Marroun v Roads and Maritime Services

Court of Appeal (NSW)|2013-09-20|Before: Basten JA, Gleeson JA, Sheahan J, Spigelman CJ, Handley JA

Judgment 1BASTEN JA: I agree with Tobias AJA that the appeal in this matter must be dismissed and the appellants must pay the respondent's costs in this Court. The assessment of value of the acquired land was the result of an entirely conventional analysis of comparable sales, based on the expert valuers' evidence. That assessment was a matter of fact to be undertaken by the Court as a "judicial valuer" and was therefore largely immune from review on an appeal limited to a decision of the Court on a question of law: Land and Environment Court Act 1979 (NSW), s 57(1); see Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority (NSW) [2006] NSWCA 314 at [31] (Spigelman CJ, Handley JA agreeing), applying Maurici v Chief Commissioner of State Revenue [2003] HCA 8; 212 CLR 111 at [8]. 2The first question raised by the appellants was whether the Court was in error in failing to give significant weight, to a genuine offer which indicated willingness to pay a far higher price per square metre for a possible building on the site than that indicated by comparable sales. However, one of the experts gave plausible evidence as to why there was reason to doubt a concluded sale would have resulted at the price offered and as to why the price was unrealistic. The refusal of the Court to give significant weight to the offer was a decision entirely on a matter of fact and therefore unreviewable by this Court. The further suggestion that there was some inadequacy in the reasons of the Court for adopting that approach was without substance. 3The second basis for challenge fell into the same category. The Court declined to accept the appellants' submission that at least a 10% premium should have been accorded to the figures indicated by comparable sales, as a result of an extant development consent for the land. Again, there was expert evidence upon which the Court could base its conclusion that no such premium should affect the market value otherwise determined. There was also no merit in the suggestion that the Court failed to give reasons for adopting that conclusion. 4The appellants further submitted that "a finding by the primary judge that the development consent had no value was ... a finding without evidence": written submissions, par 53. That proposition was based on a false evidential premise, as demonstrated by Tobias AJA. It was also misconceived as a matter of law: the appellants, who bore the burden of persuading the Court that a higher value should be attributed to the acquired land, cannot establish error of law in a failure to make the finding sought, on the basis that there was 'no evidence' justifying the failure: Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 157E (Glass JA, Samuels JA agreeing). 5GLEESON JA: I agree with Tobias AJA. 6TOBIAS AJA: On 10 September 2010 the Roads and Traffic Authority of NSW ("the RTA"), now known as Roads and Maritime Services, compulsorily acquired Lot 100 DP 1028926 situated at 304-308 Hume Highway, Liverpool ("the acquired land") and owned by Michael Marroun and Kaokab Marroun ("the appellants"). The acquired land had an area of 1,268.6 square metres and was slightly irregular in shape. It was located on the fringe of the Liverpool commercial centre approximately 35 kilometres southwest of Sydney. 7As at the date of acquisition, the acquired land enjoyed the benefit of a development consent ("the Consent") granted by the Land and Environment Court on 15 May 2008 for the erection of a six-storey commercial office building having an agreed gross floor space area of 5,453m². The evidence suggested that the appellants planned to sell the acquired land with the benefit of the Consent. To this end in or about May 2008 the appellants engaged a firm of real estate agents, F & C Realty ("the agent"), to sell the acquired land on their behalf. 8In or about August 2009 the agent was approached by a Mr Michael Kordek ("Kordek") who the agent understood to be a developer, and who purportedly offered to purchase the acquired land from the appellants for the sum of $4.2 million ("the Offer"). The appellants were happy to accept that price. However, no contract was entered into before the acquired land was resumed in September 2010. 9Upon acquisition, and in accordance with the relevant provisions of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) ("Just Terms Act"), the Valuer-General prepared a report pursuant to which the RTA made a statutory offer of compensation to the appellants in the sum of $1,620,765, representing the market value of the acquired land ($1,525,000) together with compensation for disturbance in the sum of $95,765. That offer was not accepted, as a consequence whereof on 7 December 2010 Class 3 proceedings were instituted by the appellants in the Land and Environment Court. In those proceedings the appellants claimed the sum of $4.2 million as the market value of the acquired land under s 55(a) of the Just Terms Act or, alternatively, a market value of $2,725,000 together with "economic loss" under s 59(f) of that Act in the sum of $1,475,000. The last two figures total $4.2 million. 10The proceedings were heard by Sheahan J assisted by Acting Commissioner Dr David Parker. On 30 August 2012 his Honour assessed $1,270,000 as the market value of the acquired land pursuant to s 55(a) of the Just Terms Act and $104,792.57 by way of compensation for disturbance pursuant to s 55(d) of that Act: Marroun v Roads and Maritime Services [2012] NSWLEC 199. There is no challenge to his Honour's assessment of compensation for disturbance. However, the appellants seek to challenge the primary judge's assessment of the market value of the acquired land. As the proceedings were brought in Class 3 of the Land and Environment Court's jurisdiction, the appellants' appeal to this Court is confined to a question of law: Land and Environment Court Act 1979 (NSW), s 57(1).

The Nature of the Issues on the Appeal 11Essentially, only two issues were ventilated on the appeal. The first alleged error of law on the part of the primary judge was his Honour's failure to give weight to the Offer in his determination of the market value of the acquired land, which he had otherwise assessed on the basis of comparable sales in the conventional manner. The second was the failure of the primary judge to accept the evidence of the RTA's valuer, Mr David Lunney, whereby, so it was asserted, a 10 per cent premium on the market value of the acquired land ought to have been allowed to reflect the added value thereto of the Consent. 12Given the nature of the issues referred to, it is convenient to set out the appellants' grounds of appeal in their Further Amended Notice Of Appeal: 1 The Court below erred at law in finding at [219] of the primary decision that the market value of the subject property was $1,270,000. Particulars a. Having accepted that the offer by Mr Kordek ("the Kordek offer") should be taken into account (at [191] of the decision below), the Court below failed to give any or any adequate consideration to the Kordek offer (see [216] of the decision below). b. Alternatively, the Court below asked the wrong question in concluding at [216] that 'the relevance of Kordek's offer does not outweigh the strength of Lunney's expert arguments.' c. The Court was required to give weight to all comparable sales and the Kordek offer to determine the market value; d. The Court misdirected itself by instead determining that it had to choose between the Kordek offer and the opinion of Mr Lunney to determine market value. 2 The primary judge failed to give reasons, or any adequate reasons, for the finding at [216] that the relevance of the Kordek offer did not outweigh the strength of Mr Lunney's expert arguments, a finding which was critical to the Court's decision as to overall market value (and in respect of which reasons were therefore required). 3 The Court below erred at law in finding at [218] that the existing development approval did not add market value to the subject site. This finding was critical to the ultimate decision of the Court below as to overall market value. Particulars a. Once the Court accepted the valuation methodology of Mr Lunney, the adjustment made of a 10% premium on value in respect of the existing development approval was not in dispute before the Court. b. No further evidence was required. The Court was incorrect to hold (at [217]) that such was required. c. The only expert evidence before the Court was from both the experts that the existing development consent added a premium to the market value. The Court's finding that no premium was to be added was therefore a finding without evidence and an error of law. d. The finding was not a product of judicial valuation. The Court below misdirected itself, and thus failed to complete, the judicial valuer's task. e. The finding was one for which reasons were required, and in respect of which no reasons were given.

The Relevant Statutory Provisions 13The relevant provisions of the Just Terms Act applicable to the issues in the appeal are as follows: 54 Entitlement to just compensation (1) The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land. ... 55 Relevant matters to be considered in determining amount of compensation In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): (a) the market value of the land on the date of its acquisition, (b) any special value of the land to the person on the date of its acquisition, ... (d) any loss attributable to disturbance, ... ... 56 Market value (1) In this Act: market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid): (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and ... ... ... 57 Special value In this Act: special value of land means the financial value of any advantage, in addition to market value, to the person entitled to compensation which is incidental to the person's use of the land. ... 59 Loss attributable to disturbance In this Act: loss attributable to disturbance of land means any of the following: ... ... ... ... ... (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition.

The Lay Evidence and the Primary Judge's Findings with Respect to the Offer 14At all material times Kordek was acting on behalf of himself and his family, on the one hand, and a Dr Alexander Dan and members of his family, on the other. Both families operated through companies known as Kordan Pty Ltd (registered in 1998) and Kordan (Aust) Pty Ltd (registered in 2003). Members of both families were directors of the two Kordan companies. At [27] of his reasons the primary judge indicated that he intended to refer to one or both of these companies as "Kordan" and so shall I. 15Kordek swore a lengthy affidavit upon which he was cross-examined. The primary judge dealt with the dealings between Kordek and the appellants at [70]-[94] of his reasons. His Honour referred (at [27]) to Kordek's affidavit in which he deposed that he had "caused an offer to purchase" to be made to the appellants in the sum of $4.2 million on or about 12 August 2009 and that it had been "accepted". His Honour then commented that: The court agreed not to read too much legal significance into his use of those words, "offer" and "accepted", and we have closely reviewed his affidavit evidence in light of his oral evidence. 16The first appellant also deposed that on or about 12 August 2009 he had been told by the son of the second appellant (Jardine) that "an offer of $4.2 million had been made for the property" and that he and the second appellant had "agreed on the offer". 17The "offer" was made in an email from Kordek to the agent in which he stated that he wished to proceed with what in his opinion was a fair and equitable deal in the current buyers' market coupled with all the lending constraints by the banking industry. He expressed the opinion that $4.2 million was, in effect, fair and equitable. He set out three reasons for coming to that amount. He then requested that a contract for the sale of the acquired land in the amount of $4.2 million be forwarded to his solicitor, Mr Chris Rumore of Colin Biggers & Paisley "for final scrutiny and approval by The Board of Directors". The identity of the purchaser was not disclosed. 18Kordek was cross-examined with respect to this email, it being put to him that he did not regard it as an offer to purchase the acquired land for $4.2 million, a proposition which he denied. Nevertheless he accepted that any contract had to be: scrutinised and all the different odds and ends that went with it and then the final meeting with my partners. 19He agreed that there was a hierarchy involved in such an approval process and that there had to be careful consideration by his partners as to whether to purchase the property. As his partners included his and Dr Dan's children and grandchildren, his (Kordek's) "function in the system was to sort out the properties [and] bring them to the table". However, he could not think of any property that he had recommended for purchase that he and his partners did not proceed with. The following exchange then occurred: Q. But you weren't the one who signed on the dotted line, you were the ones (sic) who brought the opportunity to the table for consideration, is that fair? A. Of course that's fair. 20At this time the appellants' solicitor was a Ms Fay Rose of Fay Rose Legal, who had acted for the family since January 2007. She was contacted by Mr Rumore on 13 August 2009 when he requested a draft contract of sale but with details of the purchaser left blank. 21At [77] of his reasons his Honour described Kordek's evidence in the following terms: Kordek testified that he did not agree that he had made an offer of $4.2M. Agreement on a price was just one step in a series of negotiations which might lead to a contract of sale, which he might then recommend to the Dan interests for signature. He called for a contract, so that any issues with the property would be identified, and so that he could be sure that "all the paperwork is correct", before he made his recommendation to the Kordan board. He was somewhat "suspicious" of the applicants as vendors. (His Honour's emphasis) 22Kordek also gave oral evidence about his knowledge of a possible acquisition by the RTA. It would appear that his suspicions in regard to the appellants as vendors related to their alleged failure to inform him of the intentions of the RTA with respect to the acquired land. Although he acknowledged some difficulty in recalling the sequence of events, he thought that his understanding at that time was that the RTA would only be acquiring a strip of that land rather than the whole of it. 23The primary judge's ultimate findings with respect to Kordek's position were encapsulated in the following paragraphs of his reasons: 79 The kernel of Kordek's statement of Kordan's position at that time is put in the following ... question and Kordek answer ... : "Q. Well there was never a position in relation to this property where your partners said make an offer that will result in a binding contract of $4.2 million was there? A. That's correct. What you just said is correct, yeah. We had not reached that point yet." 80 In his affidavit he relevantly deposed as follows: "45. Had the RTA not indicated their intention to acquire the whole Hume Highway property, and assuming that the paperwork was correct, I would have proceeded with exchanging the contract for sale of the Hume Highway property. ... 53. To this day I remain interested in purchasing the Hume Highway property, provided of course, that there is an adequate portion of land available. A smaller boutique building on the site would still be of great interest to me." (His Honour's emphasis) 24At [81]-[94] of his reasons the primary judge dealt with the circumstances which led to Kordek withdrawing from negotiations to purchase the acquired land. These paragraphs were relied on by his Honour when he came to consider the relevance of the Offer to the determination of the market value of the acquired land at [183]-[191] and, in particular, at [189]: see [45] below. However, I shall only narrate what I perceive to be the relevant parts of [83]-[94]. 25As recorded at [81] of his Honour's reasons, on 24 September 2009 Mr Rumore communicated by email, with a letter attached addressed to Eddie Khalil of Fay Rose Legal, stating that Kordan would no longer proceed with the sale due to "significant issues" including, in particular, the RTA's proposal with respect to the property. 26That letter became controversial during Kordek's oral evidence. His Honour set out its material terms at [83] of his reasons. Mr Rumore stated that his client would not be proceeding with the purchase by virtue of the zoning of the property and the RTA proposal with respect to it (the acquired land had been re-zoned to "SP2 Infrastructure - Classified Road") and that as his enquiries had revealed that the RTA intended to resume the property on that basis, purchasing the property for redevelopment was of no interest to his client. After referring to an attached letter from the RTA to that effect, Mr Rumore continued in the following terms: There are other significant issues with the documentation provided but these are the major issues which have led to our client's decision to not to (sic) proceed in this matter. (His Honour's emphasis) As will appear, this statement of Mr Rumore was reflected in the primary judge's consideration of the Offer at [189]. 27Kordek also deposed that in or around early November 2009 he received a phone call from the agent who requested a letter confirming the reasons for Kordan's withdrawing from the sale. Kordek then invited the agent to draft a pro forma for him to consider. The letter so drafted contained the following paragraph (recorded by the primary judge at [86]): There were other issues with the documentation provided but these are the major issues which have led to our client's decision to (sic) not to proceed in this matter. 28Kordek deposed that he considered this clause too vague and asked for it to be deleted. The main issue for him, so he said, was the RTA's advising him that it wished to acquire the whole of the property. His Honour observed at [93] that Kordek was cross-examined closely on that statement and when asked what his instructions to his solicitor, Mr Rumore, were, he responded: ... There are other issues, you know, he refers to other issues. I said, well, Chris, what other issues, I'm asking you to write to the people saying we're not proceeding on the basis that the RTA want the property. Now, at the time my clear recollections with Chris - because I was a little bit annoyed, right, because Chris was adding something there, like, well, you know, he had his reasons as a solicitor I suppose, you know what I mean, but the fact was that I specifically asked him just to simply send the letter on the basis that the RTA wanted the property. I said, keep it simple, what you want all this stuff for, I don't even know what he was talking about. 29The primary judge then recorded (at [93]) a lengthy exchange in which the cross-examiner put to Kordek a series of questions to suggest that there were a number of significant issues with the documentation that had played an important part in his withdrawing from the transaction, all of which he denied.

The Valuation Evidence Relating to the Offer 30As I have indicated, valuation evidence was given on behalf of the RTA by Mr Lunney. Mr Frank Carrapetta provided valuation evidence on behalf of the appellants. In his report dated 20 July 2011, Mr Carrapetta stated that he had formed the opinion that Kordek, on his own behalf or that of an associated business entity, and having had twenty years' experience in the property development industry, was a prudent purchaser of the acquired land and that had the proposed acquisition by the RTA not been a factor at the time of the sale negotiations, a sale for $4.2 million would have proceeded. He further opined that the acquired land had a special value to Kordek for his own development purposes and that the offer of $4.2 million plus GST therefore represented its market value. 31In the alternative, in the event that the Court did not accept that the Offer represented the market value of the acquired land, Mr Carrapetta expressed the opinion that the appellants' claim for compensation should be based on the market value of the acquired land as determined on the basis of comparable sales and that the difference between this amount and the proposed sale price of $4.2 million plus GST should be claimed under s 59(f) of the Just Terms Act as an "economic cost". It would not appear that this last head of compensation was pressed for it was clearly incorrect. What is of relevance is that Mr Carrapetta did not approach the alternative valuation in his report on the basis that the Offer should be reflected in the market value of the acquired land as determined on the basis of comparable sales; in other words, he did not suggest, as did the appellants on the appeal, that the Offer should be "thrown into the mix" with the rates per square metre deduced from the relevant comparable sales so that the valuation would reflect a market value that was greater than that which the acquired land would have achieved in the absence of the Offer from that exercise. 32In his report dated 16 June 2011, Mr Lunney also considered the Offer. He expressed the opinion that the amount of $4.2 million was out of line with other sales of relevantly comparable development sites within the Liverpool City Centre and that in fact the Offer was well in excess of the market value of the acquired land both at the time it was made in August 2009 and at the date of acquisition. Mr Lunney further expressed the view that it was highly likely that feasibility studies would be undertaken by a purchaser who was contemplating the construction of a 5,000 square metre commercial office building in accordance with the Consent prior to the making of an offer to purchase and certainly prior to the purchaser's entering into an unconditional sale. The fact that no feasibility studies appeared to have been undertaken on behalf of Kordek or Kordan prior to the making of the Offer was, in Mr Lunney's experience, "unusual". 33Mr Lunney expressed his conclusions in the following terms: 6.5.12 Whilst it is my opinion that an offer to purchase a property is relevant information to be taken into consideration for the purpose of undertaking a valuation of that property, I have placed no weight on the Kordek Offer for the following reasons: (i) I cannot reconcile the Kordek Offer with any of the available market evidence. (ii) At the time of the Kordek Offer, Kordan and interests associated with Kordan and interests associated with Kordan/Kordek were attempting to sell two other commercial/mixed use development sites within Liverpool city centre. (iii) The amount of the Kordek offer, on a $/m2 basis, substantially exceeds the (then) asking price for the two other sites being marketed for sale by Kordan/Kordek interests. ... ... ... (vii) The fact that no feasibility studies appear to have been undertaken by or on behalf of Kordan or Mr Kordek prior to the date the Kordek Offer was made. ... 6.5.13 In my experience it is relatively common for sales of commercial property to advance to the offer and acceptance stage and fail to proceed to completion. There are a whole host of reasons why such sales do not proceed to completion including due diligence studies undertaken on behalf of the purchaser, financing issues, valuation issues, additional information being brought to the purchaser's attention, changes in market conditions or market sentiment or the purchaser simply changing its mind. In my opinion it is not reasonable to assume that because the Kordek Offer was made the sale of the Subject Property would have proceeded to completion for the amount of the Kordek Offer, if the RTA's proposal to carry out the Public Purpose had never existed. There are many reasons why the sale may not have proceeded to completion. 34The valuers prepared a joint report dated 9 August 2011. Each accepted that the Offer did not represent the market value of the acquired land. In fact, Mr Carrapetta considered that the amount of the Offer represented the sum of both the market value of the acquired land and its special value to Kordek (for Kordan Pty Ltd). He withdrew the statements in his report in which he had expressed the opinion that the Offer represented market value. Of course, Mr Carrapetta was equally in error in asserting that the Offer represented the sum of both the market value of the acquired land and its special value to Kordek. Special value had no part to play in the present case as it applies only to the person entitled to compensation, being the appellants and not Kordek or Kordan: see Just Terms Act, s 57. 35The two valuers also agreed that if the projected development cost of erecting the building the subject of the Consent (being $18 million) was adopted, the completion of that development was not economically viable. Mr Carrapetta ultimately accepted that the market value of the acquired land was best undertaken by reference to the available sales evidence and, implicitly, without reference to the Offer. Nevertheless, when dealing with the issue as to whether it was reasonable to assume that a sale of the acquired land would have proceeded to completion at a price of $4.2 million had it not been resumed, Mr Carrapetta considered that it was reasonable to make that assumption whereas Mr Lunney considered that it was not. 36Mr Lunney repeated the opinion stated in paragraph 6.5.13 of his report (see [33] above). He then noted that there were further reasons in the present case for believing that the sale may not have proceeded to completion, including the fact that no due diligence investigations or feasibility studies appeared to have been undertaken by or on behalf of Kordan prior to the date the Offer was made. Furthermore, Kordek appeared to have made a significant arithmetic error in formulating the amount of the Offer. In his affidavit of 14 July 2011, Kordek had stated that the amount of the Offer was partly based on the asking price of a property owned by Kordan in Bigge Street, Liverpool. Mr Lunney noted that when properly analysed, that asking price resulted in a rate per square metre of site area which was significantly less than the rate calculated by Kordek in his email of 12 August 2009 and upon which he had based his "offer" of $4.2 million. That apparent arithmetic error was a further reason why Mr Lunney considered that it was not reasonable to assume that a sale would have proceeded to completion at a purchase price of $4.2 million in the absence of the RTA's proposal to resume the acquired land.

The Appellants' Submissions to the Primary Judge with Respect to the Offer 37At [105] the primary judge recorded the appellants' submission that the market value of the acquired land was $4.2 million, being the amount of an "offer" made by a "genuine purchaser" in a negotiation which would have proceeded to a concluded contract of sale but for the RTA's interest in the land and its subsequent acquisition of it. His Honour then referred to Mr Carrapetta's alternative valuation based on the market value of the acquired land determined by reference to comparable sales together with the difference between that amount and $4.2 million as constituting a separate item of "disturbance" (which clearly it was not). A number of authorities were referred to which, so it was submitted, supported the proposition that the Offer should be accepted as the true market value of the acquired land. I shall mention some of those authorities below. 38The appellants further submitted that the only reason that the proposed sale of the acquired land did not proceed was because Kordek became aware of the RTA's proposal to acquire the whole of that land. He had the ability to take the negotiation to fruition and his evidence demonstrated that the "negotiated" purchase price of $4.2 million represented the amount that the Kordek/Dan interests would have paid for the property but for its compulsory acquisition. The appellants acknowledged that an offer may not carry as much weight as a concluded contract. Nevertheless, they maintained that the Offer ought to carry weight almost akin to the weight accorded to exchanged contracts.

The RTA's Submissions to the Primary Judge with Respect to the Offer 39The RTA submitted that the amount agreed between the appellants and Kordek did not constitute a relevant offer. There was no actual contract and the available evidence did not suggest either that an agreement would have been reached for that amount or that the sale would have proceeded if the RTA acquisition had not. Kordek did not in his evidence indicate that he had made any "offer" capable of acceptance. 40At [134] his Honour recorded 11 reasons submitted by the RTA as to why the sale would not have proceeded for the amount of $4.2 million. It is unnecessary to list them but they are generally based on the evidence of Kordek and Mr Lunney.

The Primary Judge's Findings with Respect to the Offer 41The primary judge dealt with the relevance of the Offer at [183]-[191] of his reasons. He noted the difference in the approach taken in the authorities to an offer which was not the subject of a concluded contract, on the one hand, and, on the other, an actual binding or concluded contract for sale, completion of which was frustrated only as a result of a compulsory acquisition of the land the subject of that contract. In the latter case the authorities supported the view that the purchase price could be regarded as the market value of the property so acquired. 42At [184] his Honour noted that the Offer was not the kind of offer referred to in the authorities dealing with concluded contracts for sale. It was not equivalent to such a contract. However, that did not necessarily mean that the Offer [was] completely irrelevant to the court's consideration. 43His Honour then referred to a number of authorities which supported the proposition that a genuine offer should be taken into account or given consideration when determining market value although it was not itself equivalent to market value. In particular, reference was made to the judgment of Wilcox J in Goold & Rootsey v Commonwealth of Australia (1993) 42 FCR 51 where his Honour considered that although an offer should not be treated as direct evidence of value, nonetheless under some circumstances it may have probative value and is admissible. After referring to the analysis of Barber J in Phillipou v Housing Commission of Victoria (1969) 18 LGRA 254, Wilcox J observed (at 59-60): In the light of Barber J's analysis, it would be anomalous and unjust for the courts to adopt a blanket rule excluding offer evidence. Such a rule might exclude cogent evidence of the interest of a particular purchaser in the land being valued, a person who was willing to pay more than ordinary market price. Of course, before placing reliance upon a mere offer, a court must consider carefully the question of its genuineness. ... If the offer was genuine when made, it might not have led to a concluded contract, even if resumption had not intervened. The offer might have been withdrawn. The purchaser might have failed to complete the transaction. Because of matters such as these, even a genuine offer cannot be regarded as direct evidence of value. But it seems to me that, once the court is satisfied about genuineness, an offer by an arm's length party to purchase the land under valuation is something that the judicial valuer ought to take into account in considering the possibility of a sale at a price different from that indicated by conventional evidence, such as an analysis of comparable sales ... How much weight should be given to such an offer is a question to be determined by reference to the facts of the particular case. In some cases, the appropriate weight may be minimal; in others considerable. (Emphasis added) See also Caruana v Port Macquarie-Hastings Council [2007] NSWLEC 109 at [23]-[32]. 44The only other authority to which it is necessary to refer, and which was also cited by the primary judge at [132] of his reasons, is the decision of Tamberlin AJ in Warner v Ulysius International Trading Pty Ltd [2011] NSWSC 329; (2011) 91 IPR 570 where his Honour said (at [39]): Where offers are taken into account it is appropriate to consider the relevance of matters such as whether the offer was genuine; whether it was made at arm's length; when it was made; and the terms and conditions of the offer. These matters may be of central importance. In some cases an offer may be simple, direct and unconditional. In other cases the conditions of the agreement proposed may be complex and onerous on the purchaser. Other relevant considerations in assessing the relevance and weight to be attributed to an offer include equality of bargaining power; the experience of the person making the offer for the property in question; the ability of the offeror to pay; the consideration for the purchase, namely as to whether it is for cash, shares, credit or by way of exchange; whether there was any objective valuation exercise carried out to support the price offered or whether it was to supply a special need of the purchaser or to confer a particular unique benefit on the offeror. 45Having referred to the relevant authorities, the primary judge then dealt with the Offer in the following terms: 189 In the current matter, there was no concluded contract. Although there is some evidence that the acquisition and/or the RTA proposal were matters significant to Kordek's decision not to proceed any further with his proposed purchase of the subject property, there were other matters, some perhaps "significant", that may have prevented the offer from proceeding as it currently stood, to a completed and binding contract (see above at [81]-[94]). Kordek had experience of the property market, and expressed genuine interest in the purchase of the applicants' property. He was not troubled by the prospect that some of the site might be required by the RTA, but, when it became clear the whole was to be taken, he declined to proceed. 190 The court cannot ignore the absence of a binding contract, nor the uncertainty of the status of Kordek's "offer" in the preliminary form in which he put it to his solicitor for further investigation. 191 We, therefore, intend to adopt the approach taken by Biscoe J in Caruana. The "offer" of $4.2M should be considered in determining the value of the property, but it cannot be relied on as the sole determinant of value - other valuation evidence is available in this case, and must also be carefully considered. 46At [24]-[29] above I have summarised the primary judge's recitation (at [81]-[94] of his reasons) of the evidence of Kordek relating to the circumstances in which he withdrew from further negotiations to purchase the acquired land, upon which his Honour relied in coming to his conclusion with respect to what he referred to at [191] as the "offer" of $4.2 million. In my view it is apparent from [189] that his Honour was not convinced by the submission of the appellants that had it not been for the resumption of the acquired land by the RTA, a concluded contract would have been entered into between the Kordan interests and the appellants for the sale of the acquired land for $4.2 million. On the other hand, it could not fairly be said that he accepted the submission of the RTA that no such concluded contract would have been entered into. Rather, his view seems to have been that it could not be determined either way whether a concluded contract would have been entered into but for the acquisition. Furthermore, his Honour acknowledged that there were other matters, some of which were perhaps "significant", that may have prevented the offer from proceeding to a completed and binding contract absent the acquisition. 47His Honour's reticence in relation to the significance of the Offer is emphasised at [190] where he refers to the Offer in quotation marks and describes its status as uncertain, it being in a preliminary form to be put to Kordek's solicitor for further investigation by him. In my opinion, at [189] and [190] the primary judge is downplaying the relevance and significance of the Offer in the valuation process, thereby setting the scene for his conclusion as to the weight, if any, which it should be accorded in that process. The appellants relied heavily upon the opening words of the second sentence of [191] in their submissions on the appeal. Nevertheless, in that same sentence his Honour considered that the Offer could not be relied on "as the sole determinant" of the value of the property, as other valuation evidence had also to be "carefully considered". 48The primary judge returned to this issue at [216] of his reasons. Prior thereto he had examined the valuation evidence relating to the comparable sales relied upon by each valuer and had ultimately determined (at [214]-[215]) to accept the sales and the analysis thereof of Mr Lunney and to reject those of Mr Carrapetta. In particular, whereas Mr Carrapetta had determined the rate per square metre based on the floor space area of the six-storey commercial building the subject of the Consent, Mr Lunney, considering floor space area not to be the primary determinant of value due to the economic unviability of that building, had determined a rate per square metre based on site area, an approach which his Honour adopted at [210]. 49At [213] his Honour stated that he preferred Mr Lunney's evidence and opinions to those of Mr Carrapetta. He therefore accepted (at [214]-[215]) the analysis of Mr Lunney from which he deduced a rate of $1,000 per square metre of site area as being applicable to the acquired land. His Honour then said: 216 The relevance of Kordek's offer does not outweigh the strength of Lunney's expert arguments. The respondent cannot pay, in JTC Act proceedings, any form of "damages" to the applicants because it required more of their land than Kordek had expected. It must pay only "compensation" determined in accordance with the code in the JTC Act, and, in this case, that code dictates a decision in line with Lunney's evidence. (Emphasis added) 50It is with respect to the first sentence of [216] that the appellants assert that his Honour erred in law.

The Appellants' Submissions on the Appeal 51The written submissions of the appellants may be summarised as follows: (a) The primary judge failed to undertake the judicial valuation task at all as he accepted the evidence of Mr Lunney, who had not taken into account the Offer in determining his opinion of market value, whereas it was incumbent on his Honour to do so and to give it weight; (b) The choice facing the primary judge was not a dichotomy between the Offer on the one hand and the determination of market value based on comparable sales adopted by Mr Lunney on the other. Had a proper engagement with the evidence occurred, the Offer would have been factored into the judicial valuation exercise and almost inevitably increased the market value of the acquired land; (c) The first sentence of [216] demonstrated that no analysis had been undertaken as to the weight to be attached to the Offer in determining market value. In order to give proper consideration to the Offer as his Honour accepted at [191] that he was required to do, he was obliged, first, to determine what evidence with respect to the Offer was relevant and, secondly, to then determine what weight to give that evidence. His Honour failed to undertake the second task. 52The following propositions can be extracted from the appellants' oral submissions: (a) The primary judge's statement at [191] of his reasons that the "offer" of $4.2 million should be "considered" in determining the value of the acquired land bound him to give it some weight. His Honour did not find that the Offer was so uncertain or that it was a sham or that the conditions of the Offer were such that it was of no assistance in determining market value. It was not then open to him, as he did in the opening sentence of [216] of his reasons, to balance the Offer against the weight of Mr Lunney's evidence with respect to relevant comparable sales. (b) In failing to take into account the Offer in undertaking the exercise of judicial valuation, the primary judge, in effect, asked himself the wrong question; (c) The question the primary judge should have asked himself was: 'having determined that the Offer is relevant to the determination of market value, what value should be placed upon the acquired land, taking into account the Offer and the rate per square metre of site area deduced from comparable sales?'; (d) Thus his Honour should have factored the Offer into the comparable sales evidence he accepted; that is to say, he should have analysed that evidence and then adjusted each of the sales upon which he relied by factoring into the exercise the Offer subject to any adjustments he considered necessary to take account of the fact, for instance, that it was not the subject of a concluded contract; (e) His Honour's finding of relevance at [191] mandated a finding that the Offer, in effect, added value to the acquired land which was to be reflected in its market value. It was not open to the primary judge to, in effect, simply dismiss the Offer on the basis that the strength of the evidence of market value provided by Mr Lunney and accepted by his Honour outweighed any relevance of the Offer to that determination.

Did the Primary Judge's Approach Disclose an Error of Law? 53In my opinion the answer to the question posed is in the negative. Having accepted at [191] of his reasons that the "offer" of $4.2 million should be considered in determining market value, but that, contrary to the submission of the appellants, it was to be considered subject to the other valuation evidence, his Honour was not required to give the Offer any particular level of weight. The law did not mandate that he give the Offer a level of weight which required him as a judicial valuer to increase (by how much was not stated) the rate per square metre of the site area as determined after analysis of the relevant comparable sales relied on by Mr Lunney. 54Although the primary judge determined that the Offer was of sufficient relevance that it should be "considered", he did not state that he regarded it as so relevant that he had, in effect, no choice but to give it some indeterminate weight which would impact positively upon the market value of the acquired land otherwise determined in accordance with the conventional approach based on comparable sales. In any event, at [189]-[190] his Honour set out reasons which, in my view, justified him in giving the Offer no weight whatsoever. But the question as to whether he should give the Offer weight and, if so, to what extent, required an evaluative judgment on his part and, therefore, involved no more than a question of fact. The Just Terms Act did not require him to give weight or any particular weight to the Offer and, therefore, no error of law in failing to give it weight has been demonstrated. 55The submission of the appellants that it was necessary to place the Offer into the mix of relevant "transactions" was not supported by any authority, let alone by either of the valuers. Of course, that did not mean that the primary judge, as the judicial valuer, was bound to adopt the evidence of one or other of the expert valuers. As was observed by Spigelman CJ, with whom Beazley, Bryson and Basten JJA and Campbell J agreed, in Leichhardt Council v Roads & Traffic Authority of NSW [2006] NSWCA 353; (2006) 149 LGERA 439 at [83]: [The Land and Environment Court] is not a jurisdiction in which a judicial valuer is obliged to act only on the basis of evidence adduced by expert valuers who appear as witnesses. A judge of [that] Court is perfectly entitled to reject the whole of the expert evidence and, drawing on the experience of the Court, to do as best [he or she] can to identify an appropriate level of discount or, relevantly, an appropriate quantum of adjustment to the comparable sales figure... 56From the comparable sales evidence analysed by Mr Lunney and accepted by the primary judge a rate of $1,000 per square metre of site area was deduced: see [215]. The same exercise, when applied to the Offer by Mr Lunney, resulted in a rate of $3,311 per square metre of site area, a difference of over 300%. That calculation illustrated how far out of line the Offer was with the market value of the acquired land deduced from an analysis of comparable sales. 57What his Honour then did at [216] of his reasons was to say, in effect, that the evidence of Mr Lunney which he accepted resulted in a rate per square metre of site area of $1,000. An analysis of the Offer resulted in a rate more than three times that. There was, in his Honour's view, nothing about the Offer which outweighed (in the sense of influenced or compromised) the conclusion as to market value which followed from Mr Lunney's evidence. In my view such an approach is unexceptional and is not redolent of legal error. 58The appellants' basic submission was that, having decided that the Offer was a relevant consideration, his Honour was bound in law to find that it must influence the market value of the acquired land otherwise deduced from the three comparable sales on which, accepting the evidence of Mr Lunney, he relied at [215]. With respect, that submission cannot be sustained. 59It follows from the foregoing that when the opening sentence of [216] is read with [189]-[191] of his Honour's reasons, not only was his Honour entitled to give no weight to the Offer but he also provided adequate reasons for coming to that determination. The first sentence of [216] should not be regarded otherwise than as an expression of opinion that, given the strength of Mr Lunney's expert evidence, the Offer had no relevance in the sense that it could not be weighted against that evidence so as to impact relevantly upon it. 60Accordingly, Grounds 1 and 2 contained in the Further Amended Grounds of Appeal should be rejected.

The Expert Evidence 61Mr Carrapetta took the Consent into account in his valuation by determining a rate per square metre of permissible floor space based on comparable sales (which he determined at $500 per square metre) and then applying that rate not to the maximum floor space ratio permissible under the zoning of 2.5:1 but to the approved gross floor space the subject of the Consent, which was 5,675 square metres or about 4.3:1, a little less than twice that permissible under the relevant zoning for valuation purposes. 62Mr Lunney's approach was different. He acknowledged (as did Mr Carrapetta) that the development the subject of the Consent was not economically viable as it had, upon completion, a value of $11 million as against a probable construction cost of $18 million. However, Mr Lunney acknowledged that the Consent enabled a more intense development of the acquired land than that which would have been permitted under the existing planning controls as at the date of acquisition. It was therefore possible that a purchaser might speculate on an improvement in the market in the short to medium term. However, there were significant risks involved in taking such an approach and, in any event, it was accepted by the valuers that the determination of market value required an assumption that the hypothetical purchaser was prudent. 63Mr Lunney's conclusion with respect to the relevance of the Consent was stated by him in his report of 16 June 2011 in the following terms: 6.4.18 Taking into consideration: (i) The fact that the approved development was not economically viable as at the Date of Acquisition, (ii) The extent to which the development is not viable and the likelihood that the development will remain unviable for a number of years, (iii) The time, cost and risks associated in potentially reconfiguring the approved development, and (iv) The likelihood that a reconfiguration of the existing Development Consent would result in a significant reduction in the FSR, it is my opinion that the maximum value benefit associated with the existing Development Consent is 10%. 6.4.19 It is my opinion that a range of purchasers would regard the existing Development Consent as being of minimal value, if any at all. In this regard I note that there are approved developments in Liverpool City Centre [that] have subsequently been abandoned, despite the time and cost invested in originally procuring the consent. I have made a conservative assessment in favour of the Applicants in applying a 10% premium in value in respect of the existing Development Consent. (Emphasis added) 64In the joint report of the valuers dated 9 August 2011 Mr Lunney maintained the position he had adopted in his report of 16 June. He noted that Kordek had expressed the opinion that there might be scope for a smaller or redesigned building on the acquired land which had only one parking level. However, in Mr Lunney's opinion, that statement provided support for the approach that he, Mr Lunney, had taken in his valuation, namely, that the Consent was of only limited value to the acquired land. He further noted that many other actual and potential development sites within Liverpool CBD had not been developed (or were not proposed to be developed) in a manner which exploited the maximum available FSR potential. Some development consents had in fact been abandoned entirely.

The Primary Judge's Findings 65Having referred to the development the subject of the Consent and the gross floor space area achievable thereunder, his Honour then observed at [155] that there was disagreement in relation to the value, if any, that should be attributed to the Consent. At [157]-[158] he summarised Mr Lunney's evidence on this issue, noting that he had decided, notwithstanding the opinions that he had expressed, to adopt a conservative approach in favour of the appellants and had therefore applied a 10 per cent premium to reflect the value of the Consent. At [159] the primary judge noted the submission of the RTA that should the Court wish to attribute value to the Consent, it should adopt Mr Lunney's approach, estimating a "possible" addition of 10 per cent to the market value of the acquired land as determined by Mr Lunney. 66As I noted when dealing with the issue concerning the Offer, the primary judge then dealt with the various comparable sales relied upon by each of the valuers, ultimately concluding (at [215]) that Mr Lunney's estimate of $1,000 per square metre of site area was the appropriate rate by which to determine the market value of the acquired land. 67At [217]-[218] his Honour then dealt with the issue of the impact, if any, of the Consent in the following terms: 217 Neither side tendered any analysis of comparable sales evidence to support the existence or the quantum of either a premium or a discount in the market for properties sold with [a development consent] attached, compared to those sold without it. Lunney determined that the site's approved development was not viable, but "made a conservative assessment in favour of the applicants in applying a 10% premium in value" because of [the Consent]. 218 However, no convincing argument was advanced to support it. Accordingly, we do not consider that the existing development approval adds to the market value of the subject site.

The Appellants' Submissions 68Although the appellants accepted the statement by his Honour that neither party had tendered any analysis of comparable sales evidence to support the existence or the quantum of any premium to be attributed to the Consent, in their written submissions they asserted that it was doubtful that such specific evidence could have been put before the Court. It was submitted that in circumstances where neither party had contended that the Consent reduced the market value of the acquired land, there was no obligation on either party to supply the Court with a breakdown of other sales in the area and the percentage adjustment attributable to the existence of a development consent to be deduced therefrom. 69Reference was then made to the submissions made to his Honour on behalf of the RTA, it being contended that at no stage did the RTA submit that no premium or adjustment should be made for the Consent. However, it is noteworthy that the appellants acknowledged a submission made on their behalf at trial to the effect that Mr Lunney had not applied proper valuation principles when forming his opinion that a 10 per cent premium was appropriate and that he had no evidence to support that view. In fact, in cross-examining Mr Lunney on 16 August 2011, then senior counsel for the appellants sought to undermine his opinion that the maximum value benefit associated with the Consent was 10 per cent by gaining his acknowledgement that he had no supporting evidence by way of sales to support that figure or any other figure. In fact, his testimony was that the market evidence suggested that the appropriate percentage was zero. In my view, the appellants thereby undermined their own case. 70The appellants in their written submissions on the appeal asserted that there was no evidence that no value should be attributed to the existence of the Consent but that there was direct evidence from Kordek that he attributed value to it. Accordingly, the finding by the primary judge that the Consent had no value was either a finding without evidence or, if his Honour was relying on the experience of the Court, a finding that required an explanation to that effect. 71In oral submissions the appellants repeated that the legal error upon which they relied was that there was no evidence that there was in fact no value to be attributed to the Consent. The appellants did not challenge the first sentence of [217] as a correct summary of the position. However, it was contended that what followed that sentence constituted a failure to deal with the reasons advanced as to why it was appropriate for a premium to be applied.

No Error of Law is Disclosed 72Once it was accepted that there was no analysis of comparable sales evidence to support the existence of a premium to be applied to the market value of the acquired land as a consequence of the existence of the Consent, it followed that, as a matter of fact, his Honour was entitled to conclude that no convincing argument had been advanced to support such a premium. Furthermore, the fact that Mr Lunney, whose evidence on other issues was accepted by the primary judge, expressed the opinion that the maximum value benefit associated with the Consent was 10 per cent, did not require his Honour to adopt that part of Mr Lunney's evidence: Leichhardt Council v Roads & Traffic Authority of NSW at [83] (see [55] above). 73In order to establish an error of law the appellants were required to demonstrate that the primary judge was bound to adopt Mr Lunney's opinion, which he stated was a conservative assessment in favour of the appellants. That is simply not the case. In any event, Mr Lunney's opinion was that a range of purchasers would regard the Consent as being of minimal value "if any at all". In these circumstances it was clearly open to his Honour to conclude that he was not satisfied that the Consent added to the market value of the acquired land. As was pointed out in argument, if the two sentences of [217] had been reversed, then the conclusion at [218] would have logically followed from those reasons. His Honour's findings at [217]-[218] involved no more than findings of fact. In any event, the no evidence submission of the appellants should be rejected as the evidence of Mr Lunney to which I have referred at [69] above constituted evidence that no value should be attributed to the Consent. 74For the foregoing reasons, in my opinion the primary judge's findings at [217]-[218] neither disclose an error of law nor constitute conclusions without adequate reasons. Ground 3 contained in the Further Amended Notice of Appeal should be rejected.

Conclusion 75In my view, each of the challenges by the appellants to the primary judge's findings with respect to the Offer and the issue as to whether a premium should be applied to take account of the Consent should be rejected as neither discloses a question of law, let alone an error of law. I would therefore propose that the appeal be dismissed with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 October 2013

(2006) 149 LGERA 439

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