Mio Art Pty Ltd v Mango Boulevard Pty Ltd and Ors

The applicant shall amend the Plan of Development to include the whole of Lot 993 on S312890 within the Preliminary Approval subject area. The small balance area not currently shown on the plan shall be included in the 'Rural and Open Space' area. The amended plans shall be approved by the Manager, Development Services prior to the Developer lodging the first application for a Development Permit on the subject land.

The Plan of Development provides guidance on the general development parameters of the site. More detailed plans to be submitted with subsequent development applications for Development Permits associate[d] with this Preliminary Approval shall reflect the Plan of Development."

The "Plan of Development" as referred to in that condition depicted a proposed development of the southern precinct. Again, it showed three different residential neighbourhoods. But in the first category, a legend on that plan showed a figure of 12 dwellings per hectare, rather than 15 dwellings per hectare according to the Mango Hill Structure plan. This legend also set out approximate areas within each of the neighbourhoods. There was an area for the lowest density of "approximately 105Ha", for the medium density of "approximately 7.5Ha" and for the high density of "approximately 1.0Ha".

[121] The only indication within the Preliminary Approval of the likely sizes of the different neighbourhoods was within that Plan of Development, which according to the condition of the approval, was to provide "guidance" only. On the plan itself, the measurements were given as approximates. The Preliminary Approval did not prescribe a certain number of hectares for any of the areas which were to be subdivided within this southern precinct. It did indicate, within both the Structure Plan and the Plan of Development, the parts of the site which were to be developed as lots and the three precincts within those parts. But there was no single set of figures for the developable areas which, according to cl 4.4 of the SSA, had to be assumed. Moreover, the area or areas in the northern precinct were even less certain at this stage.

[122] Nor was the density per hectare straightforward. The terms of the approval itself required a development in accordance with the Mango Hill Structure Plan, part of which stipulated a minimum yield of 15 lots per hectare in the low density zone. But the first condition, by its reference to the Plan of Development and its "guidance on the general development parameters for the site", might be thought to have indicated a minimum density of 12 dwellings per hectare. Further, within conditions 17.1 and 17.6 of the Preliminary Approval, there were references to housing within the low density area as being at 12 dwellings per hectare. And condition 16.1 provided that:

"A minimum residential density and lot yield is to be achieved across the development in accordance with the provisions of the Mango Hill Structure Plan Statement of Planning Policy PE SP.21."

In the text of the Structure Plan, cl 1.2.2 referred to, amongst other things, the three degrees of density of residential neighbourhood, the least dense being "RD15". It provided that "the specified densities in the Structure Plan are minimums" but that "Council will consider ... applications for higher densities in appropriate locations". It referred to a table which was said to indicate "the range of dwelling products Council considers acceptable within the various designated density areas". The table was divided into three sections, for those three different neighbourhoods. The first neighbourhood was described, under the heading "Density Designation (Average Minimum Dwelling Units Per Hectare) 12 or 15du/ha". The Mango Hill Structure Plan also contained an annexure 2.5, which contained a table showing that the low density neighbourhood within the southern precinct would have a minimum net density of 15 dwellings per hectare. Now the Structure Plan was itself a statement of policy with no independent legislative force. But it was effectively incorporated within the terms of the Preliminary Approval, because that approval was stated to be for the use of the land for urban development "in accordance with the Mango Hill Structure Plan". As I see the position, that structure plan was flexible in that it did allow, specifically within the table in cl 1.2.2, for development within the relevant neighbourhood within the range of 12 to 15 dwellings per hectare. In turn, the Preliminary Approval allowed for a density for that neighbourhood within that range.

[123] If the valuer was to adhere faithfully to the terms of the Preliminary Approval, which of these numbers of dwellings per hectare was to be assumed? The answer, in my view, was that either of them could have been assumed. The valuer had to hypothesise, by assuming that Development Permits had issued "on substantially similar terms" to those of the Preliminary Approval. Had the Development Permits issued in terms of either figure per hectare, they would have been upon terms, in that respect, which were substantially similar to those of this Preliminary Approval.

[124] Mr Sergiacomi calculated his yield upon the assumption of 15 lots per hectare within this low density zone, both in the southern and northern precincts. In doing so, he did not make an assumption which was inconsistent with cl 4.4(a). But if there was such an inconsistency, would it have resulted in his valuation being ineffective in the operation of the SSA? Where the Preliminary Approval was reasonably capable of two interpretations, the adoption of that which might be considered, upon a precise legal analysis, to be the incorrect interpretation, would not be a mistake of the kind which would invalidate the valuation for the purposes of the SSA. The parties agreed upon what the valuer was to assume. It is another thing to say that they agreed that if his calculations did not faithfully correspond with those assumptions, either because of a mathematical error or a mistake of law, the valuation would have no effect. For example, in a case where the alternative valuation was within 10 per cent of the original valuation, so that it would directly affect the value and (perhaps) the price, did the parties intend that the certainty provided by the process should be lost from an error of that kind?

[125] I return to the question of the relevant area or areas for subdivision. Mr Sergiacomi calculated areas for the low, medium and high density neighbourhoods in the southern precinct of 117.35 hectares, 18.66 hectares and 6.84 hectares. In the northern precinct he calculated 20 hectares of low density and five hectares of high density (40 lots per hectare). Mango Boulevard says that these areas were so outside any range which could have been assumed consistently with cl 4.4, that these errors invalidate each of his valuations.

[126] Mr Sergiacomi had a survey plan prepared by Cottrell Cameron & Steen Surveys Pty Ltd, which had taken the Plan of Development and calculated the areas of different parts within the southern precinct. The neighbourhood for low density development, described in the Plan of Development as having an area of approximately 105 hectares, was measured by these surveyors at 109.69 hectares. To this number Mr Sergiacomi added what was depicted on the Plan of Development as a "community centre" and three spaces which were designated in that Plan as parkland.

[127] According to cl 1.2.2.2 of the Mango Hill Structure Plan, density was to be "based on the area occupied by housing and associated land plus the area of local roads and local open space". It provided that "the average net residential density is taken to be the measure of housing density expressed as dwellings per hectare calculated by adding the area of residential lots plus the area of local roads, local-level park, open space (ie excluding arterial roads and Rural and Open Space designated areas) and then dividing by the number of dwellings created".

[128] The parkland areas which Mr Sergiacomi added were ambiguously described in the legend of the Plan of Development and also in the Structure Plan 2. On each plan, the legend showed them to be both "Rural and Open Space" and "Local Park". I am not persuaded that the assumptions prescribed by cl 4.4 of the SSA required him to exclude these areas in calculating the yield. If the matter had to be decided one way or the other, I would prefer the interpretation which Mr Sergiacomi adopted. As for the inclusion of 3.65 hectares which was designated as a community centre, again the terms of the Preliminary Approval are not precise as to whether this was to be included. It was reasonable for him to include it because upon one view of cl 1.2.2.2 of the Structure Plan, this was not within the description of those areas which were to be excluded in the calculation of density.

[129] However, it now appears that there was an area which should have been excluded from the low density neighbourhood. One of the conditions of the Preliminary Approval required the widening of an arterial road. Mr Christofis, a surveyor called in the defendants' case, has calculated the area required for the road widening as 7.98 hectares. This does not seem to have been depicted on the Plan of Development. The calculation of the yield would require it to be excluded. The result is that it could be seen that Mr Sergiacomi's total of 117.35 hectares for the low density neighbourhood was excessive by about eight hectares.

[130] In the medium density neighbourhood, the space which the Plan of Development had described as having an area of approximately 7.5 hectares was measured by Cottrell Cameron & Steen at 12.12 hectares (Mr Christofis measured it at 12.19 hectares). Mr Sergiacomi added two green spaces, which totalled 6.54 hectares, to reach 18.66 hectares for this neighbourhood. The defendants say that the green areas were wrongly included. Again this involves the ambiguity from these spaces being within those described as both "Rural and Open Space" and "Neighbourhood Park" and "Linear Linkage Park". I am not persuaded that these amounts were wrongly included by Mr Sergiacomi.

[131] For the high density region, which was shown on the Plan of Development as having approximately one hectare, Cottrell Cameron & Steen measured the space at 2.18 hectares (Mr Christofis measured 2.21 hectares). Again the contentious item is an addition for green areas, which again were ambiguously described in both the Plan of Development and the Structure Plan.

[132] The required assumptions for the northern precinct were even less clear because as at the Effective Date for the approval of the southern precinct, there was no Preliminary Approval for the northern precinct. The plan which is figure 2 within the Mango Hill Structure Plan showed no lots to be derived from the northern precinct. But the defendants' argument accepts that the valuer should have assumed some development of the northern precinct, or at least a part of it, into individual lots. The defendants accept that the valuer could have assumed that the space shown on Figure 2 as a regional sport and recreational facility would instead be used for residential development. Mr Christofis has measured that space (insofar as it was within the northern precinct) at 18.38 hectares. The defendants concede that the valuer could have assumed a yield of 221 lots from the northern precinct, which is 18.38 hectares by 12 dwellings per hectare. Alternatively at 15 dwellings per hectare, the yield would be 276 dwellings.

[133] Mr Sergiacomi assumed an area of 20 hectares for low density development in the northern precinct and five hectares for high density development, resulting in 500 lots overall. The correctness of these assumptions is certainly questionable. But the requirements of cl 4.4 of the SSA, once the agreement had been varied to permit separate applications to be made but a valuation to be undertaken before each was approved, necessarily affected whatever precision there may have been in the assumptions which were required to be made. The valuer was left to speculate upon the likely Preliminary Approval for the northern precinct. There was no correct answer, at least for the northern precinct. It is not demonstrated Mr Sergiacomi's assumptions for this precinct were unreasonable.

[134] Therefore of the many criticisms which were made of Mr Sergiacomi's calculation of the likely yield, the defendants have established that he incorrectly included whatever was the area which was required for the widening of the arterial road. This is now known to be 7.98 hectares. Otherwise, I am not persuaded that his figures for relevant areas, and in turn relevant yields, from the southern precinct were inconsistent with the Preliminary Approval and therefore with the assumptions required by cl 4.4 of the SSA. Nor is it established that his assumptions for the northern precinct were inconsistent with cl 4.4, as its effect was necessarily compromised when the parties agreed to seek separate approvals.

[135] However, if Mr Sergiacomi did make errors in the calculation of the relevant areas in each of the respects for which the defendants contend, does this invalidate his 2011 valuation for the purposes of the SSA? In my conclusion, the answer is in the negative. The parties agreed that the valuer was to make assumptions as to density and yield. But ultimately there was no single correct set of answers for the yield at least because, at the stage at which the Preliminary Approval was obtained, there was some flexibility allowed in respect of the areas which could be developed. The Plan of Development was for "guidance". The areas which it gave within the legend were expressed as approximates. The work done by Mr Christophis demonstrates the degree of approximation. The valuer was not required to cause a survey to be undertaken, as Mr Christofis did for the purposes of this case. The valuer was required to apply the indicated density to numbers of hectares to reach a yield which would be "substantially similar" to that which was indicated by the Preliminary Approval. Because there was no single set of figures which were the correct ones, the parties' agreement was to allow for the likelihood that different valuers could use different yields.

[136] Consistently with the approach referred to in the cases cited above at [70], the parties should be taken to have agreed that a valuation or an alternative valuation under this scheme would not be made ineffective by a mistake by the valuer in the calculation of yields, including a mistake in the calculation of the areas from which those yields would be derived. Especially where the calculation of yields was necessarily imprecise, it was not the intention of the parties, upon an objective view, for the process for determining the value of the Property to be susceptible to the uncertainty which would come from challenges to the valuer's work such as the defendants now make. That is fortified by the fact that the parties agreed that if necessary, the value was to be determined finally by an arbitrator.

[137] Ultimately, the plaintiff desisted in its challenge to the LandMark White valuation as being effective for the purposes of the contract. But it may be noted that this valuation was open to criticism in respect of the yields which Mr McEvoy assumed. He was instructed that the yield would be 1,731 lots across the two precincts. That assumption may be compared with the yields according to the calculations of Mr Christofis of the relevant areas, upon the assumption that the defendants are correct upon each of their arguments as to what should have been included or excluded in this respect. Upon those premises, the yield would be 1,845 (at 12 dwellings per hectare for the low density neighbourhoods) or 2,208 (at 15 dwellings per hectare in that neighbourhood). Adopting the latter figure at least, it follows that the assumption as to yields made by Mr McEvoy was not substantially similar to what was indicated by the Preliminary Approval. But for the same reason, I would not hold that Mr McEvoy's valuation was ineffective for the purposes of the SSA.

[138] During the trial the defendants were given leave to amend to add a further complaint about Mr Sergiacomi's valuations, which was that he wrongly included lot 976. I have discussed the agreement by the parties about lot 976 already at [65]. This was an agreement to exclude it from an application for Preliminary Approval and to leave open the entitlement of the sellers for any enhancement of its value, resulting from any subsequent approval in respect of it, to be added in the process of calculating the price. It was consistent with that agreement that the LandMark White valuation did not include anything for lot 976. But it does not follow that the inclusion of lot 976 by Mr Sergiacomi was inconsistent with that agreement. And if there was such an inconsistency, it would not follow that this would infect his whole valuation.

[139] It was for the sellers to opt to include lot 976 in the valuation exercise. If they did so before lot 976 had any approval relating to it, they ran the risk that it would not be given the value which it would have after an approval for it was sought and granted. It appears that the sellers did not ask Mr Sergiacomi to include it but that he saw fit to do so. This appears from the inconsistent references to lot 976 within his valuation. On page 3, the valuation was stated to be prepared upon the assumption that lot 976 was "excluded from the valuation". But in his attached Feasibility Study, as he conceded in cross-examination, there is a reference to an amount of $2 million of income which is included for lot 976. I infer that he included it by mistake, having regard to what appears on page 3 of his valuation.

[140] But its inclusion does not invalidate the valuation. Its impact upon the valuation of $170 million was of no significance, because indisputably the exclusion of this item would have had no material effect on the valuation. It would still have been far beyond a range of 10 per cent from the LandMark White valuation. Even if the inclusion of lot 976 was inconsistent with the 2005 agreement about that land, it is plain that Mr Sergiacomi has valued the balance of the Property as beyond a figure which would resolve the question of value according to cl 4.7.

[141] The remaining complaint is that Mr Sergiacomi did not correctly apply the definitions of "income" and "costs" in the SSA. It is necessary to set out those definitions:

"'Income' means the aggregate of the gross sale prices achieved in respect of the Property or each of the Proposed Lots comprising the Property following reconfiguration for sale as residential land, less:

(a) GST paid in respect of the sale of each of the Proposed Lots (if any); and

(b) the selling commission (including GST) paid in respect of the sale of each of the Proposed Lots; and

(c) legal costs (including GST) paid by the Principal in respect of the sale of each of the Proposed Lots;

'Costs' means the aggregate of the following costs in respect of the Project:

(a) the purchase price of the Property referred to in the Contract;

(b) $5,000,000.00 in respect of the purchase price of the Shares;

(c) the costs in relation to the civil contraction, internal and external to the Property;

(d) the costs relating to the provision of infrastructure to the Property including electricity, telecommunications, gas etc;

(e) Council fees and charges relating to the Property, including headworks charges;

(f) consultants fees incurred in relation to the Project;

(i) landscaping and open space betterment costs in relation to the Property;

(j) holding costs in relation to the Property, including interest, land tax and rates;

(k) advertising and marketing costs relating to the sale of the Property or any Lot, including costs in relation to the set up and maintenance of a sales office;

(l) such other costs as may be reasonably incurred in relation to the Project;

(a) any commissions paid in connection with the sale of the Lots;

(b) conveyancing fees and costs associated with the sale of the Lots;

(c) any costs or fees in relation to the project which have been paid to the Management Committee, Urbex, BMD Constructions Pty Ltd, BMD Consulting Pty Ltd or any other person who is a Related Person of Mango Boulevard or BMD and which are in excess of reasonable arm's length commercial fees;

(d) corporate costs incurred by the Consultant, the Company, Mango Boulevard, Urbex and BMD which are not Project specific costs, including overhead costs, (to be advised)."

[142] The first complaint here is in relation to selling commissions and legal fees. According to the definitions in the SSA, those amounts are brought into account in calculating the income rather than in calculating the costs. Mr Sergiacomi included them in the costs. There are alternative calculations within his "Property Development Feasibility Study", but on the relevant page, which is where he uses the 25% margin (page 1), they are included in the costs. I accept that this was inconsistent with the SSA, which required that the valuer would achieve a "Profit on Cost Percentage" of 25 per cent, with "Profit" meaning "Income minus Cost". These amounts totalled approximately $41 million. This had the effect of inflating the income. Of course the costs were increased by the same amounts. But overall the calculation of the market value of the land would be higher for the fact that these items were included in the calculation of costs rather than in the calculation of income because of the assumption that, in effect, costs (including the market value) would be 80 per cent of the income.

[143] The next complaint is that the item in paragraph (b) of the definition of "Costs" was not included, which was "$5,000,000.00 in respect of the purchase price of the Shares". At this point the definition of "Costs" appears to be illogical for the purposes of assessing the market value of the Property. The SSA required the valuer to assume a certain margin of income over costs. But within that constraint, this was to be a market valuation, requiring an assessment of the value of the Property, with the benefit of the Preliminary Approval, to a hypothetical developer. The $5 million minimum price for the shares would not be a cost to the hypothetical developer. And if this was to be an assessment of the value specifically to the owner (Kinsella Heights), it would not be logical to include this component because it would not have been a cost to that company.

[144] Similarly, the definition of "Costs" included:

"(a) the purchase price of the Property referred to in the Contract".

or in other words, $22 million. Mr McEvoy appeared to see the flaw in including this component. Had he done so, he would have arrived at a market value which was a negative figure. The value was to be calculated by assessing the likely income, from which the total amount of the developer's costs could then be ascertained given the assumed profit percentage. Once the total costs were ascertained, the assessed (or assumed) development costs apart from the cost of the acquisition of the land were to be subtracted from the total costs, resulting in the amount which the hypothetical developer would be prepared to pay for the purchase of the land, or in other words, the market value. Thus it is clear that this definition of "Costs" was not to be applied without some qualification. Mr McEvoy included that cost of $5 million. But just as it would have been illogical to have included the $22 million component, so too was it illogical to include the $5 million component, which would not be a cost to the hypothetical developer. In turn, Mr Sergiacomi was not wrong to have excluded it.

[145] The Development Management Fees were excluded by Mr Sergiacomi. In my view this was correct. The first reason is that again, this was not an item of cost which would burden the hypothetical purchaser: it was specific to the agreements which these parties had made. Further, cl 4.1 required the total of the monthly Development Management Fees to be deducted in calculating the purchase price of the shares. To include them also in the calculation of the value of the Property, by diminishing the value by the total of these amounts, would involve double counting.

[146] Lastly, there is a complaint that Mr Sergiacomi included nothing for "landscaping and open space betterment costs in relation to the Property". I accept that he did not include anything under that description. That is confirmed by the evidence of Mr Clarke, a valuer called in the defendants' case. But I also accept that those costs were included within his calculations as construction costs.

[147] Mr Clarke caused to be performed an exercise which involved a reworking of Mr Sergiacomi's calculations, to include the components of costs which the defendants say were wrongly excluded. The overall difference is about $15 million. In other words, Mr Sergiacomi's first valuation of $186,495,226 would be adjusted to $171,708,945. The extent of the adjustments to the second valuation, it can be safely inferred, would be insignificant for the operation of cl 4 of the SSA. Further, in that exercise of comparison, it is difficult to discern what adjustment, if any, was made for the item of landscaping and open space betterment costs, just as it is difficult to identify that item within the calculations of Mr McEvoy.

[148] The result is that I accept that Mr Sergiacomi acted inconsistently with the SSA by including some items as costs rather than in the calculation of income. But neither that item, nor any of the other complaints in relation to "Costs", could amount to an error or errors of the valuer which would make his valuation ineffective for the purposes of the SSA. It remained an alternative valuation with the effect for which the parties had agreed, which was that they would have to proceed to the other steps prescribed by the SSA to determine the value and in turn the price. Were it otherwise, then it would follow that the LandMark White valuation was invalid not excluding the cost of $22 million.

[149] It follows that none of the challenges to the so-called Alternative Sergiacomi Valuation is successful. It is an alternative valuation for the purposes of the SSA.

1. The LandMark White valuation, as it is described in the amended statement of claim, was the "Valuation" for the purposes of cl 4.4 of the Share Sale Agreement.

2. The Sergiacomi Valuation, as it is described in the amended statement of claim, was not an "Alternative Valuation" for the purposes of the Share Sale Agreement.

3. The Alternative Sergiacomi Valuation, as it is described in the amended statement of claim, was the "Alternative Valuation" for the purposes of cll 4.6, 4.7 and 4.8 of the Share Sale Agreement.

[151] The consequence was that the sellers were entitled to require that the true value of the Property be submitted to mediation, pursuant to cl 4.8 of the SSA. The plaintiff had required a mediation when the first of Mr Sergiacomi's valuations was produced. More recently, the essence of the plaintiff's argument has been that the plaintiff is entitled to submit the dispute to arbitration, whether or not each of the steps within the regime in cl 4 has been taken. I would not have been persuaded to construe cl 4 in that way. But the point is of little practical importance because I do not understand the plaintiff to be unwilling to undergo a mediation as required by cl 4.8.

[152] It will therefore be declared that the plaintiff is entitled to require the question of the true value of the Property to be submitted to mediation under cl 4.8, and if the parties are unable to resolve the dispute through mediation within 30 days after the dispute has been referred to mediation, the plaintiff may require the dispute be submitted to arbitration pursuant to cl 4.9.

[4] The document described as the Memorandum of Understanding which the parties had signed ahead of the making on the contracts governing the joint venture.

[14] Another of the contracts governing the joint venture which was made in 2003.

[17] His point there appears to have been that the Effective Date would be when the Negotiated Decision Notice took effect.

[18] Plaintiff's outline of submissions and oral submissions, T 5-55.

[22] (1985) 1 NSWLR 314.

[23] (1985) 1 NSWLR 314 at 335-336.

[24] Wickham Properties Pty Ltd v Astor Motel Pty Ltd [1994] 1 Qd R 211 at 214; Norco Co-operative Ltd v Pauls Trading Pty Ltd [2006] QSC 166 at [27]; Yarraman Pine Pty Ltd v Forestry Plantations Queensland [2009] QCA 102 at [9], [48]; Corpco No 23 Pty Ltd v JS Hemingway Investments Pty ltd [2002] QSC 321; [2003] 2 Qd R 32 at [18] and [19]; Andrews v Qld Racing Ltd (No 2) [2009] QSC 364 at [24]; Vale Belvedere Pty Ltd v BD Coal Pty Ltd [2011] QSC 173; [2011] 2 Qd R 285 at [24]; Vale Belvedere Pty Ltd v BD Coal Pty Ltd at .

[25] [2009] QSC 178 at [17].

[26] [2010] QSC 191 at [17].

[27] [2011] QSC 160 at [21].

[30] [2009] WASCA 38; (2009) 38 WAR 429.

[31] [2009] WASCA 38; (2009) 38 WAR 429 at [72].

[32] [2009] WASCA 38; (2009) 38 WAR 429 at [78].

[33] Plaintiff's outline of submissions on 27 July 2012, paragraph 20.

[34] [1983] HCA 38; (1983) 153 CLR 455.

[35] [1983] HCA 38; (1983) 153 CLR 455 at 470.

[36] [1847] EngR 817; (1847) 11 QB 7 [116 ER 376].

[37] [1983] HCA 38; (1983) 153 CLR 455 at 471-472.

[38] [1983] HCA 38; (1983) 153 CLR 455 at 472.

[39] Defendants' written submissions, paragraph 360(a).

[40] (1946) 73 CLR 1 at 13, approved by Gibbs CJ in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 543.

[41] [1949] HCA 23; (1949) 80 CLR 11 at 62, cited in Business and Professional Leasing Pty Ltd v Akuity Pty Ltd [2008] QCA 215 at [45].

[42] Outline of opening submissions, paragraph 10.

[43] [2008] QCA 215 at [45].

[44] (1985) 39 SASR 84.

[45] [1983] HCA 38; (1983) 153 CLR 455 at 467.

[46] [1983] HCA 38; (1983) 153 CLR 455 at 468.

[48] [1978] AC 904.