so as to call for an additional adjustment. That is a question of fact, and as a practical matter Mr Watt plainly put it aside. In my opinion, his approach was consistent with in valuation principle. 66 Subtraction of the value of the lease income for a letting-up period is a different matter, although the difference may not have been fully brought out and appreciated at the trial. It could be appropriate if the potential to generate an income stream would involve particular risk in obtaining tenants and a fully leased shopping centre had some added value because the purchaser was spared that risk. Mr Jackson's opinion as implemented came down to this, and as I have said Mr Watt appeared to accept some adjustment for risk with the leasing of specialities. 67 However, any adjustment is a question of fact. Mr Jackson took the value of the lease income for a 12 month letting-up period. Mr Watt did not agree with what he considered an arbitrary letting-up period of 12 months. He seems to have seen the price in the Neeta City sale as having reflected a degree of difficulty in letting, at least to specialties. In short, as a matter of fact he did not think any adjustment was required beyond allowances "embedded within" his costings. 68 The appellant referred, as had Mr Jackson in his evidence, to Tooheys, Ltd v The Valuer-General (1925) AC 439. It was there held that, in reducing to an unimproved value the sale price of land on which stood buildings occupied as licensed premises, there was error in failing to deduct from the sale price, in addition to the value of the improvements, the "enhanced value due to the fact that the land and buildings in question are not only suitable for licensed premises, but are in fact licensed premises" (at 444). That does not require deduction of the present value of the leases. It supports an adjustment because Neeta City was in fact leased if there were a risk of obtaining tenants which the purchaser was spared, but that is then a question of fact. Mr Jackson gave effect to his opinion by a deduction representing the income stream for a letting-up period, and Mr Watt thought sufficient adjustment was made through allowances in his costings. The difference between Mr Jackson and Mr Watt in this respect was one of fact. 69 Returning to the trial judge's reasons, they were confined to removal of the value of the leases through notional removal of the improvements. The trial judge understood as "Mr Jackson's approach" that there should be an additional subtraction of the present value of the income stream generated by the existing leases. The reasons are, with respect, somewhat elliptical, and do not recognise that (as I have sought to explain) Mr Jackson's opinion as implemented did not result in the subtraction of the present value of the income stream from the leases, but only in the subtraction of the value of the lease income for a letting-up period. Mr Watt also had that understanding of Mr Jackson's approach, while accepting that a letting-up period could additionally be taken into account, and it can be seen how the trial judge's reasons came to have their focus. 70 For the reasons I have given I do not think that in declining to accept Mr Jackson's approach, as understood by him, the trial judge fell into error, although I would not endorse the manner in which his Honour expressed himself. While the trial judge did not identify and resolve what in my view was ultimately a factual difference between Mr Jackson and Mr Watt, he accepted Mr Watt's evidence in general (see at [22]), and there is no complaint of inadequacy of reasons. In my opinion, therefore, the appellant can not succeed on this ground in an appeal against a decision on a question of law.

The result 71 I propose that the appeal be dismissed with costs. 72 CAMPBELL JA: I agree with Giles JA. **********

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