Norwest City Pty Ltd ATF Norwest City v Valuer General - [2018] NSWLEC 50 - NSWLEC 2018 case summary — Zoe

NSWNSWLEC

Norwest City Pty Ltd ATF Norwest City v Valuer General

[2018] NSWLEC 50

Land and Environment Court (NSW)|2018-03-29|Before: Moore J, Ms J

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At a glance

Source facts

Court

Land and Environment Court (NSW)

Decision date

2018-03-29

Before

Moore J, Ms J

Source

Original judgment source is linked above.

Judgment (49 paragraphs)

[1]

TABLE OF CONTENTS- Introduction The contested valuation The statutory framework The challenged value The relevant planning framework The evidence 87-95 Beecroft Road and 16 Hannah Street, Beecroft Objections to Mr Rylaarsdam's evidence The inspection The town planning evidence Valuation methodology Introduction The use of comparable sales and the extent to which they might be adjusted The piecemeal approach or a global mixed use valuation? Introduction The piecemeal approach A single mixed use development rate per square metre of GFA Addressing the competing approaches of the valuers The same market test 47 Spurway Drive Introduction Consideration 24 Norbrik Drive Introduction Consideration The fate of Mr Rylaarsdam's piecemeal approach Introduction Mr Rylaarsdam's comments on Aberdour Avenue in the joint report An initial consideration of Mr Rylaarsdam's approach to this sale Conclusion on the piecemeal approach The sales relied upon by Mr Jackson Introduction The adjustment process generally The remaining three sales relied upon by Mr Jackson 70 Hezlett Road, Kellyville Introduction Consideration 131-139 Samantha Riley Drive, Kellyville Introduction Consideration 2-4 Aberdour Avenue, Rouse Hill Introduction Mr Jackson's approach to this sale Mr Rylaarsdam's approach to this sale Comparing the two proposed adjustment regimes Evaluating the positions of Mr Rylaarsdam and Mr Jackson on this sale Conclusion on the 2-4 Aberdour Avenue sale Conclusion on Mr Jackson's valuation approach The role of the judicial valuer The validity of the Aberdour Avenue sale comparison Applying the Aberdour Avenue sale Conclusion Orders

[2]

[4]

The statutory framework

The process pursuant to the Valuation Act earlier described has been invoked by the Company with respect to the valuation determined by the Valuer General for the base date of 1 July 2015. There are two provisions of the Valuation Act which are relevant to these proceedings. The first is s 6A of the Valuation Act, the provision which sets out the valuation basis upon which the challenged land value is required to be determined. The provision is in the following terms: 6A Land value (1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made. (2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made. (3) …. (4) ….
The second relevant provision is that which sets out the powers of the Court in disposing of any appeal and assigning the burden of proof in any proceedings conducted on an objection to a statutory value. This provision, s 40 of the Valuation Act, is in the following terms: 40 Powers of Land and Environment Court on appeal (1) On an appeal, the Land and Environment Court may do any one or more of the following: (a) confirm or revoke the decision to which the appeal relates, (b) make a decision in place of the decision to which the appeal relates, (c) remit the matter to the Valuer-General for determination in accordance with the Court's finding or decision. (2) On an appeal, the appellant has the onus of proving the appellant's case.
It is appropriate to note, particularly, that s 40(2) can be seen, in terms, expressly to place the burden of proof in these proceedings on the Company to demonstrate that the value determined by the Valuer General and challenged by the Company is incorrect.

[6]

The relevant planning framework

The valuation site is zoned, for the most part, B2 - Local Centre under The Hills Local Environmental Plan 2012 (the THLEP). A small portion of the valuation site, in its north-eastern corner, is zoned SP2 - Special Purposes. This portion of the valuation site forms part of the major trunk drainage system running through the locality. The valuation site forms but part of the B2-zoned land at this location. The relevant portion of the Land Use Table in the THLEP applying to the B2 zone, as at 1 July 2015, is in the following terms: 1 Objectives of zone To provide a range of retail, business, entertainment and community uses that serve the needs of people who live in, work in and visit the local area. To encourage employment opportunities in accessible locations. To maximise public transport patronage and encourage walking and cycling. 2 Permitted without consent Home businesses; Home occupations 3 Permitted with consent Attached dwellings; Boarding houses; Building identification signs; Business identification signs; Child care centres; Commercial premises; Community facilities; Educational establishments; Entertainment facilities; Function centres; Home-based child care; Information and education facilities; Medical centres; Multi dwelling housing; Passenger transport facilities; Recreation facilities (indoor); Registered clubs; Residential flat buildings; Respite day care centres; Restricted premises; Roads; Service stations; Shop top housing; Tourist and visitor accommodation; Any other development not specified in item 2 or 4 4 Prohibited Agriculture; Air transport facilities; Animal boarding or training establishments; Boat building and repair facilities; Boat sheds; Camping grounds; Caravan parks; Cemeteries; Charter and tourism boating facilities; Correctional centres; Crematoria; Depots; Eco-tourist facilities; Electricity generating works; Environmental facilities; Exhibition homes; Exhibition villages; Extractive industries; Farm buildings; Forestry; Freight transport facilities; Heavy industrial storage establishments; Home occupations (sex services); Industrial retail outlets; Industrial training facilities; Industries; Marinas; Mooring pens; Moorings; Mortuaries; Open cut mining; Recreation facilities (major); Research stations; Residential accommodation; Resource recovery facilities; Rural industries; Sewerage systems; Sex services premises; Signage; Storage premises; Transport depots; Truck depots; Vehicle body repair workshops; Warehouse or distribution centres; Waste disposal facilities; Water recreation structures; Water supply systems; Wharf or boating facilities; Wholesale supplies
Amongst the material tendered in the proceedings is an extract of the zoning map covering the area where the valuation site is located, with the valuation site itself outlined in red. A portion of that extract of the zoning map showing the valuation site is reproduced below:
The more fine-grained, detailed planning prescriptions relevant to the valuation site are contained in The Hills Development Control Plan 2012 (the THDCP). Some relevant provisions of this document might have required to be referenced later but, given the conclusions I have reached, were not. Finally, State Environmental Planning Policy 65 (the SEPP) - and the Apartment Design Guide (the ADG) springing from it - were also potentially relevant (but have not been required to be considered).

[9]

Objections to Mr Rylaarsdam's evidence

Ms Duggan SC, counsel for the Company, objected to Mr Rylaarsdam's individual statement of evidence and, flowing from that objection, to portions of the Joint Expert Report prepared by Mr Rylaarsdam and Mr Jackson. Ms Duggan proposed that I should reject outright the totality of Mr Rylaarsdam's report. However, if I was not to do so, she advocated significant deletions be required to it.
I ruled on these objections during the course of the hearing. I declined to reject the entirety of Mr Rylaarsdam's report. However, I did uphold the general basis upon which Ms Duggan founded her objection. Mr White, barrister for the Valuer General, had had a marked up copy of Mr Rylaarsdam's report, with strikeouts through those portions which it was conceded would not be relied upon if I upheld the objection (for some portions) and some others which he conceded it was not appropriate to be relied upon.
Although Mr White proposed not to read some portions of Mr Rylaarsdam's evidence, other portions remained in contest. The essential dispute was the extent to which he relied upon planning proposals that had been lodged or were in contemplation as at the base date where those planning proposals sought potentially significant increases in development yields for the sites to which they related.
Ms Duggan submitted that, as such planning proposals were required to go through a "Gateway" process and were not a matter of public record until after a preliminary assessment process had been undertaken, knowledge of them could not have been in the public domain as at the base date.
Although I was prepared to accept, on the basis of the more general evidence of the two valuers, that there was a market expectation that greater development yields might be anticipated (thus admitting anything in Mr Rylaarsdam's evidence expressing this general view), I was not satisfied that the extent of detail he set out in his evidence could be regarded as being based on foresight (in the permissible Housing Commissioner of New South Wales v Falconer and Others [1981] 1 NSWLR 547 sense) as at the base date. The precision of the detail exposed in his evidence was not of a nature able to be predicted merely from any general expectation that increased development yields might be contemplated to be permitted in the future.
The consequence of this was that objections remained to elements of the joint report, which Mr Rylaarsdam and Mr Jackson had prepared, as portion of the former's material in this report reflected material I had rejected in his individual report.
The parties presented me with competing versions of how this joint report should be amended to reflect my earlier ruling on Mr Rylaarsdam's individual statement of evidence. I was provided with a copy of the joint report, marked‑up on behalf of the Company to reflect those matters which it was submitted should be excluded. For the Respondent, much of that proposed to be excluded was accepted to be treated in that fashion, but I was provided with a copy of the Company's version, marked-up on behalf the Respondent and identifying those portions that the Respondent submitted should not be excluded.
The parties were content that, in my consideration of the matter after I reserved my decision, I rule on those differences; provide the parties with a copy of the joint report marked-up by me to reflect my rulings; give the resultant version of the joint report an exhibit number; and have regard to it in my deliberations. I undertook this course and provided a colour marked-up copy of the joint report (now Exhibit E). Some of the material proposed by the Company for deletion but sought to be retained by the Respondent, I permitted to be retained (but not all of it). The material objected to by the Company but permitted to be retained dealt with matters of general expectation of future increased development potential (consistent with my rulings on Mr Rylaarsdam's individual statement), but excluded material which I considered was derived from material I had rejected in his individual statement.
I have had regard to Exhibit E in that amended form in reaching the conclusions set out in this decision.
I should also record that, during Ms Duggan's questioning of him, Mr Rylaarsdam was unable to explain, convincingly, a number of what seemed to me to be obvious omissions from, or errors in, his evidence. On the other hand, Mr Jackson's evidence was generally plausible and, when a concession was required, he made it without hesitation. In noting this comparison, I am not to be taken to be rejecting, outright, Mr Rylaarsdam's evidence - merely that I have approached it with some caution when it was in conflict with that of Mr Jackson.

[13]

The use of comparable sales and the extent to which they might be adjusted

Both Mr Rylaarsdam and Mr Jackson use, in differing fashions, a commencing comparable sales analysis for the purposes of deriving a single analysed rate (in Mr Jackson's case) or rates (in Mr Rylaarsdam's case) per metre of GFA to be applied to the total available GFA able to be yielded by a hypothetical development on the valuation site. The use of comparable sales is, in general terms, entirely uncontroversial - both in general valuation theory and in these proceedings.
As the valuers have, with one exception, relied upon different sales, the first matter arising is whether I accept any or all of these sales as being validly engaged as genuinely comparable.
The second controversy that arises in these proceedings concerning the comparable sales is the extent to which adjustments may be made to any sale accepted by me to be appropriate for comparability purposes before those adjustments become so great as to render the sale of no utility in the present proceedings.
In his written submissions, Mr White referred to the decision of Wells J in Brewarrana Pty Ltd v Commissioner of Highways (No 1) (1973-1976) 32 LGRA 170 (Brewarrana). It is appropriate to set out precisely what his Honour wrote about the use of comparable sales in that decision. He said, at 179-180, the following: It is general valuation practice for sales characterized as comparable sales to be used as bases for the valuation of lands said to be similar. But allowances must always be made before such sales can be so used. No two parcels of land are identical in all respects: the sale price of any given piece of land is not necessarily the price at which it ought to have been sold, or the same thing as its true value. Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances (using that word in its broadest sense) appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v. The Commonwealth of Australia and in later cases to warrant a court's reasoning from the sale price paid under the allegedly comparable sale, with or without other evidence, to a value for the subject land. Adjustments must, of course, be made every time reasoning of that kind is undertaken. For example, in relation to the land itself and the circumstances appertaining to it, it may be necessary to consider such matters as topography, location, size, shape, slope, view, land use (actual and potential), scope for, and difficulties of, development, services and amenities; and in relation to the transaction of sale, the valuer must weigh such things as the character, business and relationships of the parties, their motives, the terms and conditions in their contract of sale, and any other special considerations that induced or may have induced them to conclude the contract at the selling price agreed, as well as the dates when the contract of sale and the transfer were concluded or effected. I do not for a moment pretend that I have been exhaustive. What I am concerned to emphasize is that, as I understand the evidence, and according to the inferences that I feel I can safely draw from it, there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from that are not. It is, in my view, all a matter of degree: some adjustment is always necessary; too much adjustment will render it unsafe to use a sale, subject to such a degree of adjustment, for the purpose of the reasoning process in the comparable sales method. Just where the line is to be drawn is, it seems to me, the very sort of question that is fit for the expert valuer to determine; the assessment of the risks of adjustment is peculiarly within his sphere of skill. The valuer must use his skill to winnow out the element of comparability if it is there, and us it with discretion.
Utilising this process, the sales relied upon by Mr Rylaarsdam and Mr Jackson are to be considered as to whether they can truly be regarded as comparable for analysis and, if they are not to be so regarded - as I have determined is the position with respect to all but one sale relied upon - how that impacts on the valuation methodology to be applied.
It will then be necessary to consider, specifically, the adjustments proposed by Mr Jackson to the sole one of his comparable sales which I consider is relevant. It will also be necessary to address the alternative adjustments proposed by Mr Rylaarsdam as applicable for utilisation of this sale. Having determined the appropriate adjustment approach, I will turn to whether the extent of the adjustments proposed be made to that sale for the various factors engaged renders that remaining sale unacceptable.

[16]

The piecemeal approach

Mr Rylaarsdam has adopted a piecemeal approach for the purposes of deriving an overall analysed valuation for the valuation site. To do this, he considers that it is appropriate to derive an analysed value for the notional residential element of the highest and best use typology by analysing a sale of a residential site in comparatively close proximity to the valuation site. The residential sale upon which he relies for this analysis is at 47 Spurway Drive. It is necessary, later, to consider this sale in some detail, but it is sufficient, for the present purposes, to record it as being relied upon by Mr Rylaarsdam for part of his piecemeal approach.
The second element relied upon by him in his piecemeal approach is the analysis of a sale of an allotment zoned B7 - Business Park for commercial development. He analyses this sale (of 24 Norbrick Drive) in order to arrive at what he considers to be the appropriate rate per square metre of GFA, where that GFA is to be applied to the commercial development element in the highest and best use typology earlier described.
It is to be observed that Mr Rylaarsdam has not provided any analysed sales' evidence to derive a specific rate per square metre of GFA for that portion of the highest and best use typology that would be given over to retail space in such a mixed use development. His explanation, which I accept, is set out below.
On the topic of whether there is any difference in value between retail GFA and office GFA, Mr Rylaarsdam concluded in his individual expert report: Whilst it appears that retail rents are higher than office rents, indicating that the GFA for the retail component of the Subject Property on a $/m2 should also be higher, it is difficult to accurately measure the difference in rent, and value, between retail GFA and office/commercial GFA. Accordingly, I have resolved in favour of the landowner to adopt the same rate on a $/m2 of GFA basis, I have considered the following Market Sales Evidence.
In discussing this mixed use typology, I need not turn to resolving the differences between Mr Lee and Mr Haskew about how the total potential GFA yield for the valuation site would be distributed between these three types of development.

[19]

The same market test

During the course of closing submissions, I put a proposition to Mr White in the following terms (Transcript, 28 March 2018, page 172, lines 1 to 47): HIS HONOUR: You don't say to me that the hypothetical purchaser of Aberdour would not be competing in the same market as they hypothetical purchaser for the site, do you? Doesn't that underlie the proposition of leaving aside what adjustments you have to make, you've got to have somebody who's prepared to be in the hypothetical concept, in the market for the properties are the subject of the proceedings and are relied upon for comparative purposes. WHITE: I accept that, but they're not in this case. They cannot be because someone who's in the market to build 60,000 square metres in the middle of Norwest business park is not in the market to build 6,000 square metres of mixed use development in the RU1 general rural zone location, which is where Aberdour is located. The markets are fundamentally different and that's what this annexure is telling your Honour. That's why you can't use Mr Jackson's B2 sales because I think your Honour actually may have now captured the point, that it's not the same market. It may be a B2 zone, but the market is so different from what is going on in the Norwest business park location from the market which is in the suburbs, you know, surrounded by a few McMansions and yes, a couple of small bits of retail and maybe a sort of a dentist and small local business premises. They're just so fundamentally different that the purchaser of the sales are not in the same market as the purchaser for 60,000 square metres in the middle of Norwest business park. Your Honour has also identified other problems with Samantha Riley Drive, can I just remind your Honour what is at issue between the experts in relation to Samantha Riley Drive, if I could ask your Honour to turn to the joint report at para 83 and the second line, Mr Rylaarsdam sets out what the analysis is and he says that Mr Jackson has analysed it to be 205 square metres, then he says, "This is a very low rate even compared to the balance of the sales included in Mr Jackson's report." He returns to that theme over the page at the end of 85 and beginning of 86 saying that it's a sale which is out of line with the balance of the market evidence. The concern that Mr Rylaarsdam relates to overall is a concern as to the rate utilised by Mr Jackson for the B1 portion of the land, so it has put in issue by Mr Rylaarsdam that there is a contest between the parties as to what the as to his concern over that chosen rate and as your Honour has correctly observed, the chosen rate is reached at by a process of reasoning which has not been exposed by Mr Jackson. That would be another reason for rejecting the Samantha Riley Drive sale as unsafe but fundamentally, our fundamental proposition, your Honour, is it's unsafe because it's in the wrong location, secondly in the wrong market and thirdly simply too many adjustments need to be made to these sales for them to be reliable as far as your Honour is concerned.
I have always understood it to be the position that, in undertaking a hypothetical valuation in the fashion prescribed by s 6A of the Valuation Act, it was necessary that, when considering comparable sales, an essential element of that comparability was that the hypothetical vendor and the hypothetical purchaser envisaged to be undertaking the hypothetical statutory sale would also fit the nature of a vendor and a purchaser of any site used for comparative purposes.
To give an extreme example, I do not see that it would be appropriate to compare, by adjustment to derive an analysed value, a waterfront residential allotment in Point Piper with a residential allotment in a significantly less socio-economically advantaged area of Sydney - as the hypothetical vendor could not have the same attributes and expectations in each of these circumstances and nor could the hypothetical purchaser.
However, given my conclusion concerning the sale at 2-4 Aberdour Avenue, Rouse Hill remaining sufficiently comparable to be analysed to derive a value per square metre of GFA to be applied to the valuation site, it is not necessary to explore the "same market" issue as it does not arise.

[21]

Consideration

As I have earlier noted, the base date for the purposes of the statutory valuation challenged in these proceedings is 1 July 2015. The site at 47 Spurway Drive was the subject of two separate transactions in general temporal proximity to the base date. Uncontroversially, both valuers accept that, amongst the range of adjustments to be made as part of the analysis of any sale, an adjustment for time may be necessary. Indeed, in the extract from Brewarrana earlier set out, Wells J expressly acknowledged that time was potentially a necessary adjustment factor for the analysis and value derivation from a sale.
Mr Rylaarsdam, himself, conceded, with respect to his analysis of the sale he used for this site, that an adjustment for time would be warranted, although he had not made such an adjustment in his original analysis of the sale of this site utilised by him.
As noted above, this site was the subject of two separate transactions in, generally, the same temporal proximity to the base date. The first of them, in December 2014, was seven months prior to the base date and was for a sale price of $29,612,500. The second sale, in November 2015, some four months after the base date, was at a sale price of $200 million. Although self-evident from this recital, the time differences relative to the base date (but on either side of it) are somewhat similar and the total timespan between the first sale and the second sale is only 11 months.
There is no suggestion by the valuers that either of these transactions was not carried out as a genuine transaction between unrelated parties or that there was any particular constraint in the market, either generally or specific to 47 Spurway Drive, with respect to either of these sales. Although equally self‑evident, it is appropriate to observe that 47 Spurway Drive benefited from an increase in value of approximately 675% over the period between the two sales (to reinforce the dramatic nature of this increase in value, when translated, roughly, to a daily increase in value over the period between sales, this increase was roughly 1.86% per day - calculated from 1 December 2014 to 30 November 2015).
For the purposes of his derivation, for his piecemeal approach, of an analysed rate per square metre of GFA to be applied to the residential component of the hypothetical redevelopment of the valuation site, Mr Rylaarsdam analyses only the second sale of 47 Spurway Road. He ignores, in its entirety, the first sale. He was questioned as to why he had not done so, with the relevant transcript extract being (Transcript, 27 March 2018, page 60, lines 30 to 38 and Transcript, 28 March 2018, page 108, line 9 to page 110, line 19): DUGGAN: This is your sale-- WITNESS RYLAARSDAM: Yes. DUGGAN: --and you've chosen to ignore the first sale in time and rely entirely on the second sale, correct? WITNESS RYLAARSDAM: Yes, that's correct because it was closest to the base date. … DUGGAN: Okay, so when you said to his Honour yesterday that you had confirmed your understanding that the sale only related to the land because you had had this conversation with Mr Abud, if that's what you said that would be incorrect? WITNESS RYLAARSDAM: That would be incorrect. DUGGAN: Okay, let me ask you this question, you accept do you not that there was a contract entered into in December 2014 which was completed for, in round numbers, $30 million? WITNESS RYLAARSDAM: I am aware of that, yes. DUGGAN: And you accept, do you not, that at no point until the matter was raised with you by Mr Jackson, did you mention in your statement of evidence in chief or the joint report that there had been that sale in December 2014? WITNESS RYLAARSDAM: That's correct. DUGGAN: Now, you rely on the second sale in 2015 for $200 million? WITNESS RYLAARSDAM: Yes, that's correct. DUGGAN: Now, there is nothing that occurred in the market between December 2014 and the contract date in 2015 that would explain the vast difference in value ascribed to this piece of land between 30 million and 200 million? WITNESS RYLAARSDAM: Well, yes, they obtained-- DUGGAN: No, market? WITNESS RYLAARSDAM: Market? Well, that's generally correct. DUGGAN: And the only difference that has occurred between the first sale and the second sale is that at the time of the second sale the amendment to the LEP had been made? WITNESS RYLAARSDAM: That's correct. DUGGAN: But at the time of the first sale, the amendment of the LEP was well advanced? WITNESS RYLAARSDAM: But there's still no guarantee, but yes, that's correct. DUGGAN: And you're not suggesting to his Honour that the difference between a draft LEP and a final LEP is in the order of $170 million, are you? WITNESS RYLAARSDAM: Well, yes, I am saying that because that's what occurred. DUGGAN: Well, Mr Rylaarsdam, have you any other example from your experience where a property is sold for an amount with the draft LEP as a draft, so well advanced, no market change but the LEP being made, where there is a differential of this size? WITNESS RYLAARSDAM: No, I'm not. DUGGAN: And as an experienced valuer the difference in this differential between the first sale and the second sale would indicate to you that at the very least more research needs to be done to explain the difference? WITNESS RYLAARSDAM: I think the difference is clear. I think that's what the market was willing to pay at that particular point in time with a property that has LEP amendments to allow such a large development on the site. DUGGAN: Mr Rylaarsdam, that's just nonsense, isn't it? WITNESS RYLAARSDAM: No, it's not. DUGGAN: There is no explanation based upon any valuation rationale, logic or common sense that would dictate that the mere change between a draft, which has been exhibited and out in the market place and a final LEP and no other change, would account for $170 million increase in value in - is it six or eight months between the two sales? WITNESS RYLAARSDAM: Well DUGGAN: Is it six or eight months between the two sales? WITNESS RYLAARSDAM: It's probably eight months. DUGGAN: Eight months. In eight months? WITNESS RYLAARSDAM: Going back, the 2014 sale was by terms agreed back in 2012 so we're talking about a 2012 price versus a 2015 versus. DUGGAN: Yes? WITNESS RYLAARSDAM: There was a significant amount of time, risk still associated with the earlier sale versus the later sale. That was DUGGAN: That accounts for $170 million? WITNESS RYLAARSDAM: If that's the number then that's the number. HIS HONOUR: A sixfold increase in value? WITNESS RYLAARSDAM: It was a significant increase to the GFA. DUGGAN: Now, you accept, do you not, that it was a share transfer not a contract for sale of land? WITNESS RYLAARSDAM: It was 100% company transfer, yes. DUGGAN: Yes and that of itself leads one to consider the need to investigate in some detail the corporate structure and what was in fact being transferred? WITNESS RYLAARSDAM: Yes.
It is also to be observed that, in his enquiries concerning the transaction for 47 Spurway Drive, he made no enquiry whatsoever concerning the first transaction, nor did he make any enquiry that would explain why there had been such a dramatic increase in the value of 47 Spurway Drive over such a comparatively short period of time.
There is, however, a matter of some considerable significance that occurred prior to settlement of the second transaction for 47 Spurway Drive. That factor was finalisation of an amendment to the THLEP which had the effect of significantly increasing the potential development yield (GFA) from this site. Indeed, the evidence discloses that the settlement on the second transaction was contingent on the coming into effect of these amendments to the THLEP (Mr Rylaarsdam's comment - Exhibit E at [76]): This sale property did not sell with approval for development however the sale was conditional upon amendments being made to the LEP (which occurred on 29 April 2016) to increase the maximum building height and Floor Space Ratio (FSR).
Mr Rylaarsdam sets aside, absolutely, consideration of the first transaction concerning 47 Spurway Drive. He observed (Exhibit E at [80]): I am also aware that there is a recorded sale of 47 Spurway on 22 October 2014 for $21,950,000. In my discussion with Mr Toni Merhi, a 50% owner of Devus Pty Limited, the (then) purchaser, I was advised that the terms of the sale were agreed before the Planning Proposal was lodged by them in 2013. Accordingly this earlier sale is not considered to be of any assistance in determining the residential GFA value of the Subject Property.
His failure to consider this earlier sale means that I am unable to know any analysed rate per square metre of GFA which would have arisen as a consequence of the development yield which would have been applicable pursuant to the potential GFA yield from the unamended THLEP as at the date of the first transaction. How this might stand in comparison to the rate per square metre of GFA to be derived from the application of the post amendment position of the THLEP when applied to the $200 million transaction for this site is unknowable on the evidence before me.
Moreover, Mr Rylaarsdam's approach to consideration of this site in circumstances where, on the stark difference between the two sale transactions, there was at least the potentiality for a position less advantageous to his client being the result of a proper analysis of the earlier sale causes me significant reservations as to the extent which I can have confidence, generally, in his evidence.
As Ms Duggan submitted I should do, I reject 47 Spurway Drive because, under these circumstances of significant information deficiency, a clearly potentially highly relevant aspect of this site's transaction history has been ignored by Mr Rylaarsdam and I have no evidence that could explain or rectify the omission.

[30]

Introduction

I have set out above why Mr Rylaarsdam's piecemeal approach has no acceptable evidentiary support and thus is to be discarded. My rejection of his reliance on the sale at 24 Norbrik Dive also necessitates rejection of this sale's use (albeit in a differing fashion) by Mr Jackson. This leaves Mr Jackson's approach reliant on three remaining sales adopted by him for his final valuation analysis to derive a single value per square metre of GFA to be applied to the valuation site. This analysis was set out in his table of adjustments which was Annexure 1 to Exhibit E. A copy of this table is reproduced at Annexure 1 to this decision.
The valuers' joint report included the following: 18 In this regard, we agree that buyers and sellers of high density residential and mixed use development sites typically ascribe a value, on a dollar/m2 potential GFA basis to the GFA which could be yielded from a development of a particular property. The basis for this market phenomenon is that the value of a development site is generally regarded as a function of the floor space which could be yielded from a development of that site. 19 Mr Jackson qualifies his agreement in this regard. He considers that (at (67) of his expert report-in-chief), as at the date of valuation, an intending purchaser of the subject property would be unlikely to construct the development of a scaling density on the subject land which would maximise the potential GFA of 63,353 square metres immediately. In particular, he highlights that it would be very unlikely that a substantial commercial office development would be contemplated at the base date of valuation given the prevailing commercial office market conditions. The full potential of the site would therefore be exploited over a period of time when market conditions were appropriate.
It will be later necessary for me to return to consider the comments of Mr Jackson, quoted in (19) above, when determining what I should adopt as the appropriate rate per square metre of GFA to be applied to the valuation site.
It is also to be observed that, although the valuation site itself sold in December 2014, the valuers agreed that that sale was of no significant assistance in determining a value for the valuation site as at the base date (Exhibit E at (21)).
It is now necessary to turn to each of Mr Jackson's remaining three sales; his analysis of them; Mr Rylaarsdam's comment's concerning each of them; and what conclusion I reach as to the acceptability of each of them for application to the valuation site through the valuation approach proposed by Mr Jackson.
Having done these things, a conclusion can then be drawn about whether the Company has discharged the onus placed on it by s 40(2) of the Valuation Act and, if so, what new value for the valuation site, as at 1 July 2015, should be adopted.

[31]

The adjustment process generally

There are, at this point, two observations to be made concerning the adjustment process used by valuers as part of their analysis for the purposes of deriving a rate (in this case, per square metre of GFA) for the purposes of applying that rate to a site whose valuation is sought to be ascertained by the comparable sales approach. First, as is here the case, valuers may differ in their assessment, both as to the nature of the adjustments that need to be made and, for such adjustments, the percentage (positive or negative being immaterial) to be allowed for that adjustment.
Second, this is not an exact science. Indeed, for his analysis of the sale of 11 Hezlett Road, Mr Jackson concludes that, as a result of the adjustments he proposes have the effect of cancelling each other out, this sale requires no adjustment to be directly comparable for application to the valuation site. Mr Rylaarsdam disagrees and proposes different adjustment factors. For reasons I later set out, I reject this sale for comparability purposes. For the present time, it is sufficient to note that it is, prima facie, difficult to see how this site could be regarded, on a rate per square metre of GFA, as perfectly aligned with the valuation site.
Finally, as a matter of general observation, it is clear that the greater the extent of the adjustment needing to be made, the more caution that should be taken in adopting a site as being appropriate to be used for such a comparability process. As stated by Biscoe J in Holcim (Aust) Pty Ltd v Valuer-General [2009] NSWLEC 225 at [31] (emphasis added): The basis for the valuers' valuation assessments is the sales comparison method. Accepted valuation practice permits adjustments for differences, such as in location, area and time to enable valuers to have comparable values which, following adjustment, account for the various differences with the subject property. Such adjustments are generally based on a reasoning process drawing on the skill and experience of the valuer and are undertaken to derive an opinion of value through a deductive process. Because properties are rarely identical, adjustments for differences are obviously necessary but caution is required through making as few adjustments as possible, in a consistent manner, to ensure the reliability of the comparable sale when related to the subject property. Too many adjustments potentially render the comparable sale unsafe to rely upon. Caution is therefore required where large adjustments are to be made. Reflecting the significant roles of skill, experience and personal assessment in the adjustment process, the scope for differences in the quantum and direction of adjustment between valuers can be considerable. Third, the Court should then apply these adjusted values to the subject property. The purpose of this is to determine, based on comparable sales and as best it can, what value the subject property would obtain if it were to be sold on the market.
In closing, Mr White and Ms Duggan made submissions as to the approach to be taken to considering whether or not the extent of any adjustments might render a sale inappropriate to be utilised.
Mr White submitted (Transcript, 28 March 2018, page 170, line 22 to page 171, line 20) that it was appropriate to aggregate the total of the adjustments, without having regard as to whether they were positive or negative, to achieve an overall indication of the extent of adjustments to be considered as to whether or not caution or rejection should be the fate of a particular sale: WHITE: Not only are the location disadvantages so significant but a glance at annexure A will show your Honour why there are many problems with the uses of the comparable sales relied upon by Mr Jackson. And just to take, for a moment, Samantha Riley Drive, we see that there are a number of adjustments that need to be made. Now, if your Honour could just step back for a moment, remember what adjustments are. Adjustments are to reflect differences between the sales and the subject property. So, all of these things listed by Mr Jackson here are differences. There's a difference for size, there's a difference for height, that's the height potential that one can gain, there's a difference for commercial, there's a difference for DA, there's a difference for location and there's a difference for time. Those are all adjustments that need to be made for differences. And when one adds all those differences together, having regard to the adjustments, one gets to, for example, Samantha Riley Drive, 10% plus, sorry, 20% plus 10% plus 10% plus 10% plus 10% plus 15%, gives you a total adjustment not of 25% as is being suggested there, but of 105%. Your Honour, this is why I say it's important to understand what adjustments are, they are differences. So, where it's a minus 20, what that means is it's a difference between the sale and the subject property which is a difference in favour of the Samantha Riley Drive site, but it's still a difference which needs to be accounted for. The height difference means that the subject property has better height potential than Samantha Riley Drive, but it's still a difference. It's a difference which has to be added to the difference for size. Again, the difference for commercial use needs to be added to it. One doesn't take 20 differences, ten in favour of the subject, ten against the subject and then say because those balance out and the total adjustments comes to nought therefore one gets to a sale which is comparable. And that point is best made by the analysis of 70 Hezlett which in my submission is the worst sale because it doesn't have any residential potential at all on it. But using Mr Jackson's analysis of adding up the differences and balancing out one in favour of the other he gets to a total adjustment of zero. So, on that basis that's an absolutely comparable sale, having done all of his adjustments, it's the most comparable sale to Norwest business park and the subject property, but just one glance at that and just looking at the two sites on the site visit, one can just say that is absolute nonsense and poppycock. Those sites could not be more different in their potential for development as a whole in their potential in particular for capturing residential components. So, it would be quite wrong, in my submission to look at those adjustments and say well, 40% for location, well that's a lot isn't it gosh, I'm a bit worried about that but then that's okay because you get 10% back for a commercial difference, you get 20% back or 40% back or 50% back in some cases for size differences and say, well they balance out and therefore, yep, it's okay, it works out, it's comparable. But it's not. Those differences are so significant when looked at in the totality and particularly when one analyses 70 Hezlett Road which on Mr Jackson's analysis it requires no adjustment and to say that is a comparable sale.
Ms Duggan submitted that, in these circumstances, whether or not the extent of any adjustments might render a sale inappropriate was dependent on the nature of the adjustments, rather than net resultant adjustment figure (Transcript, 28 March 2018, page 176, lines 18 to 32): DUGGAN: Now, we're told that the number, because there are numbers in these columns somehow make the sales unsafe or difficult. Every valuer accepts that you will never find a perfectly comparable property, even in my Oriental Bar case in the Court of Appeal where Mr White appeared as my junior, where the sale that was relied upon by Justice Pain was the sale of the very same property, adjustments still had to be made. So, the fact of adjustments is not the issue. The question is whether the nature of the adjustments, it's not their quantum so much in this case but the nature of the adjustments, what you're adjusting for render them unsafe and we say the important elements are not needing to be adjusted because we're comparing like with like. But we are making adjustments for the fact that the very zoning of this land, the B2 zone is disparate in locations and therefore adjustments need to be made for that, but the underlying potential, the price that's been paid for that potential, appropriately adjusted can be reflected.
Although I do not recollect Mr Jackson being questioned on this point, specifically, it was my understanding from the tenor of his evidence that he did not favour this approach, but considered that the overall net amount of the adjustments, after adding them having regard to the fact that they were positive or negative, was appropriate. Under these circumstances, questions of caution would only arise if the net resultant adjustment factors were excessive.
I agree, generally, with Mr Jackson's approach, with one, minor reservation - a reservation not arising in any extreme form in these proceedings, but one which does require later comment in my derivation of my final conclusion. I would accept the general proposition that, if a small resulting adjustment flowed from a series of positive and negative adjustment factors that were toward the upper level of acceptability but cancelling each out, that might be a circumstance where a particular sale being analysed might warrant being treated with considerable caution.

[33]

Introduction

Mr Jackson's description of 70 Hezlett Road, Kellyville was set out in his individual expert report. His description is reproduced below: The property comprises a rectangular-shaped development site situated on the corner of Hezlett Road and Withers Road in North Kellyville. The property is located in a rapidly developing residential area undergoing substantial housing construction. The land is zoned B2 - Local Centre and was sold by Woolworths with an existing development approval and pre-commitment to lease the supermarket and liquor store as part of the development of the neighbourhood shopping centre. The development comprises a full line, 4,400 square metre supermarket, a BWS liquor store and 2,120 square metres of specialty stores and commercial space. The total GLA approved for the neighbourhood shopping centre is 6,713 square metres. The land had a total area of 15,590 square metres but was reduced with the acquisition of land for a roadway along the southern and western boundaries. The site will benefit from the construction of the Rouse Hill railway station, situated at the Rouse Hill Town Centre approximately 2.5 kilometres to the west.
His more general commentary on this sale was (at page 17 of his statement): • The property is situated within The Hills Shire Council, approximately five kilometres to the north of the subject property. • The site comprises land zoned B2 - Local Centre. • The land has been developed with retail shopping centre. • The location is inferior to the subject property being an area undergoing rapid development and expansion. The Norwest Business Park locality is also continuing to undergo development expansion but is more advanced. • The date of sale being November 2014 approximately eight months prior the base date of valuation. • The land area and overall potential floorspace of the subject property is larger. • The sale property sold with the benefit of a development approval (DA). • Overall an upwards adjustment to the sale is required for comparison purposes. The location of the subject property is superior being situated in a more prominent locality. The sale requires a downward adjustment for the existing DA, the requirement to incorporate a considerable component of commercial floor space at the subject property and the larger scale of development of the subject property with a discount for size required.

[34]

Consideration

This transaction was between a company in the Woolworths Group (Woolworths), Fabcot Pty Ltd, and a purchaser who proposed to undertake a retail development on the site. It was Mr Jackson's evidence that Woolworths had entered into a pre-lease commitment for the operation of a supermarket and a BWS liquor outlet on the site when the development had been constructed. Although Mr Jackson did not know the precise term of the period for which the future lease would be expected to run, he acknowledged that this was likely to be a long-term lease of between 15 to 20 years.
Mr Jackson also accepted that the development anticipated for the site (and actually constructed, as was able to seen during the course of the inspection) did not envisage any residential component. Whilst he proposed that, in the long-term, the option existed for potential incorporation of some form of residential development on the site above the retail development, there was not now, and nor was there in any likely relevant future period, any prospect of such residential component. In effect, Mr Jackson acknowledged that this site was transacted as a "purely retail play".
Given that there was agreement between the town planning experts that the hypothetical development for the valuation site would be one of a mixed use development incorporating the three elements earlier set out, I am not satisfied that this site provides a supportable basis for deriving a rate per square metre of GFA to be applied to the valuation site. The transaction, given the nature of the vendor, supports the reasonable inference that the sale was for purely retail purposes and that it would only be appropriate to seek to derive a value from this transaction on the basis of retail GFA realised (rather than from the maximum GFA potential of the site) and with that value only reasonably available to be applied to a comparison for other GFA for retail purposes elsewhere. Given the earlier failure of the piecemeal approach advocated by Mr Rylaarsdam, a purely retail value, on any basis, can have no utility in these valuation proceedings.

[36]

The value assigned to the R1 General Residential and R2 Low Density Residential land is derived from sales evidence in the immediate area around the time of sale. A parcel of land immediately opposite the property at 23-29 Hezlett Road zoned R1 General Residential and R2 Low Density Residential, sold in June 2015 for $5,100,000. The land size of the property was 10,440 square metres, reflecting $489/m2 of land area. I have added a conservative rate of $300/m2 to the larger R1 - General Residential area of the subject property, the higher rate of $400 per square metre to the small component of R2 Low Density Residential land. The B1 - Neighbourhood Centre component of the land had many similarities to the potential of the subject property, in that a retail development has been constructed at ground-floor level with residential apartments situated above. The site does not have the requirement for an extensive commercial element within the B1 Neighbourhood Centre land compared to the subject property. Therefore, the land has been able to be developed with a greater density of residential apartments in comparison to the commercial development. The residential apartment ratio of the development represents 86% of the entire development with 14% comprising retail development. The site also benefits from the future construction of the Kellyville Railway Station, situated approximately 2.5 kilometres to the west along Samantha Riley Drive. The apportioned value to the B1 - Neighbourhood Centre land of $5,225,500 derived a GFA of 25,517m2 which reflects a GFA analysis of $205/m2.

His more general commentary on this sale was (at page 16 of his statement): The property is situated within The Hills Shire Council, less than four kilometres to the north of the subject property. The site comprises land zoned B1 Neighbourhood Centre, R1 General Residential and R2 Low Density Residential. The B1 land has been developed with retail and residential apartment development consistent with the form of development anticipated for the subject land. It does not comprise a commercial office component. The analysis of the sale has isolated the B1 zoned land from the remainder of the site. The location is inferior to the subject property, being an area undergoing rapid development and expansion. The Norwest Business Park locality is also continuing to undergo development and expansion, but is more advanced. The date of sale being July 2015 is close to the base date of valuation. The land area and overall potential floor space of the subject property is larger. The sale property sold with the benefit of a development approval (DA). Overall, an upwards adjustment to the sale is required for comparison purposes. The location of the subject property is superior being situated in a more prominent locality. The sale requires a downward adjustment for the existing DA, the requirement to incorporate a considerable component of commercial floorspace at the subject property and the larger scale of development of the subject property with a discount for size required.
Mr Rylaarsdam's comments concerning Mr Jackson's adjustments for this site were set out in Exhibit E. He did not propose different adjustments for this sale as he proposed that this sale should be rejected. He opined that the sale of 133-139 Samantha Riley Drive was not comparable, saying: 84 In my opinion, this analysis is misleading as the sale price was agreed between the parties in early 2014. The town planning controls which applied to 133-139 Samantha Riley as at the date of the Option Agreement (and still as at the current date) included a maximum FSR of 0.5:1. 85 The development consent, which was subsequently granted, achieved a total GFA which is 284% greater than the maximum floor space which could have been yielded on the basis of the actual town planning controls which applied as at the date the transaction was "struck". The resultant analysed $/m2 GFA rate is significantly out of line with the balance of the market evidence, inlcluding Mr Jackson's other sales. This may be due to the significant increase in the GFA which was ultimately achieved by the development consent. … 89 In my opinion, the analysis and application of the sale of 133-139 Samantha Riley as set out by Mr Jackson in his original report and in this Joint Report, does not provide for a "like for like" comparison. Having regard to the aforementioned considerations, I have not placed any weight on the sale of 133-139 Samantha Riley Drive, Kellyville.
He also made comment concerning this site in his oral evidence, when he observed (Transcript, 27 March 2018, page 93, lines 22 to 35 and Transcript, 28 March 2018, page 137, lines 19 to 31): WITNESS RYLAARSDAM: My concern with this sale is looking at the title there were two option agreements, in January 14 and February 14 which is when the agreement to sale took place. When I spoke with the landowner he advised me that the purchase of the property was on the basis of existing town planning controls, at the time. Those existing town planning controls differ from what was actually sorry, let me rephrase that, what ended up being built on the site differed from what was in the DCP, noting that the development application did not there was no development application on this site until September of 2014, being nine months after the agreed option to purchase. It was deemed refusal in June 2015 and was later given development consent afterwards. There was no monetary recompense to the landowner as a result of any uplift that resulted from I think I used the right word, any uplift from the bigger building. … WHITE: Overall, what assistance do you say that the Court gains from the sale at 133 139 Samantha Riley Drive? WITNESS RYLAARSDAM: I don't think it has any support. WHITE: Why is that? WITNESS RYLAARSDAM: I think the analysis is incorrect, it's location is incorrect and it's just too difficult to analyse. WHITE: When you say it's location is incorrect, what do you WITNESS RYLAARSDAM: Sorry, location is far inferior is what I meant, sorry.

[37]

Consideration

Quite apart from the mandatory steps for an expert witness's report (setting out the facts; describing the assumptions made with respect to those facts; and explaining the conclusions that the expert draws through this process), it is also necessary, as part of this chain of reasoning, that there must be sufficient explanation given of the various steps along the way, to enable a decision-maker to be satisfied that the conclusions upon which the expert proposes reliance should be placed are able to be understood clearly.
With respect to this sale, the site comprised three distinct elements. A portion of the site was zoned R1 - Low Density Residential; portion of the site was zoned R2 - Medium Density Residential, whilst the majority of the site was zoned B2 - Local Centre. It was the portion of the site with this latter zoning that Mr Jackson relied upon for his analysis and derivation of a rate per square metre of GFA to be applied to the valuation site. To permit this, he isolates a value for the mixed use development element upon which he wished to rely. He did this by deriving separate rates per square metre of GFA for the two different residential elements forming part of this sale. The terms in which he undertook this process can be seen clearly from the reproduction of the extract from his expert report earlier reproduced in this decision.
The two matters which arise from Mr Jackson's evidence concerning this site that are of concern are: 1. His valuation analysis is done on a piecemeal basis (albeit a "horizontal one" rather than the "vertical one" as proposed by Mr Rylaarsdam for the valuation site); and 2. He provides no evidentiary basis, whatsoever, to enable me to understand how he reached the separate rates per square metre of GFA that he proposes be applied to each of the residential elements of this site so that they can be deducted to give him a sales price for the mixed use portion of the site to be analysed for the purposes of application to the valuation site.
Whilst my first concern is made in a semi-facetious fashion and needs no further exploration, this is not the position with respect to my second concern. During the course of closing submissions, I raised with Ms Duggan the absence of any supporting explanation for how Mr Jackson arrived at these two residential rates per square metre of GFA for the purpose of excluding these elements from the mixed use analysis. The exchange was in the following terms (Transcript, 28 March 2018, page 158, line 8 to page 161, line 10): HIS HONOUR: Well, with respect to Samantha Riley Drive, if I could take you to p 13 of Mr Jackson's statement, exhibit C, please. DUGGAN: Yes, 13 did you say, your Honour? HIS HONOUR: Page 13, yes. Under the grey bar for total, in the next paragraph he says, "I have applied a conservative rate of $300 a square metre to the larger R1 general residential and 400 to the smaller R2." DUGGAN: Yes. HIS HONOUR: But there is no reasoning exposed for that, is there. DUGGAN: No, there is not in this document but if your Honour goes to annexure 1 at p 30 of the joint report. HIS HONOUR: Yes, I'm there. DUGGAN: The number in the first row, the $5,225,500-- HIS HONOUR: Yes. DUGGAN: --is the B1 neighbourhood centre land. HIS HONOUR: Yes, I understand that. DUGGAN: So, he hasn't - to the extent that he's identified a differential rate for the R1 it doesn't come into his determination of the rate for the Samantha Riley Drive that he then applies to determine the rate. HIS HONOUR: No, but I understand that but his determination of the B1 value-- DUGGAN: Yes. HIS HONOUR: --is contingent on my acceptance of his valuation of the R1 and R2 zone values because they need to be deducted from the overall value to give the residuum to derive a rate per square metre GFA for the 18,000 B1. DUGGAN: Correct. HIS HONOUR: Now, he has not - the concern that I have about this sale is that he has not exposed his reasoning for that and his disaggregation approach is inconsistent with what he says is the overall approach to be taken to giving a single GFA rate where there are multiple uses available on a particular site. Now, in this case the multiple uses are perhaps I could say distributed horizontally rather than vertically, but-- DUGGAN: Well, in relation to this matter you'll remember we drove through the middle and there were single dwelling house-- HIS HONOUR: I know, I understand what was there, I remember turning the corner and looking at the stuff over the road before we turned left onto the main road some argument with the bus driver about what direction we were going. DUGGAN: Your Honour, in relation to this the only reservation I have is this, firstly I didn't understand Mr Rylaarsdam and I don't want to rely on him to support me when I'm telling you to discount everything he says but there was no dispute between the two experts that this was an appropriate way to do it. In relation to the cross examination there was no challenge to this approach. Whilst your Honour may be discomforted in relation to your Honour's analysis, it is not a matter which was covered because it wasn't a matter in dispute between the two. The concern that Mr Rylaarsdam had was not with the utilisation of the base 400 but rather the fact that it looked odd when he compared it to 11 Hezlett Road in an unadjusted way. That was the only criticism of the analysis of the Samantha Riley Drive, Kellyville sale that was raised by Mr Rylaarsdam, so the Court would have to assume that to the extent that there are other issues that arise, they were not issues with which the Valuer General took issue. HIS HONOUR: There does not appear to be a dispute about the GFA that applies to Samantha Riley Drive. DUGGAN: Correct and in relation to the complaint of Mr Rylaarsdam he had two-- HIS HONOUR: Well, no-- DUGGAN: Sorry, your Honour. HIS HONOUR: --I just want to put this proposition to you. If I were to be uncomfortable assuming I otherwise accept Mr Jackson's evidence DUGGAN: Yes. HIS HONOUR: --if I were to be uncomfortable with his approach to Samantha Riley Drive by not treating it as, if you like, a horizontally mixed use parcel DUGGAN: Yes. HIS HONOUR: --do you say to me that for some reason I would be in error if I were to take the sale price for Samantha Riley Drive and simply apply the GFA to it which would give $470 per metre GFA? DUGGAN: To the 5225 or to the 12 million? HIS HONOUR: The sale price of 12-- DUGGAN: No, that would be in error your Honour because everybody at the very least accept that there needs to be a higher return for residential floor space and the general residential and low density residential is pure residential floor space albeit in a different market, that's-- HIS HONOUR: But the site was sold for a mix of uses. DUGGAN: The site was sold for a mix of uses which included in that mix, mixed use development. HIS HONOUR: But I'm setting that aside, the site was sold for a mix of uses. If I am not satisfied that Mr Jackson has exposed his reasoning to the extent required that Makita v Sprowles, sorts of points, that I could accept how he has divided the site for valuation purposes between the three uses in the mix permitted for the totality of the site. DUGGAN: The only thing that I would say to your Honour is I have a discomfiture in relation to procedural fairness insofar as the matter was not raised by the Crown, by the Valuer General, it wasn't raised in joint conferencing and to the extent that there may be an explanation, Mr Jackson and therefore my client was not given an opportunity to address that. HIS HONOUR: No, well it seems to me if I were to reach that point of discomfit-- DUGGAN: But your Honour in any event that would get you to $29,861,450. HIS HONOUR: Sorry, I haven't gone to what it - would it result in a rate per metre GFA of $470? DUGGAN: Correct. HIS HONOUR: I'm simply saying to you - if you say to me that that would be an impermissible path and I am not satisfied that Mr Jackson's reasoning is adequately disclosed with the way he gets to the 300 and 400 per metre for the residential, my choices are these, are they not. If I have reached that conclusion my choices are these I either do the crude calculation that gets me to 470 or I reject Samantha Riley Drive. DUGGAN: Correct. HIS HONOUR: If I reject Samantha Riley Drive I am then left with, on Mr Jackson's evidence, one sale that he says is genuinely comparable and that's Aberdour. DUGGAN: But I have the same concern in relation to your Honour's rejection of Samantha Riley Drive in the context of, again, it not being an issue raised between the parties, it being a matter which was raised or is raised by the bench and apart from in submissions when I have no evidence to address it, I'm not being given an opportunity to answer the concern, that is the residual concern I have. So, either rejection or adoption of either approach, your Honour, is concerning. Your Honour, obviously, if your Honour wishes to take that approach can invite me to address your Honour in relation to that through evidence and that would be the course that we would embrace.
Mr White responded to the position advanced by Ms Duggan on this point. He said (Transcript, 28 March 2018, page 161, lines 35 to 42): WHITE: Yes, my learned friend has spent about two hours on Monday morning and afternoon telling you why under the Makita v Sprowles principles it was not fair for an opposing party to have to cross examine in order to expose reasoning. It's not appropriate for me to cross examine Mr Jackson as to where he gets those rates from precisely for the reasons set out in that judgment, because the cross examiner is put at an enormous disadvantage in that the answer will then be given by Mr Jackson which might have exposed his reasoning. Your Honour has correctly identified the legal vice in the reasoning which has been set out there. There's absolutely no procedural unfairness whatsoever to this. The Court and the opposing party is fully entitled to take this point without the matter having been cross examined on since it simply goes to what his reasoning, which is not set out in the expert report.
As Mr White correctly put it, in my view, it is not his responsibility to cross‑examine to rectify any defect that might lie in the primary evidence of the Company's valuation expert. I have earlier set out the terms of s 40 of the Valuation Act, a provision that expressly imposes the onus in these proceedings on the Company. That onus extends to providing proper and acceptable evidence of all relevant matters concerning any specific element of the Company's case. If there is not evidence of sufficiency on any particular element, then the Company has failed to discharge the statutory onus with respect to that element and, as a consequence, that element is to be set aside.
Evidence-in-chief from expert witnesses in proceedings such as these is given, unless leave is sought and granted for amplification or explanation, solely on the basis of the written evidence of the expert. Just as Mr White submitted that it was not his role to cross-examine Mr Jackson in order to rectify any deficiencies in his written evidence, no obligation lies upon me to do so either. Indeed, if I was to have intervened in such a fashion, Mr White might well have had legitimate cause for complaint.
Whilst Mr Jackson's rate per square metre of GFA derived from his analysis of this sale to be applied to the valuation site is significantly lower than that which is to be derived from an analysis of the Aberdour Avenue site, the fact that I can have no confidence in the rates that he uses to exclude the residential development means I cannot rely on this sale for comparative purposes.
I have concluded that, in the absence of any proper evidentiary basis for me to understand how Mr Jackson derived each of the intermediate values of the residential components prior to analysing and deriving a value per square metre of GFA for application to the valuation site, acceptance of this sale is not appropriate.
Although, intuitively, even if his residential component analysis for this site overstated their value to be used for determining the starting point for analysis of the B2 - Local Centre component, there might well remain an analysed rate potentially warranting some further reduction for the valuation site. However, I simply have no basis upon which I could undertake such consideration. This, in my view, gives me no alternative but to disregard this sale.
In light of Mr Jackson telling me that he relied on this sale as his best comparable sale (Transcript, 28 March 2018, page 142, lines 9 to 12), the fundamental defects in his evidentiary basis for doing so are fatal to my acceptance of this site for the purposes of derivation of an analysed value per square metre of GFA to be applied to the valuation site.
I therefore reject the site as being appropriate for utilisation in a comparative sales analysis process.

[39]

Mr Jackson's approach to this sale

Mr Jackson's description of 2-4 Aberdour Avenue, Rouse Hill was set out in his individual expert report. His description is reproduced below: The property comprises a rectangular-shaped development site situated on the corner of Aberdour Avenue and Adelphi Street, with additional street frontage to Windsor Road in Rouse Hill. The property is located within an established residential area and is immediately adjacent to Rouse Hill Village Shopping Centre. The Rouse Hill Town Centre is located a short distance to the south of the property. The site is zoned B2 - Local Centre and was sold with an existing development approval for construction of a shop-top housing development. The development comprises retail space, childcare centre, gymnasium, medical centre and 48 residential apartments with basement and at-grade parking. The total GFA approved for the site is 5,585 square metres. The site will also benefit from the construction of the Rouse Hill Railway Station situated at the Rouse Hill Town Centre, approximately 1.5 kilometres to the south.
His more general commentary on this sale was (at page 17 of his statement): The property is situated within The Hills Shire Council, approximately seven kilometres to the north-west of the subject property. The site comprises land zoned B2 - Local Centre. The land has been developed with a mixed use retail and residential apartment development. The location is inferior to the subject property, being an established area but not as prominent as the Norwest Business Park locality. The date of sale, being July 2015, is close to the base date of valuation. The land area and overall potential floor space of the subject property is larger. The sale property sold with the benefit of a development approval (DA). Overall, an upwards adjustment to the sale is required for comparison purposes. The location of the subject property is superior, being situated in a more prominent locality. The sale requires a downwards adjustment for the existing DA, the requirement to incorporate a considerable component of commercial floor space at the subject property and the larger scale of development of the subject property with a discount for size required.

[40]

Mr Rylaarsdam's approach to this sale

Mr Rylaarsdam's comments concerning Mr Jackson's adjustments for this site were set out in Exhibit E. He proposed a different rate of adjustment for various factors but did not propose that this sale should be rejected. The different adjustments he proposed were (Exhibit E at (95)): • an upward adjustment of 5% to reflect market movement; • a downward adjustment of 10% for the development application; • an upward adjustment of 50% to reflect its inferior location; and • a downward adjustment of 30% to reflect its smaller GFA potential, which usually equates to a higher rate on a $/m2 of GFA basis.
He also made comment concerning this site in his oral evidence when he observed (Transcript, 28 March 2018, page 130, lines 21 to 28): … whilst it's zoned B2, its location is a significant disadvantage to this. It just doesn't have the same advantages as what the subject property has both from the B2 use which includes offices, medical centres, et cetera which could be done on the subject property.
Mr Rylaarsdam also gave a more general commentary on location adjustments in the joint report where he offered a criticism of the appropriateness of Mr Jackson's selection of sales for analysis. Mr Rylaarsdam wrote: 10 Whilst I agree with the general approach Mr Jackson has taken in his assessment of the Land Value of the Subject Property (being the $/m² Potential GFA approach), I consider that Mr Jackson's valuation does not adequately reflect the significant locational advantage which is enjoyed by the Subject Property in comparison to the six sale properties which were relied upon by Mr Jackson for the purpose of estimating the Land Value of the Subject Property. 11 It is my opinion that the Subject Property enjoys a significant locational advantage in comparison to the sale properties by reason of its location: - Being a town centre location which is located centrally in a well-established business park environment comprising commercial, retail and residential development, - Adjacent to the proposed Norwest Railway Station which forms part of the Sydney Metro North West Rail Line, and - In an area which had been demonstrated as being "ripe" and in high demand for high density, residential and mixed use development. 12 It is my opinion that the sale properties which were relied upon by Mr Jackson would require significant upward adjustment to bring into account their inferior location and that the extent of adjustment which is required is so great that it would render those sale properties unreliable indicators of the market value of the Subject Property. I have set out in "Issues in Disagreement" below an analysis which I consider to be of assistance in quantifying the necessary adjustment for location.

[42]

Evaluating the positions of Mr Rylaarsdam and Mr Jackson on this sale

I have earlier set out the general concern Mr Rylaarsdam expressed about the utility of Mr Jackson's sales as a consequence of their locations when compared to that of the valuation site. Mindful of those comments, which I had noted in my pre-trial reading, I paid attention, during the course of the site inspection, to the relative locations of the various sales relied upon by each of the valuers.
I have revisited that consideration by a further examination of the marked air photo showing the locations of the various sales (although not, strictly, in evidence, this air photo was relied upon by the parties during the course of the site inspection and was an agreed and non-controversial document). I am satisfied that Mr Rylaarsdam's location comments concerning Mr Jackson's sales (effectively a rejection of the sales for location reasons) is not justified on the facts. I also consider that the extent of the location adjustment proposed for this sale by Mr Rylaarsdam is not able to be supported as it is beyond that which I consider reasonable from that which was observed during the site inspection and from my consideration of the location showing marked air photo. Mr Jackson's location adjustment is to be preferred.
The second difference between Mr Rylaarsdam's adjustments and those of Mr Jackson for this site arises from the more modest percentage for size proposed by Mr Rylaarsdam (30%) in comparison to that of Mr Jackson (50%). The agreed realisable GFA for the valuation site is 63,353 square metres whilst that, for the Aberdour Avenue site is 5,562 square metres. This difference is one of considerable significance. The broad valuation principle (accepted by both experts) is that the smaller the site, the greater the rate per square metre of GFA likely to be realised by it. Given the quite extreme differences in available GFA for the valuation site when compared to the Aberdour Avenue site, I am satisfied that Mr Jackson's adjustment (although, at the very edge of acceptability in a Holcim sense) is to be preferred.
In addition, as I have earlier noted, Mr Rylaarsdam omits two adjustment elements proposed by Mr Jackson. Whilst, in Mr Jackson's analysis, these two elements mathematically cancel each other out, it is their omission by Mr Rylaarsdam, rather than the quantification by Mr Jackson, that is significant. I am satisfied that it is appropriate that both of these adjustment elements were made by Mr Jackson and should have been made by Mr Rylaarsdam.

[46]

Applying the Aberdour Avenue sale

Having considered Mr Jackson's sales and the evidence (written and oral) he and Mr Rylaarsdam gave concerning them, I am satisfied that Mr Jackson's sale analysis for 2-4 Aberdour Avenue, Rouse Hill is valid and reliable.
I accept, for the reasons set out above, that his adjustments for this sale are to be preferred over those advanced by Mr Rylaarsdam.
I have therefore found the only reason to make any changes to the total net percentage of adjustment factors he applied for the purpose of deriving a rate per square metre of GFA to be applied to the valuation site is that discussed below.
In his individual statement, Mr Jackson expressed his reservation about the likely timing of implementation of the hypothetical development of the valuation site. He said (Exhibit C at [63] to [67]): Adopting a GFA analysis of $400 per square metre, in my opinion, is a relatively optimistic assessment in comparison to the sales evidence, but I have had regard to the superior nature of the subject land in comparison to the sales evidence and the future potential of the land with the future railway station and ongoing development and expansion of the Norwest Business Park. In my opinion, adopting an analysis of $400 per square metre of GFA is optimistic, when comparing several constraints which the subject land is faced with. It is agreed by both town planners, albeit to varying amounts, that the subject land must comprise a relatively substantial commercial office component. This form of development is not the preferred form of development in the locality, with limited demand for commercial office development in the area. As can be seen from the sales' evidence, the preferred form of development is either retail development or residential apartment development, with the sales exhibiting standalone retail development or a smaller proportion of retail development with a larger component of residential apartments. The subject land also suffers from the requirement to provide access through the land to the benefit of adjoining owners. Any development approval for the land would require the owner to continue to provide access to the adjoining owners on both sides of the property and, as indicated by the town planning experts, this would impact the siting of development on the land. The subject land also abuts the lake, which in part provides a pleasant aspect but also requires expenditure from the owner of the subject land in developing the property. In adopting an analysis of $400 per square metre of GFA, I also believe this is an optimistic assessment being applied to the total potential GFA of 63,353 square metres. It is highly unlikely, if not improbable, that as at 1 July 2015, a development of this scale and density would be contemplated on the subject land. Whilst a retail component would readily be established on the land, and potentially an apartment development of approximately 10 to 11 storeys, as outlined by the expert town planners, it is likely that the overall GFA potential of the land would be exploited in the medium to longer term. A further residential apartment component may be undertaken at a later point in time, subject to market demand and a commercial development of the land would be entirely dependent on market conditions and a significant pre-commitment from a potential occupier.
I am satisfied that this limited demand for commercial space is appropriate to be accounted for by a further adjustment to the rate per square metre of GFA to be applied to the valuation site. This is consistent with the comment also made by Mr Jackson that the overall development potential might not be realised for some time, not just with respect to the commercial development, but with portion of the residential apartment component also being deferred. These deferrals would accommodate the ability of the market to absorb the various elements of the hypothetical redevelopment.
Such an approach would also be consistent with the typology proposed by the town planners in which the residential development was likely to be above retail and/or commercial space in the hypothetical redevelopment.
As a consequence, although Mr Jackson's calculations in Annexure 1 to the Joint Expert Report of the Valuers discloses a derived rate per square metre of GFA of $526 to be applied to the valuation site, I am satisfied that a small, further downward adjustment is needed to account for the likely impact on the hypothetical sale of the market pressures discussed by Mr Jackson deferring realisation of the full potential of the site.
Doing as best I can, as the judicial valuer, I am of the opinion that this results in a further downward adjustment of 5%. This, therefore, results in an overall adjustment to the Aberdour Avenue sale of -30%, resulting in this analysis producing a derived value to be applied to the valuation site of $491 per square metre of GFA rather than the $526 per square metre set out in Annexure 1.
Applying $491 per square metre of GFA to the total potential GFA of the valuation site of 63,353 square metres results in a valuation (rounded to the nearest $100,000) of $31,100,000.
As this result is a reduction of the base-date valuation (although not by as much contended for by the Company), the Company has discharged the statutory onus imposed by s 40(2) of the Valuation Act. The appropriate outcome is that I should exercise the power in s 40(1)(b) of the Valuation Act and substitute the appropriate lower value for that determined by the Valuer General.

[47]

Conclusion

I have rejected the two primary sales relied upon by Mr Rylaarsdam. I have also rejected the analysis he proposed for the sale at 2-4 Aberdour Avenue if it was to be used for his proposed piecemeal approach. These conclusions result in the piecemeal approach having no role to play.
Rejection of piecemeal approach also renders it unnecessary to address and resolve the differences between the town planners concerning the development mix in the highest and best use hypothetical redevelopment of the valuation site.
This means that Mr Jackson's approach is to be applied by default. I have considered the sales relied upon by Mr Jackson. 24 Norbrik Drive went as part of my rejection of sales proposed by Mr Rylaarsdam. I have rejected Mr Jackson's sales at Hezlett Road and Samantha Riley Drive for reasons earlier set out.
The only sale relied upon by Mr Jackson left standing is that at Aberdour Avenue. I am satisfied that this is sufficiently comparable to be able to be analysed to derive a rate per square metre of GFA to be applied to the valuation site. For the reasons set out earlier concerning the valuers' competing positions about adjustments to derive an analysed rate per square metre of GFA, I am satisfied that the model of adjustments proposed by Mr Jackson is to be preferred (subject only to the further adjustment earlier explained).
I am satisfied that the Company has discharged the onus placed on it by s 40(2) of the Valuation Act. In doing so, I have also been satisfied, on the basis of the sole sale I consider appropriately to be regarded as comparable for the purposes of deriving an analysed value to the valuation site - that of 2‑4 Aberdour Avenue, Rouse Hill - that the 1 July 2015 statutory value of the Company's site known as Norwest Marketown should be reduced.
I have concluded, adopting from Mr Jackson's analysis his derived rate per square metre of GFA for the Aberdour Avenue sale and applying it (subject to the single revision earlier discussed) to the valuation site, that the revised value for the valuation site is to be $31,100,000 as at 1 July 2015.

Norwest City Pty Ltd ATF Norwest City v Valuer General

At a glance

Court

Decision date

Before

Source

Judgment (49 paragraphs)

Parties

Cases Cited (3)

Cited By (3)