Plaintiff v Defendant

1 This proceeding has been brought pursuant to s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 ("the VCAT Act"). The Plaintiff, Higgins Nine Group Pty Ltd ("Higgins Nine"), is seeking to appeal from an order of the Victorian Civil and Administrative Tribunal ("the Tribunal" or "VCAT") constituted by Senior Member Riegler made on 21 October 2015 in VCAT proceeding number VP451/2014.[1] The proceeding was commenced in this Court by Originating Motion between Parties dated 18 November 2015.

2 Higgins Nine is, and was at all material times, the registered proprietor of the property known as 162-162A Greville Street, Prahran in Victoria, being the land more particularly described in certificate of title volume 8998, folio 368 ("the Premises").

3 By a deed of lease dated 23 December 2009 (which was varied by a deed of variation effective 31 March 2014), Higgins Nine granted to Ladro Greville St Pty Ltd ("Ladro") a lease of the Premises for a term of five years commencing on 11 January 2010, with three further terms of five years each ("the Lease"). The Lease provides that upon the commencement of each further term, the rent is to be reviewed to market. The rent payable under the Lease prior to the expiration of the initial term was $233,976 per annum (plus GST).

4 Following the expiration of the initial term of the Lease, the parties jointly appointed and engaged Kire Georgievski AAPI of CBRE Hotels Valuation & Advisory Services ("the Valuer") to conduct a market view of the rent. On 3 June 2014, the Valuer produced a Rental Determination Report in which he determined that the market rent for the Premises, as at 11 March 2014, was $210,000 per annum (plus GST) ("the Determination").

5 Ladro disputed the Determination, which led to the parties falling into dispute and prompted Higgins Nine to issue the VCAT proceeding in which it sought a declaration that the Determination is binding on the parties. On bases which are discussed in the reasons which follow, VCAT decided that the Determination was not binding, having been vitiated by error and, alternatively, non-compliance with the requirements of s 37 of the Retail Leases Act 2003 ("the Retail Leases Act").

6 Senior Member Riegler helpfully set out, in the course of his reasons, issues for consideration in the VCAT proceeding. As the parties cast no doubt on Senior Member Riegler's summary of the critical issues, it is helpful in the present context to set out this part of his reasons:[2]

1. According to the Landlord, the Determination comprises two elements. The first element is an assessment of market rent using comparative market methodology, which entails comparing similar tenancies and then forming an opinion based on that comparative data. The second element is an assessment of market rent using trading profits methodology. This latter method of valuation utilises gross earnings or net profit of the trading enterprise and then applying a percentage ratio in order to determine what the market rent is.
2. The Tenant disputes that the two assessments set out in the Determination report are distinct. It contends that the Determination was assessed only using comparative market methodology and that any discussion or analysis based upon trading profits methodology was simply an adjunct to the primary assessment, and undertaken as a check only.
3. This issue is critical because the Landlord concedes that the Determination, insofar as it was made using a comparative market methodology, is erroneous and not in accordance with the contract. This is because the Valuer incorrectly measured the gross lettable area used for retail purposes ("the GLAR").[3] Therefore, the lettable area, measured in square metres and used in his calculation, was incorrect and the valuation based on this methodology is thereby vitiated.
4. However, the Landlord contends that the Determination is still valid because the Valuer has also assessed market rent by using trading profits methodology. Mr Hopper of counsel, who appeared on behalf of the Landlord, submitted that it was open for the Tribunal to read the Determination report, such that those parts which assessed the market rent based upon comparative market methodology could be ignored and only those parts which assessed market rent using trading profits methodology are taken into account. He submitted that, in those circumstances, the Determination could still be declared valid and binding on the parties.
5. In response, the Tenant contends that even if it could be said that the Determination was derived through the adoption of a trading profits methodology, the Determination was still vitiated because the Valuer failed to give detailed reasons or specify relevant matters, which he was required to do under s 37(6)(b) and (c) of the Retail Leases Act 2003 ('the Act').
6. Given the concession made by the Landlord in relation to the assessment based on a comparative market methodology, the remaining issues for determination can be summarised as follows:

(a) Is the Determination based on an assessment using the trading profits methodology?

(b) Did the Valuer give detailed reasons and specify relevant matters in accordance with s 37(6)(b) and (c) of the Act?

7 As with many, if not most, of these appeals with respect to the Retail Leases Act, the hearing in this proceeding was conducted as a "rolled up" hearing of both the application for leave to appeal the VCAT decision and, if leave were to be granted, the appeal itself.

A party to a proceeding may appeal on a question of law from an order of the Tribunal in the proceeding -

(a) if the Tribunal was constituted for the purpose of making the order by the President or a Vice President, whether with or without others, to the Court of Appeal with leave of the Court of Appeal; or

(b) in any other case, to the Trial Division of the Supreme Court with leave of the Trial Division.

It follows from this provision that any appeal is dependent upon two important qualifications. First, that the appeal be on a question of law, and secondly, that the Court gives leave to appeal. The legislative policy underlying these provisions is that "VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal."[4] It follows that "[t]his Court is not entitled to enter into the fact finding exercise which the legislature has deliberately entrusted to a specialist tribunal."[5]

9 The leave requirement under s 148(1) of the VCAT Act is designed to maintain this position. As Pagone J said in Commissioner of State Revenue v Frost:[6]

The requirement for leave under s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 "is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the court do found the subject matter of the appeal".[7] It also confers a discretion about whether to grant leave[8] which an applicant must persuade the court to exercise in its favour. What must be shown will depend upon the particular case bearing in mind the statutory criteria being a grant of leave and not special leave.[9] It will ordinarily be necessary (in addition to a clearly articulated question of law)[10] for an applicant to make out a prima facie case[11] and in an appropriate case it may be necessary for the applicant to show that the question upon which leave is sought has public or general importance.[12]

10 In considering an application of this nature, courts have been concerned to respect the role entrusted by the legislature to the particular tribunal and not, in effect, subvert this position by seeking out error. Thus, Kirby J in Roncevich v Repatriation Commission said:[13]

Courts conducting this form of review have been repeatedly enjoined by this Court to avoid overly pernickety examination of the reasons.[14] The focus of attention is on the substance of the decision and whether it has addressed the "real issue" presented by the contest between the parties.

Similarly, in Vegas Nominees Pty Ltd v Werribee Sports & Community Club Inc, Ashley J said:[15]

This Court has said more than once that it should not examine briefly stated reasons by an expert Tribunal in an over-legalistic manner or by the over-zealous drawing of inferences in order to disclose some supposed error; although where unambiguous language is used, the user should be taken to mean what the words say. I should add that the Court is not entitled to interfere with the Tribunal's decision unless it is satisfied that there was in fact a vitiating error of law. It is not enough for the appellant to show that the Tribunal's reasons for its decision are so expressed as to suggest the possibility that it proceeded upon a wrong view of the law. In support of the several propositions that I have just stated I refer to Portland Properties Pty Ltd v Melbourne & Metropolitan Board of Works,[16] Michaelis Bayley (Vic) Pty Ltd v Melbourne & Metropolitan Board of Works[17] and Teston Investments Pty Ltd v Melbourne & Metropolitan Board of Works.[18]

Additionally, "[o]n appeal this Court must recognise the forensic realities of the way in which the case was put to the tribunal. It is these realities to which a tribunal must respond in its reasons."[19]

11 For the reasons which follow, I am not satisfied that Higgins Nine has established a question of law which warrants the grant of leave to appeal or that, in the event that leave had been granted, it would have been successful in this appeal. More particularly, I am not satisfied that a sufficiently arguable case has been established on the part of Higgins Nine, as discussed in Department of Premier and Cabinet v Hulls.[20] Moreover, I am also not satisfied that the application raises a question which has public importance.[21]

12 The Draft Notice of Appeal, which is exhibited to the Affidavit in Support of the Application for Leave to Appeal sworn by Eric Karabardak on 25 November 2015, identifies the question of law sought to be relied upon, the grounds for appeal and the orders sought in the following terms:[22]

Questions of Law

The questions of law upon which the appeal is brought or which are involved in the Order are as follows:

1. Whether the Tribunal erred in finding, at paragraph 19 of its reasons, that the assessment of market rent using a trading profit methodology was an adjunct to corroborate the Determination derived by using a comparative market methodology, vitiating the [report ("Question 1 or "the first question")]; and
2. Whether the Tribunal erred in finding at paragraph 34 of its reasons that the Determination was also vitiated on the grounds that the Determination did not contain detailed reasons or adequately specify the matters to which the Valuer had regard in conclusion, that $2.6 million was reasonably achievable by way of gross profits [("Question 2 or "the second question")].

Grounds for appeal

1. At [paragraph] [19] of its reasons, the Tribunal held that:

It appears from a plain reading of the Determination report that the assessment of market rent using trading profits methodology is an adjunct to corroborate the Determination derived by using comparative market methodology. The fact that the trading profits methodology valuation is $2,000 less than the amount of the Determination indicates, in my view, that the Determination is not derived from this valuation. Further, having regard to my comments above, I do not consider that this Tribunal had jurisdiction to substitute one valuation for another. Given that the Landlord conceded that the valuation derived through the adoption of the comparative market methodology is erroneous and not in accordance with the contract, I find that the Determination is vitiated on this ground.

1. The Tribunal should have held that, on a proper construction of the Determination:

(a) rental was not assessed only using general retail premises rentals as comparative data and that forecast trading was also a consideration;

(b) the primary valuation methodology was an income capitalisation approach with a check by the direct comparison approach; and

(c) a projected rental of $208,000 using the projected trading turnover supports a determination of the current market rent of $210,000, with any difference being explained by both rounding at the use of two methodologies to determine the current market rent.

1. The Tribunal held at paragraphs [31] to [34] that:

[31] In my view, there is very little detail given in the Valuer's reasons as to how the Valuer was able to conclude that $... was reasonably achievable by way of gross profits. The data, presumably relied upon and which was cited in the Determination report stated that the Tenant had achieved gross sales in the financial year ending 2013 of $... and in the previous financial year of $... It is difficult if not impossible to discern from the Determination report how the Valuer was then able to conclude that an additional $536,782 was achievable in annual turnover for the business. The only indicator as to how that figure was derived is by the Valuer's supplementary comments:

Based on the liquor licence in place, and comparable venues in the region which I hold on file ...

[32] In my view, that comment, even if embellished with further narrative as set out in the Determination report, does not provide adequate detail as to how the Valuer was able to say that it was reasonably achievable that projected sales were likely to be 26% higher than actual sales. One might speculate that the Valuer placed considerable emphasis on the fact that the Tenant traded up until 11 pm in circumstances where the 24 hour liquor licence allowed it to trade well beyond that time. However, having to speculate as to how the Valuer formed his opinion is, in my view, contrary to what is required under s 37(6) of the Act. Moreover, no detail was provided as to what other venues were used as a comparator. That, of itself, raises a number of questions: Did those other venues have similar GLAR? Did they have the same type of liquor licence? Were they also being operated as a restaurant/bar? Was their location proximate or did they cater for the same demographic clientele? Without those details, I consider the reasoning to be deficient and not in accordance with the Act. In Kumari v Goa,[23] the Queensland Retail Shop Lease Tribunal (as it then existed) considered a similar case and made the following observations, which I find are apt:

We are also satisfied the valuer has not complied with s 31(1)(d), which requires "detailed reasons" for the determination ...

The Valuer's concluding remarks are singularly brief and uninformative. He simply observes:

Taking into account the attributes both positive and negative, the market evidence available indicates ...

and then arrives at the all-important figure.

Nothing in these reasons for decision is meant to encourage a hypercritical approach to the decisions of specialist retail valuers. But due weight must be given to the legislature's demand for "detailed reasons", when not inconsiderable fees are charged for reports of this nature. It seems to us that this requirement is not satisfied by a decision padded with preliminary, non-contentious material, purportedly based on "a full consideration" of relevant facts, followed by a leap to judgement. We recall the advice of Sir Frank Kitto, former Justice of the High Court, to those called upon to give "detailed reasons". Such a task, involves more

than -

[recitation of] the facts in a degree of pedestrian detail that scorns to [indicate] those that really bear on the problem ... and then, without carefully worked out steps of reasoning but with a "blinding flash of light" ... produces the answer with all the assurance of the divine revelation.

[33] I further note that the Valuer adopted a methodology based upon gross receipts, rather than utilising a detailed EBIDTAR calculation which Mr Best, correctly in my view, submits would have given some guidance as to the Valuer's assumptions and reasoning. In particular, in arriving at a Rental Factor of 8.0%, the Valuer utilised comparative percentage rent to turnover data from other licensed premises. However those premises, by and large, relate to hotel premises. There is no adequate explanation as to how the expenses of those other premises compare to the expenses of the restaurant/bar operated by the Tenant. In my view, it is difficult to reconcile how the permitted use of the subject premises equates to a hotel and in those circumstances, some explanation should have been given to justify how the average of the Rental Factor for the hotels is comparative.

[34] Accordingly and for the reasons set out above, I find that the Determination is also vitiated on the ground that the Determination did not contain detailed reasons or adequately specify the matters to which the Valuer had regard in concluding that $... was reasonably achievable by way of gross profits.

4. The Tribunal should have found that:

(a) sufficient reasons were provided in the Determination;

(b) sufficient reasons were provided to allow the Tribunal to conclude that the Specialist Retail Valuer relied on the existence of a 24 hour liquor licence when projecting future achievable income at the leased property;

(c) alternatively, the projected income of the hypothetical tenant is a matter of Valuer's discretion and the absence of further reasons cannot vitiate the Determination;

(d) the absence of an itemised list of comparable venues does not vitiate the Determination; and

(e) the selection of comparables and weight given to them is a matter of Valuer's discretion and is not reviewable. Accordingly, any lack of explanation for the selection of those comparables cannot vitiate the Determination.

Orders sought

1. The appeal is allowed.
2. Paragraph 1 of the Orders be set aside and in its place be a declaration that the Determination is valid and binding on the parties.
3. The respondent pay the applicant's costs of this appeal.
4. Such further or other orders as the Court deems fit.

13 It follows that the appeal questions - pithily stated - are whether or not appeal question one raises a question of law and, if it does, whether, on a proper analysis of the Determination, the Valuer, in determining the rent by applying the "Profits Method", did so in conformity with the requirements of s 37(6) of the Retail Leases Act.

14 The critical provisions of the Lease in this respect are contained in cl 11 - "Rent Reviews to Market". Of particular relevance in these provisions are cl 11.1.5 and cl 11.2, as follows:[24]

11.1 In this clause "review period" means the period following each market review date until the next review date or the end of this Lease.

The review procedure on each market review date is -

...

11.1.5 The valuer must make the determination of the current market rent and inform the parties in writing of the amount of the determination and the reasons for it as soon as possible after the end of the 21 days allowed for submissions by the parties.

...

11.2 The valuer's determination binds both parties.

15 In relation to Lease provisions, it should also be recalled that the effect of the provisions of s 37 of the Retail Leases Act is, though not expressed in so many words, to imply by statute the provisions of that section into the Lease itself. This is achieved by the provisions of sub-s 37(1), which provides that:

A retail premises lease that provides for a rent review to be made on the basis of the current market rent of the premises is taken to provide as set out in sub-ss (2) to (6).

16 Relevantly for present purposes are the provisions of sub-s 37(6), which provide:

(6) The valuation must -

(a) be in writing; and

(b) contain detailed reasons for the specialist retail valuer's determination; and

(c) specify the matters to which the valuer had regard in making the determination.

Finally, in this respect, the provisions of s 94 of the Retail Leases Act should also be kept in mind, particularly sub-s 94(1), which provides:

(1) A provision of a retail premises lease or of an agreement (whether or not the agreement is between parties to the retail premises lease) is void to the extent that it is contrary to or inconsistent with anything in this Act (including anything that the lease is taken to include or provide because of a provision of this Act).

In other words, it is not possible to contract out of the provisions of s 37 of this legislation - whether in the terms of the relevant lease or some other agreement.

17 In broad terms, the position of Higgins Nine with respect to the Determination is that the Valuer has employed two methodologies to determine the market rent, namely, the "Comparables Method" and also market rent as a percentage of gross profits, the "Profits Method". As appears from the summary of relevant issues contained in Senior Member Riegler's reasons, as set out above, Higgins Nine concedes that the Determination, insofar as it applies to the Comparables Method, is erroneous and not in accordance with the contract and, consequently, does not constitute a determination for the purpose of the market rent review provisions of the Lease. As is also clear from Senior Member Riegler's statement of issues, Higgins Nine now seeks to save the Determination on the basis that it is a determination applying the Profits Method.

18 In support of Higgins Nine's contention that the Determination is a valid determination on the basis of an application of the Profits Method, reference is made to material on a number of pages in that Determination.[25] The particular matters relied on by Higgins Nine with respect to the contents of the Determination are references to matters generally pertaining to trading or profits, such as "Trading information provided by the Tenant",[26] extended liquor licensing hours,[27] details of the liquor licence, particularly the position that the premises can sell liquor 24 hours per day and is licensed for 200 patrons after 6.00pm,[28] and that the permitted use under the Lease is "Licensed Bar and Restaurant";[29] followed by more extensive discussion of the methodologies, to which I will turn in more detail.[30]

19 Higgins Nine made reference to the discussion of "Valuation Methodology" which appears in the introductory part of the Determination under the main heading, "Assumptions, Disclaimers, Limitations & Qualifications". In this context, the Valuer's "Premise 14" opens with the sentence:[31]

Where CBRE is valuing going concern property, the primary valuation methodologies generally used are the Income Capitalisation Approach and/or Discounted Cash Flow Analysis with a check by the Director Comparison Approach. These approaches are based upon an estimation of future trading results which are based on historic trading analysis and future trading expectations having regard to any forecast capital expenditure, supply and demand factors, and estimated changes in economic and local market conditions, and/or management/lease terms. The result is the best estimate value CBRE can produce, but it is an estimate and not a guarantee and is fully dependent upon the accuracy of the assumptions as to income, expenses and market conditions. These primary evaluation methodologies use market derived assumptions, including income, yields and discounted rates, obtained from analysed transactions. Where reliance has been placed upon external sources of information, in applying the valuation methodologies, unless otherwise specifically instructed by you and/or stated in the valuation, CBRE has not independently verified that information and CBRE does not adopt that information and/or advice nor accept it as reliable. The person or entity to whom the report is addressed acknowledges and accepts the risk that if any of the unverified information in the valuation is incorrect, then this may have an effect on the valuation.

20 The contents of this "Premise 14" would appear to be something in the nature of an introductory or "boilerplate" provision in the Determination, particularly as it would appear to indicate that the Direct Comparison Approach would be used as a check of other valuation methodologies, a position at odds with the discussion in the Determination of the rental valuation issues with respect to this particular property, the Premises.[32] Nevertheless, this statement of methodology does relevantly indicate that the Valuer may contemplate using an alternative methodology as a check on the primary methodology (whatever that methodology may be) which is the actual basis of the Determination. As indicated in the reasons which follow, that is what has occurred in this case - though the primary methodology was not as generally contemplated in "Premise 14".

21 The critical parts of the Determination which address issues with respect to the Premises are contained in ss 6 and 7, as follows:[33]

The submissions provided by both the Landlord and Tenant discussed rental on a rate per square metre basis.

The evidence supporting our contention of current market rental for the Ladro Restaurant is provided in the following section, which provides rental information for a number of licensed premises within close proximity to the subject property which are considered to have a high similarity to the demised premises. This information together with our comments are provided below.

6.1 Licensed Premises Rental Evidence

In our view the four following pieces of rental evidence are the most comparable to the subject property.

...

The factors we have taken into account from the above comparative rental data are:

✓ From a locational perspective Ladro Restaurant enjoys an excellent position on Greville Street, relative to its permitted use under the lease in respect of exposure, proximity to transport and car parking is available in the surrounding area;

✓ The configuration of Ladro Restaurant provides the tenant with the ability to provide indoor and outdoor trading areas, this is a distinct advantage over competitors who must rely on footpath trading (six or twelve month Council permit) which provides patrons with a much lower degree of comfort and amenity;

✓ Unlike traditional retail businesses which tend to open five or six days per week from 9am to 6pm the Liquor Licence at Ladro Restaurant provides for significantly longer trading hours pursuant to the 24 hour liquor licence. It is difficult to accurately measure this trading enhancement via a $ per square metre rental rate however would be considered beneficial by a perspective [sic] tenant;

✓ The design and presentation of Ladro Restaurant is particular to the defined permitted use of the demised premises, this use should pursuant to the lease agreement, be supported by a Late Night On Premises Liquor Licence. The red line (area authorised for the service of alcohol) depicted by the liquor licence extends over the entire trading areas of the property including outdoor sections, while the demised premises covers the entire property and therefore these non licensed areas are integral to the operating business and hence the freehold asset and must be included in the rental calculation.

I consider the following assessment to be supported by the rental evidence presented:

Description on Plan Square metres $/Sqm pa Rental

Entry (Front Outdoor Area) 25.36 650 $16,484

Dining Area, Bar, Kitchen 209 650 $135,850

Terrace (Internal) 48.29 550 $26,560

Office Dry Store Cool Room 26 450 $11,700

Delivery Bay & Storage 26 400 $10,400

Car Park 3 Spaces $250 per space per month $9,000

Gross Lettable area retail 334.65 $209,994

Rounded to: $210,000

I have adopted a rounded current market rent of $210,000 (Two Hundred Ten Thousand Dollars) per annum plus GST.

6.2 Demised Premises - Specialised Use

In my opinion the specialised nature of the Demised Premises is clearly such that an assessment of market rental cannot simply be assessed using general retail premises rentals as comparative data and that forecast trading must also be a consideration.

Item 15 of the lease clearly identifies the permitted use of the property to be a Licensed Bar and Restaurant which both the Landlord and Tenant have agreed to, namely the trade or business of a Licensed Bar and Restaurant in accordance with the Late Night (on Premises) Liquor Licence. In my view any prudent Landlord or Tenant would place significant regard to the potential trading performance or capacity of the premises in its deliberation of market rental. In doing so the attributes of the property and liquor licence must be taken into account, these include:

✓ The entire trading area of the demised premises, including the outdoor areas lies within the liquor licence "red line" which defines where liquor may be served;

✓ The planning permit and liquor licence approve 24 hour trading which is significantly longer than typical retail trading hours (refer Section 2.7);

✓ Location of the property on Greville Street, Prahran which is a well known retail/entertainment district within close proximity to Chapel Street;

✓ Prior to the current tenancy, the property was operated as a bar being called the Candy Club;

✓ All other businesses in the Greville Street and Chapel Street retail precinct which are comparable to the Ladro Restaurant utilise footpath trading permits to achieve an outdoor presence, the outdoor courtyard and front outdoor area at the demised premises is not only superior in quality and quantum it is permanent and its utility is enshrined in the planning approval and liquor licence conditions.

6.2.1 Trading Information

The current business at Ladro Restaurant primarily provides a Pizza offering with bar area, the venue currently trades for dinner 7 nights per week while lunch is available on Friday, Saturday and Sunday. Ladro Restaurant also provides brunch from 10am on weekdays only. Although the venue has a 24 hour liquor licence it generally trades until 11pm on each trading night.

The lease agreement does not require that the Tenant provide trading information, we have requested trading information from the Tenant who provided a Profit & Loss Statement for Financial Years ending 30th June 2013 & 2012 which I provide the trading levels indicated below.

...

In my view, having regard to the observations of present day trading and taking into consideration the Late night (on-premises) Liquor Licence which permits 24 hour trading I consider it reasonable that, applying the notion of competent average management, a gross annual turnover for the business of $2,600,000 is reasonably achievable from the premises.

To this projected trading turnover I have applied an 8.0% rental factor which equates to a rental of $208,000 per annum plus GST.

8.0% is considered a reasonable rental factor to be applied, it will typically vary from 7.0% to 10.0%, the variance relates to the perceived profitability of the business (which again emphasises the notional of profitable occupation or capacity to pay).

The adopted 8.0% is based upon our knowledge of the pricing structure operated at the Ladro Restaurant business and takes into account the business mix which comprises soft beverages (coffee/tea in-house & take-away), brunch on weekends, lunch from Friday to Sunday and evening meals seven days per week plus licensed trading of alcoholic beverages.

The adopted Rental Factor of 8.0% is a common and average ratio applied in the hospitality industry. By way of illustration we refer to the following detailed set of rental analysis which confirms the general rental to turnover ratio. This information is held on a confidential basis and cannot be used or disclosed outside the context of this rental determination.

Whilst the following rental information is of predominantly pub style venues the market application is relevant to all forms of premises which operate pursuant to a Liquor Licence. The rental ratios indicated all reflect the notion of competent average management as this applies in respect to the trading acumen of each tenant.

Most of the following rental information relate [sic] to venues the businesses of which are predominantly orientated toward food and beverage trading and on this basis are entirely comparable with the Ladro Restaurant. Whilst the majority of these venues operate under a General Liquor Licence this really only affects the quantum of rental rather than the manner of rental assessment, this is largely because an 8.0% rental ratio tends to be applicable to both food and beverage components of trading.

I note that off premises trading levels in the following venues tends to comprise only a small component of overall trading.

[And there follows a table listing 18 Hotels tabulating for each whether a New or Existing Lease; Lease Commence/Renewal; Years Remaining/Rental $ per annum/% Rent to Turnover - and then an Average for % Rent to Turnover, which is calculated as 9.1%.]

7. Rental Determination

Pursuant to my appointment by the parties relating to Ladro Restaurant, 162-162A Greville Street, Prahran, I have resolved to determine the current market rent as at 11th March 2014 of $210,000 per annum (Two Hundred Ten Thousand Dollars per annum) - exclusive of GST.

22 Following the provision of the Determination to the parties, by email dated 25 June 2014, Sean Kierce, Director of Ladro, wrote to the Valuer seeking clarification of various issues, including clarification of the potential trading performance at the Premises. By email dated 2 July 2014, the Valuer responded - with text embedded in Sean Kierce's previous email. The text of the email exchange is set out below (with the Valuer's embedded responses in italics):[34]

Thank you for your rental determination. I would like some clarification on some points.

1. 2.7 The Liquor Licence is NOT a 24hr per day licence. Restrictions are as follows Sunday 10am-7am the following day and Good Friday/Anzac Day 12noon-7am the following day. Hence no alcohol to be served on Sundays (all) between 7am and 10am and Good Friday/Anzac Day from 12am-12noon.

In the hospitality industry any venue which can trade until 7am is generally viewed as a 24 hour licence - basically you can trade past 3am - which is generally what Nightclub licences have, the Anzac Day/Good Friday clause is attached to most liquor licences. A liquor licence which allows trade past 3am is viewed as an advantage.

...

6.2 Please explain the benefit of "potential trading performance". Potential benefit can not (sic) be assessed until the potential has been realised? If this is true then we a would (sic) have a comparable square meter rent to FOG? If there is such potential then why are the Candy Bar and Greville Bar not trading anymore on the same location? The rental review should be based on current figures and comparable property rental rates. You have compared Ladro with businesses that have had substantial Landlord contributions (Zucca Rossa and Zumbo).

The Permitted Use of the Lease states "Licensed Bar and Restaurant" - I have therefore taken this into account when assessing the rental. I have used both rate per square metre and had reference to potential trading.

6.2. l Ladro does not predominately offer pizza. Pizza represents 12 items out of a total of 36 food menu items. Fact: Ladro Greville is not grossing $2,600,000 currently and I ask you to please clarify how you came to this figure without any visible working figures?

I did not mean to offend by stating Ladro provides a "pizza offer" - based on my inspection and your web site it appeared to be a major component of the product you offer.

The Retail Leases Act Section 37 (2) states that I am not to take into consideration the value of goodwill created by the Tenant's occupation or the value of the Tenant's fixtures and fittings. Therefore I cannot solely rely on the trading information that you provided to me.

Based on the liquor licence in place, and comparable venues in the region which I hold on file, I am of the opinion that a business at 162-162A Greville Street, Prahran would be able to generate $50,000 per week in sales.

The comparison of Pub venues with Ladro makes no sense. The beverage/food mix is totally different in a hotel/pub venue. Hotel/Pub % should more like 50-70% beverage and 30-50% food.

Once again, the Permitted Use in the Lease states "Licensed Bar and Restaurant", the venue also has a Late night (on-premises) Liquor Licence which has a distinct advantage over a Restaurant Licence and therefore these rentals are comparable, the majority of these venues are inner city and do not have bottle shops and rely on bar and food sales only.

The Restaurant and Catering association have published a survey from 2012 stating the benchmark rent for their members is 6.8%.

23 In VCAT, Ladro submitted that although it was open to the Valuer to use the Profits Method in certain cases, though it was not conceded that the present case falls into that category, the Determination was simply not based upon an assessment of the market rent using the Profits Method but was, rather, based on the Valuer using the Comparative Method. Senior Member Riegler's conclusion in this respect is set out in his reasons where he said that the Ladro submission had merit. Continuing, Senior Member Riegler said:[35]

It appears from a plain reading of the Determination report that the assessment of market rent using trading profits methodology is an adjunct to corroborate the Determination derived by using comparative market methodology. The fact that the trading profits methodology valuation is $2,000 less than the amount of the Determination indicates, in my view, that the Determination is not derived from this valuation. Further, having regard to my comments above, I do not consider that this Tribunal has jurisdiction to substitute one valuation for another. Given that the Landlord concedes that the valuation derived through the adoption of the comparative market methodology is erroneous and not in accordance with the contract, I find that the Determination is vitiated on this ground.

24 As set out previously, the first question posed in the Draft Notice of Appeal is:

Whether the Tribunal erred in finding, at paragraph 19 of its reasons, that the assessment of market rent using a trading profit methodology was an adjunct to corroborate the Determination derived by using a comparative market methodology, vitiating the [report].

The relevant paragraph in this respect, para 19, is set out above.[36]

25 The contention of Higgins Nine is that this question does pose a question of law on the basis that VCAT, in making the finding to which reference is made in relation to the Determination, was making a finding on the proper construction of a contract; a process which the authorities indicate is a question of law (not that I think authority for this proposition is required, nor is this proposition in controversy between the parties). Higgins Nine did also call in aid the authorities which are set out in Pizer's Annotated VCAT Act.[37] It is not necessary, for present purposes, to refer in detail to the authorities cited by Pizer for the following list of matters which have been held to be - or assumed to be - questions of law:[38]

• The proper construction of a contract; [39]
• The proper construction of a real estate agent's authority;[40]
• The proper construction of a series of related insurance policies;[41]
• The proper construction of an exclusion clause in a public liability insurance policy;[42]
• The proper construction of a provision of an insurance policy and of a similar provision in a Ministerial Order;[43]
• The proper construction of the expression "reasonable legal costs and expenses" in a settlement offer (and in Terms of Settlement);[44]
• The interpretation of the "Guides to the Evaluation of Permanent Impairment";[45] and
• The proper characterisation of a planning permit application.[46]

26 It will be seen from a consideration of these matters that the common thread running through them is the construction of a document or instrument regulating rights and liabilities under which action is or is not to be taken; whether that document is the product of agreement, such as a contract, or some legislative or quasi legislative instrument. In my opinion, a valuer's determination bears no similarity to any of these matters. It is not a contract. The contract under which the Valuer's task is undertaken - and under which his or her determination is the result or "product" - is a contract or agreement between the relevant parties. In the present circumstances these contractual arrangements would be expected to include the relevant provisions of the Lease, such as sub-cl 11.1.5,[47] incorporated in actual terms or by reference in the contract whereby Higgins Nine and Ladro engaged the Valuer. In any event, however the contractual arrangements are made and from whichever party perspective is applicable - landlord, tenant or valuer - this is nothing inherently contractual in the Valuer's work - the "product" - the determination. Moreover, that a determination - the "product" - has consequences under the Lease or other contract under which it is made - here in respect of rent payable - does not render that product itself contractual. As is clear from Legal and General Life of Australia Ltd v A Hudson Pty Ltd,[48] the contract under which a valuer is engaged is distinct from the valuation process and the product of that process. Rather, and as distinct from that "product", the contract provides the valuer's "mandate" in a manner which does not render the valuer's work - the "product" - part of the contract or otherwise itself contractual. That work is something to be assessed having regard to the "mandate". It is true that a question of law does or may arise where an issue is raised as to compliance with or breach of the provisions of a contract because this issue, inherently, involves, or may involve, the construction and interpretation of a contract and its terms, and consideration of what has or has not occurred. Issues of this kind are more likely to raise mixed questions of law and fact, but that is not the position or issue with respect to the first question; though, for the reasons which follow, there seems little doubt that the second question, were it relevant, would raise a mixed question of law and fact.

27 Ladro contends, on the other hand, that this question, the first question, does not constitute a question of law, but that even if it did constitute a question of law, VCAT did not err in deciding this question. Moreover, it is submitted that there is no basis for the submission by Higgins Nine that this first question raises a question of law or a mixed question of law and fact. Ladro also observes that s 148(1) of the VCAT Act requires the precise identification of question of law, which supplies both the occasion for, and the subject matter of, the appeal.[49] Ladro contends that the Plaintiff has not identified a question of law.

28 It is clear that a question of law does not arise merely because a tribunal makes a wrong finding of fact.[50] Thus, there is no question of law involved if the only question is whether or not facts were wrongly found, because that is a question of fact.[51] Neither does a question of law arise merely because there is an error in the logic of the tribunal's reasons.[52] A mixed question of law and fact does, however, arise when there is a dispute as to the legal effect of the facts once they have been decided, or where a decision is required on the application of a legal test or a standard on the facts under consideration.[53] Nevertheless, in cases involving mixed questions of law and fact, it is necessary to identify whether the decision maker has made an error of law or an error of fact.[54]

29 In Warley Pty Ltd v Adco Constructions Pty Ltd, McHugh JA said that if:[55]

the only question in the case is whether evidence ought to have been accepted or whether evidence which has been accepted established a particular fact, no question of law is involved.

30 The propositions to which reference has been made have also been reaffirmed in many other cases, many of which of the highest authority are discussed by the Full Bench of the Full Court of the Federal Court of Australia in Haritos v Federal Commissioner of Taxation, where the Court said:[56]

1. ... The correct approach, in our opinion, is to ask directly the question whether the appeal is on a question of law, without being diverted by whether or not the appeal raises a mixed question of fact and law. As the High Court said in Owens,[57] the purpose of limiting an appeal to a question of law is to ensure that the merits of the case are dealt with not by the Federal Court but by the Tribunal. This distribution of function is critical to the correct operation of the administrative review process. See also O'Brien[58] where Gibbs CJ, Wilson and Dawson JJ said that on an appeal under s 44 the appellate body should not usurp the fact-finding function of the tribunal. But such fact-finding is an entirely different exercise from the evaluation of the fact-finding process of the tribunal (as fact-finder) to decide upon its legality.
2. Subject to one matter in relation to fact-finding, to which we return in [197] below, we would also adopt what Hill J said so clearly in Sharp Corporation:[59]

where the facts found are capable of falling within or without the description used in the statute, the decision which side of the line they fall on will be a decision of fact and not law. Such a decision will generally involve weight being given to one or other element of the facts and so involve matters of degree.

See also Bell v Commissioner of Taxation.[60]

1. To return to the analysis of Gleeson CJ, Gummow and Callinan JJ in Vetter,[61] not all questions involving mixed questions of fact and law are, or need to be, susceptible of one correct answer only. This means that, as their Honours suggested by quoting Jordan CJ in Australian Gas Light Co, if the facts inferred from the evidence are necessarily within the description of a word or phrase in a statute or necessarily outside that description, a contrary decision is wrong in law.[62]
2. Further, a finding of fact may be vitiated by an error of law, such as where a finding of fact is based on a misdirection of law_._[63]
3. In Hope[64] Mason J said that when it is necessary to engage in a process of construction of the meaning of a word (or phrase) in a statute a question of law will be involved but that the question may be a mixed one of fact and law.[65]
4. These matters demonstrate the lack of utility in adopting the non-statutory criterion of "mixed question of law and fact" in respect of an appeal under s 44 of the AAT Act.[66]
5. The correct approach, in our opinion, is that taken by the Full Court in Sharp Corporation which we have set out above at [126], that is, in cases involving mixed questions of fact and law, it is necessary to identify whether the administrative decision-maker is alleged to have made an error of law or an error of fact.[67]
6. As Brennan J said in Attorney-General (NSW) v Quin:[68]

The merits of administrative action, to the extent that they can be distinguished from legality, are for the repository of the relevant power and, subject to political control, for the repository alone.

The merits, in our view, are the zone of discretion to which Gleeson CJ, Gummow, Kirby and Hayne JJ referred in City of Enfield v Development Assessment Commission.[69] It may, however, be the case that in exercising its jurisdiction under s 44 of the AAT Act the court has to consider how the tribunal has gone about its fact-finding and the choices that it has made in order for the court to assess, in deciding a question or questions of law, whether the tribunal has stayed within the zone of discretion. For this purpose the court does not consider whether the Tribunal should have made a particular finding of fact but whether it may lawfully have done so.

31 In the VCAT proceedings, the Valuer's Determination was evidence in that proceeding. The Tribunal made a finding of fact that the Valuer's assessment of market rent in the Determination was derived using comparative market methodology;[70] the Comparables Method. Clearly, the finding was one which it was open to the Tribunal to make. The authorities are clear that, had the Tribunal made a wrong finding of fact, that finding could not be impugned simply because a court thinks that the finding was erroneous or against the weight of evidence.[71]

32 As will be clear from the preceding discussion, I am of the opinion that the Determination is not of a contractual or other character akin to any of the matters identified in Pizer's Annotated VCAT Act,[72] and that, consequently, the Tribunal's finding as to the nature and effect of the Determination is a finding of fact, and not a finding of law. Although this finding has the effect of disposing of this proceeding, it is desirable, in my view, to address briefly the issue whether, if the Tribunal's finding in this respect constituted an error of law, it was a finding which is erroneous. For the reasons which follow, I am of the opinion that this is not the position.

33 I have set out previously some extensive material from the Determination which is relevant to the contentions of both parties in the present proceedings. It should also be noted in terms of some of the background material contained in the Determination the Valuer's observation: "I note that both the Landlord and the Tenant believe that rental should be applied on a rate per square metre basis".[73] More particularly, a reading of the Determination, particularly in the context of sub-cl 11.1.5 of the Lease demonstrates that the Valuer's determination is a market rental of $210,000 per annum (exclusive of GST).[74] That is the "current market rent" formally determined by the Valuer in his Determination. It is not $208,000 per annum plus GST as found applying the Profits Method. This, the Profits Method, is not stated to be the basis of the Determination and there is no discussion of how, on any basis, $208,000 would or should be "rounded up", as Higgins Nine suggests, to $210,000. Additionally, and somewhat tellingly, there was no "rounding down" from $210,000 to $208,000, which was calculated by applying an 8% "rental factor" to the projected trading turnover of $2,600,000: 8% of $2,600,000 being exactly $208,000. Moreover, this, perhaps more literal, reading of the Determination is, in my view, supported by careful consideration of its more discursive contents.

34 Turning to the more discursive contents, it will be seen from the passages in the Determination which I have set out that the discussion in s 6.1 is directed to rental evidence of comparable properties, discussion of factors taken into account from the comparable rental data as set out, followed by a more detailed assessment supported by the rental evidence presented leading to the Valuer's adoption of "a rounded current market rent of $... per annum plus GST". This discussion and analysis was then followed, in s 6.2 of the Determination, by a consideration of trading performance and potential - described in these proceedings as the "Profits Method". The Valuer's discussion opens with an introductory paragraph:[75]

In my opinion the specialised nature of the Demised Premises is clearly such that an assessment of market rental cannot simply be assessed using general retail premises rentals as comparative data and that forecast trading must also be a consideration.

The Valuer then considers trading performance and potential trading performance and, adopting a rental factor of 8%, says that applying this rental factor to a projected trading turnover of $2,600,000 equates to a rental of $208,000 per annum plus GST. Moreover, this process of checking or corroborating the primary methodology - the basis of the Determination - is, in my view, consistent with the broad statement of methodology set out in "Premise 14" of the Determination.[76]

35 For these reasons, were it necessary for the Court to decide whether VCAT was in error in finding that the Profits Methodology was simply an adjunct to corroborate the Determination derived using the Comparables Method, I would find no error and would agree with the conclusion reached by Senior Member Riegler as set out in his reasons.[77]

36 Ladro accepts that the second question does raise a question of law - but that it is a question that is only relevant if the Court decides that the first question is a question of law and that the Tribunal erred in deciding the first question. For the reasons indicated, I have found that the first question is not a question of law, but that if it were, the Tribunal did not err in deciding it. Thus, the second question does not arise, but, for the reasons indicated previously, it is desirable to express some views in relation to this question nevertheless.

37 In some respects, the second question, itself, highlights the point that the first question does not raise a question of law. In the case of the second question, the issue is whether the Determination, insofar as it might survive as a determination applying the Profits Method to determine current market rental, complies with the mandatory requirements of sub-s 37(6) of the Retail Leases Act - whether viewed as imperative statutory requirements or requirements that have, by statute, been incorporated or implied as overriding provisions in the Lease itself. Either way, determining this question falls squarely within the matters identified by reference to the authorities in Pizer's Annotated VCAT Act as discussed previously.[78]

38 In 756 Glenferrie Road Pty Ltd v Mountford Shoes Ltd,[79] Senior Member Riegler said that s 37(6)(b) requires that there "are sufficient reasons that enable the parties to understand the basis on which the determination has been made". Other authorities are to similar effect, some of which are helpfully the subject of some more particular reference and discussion.[80]

39 In Adwell Holdings Pty Ltd v Bourne,[81] Young CJ in Eq considered the requirement for evaluation to contain detailed reasons in the context of s 19 of the Retail Leases Act 1994 of New South Wales, as it was in force as at 1 August 2005. That provision was then in the following terms:

(1) A retail shop lease that provides for rent to be changed to current market rent is taken to include provision to the following effect:

...

(e) A valuation for the purposes of paragraph (b) is to be in writing, to contain detailed reasons for the specialist retail valuer's determination and to specify the matters to which the valuer had regard for the purposes of making his or her determination

In relation to these provisions, his Honour said:[82]

However, I would agree with Mr Sharpe that the contract required the valuer to give "detailed" reasons; this goes further than merely requiring "sufficient" reasons and requires the valuer to set out details as to how he or she arrived at the determination. Further, when it says that it is to specify the matters to which the valuer had regard, that does not just mean setting out by rote what is in the Act, but actually dealing with how those matters were considered in the process of making the valuation.

40 It is clear that it is not sufficient for a valuer to "leap to a judgment": the valuation must disclose the steps of reasoning.[83] This position is, in my view, reinforced by the provisions of s 37(6) of the Retail Leases Act.[84] Not only does para (b) of this sub-section require "detailed reasons" for the valuer's determination, but in para (c), adds the requirement that the valuer "specify the matters to which the valuer had regard". These provisions are relevantly the same as the New South Wales equivalent provisions considered in Adwell. Clearly, both the Victorian and New South Wales provisions eschew and do not entertain any "blinding flash of light" as satisfying their "requirements".[85]

41 The Higgins Nine submissions in this respect are conveniently summarised in the reasons of Senior Member Riegler, as follows:[86]

1. Mr Hopper submitted there were indications given in supplementary material supplied by the Valuer, following a request by the Tenant to provide further particulars, which expounded upon the Valuer's reasons set out in the Determination report. In particular, Mr Hopper pointed to email correspondence dated 2 July 2014 from the Valuer to the Tenant, which purported to answer a number questions raised by the Tenant. One of those questions included a request to explain what the Valuer meant by potential trading performance. The Valuer responded as follows:

The Permitted Use of the Lease states "Licensed Bar and Restaurant" - I have therefore taken this into account when assessing the rental. I have used both rate per square metre and had reference to potential trading...

Based on the liquor licence in place, and comparable venues in the region which I hold on file, I am of the opinion that a business at 162-162A Greville Street, Prahran would be able to generate $... per week in sales.

1. Mr Hopper also referred to a number of authorities in support of his submission that an omission from a determining Valuer's report can only vitiate the determination if its presence would assist the Tribunal to determine whether the report should be set aside. Mr Hopper referred to Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd[87] where ... [Stein JA] stated:

[61] The reasons the valuer gave were sufficient to enable the parties to see whether cl 1(d) had been complied with in the valuation exercise. Detailed reasons, such as provided by a judicial officer or arbitrator, are not required. This valuer was appointed to act as an expert and not as an arbitrator. Gillard J discussed the standard of reasons usually required of a valuer in Commonwealth v Wawbe Pty Ltd.[88] I agree with his Honour's observations. The form of the particular clause in this lease requiring "sufficient reasons" does not detract from the force of what Gillard J said.

[62] In any event, even a judge does not have to detail every factor seen as relevant or irrelevant or itemise every fact taken into account. Judicial reasons are not required to elaborate. Rather they need to be such as indicate to the parties why and on what basis the decision was made. Step by step reasons to a conclusion not required.

[At first instance Palmer J stated:[89]]

In my view, the requirement of cl 1(f) for "sufficient reasons" obliged Mr Norris to disclose what he did and why only to the extent necessary to enable the parties, with the assistance of their experts, to see whether he had complied with the requirements of cl 1(d) by having regard to the matters to which he was obliged to have regard, and by disregarding the matters which he was obliged to disregard....

1. In my opinion, Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd[90] can be distinguished from the present case. In particular, in that case Palmer J considered whether the relevant clause in the lease requiring sufficient reasons had been met. However, in the present case, the Act requires not only detailed reasons but also requires the Valuer to specify the matters to which the Valuer had regard in making the Determination. In my view, s 37(6) of the Act goes further than simply requiring the Valuer to provide sufficient reasons.

42 In my opinion, the contents of the email correspondence to which Higgins Nine pointed - which is set out above[91] - does not assist the landlord's position. The email correspondence does not, in my view, detract from the position expressed in the Determination which, as I have indicated, does make it clear, in my view, that the Determination is based on the Comparables Method, rather than the Profits Method. Whether or not the email correspondence is properly used in this way to interpret or add to the Determination is not a question in controversy between the parties and, consequently, I express no view in this respect.

43 In relation to the authorities relied upon by Higgins Nine to which Senior Member Riegler referred in his reasons, I do not find it necessary to comment further, as I find no error in relation to his treatment and analysis of those authorities, and would adopt Senior Member Riegler's summary, as set out, with no reservations. Moreover, the additional authorities to which Higgins Nine made reference in the course of those proceedings merely confirm the position as stated in the authorities to which Senior Member Riegler made reference. The same applies with respect to the additional authorities to which reference was made by Ladro.

44 The deficiencies in the reasoning in the Profits Method are, in my view, set out accurately and in detail in Senior Member Riegler's reasons, as follows:[92]

1. In my view, there is very little detail given in the Valuer's reasons as to how the Valuer was able to conclude that $... was reasonably achievable by way of gross profits. The data, presumably relied upon and which was cited in the Determination report stated that the Tenant had achieved gross sales in the financial year ending 2013 of $... and in the previous financial year of $.... It is difficult if not impossible to discern from the Determination report how the Valuer was then able to conclude that an additional $536,782 was achievable in annual turnover for the business. The only indicator as to how that figure was derived is by the Valuer's supplementary comments:

Based on the liquor licence in place, and comparable venues in the region which I hold on file

1. In my view, that comment, even if embellished with further narrative as set out in the Determination report, does not provide adequate detail as to how the Valuer was able to say that it was reasonably achievable that projected sales were likely to be 26% higher than actual sales. One might speculate that the Valuer placed considerable emphasis on the fact that the Tenant traded up until 11 pm in circumstances where the 24 hour liquor licence allowed it to trade well beyond that time. However, having to speculate as to how the Valuer formed his opinion is, in my view, contrary to what is required under s 37(6) of the Act. Moreover, no detail was provided as to what other venues were used as a comparator. That, of itself, raises a number of questions: Did those other venues have similar GLAR? Did they have the same type of liquor licence? Were they also being operated as a restaurant/bar? Was their location proximate or did they cater for the same demographic clientele? Without those details, I consider the reasoning to be deficient and not in accordance with the Act. In Kumari v Goa,[93] the Queensland Retail Shop Lease Tribunal (as it then existed) considered a similar case and made the following observations, which I find are apt:

We are also satisfied the valuer has not complied with s31(1)(d), which requires "detailed reasons" for the determination...

The Valuer's concluding remarks are singularly brief and uninformative. He simply observes:

Taking into account the attributes both positive and negative, the market evidence available indicates...

and then arrives at the all-important figure.

Nothing in these reasons for decision is meant to encourage a hypercritical approach to the decisions of specialist retail valuers. But due weight must be given to the legislature's demand for "detailed reasons", when not inconsiderable fees are charged for reports of this nature. It seems to us that this requirement is not satisfied by a decision padded with preliminary, non-contentious material, purportedly based on "a full consideration" of relevant facts, followed by a leap to judgement. We recall the advice of Sir Frank Kitto, former Justice of the High Court, to those called upon to give "detailed reasons". Such a task, involves more than -

[recitation of] the facts in a degree of pedestrian detail that scorns to [indicate] those that really bear on the problem ... and then, without carefully worked out steps of reasoning but with a "blinding flash of light" ... produces the answer with all the assurance of the divine revelation.[94]

In some respects, the most extraordinary piece of evidence in relation to the Valuer's Determination is contained in the email correspondence where, in relation to the conclusion that an additional $536,782 was achievable in annual turnover for the business, the Valuer said that this was "based on the liquor licence in place, and comparable venues in the region which I hold on file". Higgins Nine sought to defend this apparent leap of reasoning on the basis that it was the opinion of an expert and, given the Valuer's expertise, that was sufficient in terms of reasoning for the purpose of s 37(6) of the Retail Leases Act and in conformity with the authorities on which reliance had been placed. In my view, this is a position which is actually dispelled by the statement contained in the email correspondence to which I have referred. Rather, the Valuer is saying, in effect, that there is a file of material upon which I have made this assessment and, as is the case, the material is not being disclosed; a position possibly even worse than a mere "blinding flash of light"[95]. In other words, the reasoning process in this respect is entirely opaque, which is at odds with the requirements of s 37(6) of the Retail Leases Act which, in effect, requires a "speaking valuation", to use more traditional common law parlance. One of the reasons, of course, for a "speaking valuation" in accordance with the requirements of s 37(6) is that it would not otherwise be possible to determine whether the requirements of s 37 had been complied with in the valuation process - in which case the legislative purpose would be negated.[96]

45 In conclusion on this aspect of these proceedings, I am of the view that the deficiencies in reasoning are both highlighted and accurately stated in the Ladro submissions:[97]

(a) the valuer set out in an abbreviated form the gross sales figures for the lessee FYE 2013 and FYE 2012 (derived from trading figures);

(b) gross income had dropped from FYE 2012 ($2,129,000) to FYE 2013 ($2,063,000), that is a 3.13% decrease;

(c) the valuer stated that $2,600,000 was an achievable gross annual turnover (that is an increase of $536,782 or 26%);

(d) the valuer then applied an 8% rental factor to $2,600,000 to arrive at $208,000.

1. The valuer did not set out the steps in his reasoning. He:

(a) did not state how he calculated or determined a $536,782 or 26% increase in gross annual turnover;

(b) placed great emphasis on the premises having a 24 hour licence (the lessee only trading to 11pm) but does not provide any calculations for income or expenditure with respect to additional trading.

1. It is submitted that the Tribunal decision was correct because the valuer neither furnished detailed reasons nor specified the things that he had regard to in deciding that an increase in gross annual turnover of $536,782 or 26% was achievable.

46 For the preceding reasons, leave to appeal the Tribunal's decision is refused, as the application for leave to appeal does not raise a question of law. I do, however, observe, as discussed in the preceding reasons, that if I were of the opinion that the first question as set out in the Draft Notice of Appeal did raise a question of law, then the Tribunal did not err in deciding that question. Moreover, if I were of the view that the first question as set out in the Draft Notice of Appeal did raise a question of law and that the Tribunal erred in deciding that question, then I would be of the opinion that the Tribunal did not err in deciding the second question as set out in the Draft Notice of Appeal.

47 The parties are to bring orders to give effect to these reasons. I otherwise reserve the question of costs.

[1] Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd (Building and Property) [2015] VCAT 1687.

[2] Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd (Building and Property) [2015] VCAT 1687, [6]-[11] (emphasis in original).

[3] The acronym "GLAR" means Gross Lettable Area Retail_._

[4] Commissioner of State Revenue v Frost (2011) 83 ATR 832 at 834 [5] citing Department of Premier and Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331 at 335-6 [11] and Myers v Medical Practitioners Board (Vic) [2007] VSCA 163; (2007) 18 VR 48 at 55 [28].

[5] Boucher v Dandenong Ranges Steiner School Inc [2005] VSC 400; (2005) 145 LGERA 21 at 26 [15] citing Spurling v Development Underwriting (Vic) Pty Ltd [1973] VicRp 1; [1973] VR 1 and Whitehorse City Council v Golden Ridge Investments Pty Ltd [2005] VSCA 198.

[6] (2011) 83 ATR 832 at 833-4 [3].

[7] Commissioner of State Revenue v STIC Australia Pty Ltd [2010] VSC 608; (2010) 81 ATR 682 at 687 [10].

[8] Department of Premier and Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331; Al-Hakim v Monash University (Unreported, Victorian Supreme Court of Appeal, 28 March 2003); Myers v Medical Practitioners Board (Vic) [2007] VSCA 163; (2007) 18 VR 48.

[9] See Morris v R [1987] HCA 50; (1987) 163 CLR 454 at 475.

[10] Osland v Secretary to the Department of Justice [No 2] [2010] HCA 24; (2010) 241 CLR 320 at 333 [21].

[11] Morris v R [1987] HCA 50; (1987) 163 CLR 454 at 475; Secretary to the Department of Premier and Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331 at 335.

[12] Secretary to the Department of Premier and Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331 at 335-6 [11]; Commissioner of State Revenue v Challenger Property Nominees Pty Ltd [2006] VSC 203; (2006) 63 ATR 65 at 69 [20], 77 [65].

[13] [2005] HCA 40; (2005) 222 CLR 115 at 136 [64].

[14] Minister for Immigration and Ethnic Affairs v Guo [1997] HCA 22; (1997) 191 CLR 559 at 575 and 597. Cf Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 at 348 [74].

[15] (Unreported, Supreme Court of Victoria, Ashley J, 21 December 1994) 13.

[16] (1971) 38 LGRA 6 at 18.

[17] (1980) 44 LGRA 65 at 67-8.

[18] (1985) 62 LGRA 346 at 349-50.

[19] The Gombac Group Pty Ltd v Vero Insurance Ltd [2005] VSC 442, [59].

[20] [1999] VSCA 117; [1999] 3 VR 331.

[21] Department of Premier and Cabinet v Hulls [1999] VSCA 117; [1999] 3 VR 331 at 335-6 [11].

[22] Affidavit of Eric Karabardak (25 November 2015) Exhibit EK-2.

[24] Lease, cll 11.1.5, 11.2 (emphasis in original).

[25] See Plaintiff's Outline of Submissions (20 April 2016) [8(b)] where reference is made to paras [4], [7], [10], [12]-[14], [21] (at sub-para 5.1.2(b)), [22] (at sub-paras 5.1.2(d), 5.1.3 and 5.1.4), [23] (sub-para 6), and [25] (at sub-para 6.2) to [27] of the Determination.

[31] Determination, 6 (emphasis added).

[32] See especially Determination, 23-7.

[33] Determination [6]-[7] (emphasis in original).

[35] Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd (Building and Property) [2015] VCAT 1687, [19] (emphasis in original).

[37] Jason Pizer and Emrys Nekvapil, Pizer's Annotated VCAT Act (Thomson Reuters, 5th ed, 2015) 909-10 [VCAT.148.240].

[38] Jason Pizer and Emrys Nekvapil, Pizer's Annotated VCAT Act (Thomson Reuters, 5th ed, 2015) 909-10 [VCAT.148.240].

[39] Bulasa Pty Ltd v Baytown Properties Pty Ltd (2003) VSC 248 [39]. See also Tattersall's Sweeps Pty Ltd v Veetemp Pty Ltd [2006] VSC 140 (an appeal was allowed: Tattersall's Sweeps Pty Ltd v Veetemp Pty Ltd [2006] VSCA 276); National Builders Group Pty Ltd v Vigilante [2007] VSC 339; (2007) 27 VAR 397; m3 Property (Vic) Pty Ltd v Whitehorse Towers Pty Ltd [2012] VSC 109, [22].

[40] Icon Property Pty Ltd v Wood [2008] VSCA 123.

[41] Royal and Sun Alliance Australia Ltd v Lifestyle Vermont Pty Ltd (in liq) [2002] VSC 185.

[42] QBE Insurance (Australia) Ltd v MCM Chemical Handling Pty Ltd (2006) 14 ANZ Insurance Case 61-697; [2006] VSC 95. See also JSM Management Pty Ltd v QBE Insurance (Australia) Ltd [2011] VSC 339.

[43] Dore v Housing Guarantee Fund Ltd [2003] VSC 61 (an appeal to the Court of Appeal was allowed: Housing Guarantee Fund Ltd v Dore [2003] VSCA 126; (2003) 7 VR 257); HIA Insurance Services Pty Ltd v Davy [2003] VSCA 73; (2003) 7 VR 512.

[44] Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd [2003] VSC 40; (2003) 20 VAR 43 (an appeal was allowed: [2005] VSCA 165; (2005) 13 VR 483).

[45] Barnett v Transport Accident Commission [1999] VSC 484; (1999) 15 VAR 414 at 424 (an appeal was dismissed: Barnett v Transport Accident Commission [2001] VSCA 12; (2001) 17 VAR 339); State Trustees v Transport Accident Commission [2000] VSC 494; Gillat v Transport Accident Commission [2003] VSC 15; (2003) 19 VAR 376; Transport Accident Commission v Lincoln [2003] VSCA 67; (2003) 6 VR 199.

[46] Able Demolitions & Excavations Pty Ltd v Yarra Ranges SC [2008] VSC 294; (2008) 160 LGERA 439.

[48] (1985) 1 NSWLR 314. See also Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd (Building and Property) [2015] VCAT 1687, [5].

[49] Osland v Secretary, Department of Justice (Vic) [2010] HCA 24; (2010) 241 CLR 320.

[50] Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321, 356; Noel Johnson's No. 1 Pty Ltd v Kennedy-Bush (unreported, Supreme Court of Victoria Court of Appeal, 20 June 1996).

[51] Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007)67 ATR 544 at 553 [24].

[52] Lucas v Transport Accident Commission [2003] VSC 97, [10].

[53] Da Costa v R [1968] HCA 51; (1968) 118 CLR 186 and Kalokerinos v HIA Insurance Services Pty Ltd [2004] NSWCA 312, [39].

[54] Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; (2015) 322 ALR 254 at 317 [194], [200].

[56] [2015] FCAFC 92; (2015) 322 ALR 254 at 317-8.

[57] Repatriation Commission v Owens (1996) 70 ALJR 904.

[58] Repatriation Commission v O'Brien [1985] HCA 10; (1985) 155 CLR 422 at 430.

[59] Sharp Corp of Australia Pty Ltd v Collector of Customs [1995] FCA 1521; (1995) 59 FCR 6 at 16.

[60] [2013] FCAFC 32; (2013) 90 ATR 7 at 14-5 [18].

[61] Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at 450 [24].

[62] Australian Gas Light Co v Valuer-General (1940) SR (NSW) 126 at 138.

[63] Australian Gas Light Co v Valuer-General (1940) SR (NSW) 126 at 138.

[64] Hope v Bathurst City Council (1980) 144 CRL 1 at 8.

[65] See Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at 450 [27].

[66] Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act").

[67] Sharp Corp of Australia Pty Ltd v Collector of Customs [1995] FCA 1521; (1995) 59 FCR 6 at 12-13.

[68] (1990) 170 CLR 1 at 36.

[69] [2000] HCA 5; (2000) 199 CLR 135.

[70] Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd (Building and Property) [2015] VCAT 1687, [19] (which is set out above).

[71] Director of Liquor Licensing v Kordister Pty Ltd [2011] VSC 207, [248] (an appeal was allowed in part but not on this point - see Kordister v Director of Liquor Licensing (2012) 39 VR 92; Karakatsanis v Racing Victoria Ltd [2013] VSCA 305; (2013) 42 VR 176; Whitehorse City Council v Golden Ridge Investments Pty Ltd (20050 13 VR 275 at 279 [8]; Boucher v Dandenong Ranges Steiner School Inc [2005] VSC 400; (2005) 145 LGERA 21, 26 [15]; Roads Corporation v Dacakis [1995] VicRp 70; [1995] 2 VR 508 at 520.

[74] Determination, 28 [s 7] (set out above).

[77] See especially Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd (Building and Property) [2015] VCAT 1687, [19].

[79] (Retail Tenancies) [2013] VCAT 640, [41].

[80] Adwell Holdings Pty Ltd v Bourne (2007) NSW ConvR 56-188_,_ [26]; (Adwell concerned s 19(1)(e) of the Retail Leases Act 1994 (NSW) which is in similar terms to s 37(6)(b) and (c). See also Perri v Exego Pty Limited [2009] NSWADT 170, [53]-[56]). See also Anthony v Coffee Club Properties Pty Ltd [2000] QSC 198, which concerned s 31(1)(c) and (d) of the Retail Shop Leases Act 1994 (Qld) which is in similar terms to s 37(6)(b) and (c). See also Kumari v Gao [2008] RSLT 19, 8; Silver Jewellery Shop & Piercing Planet v Telado Pty Ltd [2013] QCAT 561, [18]; Brisbane Comedy Pty Ltd v Malisano [2015] QCAT 340, [41].

[81] Adwell Holdings Pty Ltd v Bourne (2007) NSW ConvR 56-188.

[82] Adwell Holdings Pty Ltd v Bourne (2007) NSW ConvR 56-188, [26].

[83] Kumari v Gao [2008] RSLT 19, 8.

[85] Sir Frank Kitto, 'Why Write Judgments?' (1992) 66 Australian Law Journal 787 at 792 (referred to in paragraph 32 of Senior Member Riegler's reasons in the VCAT proceedings the subject of this appeal; set out below at [44]).

[86] Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd (Building and Property) [2015] VCAT 1687, [28]-[30].

[87] [2002] NSWCA 180; (2002) 11 BPR 20,201.

[88] (1999) ANZ ConvR 597.

[90] [2001] NSWSC 405.

[92] Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd (Building and Property) [2015] VCAT 1687, [31]-[32].

[94] Sir Frank Kitto, 'Why Write Judgments?' (1992) 66 Australian Law Journal 787 at 792.

[96] See Serene Hotels Pty Ltd v Epping Hotels Pty Ltd [2015] VSCA 228. See also [2015] VSC 104.

[97] Defendant's Outline of Submissions (2 May 2016) [26]-[28].