Owners Corporation Strata Plan 39993 v Place Management NSW

Supreme Court of NSW|2024-11-15|Before: Nixon J, Commission J

JUDGMENT

This proceeding raises for determination a narrow issue of contractual construction in respect of a commercial lease.
The Defendant is Place Management NSW, which is the freehold owner of Lot 423 in Deposited Plan 811583 (the Stratum). The Stratum comprises airspace within the multi-storey mixed use building, which is located at 111 Harrington Street, The Rocks, Sydney, New South Wales, and is known as "Quay West" (the Building).
The Plaintiff is the Owners Corporation for Strata Plan 39993, which is a commercial leasehold strata scheme (Scheme SP39993). Scheme SP39993 was created pursuant to the provisions of the Strata Titles (Leasehold) Act 1986 (NSW), and was registered on 29 October 1991 as a plan of subdivision of the Stratum. On registration, Scheme SP39993 comprised six commercial lots and common property, located over seven floors (being levels 1 to 7) within the Building.

Relevant Provisions

Part 7 of the CP Lease contains provisions for the "Valuation of Stratum". Clause 7.1 provides as follows: "Purposes of valuation The provisions of this part do not affect this Lease and are included solely in connection with the determination of rent payable under leases of the Lots from and including the 3rd anniversary of the commencement of the Term."
Clause 7.2(a)-(b) provides as follows: "(a) At the expiration of the first period of 3 years of the Term, the Market Value of the Stratum must be revised to the then current Market Value of the Stratum in accordance with this clause. (b) At the expiration of each following period of 3 years during the Term, the Market Value of the Stratum must be revised to the then current Market Value of the Stratum determined in accordance with this clause."
The "Market Value of the Stratum" is defined as follows in clause 1.1 of the CP Lease: "the value of the Stratum (disregarding the existence of this Lease and improvements constructed within the Stratum) determined specifically for the purposes of this Lease having regard to all relevant factors including, without limitation, the potential to construct commercial office premises within the Stratum."
The process by which the Market Value of the Stratum is to be determined is set out in subparagraphs (c) to (k) of clause 7.2 of the CP Lease, as follows: "(c) Not more than 6 months before the expiration of each period of 3 years during the Term, the Lessor must request the Valuer General to make an assessment of the Market Value of the Stratum as at the date of the expiration of that period. (d) On assessment of the Market Value of the Stratum by the Valuer General, the Lessor must notify the Lessee in writing of that assessment and it will be the revised Market Value of the Stratum unless the Lessee objects under clause 7.2(e). (e) The Lessee may object to the amount of the assessment by notifying the Lessor in writing within 28 days of receipt of the Lessor's notification under clause 7.2(d). (f) If the Lessee objects under clause 7.2(e), the Lessor must submit to the Lessee a list of 7 registered valuers practising in New South Wales each having at least 5 years substantial recent experience in the valuation of first class commercial office premises in the central business district of Sydney. (g) From that list, the Lessee must within 14 days of the submission under clause 7.2(f) select and then jointly with the Lessor appoint 2 valuers to make assessments of the Market Value of the Stratum. If the Lessee fails to make the selection and appointment, the Lessor may on behalf of the Lessee make the selection and appointment required of the Lessee. (h) If the assessments are equal, the joint assessment will be the revised Market Value of the Stratum. (i) If the assessments are not equal, the average of the assessments will be the revised Market Value of the Stratum. (j) All expenses incurred by the Lessor in obtaining assessments of the Market Value of the Stratum must be reimbursed to the Lessor by the Lessee. (k) To be eligible for inclusion in the list submitted under clause 7.2(f) a registered valuer must be a full member of the Australian Institute of Valuers and Land Economists (Incorporated) New South Wales Division."

Background to dispute

The dispute between the parties arose in respect of the determination, pursuant to clause 7.2(b), of "the then current Market Value of the Stratum" as at 29 October 2021 (being the 30th anniversary of the commencement of the CP Lease).
Pursuant to clause 7.2(c)-(d) of the Lease, the Defendant provided the Plaintiff with the Valuer-General's assessment of the Market Value of the Stratum as at 20 October 2021. (There was no explanation as to why this date was chosen, as opposed to 29 October 2021, but the difference was not material to the current dispute.) The Valuer-General provided a report on the Market Value of the Stratum as at 1 June 2021 (the Valuer-General Report), and then provided a market update letter confirming that there was no increase from 1 June 2021 to 20 October 2021.
The Valuer-General Report set out the definition of "Market Value of the Stratum" in the CP Lease and continued as follows: "According to this definition, we are to disregard the existence of this lease and improvements constructed within the Stratum. Therefore, I assume as at the date of valuation the whole Quay West (QW) development is in place and the Stratum is a visible opening between the existing QW development. Therefore, a developer has the right to construct within the Stratum commercial offices with a gross floor area (GFA) of 8,482 m2."
As shown in this passage, the Valuer-General Report assumed that the Building existed, that the Stratum was an opening in the existing Building, and that a developer had the right to construct commercial offices within the Stratum of the specified gross floor area (GFA).
The Valuer-General Report contained a section on "Valuation Approach", which commenced as follows: "In determining this valuation regard has been given to the interpretation of the 'Market Value of the Stratum'. The definition of the Market Value of the Stratum requires the valuer to consider: i. The value of the Stratum (disregarding the existence of this lease and the improvements constructed within the Stratum). ii. The potential to construct commercial office space within the Stratum."
Following this, the Valuer-General Report set out the relevant factors which had been taken into account: "In determining the Market Value of the Stratum, I have considered the following: 1) At the date of valuation, the Quay West development was in place, however by ignoring the improvements (as per the Lease) the subject Stratum airspace is available to be reinstated within the allocated area. Advantages 2) The services and access are already available to the subject and the other parts of the Quay West development. 3) No delay in development for excavation and providing services is applicable to the Stratum. 4) The Stratum defines the developable area & use and therefore no time lost in negotiation with Council for reinstatement is warranted. 5) There are good Sydney Harbour views from the northern end of the upper levels. Disadvantages 6) The Stratum does not have the benefit of owning their own car spaces, however the office space can be marketed as having direct access to a very large commercial car park below. 7) All development sites within the Sydney have FSR and height limit limitations. The Stratum in this instance is no different, however the subject is more restrictive in that it has no greater potential for development other than what is currently defined in the Stratum. Neutral 8) Most new mixed-use developments have been subdivided in stratum after being developed. Therefore, the umbrella agreement for shared services between the strata plans is quite common."
Adopting this approach, the Valuer-General Report calculated that the Market Value of the Stratum was $10,600,000, determined by multiplying the GFA of 8,482m2 by a rate of $1,250 per m2.
Having arrived at this calculation, the Valuer-General Report then performed the following "Check Method": "A hypothetical residual site valuation is carried out; this was done by assessing future potential of the site (completed building) and then taking away the cost of construction and other associated costs to arrive at the value of the site."
As the Plaintiff pointed out, this check method involved (a) an assumption that the area of the Building below the Stratum had already been constructed, and (b) an assessment of the cost of constructing a seven-storey building within the Stratum on the top of that existing base. The Valuer-General Report stated as follows: "The construction cost used reflects a quality development. I have adopted $3,600/m2 per (7 storey building) building area. I have assumed the subject construction component is of a normal process (the car park below is already constructed and services in place to complete the commercial component)."
Having adopted this check method, the Valuer-General Report concluded that the Market Value of the Stratum was $10.6m.
The Plaintiff instructed Rawlinsons to prepare an assessment of the Market Value of the Stratum as at 29 October 2021 (the Rawlinsons Report).
Based on the available GFA, the Rawlinsons Report calculated the Market Value of the Stratum to be $9,923,940. This was only around 6% below the figure reached in the Valuer-General Report ($10.6m), and was reached by multiplying the GFA by a slightly lower rate of $1,170 per m2 than was adopted in the Valuer-General Report ($1,250 per m2).
However, the Rawlinsons Report deducted two amounts from this figure.
The first and larger of the deductions, in the amount of $2.16m, represented the "estimated cost of the construction of the structure to support the Stratum". That is, the Rawlinsons Report assumed that the upper-level residential carpark of the Building, which is located in the space immediately below the Stratum, and which was in fact in place as at 29 October 2021, had to be built as at 29 October 2021, at an estimated cost of $2.16m.
The second of the deductions, in the amount of $120,000, was said to be legal and surveyor fees associated with obtaining easements and rights required by the Stratum. The Rawlinsons Report stated as follows: "There are many Easements for Services, a Right to Use Fire Stairs, a Right to Use Switch Room, Easements for Subjacent and Lateral Support. Some of the easements and rights are appurtenant to the Stratum whilst others are required by the Stratum. Thus, making the Stratum the dominant tenement in some cases and the servient tenement in others. I considered the potential cost to obtain the easements and rights required by the Stratum and also the possible betterment of the easements and rights secured by the Stratum. On balance I am of the opinion that estimated cost to obtain the easements and rights is at least equal to the estimated benefit the Stratum would receive from other Strata in the [Quay West Building]. However, I am of the opinion that there are legal and survey costs in dealing with these easements and rights which would be required to be initially registered on all relevant documents. I have estimated that cost to be in the order of $120,000."
As a result of these two deductions from the market value calculated on a GFA basis, the Rawlinsons Report arrived at a Market Value of the Stratum in the amount of $7,645,000.
The Plaintiff criticised the approach adopted in the Valuer-General Report, on the basis that it assumed that the Stratum had rights of shelter, support and access which it did not in fact have. The Plaintiff did not, however, identify any part of the Valuer-General Report where such an assumption was stated to have been made.
The Defendant criticised the approach adopted in the Rawlinsons Report, on the basis that it assumed that the part of the Building below the Stratum, which did in fact exist as at 29 October 2021, did not exist and needed to be built as at that date.
As a result of this dispute, the parties have been unable to provide joint instructions to the joint valuers, as required by clause 7.2(g) of the CP Lease, such that an assessment of the Market Value of the Stratum as at 29 October 2021 has been unable to be completed in accordance with the terms of the CP Lease.
Against that background, the Plaintiff has, by its Amended Summons filed in Court on the day of the hearing, sought the following declarations: 1. a declaration that for the purpose of the definition of "Market Value of the Stratum" in the CP Lease, improvements or structures or anything else outside the Stratum that could provide access to and support and shelter for the Stratum: 1. do not form part of the Stratum, and/or 2. otherwise cannot be taken into account in determining the "Market Value of the Stratum" for the purposes of the CP Lease; 1. a declaration that the value of improvements or structures, or anything else outside the Stratum that could provide access to and support and shelter for the Stratum must be excluded from any valuation of the Stratum for the purposes of the CP Lease; and 2. a declaration that the valuation dated 1 June 2021 by the Valuer General purporting to be of the market value of the Stratum did not constitute a valuation of the "Market Value of the Stratum" within the meaning of that term in the CP Lease.
Before turning to consider the parties' competing submissions on the relevant provisions of the CP Lease, I have set out below the dealings by which the Stratum and Scheme SP39993 were created.

Creation of Stratum and Scheme SP39993

On 17 November 1989, Deposited Plan 792616 was registered. DP792616 created two lots, numbered 42 and 43. Lot 42 is, in broad terms, the land bounded by Harrington Street, Gloucester Street, Essex Street and the Cahill Expressway. It is unlimited in height and unlimited in depth. The CP Lease refers to Lot 42 as "the Land".
On 6 December 1989, Deposited Plan 793830 was registered. DP793830 subdivided Lot 42 into two lots, numbered Lot 421 and Lot 422. Lot 421 sits below Lot 422. The plane that separates them is the upper limit of Lot 421, and the lower limit of Lot 422. Below that plane, Lot 421 is unlimited in depth and, above that plane, Lot 422 is unlimited in height.
Lot 421 has not been subsequently subdivided. An underground commercial car park has been constructed within Lot 421.
On 25 July 1991, Deposited Plan 811583 was registered. DP811583 subdivided Lot 422 in DP 793830 into four lots: Lot 422, Lot 423 (the Stratum), Lot 424 and Lot 425.
Lot 422 in DP 811583 is the location of the residential car park of the Quay West Building. The Rawlinsons Report assumed that the underground commercial car park had been constructed, but not the residential car park in Lot 422, which sits between the commercial car park (Lot 421) and the Stratum (Lot 423).
Lots 424 and 425 are residential levels of the Quay West Building.
The Stratum is limited in both height and depth to the area between the horizontal planes at the Reduced Levels specified on DP811583. In short, the Stratum comprises the airspace between Lot 422 and Lot 424.
DP811583 states that, pursuant to s 88B of the Conveyancing Act 1919 (NSW), it is intended to create a right to use fire stairs. The Instrument setting out the terms of this easement describes it in the following terms: "Full, free and unimpeded right for any person who is at any time entitled to an estate or interest in possession in a Lot Benefited or any part of that lot with which the right is capable of enjoyment and any person authorised by that person to go, pass and repass across and through the part of the Lot Burdened shown in the abovementioned plan as 'RIGHT TO USE FIRE STAIRS' at all times and for all lawful purposes on foot and without vehicles to use from the Lot Benefited or any part of it."
Sheet 3 of DP811583, which relates to the Stratum, shows the "RIGHT TO USE FIRE STAIRS" on the plan. Otherwise, DP811583 does not refer to any easement for access, and does not refer to any easement for support or shelter.
The notifications on the title for the Stratum include the right to use fire stairs created by DP811583. In addition, the title includes the following notification: "Easement(s) for subjacent lateral support may be created pursuant to section 8 of the Strata Titles (Leasehold) Act 1986"
On 29 October 1991, SP39993 was registered. It created the common property of Scheme SP39993 and the six Lots, each representing a commercial level of the Quay West Building.
SP39993 was registered pursuant to s 6(3) of the Strata Titles (Leasehold) Act 1986 (NSW), which relevantly provided as follows: Land including part only of a building, being - (a) land consisting of one current plan lot or of two or more current plan lots, whether contiguous or not; … may be subdivided into lots or into lots and common property by the registration of a plan as a strata plan, but only if the building is erected on a site of land vested in fee simple in the prescribed authority in which the proposed lots or proposed lots and common property are vested.
A parcel created by a subdivision permitted by s 6(3) is a "stratum parcel": see s 4(1). In the present case, the "stratum parcel" comprised the Lots and common property created by the registration of SP39993.
Section 8(1) relevantly provided as follows: On registration of a plan as a strata plan - … (c) notwithstanding section 88 of the Conveyancing Act 1919, if a stratum parcel is created there shall be implied - (i) as appurtenant to the lots and common property (if any) comprising that stratum parcel, being lots and common property which are situated within a building, an easement for their subjacent and lateral support by such other parts of the building as are capable of affording support; (ii) as affecting those lots and that common property, an easement for the subjacent and lateral support of such other parts of the building as are capable of enjoying support; (iii) as appurtenant to those lots and that common property, an easement for their shelter by all such other parts of the building as are capable of affording shelter; and (iv) as affecting those lots and that common property, an easement for the shelter of such other parts of the building as are capable of being sheltered by those lots and that common property; (d) all ancillary rights and obligations reasonably necessary to make easements effective shall apply in respect of an easement created by paragraph (c); (e) an easement for support or shelter created by paragraph (c) - (i) shall entitle the owner of the dominant tenement to enter upon the servient tenement to replace, renew or restore any support or shelter; and (ii) shall subsist until the leasehold strata scheme is terminated (or, where the leasehold strata scheme becomes a strata scheme within the meaning of the Strata Titles Act 1973, that strata scheme is terminated) or the easement is otherwise released; …
As a result, on registration of SP39993, there was implied, as appurtenant to the Lots and common property comprising Scheme SP39993, an easement for their support and shelter by other parts of the Building, and, as affecting those Lots and common property, easements for the shelter and support of other parts of the Building, as well as all ancillary rights and obligations reasonably necessary to make those easements effective.
As the Plaintiff noted, the easements created by s 8(1) are appurtenant to, and affect, the Lots and common property comprising Scheme SP39993, rather than the freehold Stratum.
In the CP Lease: 1. the "Land" is defined as Lot 42 in DP792616; 2. the "Building" is defined as the building constructed within the Land (namely, Quay West); 3. the "Stratum" is defined as Lot 423 in DP811583; 4. the "Strata Plan" is defined as the leasehold strata plan registered in respect of the Stratum (namely, SP39993); 5. the "Strata Scheme" is defined as the leasehold strata scheme constituted on registration of the Strata Plan (namely, Scheme SP39993); 6. "Common Property" means the common property in Scheme SP39993; 7. "Lot" means a lot in Scheme SP39993; 8. "Parcel" means the Common Property and the Lots comprising Scheme SP39993; and 9. "Premises" means the premises described on the front page of the CP Lease, being the common property of Scheme SP3993 and the Stratum.

Relevant Principles

The relevant principles regarding the interpretation of commercial leases were not in dispute, and may be stated briefly.
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] per French CJ, Nettle and Gordon JJ.
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean: Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ). That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract: Electricity Generation at [35]; Mount Bruce Mining at [47].
Ordinarily, this process of construction is possible by reference to the contract alone. If an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning: Mount Bruce Mining at [48].
Unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience": Electricity Generation at [35] and the cases there cited.
The Court's task of determining the legal meaning of a written contract involves weighing up the different considerations based on text, context and purpose, and "checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences": Norton Property Group Pty Ltd v Ozzy States Pty Ltd (in liq) [2020] NSWCA 23 at [44] per Leeming JA (Payne JA agreeing), referring to Re Sigma Finance Corp (in administrative receivership) [2009] UKSC 2; [2010] 1 All ER 571 at [12].
The inquiry will start, and usually finish, by asking what is the ordinary meaning of the words used. Where the words are unambiguous, they cannot be ignored simply to reach a result that is apparently more commercially convenient: HDI Global Speciality SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296 at [22].
These principles regarding the interpretation of commercial contracts apply to the construction of a written commercial lease: Haxglow Pty Ltd v Mirvac Retail Sub SPV Pty Ltd [2020] NSWSC 233 at [33] (Darke J).

The Interpretation of the "Market Value of the Stratum"

The Plaintiff focussed on the opening words of the definition of "Market Value of the Stratum", which state that it "means the value of the Stratum".
The Plaintiff submitted that it is the freehold "Stratum" which must be valued, and not the leasehold Scheme SP39993 which has been created by subdivision of the Stratum.
In Minister of State for the Army v Dalziel (1994) 68 CLR 261 at 285; [1994] HCA 4, Rich J said that: "Property, in relation to land, is a bundle of rights exercisable with respect to the land". In Yanner v Eaton (1999) 201 CLR 351; [1999] HCA 53 at [17], Gleeson CJ, Gaudron, Kirby and Hayne JJ referred to this observation of Rich J in making the following comments: "The word 'property' is often used to refer to something that belongs to another. But in the Fauna Act, as elsewhere in the law, 'property' does not refer to a thing; it is a description of a legal relationship with a thing. It refers to a degree of power that is recognised in law as power permissibly exercised over the thing. The concept of 'property' may be elusive. Usually it is treated as a 'bundle of rights'. But even this may have its limits as an analytical tool or accurate description …"
In Harry v Valuer-General & State of South Australia (1975) 12 SASR 446 at 454, Wells J said as follows: "One starts with this: that what is to be valued is not the inanimate, tangible thing, land, but rights in land. The Act directs the Valuer-General to value an estate in fee simple in the land, but the purpose of a direction in that esoteric form is, in my view, to ensure that what the Valuer-General values is a congeries of the most ample proprietary rights recognized by law 'projected along the plane of time' … ; one must still ask: 'What is the full range of proprietary rights in land, and what makes them valuable?' … Putting aside, then, the niceties of the theory of estates, what the Valuer General is to value … is the entirety of powers, allowed by law, of the use and disposal of a given parcel of land. What is presented to the Valuer-General in the first place, therefore is a parcel of land, and certain given rights over it of use and disposal. What yields a value under the Act is the value in the market place of those rights of use and disposal."
These observations were quoted with approval in Trust Company of Australia Ltd v Valuer-General (2008) 101 SASR 110; [2008] SASC 169 at [34]-[36] per Bleby J (Duggan and Anderson JJ agreeing).
In reliance on these authorities, the Plaintiff submitted that it is necessary, for the purposes of determining "the value of the Stratum", to determine the bundle of rights exercisable with respect to "the Stratum" (which is defined as Lot 423 in DP811583). Accordingly, if certain rights attach to the leasehold Scheme SP39993, and not to the freehold Stratum, it is necessary to disregard such rights in valuing the Stratum. On that basis, the Plaintiff contended that the valuation of the Stratum must proceed on the basis that the Stratum does not have any right of support of shelter, or any right of access other than access to fire stairs (despite the leasehold Scheme SP39993 having such rights).
It is difficult to see how the Plaintiff's submission fits with the Rawlinsons Report, which the Plaintiff obtained in relation to the value of the Stratum. That report expressed the opinion that no costs would be involved in negotiating easements of shelter and support, other than some professional fees, which were assumed to be in the amount of $120,000. That sum represented only 1.2% of the valuation on a GFA basis, which was $9,923,940.
Instead, the main deduction in the Rawlinsons Report from the valuation on a GFA basis (and hence the deduction which primarily explained the variation between the valuation opinions expressed in, respectively, the Valuer-General Report and the Rawlinsons Report) was a deduction in respect of the costs of building a structure in the space immediately below the Stratum, that is, in the area of Lot 422.
However, a structure already exists in this space. Any reduction in the value of the Stratum for the costs of constructing the existing part of the Building below the Stratum appeared to be inconsistent with the position adopted by the Plaintiff on this application, namely, that the valuation of the Stratum must proceed on the basis that the Building exists.
Senior Counsel for the Plaintiff distinguished between a valuation which took into account the Building that in fact exists, and a valuation which assumed that the Stratum enjoyed rights of support, shelter and access by reason of the existence of that structure (when it did not in fact have such rights), submitting as follows (emphasis added): "One thing I need to be clear, when my learned friend says that the plaintiff's case is that you ignore the building, with the greatest of respect, that is wrong. We do not say you ignore the building and we varied [our] declarations to make that perfectly clear that what needs to be ignored are the benefit of any rights of support or access or shelter that derive from the building. The building exists. Of course it exists. It is part of the environment in which these lots exist. As I indicated in answer to your Honour's question of me, surely it may be possible for owners to negotiate with other owners easements of support. That is obviously correct. That underlies the assumption that the building exists and that there are other landowners, et cetera, of the case. … What is fundamental - we don't say you must adopt the Rawlinsons approach. What we say is that when one undertakes your valuation you have to ignore the assumption that the defendant's valuer seeks to make that the building gives you rights to easements of support, et cetera. … there has to be your Honour acceptance of the existence of the building as part of the environment, but one cannot assume that that building will continue to exist. One has to assume that rights of support need to be obtained and how does one go about doing that? That is why we say that you have to exclude the value of those rights."
It is difficult to see, given that the Building exists and cannot be ignored, why a valuer would, in valuing the Stratum at a particular date, make a deduction in respect of the costs of constructing, at that date, a structure in Lot 422 which is identical to the one that already exists. Further, it is difficult to see the basis on which the costs of constructing the part of the Building which already exists in Lot 422 (which are estimated to amount to some $2.16m) could be regarded as a proxy for the costs of negotiating and obtaining easements (when the Rawlinsons Report expresses the opinion that there would be no costs in obtaining easements, other than associated professional fees).
It is also difficult to see how the Plaintiff's acknowledgement that "there has to be … acceptance of the existence of the building" fits with the first of the Plaintiff's three declarations, namely: "A declaration that for the purpose of the definition of 'Market Value of the Stratum' in the [CP Lease] improvements or structures, or anything else outside the [Stratum], that could provide access to and support and shelter for the [Stratum], a. do not form part of the [Stratum], and/or b. otherwise cannot be taken into account in determining the 'Market Value of the Stratum' for the purposes of the CP Lease."
Paragraph (a) of this declaration is self-evident and was not in dispute. It is obviously the case that improvements or structures which are outside the Stratum do not form part of the Stratum. The Defendant did not contend otherwise. Declaratory relief must be directed to the determination of legal controversies: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582 per Mason CJ, Dawson, Toohey and Gaudron JJ; [1992] HCA 10.
Paragraph (b) of this declaration is inconsistent with the Plaintiff's submissions as set out above. The proposed declaration that it is impermissible to take into account "improvements or structures, or anything else outside the [Stratum] that could provide access to and support and shelter for the … Stratum" would necessarily entail that the existing Building "outside the [Stratum]", which "could provide access to, and support and shelter for the [Stratum]", could not be taken into account. However, the Plaintiff accepted that the existing Building should be taken into account in determining the Market Value of the Stratum: "The building exists, accept that. It's part of the environment. Accept that. Adds to the quality of the building. Accepts that. Provides potential other neighbours, all of that, is all part of the environment in which this lots exists. That is not to be ignored, we accept that. We made that perfectly clear."
The second declaration sought by the Plaintiff is "that the value of improvements or structures, or anything else outside the [Stratum] that could provide access to and support and shelter for the [Stratum] must be excluded from any valuation of the [Stratum] for the purposes of the CP Lease". This is, in substance, a restatement of, or the corollary of, the proposition in the first declaration: namely, that such matters "cannot be taken into account in determining the 'Market Value of the Stratum'". The Plaintiff stated in written submissions that this declaration was sought "to confirm that the deduction made by the plaintiff's valuer was a necessary one to make".
The third declaration sought by the Plaintiff - that the Valuer-General's valuation of the Stratum did not constitute a valuation of the "Market Value of the Stratum" within the meaning of the CP Lease - was described by the Plaintiff as "consequential upon the making of the first two declarations".
It follows that, if the Plaintiff does not establish a basis for making the first declaration, then there is no basis for making the second or third declarations.
As noted above, the Plaintiff's submissions focussed on the phrase "the value of the Stratum". Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property: Spencer v The Commonwealth (1907) 5 CLR 418 at 432 per Griffith CJ; [1907] HCA 82. In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value: Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; [1999] HCA 25 at [49] per McHugh J. The circumstances which might affect the value of land, either advantageously or prejudicially, include "its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property": Spencer at 441 per Isaacs J.
It follows that, generally, an assessment of the value of land will involve a consideration of all matters relevant to determining that value, unless there is some agreement or requirement to exclude certain matters for the purposes of the valuation.
In the present case, the definition of the term "Market Value of the Stratum" makes clear that "the value of the Stratum" is to be "determined … having regard to all relevant factors including, without limitation, the potential to construct commercial office premises within the Stratum", with only two specified matters to be excluded from the determination ("disregarding the existence of this Lease and improvements constructed within the Stratum").
Five aspects of this definition are of particular relevance to the Plaintiff's proposed declaration.
First, the definition requires that "regard" be had "to all relevant factors". In its submissions, the Plaintiff acknowledged that this requirement "restates general valuation principles", referring to Strike Australia Pty Ltd v Data Base Corporate Pty Ltd [2019] NSWCA 205 at [16]. In the cited passage, Bell P (as his Honour then was) referred to the principles from Kenny & Good and Spencer which are set out above.
Whether a particular factor is a "relevant factor" depends on whether it is relevant to the "determination" of "the value of the Stratum". This determination is to be made by the Valuer-General (insofar as the Valuer-General's assessment is not the subject of any objection: cl 7.2(c)-(d)) or otherwise by two "registered valuers practising in New South Wales each having at least 5 years substantial recent experience in the valuation of first class commercial office premises in the central business district of Sydney" and each being "a full member of the Australian Institute of Valuers and Land Economists (Incorporated) New South Wales Division" (cl 7.2(f) and (k)). Accordingly, the assessment is to be performed by persons who have specialised knowledge by reasons of both qualifications and substantial recent experience in the specific market.
Those matters support a conclusion that the determination of "relevance" to "value" is, like the determination of value itself, a matter for those experts, exercising their judgment and based on their skill and experience. Valuation is an art, and not a science: Strike Australia at [9]-[10]. One consequence is that it will involve subjective judgment, with there being significant scope for legitimate variations in approach and method: Strike Australia at [11]-[12].
Secondly, the fact that one particular matter is specified in the definition as a "relevant factor" for determining "the value of the Stratum" cannot limit the range of relevant factors, particularly where the specified factor is preceded by the words "including, without limitation". Generally, matters said to be "included" within a definition are not taken to be exhaustive: see, for example, Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 at [166] per McColl JA. In any case, the matter is put beyond doubt by the use of the words "without limitation". In Barob Pty Ltd v Commissioner of Stamp Duties (Qld) [1999] 2 Qd R 468 at 478, Pincus JA and Derrington J commented as follows: "Counsel have not referred us to any authority, nor have we found any, in which a statutory explanation of meaning of a word, expressed to be inclusive only, has been treated as exhaustive, although the explanation is also said not to limit meaning. It is one thing to read 'includes' as 'means', and a more drastic step to read 'without limiting [its] meaning' as 'by way of limiting its meaning'."
Thirdly, the factor which is specified as a relevant matter is "the potential to construct commercial office premises within the Stratum". I do not consider that such potential is a matter to be assessed in the abstract. The "Market Value of the Stratum' is, pursuant to clause 7.2 of the CP Lease, to be determined at specific points in time during the term of the CP Lease. Clause 7.2(a)-(b) provides that, at the expiration of the first three years of the Term (namely, as at 30 October 1994) and at the end of each subsequent three-year period during the Term, the Market Value of the Stratum "must be revised to the then current Market Value of the Stratum" (emphasis added). In order to assess the "current" Market Value of the Stratum, it is relevant to have regard, as specified in the definition, to the "current" potential to construct commercial office premises within the Stratum. In assessing that current potential, it would (or might be) relevant to have regard to the improvements and structures outside the Stratum including, relevantly, whether there is currently a built structure in the area below and surrounding the Stratum, and whether there are currently means of (and rights of) access from that existing structure to the Stratum.
The Plaintiff submitted that, because the Stratum is located on levels 1 to 7 of the Building, it relied for its very existence, "otherwise than as air", on "the support of the structural elements provided beneath it and laterally", and added: "The very concept of a market valuation assumes the existence of a market for the Subject Stratum. If the Subject Stratum does not and cannot exist (in the sense that it cannot be used at all), at least as a practical matter, there can be no market for it."
Those matters support the conclusion that, in determining the current potential for a particular form of use at the valuation date (namely, the potential to construct commercial office premises within the Stratum), and therefore in determining the value of the Stratum, it is necessary to take into account whether or not there exists, at the date of valuation, "structural elements beneath it and laterally".
The Rawlinsons Report itself illustrates that the existence of a structure in the area below the Stratum as at the date of valuation is relevant to an assessment of the current potential to construct commercial office premises within the Stratum. If, at a particular assessment date, there was no built structure in the area below the Stratum, it would be necessary for the very substantial costs of constructing such a structure to be incurred in order for that potential to be realised.
Taking into account the existence of the built structure below the Stratum as at the date of assessment does not involve making any assumption that the Stratum has the benefit of existing easements of support, shelter or access from any other Lot. Insofar as a valuer considers that it is necessary or relevant to make some allowance for the costs of negotiating and obtaining such rights (for example, because they represent a cost of realising the potential to construct commercial office premises within the Stratum), any such allowance would presumably take into account the circumstances as they exist at the time of the valuation. For example, it would appear to be (or might be) relevant, in assessing the cost of obtaining for the Stratum an easement of support and rights of access from Lot 422, to know (a) whether there is as at the date of the assessment an existing built structure in the area of Lot 422 and the Stratum (as is the case), (b) whether Lot 422 has an existing easement of shelter and rights of access from the Stratum, and (c) whether Lot 422 and the Stratum are owned by the same entity.
Accordingly, accepting the Plaintiff's submission that it is necessary for the valuer to identify the bundle of rights comprising the freehold Stratum, and not to assume that the Stratum has any rights of access or easements of support or shelter which it does not in fact have, it does not follow that, in terms of the Plaintiff's first declaration, the valuer is not permitted to take into account "improvements or structures, or anything else outside the [Stratum], that could provide access to and support and shelter for the [Stratum]". Instead, it may be relevant and necessary to take those matters into account in order to determine (if relevant) the ease and cost of obtaining any rights of access or easements of support or shelter.
Fourthly, only two matters are identified in the definition of the "Market Value of the Stratum" as factors which are to be disregarded, namely, "the existence of this Lease and improvements constructed within the Stratum". It follows that, as the definition specifies, the valuer is to have "regard" to "all" other "relevant factors".
Fifthly, the terms in which these two exclusions are expressed are significant.
Dealing with the second exclusion first, the definition of "Market Value of the Stratum" requires only that "improvements constructed within the Stratum" (emphasis added) be disregarded. However, the Plaintiff seeks a declaration that "improvements … outside the [Stratum]" must also be disregarded. That proposition finds no footing in the terms of the definition of "Market Value of the Stratum", and is at odds with the language used. If the parties had intended that improvements outside the Stratum should be disregarded, then it would have been a simple matter to have stated, in the relevant definition, that "improvements" should be disregarded, which would apply to improvements both inside and outside the Stratum. Alternatively, the parties could have stated that, in determining the value of the Stratum, it is necessary to disregard "the Building" (which is a defined term in the CP Lease, meaning "the building constructed within the Land"). However, by specifying that the determination of value should proceed without regard to "improvements constructed within the Stratum", the definition conveys that other improvements (which are not constructed within the Stratum and thereby are, necessarily, "improvements outside the Stratum") are to be taken into account insofar as they are "relevant" matters for determining value, including because they are relevant to determining the current potential to construct commercial office premises within the Stratum.
Turning to the first exclusion, it is "the existence of the Lease" which must be disregarded in determining the value of the Stratum. The definition does not require the valuer to disregard the existence of either the "Strata Plan" (defined as the leasehold strata plan registered in respect of the Stratum, that is, Strata Plan 39993) or the "Strata Scheme" (defined as the leasehold strata scheme constituted on registration of the Strata Plan, that is, Scheme SP39993). As noted at paragraphs [46]-[49] above, it was the registration of Strata Plan 39993 which led to there being implied, as appurtenant to the Lots and common property comprising Scheme SP39993, an easement for their support and shelter by other parts of the building.
The Plaintiff pointed out that s 8(3) of the Strata Titles (Leasehold) Act required that a strata plan lodged for registration be accompanied by a lease to be registered under the Real Property Act 1900 (NSW), and that a strata plan would be treated as registered only when the lease was so registered. On this basis, the Plaintiff submitted that the requirement to disregard "the existence of the Lease" meant that it was necessary to disregard "the existence of the leasehold strata Scheme" which "only came into existence by reason of the registration of the CP Lease".
I do not accept that submission. It does not follow from the requirement to disregard the existence of the CP Lease, that it is necessary to disregard anything which has in fact occurred as a result of the existence of the CP Lease. (Taken to its logical conclusion, such a proposition would require the valuer to disregard the instructions which are given to the valuer pursuant to the CP Lease.) In response to this submission, the Defendant referred to the decision of the Privy Council in Tezner v Colonial Sugar Refining Co Ltd [1958] AC 50. In that case, land in Fiji on which a sugar mill was located was to be valued on an unimproved basis. The Privy Council held (at 57) that it was the physical improvements on the land which were to be excluded from consideration (relevantly, the sugar mill and its associated buildings), and the valuer was entitled to take into account that the land was located in a community in which there was an active sugar manufacturing industry. Similarly, the requirement to disregard the existence of the CP Lease is not a requirement to disregard the fact of the registration of Strata Plan 39993 (even though it was only registered on the registration of the CP Lease), or the easements which were in fact implied for the benefit of the Lots and common property comprising Scheme SP39993 upon the registration of the Strata Plan. Those are matters which are able to be taken into account in so far as they are "relevant factors", and it is for the valuer to determine whether or not they are relevant.
This is not to say that the valuer may assume that the freehold Stratum has the benefit of easements which are in fact appurtenant to the Lots and common property comprising Scheme SP39993. However, the valuer might conclude that it is relevant, in considering the potential to construct commercial office premises within the Stratum, and in assessing whether to make some allowance for the cost of obtaining easements of support and shelter or rights of access in order to realise that potential (and, if so, the likely difficulty or expense involved in obtaining such rights), to take into account the fact that the Lots and common property comprising the leasehold strata scheme within the Stratum already enjoy the benefit of such rights. Whether or not those matters are so relevant is a matter for the valuer to determine.
In summary, the terms of the definition of "Market Value of the Stratum", which are set out and considered above, are inconsistent with the terms of the declarations sought by the Plaintiff. In particular, they are inconsistent with the Plaintiff's central proposition that "improvements or structures or anything else outside the [Stratum] that could provide access to and support and shelter for the [Stratum]" must be disregarded for the purposes of determining the value of the Stratum. Such an interpretation does not find support in the text.
Instead, the text of the definition of "Market Value of the Stratum" supports the Defendant's interpretation, namely, that it is for the valuer to identify, and have regard to, factors which are relevant for determining the value of the Stratum, applying their skill and expertise, and no relevant factors are to be excluded from this assessment other than those specified in the definition.
The Defendant's interpretation does not involve assuming that the freehold Stratum has the benefit of easements or rights of access which it does not in fact have. It remains at all times "the Stratum" which is to be valued. However, the determination of "the value of the Stratum" must have regard to all "relevant factors", except insofar as the definition specifies otherwise. In particular, there is no textual basis for concluding that, in making that determination, the valuer must exclude "improvements or structures, or anything else outside the [Stratum] that could provide access to and support and shelter for the [Stratum]". Those matters may be taken into account in assessing the value of the Stratum, if the valuer determines that they are relevant to that assessment.
The Plaintiff referred to a number of authorities which involved the interpretation of statutory provisions or of contractual clauses in different terms. In circumstances where the resolution of the current controversy depends on the proper construction of a particular defined term in a bespoke agreement, with reference to its text and context, there is, as a general matter, little to be gained by considering the interpretation given to different texts in different contexts.
Two authorities which received particular attention in the Plaintiff's submissions were Toohey's Ltd v The Valuer-General [1925] AC 439 and Commissioner for Railways and Sydney City Council v Valuer-General [1961] NSWR 977.
In Toohey's, the question concerned the assessment, pursuant to a statutory provision, of the "unimproved value" of land on which stood buildings occupied as licensed premises. The Valuer-General arrived at a valuation by determining the value of the land if sold as licensed premises, and then deducting the value of the buildings on the land. The Privy Council held that the valuation was not in accordance with the statutory provision. That is because the figure used as a starting point - namely, the value of the land if sold as licensed premises - comprised three elements: first, the bare land; secondly, the buildings constructed for, and appropriate for, licensed premises; and thirdly, the enhanced value due to the fact that the land and buildings are not only suitable for licensed premises, but are in fact licensed premises. The Valuer-General deducted only the second element, leaving the third included in the assessment of the unimproved value of the land.
Similarly, Commissioner for Railways was a case involving an assessment by the Valuer-General of the unimproved value of land, pursuant to the provisions of the Valuation of Land Act 1916 (NSW). The land in question was a space or stratum which had been created by the excavation of rock and soil, and which was leased to Lawrence Dry Cleaners. Owen J (at 980) referred to Toohey's, and observed that for the purpose of determining the unimproved value of land, "improvements on it or appertaining to it are to be assumed not to be there". The application of this principle on the facts of that case caused the following problem: "The thing to be valued [the space created by excavation] was itself an improvement … and there cannot … be an unimproved value of that which is itself an improvement" (at 980). Likewise, Hardie J said that the "floor space in question is part of the building" and "has no existence or reality except as part of the building"; and that because the "statutory assumption … negatives the very existence of the building", it is "impossible to attribute an unimproved value to part of the building or, in other words, to the section of the basement leased to the Lawrence Co" (at 986-987). Ferguson J agreed with each of Owen and Hardie JJ (at 980).
These decisions are of marginal relevance to the present dispute. Here, the definition requires that the determination of value disregard "improvements constructed within the Stratum". There is no dispute about the meaning or application of that element of the definition. Instead, the issue is whether, in determining the value of the (unimproved) Stratum, it is permissible to take into account improvements outside the Stratum, and in particular, improvements or structures (in the form of the Quay West Building) which provide access to, and support and shelter for, the Stratum. That is a matter to be determined having regard to the terms of the particular definition at issue.
A decision which is closer to the facts of this case is that of Windeyer J in Perpetual Trustee Company Ltd v Sydney Cove Authority (NSWSC, unrep., 9 March 1993), to which the Defendant referred. This decision concerned a lease of Lot 421 in Deposited Plan 793830. This is the location of the underground commercial car park of the Quay West Building. The lease contained a definition of the "Market Value of the Stratum Parcel", in terms bearing some similarities with the corresponding definition in the CP Lease: "Market Value of the Stratum Parcel means the value of the stratum parcel forming part of the Land and to which this Lease relates (excluding any improvements and structures erected or constructed by any Lessee thereon) determined specifically for the purposes of this Lease having regard to all relevant factors including but without prejudice to the generality of the foregoing its development potential provided that such potential shall be assumed to be the potential to erect within the subject stratum parcel premises similar to the Commercial Car Park and the retail area, but disregarding the existence of this Lease."
In Perpetual Trustee, the lessee sought a declaration that could be seen as the converse of the one sought here, namely, that "the development potential of the stratum parcel should be determined on the assumption that such other improvements as exist on the land but outside the stratum parcel as at the date of the valuation are in place at such date" (emphasis added).
Windeyer J declined to make any declaration in those terms. His Honour said that such a declaration "would be a direction to a valuer", and continued as follows: "As a matter of discretion I would not make that declaration as I consider the question to be a matter for the valuer. Improvements on other land in the vicinity may equally have some bearing on the matter but those in the same way would seem to me to be a question for the valuer. … this seems to me to be a matter of valuation rather than a matter of interpretation or construction and I do not think it desirable in those circumstances for any declaration to be made."
In the present case, the definition of "Market Value of the Stratum" requires "regard" to be had to "all relevant factors" in determining "the value of the Stratum". Only one matter is specifically identified as a relevant matter to be taken into account (expressly without limiting any other relevant factors): namely, "the potential to construct commercial office premises within the Stratum". Only two matters are specified as matters to be disregarded: namely, "the existence of [the CP Lease] and improvements constructed within the Stratum". Otherwise, it is left to the valuer, exercising skill and experience, to determine what are "relevant factors" for the determination of the value of the Stratum.
As I have explained above, I do not consider that the text of the definition supports the Plaintiff's contention that the valuer must also disregard "improvements or structures or anything else outside the [Stratum] that could provide access to and support and shelter for the [Stratum]". The question whether such matters are relevant or not, and therefore whether regard is to be had to such matters in assessing value, is a matter which is left to the valuer to determine.
The Defendant's construction achieves a businesslike interpretation of the CP Lease and makes commercial sense. The purpose or object achieved by clause 7.2 of the CP Lease, to which the definition of the "Market Value of the Stratum" relates, is the triennial re-valuation of the rent payable under the Lot Leases. As is commonly the case in rent review provisions in commercial leases, the re-valuation must disregard improvements constructed within the Stratum (otherwise, the rent payable by the lessee might be increased as a result of improvements made by the lessee). However, there is no similar commercial justification for valuing the Stratum divorced from, and without regard to, its physical context as at the date of valuation and, in particular, without regard to the fact that it is situated within a constructed building, between a car park and a residential development, these being (in terms of the Plaintiff's proposed declaration) "structures outside the [Stratum], that could provide access to and support and shelter for the [Stratum]".
It follows that the Plaintiff has not established a basis for the first declaration it seeks, and therefore has not established a basis for the second declaration, which is the corollary of the first, or for the third declaration, which is consequential upon the first and the second.

orders

For the reasons given above, I have determined that none of the declarations sought by the Plaintiffs should be made. It follows that the Plaintiff's application must be dismissed. Costs should follow the event.
Accordingly, I make the following orders: 1. The Amended Summons filed on 15 November 2024 is dismissed. 2. The Plaintiff pay the Defendant's costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 December 2024

Place Management Act 1998(NSW)

Strata Titles (Leasehold) Act 1986(NSW)

(2020) 104 NSWLR 634

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