The proposed adjustment to comparable sales to disregard improvements on the site
66The second of the general adjustment factors that were discussed by the valuers and where there remains a difference of opinion between them is the proposal by Mr Duguid that there should be an adjustment made to each of the comparable sales on the broad comparative methodology discussed as Method 1 that would notionally remove from any of the comparable sale such value as should be ascribed to the present existence of the facilities located within the Kogarah Town Centre development. Mr Duguid's proposition that such an adjustment should be made is founded on what he considers to be an appropriate reading of the terms of s 6A(1) of the Valuation Act. This provision is here repeated and is in the following terms:
(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.
67Mr Duguid has assumed that, for the purposes of all valuation analyses, including consideration of what adjustments should be made to comparable sales considered in these proceedings (all of which, as previously observed, are broadly within what might be regarded as the Kogarah precinct), all existing structures on the valuation site should be treated as though they were removed.
68The primary reason why the position advanced by Mr Duguid ought not be adopted is to be found in the language of s 6A(1) itself.
69It is trite to say that the language of the provision is to be given its ordinary, natural meaning (Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355) unless there is some intrinsic reason or extraneous guidance that makes it imperative to do so.
70First, for valuing the valuation site, we are obliged to assume that the improvements on it do not exist. This is the well-known and unexceptional consequence of s 6A(1). However, this specific prescription applies to the process of ascertaining the value of a site to which the section is directed. That is the sole purpose for which the improvements are mandated to being disregarded by the statute.
71When we turn to consider those sites that are to be analysed for comparative purposes, had any of them had improvements on them at time of the sale, those improvements would be required to be disregarded for the purpose of analysing such a sale. This also is the conventionally adopted position and is an element of the valuation process endorsed by the High Court in Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 112 CLR 111; (2003) 195 ALR 236 and (2003) 77 ALJR 727. Doing so strips any improved comparable sale site to render it comparable with any notionally stripped improved site that is subject to a s 6A(1) analysis process.
72Just as s 6A(1), in itself, does not mandate the disregarding of improvements on other sites in the vicinity (in this instance, the extent of the comparative proximity to Kogarah railway station is an agreed to be [and is self-evidently] a relevant adjustment factor in the comparative analysis process), so it must be that any improvements on the s 6A(1) analysis site that influence any genuine arms-length sale of a vacant site prayed in aid for a comparable sales analysis process must be taken into account in that analytic process.
73This analysis is consistent with the three-step approach endorsed by the High Court in Maurici.
74Mr White has, during the course of his submissions, advanced reasons to us that he says establish the correctness of Mr Duguid's approach. In anticipation of matters foreshadowed by Mr Hale, he addressed the decision of the Privy Council in Tetzner v Colonial Sugar Refining Co. Ltd [1958] AC 50.
75Mr Hale, for the Valuer General, on the other hand has submitted that, based on Tetzner, such an approach is impermissible.
76Although we do not consider that, strictly speaking, we are bound by this decision of their Lordships as the case was an appeal from the Supreme Court of Fiji, we consider that the conclusions appropriate to be drawn from it do not support the approach adopted by Mr Duguid - on the contrary we consider this approach is antithetical to the approach in Tetzner.
77It is, necessary, therefore, to set out briefly, the facts and a relevant lengthy extract from the decision in Tetzner before turning to an analysis of the submissions about the decision of their Lordships concerning the valuation issues there in question.
78The facts and circumstances in Tetzner are conveniently summarised in the following extracts from the headnotes of the report of the decision. The extracts are in the following terms:
..........the appeal arose out of a valuation for rating purposes of certain land belonging to the respondent company within the town of Lautoka, in the Colony of Fiji. ...................... The appeal, which was originally confined to mere matters of area and quantum of valuation, was amended to include what was the substantial question in the present appeal, whether the appellant had failed to assess the unimproved value of the land in accordance with correct legal principles inasmuch as he had, it was said, wrongly taken into account factors which should in law be disregarded in assessing such unimproved value.
..............................
The company came to Lautoka in 1903 and set up a sugar cane crushing mill. The total area of the company's estate amounted to some 2,200 acres, but until 1952 none of that estate was within the town of Lautoka. In that year the boundaries of the town were extended to take in, inter alia, 650 acres of the company's land. The other material facts are as follows:- (A) The respondent's land comprised some 650 acres in the town of Lautoka. (B) The respondent had erected on this land a large sugar mill with its subsidiary installations. It had made roads on the land. It had constructed a wharf adjoining its land. (C) Lautoka was a prosperous sugar town where land values were high. (D) Lautoka had only one sugar mill which was that erected on the respondent's land. (E) Lautoka's prosperity depended to a large degree on the existence of this sugar mill. (F) The sugar mill had been a major factor in creating, and was a major factor in maintaining, the values of land in Lautoka. (G) If the sugar mill were closed down the present market values of land in Lautoka would drop very considerably.
79We consider it appropriate to set out the whole of the relevant portion of the Tetzner decision as Mr White and Mr Hale each relied upon elements of it (with some overlapping of elements). The extract (comprising most of Lord Keith's speech) is as follows:
In their Lordships' view this argument places upon section 100 of the Ordinance a meaning which it cannot, on a reasonable construction, be taken to bear. The section draws a clear distinction between the land and the improvements on or appertaining to the land. And the improvements have to be made or acquired by the owner or his predecessor in title. The improvements pointed to, are, in their Lordships' opinion, clearly physical improvements of one kind or another and not an improvement, or increase, in the value of the bare land. It is these physical improvements and any value directly attributable to and inhering in them that have to be excluded from valuation. Further, it is an over-simplification to say that the values of the surrounding lands have been increased by the existence of the mill and other improvements on the subject land. This is merely one, and it may be a relatively minor, factor in the development of the surrounding district. To give every credit to the company, this may be assumed, in the present case, to be due, among other causes, to the enterprise and management of the company, to capital provided or profits applied (other than that sunk in the physical improvements on the land) in carrying on the business, to ability to find or grow raw material and obtain suitable markets and export facilities, and to its good fortune in attracting a suitable and sufficient amount of labour. In other words, the prosperity of the neighbourhood is due to all that goes with the carrying on of a successful manufacturing enterprise. None of these factors can be regarded as improvements made or appertaining to the land, and it would be an almost impossible task to expect of a valuer to assign to the physical improvements their quota of contribution to the land values of the locality. But in their Lordships' view this would be an irrelevant inquiry. What in their opinion is required in the present case is that the physical improvements, with any value which they attach to the land on which they are situated, be excluded from the valuer's computation. The land will then be valued as land void of buildings but situated in the community with the amenities and facilities which have grown up around it. Their Lordships see no objection in the process of valuation to regarding the land as land situated in a sugar town. The valuer need not shut his eyes to the fact that there is a sugar manufacturing industry in existence, though he is not entitled to value the sugar mill and its accessories situated on the subject land. Their Lordships find themselves in agreement with an illustration given by the learned magistrate in his judgment. "If the undeveloped capital value of a city power house is being assessed one does not assume a city without electricity and all the consequences of the lack of such an amenity."
Any other view would lead to great anomalies and difficulties. If the mill in the present case happened to be outside the town's boundaries (where the Ordinance does not apply) and the rest of the company's land inside the boundaries the influence of the mill and its operations on the value of the land could not be ignored. And if a town be assumed in which several industries are carried on, the proportion which each lends to land values in the town might well be an insoluble problem and in their Lordships' view not one which it is to be assumed the Ordinance intended a valuer to solve.
Reference was made in the course of the argument to Toohey's Ltd. v. Valuer-General and particularly to the passage already quoted in the judgment delivered by Lord Dunedin. The section of the statute there under consideration is indistinguishable from that in the present case. What, was being valued in that case was the unimproved value of the site of premises licensed as a public house. The valuer arrived at the unimproved value by deducting the value of the buildings from the amount that would have been realized if the whole subject had been sold as licensed premises. This was clearly wrong because it left as adhering to the unimproved value that element of goodwill attaching to the premises as such. Particular emphasis was laid by counsel for the company on the sentence in the passage referred to: "They [the improvements] are to be taken not only as non-existent but as if they never had existed." This should be read, however, with a later passage not yet quoted: "It will be observed that the value is not what has been sometimes designated by the expression 'prairie value.' The land must be taken as it exists at the date of the valuation." Their Lordships are unable to attach any special significance to the words "as if they had never existed." The words of the Ordinance are as if they "had not been made." Nor can they extract from the judgment any principle that would prevent a valuer in assessing the unimproved value of land from resorting for purposes of comparison to the values of surrounding land at the date of valuation even though these values may have been largely built up by the initiative of the owner of the subject land in developing the neighbourhood.
The Supreme Court set aside the judgment of the learned magistrate. The formal judgment of the Supreme Court sets out the grounds for so doing as follows: "And having found that the valuer proceeded on wrong principles in that the benefits given to the neighbourhood by the operations of the sugar mill on the subject land which continue to be a factor in the value of that land were not disregarded by him in assessing its value it is ordered that this appeal be allowed and that the valuation of £110,493 determined by the magistrate and set out in his judgment dated October 10, 1953, be set aside and that the proceedings be remitted to the said magistrate's court to direct the valuer to make a valuation of the appellant's land itself as it at present stands with such advantage as it at present possesses and viewed as bare land without the sugar mill upon it and without any consideration of the value of the subject land as including the de facto sugar mill." This gives effect to the opinion of the learned judge of the Supreme Court where he says: "In my opinion, the benefits given to the neighbourhood by the operations of the sugar mill on the subject land which continue to be a factor in the value of that land should be disregarded in assessing its value." In the view of their Lordships the learned judge has here misdirected himself. It is not the "operations" of the sugar mill that have to be disregarded, but the improvements consisting of the sugar mill and its accessories as physical entities.
80Neither Mr White nor Mr Hale was able to point to any decision subsequent to Tetzner that provided relevant authority in support of the position he advanced as appropriate to be derived from Tetzner.
81Mr White, in this context, correctly pointed out that Tetzner does not involve issues of comparable sales and is a decision solely concerning the valuation methodology to be applied to a site when the value of that site is to be determined as if the improvements upon it did not exist. He relied on passages from within the extracted portion of Tetzner to support the proposition that the requirement to disregard the improvements on a particular site being considered in a valuation exercise extended to disregarding, as we understood it, those improvements for any purpose whatsoever in the valuation exercise - in this case, for the valuation of other sites in the Kogarah commercial precinct.
82On the other hand, Mr Hale took us to passages from Tetzner to support the thesis advanced on behalf of the Valuer General, namely that whilst the improvements required to be removed by s 6A(1) were to be disregarded for the purposes of the valuation of that site, because the presence of those improvements informed the market for the purposes of sales of other sites in the vicinity (where the existence of the improvements on the valuation site had the effect of a positive influence on those comparable sales), that was an entirely appropriate influence and one that should not be disregarded. It was his submission that to do so would be to be acting contrary to the approach adopted by the Privy Council in Tetzner.
83In this context, it is appropriate to note, simply as an observation, that although Mr Duguid seeks to make a negative adjustment to compensate for the improvements on the valuation site in a fashion consistent with his approach and the submissions made in support of it by Mr White, Mr Watt simply considered that it was not appropriate to make any adjustments (positive or negative) for the existence of the improvements on the valuation site when valuing comparable sales of other sites in the Kogarah commercial precinct.
84In further support of his approach, Mr White submitted that the approach taken by Mr Duguid (and supported by his submissions) concerning Tetzner was entirely consistent with the three-step approach endorsed by the High Court in Maurici. On the other hand, as we understood the submissions made by Mr Hale on this topic, such an approach based on Maurici was an inappropriate analysis of that decision.
85First, it is appropriate to deal with the extent to which Maurici provides any basis for our consideration of the appropriate interpretation of Tetzner. Tetzner is referred to in Maurici on page 122 of the report in the limited context of the consideration given to the earlier proceedings in the New South Wales Court of Appeal in the same matter. We do not see anything in our careful reading of Maurici that provides any assistance to our analysis of the decision in Tetzner.
86Self-evidently, we are obliged to follow the three-step process endorsed by the High Court in Maurici. Doing so, however, does not mandate us to include or exclude whatever influence the improvements on the valuation site might have (if there be any) on sales of undeveloped land in the vicinity of the valuation site where the existence of the improvements on the valuation site is an element relevant to the sale price for such undeveloped sites. Use of such sales, if to be relied upon (with appropriate adjustments for the purposes of analysis of those sales), provides a conventional comparison basis for deducing a s 6A(1) value of the valuation site.
87We accept that Mr Hale's submission as to both the applicability of and that which follows from consideration of Tetzner. It seems to us that, reading the above extract from the speech of Lord Keith in its entirety, there is no rational basis upon which the position adopted by Mr Duguid could be supported. Indeed, in our opinion, analysis of Tetzner must inevitably lead to the conclusion that the proposition advanced by Mr Hale (namely that the influence of the presence of the improvements on the valuation site are not to be disregarded) is, in fact, a necessary corollary that follows from a proper reading of Tetzner.