67 This had been the conclusion reached by Bryson J in Horwitz Grahame Books v. Mid-City Centre Pty Ltd (1990) ConvR 55-514, upon which Cole J had relied in Payce. There, a valuer delivered a non-speaking determination of rental under a lease. The plaintiff challenged the determination for vitiating error, and sought to tender evidence as to what the valuer had in fact done. The defendant objected that the evidence was inadmissible. Bryson J observed that without such evidence there would have been no basis at all for a finding that the valuer's decision was affected by error. Whether or not the evidence was admissible was, therefore, critical to the issue before the Court.
68 His Honour referred to the judgment of McHugh JA in Legal & General, and said at 58,834:
"Within the terms of the opinion stated by McHugh JA the view expressed elsewhere that a 'speaking' valuation is open to review in respect of mistakes which appear from its own terms although not otherwise (as was contemplated in Joint Coal Board v. Noone Pty Ltd) does not appear well based; if the effect of the parties' agreement is that they are bound by a decision the result, subject to any express provision of their agreement, follows that they are bound by the decision whether or not it states reasons in its face, and whether or not those reasons are correct. McHugh JA does not say that it is significant whether the decision is a 'speaking' decision or not, and I take this as an indication that he did not regard it as significant. When mistake is such that the valuation is not in accordance with the agreement, there appears to be no reason in principle for limiting the available factual material to prove that there had been a mistake to the express terms of the decision. During argument I gave examples such as that the valuer had been seen to inspect, measure up and make inquiries at the wrong property after a change in the street numbers, or had inspected a property with an apparently correct street address in the wrong suburb. The examples were rather gross but they are useful to illustrate the difficulties of rejecting evidence extrinsic to the terms of the valuer's determination."
69 In R&A Dally & Co Pty Ltd v. Giex Pty Ltd (No 2) (1991) NSW ConvR 55-605, a valuer delivered a valuation fixing rental under a lease. The lessee claimed vitiating error and sought to tender evidence in support of its contention that the valuer had, in the course of a speaking valuation, disclosed a basis for the valuation which was not in accordance with the requirements of the contract. The case was, therefore, different from Horwitz Grahame in that that case was concerned with a non-speaking valuation. Nevertheless, McClelland J (as his Honour then was) followed Horwitz Grahame in admitting the evidence.
70 In Ricciardello v. Caltex Oil (Australia) Pty Ltd (unrep., WA Supreme Court, 23 April 1991), the Full Court of Western Australia (Malcolm CJ, Rowland and Walsh JJ) had to consider a challenge to a speaking valuation. After reviewing certain of the authorities, Rowland J (in whose judgment the other members of the Court concurred) said, at p.9:
"I would also adopt the reasoning of Sheahan J in Mayne Nickless Ltd v. Solomon that the relevant mistake must appear from a reading of the valuation. In Horwitz Grahame Books Pty Ltd v Mid City Centre Pty Ltd (1990) NSW ConvR 55,514 Bryson J followed the approach of McHugh JA and considered whether the valuation was made in accordance with the terms of the contract. He also was of the opinion that it did not matter whether the valuation was a speaking valuation or not. He decided that if it can be shown that the valuation is not in accordance with the contract, there would appear to be no reason in principle to limit the available factual material to prove that there has been a mistake. I have some doubts about this approach. It is true that McHugh JA did not seek to draw any such distinction, but that does not mean that one may not exist and where, as in the present case, there is a speaking valuation, then it seems to me that it should be construed as any other document and its proper construction will decide what it means. This is consistent with the approach of the Full Court of the Supreme Court of Queensland in Mayne Nickless Ltd v. Solomon already cited."
71 Such was the state of the law when Giles J came to consider the question again in Strang Patrick Stevedoring Pty Ltd v. James Patrick & Co Pty Ltd (1993) 32 NSWLR 538. A valuer had given a non-speaking valuation of a crane pursuant to a price-fixing mechanism in a sale agreement. One of the parties claimed vitiating error. At 587, his Honour said:
"Strang Patrick did not submit that evidence was inadmissible in the case of a non-speaking valuation to show what the valuer had done. In my opinion its restraint was correct, notwithstanding some support in the authorities for the contrary position: see Dean v Prince [1953] CH 590 at 593-594 (reversed on the substantive decision [1954] Ch 409); Frank H. Wright (Constructions) Ltd v. Frodoor Ltd [1967] 1 WLR 506 at 525-526; [1967] 1 All ER 433 at 454; Arenson v. Arenson [1973] Ch 346 at 363; Campbell v Edwards [1976] 1 WLR 403 at 407; [1976] 1 All ER 785 at 788; Baber v Kenwood Manufacturing Co Ltd [1978] 1 Lloyd's Rep 175. In principle, when the question is whether the valuer failed to make his determination in accordance with the contract that is something open to evidence regardless of whether the valuer disclosed what he did. At least unless the parties have expressly agreed that what the valuer did may not be investigated, whether the valuation complies with the terms of the contract should not be foreclosed because the valuer does not describe his performance. This view has been taken in Horwitz Grahame Books Pty Ltd v Mid-City Centre Pty Ltd (1990) NSW ConvR ¶ 55-514, Payce Properties Pty Ltd v Harrisons Timber Pty Ltd (Cole J, 14 December 1990, unreported), Fisons Pty Ltd v. Rostinga Pty Ltd (Cole J, 18 April 1991, unreported), and R A Dalley & Co Pty Ltd v Giex Pty Ltd (1991) NSW ConvR ¶55-605, and I will so approach the present case."
72 In noticing the authorities contrary to his own view of the matter, Giles J did not expressly refer to Joint Coal Board v. Noone (although that case had been cited in Horwitz Grahame, to which his Honour did refer). Further it does not appear from the report of the case that the decisions of the Queensland Full Court in Mayne Nickless, and of the Western Australian Full Court in Ricciardello were cited in argument to his Honour.
73 In Holt v. Cox (1994) 15 ACSR 313, Santow J, at first instance, followed the decision of Giles J in Strang Patrick Stevedoring. Again, it does not appear that Joint Coal Board, Mayne Nickless and Ricciardello were cited to his Honour.
74 The position which now confronts the Court in this case may be summarised thus: there are conflicting decisions of Judges at first instance in New South Wales directly in point - Joint Coal Board would reject extrinsic evidence, Horwitz Grahame and the decisions which follow it would admit extrinsic evidence. The decision of the New South Wales Court of Appeal in Legal & General does not determine the question one way or another. The decisions of the Queensland Full Court in Mayne Nickless and the Western Australian Full Court in Ricciardello and the various English decisions relied upon therein, although highly persuasive, are not binding upon me. There is no other appellate decision on the point which binds me. In this conflict of opinion, it appears that I must decide the matter for myself.
75 It seems to me that the origin of the view expressed in some of the modern cases that the Court cannot go behind the face of the valuation unless the valuer chooses to give reasons is the decision of Harman J in Dean v. Prince to that effect. The reason for his Lordship's decision was that a valuer making a determination in the exercise of judgment and discretion was in a position analogous to that of a trustee exercising a discretionary power. In my opinion, with great respect, the analogy between a valuer making a determination in accordance with the requirements of a contract and a trustee exercising a discretionary power is not a sound one.
76 There are many decisions of the Courts to the effect that where a trustee is given an absolute and unfettered discretion to exercise a power, the Courts will not examine or review the manner in which the discretion is exercised so long as it is exercised without malice or improper motive, after actual consideration of the question in issue, and within the purpose for which the power is conferred: see Karger v. Paul [1984] VR 161, at 163ff and the cases therein cited. There is but one exception to that general proposition. If the trustee chooses to give reasons for the exercise of the unfettered discretion - which the trustee is not in any way bound to do - then the Court can examine their sufficiency. The reasons underlying the rule that trustees are not bound to disclose their reasons have been explained by Harman LJ in Re Londonderry's Settlement [1965] Ch 918, at 928, as follows:
"… trustees exercising a discretionary power are not bound to disclose to their beneficiaries the reasons actuating them in coming to a decision. This is a long-standing principle and rests largely, I think, on the view that nobody could be called upon to accept a trusteeship involving the exercise of a discretion unless, in the absence of bad faith, he was not liable to have his motives or his reasons called in question either by the beneficiaries or by the court."
77 In the same case, Salmon LJ said, at 937:
"Another ground for this rule is that it would not be for the good of the beneficiaries as a whole, and yet another that it might make the lives of trustees intolerable should such an obligation rest on them: Re Beloved Wilkes' Charity (1851) 3 Mac. & G. 440; Re Gresham Life Assurance Society; Ex parte Penney (1872) 8 Ch. App. 446. Nothing would be more likely to embitter family feelings and the relationship between the trustees and members of the family, were trustees obliged to state their reasons for the exercise of the powers entrusted to them. It might indeed well be difficult to persuade any persons to act as trustees were a duty to disclose their reasons, with all the embarrassment, arguments and quarrels that might ensue, added to their present not inconsiderable burdens."
78 The "right to silence" rule has been applied not only to natural persons acting as trustees of family trusts, but to corporate trustees acting in a commercial context: see e.g. Esso Australia Ltd v. Australian Petroleum Agents' & Distributors' Association [1999] 3 VR 642, at 651ff.
79 The position of an expert valuer carrying out a determination in accordance with the requirements of a contract between two other parties is very different from that of a trustee exercising an unfettered discretion under at trust instrument such as a will or settlement. There is no warrant for importing into the law of contract a rationale developed in quite a different context in the law of trusts. True it is that the valuer, as expert, is called upon to exercise skill, judgment and an element of discretion, but he or she must exercise that discretion within the confines of the character of the valuation which the parties to the contract have stipulated will bind them. The valuer's discretion does not permit a refusal to take into account the matters which the contract directs be taken into account, nor does it permit a valuation upon a basis different from that which the contract requires.
80 In my opinion, unless the contract clearly provides that the expert valuer's reasons for a determination are unexaminable, then either party to the contract is entitled to call into question whether the determination conforms with the contractual requirements. That question is not for the valuer to determine in effect, by exercising a discretion not to disclose reasons, thus depriving the parties of a means of ascertaining the matter for themselves. The contract may entitle the valuer to give only a non-speaking valuation, but that is not the same thing as prohibiting the parties from eliciting, by legal process or otherwise, what the valuer has actually done.
81 I am persuaded that the decision in Horwitz Grahame and the subsequent decisions following it are correct and that I should follow them. I hold, therefore, that I am entitled to go behind the face of Mr Norris' determination and to have regard to extrinsic evidence in order to decide whether that determination has been conducted in accordance with the requirements of the Lease.
Did Mr Norris have regard to the terms of the Lease?
82 Kanivah submits that Mr Norris' determination does not conform to the requirements of the Lease in two essential respects: first, in that he failed to have regard to the matters to which Clause 1(d) required him to have regard; second, in that he failed to provide "sufficient written reasons for his determination" , as required by Clause 1(f)(iii).
83 There is no suggestion by Kanivah that Mr Norris' determination is tainted by fraud or collusion.
84 Kanivah first submits that Mr Norris failed to determine the best annual rental that could reasonably be obtained "having regard to … the terms and conditions contained in this Lease" (Clause 1(d)(ii)). Kanivah points to a number of clauses in the Lease which its experts, who were called to give evidence, say were onerous and would have brought about a substantial diminution in the rental had they been given proper consideration by Mr Norris.
85 The particular clauses relied upon are Clause 4 (which specifies the use of the premises), Clauses 14 and 29 (which provide that at the expiration of the Lease some seventy-one years hence Kanivah may be required to demolish the premises), and Clauses 8, 19, 20 and 21 (which give Holdsworth a right of prior approval in respect of development on the Land).
86 Kanivah submits that the fact that these Clauses were not expressly referred to by Mr Norris in his determination demonstrates that he did not even read them and therefore could not have determined the rental "having regard to the terms and conditions contained in the Lease" .
87 I cannot accept that submission. Mr Norris' determination expressly stated that Mr Norris had read all relevant documentation, including the Lease (which he annexed), and the submissions of the parties' valuers. It is significant in this regard that Kanivah's own expert valuer, Mr Rowlands, in his submission to Mr Norris dated 13 July 1999 which was intended to argue persuasively for the lowest possible rent, did not advert at all to any of the terms and conditions of the Lease which Kanivah now says ought to have been regarded by Mr Norris as of such importance.
88 I am satisfied that the Mr Norris' determination shows on its face that he complied with Clause 1(d)(iii).
89 The extrinsic evidence supports that finding. Mr Norris' evidence was clear and unshaken that he had read the Lease carefully, he had considered its terms and had come to the conclusion that none of them impacted adversely on the methodology by which he proposed to fix the rental. I accept that evidence.
90 I find that Mr Norris carried out his determination "having regard to the terms and conditions contained in the Lease" , as required by Clause 1(d)(ii).
Did Mr Norris have regard to the highest and best use?
91 Kanivah submits that Mr Norris failed to have regard to "the highest and best use to which the premises may be put" , as required by Clause 1(d)(iv).
92 It is quite clear from the face of Mr Norris' determination that he did give careful consideration to what he considered to be the highest and best use of the Land. He stated that he took into account the submissions of the lessor's and lessee's valuers; he set out the legal advice which he had obtained as to whether he could have regard to the fact that the Land was subject to a long-term lease in considering its highest and best use; and he set out his conclusion that the highest and best use of the Land was as a retail/commercial site.
93 Kanivah contends that such a conclusion was not sufficient for the purposes of Clause 1(d)(iv) of the Lease. Kanivah submits that that clause did not permit merely a generic determination of highest and best use; that was only the first step required, it says. What was then required was that Mr Norris proceed to determine with precision what Kanivah could actually and economically construct on the Land in order to produce the maximum lettable area at the highest possible rent. In order to do this, Mr Norris would have to determine for himself the exact composition of the development on the Land - for example, how many shops, of what character, whether cinemas, supermarkets, food outlets or specialty shops, how many office floors, what open spaces, and so on. He would have to produce feasibility studies for what he had in mind; to do that, he would have to commission plans and specifications from architects, and reports from engineers, quantity surveyors, town planners, and so on.
94 It is not to the point, says Kanivah, that none of this information was provided to Mr Norris by Kanivah; it is not to the point that Kanivah apparently regarded the Land as "somewhat economic to develop" and may very well not have wished to go to the expense of producing or procuring all of this information for the purpose of a rent determination based upon a use of the Land with which it fundamentally disagreed; neither is it to the point that Mr Norris was allowed only two months to make his determination. What is to the point, says Kanivah, is that this exercise was what the Lease required Mr Norris to carry out in order to arrive at his determination of the highest and best use of the Land; how he did it was a matter for him. He did not carry out this exercise, so that his determination is vitiated.
95 I cannot accept that submission. Clause 1(d)(iv), in my opinion, requires the valuer to do no more than "(to have) regard to the highest and best use" . It does not require him to determine what that use is as a matter of objective fact. All that he is required to do is to form an opinion of the generic highest and best use to which the Land may be put, and then to take that use into account, amongst other factors, in making his determination. That is exactly what Mr Norris' determination shows that he did.
96 Kanivah says that Mr Norris committed vitiating error in selecting a retail/commercial use as the highest and best use of the Land. It says that that use was not a use submitted by any of the parties' valuers. In my opinion, that in itself does not demonstrate vitiating error. It simply shows that, in the exercise of his own judgment and skill, Mr Norris formed an opinion as to the highest and best use of the Land which differed from those of the parties' own valuers.
97 Next, Kanivah says that Mr Norris committed vitiating error in forming his opinion as to highest and best use by taking into account the Deferred Development Consent which then pertained to the Land. It says that he relied on a net lettable area of 13,549.7m2, which was erroneous in that it took into account an area of 531m2 which was owned by Burwood Council and was not actually part of the Land, although negotiations had commenced with the Council to make that area available for car parking.
98 Further, it says, even if the Deferred Development Consent could be relied upon, Mr Norris was in error in basing his projected rentals from income to be received from all 369 car spaces which the existing consent envisaged, when 78 of those spaces were required for free public parking.
99 None of these claimed errors appears on the face of Mr Norris' determination but, says Kanivah, extrinsic evidence shows that this is what happened. In my view, all of these criticisms are ill-founded. If Mr Norris had arrived at his rent determination solely on the basis of a land residual exercise producing a certain net lettable area, the criticisms might have had some relevance, although even then if there was error it would have been error in working out a calculation rather than error in failing to address the correct question required by the Lease. However, it is clear from Mr Norris' determination that Mr Norris did not found his decision upon the results of a land residual exercise. He came to his conclusion using comparable commercial site sales at Parramatta.
100 The extrinsic evidence supports that finding. I accept Mr Norris' evidence that he relied upon comparable sales rather than upon a land residual exercise because he thought that there were too many uncertainties and variables in such an exercise.
101 Accordingly, I find that Mr Norris' determination shows that he complied with the requirements of Clause 1(d)(iv) of the Lease in that he formed an opinion as to the generic highest and best use of the Land, and had regard to that use in arriving at his determination.
Did Mr Norris have regard to the position of the premises?
102 In his opening of the case, Mr Inatey SC, who appeared with Mr Gracie for Kanivah, foreshadowed an attack on the determination founded upon alleged failure by Mr Norris to have regard to the position of the premises as required by Clause 1(d)(iii) of the Lease. The attack was apparently based on the fact that Mr Norris used the word "location" in his determination when describing the premises, its characteristics, dimensions, area, neighbourhood, zoning and permitted uses, rather than the word "position". There was no substance whatsoever in this ground of attack, and Mr Inatey very properly abandoned it in his final oral submissions.
Did Mr Norris have regard to usual valuation principles?
103 Next, Kanivah contends that Mr Norris failed to have regard to usual valuation principles as required by Clause 1(d)(v) of the Lease. The contention seems to come down to this: Mr Norris used comparable sales of commercial sites at Parramatta as the basis for his determination; contrary to recognised valuation practice, he did not make any adjustments to his calculations based on those sites having regard to the irregular shape of the Land, its regional location, its position adjacent to a railway line, and site-specific usage relevant to the size and position of the premises.
104 Further, Kanivah says that Mr Norris did not have regard to the most comparable sales evidence, which was the sale of the site adjoining the Land.
105 None of these criticisms is sustainable. Mr Norris states in his determination that he made adjustments to the commercial site sales evidence at Parramatta for shape, size, location and time.
106 The extrinsic evidence supports this finding. I accept Mr Norris' evidence that he made these adjustments. That evidence was unshaken in cross examination.
107 Further, in his written submission to Mr Norris, Mr Rowlands had laid emphasis on the sale of the adjoining site and had expressed his opinion that the value of the Land was more closely aligned to the recent sale of that site. Mr Norris said in his determination that he had paid regard to the parties' submission. I accept that he did so.
108 The extrinsic evidence supports this finding. I accept Mr Norris' evidence that he paid close regard to Mr Rowlands' submission and to the evidence provided by the sale of the adjoining site. As he was entitled to do in the exercise of his own judgment, he came to a conclusion different from that of Mr Rowlands.
109 I am satisfied that, in the use which he made of comparable sales, Mr Norris' determination had proper regard to valuation principles as required by Clause 1(d)(v) of the Lease.
Did Mr Norris give sufficient reasons?
110 Finally, Kanivah submits that Mr Norris' determination is vitiated in that he did not give "sufficient written reasons" for his determination, as required by Clause 1(f) of the Lease.
111 There is no dispute that Mr Norris, in his determination, gave written reasons: the critical question is whether they were "sufficient". The question immediately arises: sufficient for what purpose?
112 One must bear in mind that the original parties to the Lease were commercially sophisticated and experienced in property transactions. The present parties likewise are commercially sophisticated and experienced in property transactions, and have acquired their respective interests in the Lease doubtless being acutely aware that the rent review mechanism provided that a determination by the expert valuer would be final and binding.
113 Such a provision is not unfamiliar in a lease of this character and duration. Its purpose clearly is to avoid lengthy and expensive litigation in which the parties deploy troops of competing valuers to argue what is, in the end, a matter of opinion founded upon professional experience and judgment. Where parties to a commercial agreement have agreed to resolve a dispute by reference to an expert valuer in this way, the Court should, as a matter of general principle, be slow indeed to construe the contract in such a way as to facilitate a full-blown valuation case because one of the parties is dissatisfied with the result: see Morgan Sindall Plc v. Sawston Farms (Cambs) Ltd (unrep. English Court of Appeal, 3 December 1998) per Walker LJ at para 24; Mayne Nickless at 174B-D; A. Hudson Pty Ltd v. Legal & General Life of Australia (PC) (1986) 61 ALJR 280, at 281.
114 Nevertheless, that general principle must give way in this case if there is a contractual stipulation to the contrary in the Lease.
115 Mr Inatey submits that because the readers of Mr Norris' determination were sophisticated commercial people and had the assistance of expert valuers, Mr Norris was required by Clause 1(f) to give very full reasons and explanations for what he had done and why. That is so, he says, because the parties would be able to understand fully Mr Norris' reasoning process and therefore would be able to make an informed decision whether to challenge the determination as vitiated by error. Mr Inatey suggests that it would have been otherwise if the readers of the document were commercially inexperienced laymen unassisted by professional advice.
116 Accordingly, Mr Inatey submits, Mr Norris' determination should have set out a host of matters giving precise particulars of such things as: the basis upon which Mr Norris derived his figures for net lettable area (even though Mr Norris did not found his determination on residual land value, but upon comparable sales), the identity of the comparable commercial sites at Parramatta, full particulars of all relevant characteristics and considerations of the Parramatta comparable sales, full particulars of all the adjustments made by Mr Norris to the relevant factors in the comparable sales, "the relevance, if any, of the sale from SRA to Holdsworth" , "what regard, if any, to any other comparable evidence Mr Norris had" , including comparable sites referred to by some of the parties' valuers, and so on.
117 There is a list of nineteen specific items of searching detail which Kanivah says that Mr Norris should have set out in his determination in order to satisfy the requirement for "sufficient reasons". I mean no disrespect when I say that the list reads like a set of interrogatories drafted by a punctilious Chancery lawyer.
118 I cannot accept Kanivah's submission. In my view, the requirement of Clause 1(f) for "sufficient reasons" obliged Mr Norris to disclose what he did and why only to the extent necessary to enable the parties, with the assistance of their experts, to see whether he had complied with the requirements of Clause 1(d) by having regard to the matters to which he was obliged to have regard, and by disregarding the matters which he was obliged to disregard. If it was apparent from the face of the determination that Mr Norris had addressed himself to the right questions, as the contract required, the parties would know that the process and calculations by which he produced his answers could not in law found a claim of vitiating error. On the other hand, if it was apparent from the face of Mr Norris' determination that he had not addressed himself to the right questions, as the contract required, then the parties would know that the determination would be of no effect regardless of what process and calculations had been used. This was all the contractual requirement to give sufficient reasons was intended to achieve.
119 In my opinion, the reasons given by Mr Norris in his determination were entirely sufficient to enable Holdsworth and Kanivah, with the assistance of their experts, to know whether he had addressed himself to the right questions under Clause 1(d) of the Lease. In this respect, I repeat what I have said in paragraphs 110 to 118 of this judgment.
Conclusion
120 In the result, all of Kanivah's attacks on Mr Norris' determination fail. I find that the determination is valid and binding on Kanivah for the purposes of the Lease.
Was Mr Norris negligent?
121 It is settled law that a valuer's determination may be binding as between the lessor and the lessee under a lease, even though it is the product of negligence for which the valuer will be liable to the injured party: Arenson v. Arenson [1977] AC 405; Legal & General at 335.
122 I think it fair to say that the claim that Mr Norris was negligent was only half-heartedly pressed by Kanivah. I intend no criticism when I say that Mr Inatey's written and oral submissions on this part of the case were perfunctory and that he did not draw to my attention any specific evidence which would support a submission that a competent valuer in Mr Norris' position could not have reached the rental determination which Mr Norris did. In my opinion, there was no such evidence.
123 All parties conceded that Mr Norris' conclusion as to the land value of the Land, to which he applied an 8% return rate in order to arrive at a current market rental, was a figure upon which minds might reasonably differ. Mr Norris explained in his evidence why it was that he regarded it as appropriate to rely upon comparable sales, rather than a residual land value exercise, and it is significant that the valuers for both Holdsworth and Kanivah in their submissions to Mr Norris similarly propounded a current market value for the Land derived from comparable sales as the basis for determining current market rental. Kanivah's valuer submitted that an 8% annual return rate was the appropriate rate to be applied in determining current market rent. That was the rate applied by Mr Norris.
124 I am unable to accept Kanivah's contention that Mr Norris was negligent in the manner in which he carried out his determination.
Orders
125 The plaintiff's Summons will be dismissed. At the request of the parties, I stand the matter over for further argument as to costs.
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