Plaintiffs v Firstnamed Defendant Secondnamed Defendant

Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 2) [2007] SASC 340; (2007) 99 SASR 251, Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 1) [2006] SASC 216; (2006) 95 SASR 338, Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615, 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).

REAL PROPERTY - Meaning of fee simple in possession - "Whether lease an encumbrance" - Trust Company of Australia Ltd v Valuer General [2008] SASC 169; (2008) 101 SASR 110, Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 2) [2007] SASC 340; (2007) 99 SASR 251, Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 1) [2006] SASC 216; (2006) 95 SASR 338, Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615.

1 This is an application by Challenger Property Asset Management Pty Ltd and Challenger Listed Investments Ltd, as plaintiffs ("Challenger"), challenging the site value and capital improved value of the land at 500 Chapel Street, Prahran as assessed pursuant to the Valuation of Land Act 1960 (Vic) ("the Act"). The land and buildings at 500 Chapel Street, Prahran, are known collectively as the "Jam Factory". For convenience, it is described as such in this judgment. However, naturally, the extent to which it is referred to in its improved state depends upon the context; whether it is a discussion of "site value" or "capital improved value" (unless otherwise indicated).

2 Challenger are the registered proprietors of the Jam Factory, being a parcel of land of some 19,200 square metres. It is situated in a predominantly "Business One" zone which has been improved by a two level retail and entertainment complex and car-park.

3 By rate and valuation notices, dated 30 July 2008 and issued pursuant to the Act, the first defendant, Stonnington City Council ("Stonnington") assessed the site value of the Jam Factory as at 1 January 2008 as $48,176,000, and the capital improved value of the Jam Factory as at 1 January 2008 as $103,855,000.

4 By letter and notice of objection dated 26 September 2008, Challenger objected, pursuant to s 16 of the Act, against Stonnington's determinations of both the site value and the capital improved value, as being too high.

5 By notice dated 22 December 2008, Stonnington disallowed the objection pursuant to s 21(3)(a) of the Act.

6 On 22 January 2009, Challenger made application to the Victorian Civil and Administrative Tribunal (VCAT) pursuant to s 22 of the Act for review of the decision of Stonnington to disallow the objection.

7 On 21 September 2009, on the application of the second defendant, Valuer General Victoria ("the Valuer-General"), VCAT Deputy President Dwyer ordered that the Valuer-General be joined as a party to the review proceeding in VCAT, pursuant to s 60 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic).

8 On 25 June 2010, upon the application of Challenger, Osborn J ordered, pursuant to s 23(3) of the Act, that the matter the subject of the review proceeding in VCAT be treated as a appeal to this Court, and that all documents filed in VCAT stand as documents filed in this Court, for the purpose of what had thereby become an appeal proceeding under s 23 of the Act in this Court.

9 In the present circumstances, the jurisdiction of the Court is original jurisdiction in the exercise of which the Court may, by order, confirm, increase, reduce or otherwise amend any valuation and make any other order it thinks fit.[1]

10 Challenger submitted that the plaintiff did not bear the legal onus to prove that the values assessed by Stonnington were in error. It was submitted that the decision of Batt J in 101 Collins Street Pty Ltd v City of Melbourne ("101 Collins Street"),[2] in which it was held that the appellant, the person seeking to challenge the valuation, had the ultimate onus of proof, should be distinguished on this issue. Reference was made by Challenger to Alpine Shire Council v MHSC Transportation Services Pty Ltd,[3] where counsel for the Alpine Shire Council submitted that the ratepayer bore the onus of proof, relying upon 101 Collins Street. The submission by counsel for the ratepayer was that there was no ultimate onus and, rather, the Shire had the same onus as the ratepayer to establish the validity of its valuation. The basis of the submission on behalf of the ratepayer was that the conclusion of Batt J in 101 Collins Street was based on sub-s 42(2) of the Act as it then stood, namely that in an appeal under Part III of the Act, the ratepayer bore the onus. Sub-section 42(2) has, however, since been repealed and there is no corresponding provision in the provisions of the Act as it now stands.

11 Challenger submitted that the decision of Batt J in 101 Collins Street[4] should be distinguished for the same reasons as those submitted by counsel for the ratepayer in Alpine Shire Council v MHSC Transportation Services.[5] Additionally, it was submitted that an application to challenge a valuation in the present circumstances may now only be made to VCAT, rather than the applicant having a choice between commencing in VCAT or the Court. Challenger also submitted that having regard to the fact that an application to VCAT is an application for a merits review, there could properly be no onus in such a proceeding. It was submitted, therefore, that the revised framework of the Act is different from that at the time of the 101 Collins Street decision, and is not consistent with an onus applicable when a matter is later uplifted to the Court from VCAT.

12 Challenger also submitted that even if 101 Collins Street[6] were to be followed, no onus of proof falls upon them. It was said that in 101 Collins Street, Batt J recognised that it may not always be appropriate to have regard to the onus.[7] In that case, the City of Melbourne contended for a higher valuation than the municipal valuer's original valuation. All parties led detailed evidence in support of their contended for valuations, which were different from the original valuations. In those circumstances, Batt J held that it was "quite out of the question" to adopt the original valuation.[8]

13 On this basis, it was submitted that, with respect to site value, similar considerations would apply as Stonnington does not press its original valuation, and each party has led evidence as to what it submits is the proper valuation. Hence, it was submitted, no onus falls upon Challenger to show error in the calculation of the site value and, consequently, each party has the same burden to establish the accuracy of its own valuation.

14 In relation to capital improved value, Stonnington contended for its original valuation and both Challenger and the Valuer General contended for other valuations. Further, Challenger and the Valuer General contended for different meanings to be applied with respect to the proper interpretation of the definition of capital improved value.

15 The Valuer General submitted that the person seeking to challenge the valuation has the ultimate onus of proof, but where no party contends for the return figure (as is the case in respect of site value in this proceeding), there is no onus and the question is the proper value on the evidence and provisions of the Act. Further, it submitted that where there is an onus of proof, which the Valuer General said was the position in the case of the capital improved value in this proceeding, once error in the valuation is shown, the proper valuation is an open matter for the Court.

16 In my opinion, applying the approaches argued for by Challenger and the Valuer General, the position is reached, with respect to both site value and capital improved value, that no onus applies. Rather, the burden simply lies on each party to establish the accuracy of its own valuation. Additionally, and in my view more significantly, regard should be had to the considerations in this respect advanced by the ratepayer and accepted by the Court in Alpine Shire Council v MHSC Transportation Services.[9] These considerations are particularly significant in the present circumstances, where the merits review proceeding in VCAT has simply been "uplifted" to the Court under s 23 of the Act. It would be at odds with the purpose of permitting such an "uplift" if the result were to change, in a fundamental and perhaps decisive way, the nature of the proceeding which would otherwise have been conducted in VCAT under s 22 of the Act as a merits review proceeding.[10] In my view, this position is made clear by sub-s 23(1) of the Act, which provides for "uplift" if the Supreme Court or the President of VCAT is "satisfied that the matter raises questions of unusual difficulty or general importance".

17 It is clear from the authorities that the role of the Court is not "to bring a third set of opinions into the arena"[11] or to "piece together a valuation of [its] own".[12] Further, in circumstances where there is a disparity between valuers' valuations, the Court must subject each valuer's evidence to critical evaluation.[13] Additionally, it is clear that it is not permissible to average valuations because the result "would be a figure not arrived at by the application by the Court of the established principles of valuation".[14]

18 This does not mean, however, that the evidence of one valuer must be accepted on all issues. It is open to the Court to accept the evidence of one valuer on one issue and the evidence of another valuer on another, separate, issue.[15] Thus Zelling J said in Doherty v Commissioner of Highways:[16]

"Judges do not have to accept the valuations of the valuers of either side and frequently arrive at a figure or figures which constitute a modification or modifications of the figures submitted by one or more valuers. For a typical example of the process, see the judgment of Walsh J in Anthony v The Commonwealth,[17] especially at p 94. They are guided in coming to the conclusion by the evidence of the valuers together with the other evidence in the case."

Nevertheless, as Batt J indicated in 101 Collins Street, care needs to be taken by the Court when it adjusts the evidence of valuers:[18]

"Whilst I cannot piece together a valuation of my own (Brewarrana [Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541] at 545), it appears to me that I am entitled, by reference to evidence of one valuer, to adjust on a number of aspects the valuation of another valuer, provided that I make allowance for the fact that one variable in a component consisting of several variables may in fact have been balanced in the latter valuer's valuation by one or more of the other variables. In such a case it might, depending upon the circumstances, be necessary to refrain from making the adjustment and to adopt the component in full or not at all."

19 Challenger submitted that the comments of Batt J in 101 Collins Street,[19] set out in the preceding paragraph, are of application in the present proceeding. The Valuer General made reference to this part of the judgment of Batt J where these comments appear, and more broadly to the material under the heading "Valuation Issues: Task of the Court", which also appears in that judgment.[20] The comments relied upon by Challenger encapsulate the position reached by Batt J as a result of his Honour's consideration of the authorities with respect to the task of the Court when considering valuation issues. It is, however, helpful to refer to part of the preceding analysis of the authorities:[21]

"On the other hand, by reference to Royal Sydney Gold Club v FC of T [1957] HCA 31; (1967) 97 CLR 379 at 394-395[1957] HCA 31; , (1967) 97 CLR 379 at 394-395, Yates Property Corporation Pty Ltd (in liq) v Darling Harbour Authority (1991) 24 NSWLR 156 at 168 and 171 (though this was in the dissenting judgment of Mahoney JA) and Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 at 436, counsel for the appellants cautioned me to avoid the Charybdis of binding myself to one valuer's valuation where the evidence of methodology was not satisfactory instead of 'doing the best I can' in those circumstances. Reference may also be made to Hyam, op cit, 299-306 and 317-320. It seems to me that the question is one of degree. Even counsel for the respondent acknowledged that I could accept the evidence of one valuer on one issue and the evidence of the other valuer on another, discrete issue. He acknowledged, too, that I could make at any rate make some adjustments to evidence that I was otherwise disposed to accept. That, indeed, is indisputable. In Yates Property at 182 Handley JA pointed out that the method of deducing market value from sales of comparable land almost invariably involved the making of adjustment to allow for differences from the land to be valued or timing differences and referred with approval to the following statement of Hope JA in Seatainer Terminals at 434:

'The need to make adjustments to values deduced from sales in order to arrive at the true valuation of the land to be valued does not preclude the court ... from relying upon the sales as comparable ... nor from ... making ... of adjustments which may be nothing more than the best guess that can be made'.

Handley JA continued that a judicial officer was not required to formulate verbal reasons for such guesses or exercises of judgment, pointing out that Australian courts, and in particular the High Court, had frequently referred to the following statement by Lord Hobhouse in Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [2901] AC 373 at 391:

'... in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity. In such an inquiry as the present, relating to subjects abounding with uncertainties and on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusions arrived at.'

That passage is cited also in Seatainer Terminals at 437. The statements by Hope JA and Handley JA about sales that may properly be treated as comparable apply equally, in my view, to lettings, which are, of course, the transactions whose consideration is relevant to these appeals. In addition to the statements I have already cited or mentioned, it is to be observed that Royal Sydney Golf Club Kitto J, at 394 described his task 'on this very scanty material' as being to 'form the best judgment I can' and on the next page said that how much should be allowed by way of addition for the chance that sales of building lots in subdivision of the land in question might become possible at some future date was 'necessarily a matter of guesswork'. He thought that an increase of five per cent was 'as near the mark as one [could] get'."

20 The conclusion reached by Batt J in 101 Collins Street,[22] as set out above,[23] was cited with approval by Morris J (sitting as President of VCAT) in ISPT Pty Ltd v City of Melbourne,[24] and by the Court of Appeal in refusing the application for leave to appeal the decision of Morris J.[25]

21 In terms of the general approach that the Court should adopt in exercising its role, Challenger submitted that to the extent that the role involves the interpretation of the provisions of the Act, the Court should prefer Challenger's submissions on the application of the principle of statutory interpretation, being, that any ambiguity in a taxing statute should be interpreted in favour of the taxpayer. In this respect, reference was made to the following passage in the judgment of Batt J in Shell Co of Australia Ltd v City of Melbourne ("Shell"):[26]

"Even if the correct interpretation were a matter of doubt (which I do not think it is), two considerations would lead to the resolution of that doubt in favour of the appellants. First, the interpretation contended for by the respondent would cause inconvenience and difficulties in administration. For all municipal valuers would have to ascertain the terms on which each leased parcel of land in the municipality was held and to determine whether or not the lease was more favourable to the landlord than a lease in accordance with the conditions of the market. In saying this, I acknowledge that the interpretation placed on s 42 of the Land Tax Act 1958 by the Full Court in Commissioner of Land Tax v City of Melbourne [1994] VicRp 35; [1994] 1 VR 486 requires the commissioner to make a similar enquiry and the converse determination. But that interpretation was clear and unavoidable. Secondly, the appellants are, in my view, entitled to invoke the principles of statutory construction applicable to an Act which imposes a tax or duty and, relevantly, the principle that the imposition of a tax must be in plain terms: Anderson v Commissioner of Taxes (Vic) [1937] HCA 24; (1937) 57 CLR 233 at 243; Hepples v Federal Commissioner of Taxation [1992] HCA 3; (1992) 173 CLR 492 at 510-11. I say that because, although the definition containing the putatively ambiguous words now appears in valuation legislation rather than in rating legislation, it is clear from provisions which I have discussed earlier that the definition of CIV and the provisions of the Valuation of Land Act 1960 which incorporate it are intended to govern the making of valuations on one basis (CIV) for use in the declaration of rates under the Local Government Act 1989. For the purposes of the principles of construction that I have referred to the latter Act relevantly imposes a tax or a duty. The remarks of Dixon J in Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of SA Ltd. [1947] HCA 10; (1947) 74 CLR 358 at 373-4 (agreed in by Gibbs J in Gregory v Federal Commissioner of Taxation [1971] HCA 2; (1971) 123 CLR 547 at 565), in which a distinction is drawn between revenue cases and compensation cases, although expressed in the context of valuation as opposed to interpretation of valuation legislation, point in the same direction."

Consequently, Challenger submitted that any ambiguity of the Act should be interpreted in its favour.

22 The Valuer General, on the other hand, submitted that in the case of ambiguity, the Court should favour the interpretation of capital improved value which it advanced on the basis of ease of administration. It was submitted by Challenger that it became plain during the course of the trial that little divided the approaches of the Valuer General and Challenger in terms of administration. In this respect, reference was made to the evidence of Mr Cundall, a valuer, who stated in his evidence that until the Valuer General changed its guidelines, it was common practice for valuers to allow letting up allowances, which were argued for by Challenger, in the course of valuing land for capital improved value purposes under the Act.[27]

23 For the reasons which appear below, I am of the opinion that the interpretation of the critical divisions of the Act is not doubtful in the relevant sense,[28] and is not made so as a result of a different view or views having been taken in relation to the proper construction of these provisions in a previous decision or decisions of this Court.[29]

24 It is clear from the authorities that, depending on the particular circumstances, different methods of valuation may be appropriate. The Courts have not adopted a prescriptive position with respect to valuation methodology and care should be taken to ensure that no single process of reasoning is elevated into a statement of principle.[30] The valuer's task is then, within the context of the facts and circumstances relating to the relevant property, to apply the most appropriate method of valuation according to his or her expertise and experience. Valuation practice is principally an art, rather than a science and is an art that continues to evolve.[31]

25 A valuer is, of course, an expert and, as such, is required to reveal in his or her evidence the factual and intellectual basis of an opinion. This follows from the general principle applicable to expert opinion evidence as stated by Heydon JA in Makita (Australia) Pty Ltd v Sprowles:[32]

"In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of 'specialised knowledge'; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be 'wholly or substantially based on the witness's expert knowledge'; so far as the opinion is based on facts 'observed' by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on 'assumed' or 'accepted' facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of 'specialised knowledge' in which the witness is expert by reason of 'training, study or experience', and on which the opinion is 'wholly or substantially based', applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v The Queen [1999] HCA 2; [197 CLR 414] (at 428 [41]), on 'a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise'."

26 In the present circumstances, against the background of the general law of and relating to valuation and the practice and methodology applied by valuers, regard must be had to the provisions of s 5A of the Act. Given their importance in the present context, it is helpful to set them out in full:[33]

"5A Determining value of land

(1) Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.

(2) In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.

(3) Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account-

(a) the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;

(b) the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;

(c) the shape size topography soil quality situation and aspect of the land;

(d) the situation of the land in respect to natural resources and to transport and other facilities and amenities;

(e) the extent condition and suitability of any improvements on the land; and

(f) the actual and potential capacity of the land to yield a monetary return."

27 As is implicit in the provisions of s 5A of the Act, the essence of the valuation process is the assessment of comparable sales, making adjustments to the extent necessary so that the process is one which involves, as nearly as possible, comparing "like with like". This process was helpfully discussed by Morris J (sitting as President of VCAT) in ISPT Pty Ltd v City of Melbourne:[34]

"51. It is sometimes thought that sales are either comparable or not comparable: that is, a binary paradigm should be used to classify sales. In my opinion, this is a flawed approach. Rather there will be gradations of comparability: from identical to irrelevant. As this scale of comparability approaches the irrelevant end, there will be many sales that offer so little assistance that they ought be disregarded. Further, there will be circumstances where there is a sale or sales that are strongly comparable; in which case there will be no need to closely analyse other sales, even though these may be comparable in some way.

...

53. The comparable size, location and condition of land must also be taken into account in a similar way. Similarly, the use to which land might be put must be considered. This exercise might produce the result that a sale is so dissimilar that it should be disregarded; or it might produce the outcome that a sale needs to be adjusted before being applied; or it might produce the outcome where a sale is given more or less weight in the exercise of a valuation judgment."

28 The approach of Morris J was expressly endorsed by the Court of Appeal in its reasons for refusing an application for leave to appeal the VCAT decision.[35] More particularly, the Court of Appeal said, with respect to improved sales, that the general principle is equally applicable to unimproved sales, though the nature of the comparables and adjustments may vary as between these contexts:[36]

"[83] The court held that although the traditional and usually appropriate method of valuing land in a notionally unimproved state is to seek out relatively contemporaneous sales of comparable properties between parties at arm's length, unaffected by special circumstances, that approach had miscarried in the circumstances of the case. More particularly, it had led to reliance on a very small basket of sales which were not representative of the value of the land in issue, because vacant land was very scarce. It said:[37]

In valuing the land, the respondent's valuer, to use the language of the Privy Council in Melwood,[38] "ignored a principle of assessment of [value]", the principle being, that sales to be treated as comparable sales need to be truly comparable; or, to put it another way, in valuing the land the respondent's valuer did not proceed rationally, in that he was unreasonably selective in ultimately confining himself to two sales of scarce vacant land for the purposes of the comparison. The respondent could not, and did not suggest that he would be performing his statutory duty if he made other than a fair estimate of the value of the subject land. A fair estimate could only be made here on the basis of a fair, that is to say, a reasonably representative group of comparable sales. A group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land. That is not to say that sales of comparable vacant land may not provide useful evidence of value. But as J F N Murray observes in Principles and Practice of Valuation[39] in discussing valuations under federal land tax legislation of land in its notionally unimproved state, "sale evidence [must be] relevant and sufficient in volume" (emphasis added). So too, sales relied on, such as of scarce vacant land, are likely to be to a special and different class of buyer from buyers of improved land. As Waddell J said in Sher v Commissioner for Main Roads,[40] sales of properties of a different character are likely to attract a different class of buyer and are unlikely to provide a reliable indication of value."

29 As these cases indicate, the degree of comparability of particular sales is a matter of judgment by the expert valuer and, consequently, the observations of Heydon JA in Makita (Australia) Pty Ltd v Sprowles[41] are apposite. Care, however, needs to be exercised with respect to the process of adjusting for comparability, for two reasons. First, the process of adjustment has an illusion of precision which tends to obscure the reality that the process is a matter of expert judgment; an art and not a science. Secondly, it is clear that the question whether a sale can be relied upon as a comparable is a question of fact and degree and, generally speaking, if the adjustments required to achieve comparability are very extensive, one might be more inclined to the view that the extent of adjustments required indicates that the sales are not, in reality, comparable.

30 In relation to the first point, it is helpful to note the comments by Gobbo J in Mario Piraino v Roads Corporation:[42]

". . . detailed adjustments of unit rates derived from comparable sales were used by the other valuers. Often there were as many as six or seven different percentage adjustments for such matters as time, size, shape, location, freeway exposure, planning permission and services. All of those adjustments were matters of judgment. Very few of them were capable of meaningful support by analysis of sales evidence. The whole structure of percentage adjustments had an illusory air of certainty and reliability about it. ...

The detailed percentage adjustment analysis method . . . was not the method adopted by the experienced valuers of yesteryear . . . who once they had analysed a sale to a unit rate, such as land clear of improvements, then gave a reasoned explanation of the factors of similarity and dissimilarity and why in the light of those factors they settled upon their valuation figures."

31 Further, it is noted that in Pamalco Pty Ltd v Minister Administering National Parks and Wildlife Act 1974 (No 3),[43] Hemmings J said:

"[M]athematical precision is impossible and inappropriate for such matters of judgment."

32 In relation to the second point, I note the following comments made by Hope JA in Leichhardt Municipal Council v Seatainer Terminals Ltd,[44] Hope JA said:

"Whether the differences between land a sale of which is to be relied upon and the land to be valued are so great that the land the subject of the sale cannot be regarded as comparable is a question of fact and degree. The difference may be so great that a court may be constrained to hold that the land is in no sense comparable, and that the adjustments which have been made are so great that the sale can provide no evidence of the value to be determined, and no basis upon which that value can be assessed."

33 Nevertheless, the fact that a sale is not to be treated as a comparable does not mean, necessarily, that it must be excluded from all consideration.[45] These "non-comparable sales" may be helpful in the process of checking the valuation, aspects of it, or underlying assumptions. Thus, Alan Hyam commented in The Law Affecting Valuation of Land in Australia:[46]

"In arriving at an opinion as to value it is important that the valuer have regard to all material relevant to value and to check her or his valuation by as many methods as may be available (including the value deduced from the assumption of a hypothetical sale): Ford v Minister for Housing (1964) 18 The Valuer 579; Minister for Navy v Rae [1945] HCA 6; (1945) 70 CLR 339; Brickworks Ltd v Minister for Public Works (1949) 29 LVR 67 at 87-88."

I turn now to consider the nature and extent of matters that a valuer is to take to be known to the hypothetical purchaser and, particularly, the extent to which material post-dating the relevant date of the valuation may properly be relied upon.

34 The authoritative, and much-quoted, statement of the assumptions as to the facts to be taken to be known by the hypothetical purchaser, is the statement by Isaacs J in Spencer v The Commonwealth ("Spencer's case"):[47]

"All circumstances subsequently arising are to be ignored. Whether the land becomes more valuable or less valuable afterwards is immaterial. Its value is fixed by Statute as on that day. Prosperity unexpected, or depression which no man would ever have anticipated, if happening after the date named, must be alike disregarded. The facts existing on 1st January, 1905, are the only relevant facts, and the all important fact on that day is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted. The plaintiff is to be compensated; therefore he is to receive the money equivalent to the loss he has sustained by deprivation of his land, and that loss, apart from special damage not here claimed, cannot exceed what such a prudent purchaser would be prepared to give him. To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including 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."

35 The leading authority on the extent to which the use of post-valuation assessment date material may be relied upon is that of the New South Wales Court of Appeal in Housing Commission of New South Wales v Falconer.[48] The principles applicable in this respect have come to be known as "the Falconer principle".[49]

36 The Falconer principle was explained in the reasons of Hope JA in the case itself:[50]

"However there are many decisions, including decisions of the High Court, in which it has been held that evidence of future events is admissible not to prove a hindsight, but to confirm a foresight: see, for example, Trustees Executors and Agency Co Ltd v Commissioner of Taxes (Victoria) [1941] HCA 18; (1941) 65 CLR 33; Minister for Army v Parbury Henty & Co Pty Ltd [1945] HCA 52; (1945) 70 CLR 459, at pp 514, 515, McCathie v Federal Commissioner of Taxation [1944] HCA 9; (1944) 69 CLR 1, at p 16; Australian Apple and Pear Marketing Board v Tonking [1942] HCA 37; (1942) 66 CLR 77, at p 108. An application of the principle namely, that 'The amount of compensation, being a matter of assessment, can, like damages, be calculated in the light of any subsequent facts to the extent to which they throw light upon items of value which can properly be taken into account in the calculation, having regard to the circumstances existing at the date of acquisition': Minister for Army v Parbury Henty & Co Pty Ltd [1945] HCA 52; (1945) 70 CLR 459, at p 514 is to be found in the decision of the Full Court of Queensland in Brisbane City Council v Thorpe (1965) 13 LGRA 31. In that case the council resumed land on which stood a part of a shop building, the other part standing on land retained by the owners. Two years after the date of resumption the council offered to move the existing shops back to the resulting new alignment. In his judgment Gibbs J, as he then was, with whom Hanger and Jeffries JJ agreed, said (at p 37):

'In the present case at the date of the resumption it was reasonable to expect that the council would offer to make the building available, since the purpose of the resumption was to widen a road and possession of a portion of a building could be of no use to the council. The fact that it has since made the offer may be regarded to show that as at the date of resumption the building would have been available."

If such a principle were to be applied to the present case then it would seem that as at the date of resumption in March 1974, a prudent purchaser, properly advised, would certainly have anticipated a significant rise in building costs. In the year ending 1973, the increase in the CPI was 6 per cent, but in the year ending 30th June, 1974, it mounted to 12.9 per cent. Accordingly a prudent purchaser would have taken into account the probability, indeed certainty, of increasing building costs. The Court would not be concerned here, as it has been in ordinary damages cases, to determine what the amount of those inflated costs would be; it would be concerned with what a prudent purchaser would do in the knowledge that there had been a sudden and very large growth of inflation which was likely to continue. I do not consider that the Court would be entitled to credit the prudent purchaser with an exact knowledge of what increases in building costs would be between 1974 and 1977 and 1981; what would have to be determined is what would be the attitude of a prudent person in the hypothetical circumstances which the cases have described; but the actual increases could be looked at in confirmation of what the hypothetical purchaser, properly advised at the time of resumption, would have foreseen. The extent to which foresight coincided with or approached fact must be a question of fact - assuming there is evidence to support a conclusion - but it seems impossible to conclude that a purchaser in 1974 could predict what building costs would be seven years later."

37 Also in the same case, Glass JA said:[51]

"In relation to both market and special value, events subsequent to the resumption are of no relevance (McSweeney v Commissioner for Railways (1914) 14 SR (NSW) 18; 31 WN 14) except to the extent that they provide some evidence of what was foreseeable by the owner in calculating what he would have accepted or offered at the time of resumption: Minister for Army v Parbury Henty & Co Pty Ltd [1945] HCA 52; (1945) 70 CLR 459, at p 514."

38 And Mahoney JA also made the following comments, again in the same case:[52]

"There are some cases in which the theory or principle on which the compensation is to be assessed prevents regard being had to subsequent events. Thus, where the compensation which is to be given is measured by the ordinary market price of the property taken, the principle on which that market price is to be determined prevents (or at least restricts) reference to subsequent events. That market price is the price acceptable to a willing but not anxious vendor and purchaser on the relevant date. Such persons are to be taken to know what an appropriately informed person would know on that date. That being the principle, it follows that such persons (and the court, as determining what they would have done) cannot be seen as knowing more. The price which such persons would accept at that date will be affected by the uncertainties as at that date, as to, for example, the future demand for land at the relevant time, future decisions of zoning authorities, and the like. Those uncertainties and the effect of them on the postulated vendor and purchaser help to determine what price will be found acceptable. In that regard, therefore, evidence of what subsequently has occurred in relation to such matters may not ordinarily be referred to. This does not operate so as necessarily to exclude evidence of subsequent sales: Melwood Units Pty Ltd v Commissioner of Main Roads (1978) 52 ALJR 593, at pp 597, 598; [1978] 3 WLR 520, at pp 527, 529, 530; [1979] 1 All ER 161, at pp 166, 167, 168; McCathie v Federal Commissioner of Taxation [1944] HCA 9; (1944) 69 CLR 1, at p 16. Such sales are evidence, not of the subsequent outcome of matters which, at the relevant date, were inherently uncertain, but of the price a relevant vendor and purchaser found acceptable at that date for comparable land. The assumption of the law is that from that evidence it is possible to infer what the relevant vendor and purchaser would have found acceptable for the subject land: see generally Harris v Minister for Public Works (NSW) (1912) 12 SR (NSW) 149, at pp 161-4; 29 WN 33; reversed [1912] HCA 56; 14 CLR 721; McDonald v Deputy Federal Commissioner of Land Tax (NSW) [1915] HCA 54; (1915) 20 CLR 231, at p 239."

39 The principle was also considered in the Queensland Court of Appeal in Cairns City Council v CMB No. 1 Pty Ltd, where McPherson JA said:[53]

"It would, however, be a mistake to regard the reasons, read as a whole, of Isaacs J in Spencer's case as completely excluding reference to matters arising after the date to which the valuation relates. The hypothetical vendor and purchaser are not treated as being impervious to the influence of potential future events or developments. According to Mahoney JA in Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547, 576, in a passage which is set out in full in the reasons of Cullinane J on this appeal, such persons are to be taken as knowing 'what an appropriately informed person would know on that date', although as Mahoney JA added, 'they cannot be seen as knowing more'. As at that date, his Honour said, the price will be affected by uncertainties, and these uncertainties and their impact on the postulated vendor and purchaser help to determine what price would be found acceptable. The principle, his Honour continued, does not operate necessarily to exclude evidence of subsequent sales; but such sales are evidence, not of the subsequent outcome of matters which at the relevant date were inherently uncertain, but of the price a relevant vendor and purchaser found acceptable at that date for comparable land. The assumption is that what they would have found acceptable can be inferred from evidence of such sales.

It would follow from applying here what was said by Mahoney JA in Housing Commission v Falconer that the evidence in this case of the subsequent rezoning of the land and completion of the sale at $5 million would be admissible to support an inference as to the price which a hypothetical vendor and purchaser might have agreed on as the sale price of the land after the rezoning to Rural on 17 December 1993. The possibility that a further rezoning would occur, and the strong likelihood, approaching near certainty, that the Council would ensure that it did, are factors that would be taken into account by such hypothetical persons in arriving at a price that affords evidence of the value of the land at that date. In In Re Bwllfa & Merthyr Dare Steam and Collieries (1891) Ltd and Pontypridd Waterworks Co [1902] 2 KB 135, 141, the principle applied in valuation cases was likened by Vaughan Williams LJ to the ordinary rule for measuring damages for breach of contract, which, his Lordship said, is that the value at the date when the contract ought to have been performed is to be taken into consideration, but not any matters so remote or so uncertain that they are incapable of being measured. Read in the light of the later decision of Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, 539, the comparison is reminiscent of the distinction between foresight based on knowledge of 'the ordinary course of things', which is imputed to all contracting parties as reasonable persons, and foresight based on actual knowledge of special circumstances outside the ordinary course of things.

It may have been knowledge of a kind in the first of those two categories that Mahoney JA had in mind in Housing Commission v Falconer when in his reasons in that case he spoke of persons being 'taken to know what an appropriately informed person would know on that date'."

40 In Minister Administering the Crown Lands Act v Illawarra Local Aboriginal Land Council,[54] Basten JA said that the principle drawn from the Falconer case from the judgment of Hope JA is often summarised, too simplistically, as requiring, simply, that post-claim evidence must be used not to "prove a hindsight but to confirm a foresight".[55] Explaining his comments further, Basten JA said:[56]

"The distinction which Hope JA was intending to draw in Falconer was not between confirming or denying a foresight, but between evidence which could relate to a foresight and that which merely constituted a hindsight. The point may be illustrated by reference to the example to which Hope JA referred, of the use of subsequent events to quantify loss: see at [69] above. The fact that foresight might anticipate a very significant loss does not mean that future events which discount the loss, rather than confirm its significance, are not admissible. Indeed, that was the point of the evidence in Parbury Henty: the cost of moving to cheaper premises was lower than expected, without adverse impact on the business of the property owner."

41 In my opinion, the legal propositions arising from the Falconer case and the other authorities to which reference has been made may, as Challenger submitted, be distilled as follows:[57]

(a) All circumstances occurring after the date of valuation (which is, in the present case, 1 January 2008) cannot be taken into account in valuing the site;

(b) Evidence of subsequent circumstances may only be used if it relates to a foresight, but may not be used if it merely constitutes a hindsight;

(c) The amount to be assessed is what the hypothetical prudent purchaser would entertain if perfectly acquainted with the land as at the relevant date.

42 On the basis of the Falconer principle thus formulated, Challenger submitted that Stonnington and the Valuer General have sought to rely on material which cannot properly be taken into account in an assessment of the site value as at 1 January 2008. This issue is considered further in the course of the reasons which follow. It is, however, convenient to note at this point, in general terms, the Stonnington submission that the Challenger redevelopment proposal[58] would not, as at 1 January 2008, have "come out of thin air", and that a well-informed, prudent purchaser, as equally well-informed as the vendor, would be bidding against other prospective well-informed purchasers for a development site with at least the potential of that proposed by Challenger.

43 The concept of highest and best use is a fundamental principle of valuation and is, as would be expected, reflected in the provisions of s 5A of the Act.[59] This is clear, particularly, from sub-s 5A(3)(a) and (f). As such, it is also intrinsic to the formulation of Isaacs J in Spencer's case. This was explained by the Court of Appeal in ISPT Pty Ltd v Melbourne City Council as follows:[60]

"The first threshold issue -- Highest and best use

[37] The concept of highest and best use is implicit in the theoretical basis of assessment of market value at a given point in time. Such value is understood to be ascertainable in accordance with the formulation of Isaacs J in Spencer v Commonwealth:[61]

[38] It is implicit in this formulation that both vendor and purchaser are to be regarded as aware of the potentially most advantageous ongoing use of the land and not simply its current use, when formulating the relevant value. Such potential is a circumstance which necessarily affects the value of the land either advantageously or prejudicially.

[39] Further, in Turner v Minister of Public Instruction[62] Dixon CJ stated:

'After all the purpose [of valuation] is to ascertain the full return which may reasonably be expected from the sale of the land, not the most conservative value.'

[40] In Commonwealth Custodial Services Ltd as Trustee for Burwood Trust Fund v Valuer General (NSW)[63] Biscoe J elaborated the concept by reference to relevant authority in the following terms:

'There is no statutory definition of "highest and best use". It has been described in the High Court as "the most advantageous purpose for which [the land] was adapted": Spencer v Commonwealth.[64] It "is the present value alone of such advantages that falls to be determined": Cedar Rapids Manufacturing & Power Co v Lacoste.[65] In Park v Allied Mortgage Corporation Ltd[66] Hill J said at [70]: "As Spencer's case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land". In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources[67] Jacobs J said:

"Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says - the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value."'

[41] In the present case, the tribunal summarised the underlying concept as follows in terms with which, with respect, we agree:[68]

'Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why highest and best use is relevant in assessing value, whether improved value or site value.'

[42] It also expressly referred to the notion of most advantageous use articulated by Jacobs J in the passage quoted above from the Adelaide Clinic case. Such a notion takes account of all factors relevant to the land affecting its present and future potential.

[43] Further, as the tribunal recognised in the course of its judgment, the highest and best use of a particular piece of land is flexible and may, at a particular point in time, be to 'bank' the land with a view to future development rather than to use it actively.[69]

[44] By reference to s 5A,[70] it can be seen that the tribunal was required to take into account the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use where it was relevant. In the present case the question of highest and best use was potentially relevant both to the question of valuation generally pursuant to s 5A(1) and more specifically to questions of comparability of sales of other land pursuant to s 5A(2)."

44 There is no statutory definition of highest and best use, only references to the principle in provisions such as s 5A of the Act.[71] This is made clear in Biscoe J's judgment in Commonwealth Custodial Services Limited as Trustee for the Burwood Trust Fund v Valuer General (NSW) ("Commonwealth Custodial").[72]

45 Similarly, in ISPT Pty Ltd v City of Melbourne,[73] Morris J (sitting as President of VCAT) said:

"62. Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of the land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why the highest and best use is relevant in assessing value, whether improved value or site value.

63. As Jacobs J pointed out in Adelaide Clinic Holdings v Minister for Water Resources[74] highest and best use is not the value of land assuming there are no planning or like controls. Rather it is the most profitable use having regard to the physical, economic and legal constraints on the use of the land."

46 It is plain, as submitted by Challenger, that it is not necessary for the Court to identify a precise highest and best use in any particular circumstances. Rather, it was submitted that the Court should identify the highest and best use in terms of the types of uses and the likely size of any development. These propositions were supported by reference to the decision of VCAT in Mirvac Funds Ltd v Moonee Valley City Council:[75]

"47. Section 5A(3) of the Valuation of Land Act 1960 requires a valuer to take into account, where it is relevant, the highest and best use of the land and any potential use. In ISPT Pty Ltd v Melbourne City Council,[76] the Court of Appeal (following the Tribunal decision at first instance) indicated that the role and weight to be given to this factor will turn logically upon other relevant factors disclosed by the evidence. It will not always be necessary to identify a precise highest and best use before considering comparative sales, and the highest and best use may extend to a range of potential uses.

48. Indeed, in business and activity centre zones, there may be mixed use opportunities where different categories of buyers compete for different opportunities, and where the highest and best use is a moveable feast that is effectively the use to which the highest bidder wishes to put the land. It will thus be sufficient in most cases to describe a highest and best use in general terms - for example, intensive retail and mixed use. That sentiment applies here. It is not necessary to go the level of specificity that Mr Jackson articulated - for example, valuation as a sub-regional shopping centre (which was not clearly substantiated here), or valuation consistent with the actual designated use under the approved development plan.

49. In a business and activity centre context, there is also some danger in being too prescriptive as to what the highest and best use might be. To argue that the actual Mirvac development represents the single highest and best use of the land is flawed. The valuation exercise by Mr Milne perhaps demonstrates this. He uses a prescriptive highest and best use of 10,000m2 retail, and 5,500 m2 non-retail (i.e. not dissimilar to the subject site) to derive a site value for the land of $15.3 million - well in excess of the Council valuation. However, Mr Milne bases his valuation on comparative sales for other infill retail/residential development sites at Camberwell and Highett and his opinion of a more optimal development and tenancy mix for the Moonee Ponds land. A very prescriptive highest and best use becomes very sensitive to, and reliant upon, the other assumptions made.

50. The planning framework for the Moonee Ponds land in this case included the possibility of retail, office, hotel and residential development. The land was initially in several parcels, and consolidated into two lots with different attributes. Multiple opportunities existed for development and use. We think in these circumstances, the Council valuer was not obliged to identify a single or precise highest and best use before ascertaining and considering relevant sales of comparable development land." [Emphasis added]

Morris J was of the same view in ISPT Pty Ltd v City of Melbourne.[77]

Highest and best use in a mixed use zone raises some additional issues, as indicated by Morris J in ISPT Pty Ltd v City of Melbourne:[78]

"61. Counsel for the applicant argued that it was necessary to identify a precise highest and best use for the land being valued before embarking on the process of ascertaining and considering comparable sales.

...

65. In a mixed zone, such as that applicable in central Melbourne, different categories of buyers of land compete for opportunities. Some buyers might seek to maintain land in its present condition and seek a rental return. Other buyers might buy to 'land bank' with a view to selling or developing the land at some future time. Other buyers may seek to develop the land for commercial uses. Yet other buyers may seek to develop the land for residential purposes. The highest and best use in this situation is the use to which the highest bidder wishes to put the land.

...

67. The applicant's submission does not recognise the reality of the marketplace. In my opinion, at least, in the circumstances of this case, it is not necessary to identify a precise highest and best use of the land in order to assess site value. I would add that, if the highest and best use must be ascertained, it might be identified in general terms: such as an intense use for office, residential, hotel, club or retail purposes (or some combination of these); without specifying a single, precise use.

68. I accept that in identifying comparable sales it will be relevant to consider what uses are likely to be most profitable for the subject land and to look for sales of land with similar characteristics in that respect. And if a sale was in respect of land with a different use profile, then it might be disregarded or be accorded less weight. But where realistic options for the development of land might be a residential tower or an office tower, the sale of such land is likely to be relevant even if the actual purchaser had one or other type of development in mind when the land was purchased. (footnotes omitted)

...

93. Assuming that the improvements on the subject land had not been made, I find that the highest and best use of the land was for intensive development with a tower building (of a similar volume to the existing building) and underground car-parking, to be used for either office purposes or residential purposes or institutional purposes or some combination of these.

..."

47 In my view the authorities to which reference has been made support the proposition advanced by Challenger with respect to the extent to which highest and best use needs to be identified. Additionally, the decision of the Court of Appeal in ISPT Pty Ltd v Melbourne City Council[79] on the highest and best use, does, in my view, support this proposition.

48 Reference has already been made to the provisions of s 5A of the Act, particularly sub-s 5A(3)(a) and (f), in relation to the issue of highest and best use. It was argued by the Valuer General that these provisions provided an obstacle to the position advanced by Challenger, that their valuer, Mr Jackson, was correct in making a "vacant to let" deduction on the basis of the definition of "capital improved value" contained in sub-s 2(1) of the Act. In particular, reference was made to the opening words of sub-s 5A(1), "[u]nless expressly provided" as governing the operation of these provisions and, consequently, rendering them subject to the application of the definition of "capital improved value" contained in the Act. Consequently, it was said that the provisions of s 5A are not relevant for the purpose of construing this definition. Whilst I would accept this position if I were of the view that the meaning of the definition of capital improved value was clear, I do not accept the proposition that the provisions are not relevant to the process of construction of the Act as a whole where definitional clarity is lacking. For the reasons which follow, I am of the opinion that this is the position, at least to the extent that the provisions of s 5A are relevant to the proper construction of the definition. Finally, the argument advanced by Challenger, on the basis that the position at common law is that premises are assumed to be vacant and to let, and that the "use" refers to the use which the hypothetical tenant would make of the land,[80] must, in my view, be rejected on the basis of the express words of paragraphs 5A(3)(a) and (f), which clearly contemplate, within alternatives, actual use - not hypothetical use by a hypothetical tenant, or anyone else.

49 Returning to s 5A of the Act, reference was made by the Valuer General to the consideration by the Full Court of sub-s 7(2) of the Act as it then existed in the case of City of Castlemaine v Scott (No. 2),[81] where Winneke CJ and Menhennitt J said:[82]

"We agree with the submission by counsel for the municipality that the manifest purpose of s 7(2) of the Valuation of Land Act was to require a general valuation of rateable properties as at a specified date, which would commonly be a date prior to the time of the actual valuation, and to require the properties to be valued as at that date but on the basis that physically all things and conditions present at the time of the valuation, including such things as access roads, had been present at the date fixed by the Minister.

...

However, the duty of the valuer is, we think, to take each property as it is physically at the time of the valuation and with all things and conditions then present affecting its value and to determine what value the property would have had at the date fixed by the Minister if it had then been in that physical condition and with those things and conditions then present.

...

The notion of making a valuation of property as at an anterior date is a common one particularly in legislation providing for the valuation of land compulsorily acquired. All that s 7(2) does to qualify this common concept is something that makes the task of valuation more certain and more facile by taking the property and all its surrounds in their physical state at the time the valuation is actually made."

50 In Stack v City of Collingwood,[83] Crockett, Murphy and Marks JJ applied Scott's case, making it clear that the valuer was required to take into account all matters (such as changes to trading conditions) and not only the physical condition of land. In this respect, Murphy J (with whom Crockett and Marks JJ agreed) said:[84]

"There are many things and conditions which would not be termed 'physical' and yet are considerations to which regard should be had when fixing the value of land. One need only refer to s 5A of the Act and to sub-s (3)(a), sub-s (3)(b) and sub-s (3)(f) for illustration. There, the use to which such land is being put, the highest and best use to which the land might reasonably be expected to be put, the potential use of the land, zoning, planning schemes, interim development orders, regulations and the actual and potential capacity of the land to yield a monetary return are all mentioned as 'relevant circumstances' to which to have regard, when determining the value of any land.

Again, s 5A(1) of the Act stipulates that the Court shall take into account, when required to determine the value of any land 'every matter or thing which such court ... considers relevant to such determination'.

The Act itself makes clear that in attributing a value to land, many things and conditions which could not be categorized as 'physical' should be considered and certainly as a matter of common sense regard must be had to such non-physical matters 'as affecting the value of the land' at any particular date."

"The whole purpose of the legislation had been to establish uniformity in valuations on an equitable basis.

...

The purpose of the general valuation is to achieve equity as between ratepayers in the municipality."

51 The Court of Appeal, in ISPT Pty Ltd v City of Melbourne,[86] accepted that s 5A of the Act sets out the general principles relating to the valuation of land. In the same vein, but more specifically, Morris J (sitting as President of VCAT) in ISPT Pty Ltd v City Melbourne,[87] said:

"9. Finally I refer to section 5A of the Act, which provides general guidance as to the method to be used in valuing land. I regard this section as being no more than a restatement of principles of common law - even common sense - and it is not necessary to set it out or dwell upon it. In making these comments I put to one side the additional provisions added by the Water (Resource Management) Act 2005; none of these additional provisions are relevant to these proceedings. Section 5A(1) requires all relevant matters to be taken into account. Section 5A(2) requires that evidence of value be weighed according to factors such as the time of the transaction, the terms of the transaction and the degree of comparability. Section 5A(3) provides that, where relevant, factors to be taken into account include the highest and best use of the land, planning and like restrictions, and the qualities of the land. Section 5A has been touched upon in various cases: see, for example, Australian Postal Commission v Melbourne City Council [2005] VSCA 295, Pioneer Concrete (Vic Pty Ltd v Commissioner of State Revenue [2001] VSCA 55, 101 Collins St Pty Ltd v City of Melbourne (unreported, 2 April 1996, per Batt J) and City of Castlemaine v Scott (No 2) [1973] VicRp 28; [1973] VR 277. In the 101 Collins St case at [70] Batt J, in discussing section 5A(2), observed that the provision 'reflects the common law'." [Italicised text a footnote to [9]].

52 In my view, the Valuer General was correct in his submission that these cases lend support to the view that actual or prospective occupancy of premises cannot be disregarded for valuation purposes.[88] Generally speaking, it is a factor like all other facts and conditions, physical or otherwise, which must be taken into account in the valuation process. Further, the comment was made that, given the longevity of rating in the United Kingdom and also in Victoria, if there were a "vacant to let" deduction to which regard should be had, "it had taken a long time to be discovered".[89] It is against this background I turn now to consider the statutory definition of "capital improved value" and "site value" as contained in sub-s 2(1) of the Act in light of the judgment of Batt J in the Shell case.[90]

53 Before considering the Shell case, it is helpful to set out the statutory definitions of "capital improved value" and of "site value":

"capital improved value means the sum which land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might be expected to realize at the time of valuation if offered for sale on any reasonable terms and conditions which a genuine seller might in ordinary circumstances be expected to require;

site value of land, means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made;"

54 Challenger submitted that the Shell case determined, authoritatively, that the words "unencumbered by any lease", as they appear in the definition of "capital improved value" in sub-s 2(1) of the Act, mean "unaffected by", "not subject to" or "without" any lease. It was noted that the argument which Batt J rejected in this case was to the effect that only leases which burdened the subject land were to be disregarded, and that other leases, which enhanced value by virtue of being above market rental, were to be treated as extant and taken account of. Consequently, it was said that the Shell case was to be taken as establishing that the existence of all leases is to be disregarded for valuation purposes. On the other hand, Stonnington and the Valuer General submitted that the Shell case should not be treated as authority for this proposition and, further, that there were a number of South Australian Supreme Court decisions where a different view has been taken and which should be preferred, in spite of some of the differences in wording of the relevant South Australian statutory provisions.

55 In the Shell case, the Court was concerned with the definition of "capital improved value" as set out above. It was common ground in that case that the subject property was subject to a lease which, though not at a market rent, was described as an "economic" one; that is, at a yield providing the owner of the subject property with a return which it could not get on the open market. In other words, the lease was favourable to the landlord. As indicated previously, the critical issue is whether this lease was something to be taken account of by the valuer or, on a correct interpretation of the definition of "capital improved value", to be ignored. In his reasons for the conclusion that the proper construction of this definition required the lease to be ignored, Batt J said:[91]

"Having heard detailed and sophisticated arguments by the parties on this question, I am left with the view with which I commenced, namely, that the clear and natural meaning in their context of the words 'unencumbered by any lease, mortgage or other charge' in the definition is 'not leased, not mortgaged and not charged'. That is, I consider that the first of the two rival assumptions, that leading to an assessment in the sum of $90 million, is correct in that the words 'unencumbered by' mean 'unaffected by' in the sense of 'not subject to' or 'without', rather than 'not burdened by' in the sense of 'not hampered by' or 'not depreciated by'. The interpretation I adopt is, as I shall explain, supported by the legislative history. Moreover, it accords with the rationale of the definition as I understand it, which is to obtain the ordinary market value of the highest interest known to the law in each physical parcel of land. It would distort the tax base if that ordinary market value were required to be increased to reflect the adventitious circumstance that the actual owner of the fee simple estate had the benefit of a lease favourable to it."

Batt J then reviewed the legislative history of the definition of "capital improved value" and related provisions and continued:[92]

"I take the word 'unencumbered'' to qualify the word 'estate'. But for the words 'by any lease, mortgage or other charge' that follow the word 'unencumbered', it would be clear beyond argument that the estate in fee simple spoken of is a 'pure' fee simple: Stephen v Federal Commissioner of Land Tax [1930] HCA 46; (1930) 45 CLR 122 at 144-145 per Dixon, J (with whom Rich, J agreed); Royal Sydney Golf Club v FCT [1955] HCA 13; (1955) 91 CLR 610 at 621-624, Sydney City Council v Valuer General (1956) 1 LGRA 229 at 230 and 234-235; Gollan v Randwick Municipal Council [1961] AC 82, especially at 101; Broken Hill Pty Co Ltd v Valuer General [1970] AC 627; Harry v Valuer General and State of South Australia (1975) 12 SASR 446 especially at 450 (in which the definition used the word 'unencumbered' without qualification); and CSR Ltd v Valuer General (1977) 17 SASR 446 at 450. However, it seems to me that the words 'by any lease, mortgage or other charge' might be said to be restrictive of the type of encumbrances excluded and, in view of the exclusion of the word 'lease' (ie a non-security word), to admit of the possibility that interests or rights such as easements, profits a prendre, restrictive covenants and the like are encumbrances within the contemplation of the definition but are not directed to be disregarded. The second part of that involves the application of the maxim expressio unius, which always requires care. I have earlier noticed an argument based on the words 'other charge' suggested by the appellants in answer to the respondent's reliance upon the presence of the words 'by any lease, mortgage or other charge'. The point is a difficult one and I do not find it necessary to reach a concluded view on it.

...

In support of its second proposition the respondent relied upon definitions in The Oxford English Dictionary and The Macquarie Dictionary showing the principal meaning of 'encumber' to be to hamper or burden, and upon certain authorities. The principal decision was Wallace v Love [1922] HCA 42; (1922) 31 CLR 156, a case concerning the construction of the words 'when and so soon as my estate shall be from all encumbrances ...' in a will. At 164 the majority (Knox, CJ and Starke, J) said:

'The word "encumbrances", in its ordinary connotation, means that a person or estate is burdened with debts, obligations or responsibilities. True, the word is in law especially used to indicate a burden on property, a claim, lien or liability attached to property (see Oxford Dictionary, under title "Encumbrance"). But when we remember that the whole estate of the testator is liable in the hands of his executor for payment of debts and the expense of administering his estate, it is not an extravagant use of language to say that his "whole estate is not free from encumbrances" until those debts and expenses are paid. The estate would, in fact, be burdened with those debts, and no technical use of the word 'encumbrance' can alter that result.'

In my view, however, a lease, even if favourable to the lessor, does burden the lessor, because it prevents the lessor from having possession or giving vacant possession of the demised land. Here, I consider that the appellants are correct in saying that the word 'unencumbered' has nothing to do with valuation and everything to do with the estate. Because a lease is by the legislation treated similarly to a mortgage and a charge this is, I think, an instance of the especial use in law (of the cognate word 'encumber') referred to by Knox, CJ and Starke, J. As that case shows, the meaning of the word 'unencumbered' depends upon its context. Here, I consider the reference is to the subjection of an estate in fee simple to any of the three listed interests in the land. In saying this I am conscious that Wells J in Harry [v Valuer General and State of South Australia (1975) 12 SASR 446] at 450 expressed the view that the word 'encumber' had not yet acquired a technical meaning and was not yet a true term of art. However, his Honour acknowledged that it was a protean word that took its precise meaning from the particular context. Here the context, textual and historical, warrants, I consider, the meaning I have attributed to the word.

The appellant relied also on District Bank Ltd v Webb [1958] 1 WLR 148, where at 149-150 Danckwerts J expressed the view that a lease was not an encumbrance to the parties within the meaning of a recital in a certain conveyance.[93] But the case is of no real assistance, for, if anything, it proves too much in that the legislation in question presupposes that a lease may (at the least) sometimes be an encumbrance, if not always. His Lordship's view that an encumbrance normally is something in the nature of a mortgage may, as a general proposition, be accepted: this the especial use in law spoken of by Knox CJ and Starke J. I should add that Danckwerts J acknowledged that in certain contexts a lease might be an encumbrance. In Baggett v Meux (1844) 1 Coll 138; 63 ER 355 (affirmed without discussion at this point 1 Ph 627; 41 ER 771) a lease was held to be an encumbrance within the meaning of a document, but, despite my reference to the case, the respondent did not rely upon the case. It turned, I acknowledge, on somewhat special facts. In Commonwealth Bank of Australia v Baranyay [1993] VicRp 43; [1993] 1 VR 589 a lease was treated as an encumbrance, but the legislation in question expressly contemplated this."

56 It was submitted by the Valuer General that the Shell case highlights:

(1) the natural meaning of the word "encumbrance" in its context (qualifying the estate, not the value of the estate); and

(2) the hypothetical nature of the valuation exercise, which assumes and adopts the physical and economic circumstances and conditions of the subject land.

57 As indicated previously, Stonnington and the Valuer General relied upon a series of South Australian decisions, referred to as the "Trust Company cases", where it was held that a "vacancy allowance" should not be applied in the valuation process under the definition of "capital value" as contained in the South Australian Valuation of Land Act 1971 ("the South Australian Act"). The, so-called, Trust Company cases are Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 1);[94] Perpetual Trustee Company v Valuer General; Trust Company of Australia Ltd v Valuer General (No 2),[95] which was upheld on appeal to the Full Court of the Supreme Court of South Australia in Trust Company of Australia Ltd v Valuer General.[96] The Trust Company cases relied upon are the second of the first instance decisions of Debelle J (which is, for convenience, referred to as the "Trust Company (No 2)" case), and the Full Court appeal from that decision.

58 The two properties in question, which were the subject of the Trust Company (No 2) case, were each let to a number of commercial tenants with the purpose of generating income. It was argued on behalf of the owners of the subject properties that the adjective "unencumbered" as used in the definition of "capital value" in the South Australian Act meant that in ascertaining the capital value of the land, any leases of buildings erected on the land were to be disregarded and, further, that the subject properties were to be valued as if the hypothetical purchaser took the land unoccupied and, consequently, was to find tenants and then negotiate leases or tenancy agreements. It was said that if this construction were correct, the capital value of the land would be reduced because it would be necessary to make a "letting up" allowance and, additionally, possibly provide incentives to encourage new tenants to take up occupation.

59 In the Trust Company (No 2) case, Debelle J considered these arguments in the context of the definition of "capital value" contained in sub-s 5(1) of the South Australian Act. Capital value was defined as:

"the capital amount that an unencumbered estate of fee simple in the land might reasonably be expected to realise upon sale. ..."

In relation to this definition and the nature of the property to which its provisions were directed, Debelle J said:[97]

"[20] An assessment of the value of an unencumbered estate in fee simple is an assessment of the value of the largest estate in land known to the law: Harry v Valuer General (1975) 12 SASR 446 at 450. An estate in fee simple is the most ample estate which can exist in land, to use the words of Megarry and Wade, The Law of Real Property (5th ed, 1984) at 59, which in turn is based on Coke on Littleton (19th ed) at 11 and Williams on Real Property (23rd ed) at 6. As Wells J said in Harry v Valuer General at 454:

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 "protected along the plane of time" (Pollock and Maitland, History of English Law (2nd ed) vol 2, p 10); one must still ask, "What is the full range of proprietary rights in land, and what makes them valuable?" Traditionally, the amplitude of rights vested in the tenant in fee simple has been equated with the fullest ultimate rights, subject to any restrictions imposed ab extra, of use, enjoyment, destruction and alienation known to the common law. (Compare the dominium of the civilians - see Buckland, Testbook of Roman Law, p 187).

Putting aside, then, the niceties of the theory of estates, what the Valuer General is to value (to use Pollock's definition of "ownership" - see Jurisprudence and Legal Essays, p 97) is the entirety of powers, allowed by law, of the use and disposal of a given parcel of land.

The entirety of powers to which Wells J referred in the second of those quoted paragraphs includes the power to lease land to the profit and advantage of the holder of the estate in fee simple, that is to say, the owner of the land."

Bleby J, in the Full Court, also made reference to the passages in this judgment of Wells J[98] where the point was made, and later emphasised (as Debelle J noted), that "an unencumbered estate of fee simple in the land" is to be taken as a reference to "an absolute or pure estate in fee simple".

60 On the basis of the definition of "capital value" contained in the South Australian Act and a detailed consideration of the technical meaning at law of the expression "estate in fee simple", Debelle J found that:[99]

"a) a lease was not an encumbrance unless it constitutes a burden, in the sense of having a depreciatory effect on the value and enjoyment of the estate of fee simple;

b) where land is subject to a lease which does not impair the value of the estate, capital value should be assessed upon the footing that the land and improvements are occupied and subject to the leases or other tenancy arrangements in existence at the date of valuation;[100]

c) if the value of the land was not impaired by the lease, the lease would not be ignored;

d) it did not matter whether leaseholds were excluded by the words 'unencumbered' or by what is necessarily implied by the legislative description of what is to be valued - what was to be valued was a specified estate in land, by whomsoever held;

e) estate in fee simple means estate in fee simple in possession; and

f) capital value will be market value in the sense discussed in Spencer v Commonwealth.[101]

Consequently, Debelle J did not accept that a "vacant to let" allowance should be made in determining the capital value of the subject properties.

61 Returning to Debelle J's detailed reasoning process, the first issue considered was what was meant by the expression "unencumbered estate in fee simple", beginning initially in this process by considering the meaning of the expression "fee simple". Debelle J began:[102]

"[22] The expression 'fee simple in possession' does not only mean that the owner of the fee simple must be in physical occupation and possession of the land in order to hold the fee simple in possession. The words 'in possession' refer to the possession of the seisin. In the law of real property, the expression "fee simple in possession" has a wider meaning than that in ordinary usage which signifies that the holder of the estate in fee simple, that is to say, the owner is in physical possession. Instead, it signifies both an owner in physical possession as well as an owner who has let the land for a term of years and is entitled to the rents and profits from that land. In other words, a freeholder who has leased the land and is receiving the rents is a freeholder in possession. The position is expressed in these terms in Cheshire and Burns, Modern Law of Real Property (14th ed, 1988) at 152 where it is said:

Finally, to have the character of a legal estate, a fee simple absolute must be in possession. "Possession" is not here confined to its popular meaning, for it includes receipt of rents and profits or the right to receive the same. Therefore a tenant in fee simple who has leased the land to a tenant for years is the owner of a legal estate even though he is not in physical possession of the land.

The explanation for that proposition lies in the principles of feudal tenure, in the meanings of seisin and possession, and in the ambiguous use of the term "possession" in English law. In An Essay on Possession in the Common Law (1888), at page 1 Pollock and Wright classify 'possession' as one of the 'most ambiguous' terms in the law, whose 'legal senses (for there are several) overlap the popular sense'. When discussing evidence of possession of land, they note (at page 36) that the receipt of rents and services incident to freehold tenure establishes possession. At page 49 the position is summarised in these terms:

An occupying freeholder is both seised and possessed.

A freeholder who has let his land for years is seised, or possessed, of the freehold, but not possessed of the land.

A lessee for years possesses the land even as against the freeholder.

Thus, a freeholder, that is to say, the holder of the estate in fee simple who has leased the land is seised and possessed of the freehold. That person holds the estate in fee simple in possession."

Bleby J, in the Full Court, also emphasised these points, particularly the passages from Pollock and Wright.[103]

62 Debelle J continued, emphasising the ambiguous nature of "possession" at common law:[104]

"[23] In Leslie v Earl of Rothes [1894] 2 Ch 499 at 506 Kekewich J referred to the ambiguous use of 'possession' in real property law in these terms:

The ambiguous character of the term "possession" is well known, and has been recognised by high authority. It has several meanings, and it may well have several different meanings in the same instrument, some of them overlapping one another, and some being combinations of more than one. But in an instrument dealing with real estate "possession" means broadly one of two things. It may mean what has been styled during the argument "physical possession," as when a tenant in fee occupies and farms his own land, or if not farming his own land, still occupies in the sense of receiving his rents from his tenants. In that connection, the alternative to "possession," natural, proper, technical, strictly legal, is receipt of the rents and profits.

Although there was an appeal from that decision, the decision was affirmed and those remarks were not questioned. In Glenn v Federal Commissioner of Land Tax [1915] HCA 57; (1915) 20 CLR 490 Issacs J referred to that decision with apparent approval. In the same decision, Griffith CJ described an 'estate in possession' in these terms at 498:

The essential element of an "estate in possession" is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not.

There is substantial authority, therefore, for the proposition that the expression an estate in fee simple in possession refers to an estate in fee simple where the owner of the estate is in physical possession as well as to an estate in fee simple where the owner is not in physical possession but is in receipt of the rents and profits in respect of the land. It is a corollary of that proposition that the receipt of rents and profits is evidence of ownership of the fee simple: Best on Evidence (12th ed, 1922) para 366 cited in Allen v Roughley [1955] HCA 62; (1955) 94 CLR 98 at 108 per Dixon CJ."

Debelle J then set out and considered in detail various text writings emphasising the point. Bleby J, in the Full Court, adopted and set out this passage from the judgment of Debelle J, and the text writings which were then considered.[105]

63 In his consideration of the text writings, Debelle J made reference to passages in the 5th edition of Megarry and Wade, The Law of Real Property.[106] Referring to that text, he said:[107]

"Later (at 237), the authors explain why the fee simple estate is still described as being 'in possession' even though the holder of the fee simple has granted a lease.

From its very nature it follows that a reversion is a vested interest; for it is the remnant of an estate which has never passed away from the grantor, and he or (if he is dead) his representatives stand ready to receive the land as soon as the particular estate determines. According to feudal principles, moreover, a freehold reversioner on a term of years has an estate which is vested not only in interest but also in possession, for the grant of a lease does not deprive a grantor of seisin, and he therefore has what is properly called a freehold in possession subject to the term. From this point of view a reversion on a lease is not a reversion or, indeed, a future interest at all. This technicality is a relic of the ancient doctrine that leases were not even estates and were to be disregarded for feudal purposes. But, as has been seen, leases have long since achieved the status of estates, and it is therefore common and correct to speak of a landlord's reversion." [Citation omitted]

This is entirely consistent with the opening discussion of the nature of the estate in fee simple as being the most ample, the highest, estate which can exist in land at common law.[108] It is consistent in the sense that the estate in fee simple is, as Pollock and Maitland describe it, "... the full range of proprietary rights in land ...". The estate is, thus, not a tangible thing, but rights in land. Consistently with this position, Debelle J noted that the definition of "possession" in s 7 of the Law of Property Act 1936 (SA) reads:[109]

"'possession' includes receipt of rents or profits or the right to receive the same (if any)".

The same is true of the corresponding definition in sub-s 18(1) of the Victorian Property Law Act, save that the expression is "rents and profits", rather than "rents or profits" as in South Australia. As Debelle J noted, these definitions only apply to the respective law of property legislation, but they are consistent with the general law.

64 On the basis of the matters considered, Debelle J concluded:[110]

"[25] It is, therefore, well established that the expression 'fee simple in possession' refers both to the situation where the holder of the estate in fee simple is in physical occupation and possession of the land and to the situation where the holder of the estate in fee simple has leased the land for a term of years and is entitled to receive the rents from the land".

65 Similarly, Bleby J, in the Full Court, summarised the position as follows:[111]

"58. Before turning to consider any qualification in the definition of capital value by the word 'unencumbered', it is convenient to state a number of relevant propositions which seem to arise from the cases considered so far:

• An estate of fee simple in land is the most extensive interest in land known to the law.
• For the purposes of assessing the capital value on the market of such an estate for rating or similar purposes, one ignores other interests in or restrictions on use of the land which are depreciatory of its value other than restrictions imposed by virtue of generally applicable legislation such as planning legislation.
• The letting of land by the owner of an estate in fee simple does not necessarily have any depreciatory effect on the value of that estate.
• While an estate of fee simple is an estate in possession of a set of proprietary rights, the expression 'fee simple in possession' does not mean that the owner of the estate of fee simple must necessarily have or be able to exercise physical possession of the land to the exclusion of all others.

1. 59. It would follow that, unless there are other qualifying considerations, the only leases that need to be ignored for the purpose of assessing the capital value of land are those that have the effect of depreciating the value or full enjoyment of the estate of fee simple."

66 Debelle J next turned to the question of what was meant by the word "unencumbered" in the expression "unencumbered estate of fee simple in the land". It must be remembered that consideration of this question must be in the context of the meaning of "fee simple" and also the expression "fee simple in possession". Once it is accepted, as the authorities and commentators confirm and emphasise, that the expression "fee simple in possession" does not necessarily connote physical occupation and possession of the land, it does not necessary follow that a lease is to be characterised as an "encumbrance" because, as a matter of law, the existence of a lease does not affect the "estate in fee simple", the "full range of proprietary rights" in the land. Having regard to this position, Debelle J reviewed the authorities, which indicate that the word "encumbrance" is not a term of art but is, rather, a protean word which takes its meaning from its context.[112] Debelle J concluded:[113]

"In Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858 at 876-877 Sir Thomas Bingham MR, with whom Rose and Hobhouse LJJ both agreed, observed that the authorities yield no conclusive answer to the question whether a lease is an encumbrance. After referring to District Bank Ltd v Webb, he concluded that the resolution of the question depended on context. It is important, therefore, that a lease is not necessarily an encumbrance. Whether it is a burden on the estate in fee simple will depend on all the relevant circumstances of each case."

"[29] A lease is not necessarily an encumbrance in the sense that it will cause a reduction in the value of the fee simple. Generally speaking, a lease is a benefit to the holder of the estate in fee simple in that it provides a profitable source of income. However, a long lease at a rental below market rental may impair the enjoyment of the fee simple because the rent is considerably lower than market rents or because the length of the term of the lease may cause the market value of the land to be significantly less than the market value of comparable land without a lease. In that latter case, the question whether the lease impairs value might depend on the purpose for which a purchaser might acquire the land. If a lease does impair the value of land, the lease will be ignored as an encumbrance so that the market value will be the same as the market value of land not encumbered by a lease. In that way the value of the land is not diminished by the lease. If, however, the lease is not an encumbrance in that it does not impair the value of the estate in fee simple, it will not be ignored.

[30] This conclusion is consistent with the reasoning of Wells J in Harry v Valuer General. In that case, 91 acres of rural land was subject to 166 leases for 1000 years. Those leases were, on any view, a burden which impaired the enjoyment of the fee simple interest. They encumbered the estate in fee simple and impaired the value of the land. Wells J held that those leases were an encumbrance. ..."

67 Similarly, in the course of reviewing the authorities, including Royal Sydney Golf Club v FCT[115] and Wallace v Love,[116] Bleby J, in the Full Court, said:[117]

"[65] There can be no doubt that as a matter of grammatical construction, the word 'unencumbered' qualifies the phrase 'estate of fee simple in the land', and that it is the estate which is to be unencumbered, not the value of the land. However, that begs the question as to what is meant by "unencumbered" in this context.

[66] I refer again to the decision of Wells J in Harry v The Valuer General and the State of South Australia.[118] That was an appeal against an assessment of unimproved value by the Valuer General in respect of an area of land of some 91 acres subject to 166 leases to a private company, each for a term of 1,000 years. The land was proposed to be released in that manner because it could not be lawfully subdivided and sold in freehold allotments. The Valuer General issued 166 assessments of unimproved value for each piece of leasehold land. The landowner contended that the leasehold interests were not encumbrances within the meaning of the definition, that the unimproved value of the land could be fixed only by taking account of the several terms of years still outstanding, and that the unimproved value of the estate in fee simple was therefore very slight. Wells J rejected that contention, holding that what was to be valued was the 'notional or pure fee simple estate in the land', and that leasehold interests 'of the kind affecting the subject land in this case should be disregarded'. In the course of his judgment he said:[119]

... [T]he truth is, in my opinion, that, except when it is used in the Real Property Act 1886 (as amended) and Acts in pari materia, the word 'encumbrance' - and the same applies to 'encumber' - has not acquired the sort of technical meaning that one associates with such words as 'demise' or 'seisin'; it is not yet a true term of art. I regard it rather as a protean word that takes its precise meaning from the particular context in which it appears. I do not find it necessary to arrive at its precise meaning for the purposes of this appeal. Whatever its true meaning in the definition may be, the whole effect of the Act, in my judgment, is imperatively to require the Valuer General to value the largest estate in the subject land known to the law, and not a particular taxpayer's interest in that land. I hold, therefore, that whether a fee simple estate is, within the meaning of the definition, encumbered by the grant of a term of years or not, the terms granted in the present case are not to be taken into account; it matters not whether leaseholds are excluded by the word 'unencumbered' or by what is necessarily implied by the legislative description of what is to be valued. What is to be valued is a specified estate in the land, by whomsoever held. I accordingly hold that Mr Harry's first argument fails.

[67] I have already referred to what Wells J said of the expression 'unencumbered' in CSR Ltd v The Valuer General,[120] to the effect that the word in this context means free of any 'private conditions, limitations, restrictive covenants, or other inherent restrictions affecting the estate or the land'."

"[86] What the cases show is that the word does not have a technical meaning. It is doubtful whether it adds anything to the expression 'estate of fee simple in the land'. What it does emphasise is that anything that is a burden or liability on the estate and which therefore lessens its value is to be ignored in assessing the market value of the estate of fee simple. Subject to the exception with respect to burdens that may be imposed on a particular piece of land by public laws of general application, that is the effect of the cases discussed in Part 6 of these reasons. There are cases which decide, in various contexts, that a lease does not necessarily constitute an encumbrance, and therefore need not encumber the estate in fee simple, and that there is a distinction between a lease and encumbrance. That is a distinction also to be found in legislation in this State affecting interests in real property.

[87] I therefore conclude that an estate of fee simple in the appellants' land does not lose its status of being 'unencumbered', for the purpose of the definition of 'capital value', merely because the land is subject to a number of leases. Whether a lease encumbers the land, and must therefore be ignored for the purpose of the definition, will depend on whether it constitutes a burden in the sense of having a depreciatory effect on the value and enjoyment of the estate of fee simple."

68 Finally, Debelle J made reference to the Shell case, commenting:[122]

"[31] In my previous decision I had agreed with Batt J in Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615. However, after further consideration, I am unable to agree with it. In my respectful view, Batt J failed to have sufficient regard to the fact that there will be occasions when a lease will not be an encumbrance. Furthermore, Batt J did not have sufficient regard to the fact that the estate in fee simple means estate in fee simple in possession. At page 668, Batt J said that the determination of the question whether the lease was or was not a burden would cause inconvenience and difficulties in administration. I respectfully disagree. The nature of the lease and whether the lessor is recovering a market rent are questions which valuers confront as a matter of course. Furthermore, the valuation of land involves dealing with any number of adventitious circumstances. It is a factor that valuers not infrequently encounter. When determining the value of the fee simple, the valuer will, therefore, have to determine whether a lease is a burden in the sense that it diminishes the value of the estate in fee simple. That is a task which is the very stuff of valuation practice."

69 The point that a reference to the "estate in fee simple" is a reference to the highest species of ownership in land known to the common law is entirely consistent with the notion of an estate at common law. Thus, Willoughby commented:[123]

"The idea of an 'estate' as an abstraction which is at once the definition of the rights of ownership, and also itself the subject of ownership, as distinct from those rights of ownership themselves, is peculiar to realty."

And moving to the perspective of equity, but emphasising the ownership point and also the distinction between ownership and possession; Willoughby continued:[124]

"The point may be noted that the legal estate, for equitable purposes, is not confined to such a legal estate as confers possessory rights over physical property. It is enough that the legal interest confers some proprietary right known to the law and that the equitable interest corresponds to it in this sense, that the owner of that equitable interest is in equity the person for whose benefit that proprietary right is deemed to be exercisable."

70 As indicated previously, Debelle J's decision in the Trust Company (No 2) case was upheld by the Full Court in Trust Company of Australia Ltd v Valuer General; Perpetual Trustee Company Ltd v Valuer General.[125]

71 I turn now to the question whether the Trust Company cases and the Shell case can be reconciled, or whether one is left to say that although the approaches are different, they are merely the consequence of the application of different statutory provisions.

72 The essence and approach of the South Australian Full Court in the appeal in the Trust Company (No 2) case was that the valuation process should, as far as possible, within the constraints of the relevant statutory provisions, reflect the reality of market value, rather than some artificial concept or evaluation produced on the basis of difficult hypothetical and possibly unnecessary concepts not expressly required by the terms of the relevant legislation.[126] Thus, Bleby J said:[127]

"[103] It is clear from what I have said so far that, for the purpose of establishing the market value of an estate of fee simple in the land, and thus of establishing the capital value of the land, one is to ignore a burdensome or depreciatory tenancy or one which has a depreciatory effect on the full enjoyment, and hence the value, of an estate of fee simple in the land. Does it follow that a non-commercial but generous lease (to the landlord) is to be taken into account as enhancing the value of the estate in fee simple? In my opinion, it does not.

[104] What is to be valued for the purpose of the definition is an unencumbered estate of fee simple in the land. The use of the indefinite article is significant. The definition does not refer to the estate of fee simple held by the particular owner. As has been demonstrated, for the purpose of the definition the value of an estate in fee simple cannot be diminished because of a particular burdensome lease entered into by the owner or any predecessor in title. But neither can it be enhanced by the owner having entered into a non-arm's length lease on terms particularly generous to the owner which bear no relation to the terms which could be obtained on the market. Those depreciatory or enhancing factors may affect the market value of the estate of fee simple to that particular owner. Such a value, however, is not in accordance with the requirement of the Act which is to value not the owner's estate but 'an' estate of fee simple in the land. To the extent that the LVD Judge held that capital value will always be the market value of the estate in fee simple, I respectfully disagree with him. A willing but not anxious purchaser[128] may well be prepared to pay a premium above market value if he is purchasing the right to enjoy an unrealistic and artificially high non-market rent.

"[109] The Act requires a market valuation of an estate of fee simple, the highest estate in land known to the law, and one which allows the greatest possible lawful exploitation and use of the rights represented by that estate. The valuer must therefore identify the highest and best lawful use of that land. In these cases there was no dispute that, in the case of the Trust Company land, it was by way of renting the premises as an industrial park. In the case of the Perpetual land, it was the renting of the premises as a shopping centre. In both cases the parcels of land were fully developed and improved for their respective highest and best uses. Those uses necessarily involved the letting of the premises at appropriate market rentals. Entering into commercial leases and the generation of rental income was the essence of the exploitation of the highest and best use, in the same way that farming operations might be the highest and best use of agricultural land."

73 Nevertheless, it does not follow that a valuer will not need to make some assumptions and assessments, particularly with respect to existing rents. Thus, Bleby J continued:[130]

"[111] This means that the valuer will not necessarily take existing rents at their face value. He or she will examine them to ensure that they represent reasonable market rents for the premises concerned in the same way as allegedly comparable sales will be examined to identify any unusual conditions which might affect price. Rents may have been negotiated at a time of buoyant market conditions which do not then and are not likely in the foreseeable future to be maintained. Rents may have been fixed at a time when residential development on which, for example, a shopping centre relies was sparse and where the prospect of substantial increase in rents on lease renewals is high. This is not to value operational aspects of the landlord's business as suggested by counsel for the appellants. It is merely to apply the expertise and judgment of the valuer in assessing what, at the time, a willing purchaser would pay to a vendor willing to sell for a fair price but not desirous to sell the land.

[112] While operational aspects of the landlord's business are not relevant, it does not follow that land such as this will have a static value regardless of its state of development. In the case of a shopping centre, for example, vacant land may be zoned as appropriate for development as a shopping centre. It will be valued according to that potential taking into account the nature and extent of any likely development, the costs of development, the period of development and likely demand for tenancies. Once fully developed or, to use the language of the Act, improved, the market value of the estate of fee simple will change. It will change again once the premises are fully leased. It may change again according to population growth in the area and the construction of a competing shopping centre. These and other factors are matters on which the valuer will bring his expertise to bear in assessing the market value at any given time. While the actual rental income may properly form the basis of the calculation of market value, the valuer will not be bound by that. He or she will need to be satisfied that the actual rental income to be capitalised accurately reflects current market rentals and that it is not artificially generous or unduly burdensome to the landlord under current market conditions. In that sense the valuer is not determining the capital value according to what the particular owner of the estate of fee simple might be able to obtain in the market for the land in that condition at that time and subject to any generous or burdensome rental conditions. As the valuer is essentially, in cases like the present, valuing the right to future income according to market rates, the actual rentals may require discounting or enhancing according to those perceived future trends.

[113] However, there is nothing in the Act which requires that the valuer undertake the entirely artificial exercise of assuming, for the purposes of the valuation, that the premises are vacant when in fact they are not, and that a letting up period must necessarily be assumed and rent concessions offered in order to induce tenants to take up space in the premises. Nor is it necessary to adopt any of the other alternative assumptions discussed earlier in these reasons other than the first, namely that the hypothetical purchaser purchases the land subject to all existing leases and tenancy agreements.

[114] To decide otherwise is to require the Valuer General to value some land, for example, a group of owner-occupied residential premises, at market value and to value the same group, if commonly owned and let out to tenants, at something other than market value. It also requires that the valuation process be divorced from reality and proceed in a manner which is quite artificial and unrealistic. That should be avoided unless clearly required by the language of the Act. Such is the case in situations like that which arose in Beiler v Valuer General,[131] where the Act clearly required the valuation of an estate of fee simple in land which had only ever been and was only ever likely to be the subject of a crown lease. It is also the case where the Act requires the Valuer General to arrive at a site value or unimproved value of improved land where the land could never be sold in that state. Those are undoubtedly artificial exercises. But they are required by the express words of the Act. There is an artificiality in valuing something which does not exist. That is not the same as applying a non-existent or artificial market value to something which does."

In relation to the above comments, the statement by Bleby J that there is nothing in the South Australian legislation which requires the valuer to undertake "the entirely artificial exercise of assuming for the purposes of the valuation that the premises are vacant when in fact they are not and that a letting up period must necessarily be assumed and rent conditions offered in order to induce tenants to take up space in the premises" should be emphasised. In my opinion, the same comment is equally applicable to the Victorian legislation.[132]

74 It was submitted, however, by the Valuer General that the practical result of the different reasoning of Batt J in the Shell case and Bleby J in the appeal in the Trust Company (No 2) case may be similar in the present case where there is no suggestion that the rents are excessively high. It was further submitted that, applying the approach of Batt J in the Shell case, although all leases are to be ignored, whether they enhance or impair the value of the land, Batt J did not find that the physical occupation of the land is to be ignored for the purposes of the valuation. Rather, it was submitted that the Court adopted an agreed valuation based not on the building being unoccupied, but on being leased to a sitting tenant paying a current market rent. Further, it was submitted that, applying the approach of the South Australian Full Court, leases which impair the value of the land are to be ignored for the purpose of defining the estate to be valued. It was said that the value could not be enhanced as a result of the owner entering into a generous long lease which bore no relation to terms which could be obtained in the real market. This was said to follow from the fact that the legislation requires the valuer to value "an unencumbered estate in fee simple in the land" not "the" estate in fee simple held by the particular owner".[133] Finally, it was noted in submissions that Batt J, Debelle J and the Full Court of South Australia all adopted the view that the capital value of a fee simple estate should equate to the market value of that estate.[134]

75 In my opinion, a difficulty with the analysis of the Victorian legislation by Batt J in the Shell case is that it begins by treating reference to the fee simple estate as a strictly technical legal expression and, on this basis, the conclusion is reached that the treatment of leases as an encumbrance is at odds with the technical legal meaning applicable to references to the fee simple estate. This apparently leads to the position that the words are to be taken to be used in a more broad and less technical way because, strictly, a lease does not affect the title to the fee simple estate. Then it is said, in effect, that a lease must be a burden on the fee simple estate, whether or not the lease is beneficial in terms of enhancement in value of the freehold, simply because the fact of a lease affects the enjoyment of the fee simple estate and the flexibility of the owner in dealing with it. Consequently, and in my view at odds with the nature at law of a fee simple estate in possession, this approach equates the reference to the fee simple estate in the statutory definition as a fee simple estate in actual physical possession of the land, rather than also including the possibility of the fee simple owner being in receipt of the rents and profits, rather than in actual physical possession of the land. In my view, this produces the sort of artificial result referred to by the judges in the South Australian Supreme Court in the Trust Company (No 2) case at first instance and on appeal.

76 I am strengthened in these views by further consideration of the legislative purpose underlying the statutory definitions introduced into the Act in Victoria, issues which were explored by Batt J in the Shell case. In the Second Reading Speech on the Local Government (Amendment) Bill (No 2) which was introduced into the Legislative Council on 26 October 1971, the Hon R.J. Hamer MLC, the then Minister for Local Government, said:[135]

"The definition of 'site value' in proposed new section 315A follows closely the recommendations of the Royal Commission on Rating and Valuation in New South Wales in 1966, and those of a committee of inquiry in New South Wales in 1960."

77 In the parliamentary materials, reference is also made to the Report of the Royal Commission of Inquiry into Rating, Valuation and Local Government Finance ("Royal Commission Report" or "the Report").[136] Although not decisive, the findings of the Royal Commission are consistent with my view as to the intended meaning of amendments made by Parliament at the time. The Report makes clear, in my opinion, that the approach to the statutory definition was that the "pure" fee simple was to be the object of the valuation, that is the "full and complete" ownership, subject only to restrictions on title, in the sense of restrictions on full ownership. The Report also considered the extent to which leasehold interests were to be treated as equivalent to full ownership, the fee simple, in this context. The latter arose with respect to Crown leasehold tenures. In my view, the following discussion in the Report with respect to "Unimproved Value" demonstrates this position very clearly:[137]

"3.33 This was described in the Report of the Bridge Committee (paragraph 109) as 'an unsatisfactory task' but the Queensland Committee ,presided over by the Hon Mr Justice Hardie, described it as an 'impossible task'; the Report of that Committee in discussing the same problem under similar legislation in Queensland said:

'The existing definition of "unimproved value" of improved land requires the valuer to make two basic assumptions, one being that the estate is a fee-simple one (i.e. full and complete ownership) and the other being that the land at the moment of valuation is in its natural state, i.e. without either visible or invisible improvements, or in other words, both unimproved and undeveloped.

'the making of the second of these assumptions means that the determination of the unimproved value of improved land under the existing definition requires the valuer in many cases to attempt the impossible task of ascertaining the original state and condition of the land, at a point of time when there is no longer any evidence as to that state and condition. This requirement introduces unnecessary uncertainty and complexity in the valuation process, and provokes differences, disputes and litigation between the valuing authority and the owner.'

...

3.54 It has already been pointed out that the definitions of improved value and unimproved value both require the valuation of a hypothetical fee simple and this requirement was claimed to result in inequity in the case of lands which were subject to restrictions on title or which were the subject of leasehold interests only. In both of these instances it was said that because the valuation made no allowance for the restriction on title or the limited title of the person rated there was an inequitable sharing of the rate burden.

3.55 An outstanding example of the first class of case was afforded by the submission of Central Chambers Property Co Pty Limited, the owner of a parcel of land in the City of Tamworth which is entirely subject to rights-of-way and cannot be built upon or obstructed. This land was originally valued at the nominal figure of ₤5 but after the company purchased it at auction in 1962 for ₤400 the Valuer General revalued it at ₤3,939 and this was reduced on appeal to ₤3,000. Since the land was revalued, the company has endeavoured to sell it and has even offered it to the Tamworth City Council at the original purchase price but the Council has declined the offer. Other examples of the same problem were found in the submission of the Greater Wollongong City Council and in the case of lands affected by easements granted to or resumed by the Electricity Commission of New South Wales.

3.56 The Real Estate Institute of New South Wales, the Commonwealth Institute of Valuers (New South Wales Division) and some other witnesses, notably Mr H.J. Manning, a valuer of wide experience, suggested that allowance should be made in valuations for restrictions such as easements, rights-of-way and covenants which would detrimentally affect the market value and Mr J. Bruce Brown, the Valuer General of New Zealand, said in his evidence that this procedure had been followed in New Zealand for many years though he agreed that to some extent the valuer was obliged to undertake a difficult task in determining the nature and extent of the restrictions.

3.57 The attention of the Bridge Committee was drawn to the problem of privately owned lanes, rights-of-way and easements which had to be valued as rateable land and in its Report (paragraph 78) pointed out that under the Trumper Park decision (Sydney City Council v Valuer General (1956) 1 LGRA 229) -

'such land must be valued in fee simple disregarding the fact that, in the hands of the owner, it may have little, if any, market value. At the same time, the existence of these private lanes, rights-of-way, or easements must be reflected in the valuation of the lands enjoying the benefit of the legal access created. Thus, in effect, the value of the land used for purposes of access is twice brought to account.'

The Committee came to the conclusion that hardship in rating and taxing sometimes arises and made the following suggestion to relieve such hardship:

'This can be overcome by amendment of the law to provide that where the Valuer General furnishes the rating authority with a valuation list or supplementary list giving particulars of the value of the fee simple of land comprised in a privately owned lane, or of land which is the subject of a right-of-way, or other easements for the purpose of access, he shall furnish a "Rating Factor" which, in respect of the land to which it relates, shall be used for rating and taxing purposes instead of the valuation of the fee simple as shown in the valuation list or supplementary list. The "Rating Factor", in respect of the relevant parcel, should be that percentage of the valuation determined by the Valuer General which remains after making allowance for the rights of access over the land enjoyed by parties other than the owner of the fee simple.' (paragraph 79)

3.58 Mr Eastwood agreed with the observations and recommendation of the Bridge Committee. He thought that provision should be made whereby the owner of land burdened by a right-of-way or other similar restriction could make application to the council to have a rating factor fixed for his land; it would be the ratepayer's obligation to establish to the satisfaction of the rating authority the existence of the restriction on title and only after such restriction had been established would the matter be referred to the Valuer General for the fixation of a rating factor or value. Provision should be made for objection by either party to the rating factor and for an appeal by the owner where the council rejected an application for the fixing of such a factor. This latter right would enable any difficult questions of title to be determined by the Land and Valuation Court.

3.59 One other question which has to be determined concerns the classes of restriction which an owner would be entitled to have taken into consideration for the purpose of the assessment of a rating factor. Clearly, every restriction or defect in title could not be taken into account as that would require a wealth of information about titles to be compiled and necessitate each valuer being able to form an opinion about the legal effect of a wide range of restrictions. Moreover, it is possible that serious inroads could be made into the rating system if the class of restrictions was too wide and accordingly it would seem adequate to limit the suggested rating factor to those cases where lands are subject to rights-of-way and other easements for access. It should be added that it is only in respect of restrictions of this class that evidence has been put before the Commission and, leaving aside Crown tenures, it is reasonable to assume that hardship exist only in such cases."

The concern with respect to leasehold tenures and the extent to which they could be treated as equivalent to full ownership, as indicated above, appears in the introductory discussion of this issue:[138]

"3.60 It has previously been mentioned that the definition of unimproved value requires that Crown leasehold tenures should be valued as if they were estates in fee simple and this has been criticized because of the burden of rates falling on persons whose interest in the land is limited in time or is for specified purposes only. The Local Government and Shires Associations, the Surveyor-General of New South Wales, the Chairman of Closer Settlement Advisory Boards, the Forestry Commission of New South Wales, and the Western Lands Commissioner, as well as other witnesses, made submissions on this question in the course of which the inequity of a fee simple valuation for rating purposes of some tenures was mentioned."

78 In my opinion, the Trust Company cases in South Australia emphasise that the estate in fee simple in possession is the critical estate and interest to be valued, it being the highest degree of ownership known to the common law. This does not, however, necessarily mean that the owner of this estate must be presently entitled to actual physical possession. Indeed, in the case of commercial property, this is unlikely to be the position as most commercial property will be leased. Consequently, on the basis of the above analysis, the better view is, in my opinion, that the Victorian legislation requires that the fee simple interest in possession not be encumbered, in practical terms, by any lease in the sense of the interest itself being encumbered by, for example, an unusually long lease, whether it be an ordinary lease or a concurrent lease. Clearly, by way of example, a lease of the subject property for 99 years is likely to affect, in practical terms, the fee simple interest. In my view, this approach avoids the absurdity in the operation of the statutory definition which is highlighted in the Trust Company cases in South Australia and, in effect, treats the references to leases in the statutory definition as merely emphasising that it is the pure fee simple, uncut down as to title which is to be valued, a position consistent with the New South Wales Royal Commission Report, to which reference has been made, and the legislative purpose underlying the statutory definitions, as indicated by the Hon R.J. Hamer MLC.

79 I am fortified in this view by other provisions of the Act, such as s 5A and, particularly, the statements made by the judges in the Trust Company cases in South Australia which indicate and re-affirm that the Act, and legislation like it, is intended to be interpreted having regard to practical realities and not to be interpreted in favour of artificial concepts and restrictions, particularly where the language of the legislation does not expressly require that. Consequently, I am of the opinion that the estate in fee simple in possession in the subject property, the highest estate known to the common law in that property, is to be valued having regard to the actual realities of possession. This means that the fact that the land is leased is a matter to be taken account in the valuation process, and allowance made so as to "neutralise" the effect on the value of the estate to be valued as a result of an unusually beneficial and above market rent prevailing under the then subsisting lease. Correspondingly, adjustment the other way may be required where the then prevailing current lease imposes burdensome conditions, whether by way of a below market rent or burdensome conditions of some other kind; perhaps, for example, in relation to use of the premises or the ability to assign or sub-let.

80 Consequently, on the basis of this consideration of the authorities, and for the reasons indicated, I accept the submission of the Valuer General that the correct approach in assessing capital improved value is on the basis that:[139]

(a) the value of the land is to be assessed by reference to a hypothetical sale of a fee simple interest in the land and on the basis that the fee simple interest is not affected by any actual lease;

(b) the hypothetical sale should assume the actual physical state of the land;

(c) the hypothetical sale should assume the occupation of the land;

(d) the hypothetical sale should take into account the likely future occupation of the land;

(e) the hypothetical sale should assume that the occupation of the land is at market rates; and

(f) the rentals being paid under actual leases are likely to be a guide to actual market rates for occupation.

This statement of the correct approach does not, however, specifically address the nature of the actual occupation of the land, though the issue was addressed in other parts of the Valuer General's submissions.[140]

81 In relation to the nature of the occupation of the land, the Valuer General submitted:[141]

"76. The hypothetical 'non-existence' of a lease does not mean that the land is unoccupied. The two concepts - of lease and occupation - are not one and the same. For instance, the land could be occupied by a tenant without a lease, but paying a market rent or the land could be owner-occupied. The land could also be leased but not occupied for a variety of reasons."

Challenger's responsive submission went to the lack of any legal characterisation of the nature of the occupation of the land inherent in the Valuer General's submissions:[142]

"108. First, the VG's steps above are inconsistent with the statutory directive that the land be valued as if without any leases. This follows because of the wide import of the word 'lease'. The VG's submission that the 'land could be occupied by a tenant without a lease, but paying market rent' is to misapprehend the most basic principles of property law. If there is no lease, the so-called occupant cannot be a tenant, cannot have exclusive possession of the premises, has no proprietary rights in respect of the premises, is no longer subject to the Retail Leases Act, and has no obligation to pay rent. What, exactly, are the 'physical circumstances' of this occupant once his leasehold rights are non-existent that remain relevant for the valuation process? Simply put, without a lease there is nothing left that could be meaningfully valued.

109. It is also telling that for the Court to accept the VG's submission, the Court must give recognition to, and determine the value of, a type of interest in property not previously recognised by the common law: a tenant without a lease paying market rent.

110. The VG's submission need only be stated to be shown to be wrong."

82 In my view, the Challenger submissions with respect to the characterisation of the occupation of the land are well founded. In the present context, an occupant of land would, at general law, be expected to be either a tenant or a licensee.[143] The touchstone of a lease, the key distinguishing feature of a lease as distinct from a licence, is exclusive possession, a position which is very clear on the authorities.[144] On this basis, common experience indicates that it is more than likely that non-owner occupiers of land will be tenants rather than licensees, save in some exceptional and unusual cases. The capital improved value definition contained in sub-s 2(1) of the Act does not refer to licences and so, on that basis, licences would not be an issue. The issue is, of course, the treatment of leases.

83 Nevertheless, the proper characterisation of the occupation of the land is not decisive for the purposes of assessing capital improved value because, for the reasons I have indicated, its characterisation as leasehold does not mean it is to be disregarded. As has been noted, characterisation of the occupation as being pursuant to a licence rather than a lease would not attract the application or operation of the definition of capital improved value under the Act.

84 Consideration of the nature of occupation of the land also throws into focus the potential for arbitrary operation of the definition of capital improved value under the Act if the approach advanced by Challenger were to be adopted as correct. It would mean that the effect of beneficial or burdensome occupation - or simply occupation - would or would not be a relevant matter for the operation of this definition depending on whether or not that occupation was to be characterised as a licence or a lease. As the cases show, there have, in some instances, been some very fine distinctions drawn in characterising occupation as a lease or a licence.[145] Having regard to the importance of this statutory definition, it does seem unlikely that Parliament would have intended its operation to be affected on the basis of such fine distinctions. Rather, in my view, this supports the approach of the South Australian Supreme Court, at first instance and on appeal, in the Trust Company Cases, which focuses on the realities of occupation of the relevant land and makes its legal characterisation irrelevant.

85 A further consideration with respect to the issue of occupancy for the purposes of the definition of capital improved value under the Act is the position of owner-occupiers. In my view, it could not be correct, given the nature and purpose of the statutory definition as discussed, that the occupancy of an owner-occupier is to be taken into account but that vacant possession is to be assumed if the land is tenanted. The arbitrary results thrown up by a contrary approach are further highlighted when it is considered that occupancy under a licence would also be taken into account.

86 Finally, the Valuer General submitted that a construction of the definition of capital improved value under the Act which required the artificial assumption by the valuer that the land was unoccupied would be inconsistent with the definition of "estimated annual value" ("EAV") under the Act and its application in part of the definition of "net annual value" ("NAV") under the Act.

87 EAV is defined in sub-s 2(1) of the Act as follows:

"estimated annual value of any land, means the rent at which the land might reasonably be expected to be let from year to year (free of all usual tenants' rates and taxes) less-

(a) the probable annual average cost of insurance and other expenses (if any) necessary to maintain the land in a state to command that rent (but not including the cost of rates and charges under the Local Government Act 1989); and

(b) the land tax that would be payable if that land was the only land its owner owned;" [emphasis added]

This definition is, in turn, applied in the definition of NAV in sub-s 2(1) of the Act with respect to land, other than land excluded in the more limited classes specified in paragraphs (b) and (c) of that definition. Paragraph (a) of that definition provides:

"net annual value of any land, means-

(a) except in the case of the lands described in paragraphs (b) and (c)-

(i) the estimated annual value of the land; or

(ii) five per centum of the capital improved value of the land - (whichever is the greater); or

..."

88 The definition of EAV applies whether or not the land is occupied, unoccupied, leased or not leased. The origins and operation of these provisions was noted and explained in 101 Collins Street Pty Ltd v City of Melbourne by Batt J:[146]

"The definition of [Estimated Annual Value] was formerly part of the definition of NAV, but was separated out from it for simplicity when that definition became more complex. The definition derives ultimately from s 1 of 6 & 7 Wm IV, c 96 (Imp.), known as the Parochial Assessments Act 1836, with minor verbal changes only. Although it will be necessary to consider later the application of the expression in the definition that commences with the words 'other expenses', it is not necessary in this case to attempt any general exposition of the definition. For that, reference may usefully be made to Halsbury's Laws of England, 4th edn., vol. 39, paras 97-119. It is sufficient for present purposes to say the following. The definition postulates a hypothetical letting, requires the rent which the hypothetical tenant might be expected to pay to be ascertained on the assumption that the tenant, and not the landlord, pays all usual tenants' rates and taxes and then requires that from the rent so ascertained there be deducted the annual average cost of insurance and expenses mentioned. The rent is that which the hypothetical tenant might be expected to pay in the competitive market, and the hypothetical tenant includes all persons who might reasonably take the hereditament, including the person actually in occupation: Knox and Hargrave v City of Adelaide [1930] SASR 90 at 93; Halsbury, op.cit., para 111.

Sub-section 2(2A) of the Act makes it clear that the definition of EAV is directed to a market rent:

"(2A) In determining the estimated annual value of any land, the rent at which the land might reasonably be expected to be let from year to year is to be taken to be the annual rent at which the land might reasonably be let at the usually prevailing terms and conditions."

"Although the hypothetical tenant is assumed to take the land only from year to year, he or she is supposed to have a reasonable prospect of continuing in operation: Halsbury, vol. 39, para 109."[147]

89 Challenger submitted that the fundamental assumption made for EAV following longstanding United Kingdom authorities on rating[148] is that the land is vacant to let. This is clear from the preceding discussion and the reference to the 101 Collins Street case. However, for the reasons indicated with respect to the definition of capital improved value contained in the Act, I do not accept Challenger's further submission that it follows that this fundamental assumption is also applicable to this definition. Additionally, the Valuer General submitted:[149]

"If CIV is artificially changed in accordance with the Plaintiffs' contention, then there will be a distortion in the application of the definitions which underlie the determination of NAV. That is:

a) if EAV is used, then the land will be assumed to be occupied at market rents; whereas

b) if 5 per cent of CIV is used, then the subject land will be assumed to be unoccupied at the relevant date."

Implicit in the Valuer General's submissions in this respect is the assumption that Parliament would have intended these alternatives to operate with respect to land which is producing or is to be taken to be producing an income stream as a result of occupation - whether by an owner, tenant or licensee. In my view, it is reasonable to infer that Parliament would not have intended the operation of these provisions to be affected by any arbitrary and inconsistent operation in the capital improved value definition, depending upon whether the land was owner-occupied, leased or licensed. On this basis, I accept that there is some force in the Valuer General's submissions in this respect.

90 Reference was also made to the provisions of sub-s 13DC(1) of the Act which provides that:

"(1) In every valuation for the purposes of the Local Government Act 1989, each separate occupancy on rateable land must be computed at its net annual value, its capital improved value and, if required by a rating authority, its site value".

The term "occupancy" is not defined in the Act. Challenger submitted that the concept has been explained and defined in extensive case law.[150] The Valuer General submitted that these provisions are consistent with "occupancy" being a most fundamental concept in the Act and that the fact that land is occupied is, itself, a foundation stone for the valuation process; which is highlighted by s 13DC of the Act. Both these submissions emphasise the importance of occupancy, but in different ways. However, in my opinion they do not add to or detract from the views I have already expressed in relation to the interpretation of the critical provisions of the capital improved value definition contained in the Act.

91 A critical aspect of any consideration of the highest and best use of a particular property, in the present context, is the nature and extent of development possible under the applicable town planning regime.

92 Expert planning evidence was led by Challenger and also by the Valuer General. The planning expert relied upon by Challenger was Mr Marco Negri of Contour Consultants Australia, who provided a Town Planning Report, dated December 2009. The Valuer General relied upon the Town Planning Report prepared by Mr Bernard McNamara dated October 2009. Mr Negri, the planning expert relied upon by Challenger, also provided a written response to Mr McNamara's Report, dated March 2010. Both Mr Negri and Mr McNamara are well qualified town planning experts, though it would be fair to say that Mr McNamara has had more extensive experience in the planning, design and development of retail and mixed use projects as a result of 17 years experience as planning manager and later as development and planning manager with the Gandel Group of Companies. In these positions, he was engaged in the acquisition and development of various shopping centres throughout Australia including, for example, Chadstone and Northland. He was also engaged in the development management of projects at various shopping centres, including Roxborough Park, Frankston, Lake Haven (NSW) and Chatswood Chase (NSW). In this respect, reference should also be made to Mr Peter Fitzgerald, a Certified Practising Valuer and, as such, the person appointed under s 13DA(1) of the Act as the valuer responsible for carrying out the 2008 general revaluation for Stonnington. Put more succinctly, and having regard to Mr Fitzgerald's ongoing role, he is the valuer for Stonnington (and was also valuer for its predecessors), and has been employed in that capacity for many years, since 1988. Mr Fitzgerald was not put forward as a planning expert, but given the nature of his appointment and work with Stonnington over many years, weight must be given to his knowledge and understanding of the content, operation and application of the planning scheme or schemes applicable in Stonnington. This is also clearly the position in relation to the development and application of the "Chapel Vision Structure Plan 2007 - 2031" ("Chapel Vision"), the application or applicability of which figured largely in the course of the trial.

93 Both Mr Negri and Mr McNamara gave evidence that the process of identifying the highest and best use of the Jam Factory site involved two considerations, which were linked. The first consideration was what could be done with and built on the subject property, given town planning constraints and the physical limitations of the site. The second consideration was what would be the best economic use of the site. Mr Negri's evidence was that the determination of the highest and best use of a property is a sophisticated exercise involving consideration of opinions of experts on heritage, traffic management, design, hydraulic engineering and economics. Mr McNamara's evidence was, in substance, the same, in that the process of determining the highest and best use would involve taking account of planning restrictions on the site, the physical limitations of the site and economic factors. As Challenger submitted, Mr McNamara specifically recognised that even if the planning controls and physical limitations of the site permitted a development many times the size of his recommended development, the larger development would not necessarily be the highest and best use of the land if the relevant economic factors did not also support the larger scale development. Challenger submitted that the absence of material in the evidence going to these critical economic factors is an important consideration in relation to the consideration of highest and best use and in relation to the proposal for redevelopment which had been published by Challenger.[151] It was submitted by Challenger that the understanding of both Mr Negri and Mr McNamara with respect to the development potential of the Jam Factory site was consistent with the legal concept of highest and best use which had been put forward, and which is consistent with the preceding discussion of this concept.[152]

94 The two planning witnesses, Mr Negri and Mr McNamara, differed in their views on the potential of the Jam Factory site for redevelopment. Nevertheless, Mr Negri agreed with Mr McNamara that Chapel Vision provided the most current guide to any future built form outcome for the site, but that it was not prescriptive. Mr McNamara was of the opinion that the site was capable of providing in excess of 45,000m2 of development, excluding car parking and support areas. He noted, however, that this development would be less than that proposed by Challenger, as owner of the site, in June 2008, as was reflected in the article published in The Age newspaper in June 2008. A development of this nature would result in an increase in the Jam Factory site's current plot ratio of approximately 0.97:1 to at least 2.33:1, excluding car parking and support areas. Mr Negri, on the other hand, gave evidence that he was not in a position to come to an informed view about the development potential of the site. In the course of his cross-examination, by Mr Garde QC on behalf of the Valuer General, he said:

"I was - certainly that's correct - not in a position to come to a view of the total development potential of the site, but equally my expertise wouldn't assist the Court in coming to a conclusion of the total development of the site. That's a matter that is - that conclusion is one that is reached having regard to the views of a number of different experts, including potentially the heritage considerations, traffic, design considerations. It's not something that would come from me to assist the court to deal with all of that."[153]

It was clear from Mr Negri's evidence that he had not examined the development potential of the Jam Factory site in any detail and, in any event as indicated above, was of the view that he could not assist helpfully in providing any informed view as to its development potential, hence its highest and best use. His position in this respect is to be contrasted with that of Mr McNamara's, as is discussed further below.

95 Almost consistently with the approach taken by Mr Negri, Mr Jackson appeared to discount or misunderstand planning considerations applicable to the Jam Factory site and, consequently, saw its development potential as being quite limited. In a letter dated 19 December 2008 from Mr Jackson, as a Director of M3 Property Strategists, to Mr M. Webb, Deputy City Valuer of the City of Stonnington, he said:[154]

"The subject property is subject to the City of Stonnington's strategic planning document 'Chapel Vision Structure Plan 2007-2031'. This document aims to 'guide development and change' and the subject property is identified as being within a 'Limited/Minimal Change Area'. Given [the City of Stonnington's] clear intentions regarding the current and future planning of the subject property at the date of valuation, we have assessed the Site Value with reference to the current use of the land as its highest and best use."

Mr Jackson was questioned by Mr Garde in light of the radically different state of affairs in terms of the future development potential of the site as between the position as set out in this letter, and what Mr Jackson knew to be the case at the time of the trial, namely that the Jam Factory site is in fact in a substantial change area as specified in Chapel Vision. Mr Jackson was asked whether, consequently, he felt impelled to revisit his $2,000 per square metre valuation. Mr Jackson then sought to explain how he was able to reconcile his first valuation with the second, as follows:[155]

"So, my approach was [to] set aside whatever has been done, having regard to the experts' advice, particularly in relation to the site. I found both planning experts to be of extreme help. They have not only managed to outline some of the issues that you've just said in relation to the specific aims for the site, but they have identified very helpfully what you might develop on the site, height limitations on the site and also given a very helpful view of the sort of level of development and density you might put on the site. So to me that was very helpful. Any preliminary views that I previously had were clearly just set aside. They didn't guide me in any way. When you have expert planners and the benefit of expert planners providing you with that insight, you take it into account and assess the value accordingly."

96 Whether Mr Jackson's subsequently agreed valuation adequately accommodated the development potential of the site is discussed further below.[156]

Nature and extent of formulation of the Proposal

97 Both Stonnington and the Valuer General submitted that the best evidence of the development potential of the Jam Factory site was the redevelopment scheme proposed by Challenger, which was apparently proceeding as at June 2008, and had featured in an article in The Age newspaper in June 2008.

98 It was submitted by the Valuer General, and accepted by Stonnington, that the Challenger proposal was embodied in a variety of documents, namely:

(c) NH Architecture Challenger and Urbis Jam Factory Strategic Analysis power point presentation;[159]

(h) Interagency taskforce minutes;[164]

(i) Jones Lang LaSalle Information Memorandum;[165]

(j) Rider Levell Bucknall Feasibility study.[166]

For convenience, the proposal said to be constituted by these documents is referred to as "the Challenger proposal".

99 It was submitted that the Challenger proposal was highly relevant to the determination of "highest and best use", on the basis of the principles established by the authorities to which reference has been made. In the present circumstances, and with reference to the state of the valuation and planning evidence provided on behalf of Challenger by Mr Jackson and Mr Negri, respectively, both Stonnington and the Valuer General, in summary, submitted that their evidence had failed to take account of the development potential of the Jam Factory site, being its highest and best use. Further, it was submitted that they had ignored or had not been informed of the extent to which the Challenger proposal had advanced, was still being considered by Challenger, and was a realistic development proposal from all relevant perspectives (including town planning and economic perspectives). In support of this position, reference was made by both Stonnington and the Valuer General to aspects of the evidence or, in some cases more importantly, the lack of evidence, with respect to the Challenger proposal which was forthcoming from Challenger.

100 In support of the submitted failures in the Challenger evidence with respect to planning matters, hence highest and best use, reference was made by the Valuer General to the lack of documents discovered by Challenger in relation to its development proposal and how the proposal progressed from its inception, apparently prior to August 2007,[167] through to the time that Challenger decided not to pursue the proposal, apparently at some time between mid 2009 to early 2010.[168] It was submitted by the Valuer General that numerous documents would have been generated in relation to the Challenger proposal, but that very few had been produced by Challenger pursuant to the Valuer General's notice to produce.[169]

101 In spite of what was said to be the failure by Challenger to produce documents as requested in relation to the Challenger proposal, it was submitted by the Valuer General that the evidence available does paint a picture of a very substantial proposed redevelopment which should be taken to be indicative of highest and best use of the premises.

102 In any event, the documentary evidence indicates that in October 2007 a redevelopment scheme, including a discount department store ("DDS"), supermarket and car-park had been drawn up by NH Architecture. Urbis, Challenger and NH Architecture collaborated, in March 2008, in producing a Powerpoint presentation which contained a schematic presentation of the proposal for the redevelopment of the Jam Factory of some 85,000m2, excluding car-park. The presentation included references to the strategic location of the Jam Factory relevant to the Melbourne CBD and principal activity centres at Chadstone Shopping Centre, Southland, Camberwell Junction and Box Hill, and also specific reference to "policy context and planning controls". Under this heading appear five dot points:

• Located within the heart of Prahran/South Yarra principal activity centre (Melbourne 2030)

• Identified by Council's structure plan as a substantial change area

103 Under the heading "Site Context" the dot points include "Mixed use/commercial; minimal integrated mixed use developments evident in area; site is in single ownership and readily available for redevelopment." Introducing the more technical material with respect to planning and the like is a page or slide, being an aerial photograph of the Jam Factory site and surrounding area, together with the statement:

"A Remarkable Opportunity... The Jam Factory Redevelopment is a new vision for a mixed use precinct that will reinforce the status of Chapel Street as a premier fashion and lifestyle destination and Melbourne as a vibrant cultural city."

In other words, a very positive assessment of redevelopment potential, apparently in the then immediate future.

104 In April 2008, Rider Levell Bucknall produced their fourth version of the "Jam Factory Redevelopment: Option 1A Feasibility Assessment", which was again positive. The positive nature of this assessment was evidenced, objectively, by the report of a statement made by a representative of Challenger that appeared in The Age in June 2008. The Age reported that: "The $700 million redevelopment will include 8,000m2 of offices, at least one high-rise apartment tower, a 100-room hotel and 54,000m2 of shops, more than double the present size". The report continued: "Challenger spokeswoman Lynn Anderson said the company had received positive feedback from existing and prospective tenants for the development. Council discussions were under way to create a new vision for the site, she said. ... A permit for the project is expected to be lodged this financial year, with construction set for completion by the end of 2012, Ms Anderson said".

105 The announcement in The Age was followed, in July 2008, by a Market Analysis for Medium Density Apartment Market City Fringe Projects for the purposes of assessing redevelopment of the Jam Factory, prepared by Charter Keck Cramer. Also in July 2008, Lovell Chen, architects and heritage consultants, prepared a Heritage Appraisal for the purpose of assessing redevelopment of the Jam Factory.

106 In August 2008, NH Architecture produced a set of plans for the Jam Factory redevelopment, as Revision 1.[170] Also in August 2008, GTA provided a draft Traffic and Transport Impact Assessment for the purpose of assessing redevelopment at the site.[171] In October of that year, the same firm also provided a report on Access and Movement Strategy, again for the purposes of assessing redevelopment.[172]

107 The second revision of the NH Architecture plans was produced in January 2009. In May of that year, GTA provided a revised draft Traffic and Transport Impact Assessment,[173] now described as a "draft town planning submission", for the purpose of accompanying the submission for town planning approval of the redevelopment. It was noted in the executive summary to that draft report that the proposal was to be supported by an Integrated Transport Plan and Travel Plan as conditions of the permit granted for the redevelopment to encourage sustainable modes of transport, including walking, cycling, and public transport. On what might be thought to be more on the economic side of considerations inherent in planning a development of this size, in June 2009, Pitney Bowes Business Insight prepared a Trade Area Analysis for the redevelopment of the Jam Factory. This analysis contained a detailed review of the site location, the centre composition, the trade area population, socio-demographic profile, trade area spending and the competitive context. There was also evidence of inter-agency meetings in relation to the redevelopment proposal between at least 22 December 2008 and 21 May 2009 in the form of minutes of a group, which were printed on the letterhead of the Department of Innovation, Industry and Regional Development. The group described itself in the minutes as the "Inter-agency Facilitation Meeting: Jam Factory Redevelopment". The attendees of that meeting include representatives of that Department, an officer of whom also chaired the meetings, together with representatives of NH Architecture, Urbis, GTA Consultants, Stonnington, Public Transport Policy and Planning in the Department of Transport and also the manager of Commercial Property Development in VicTrack. Further, in the minutes of a meeting on 13 March 2009 between Mr Meelan and Mr Moffat of Case Meelan, Project and Development Managers and representatives of Stonnington, GTA and others, it appears that they "introduced the project and confirmed it was proceeding". Consistently with this position, Urbis, in a letter to Challenger dated 30 June 2009, noted key planning issues with respect to the development proposal, the import of the letter being that there was a very strong likelihood the project would receive town planning approval. Some of the more specific comments are also of particular importance in the present context:[174]

"As you are aware, a number of presentations and meetings have been undertaken with Local Government and relevant State Government agencies to discuss the proposal in the context of the above matters. This engagement over a period of several months, in our opinion, has resulted in a well resolved planning outcome for the site which responds positively to the feedback from these key stakeholders.

It is our view that there is the potential for strong support for this proposal on the following basis:

• The integrated nature of the proposed use and development which is strongly supported by both State and Local planning policies, including Melbourne 2030. The proposal in our opinion is a catalyst project in a Principal Activity Centre through the scale of investment and range of integrated uses provided on site. A well resolved integrated mixed use development is highly consistent with Metropolitan Melbourne policy objectives. A site of this scale which allows for such an outcome is quite unique.
• The general consistency of the development proposal with the objectives of Chapel Vision (Structure Plan).
• The quality of the architectural response on this strategic site is well resolved to minimise adverse amenity impacts on adjoining properties in relation to building bulk/mass and overshadowing.
• Heritage Victoria has confirmed the property is not worthy of inclusion on the Victorian Heritage Registrar. In relation to local heritage issues, it is our opinion that on balance the demolition of the existing centre will be outweighed by the net community benefit provided through provision of an integrated mixed use development on the site.
• Engagement between VicRoads, the Department of Transport and Council's Traffic Engineers is continuing to enable an integrated approach for traffic and parking related issues on site and the precinct as a whole.

It is our opinion that as a result of on-going consultation with a range of stakeholders, this strategic site proposing an integrated mixed use development within a Principal Activity Centre is well resolved planning outcome for the site. In our view there is a very strong likelihood the proposal would receive town planning approval."

108 This process appears to have culminated in about July 2009 when the Jones Lang LaSalle Information Memorandum, to which reference has already been made, was released. The Information Memorandum contains an indicative master plan for 38,000m2 of retail, 10,000m2 for office space and a 2,650 seat cinema complex, a 120-room boutique hotel, 100 apartments and over 1700 car-parks and car spaces. The Information Memorandum specifically quoted the Urbis advice[175] and attached a complete copy of the Urbis letter of 30 June 2009, to which reference has been made, specific parts of which are set out above.

109 In the course of his evidence, Mr McNamara made the following observations in relation to the Urbis letter of 30 June 2009. Mr McNamara said:[176]

"I would say that's a seriously written letter, and that is, what was happening is that obviously the planning approval had not advanced to the formal application stage but there was a desire to give any purchaser a very good indication of how well advanced the approval process was. Given the involvement with DIIRD in the Premier's Department and the Department of Planning and Community Development, there was an intention to provide as much comfort to a potential purchaser that the scheme that had been developed could be proceeded with."

Mr McNamara described the proposed redevelopment scheme as a "very advanced scheme, ... almost suitable for lodgement for town planning application".[177] Further, Mr McNamara's view was that there "was a very high level of Government involvement and it would indicate to me strong support for that scheme".[178]

110 It was submitted by the Valuer General that it can be reasonably inferred from the state of the lease profiles that the plaintiffs were prepared for a redevelopment to take place in 2012.[179] At least, apparently consistent with this position, Challenger's 2008 Annual Report noted that the WALE (weighted average lease expiry) is "inclusive of hold over income due to positioning of asset for potential redevelopment".[180]

111 Further, the Valuer General emphasised that the Challenger proposal was supported by a very experienced team of consultants, including a leading firm of planners (Urbis), a leading firm of traffic engineers (GTA Consultants), a leading firm of retail architects (NH Architecture), a leading firm of heritage consultants (Lovell Chen), a leading retail economist (Mr De Masi from Pitney Bowes), and a leading firm of market economists and valuers (Charter Keck Cramer). Mr McNamara, in his evidence, described those firms as "A grade firms".[181] Additionally, there was a high level involvement from a number of Government departments, including the Department of Premier and Cabinet, as is clear from the "Inter-agency Facilitation Meeting" minutes, to which reference has been made.[182] Indeed, Mr Negri acknowledged that the redevelopment "might be regarded as being of State significance".[183]

Effect of failure to call witnesses and provide documents

112 It was submitted by the Valuer General that it cannot be disputed that Challenger prepared a comprehensive development proposal for the Jam Factory site at considerable cost. Reference has been made to the evidence available from the documents which were produced which, in my view, clearly established this position. The point was also made by the Valuer General that there was no evidence of any negative views or sentiments concerning the Challenger proposal from any source. In my view, on the basis of the documents that are available, this correctly states the position.

113 More specifically, the Valuer General noted that Challenger had not chosen to call any witnesses from Urbis, NH Architecture, GHD, Lovell Chen or Pitney Bowes in relation to the issue of the highest and best use of the Jam Factory site. Further, it was said that Challenger chose not to lead any evidence to show why the proposal did not proceed through an application for town planning approval. No reason was given by Challenger for its decision not to progress the proposal. It was submitted that it is reasonable to infer that the reason for Challenger not proceeding was the global financial crisis and that this decision had nothing to do with the prospects of obtaining town planning approval.[184]

114 Additionally, it was submitted that Challenger chose not to provide its witnesses with any documents relating to the Challenger proposal, its development scheme.[185]

115 Rather, it was said what Challenger chose to do was to engage Mr Negri to compile a planning report, not in relation to the development potential of the site but, rather, in relation to the planning controls applicable to the site. It was submitted that, had Challenger engaged Mr Gleeson, Senior Urban Planner, Urbis (and the author of the Urbis letter of 30 June 2009[186]) as their town planning expert witness, it is highly likely that the planning evidence would have been significantly different.

116 Further, in relation to Mr Jackson, it was said that he was "coy" about the Challenger scheme and what he had been told. The evidence elicited from Mr Jackson in cross-examination in this respect is helpfully summarised in the Valuer General's submissions.[187]

117 On the basis of the evidence of Mr Jackson in cross-examination, there was an obvious discrepancy between what Challenger was putting to the market in mid-2008 (particularly by reference to The Age article in June 2008), discussions it was having with the "inter-agency task force" in 2009, and what Mr Jackson said he was told by Challenger in late 2008 about the Challenger redevelopment scheme, namely that he should ignore it as it was unlikely to go ahead.

118 As the Valuer General submitted, the actions of Challenger invite the inference that it was seriously pursuing the redevelopment proposal, the Challenger proposal, until shortly after the time that the global financial crisis really started to affect Australia. Also, the important point was made that companies such as Challenger have obligations under the Corporations Act 2001 (Cth) (and also obligations under the Trade Practices Act 1974 (Cth)) including onerous obligations with respect to their shareholders and investments. Consequently, it was submitted, companies like Challenger cannot make representations lightly; particularly not in relation to a redevelopment scheme of such significance. Additionally, it was said that the proposed redevelopment would have serious consequences for the Jam Factory tenants. Clearly, they would need to consider seriously their future and whether or not to renew their leases and, if so, on what terms. It was again emphasised that the cost of developing a proposal of the magnitude of the Challenger proposal would indicate that it would not be pursued lightly. The significant cost of developing the proposal, together with the significance of representations to the public in relation to such a proposal, and the consequences for existing and ongoing tenancies on announcement of the proposal (during redevelopment works, and subsequently in terms of renewals) are all matters, in addition to all the other more specific evidence or lack of it, which indicate that the Challenger proposal was a serious and viable one.

119 In this vein, it is helpful to set out the exchange between Mr Wren SC on behalf of Stonnington and Mr Jackson:

"[Mr Wren] Can I put this to you, Mr Jackson. If Challenger goes to the extent of involving the Department of Premier and Cabinet in meetings, DIIRD, the Department of Transport, the Department of Planning, VicRail, VicRoads, architects, project managers, consultants of the sort of Urbis, NH Architecture, GTA, have gone through a whole program of a roll-out with the proposal, that it has made a public announcement to the world, including its shareholders, it has got a whole series of leases which are short-term leases that it's able to effectively bring to an end, save for Village, and go ahead with the development, I would suggest to you all of that points to what is a seriously entertained proposal by Challenger, save for the GFC's intervention?

[Mr Jackson] I think you could glean from that quite fairly that they were very serious about exploring that possibility. They have obviously spent considerable money and time so I think I would agree that they have seriously looked at the opportunity, but that's from Challenger's point of view."

120 Additionally, the Valuer General submitted that if the Court accepted Mr Jackson's version of events, then the inference must follow inevitably that Challenger deliberately shielded its land valuation and planning consultants from its redevelopment consultants and redevelopment plans. It was said that Challenger must have known this but did not wish to provide material to its consultants adverse to its financial interests. As the Valuer General observed, no witness for Challenger was called who could be cross-examined on this issue. Consequently, it was submitted that there could be no doubt that such actions must have been deliberate. It was said that a redevelopment scheme that has been put together by a leading firm of architects and supported by leading firms of planners and other experts, as well as supported by various Government departments, is of critical relevance to the issue of the highest and best use of land. Indeed, Mr Jackson's statement, which was made in relation to Mr McNamara's report, does illustrate the pivotal importance of the Challenger proposal:[188]

"What I was able to do, and in my view properly, is have regard to that expert evidence which was of enormous assistance, particularly on a large site where the issue of what you might be able to do with the land and yield from the land is a critical consideration of value."

121 Stonnington made submissions in a similar vein, particularly emphasising the discrepancy between what had been Challenger's public position, of which The Age article in June 2008 is indicative, together with the discussions that Challenger was having with the "inter-agency task force" and the information that had been provided by Challenger to Mr Jackson and Mr Negri in relation to the Challenger proposal.[189]

122 Objection was raised to some questions which were put to witnesses in relation to the Challenger proposal, the redevelopment scheme. It was submitted by Challenger that it was impermissible to elicit from witnesses an opinion as to the prospects of certain planning outcomes taking account of events which had occurred after the relevant date. Reference was made, in particular, to evidence of the "inter-agency meetings", the favourable attitude of Stonnington councillors and the like. In response, it was submitted that the reports, letters, meeting notes and the Jones Lang LaSalle Information Memorandum regarding the Challenger proposal, though produced after the relevant date, were important evidence of the highest and best use of the site and, consequently, did not offend the Falconer principle.[190] Further, it was said that highest and best use is a hypothetical concept and it is immaterial when documents evidencing highest and best use are produced. More particularly, it was said that Mr McNamara's scheme was devised after the relevant date and that, had Mr Negri devised the scheme, it would also have been devised after the relevant date. It was submitted that the Challenger proposal is very helpful with respect to the highest and best use issue because it is a thorough analysis of the potential of the site by leading experts. In relation to the timing, it was said that it commenced before the relevant date and continued after that date, but that it would not matter if it was wholly developed after the relevant date, provided it was appropriate, and presumably feasible, as at the relevant date.

123 The evidence of the experts supports this position. The fact that the Urbis, GTA, Lovell Chen and Pitney Bowes reports all support the proposal evidences the fact that the Challenger proposal was one with strong chances of planning success, as indeed Urbis certified in its letter of 30 June 2009, which was published in the Jones Lang LaSalle Information Memorandum. Further, Mr Jackson did admit that the information such as that from Pitney Bowes, NH Architecture and GTA would have been something he would have considered in assessing the development potential of the subject site had it been made available to him. Mr Negri's evidence was also that decisions about car parking ought to be made on the basis of traffic engineering advice, but Challenger did not provide him with the traffic advice that it had already obtained. Finally, Mr McNamara's evidence was that if he had been provided with the Challenger proposal material, then it would have given him confidence that the site might have been able to adopt an even higher scale of development than that which he indicated in his expert evidence.

124 Both Stonnington and the Valuer General submitted that an adverse inference should be drawn about the failure by Challenger to call evidence in relation to the redevelopment of the Jam Factory site and to provide documents about the Challenger proposal. In this respect, reliance was placed on the classic and much cited statements in Jones v Dunkel,[191] which were explained in the joint judgment of Newton and Norris JJ in O'Donnell v Reichard.[192]

125 In Jones v Dunkel, Kitto J said:[193]

"It was right enough to point out, in effect, that the evidence given might be the more readily accepted because it had been left uncontradicted, and that the omission to call Hegedus as a witness could not properly be treated as supplying any gap which the evidence adduced for the plaintiff left untouched. But what should have been added, and not being added was in the circumstances as good as denied, was that any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence. The jury should at least have been told that it would be proper for them to conclude that if Hegedus had gone into the witness-box his evidence would not have assisted the defendants by throwing doubt on the correctness of the inference which, as I have explained, I consider was open on the plaintiff's evidence. In my opinion what his Honour said on the point amounted to a misdirection."

126 In the same case, Windeyer J said, quoting Wigmore on Evidence:[194]

"The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstances or document or witness, if brought, would have exposed facts unfavourable to the party." [Emphasis added]

127 The principle was also explained by Newton and Norris JJ in the Victorian Full Court:[195]

"... where a party without explanation fails to call as a witness a person whom he might reasonably be expected to call, if that person's evidence would be favourable to him, then, although the jury may not treat as evidence what they may as a matter of speculation think that that person would have said if he had been called as a witness, nevertheless it is open to the jury to infer that that person's evidence would not have helped that party's case; if the jury draw that inference, then they may properly take it into account against the party in question for two purposes, namely: (a) in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken; and (b) in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given, again in relation to matters with respect to which the person not called as a witness could have spoken."

128 More specifically, the Valuer General submitted that the principle in Jones v Dunkel was applicable in the present circumstances for the following reasons:

(1) there clearly exists a substantial body of expert reports, plans and other documentary material that "sit behind" the material that was produced to the Court in relation to the Challenger proposal;

(2) this material would have assisted in determining facts in issue, such as the highest and best use of the land;

(3) the failure to provide this material was unexplained;

(4) the experts who wrote the reports comprising the Challenger material with respect to the Challenger proposal would have been able to give valuable evidence in relation to the facts in issue in the case; and

(5) the failure to call these experts is also unexplained.

Consequently, it was submitted that the inference should be drawn that such evidence would not have assisted Challenger's case.

129 There was a further issue raised by the Valuer General in the Jones v Dunkel context in relation to the valuations that Challenger had obtained for trust purposes including the Valuation Reports on the Jam Factory prepared for Challenger by Savills (Vic) Pty Ltd, dated 31 December 2007 ("the 2007 Savills Report") and 30 June 2008 ("the 2008 Savills Report") and the Valuation Report on the Jam Factory prepared for Challenger by CB Richard Ellis, dated 30 June 2006 ("the CBRE Report"). It was submitted that an adverse inference may be drawn about Challenger's failure to call evidence from the authors of the Savills and CBRE reports because:

(1) the experts who wrote the reports would be able to give evidence about facts in issue in the case;

(2) the witnesses called by the defendants were in fact cross-examined about the contents of the Savills and CBRE reports; and

(3) the failure to call those experts was unexplained. Thus, it was submitted, that the inference may be drawn that such evidence would not have assisted Challenger's case.

130 In relation to the contents of the 2007 and 2008 Savills reports it was noted that Mr Fitzgerald was cross-examined in relation to the site values indicated in those reports. In substance, it was put to Mr Fitzgerald that his assessment of the site value was too high having regard to the view expressed about the site value in the Savills reports. It was submitted by the Valuer General that not only was there a failure to call the author of those reports, but that they contain almost no analysis in relation to the determination of site value. Further, it was submitted that the Savills escalation of 22.3 per cent between 2006 and 2008 is low compared with all of the valuers' evidence in this case about the increase in the values of land in the area over that time, including that expressed by Mr Jackson. Further, it was said that as Mr Fitzgerald observed, there are inconsistencies between the comments in the 2000 and 2008 Savills reports regarding whether the 1 January 2006 site value was high or low. The Valuer General submitted, therefore, that no weight ought to be given to the site value as assessed in the 2008 Savills Report.

131 In my opinion, there is a great deal of force in the Valuer General's submissions and the reasons and authorities in support, as set out above, and also the Stonnington submissions to similar effect. The authorities with respect to the issue of highest and best use have already been considered in some detail. For present purposes, it is sufficient to note that the authorities indicate that the highest and best use represents "the most profitable potential use to which land can be put having regard to both planning and height controls and the circumstances of the land".[196] It is also clear from the authorities that "[i]t will thus be sufficient in those cases to describe a highest and best use in general terms - for example, intensive retail and mixed use".[197] In my view, it is clear that the documentary evidence and evidence of experts in relation to the Challenge proposal would have assisted in establishing facts going to the determination of the issue of highest and best use. I am also of the opinion that, to the extent that this evidence would not establish facts as at the relevant date of valuation, this is, in the absence of any evidence that critical factors such as planning and height controls or the state of the premises would have changed the position with respect to highest and best use subsequent to the relevant date, a situation where the evidence of future events would serve to confirm a foresight as at the relevant date, rather than to prove a hindsight, in terms of the Falconer principle.[198] In light of these considerations, I reject the Challenger submissions with respect to the application of the Falconer case to exclude evidence of this kind.[199]

132 Finally, in the context of failure to call evidence issues, reference should be made to the argument advanced by Challenger that because Stonnington did not lead planning and highest and best use evidence, the Court should draw an inference that it did not do so because such evidence would not be favourable to it. In other words, another application of the Jones v Dunkel[200] principle. This submission by Challenger was, however, also made in the context of the following submission:[201]

"Further, in circumstances where SCC's and the VG's interests are aligned with respect to Mr McNamara's evidence, answers obtained by SCC's cross-examination on questions of common interest should be given less weight. In Cheers v El Davo Pty Ltd (in liq) [2000] FCA 144, Weinberg J stated at [14], in circumstances where the interests of two parties were closely aligned, that the decision of one those parties to ask leading questions of the witnesses of other such party would affect the weight attached to the answers elicited."

This submission itself acknowledges the reality of the closely aligned interests of Stonnington and the Valuer General, which was clear in submissions and throughout the trial. Having regard to this position and the evidence which the Valuer General did lead in relation to planning and highest and best use issues, there was, in my view, no "gap" in the evidence in this respect.[202] In any event, there is no reason to suppose that there is any "gap" in the sense that there was adverse evidence on these issues which Stonnington would reasonably have been expected to lead "to put the true complexion on the facts",[203] particularly having regard to the manner in which the case was conducted with Stonnington and the Valuer General clearly pursuing a common interest. Accordingly, there is no substance in Challenger's argument in this respect.

133 The Jam Factory site was, at the relevant date, and is now, zoned primarily "Business 1", which was described by Mr McNamara as "one of the better zones for mixed use applications".[204] Also at the relevant time, the Stonnington Planning Scheme had incorporated "Melbourne 2030", particularly through Clause 12 "Metropolitan Development".

134 The significance of the application of Clause 12 of the State Planning Policy Framework is set out in the Town Planning Report prepared by Mr Negri, dated December 2009, as follows:

"In particular relation to Clause 12 - Metropolitan Development, this clause provides specific objectives and strategies for Metropolitan Melbourne, and it implements the Metropolitan Strategy, Melbourne 2030. As detailed, below, the subject site is located within the Chapel Street Principal Activity Centre and the relevant strategic policy basis for Principal Activity Centres under Clause 12.01-2 of the Planning Scheme are:[205]

Build up activity centres as a focus for high-quality development, activity and living for the whole community by: [inter alia]

Principal and Major Activity Centres

• Developing Principal and Major Activity Centres to accommodate ongoing investment and change in retail, office, service and residential markets.
• Ensuring Principal and Major Activity Centres:

- Have a mix of activities that generate high number of trips including business, retail, services and entertainment.

- Are well served by multiple public transport routes and are on the Principal Public Transport Network or capable of linking to that network.

- Have, for Principal Activity Centres, a large catchment covering several suburbs and attracting activities that meet metropolitan needs.

- Have the potential to grow and support intensive housing developments without conflicting with surrounding land-uses.

• Locating new Principal and Major Activity Centres on the Principal Public Transport Network or linking them to the network as part of developing the site.
• Broadening the role of stand-alone centres to provide a greater mix of uses and improving linkages to the Principal Public Transport Network.
• Ensuring Principal Activity Centres are a focus for a range of government and community activities, services and investment and are priority locations for government investment and support.
• Giving priority to Principal Activity Centres for investment and the location of significant land uses where catchments overlap in any part of the network of centres.
• Encouraging Major Activity Centres with good public transport links to grow in preference to other centres with poor public transport links serving the same catchment."

Mr Negri continued to explain in his Report that Clause 12 of the Stonnington Planning Scheme implements Melbourne 2030 as the State Government's Metropolitan Strategy. He continued:[206]

"Melbourne 2030 classifies Chapel Street as a Principal Activity Centre, being the highest order centre outside the Central Activities District. Direction 1 relates to 'A More Compact City' and seeks to build up activity centres for high-quality development, activity and living. Direction 1 states that 'the size and/or location of Principal Activity Centres mean they have an especially important role to play as a focus for community activity, services and investment. Melbourne 2030 identifies them as a location for priority government investment and support.'"

135 Mr Negri, in his Town Planning Report of December 2009, also made reference to the specific requirements contained in the Stonnington Planning Scheme with respect to Chapel Street and Toorak Road, particularly referring to Clause 22.02-3.[207] Continuing, he made detailed reference to Chapel Vision as follows:[208]

1. 57. The Chapel Vision Structure Plan is the Structure Plan for the Chapel Street Principal Activity Centre. It was adopted by Council on 17 December 2007, prior to the Relevant Date. At the Relevant Date, the Structure Plan would not have been regarded as being a 'seriously entertained planning proposal', as it did not form part of a Planning Scheme amendment that had been exhibited. For this reason, the Structure Plan carried no statutory weight as a decision making tool, compared to the policies and planning controls contained within the Planning Scheme.
2. 58. Having said that, the Structure Plan was Council's adopted Vision for the Activity Centre and the Council had resolved to apply it to the assessment of planning proposals in the activity centre.
3. 59. The Structure Plan recognises the 'Jam Factory and Environs' as one of seven 'Strategic Sites' within the Structure Plan area, and the objectives and desired outcomes for the Jam Factory and environs are set out in the Structure Plan as follows:

• To optimise the capacity of the Jam Factory and Environs to meet the needs for additional residential and office uses within the Activity Centre
• To facilitate the redevelopment of low rise buildings where sites have significant capacity for higher density development
• To encourage site amalgamation to achieve medium density outcomes
• To improve the quality, safety, amenity and extent of the public realm
• To enhance informal surveillance of the area through active edges
• To improve the amenity, extent and appearance of the public open space network
• To maintain solar access and amenity to pedestrian paths and sites south of the Jam Factory
• To encourage north-south pedestrian permeability through the areas between the Jam Factory and Dye Works Park

• Activate Garden St interface, particularly with respect to Jam Factory building
• Develop airspace above Jam Factory buildings for employment generating uses and/or residential of 8 storeys, setback from Chapel and Garden Streets.

1. 60. The preferred building height was 27 metres to 31 metres [7 - 8 levels], stepping down to 8 metres to 12 metres [2 - 3 levels] at the Chapel Street and Garden Street frontages. Figure 6 below shows Page 65 of the adopted Chapel Vision document, which details the development outcomes, built form and preferred maximum building height envisaged by the Structure Plan."

Mr Negri explained that at the relevant time, the Jam Factory site was located in a Principal Activity Centre under Melbourne 2030, which was at that time the "highest order" centre outside the Melbourne CBD or Central Activities District. A Principal Activity Centre is one of the foci for major development, including intensive retail development, in various parts of Melbourne.

136 In relation to building heights, Mr Negri commented that, in spite of the provisions of the Stonnington Planning Scheme, Chapel Vision contemplated significantly greater building heights. Thus, Mr Negri said:[209]

"65. It must be recognised that at the Relevant Date, there was a conflict between the policy contained within the Stonnington Planning Scheme and the vision promoted for the area by Council's most recent strategic work [the Chapel Vision Structure Plan] in relation to the preferred building height on the subject land. On one hand, the LPPF and more specifically the Urban Design Policy at Clause 22.02 recommended an 8 metre building height on the subject land, whilst the recently adopted Chapel Vision document envisaged an overall maximum building height of 27 - 31 metres, stepping down to 8 - 12 metres in height at the Chapel Street and Garden Street frontages.

1. 66. At the Relevant Date, the Council had resolved to apply the Structure Plan in the consideration of planning proposals in the Activity Centre, and the Tribunal also regarded the building heights envisaged by Clause 22.02 as being 'stale' [for example, in Application for Review No: P157/2006 which reviewed Stonnington Planning Permit Application No: 1011/05 as it applied to 7-13 Simmons Street and 12 Ellis Street, South Yarra]."

137 Chapel Vision was adopted by Stonnington on 17 December 2007. Accordingly, at the relevant time, Chapel Vision could be considered by Stonnington under the provisions of sub-s 60(1A) of the Planning and Environment Act 1987, which provides:

"(1A) Before deciding on an application, the responsible authority, if the circumstances appear to so require, may consider-

...

(g) any other strategic plan, policy statement, code or guideline which has been adopted by a Minister, government department, public authority or municipal council; ..."

138 The Jam Factory site was, at the relevant time, in one of the areas designated in Chapel Vision as one of the "Substantial Change Areas". This term was defined or summarised in Chapel Vision as follows:[210]

"Substantial Change Areas are those that can accommodate significant amounts of new development and where there may be substantial changes from the form and character of existing development."

The Substantial Change Areas identified in Chapel Vision include the Jam Factory site and other sites contiguous with the Jam Factory site, apart from roadways, south to Malvern Road but excluding the Chapel Street frontage south of the Jam Factory (which, in the case of the Jam Factory site, is included within a Substantial Change Area).[211] Having identified areas for substantial change, moderate change or limited or minimal change, Chapel Vision then identifies "development opportunities, built form and preferred maximum building height, area by area". In relation to the "Jam Factory and Environs", the first two of eight stated objectives are as follows:[212]

"• To optimise the capacity of the Jam Factory and Environs to meet the needs for additional residential and office uses within the Activity Centre

• • To facilitate the redevelopment of low rise buildings where sites have significant capacity for high density development"

The "maximum preferred heights" for buildings to the extent that they are specified in Chapel Vision are not being regarded as mandatory and both planning witnesses, Mr Negri and Mr McNamara, agreed that they could be, and often were, exceeded.

139 Turning more specifically to building height issues, the Valuer General made reference in his submissions to FKP Lifestyle Pty Ltd v Boroondara CC & Ors (Red Dot).[213] This case, which was heard by VCAT in December 2007, concerned the Henley Honda site at Camberwell Junction where the development proposed was a mixed use development of three towers of six and eleven storeys atop a three level podium. The Minister for Planning elected to intervene in that proceeding in support of the proposal. With reference to the Minister's intervention, VCAT noted:

"53. The Minister for Planning asserted the primacy of metropolitan policy, arguing that the implementation of Melbourne 2030 is more urgent as a consequence of higher than predicted population growth and a greater recognition of the urgent need for action in respect of climate change."

It was suggested by the Valuer General that the fact that the Minister for Planning intervened in the FKP case is also consistent with the evidence of the experts in relation to the probability of Ministerial intervention in favour of any redevelopment of the Jam Factory, particularly given that a representative of the Department of Premier and Cabinet attended some of the inter-agency meetings to which reference has been made.[214]

140 The Valuer General also made reference to what was said to be a useful statement by VCAT in the course of the FKP case as to the correct approach to planning policies contained in Melbourne 2030:[215]

"62. In any event is it the correct approach to seek to significantly constrain development on this key site?

1. 63. In Ashlyn Enterprises Pty Ltd [[2003] VCAT 87], an early decision of the Tribunal to considered the effect of Melbourne 2030 [The decision predates the introduction of clause 12 into the planning scheme], the Tribunal made the following observations relevant to this issue:

'15. An example of this issue, in this case, is the different approaches to the issue of building height. It is said in favour of the application, that the higher elements of the proposed buildings respond positively to the existence of higher buildings within the immediate environs of the site, mainly former industrial buildings, many of which have been adapted and extended for residential use, and the variation in scale more generally evident throughout South Fitzroy. It is said against the proposal that the proper approach to new development within an established heritage area is for the newer buildings to respect the prevailing scale and character within the area, and that not only are the taller elements proposed inconsistent with the prevailing character of the locality, they also detract from the significance of the taller buildings that historically exist in the area. It seems to us that both these propositions are arguable, and that the preferred position is perhaps discerned by reference to Melbourne 2030.'

1. 64. The Melbourne 2030 policy at page 49 requires development in Neighbourhood Activity Centres to 'respect its context' but makes no such similar requirement of a Principal Activity Centre or a Major Activity Centre where significant change is encouraged.
2. 65. Nevertheless, opportunity sites are not unconstrained. In Carlos Constructions Pty Ltd the Tribunal said [Carlos Constructions Pty Ltd v Moreland CC [2004] VCAT 1752 at paragraph 40]:

'... we think the effect of Melbourne 2030, when overlaid with the essentially similar policy framework within the planning scheme, is to emphasise the importance of optimising development opportunities where that can be achieved without unreasonably compromising other important planning objectives relative to issues such as heritage, neighbourhood character, or the established amenity of localities.'

1. 66. We consider that at the very least the implication of Melbourne 2030 and the State Planning Policy framework is that these policies will encourage development which maximises the level of development on key sites which could reasonably be regarded as consistent with local planning policy.
2. 67. Moreover, while we are not required to go down this path in this case, it is at least arguable that Melbourne 2030, and the State Planning Policy framework, would in appropriate circumstances encourage levels of development greater than envisaged by the Local Planning Policy Framework. This is particularly so when its clear that the relevant provisions of the existing Local Planning Policy Framework evolved before, and have not had regard to, the current metropolitan policy position. [An example of this is the decision of the Tribunal in ML Design v Boroondara CC [2006] VCAT 613. In this case a building taller than the height limits suggested in the structure plan was allowed, on the basis that the design, with modifications, preserved the character of the Burke Road shopping street which the structure plan sought to preserve]."

141 It was common ground as between Mr Negri, Mr McNamara and Mr Rogers, the latter from Urbis, that the redevelopment potential of the Jam Factory site was not constrained by the preferred maximum heights specified in Chapel Vision. More specifically, in addressing the issue of height, Mr Negri agreed that there were circumstances where taller buildings than envisaged by Chapel Vision had been approved and that Stonnington had been singularly unsuccessful in holding VCAT down to the Chapel Vision height "limits". Consequently, the well-informed purchaser, applying the Spencers case test, would be taken to be well aware that the redevelopment potential of the Jam Factory site was not constrained by the preferred maximum heights specified in Chapel Vision.

142 In my view, it is clear that the real and significant planning question with respect to the Jam Factory site is what form of development would "optimise" (borrowing from the FKP case and from Chapel Vision) the use of the site "without unreasonably compromising other important planning objectives relative to issues such as heritage, neighbourhood character, or the established amenity of localities" (also borrowing from the FKP case).

143 There is no doubt on the evidence that the Jam Factory was a "key site" at the relevant date and continues to be so. Mr McNamara, in his Town Planning Report, dated October 2009, which was prepared for these proceedings, describes its location in these terms:[216]

"The Jam Factory is located in Chapel Street probably the best suburban retail strip in Australia. From Toorak Road to the south of Malvern/Commercial Road, this strip is occupied by a range of high quality fashion boutiques and trendy restaurants/cafes. The strength of the strip can be identified by the number of national traders and the niche retailers charging premium prices for fashion and related merchandise. It is a place to 'be seen' and operates with virtually all shops trading over seven days; unusual for strips."

Were there any doubt in this respect, it would seem to be dispelled by the Jones Lang LaSalle Information Memorandum - for sale by Expressions of Interest, to which reference has already been made.[217] The report introduces the opportunity to purchase the Jam Factory as "an outstanding opportunity to purchase an iconic entertainment-based retail complex located in one of Australia's prime retail locations".[218]

144 There are, however, some other town planning attributes of the Jam Factory site which include:

(a) a small section of land on the northern boundary of the site adjoining or above the railway which is zoned PUZ4 (i.e. public use zone 4);

(b) the frontage of the site was and is affected by a Heritage Overlay; and

(c) the site was affected by a Special Building Overlay (SBO) which affects approximately 8.2 per cent of the site.

The town planning witnesses agreed that any constraint that might have been caused by the overlays could be managed in any redevelopment. Mr McNamara said that a permit could be obtained to remove the façade. The plans of NH Architecture did not retain the heritage façade and the Lovell Chen report indicates that a permit may be able to be obtained for its removal. The NH Architecture plans contain basement car parking, indicating that the special building overlay does not present as a constraint in this regard. Further, there was no serious suggestion put that the PUZ4 would constrain the built form development of the site and, in any event, the railway line to the north of the site has been built over with shops along the Chapel Street frontage. Mr Fitzgerald gave evidence that the PUZ4 sections of the site were an anomaly caused by limitations in the planning scheme which did not enable different zonings across strata levels, the railway itself having its own small public use zoning.[219]

145 It was submitted by both Stonnington and also the Valuer General that Mr Negri's evidence does not provide a proper basis to assess the highest and best use of the Jam Factory site. In cross-examination by Mr Garde QC, Mr Negri confirmed that his instructions did not include undertaking an examination of the development potential of the Jam Factory and that he did not undertake this exercise.[220] Further, as noted by Stonnington in its closing submissions, Mr Batt SC was at pains to demonstrate in re-examination that Mr Negri does not have expertise to express any expert opinion on -

• potential for areas of particular developments or lettable areas;
• commercial or economic issues or aspects that would attend a particular development or proposed development;
• development potential on anything other than a purely town planning respect; and
• on any particular proposal to redevelop the site.

In relation to the latter, Mr Negri confirmed in re-examination that he was not instructed to evaluate the development potential of any particular proposal put forward in respect of the Jam Factory site, a position consistent with his evidence in cross-examination in this respect. Nevertheless, it was submitted by the Valuer General that Mr Negri's evidence did provide some background information in relation to the planning scheme provisions that applied at the relevant date. Stonnington did not dissent from this position and also submitted, with reference to Mr Jackson's evidence, that having regard to the extremely limited task that Mr Negri was asked to undertake and the concessions which he made in his evidence, he could not be regarded as providing evidence in any way which assisted Mr Jackson, although the issue of the extent to which Mr Jackson relied upon town planning evidence is dealt with elsewhere.[221] It is relevant to note and emphasise this point in the present discussion. For present purposes, I am of the opinion that the Valuer General, in his submissions, provides an accurate and succinct summary of Mr Negri's evidence, as follows:

"a. His role was not to examine the development potential of the Jam Factory site. His role was 'not to provide the definitive view as to what the optimal outcome might be'.

1. b. He does not have experience to comment on potential floor areas of particular developments, lettable areas or commercial or economic issues.

1. c. Without a proposal being presented so that it can be examined and tested it is very hard for a town planner to express an opinion about what would be an appropriate planning outcome for the site.

1. d. His original report adopts the building height in Chapel Vision and does not contemplate a development in excess of such a height.
2. e. The Society building (at 40m) had been constructed as at 1 January 2008 and gave a cue as to what may be allowed in terms of height at the Jam Factory site.
3. f. Chapel Vision is only a guide for preferred height, not a cap on height.
4. g. The site could accommodate a tower to a height of approximately 40m on the eastern part of the land in the location identified in the McNamara hypothetical development concept.
5. h. He was given the Jones Lang LaSalle Information Memorandum with his letter of instruction dated 12 November 2009. He did not ask to see the master plan of the Challenger proposal. He did not see it as important to inform himself of the work that experts had done in connection with the redevelopment potential of the site. He did not see the master plan as being a matter of significance or even relevant to his assessment.
6. i. He read the Urbis letter only after writing his first report. He did not have regard to the Urbis letter but instead took the view that it may 'cloud' his view on the planning parameters for the site." [Footnotes omitted]

146 In relation to the effect of Mr Negri's evidence, it appears that his statement that he did not have regard to the Urbis letter of 30 June 2009 on the basis that it might "cloud" his view and his opinion that the Challenger development plans would not assist him is inconsistent with the fact that his view did change as a result of reviewing Mr McNamara's report and his concept for the redevelopment of the site. Mr Negri's first report was as to his own opinion about the planning issues relevant to the Jam Factory site, whereas his second report was for the purpose of expressing his expert opinion in the context of reviewing Mr McNamara's report. No additional information was provided to Mr Negri between his first and second reports, apart from, of course, provision to him of Mr McNamara's report. Nevertheless, as submitted by the Valuer General, Mr Negri's view about the developable area did change from considering that the site could accommodate a building in the order of 27 - 31 metres in height to a building in the order of 40 metres in height. Consequently, it does appear, and I do accept, that Mr Negri would have been likely to have formed a very different opinion about the form of development that could be accommodated on the Jam Factory site from that expressed in either his first or second reports had he been fully appraised of the Challenger proposal.

147 Mr McNamara is a qualified town planner with very extensive experience in relation to commercial developments, from their conception through to final approval. He was, as submitted by Stonnington and the Valuer General, a particularly well qualified witness to give evidence in relation to retail commercial developments having regard to his experience with the Gandel Group over many years.[222] It was submitted by Stonnington that the Court could have great confidence in accepting Mr McNamara's evidence about the steps that would have preceded the set of plans that Cardno Grogan Richards were reviewing in December 2007 for the purpose of understanding the process behind developing sophisticated retail, commercial and residential development proposals. It was noted that his evidence was not challenged in that regard and, in the absence of any evidence to the contrary, it was submitted that the Court should conclude that such steps as described by him were undertaken leading to the NHA plans of December 2007. Mr McNamara made clear that his proposal for the redevelopment of the Jam Factory site was a first principles design that would then undergo a lot more work in architectural advancement and otherwise. He described the process that he would have undertaken within the Gandel Group or CFSP and his current clients. He said the approach would involve looking at the site, looking at the surrounding areas, having some assessment of market accessibility which would then lead to the pooling up of a concept scheme via the "design workshop" process. He said that this process could produce in the order of 150 schemes and would involve a range of experts in areas such as market research, architecture, town planning, engineering, surveying, acoustics and geotechnics. Mr McNamara readily conceded that without this expert assistance he would not have the capacity to finalise a development scheme.

148 Mr McNamara summarised his findings, which were set out in his Town Planning Evidence, as follows:[223]

"The site is a major land holding in probably the best performing strip centre outside a CBD in Australia.

The area is attracting significant investment in retail, commercial and residential uses.

State and local government planning controls and policies encourage the intensive use of such sites for a mix of uses.

An assessment of the site conditions indicates that there is substantial scope to introduce multi level and multiple uses over this long site of 19,273m2.

The public announcement of the owner in 2008 indicates that even with the existing income, there was serious intention to redevelop the entire site.

Assuming a vacant site, I consider that there is scope to develop the site in a number of ways for multi-level, mixed use projects. The size of the site and the long frontages to Chapel Street and Garden Street give great flexibility for redevelopment. Specifically the frontages would allow subdivision of the site into numerous titles that would attract many developers/investors. The long frontages will allow uses to be separated and design/access ways to be optimised. Staging is facilitated because of the extent of frontages.

As an example of a mixed use complex, I have prepared a basic concept scheme over the whole site which develops parts of the site to about 12 levels in the case of residential uses and three to 8 levels for retail and commercial uses. My concept results in about 45,000m2 of floor space plus over 1,000 car spaces. I consider that such a scheme would be generally consistent with the planning intent for the site and relevant nearby approvals.

It may be the case that stronger weightings toward residential floor space could produce even higher returns."

More specifically, Mr McNamara said:[224]

"It is my opinion that the site is capable of a substantial increase in intensity and mix of uses. The site has great opportunities to take advantage of a strong inner city, premium-grade activity centre location.

...

As a demonstration of this, I have prepared basic sketch plans of a possible concept. This concept is intended to identify floor space allocations for uses and car parking and is well short of a design. I note that it is substantially less in floor area when compared with the public release from Challenger.

In the absence of proper design collaboration, I am confident that the site is capable of in excess of 45,000m2 of development uses, excluding car parking and support areas."

The design concept which was appended to Mr McNamara's report is in the nature of a sketch plan, but it is a mixed use concept, which is consistent with the "piecemeal" use concept for various areas within the Jam Factory site which is set out in Mr Fitzgerald's witness statement and report.[225]

149 Mr McNamara said in his evidence that he was aware of the Information Memorandum, but carried out his own assessment as he did not have the architectural plans that had been prepared by Challenger to enable him to understand its scale. Further, he said that, without understanding how the scheme had developed, he was not in a position to adopt it. Mr McNamara was also asked whether his scheme would have been affected had he had access to the documentary material in relation to the development of the Challenger proposal. He said that he would have had more confidence that the site might have been able to adopt a higher scale of development and:[226]

"If I had known that the scheme had advanced and had overcome some of the constraints that I had placed on the site, I probably would have had a larger scheme. The car parking, for example, shown on the larger scheme was something which I didn't think was possible in my scheme."

In any event, Mr McNamara said that in the absence of proper design collaboration, he was confident that the site was capable of in excess of 45,000m2 of development uses, excluding car parking and support areas.[227] He was then asked about proper design collaboration and again reiterated the lengthy process involved in achieving planning approval and the large team required, including design input, commercial leasing, financial, legal and other expert advice. He said that his figure of in excess of 45,000m2 of development uses involved a combination of leasable areas and gross areas of residential development. Mr McNamara's concept involved car parking plates of approximately 4,000m2 over five levels above ground, equating to approximately 20,000m2 GFA. Mr McNamara also accepted that residential development could be higher at the eastern end of the site and that higher units could probably be erected towards the railway and slightly lower units towards Garden Street. In relation to underground development, Mr McNamara said:[228]

"I would've liked to have gone down, but I didn't think the flood levels would allow that. It may be that I have missed the highest and best use if the flood levels could have been properly managed. So I put the entertainment above retail in that way."

In response to this evidence Stonnington submitted that:[229]

"It follows from the above that Mr McNamara was designing his proposal on a false premise ie, the [Special Building Overlay] constrained underground development. Vogue [670 Chapel Street] demonstrates NH Architecture's plans are obviously soundly based and accordingly Mr. McNamara's proposal is at least 20,000m2 of FGA shy, even in its most basic non-collaborated state. If Mr McNamara's 45,000m2 is converted to GFA and his car park floor plates are used for commercial purposes and not residential, his scheme exceeds 70,000m2 GFA excluding underground car parking. Of course that exceeds the GFA Mr. Jackson has assumed for 670 Chapel Street and accordingly undermines the main premise of his subsequent valuation."

150 Mr McNamara was cross-examined about whether issues such as the ability to raise capital (and access debt) were relevant to the issue of what is the highest and best use of the land. Mr McNamara said that they were not and this, it was submitted by the Valuer General, was clearly correct, particularly having regard to sub-s 5A(3) of the Act.

151 Mr McNamara was also questioned whether the rental value of shops diminishes as one moves away from the Chapel Street frontage. His evidence was that there was not a direct relationship and that the effect would depend upon the precise configuration of the centre. He was also asked about a number of issues that he identified as site constraints, such as the shape of the site, the presence of the railway along the northern boundary and the SBO. His evidence was that his concept dealt with these issues satisfactorily. Further, he did not consider the nearby Clara development (Palermo Street), of approximately 40 metres height, to be a "negative"

152 Mr McNamara did not include a specific allowance for parking for the cinemas, a matter about which he was cross-examined. In answer, he explained that as the centre was a mixed use entertainment centre and given that he had included a generous allowance or retail, he considered that the cinemas did not need a separate allocation. He also gave evidence that his scheme provided a higher car parking allocation than the GTA scheme. Mr McNamara was also cross-examined with respect to the possibility that Stonnington may require some provision of car parking over and above that required for the uses on the site. His evidence in answer was that such a requirement would not stem from the s 173 Agreement which applies to the existing Jam Factory site development which "is for all intents and purposes finished",[230] is not normal and there is no policy or requirement that he was aware of to provide such public car parking. Further, both Mr Negri and Mr McNamara addressed the issue of the s 173 Agreement and expressed their respective opinions that it would not carry forward into any new development proposal which would need to be looked at based on the individual merits of what was to be developed on the site in light of the then Stonnington parking policies; notwithstanding references which were made to Stonnington officers' reports accompanying the Stonnington Council minutes that adopted Chapel Vision and to the Council's intention for the Cato car-park to be expanded. In any event, it was submitted by the Valuer General that such a requirement for the provision of public car parking may be unlawful, given that it would constitute a development contribution, levy or tax without a statutory basis.[231]

153 The authorities in relation to highest and best use which have been considered indicate that the issue is a question of fact to be determined by the Court on the basis of the evidence before it.[232] In this context, the further point was made by Stonnington that there is a distinction in planning terms between "use" and "development". It was submitted that in this case the highest and best "use" is agreed by all witnesses. It is a mix comprising elements of retail, entertainment, office and accommodation either in the form of residential apartments, serviced apartments or a boutique hotel, or a combination of all three, or some of them. It is clear that all of these uses will be provided with car parking which is appropriately extensive to meet anticipated demand. The primary submission by Stonnington in this respect was that the Court should not be concerned to determine the extent of the ultimate built form required to accommodate these uses, relying in this respect on the following statement by Morris J (sitting as President of VCAT) in ISPT Pty Ltd v City of Melbourne:[233]

"67. The applicant's submission does not recognise the reality of the marketplace. In my opinion, at least, in the circumstances of this case, it is not necessary to identify a precise highest and best use of the land in order to assess site value. I would add that, if the highest and best use must be ascertained, it might be identified in general terms: such as an intense use for office, residential, hotel, club or retail purposes (or some combination of these); without specifying a single, precise use."

It was submitted that in this case, the Court can also add cinema, restaurant and bars.

154 In my view, it is clear from the evidence of all town planning witnesses that the statement of highest and best "use" as put by Stonnington is agreed, and there would be little controversy in adding "cinema, restaurants and bars", as these more particular uses are really subsets of the highest and best use described in more general terms. The issue remains, however, whether it is necessary to go further and to determine the extent of the three dimensional envelope in which these uses could be accommodated. In this respect, it was submitted by Stonnington that it was not necessary to go further than the evidence provided by the plaintiff's subpoenaed documents and other documents in relation to the extent of the Challenger proposal. As indicated in the preceding discussion,[234] a similar position was taken by the Valuer General. In my opinion, particularly for the reasons noted by Morris J in the ISPT case, it is not necessary to determine the extent of the built form which would accommodate the highest and best use in the present circumstances. In any event, the exercise would be somewhat artificial, as the Challenger proposal, though it clearly reached an advanced stage of development as a preliminary to its implementation, was not "cast in stone" and could and would be likely to be varied in the course of finalisation of the planning permit and architectural and engineering development stages. Nevertheless, it is helpful to refer to some of the documents in relation to the Challenger proposal to form a general view with respect to the scale of the proposed development as this is relevant to consideration of the approach taken by the valuers.

155 Reference was made to the plans for the Challenger proposal developed by NH Architecture which provide for a development which does accommodate the highest and best "uses" to which reference has been made. For example, the NH Architecture Jam Factory redevelopment plans marked "Layout Review", dated 7 December 2007, show the development as including a supermarket, organic supermarket and liquor store, 13 specialty shops, a discount department store, together with loading bays and sundry service areas. These plans also show three groups of specialty or concept stores along Chapel Street together with four clusters of internal specialty stores leading to the department store. The hotel lobby is adjacent a porté cochere off Garden Street with a pedestrian bridge across the rail line to the Clara development. There is also a commercial lobby. Subsequently, a Powerpoint presentation in March 2008 shows the Chapel Street concept stores in almost identical layout as previously, internal specialty stores similarly laid out, the hotel lobby adjacent the porté cochere, with the department store at the eastern end. An escalator joining level one has been inserted. The bridge across the railway line continues to join the Clara development with an alternative location shown and the office lobby moved east of one of the specialty stores. The upper levels include cinemas, the hotel and apartments. The Powerpoint presentation identifies 40,000m2 of retail space, which is almost the same figure in the quantity surveyor's feasibility estimate as at April 2008.[235] The hotel and residential tower height limit as shown in the quantity surveyor's figures coincide with the depiction in the master plan which forms part of the Powerpoint presentation. The quantity surveyor's estimates refer to a hotel having five levels and apartments built between levels 2 and 11, with a plant room on level 12. I accept that, as submitted by Stonnington, the likelihood is that the quantity surveyor's report was prepared in March 2008 to be current in April 2008. These dates coincide with the Powerpoint presentation. In any event, no further plans to the December 2007 plans were discovered and, consequently, it does appear safe to assume that the quantity surveyor's analysis was with respect to those plans.

156 As submitted by Stonnington, the Layout Review dated 7 December 2007, the Powerpoint presentation from March 2008 and the quantity surveyors report dated April 2008 are almost identical to the NH Architecture Jam Factory redevelopment plans dated August 2008 (Issue 1)and January 2009 (Issue 2). I accept that, having regard to the similarity between the basement, lower ground and ground level layouts in the December 2007 layout reviews, the Powerpoint presentations and the quantity surveyor's analysis, that it is reasonable to conclude, particularly in the absence of any evidence to the contrary, that the earlier plans, save in relation to height, would have been almost identical in that layout to the NH Architecture Jam Factory redevelopment plans dated August 2008 (Issue 1)and January 2009 (Issue 2). The quantity surveyor's report had the residential tower from levels 2 to 11 with plant on level 12. In the NH Architecture Jam Factory redevelopment plans dated August 2008 (Issue 1) and January 2009 (Issue 2) the height level had increased between RL49 to RL79 for the apartments, with services on top of the apartments. The "F Section" shows that the ground floor level is at RL12 and, consequently, RL52 equates to the 40 metre height level or 12 storeys. The section presents two apartment tower options, one stopping at RL67 - i.e. 55 metres or 17 storeys, the second stopping at RL82 or 22 storeys.

157 On the basis of the evidence to which reference has been made, I accept that it is reasonable to assume that it was a version of these plans which was presented to the Stonnington councillors in August 2008, given that the issue "01" of the NH Architecture Jam Factory redevelopment plans is dated "01.08.08" and would have been presented to the "inter-governmental agency" meeting in September 2008 which was advised that the councillors were not concerned about the height of the proposal. The floor plate of the apartments had altered from the L-shape broader floor plate depicted in the Powerpoint presentation to a higher, more slender tower as shown in the NH Architecture plans. The number of apartments had also increased from 70 to 95 in October 2008 and 138 in May 2009. The hotel rooms had also increased from 100 to 120 over the same period. Finally, it was submitted that if the issue of height is disregarded and the development as shown in the Powerpoint presentation derives a GFA of 160,726m2 or 87,233m2 net of car parking and bridge,[236] the conservative proposal there shown is obviously indicative of what could accommodate the highest and best uses to which reference has been made. On the basis of the evidence, it would appear that the development could be built higher than that depicted in the Powerpoint presentation and that a higher development would most probably obtain council or Ministerial approval.

158 This further material in relation to the Challenger proposal does, in my view, confirm that to the extent that it is necessary to go beyond a finding, in general terms, that the highest and best use of the Jam Factory site is the uses to which reference has been made, the Challenger proposal itself provides a helpful and sufficient guide. This position is also supported, for the reasons indicated, by the town planning evidence that has been considered and, particularly, the evidence of Mr McNamara in relation to highest and best use, including the extent of the income producing floor areas that might be expected to be developed.[237] Challenger emphasised the point in relation to highest and best use that whatever development potential - highest and best use - that was being considered, it must also be economically viable and the most profitable use of the site. Given the experience of the experts who gave evidence relevant to the issue of highest and best use, it must be accepted that it is unlikely that the proposals they advanced and considered would have been other than economically viable and the most profitable use of the site; or, putting it another way, fanciful, uneconomic or less than most profitable uses of the site. Indeed, they are within the scope of the scale of the Challenger proposal and it would be absurd for Challenger to be suggesting now that its carefully worked, publicly announced, proposal was uneconomic, fanciful or not designed to maximise profitability. The implications in other respects for a company like Challenger in terms of its corporate and director obligations indicate that this would not have been the case. The fact that the Challenger proposal did not proceed may, of course, be the result of many other factors - changed corporate strategy and project timing on Challenger's part, availability of funds or, as the evidence appeared to indicate as most likely, the Global Financial Crisis.[238]

Independence of valuers and assessments of their evidence generally

159 Challenger submitted that Mr Jackson, the valuer whose evidence it relied upon, and who gave extensive oral evidence, both in chief and in cross-examination, demonstrated an impressive grasp and recall of matters of fact in detail concerning the subject site, comparable sites, and other properties and matters put to him. It was submitted that he is a valuer of high standing and long experience, with particular expertise in the fields that this matter involves. It was further submitted that, despite heavy attacks that the defendants, Challenger and the Valuer General, sought to mount as to his credit, the manner of his presentation of his oral evidence was balanced and reasonable. It was said that, despite the impression to the contrary which was sought to be conveyed, Mr Jackson displayed a repeated willingness to make concessions and acknowledgments. It was said that he answered questions put to him and did so directly, without undue length and argumentation, whilst incorporating in his answers the details and qualifications necessary for an accurate response. It was said that this was in contrast to the evidence of Mr Cundall and Mr Fitzgerald, the valuers relied upon by the Valuer General and Stonnington, respectively. Further, it was submitted that in spite of the attacks made on Mr Jackson, there was no basis for any conclusion that he did not give truthful and accurate evidence. It was said that the closing submissions of Stonnington and the Valuer General alleging to the effect that Mr Jackson did not seek information from Challenger in relation to the Challenger proposal failed to acknowledge his evidence to the effect that the absence of a record in his file leads him to consider that this task, which did occur, had been carried out by other staff in his office, as he initially suggested might be the case. Aspects of the initial objection to the valuation made by Challenger and the initial correspondence between Mr Jackson and Stonnington in relation to that objection, which the evidence indicate that he had prepared and submitted, were put to him. It was said that he accepted that he had made some errors in the preliminary stages and set out how he had prepared his valuation reports for the Court from a "clean start". Additionally, it was said that the remarks in relation to Mr Jackson in Mirvac Funds Ltd v Moonee Valley City Council[239] and in Perpetual Trustee Co Ltd v Valuer General (No 2)[240] were made in the context of particular cases and the circumstances of those cases and would not assist the Court in the present proceedings.

160 I accept, as a general proposition, that comments of the kind referred to in the cases to which reference has been made are not relevant in subsequent proceedings in the sense of providing a basis for assessing evidence in those proceeding. However, where an assessment in the subsequent proceedings leads the Court to form the same views as have been expressed with respect to the evidence of a particular expert in previous proceedings, the earlier comments by tribunal members and the judge hearing those proceedings does tend to raise present concern and strengthen doubts that have already been established with respect to this expert evidence.

161 Unfortunately, for the reasons considered in more detail below, I am of the opinion that the comments made by Debelle J in Perpetual Trustee Co v Valuer General (No 2)[241] are relevant with respect to Mr Jackson's evidence in the present proceeding. In any event, I note Debelle J's comments, as follows:[242]

"[65] Mr Jackson's approach to the task of valuing the respective properties was not as careful as it should have been. He was prepared to advance opinions without checking the facts upon which the opinions depended. He attempted to explain this failure by asserting that a valuer does not have the time or the resources to do so. He described the task as unrealistic. He was speaking of the task of checking the actual occupancy of each of the buildings which comprised the industrial park. The occupancy of each was relevant to the question whether it was appropriate to allow a profit and risk factor and, if so, the amount to be allowed. It was relevant also to the assessment of the letting up allowance or in checking his allowance to see whether it accorded with the reality of the market place. His explanation lacked any credibility especially given the relatively few tenancies in the industrial park. In addition, it would have been a relatively simple task for Mr Jackson to obtain this information from his own client. In the case of the West Lakes Shopping Centre the task of checking basic facts was clearly a substantial but not a burdensome one. It is a task which, in my view, should have been undertaken. On occasion, Mr Jackson also became an advocate for his respective client, putting the objectivity of his opinion into serious question. It was also noticeable that, when he had a choice between alternatives, he consistently chose the alternative which diminished the assessment of value."

This passage, particularly, was cited to me early in these proceedings. I discounted it for the purpose of considering the expert evidence but, as indicated, I have independently come to the view on the assessment of the expert evidence that these comments are apposite, as indicated. In particular, as discussed elsewhere, in the present proceeding Mr Jackson does not appear to have ensured that he was fully aware of and considered the implications of the Challenger proposal, ensured that he considered a sufficient number of realistically comparable sales and that there was no "retrofitting" of valuation evidence to produce consistency with his original assessment for the purpose of the Challenger objection.

162 In relation to the question of Mr Jackson's independence, I do note the reference made by Challenger to the observations of Batt J in 101 Collins Street Pty Ltd v City of Melbourne that:[243]

"I recognise that from a practical point of view there are real difficulties for a ratepayer. No doubt on receiving an assessment and valuation about which it has doubt it consults the person whom it considers to be the best valuer for advice. If, having objected on advice and having had its valuer discuss the valuation with the municipal valuer as contemplated by s 39(1) of the VLA, it finds that the objection is not resolved, it would be impractical to expect that it would abandon that valuer as a witness in its appeal."

I certainly appreciate the practical difficulty that Batt J was highlighting in this case and accept that the same comment is applicable in the present circumstances. In saying this, I accept that this applies with respect to Mr Jackson and also, for reasons discussed further below, in relation to Mr Fitzgerald, though his circumstance is somewhat different as an employee of Stonnington. Nevertheless, in situations such as this, a significant question is how the expert valuer approaches the task and whether there is evidence of "retrofitting" or lack of independence as a result of initial involvement in the objection process or more permanent links, such as employment. There do, however, appear to be some particular difficulties in the circumstances of this case with respect to Mr Jackson, matters to which I now turn.

163 The Notice of Objection dated 26 September 2008 which is the trigger for the present proceedings was lodged by Mr Jackson on behalf of "Challenger Diversified Property Trust 1", in his name and under his signature. In this Notice, Mr Jackson stated that he believed that the site value of the subject premises should be $38,600,000 and that the capital improved value should be $80,000,000 with a net annual value of $7,740,200, which was the net annual value shown in the original notice of valuation. According to the Notice, Mr Jackson was the "Valuer Representative" of the Challenger objector. The objection contained what Mr Jackson described subsequently as a "preliminary view". Mr Jackson's submissions in relation to the objections, which are contained in a letter dated 19 December 2008 to Mr M. Webb, the Deputy City Valuer of the City of Stonnington, from Mr Jackson on behalf of Challenger, indicate that his "preliminary view" was based on a number of misconceptions.

164 These misconceptions on the part of Mr Jackson are, in the present circumstances, quite significant and merit some detailed comment, particularly having regard to Mr Jackson's evidence in these proceedings. The first misconception was that the Jam Factory site was in a "minimal change area" in Chapel Vision and that its present use was its highest and best use. The second was that Mr Jackson thought that the development potential of 670 Chapel Street (the Vogue site) was "far superior" to the Jam Factory site. The third was that the proximity of the subject property to the railway meant that development would require extensive engineering considerations, despite Mr Jackson not having the benefit of any engineering advice to this effect. The fourth misconception was that Mr Jackson initially considered that the following would be "impediments" in the course of comparing the Jam Factory property to comparable sales: namely, "the location of the property within the busy retail area and the inherent construction hurdles associated with vehicular access, pedestrian management and other issues such as access to air space over the railway line for the operation of cranes" when later conceding that "given the access that exists at the site, there was no problem in relation to the operation of cranes in the normal way in the context of the railway line". The fifth misconception was reliance upon a sale in Hall Street, Moonee Ponds which VCAT subsequently found did not represent an ordinary market transaction.[244]

165 In spite of the fact that the Notice of Objection was dated 26 September 2008, Mr Jackson's evidence was that the objection was "based upon [his] assessment of site value, having regard to the development potential of the land".[245] When questioned in relation to this statement, Mr Jackson said that it was the sort of statement "you would expect to see"[246] and then later acknowledged that this was at a preliminary stage. The documents subpoenaed from Challenger, commence on 31 July 2008 with a series of emails requesting M3, a reference to "M3 Property Strategists" of which Mr Jackson was Director, to review the Stonnington rates notices. In his letter of 6 August 2008, Mr Jackson reported that he had had a long involvement with the property on behalf of the owner, including a review of the 2006 rates. He recorded the percentage changes of the main site and the two car-parks and suggested in light of the magnitude of the increases, that a more detailed review should be undertaken. Accordingly, he requested four pieces of information, namely (1) a tenancy schedule; (2) an outgoings schedule; (3) a copy of the Title search; and (4) any recently issued planning permits in respect of the property. Additionally, he observed that a recent valuation report may contain various aspects of the information he required. The letter of 6 August is apparently the only document in the file of subpoenaed documents, whether by way of letter, email, file note or memorandum that requests information from Challenger or its agents. There was a follow-up email dated 19 September 2008 from Mr Will Barton to Mr Mark Conson of Knight Frank seeking the recent valuation report. Stonnington, in its submissions, drew attention to the fact that the 6 August 2008 letter was 42 days after The Age article in June 2008 containing the public announcement of the Challenger proposal, which included a quite dramatic artist's impression of the extensive Jam Factory redevelopment which was proposed. The Stonnington submissions continued:[247]

"For a valuer who prides himself on his attention to detail, his paranoia about detail in a firm that has the databank resources of M3 in an industry where access to information is critical, it is submitted that it is frankly unbelievable that neither Mr Jackson or someone in his firm would have been unaware of an announcement within the previous seven weeks of the sort that Challenger had made about the development of the Jam Factory. When asked by Mr. Garde about his familiarity with the re-development scenarios contained in council's letter of 10 October, 2008, Mr. Jackson replied:-

'Not in any detail. In the broader sense, myself or our firm had no involvement in any development scenario. When I was asked to review and provide a view on the returned statutory assessments, that was one of the issues that we were eager to understand. My knowledge was probably no better than the man in the street, to be quite frank. There were public announcements and industry talk, but I hadn't been involved in any way.' (T622.18 - 26) (my emphasis)'.

..."

166 Mr Jackson was cross-examined on his knowledge in relation to the Challenger proposal and when he first became aware of the 75,000m2 development. In response to questioning in this respect, he said that it was after the VCAT mediation in mid-2009. He was asked why he had not been told and said:[248]

"I asked very clearly. The response that was put to me, I have to say, was not horribly different back at the objection stage, 'There is no proposal of going anywhere. It's been abandon. It's dead. There is no application' - and I take this on word ... I think I was reasonably thorough. I can be pretty robust when I need to be, and I didn't leave anything unturned in saying, 'What in the hell has been going on?' But in fairness to the owner they said, 'Look, nothing. It's going nowhere. It's abandoned. It's dead'."

Following further questioning in relation to inquiries he might have made, Mr Jackson said, in relation to information with respect to the Challenger proposal: "Whether the owner chose to give it to me or not, it's really more a question for them".[249] Mr Jackson also confirmed that, had he been given information about the development potential that Challenger considered the site had, it would have been something that he would have considered. He conceded that Challenger:[250]

"Were fairly serious about exploring that possibility. They have obviously spent considerable money and time so I think I would agree that they have seriously looked at the opportunity, but that's from Challenger's point of view. Whether or not a potential purchaser in the market would be prepared to pay something for all of that ultimately is borne out in the sales evidence. As I said, there is evidence - I don't think it will come as a surprise to anyone in this room - where sites have been bought, over my 25 years in property, where a permit has just been abandoned."

167 Returning to the original objection, Mr Jackson acknowledged that he did not prepare any working document for the original objection, setting out adjustments and allowances as he did later for his witness statement. It was submitted by the Valuer General that this indicated that the fact of the matter was that at the initial objection stage he had limited comparable sales evidence and there was little, if any, basis upon which to make an assessment of the highest and best use of the site, given that he had no planning evidence and little, if any, knowledge of the Challenger proposal. Further, it was submitted that Mr Jackson's site value of $38,600,000 as shown in the Notice of Objection was exactly the same as the site value shown in the 2008 Savills Report, which it is noted was dated 30 June 2008.[251] The evidence established that the Savills Report was in Mr Jackson's possession at the time of making the objection. None of these preliminary matters would, necessarily, be of any great significance had Mr Jackson, in his evidence, been willing to acknowledge misconceptions and errors and accommodate their consequences in terms of his expert opinion evidence. However, this was not the position and, as submitted by the Valuer General, Mr Jackson doggedly maintained his values regardless of new information such as the sales evidence of Mr Cundall and Mr Fitzgerald and did not acknowledge significant errors such as the fact that the Jam Factory was a major development site in a "significant change area" in terms of Chapel Vision.

168 It was submitted by the Valuer General that Mr Jackson approached his task thereafter, consciously or unconsciously, as one of "retrofitting the evidence to value", not the other way around, so that despite having to adjust up for earlier errors, he maintained his "preliminary" value on the basis of "plot ratio", which was not a component of his original analysis. In this vein, the Valuer General submitted:[252]

"As a matter of logic and common sense, it is hard to imagine how a valuer as experienced as Mr Jackson could make an initial assessment at $2,000/sqm based upon an understanding that there would only be minimal change permitted, and then make a subsequent valuation at exactly the same rate per sqm based upon a very different understanding, namely that the property is in a substantial change area and listed in Chapel Vision as a development opportunity and one of seven sites within the structure plan area specifically noted for redevelopment. Mr Jackson explains this away by dismissing his objection letter as a 'preliminary view' and not 'a valuation'. However, the fact that his valuation was so similar to his 'preliminary view', based upon a very different set of assumption, raises serious questions as to the way he approached his subsequent valuation.

Mr Jackson then refused to move from his figure of $2000/sqm despite the Challenger proposal demonstrating that his GFA analysis was based upon an incorrect premise. If development potential had the importance that he said it did, his valuation must have been affected

Mr Jackson's assessment relied upon only one sale in the vicinity of the Jam Factory - 670 Chapel Street. In opening, the Plaintiffs' conceded that this sale was not the type of sale that was so strongly comparable that there is no need to closely analyse other sales (referring to the Tribunal's comments in ISPT). If one discounts Mr Jackson's other sales, which were not in the neighbourhood of the site, then Mr Jackson's valuation essentially comes down to his analysis of 670 Chapel St, which we submit was flawed in a number of material respects."

169 Mr Cundall provided expert valuation evidence in support of the case of the Valuer General. Mr Cundall's curriculum vitae was attached to his valuation report dated 4 December 2009. Mr Cundall has had extensive municipal valuation experience since 1982. Since 1998 he has been a director of Valuelt Pty Ltd and currently provides municipal valuation services to Stonnington, City of Hume, City of Greater Dandenong, the Valuer General of Tasmania and, within the last ten years, has provided valuation services to other Melbourne metropolitan councils. Mr Cundall specifically noted in his curriculum vitae that he did undertake many retail valuations throughout Stonnington for municipal purposes and is "thus very familiar with and cognisant of the market at this time". There was no suggestion that Mr Cundall was not an independent valuer and on the evidence he was, in my opinion, fair and in many case quite generous to Challenger's position.

170 As Mr Cundall explained in his oral evidence, he adopted a three step process to obtain his figure for site value.

171 The first step was to prepare a spreadsheet of comparable sales[253] where he analysed the sales to produce a "deduced" value per square metre in situ ("in their location") as at the relevant date. The second step involved a valuation judgment taking the "deduced" rates per square metre for each comparable sale and then making a judgment about where the Jam Factory site should sit were it an "ideal site"; but having regard to the attributes of the Jam Factory vis-à-vis the other sites. This second step involved making allowances for factors such as land size, zoning and location. Mr Cundall's evidence was that this second step was undertaken prior to making specific adjustments for size using a "land size adjustor". As a result of the processes involved in his second step, Mr Cundall established an initial rate of $3,500 per square metre of land for the Jam Factory site. The third step was to make percentage adjustments to the rate per square metre established in the second step based upon particular attributes of the Jam Factory site vis-à-vis an "ideal site" (irrespective of the attributes of the comparable sale); such as the shape of the site, the fact that it joins the railway line and also, additionally, contains a small portion of public use land.

172 The methodology adopted by Mr Cundall is helpfully illustrated by his explanation with respect to the 670 Chapel Street site:[254]

"[T]he $3,500 per square metre was what I adopted as a rate for the subject property in its ideal circumstance and this is prior to making any adjustments for the rail or the shape of the PUZ. After going through those allowances the valuation or the rate that it ended up being was $2,800 per square metre and then with the PUZ it balanced out to being $2,776, so my final valuation of $53,500 million equated to $2,776 per square metre.

With regard to the 670 Chapel Street, the analysed rate was $2,747, so obviously within the same ballpark on that basis. However, that's analysed at that size of that sale being 14,699, then taking a little bit further allowance for the fact it's larger, that ended up being $2,251 after my adjustment for size. In the end, the rate that I adopted for the subject property was slightly larger than 670 Chapel Street on a raw rate, only by a factor of $30, and then after the allowance for size, it came out at approximately $500 per square metre cheaper, but that's obviously reflected in the location."

173 Mr Cundall also sought to check the site value produced as a result of applying the three steps which have been outlined using as checking tools:

These checking tools were the subject of criticism by Challenger. The use of the "land size adjuster" is discussed further below.[255] In the context of the overall valuation methodology applied by the valuers, it is convenient now to make reference to the strong criticism by Challenger of Mr Cundall's use of the "rule of thumb" process. Challenger submitted in this respect:[256]

"164. Mr Cundall relies upon the 4:3:2:1 rule. Mr Cundall explained both the rule and how he had applied it at T988-T991. Mr Cundall said that the rule was 'a rule of thumb that valuers can use and I have used it in this case'. He described the rule as one whereby the subject land is notionally divided into four equal parts, and the parts going down the length from the frontage are ascribed the value of the total land in the ratio of 4:3:2:1: T1305.4 - 11. Mr Cundall's evidence is that the rule is a valid tool or rule of thumb to use in respect of valuing the Jam Factory and that he had gained 'some comfort' from it in his adopted values: T1305.26 - 29; T 1306.8 - 10.

165. Mr Cundall's use of the rule is incorrect. First, the rule is now viewed as outdated and of academic interest only: T1306.25 - T 1307.4. Second, the pre-eminent authority on valuation (T1306.11 - 15), Roost and Collins' 'Land Valuation and Compensation in Australia" states that the [sic] in the authors' opinions the proper statement of the 4:3:2:1: rule is that it only ever applied to the first 100 feet of depth from the frontage, and that for the second 100 feet the 9:8:7:6 rule applied: T1307.8 - 17. The Jam Factory site is 218 metres, or well over 600 feet, deep. Third, Roost and Collins state that the rule as formulated would only be valid if supported by analysis of sales in the particular district to which it was being applied. Mr Cundall agreed that he had not undertaken any analysis to assess the applicability of the rule, whether as he asserted it, or as correctly formulated by the learned authors: T1310.2. Fourth, Roost and Collins state that the 4:3:2:1 rule as they state it only applies to inside sites with single frontages to streets: T1310.14 - 16. The Jam Factory is a corner site. Fifth, Roost and Collins state that depth tables may be adjusted to take account of corner sites: T1310.17 - 20. Mr Cundall accepted that he did not make any adjustments: T1310.21 - 23. Fifth Roost and Collins set out several depth tables of notable complexity, used in certain US cities, for corner sites, including the Somers' System and the Zangerle Method: T1310 - T 1311. Mr Cundall accepted that if any depth table were to be used, it should have been a corner based method: T1311.19 - 21.

166. Further, Mr Cundall's use of the 4:3:2:1 rule suffers from even a superficial implausibility. According to Mr Cundall's evidence, the third quarter of the site back from the Chapel Street frontage would be worth twice the value of the last quarter back from the Chapel Street frontage: T1311.28 - 30. It is remarkable that Mr Cundall, an expert valuer, did not immediately realise that this rule was not producing the proper outcome when it resulted in such markedly values [sic] for two virtually identical sites sitting next to other [sic], in the circumstances of the subject site.

167. It is significant that, having accepted that his statement of the 4:3:2:1 rule was incorrect, and that even if had [sic] applied it correctly, that rule did not apply to a corner site, Mr Cundall continued to assert that 'I do have some comfort in regard to how I've done it ... At the present time I'm happy with what happened' (T1321.16 - 17, 19 - 20; T131.27 - 28). It was only after Mr Cundall had answered numerous questions, the effect of each being that he could not take any comfort from his use of his 4:3:2:1 rule with respect to his figure of $3,500 per square metre for the Jam Factory, in a manner that was not entirely responsive, that he finally accepted this proposition to be correct: T1321.26.

168. As noted above, however, in re-examination Mr Cundall then sought to back-flip. First, he asserted that the third quadrant could be analogised to 7-13 Simmons Street: T1398.2.28. Second, in response to the question, referring to Mr Batt's cross examination on the 4:3:2:1 rule, 'is there anything in all that that, in your view, affects the evidence that you have given about the appropriateness of the methodology you adopted, the 4, 3, 2, 1 methodology as a check method', Mr Cundall said 'No. As a check method, Your Honour - whilst I heard and saw exactly what Rost [sic] & Collins said - it's still something that, as you go away from the frontage the value of the property does decrease; so the answers is, no, it hasn't changed my perception'. (t1418.12 - 23).

169. The plaintiffs submit that this answer does Mr Cundall and his evidence generally a disservice. Mr Cundall's misuse of the 4:3:2:1 rule, and continued assertions that he obtained comfort from it for his valuation of the Jam Factory, goes directly to the credibility of his valuation."

In my view, the Challenger criticism of Mr Cundall's application of the "rule of thumb" checking tool may, if it were justified, raise doubts as to the veracity of Mr Cundall's valuation methodology and opinions as a valuer. However, as Mr Cundall's responses to questioning on the matter indicated that he did not accept the underlying position on the Challenger questioning that his checking tool was valueless, I accept that its application is a matter for the expert judgment and experience of a valuer. Further, and more importantly, Mr Cundall emphasised that he had only used the "rule of thumb" as a checking tool - it was not the primary, substantive, basis of his valuation evidence. Consequently, I do not accept that Mr Cundall's use of the "rule of thumb" in any way affects the credibility of his valuation evidence.

174 Unlike the approach of Mr Jackson, both Mr Cundall and Mr Fitzgerald sought to utilise as broad a range of comparable sales information as possible which, naturally, involved making adjustments with respect to smaller sites as the practical reality is that the Jam Factory site is an unusually large site and there are, consequently, very few directly comparable sales of similar sites in similar locations available. There is, of course, professional debate as to the extent sales are comparable and the extent of adjustments that can be made before one ventures into the territory highlighted by Morris J in the ISPT Pty Ltd v City of Melbourne[257] where the adjustments become so significant as to indicate that the sales being considered offer "so little assistance that they ought to be disregarded". In any event, Mr Cundall's evidence was that sales of smaller sites in the surrounding area demonstrated at least three significant points.

175 The first point was that sales of smaller sites in the surrounding area show, Mr Cundall said, how the market moved between 2006 and 2008. In particular, Mr Cundall said that the sale in May 2007 and the resale in July 2008 of 256 Chapel Street (with a land area of 1,110m2) showed a 40 per cent increase in the price paid which equates to 3 per cent per month. It also demonstrates, he said, that the Global Financial Crisis was not having an impact on site value for development blocks as at January 2008.

176 The second point made was that sales of smaller sites demonstrate how important the Chapel Street frontage is in terms of value. For instance, Mr Cundall compared the sale of 256 Chapel Street to the sale of 2-6 Murphy Street, noting that, other than the fact that one has a significant retail frontage, they had similar attributes and were sold about the same time. Mr Cundall attributed the significantly higher rate per square metre for the Chapel Street property due to its significant retail presence, a presence that did not apply to 2-6 Murphy Street. Mr Cundall also used the sales of 162-164 Commercial Road and 7-13 Simmons Street to demonstrate this point.

177 The third point made was that the Palermo Street site and the Simmons Street (Society building) site closely correlate with the back quadrant or area of the Jam Factory site in terms of location with respect to Chapel Street and the surrounding areas.

178 The Valuer General submitted that it was entirely appropriate for the valuers to break a site down into different components for the purposes of a cross-check on the valuation of a large and complex site (especially one which is potentially suitable for a range of different uses, such as the Jam Factory) as was done by both Mr Cundall and Mr Fitzgerald. In this respect, reference was made to the comments made by VCAT in Mirvac Funds Ltd v Moonee Valley City Council:[258]

"15. Section 13DC(6) of the Valuation of Land Act 1960 refers to the land parcels being regarded as together forming rateable land and valued accordingly. The valuation of the land parcels as 'together forming rateable land' does not mean that the combined land holding must be valued as a single homogenous site where all parts of the land are necessarily of equal value, or where a common valuation rate per square metre necessarily applies uniformly across the site. The requirement that the land be 'valued accordingly' simply means that the common ownership or occupancy must be taken into account as part of the valuation exercise. Depending on the circumstances, this may attract an adjustment to the overall value.

16. We agree with the respondents that, notwithstanding the land is to be valued as 'together forming rateable land', the configuration of titles existing at the valuation date is still a relevant factor in assessing value, as are potential attributes of the land including its shape, size, situation, aspect and potential use[2]. The land's potential could conceivably include the separate sale, development or use of individual lots, or in some cases the benefits and potential for further consolidation or subdivision. A valuation based on a single integrated development site may often reflect the highest and best use of the land and provide the best evidence of value. But not always. The relevance and weight of various factors influencing value will vary from case to case.

17. It follows that, in valuing the land 'together' for a single rating assessment, relevant parts of the land may still be considered separately as part of the valuation process if this better reflects the underlying value of the land as a whole, and with these parts then aggregated to provide the overall valuation. Indeed, the valuation of a large site by the aggregation of values of individual lots is not uncommon. The fact that the Council's overall site valuation of $11,725,000 here has been reached through an aggregation of the value of individual lots or parts of the land does not of itself undermine the integrity of the valuation.

18. In this case, the smaller Lot 2 fronts Puckle Street, Moonee Ponds - arguably one of Melbourne's prime shopping strips. In our view, the Council valuer was entitled to separately consider this portion of the land, and apply a higher rate of value per square metre, rather than valuing it at a lesser rate as an amorphous part of a larger site. This reflects the fact that this portion existed on a separate title with a different and much higher potential as prime retail floor space. [Emphasis added]"

179 Mr Cundall was asked specifically which sales he considered to be comparable for the purpose of deriving his value of $3,500 per square metre for the Jam Factory site, as opposed to the sales used to demonstrate movement in the market, or other specific factors. Mr Cundall replied that the sales of most direct relevance were 201-209 High Street, 227-233 Toorak Road and 670 Chapel Street, being the three largest sales. It was noted that the sale of 67-73 Surrey Road (the Clara site), was of residential one land. In terms of market movement, Mr Cundall said that 256 Chapel Street was a particularly relevant sale and that other sales generally informed him as to the locational aspects and market movements. In terms of ranking sales, Mr Cundall said that that was difficult, but in terms of most relevance, he would possibly rank them as 670 Chapel Street, 201-209 High Street and 227-233 Toorak Road. In any event, Mr Cundall said that the Jam Factory site was the best property from the point of view of retail location or use.

180 In relation to the calculation of the $3,500 per square metre rate for the Jam Factory site, Mr Cundall said, in the course of extensive cross-examination, that he had derived this figure from comparable sales, in the sense that it was derived from all his comparable sales and not just from one sale. Consequently, he said that even if certain adjustments made were too high or too low for any one sale, they would not necessarily affect his rate of $3,500 per square metre.

181 In support of this approach, the Valuer General made reference to the comments of Gobbo J in Mario Piraino v Roads Corporation[259] and Hemmings J in Pamalco Pty Ltd v Minister (No. 3)[260] referred to above.[261]

182 In conclusion, the Valuer General submitted that Mr Cundall has a very broad knowledge base, his approach was thorough, and his values well justified and, consequently, there was no good reason to substantially depart from them.

183 Mr Fitzgerald, the valuer relied upon by Stonnington, is employed as the Stonnington City valuer, but as a statutory officer the point was made that his role carries with it a statutory duty of impartiality under sub-s 13DH(2) of the Act, which provides:

"Before any valuation and return is made the person appointed to make it must make a statutory declaration that the valuation and return will be impartial and true to the best of that person's judgment and will be made by that person or under that person's immediate personal supervision."

184 Mr Fitzgerald was cross-examined on behalf of Challenger in relation to his independence having regard to his position as City valuer. Submissions were made in support of Mr Fitzgerald's independence by both Stonnington and the Valuer General. The Valuer General submitted that the cross-examination "was a little like the pot's counsel calling the kettle black, given Mr Jackson's role acting for Challenger in the manner that he has done over the years and his role in this particular dispute in putting in the objection".[262] It was also submitted, and of course more relevantly, that the issue goes to the weight to be given to the expert evidence. In this respect it was submitted that "unlike Mr Jackson, Mr Fitzgerald did not approach his task as one of 'retrofitting' his evidence to the returned valuation. Nor did his expert evidence depend on only one comparable sale in the South Yarra area". The point was made that Mr Fitzgerald recommend a revised site value after looking at sales in far more detail than that which occurred at the initial valuation stage, an approach entirely different, it was said, from that adopted by Mr Jackson.

185 Like Mr Cundall, Mr Fitzgerald relied on local sales to inform himself of such things as property values in the area and the movement in the market. He, too, acknowledged that 670 Chapel Street was the most similar of the comparable sales. Also, similarly to Mr Cundall, Mr Fitzgerald undertook a "piecemeal" method to provide a "check" on his site values. He divided the Jam Factory site into three sections and then used sales at 162-164 Commercial Road and 2 Murphy Street to assess the value of the land in Garden Street nearest to Chapel Street; sales at 6-10 Daly Street, 637-641 Chapel Street and 7-13 Simmons Street (the Society building) to provide a guide to sections of the land in Garden Street (the "middle" zone in Garden Street); and then used sales at 67-73 Surrey Road (the Clara site) to provide a guide to the value of the rear 5,000 square metres of the Jam Factory site. In relation to the "middle section" of the site, Mr Fitzgerald also used the sale of 201 High Street (an October 2007 sale) to inform or to check the value. In undertaking that exercise, Mr Fitzgerald said that he did incorporate a "bulk discount for size" (which he described as a size adjustor appropriate to the whole of the Jam Factory). He did not, however, go through any "subdivision process".

186 In conclusion, for the reasons indicated, I am of the opinion that the approach of Mr Cundall and Mr Fitzgerald is preferable to that of Mr Jackson. Quite apart from independence and other matters going to the veracity of Mr Jackson's evidence, which have been discussed, the relative lack of regard he had for comparable and other sales evidence casts doubt on his valuation evidence and methodology.

187 I turn now to consider the specific evidence on site value and capital improved value. In so doing, I am mindful of the comments of Gobbo J and Hemmings J in Mario Piraino v Roads Corporation[263] and Pamalco Pty Ltd v Minister Administering Parks and Wildlife Act 1974 (No 3),[264] respectively, warning to the effect that adjustment of comparable sales evidence is a matter of judgment by experienced valuers and that "mathematical precision" in this context is illusory.[265] I am also mindful of the authorities to which Batt J made reference in 101 Collins Street Pty Ltd v City of Melbourne[266] to the effect "that a judicial officer was not required to formulate verbal reasons for such guesses or exercises of judgment"[267] with respect to the making of "adjustments to values deduced from sales in order to arrive at the true valuation of the land to be valued".[268]

188 Mr Fitzgerald repeated the trite, but generally accepted, proposition "the three most important things in terms of properties is location, location, location". The effect of location in terms of value is a matter to be discerned as a result of a mixture of observation and opinion. Thus, Ferguson J said in Harris v Minister for Public Works:[269]

"The position of the land, its dimensions, its physical characteristics, may be ascertained by observation of the land itself, but its value is a matter of opinion, depending chiefly, in most circumstances, on external circumstances. These circumstances must be taken into consideration by the expert, and no doubt one of the strongest factors in the formation of his opinion is the price at which land is being sold in the neighbourhood."

189 All valuers, Mr Cundall, Mr Fitzgerald and Mr Jackson, had regard to location; however there was a difference between Mr Jackson on the one hand, and Mr Cundall and Mr Fitzgerald on the other hand, in relation to the importance of location in the present circumstances. Mr Cundall and Mr Fitzgerald placed significant weight on the location of the Jam Factory, being the mid-point along what is, and was at the relevant date, said to be probably the best suburban retail shopping strip in Australia. Reference has already been made to documentary and oral evidence in this respect. Nevertheless, the point is emphasised by the Jones Lang LaSalle Information Memorandum, which describes the Jam Factory site and its location in glowing terms.[270]

190 As is evident in present circumstances, the importance of the location of the subject property is potentially of significance with respect to comparable sales relied upon by a valuer. Mr Cundall and Mr Fitzgerald, who both have a high degree of familiarity with valuations in Stonnington, both placed reliance on a variety of sales in the vicinity of the Jam Factory to establish its value, including properties of smaller size and those with residential zoning. Mr Jackson, on the other hand, placed prime reliance on the sale of 670 Chapel Street, and sales of properties in other locations. This meant that Mr Jackson did not rely upon a broad range of sales in the vicinity of the Jam Factory. This was at odds with the evidence and approach of Mr Cundall, and also the approach of Mr Fitzgerald, which was to rely upon a broad range of sales in the general vicinity on the basis that they were, with appropriate adjustments, more helpful as comparable sales as they were indicative of the state of the market for properties of a similar location.

191 The extent to which a sale can be relied upon as a comparable sale is a question of fact and degree, as indicated by Hope JA in Leichhardt Municipal Council v Seatainer Terminals Ltd:[271]

"Whether the difference between land a sale of which is to be relied upon and the land to be valued are so great that the land the subject of the sale cannot be regarded as comparable is a question of fact and degree. The difference may be so great that a court may be constrained to hold that the land is in no sense comparable, and that the adjustments which have been made are so great that the sale can provide no evidence of the value to be determined, and no basis upon which that value can be assessed."

It does not follow that if a sale is, for various reasons, not regarded as a "comparable sale", that it should necessarily be excluded from all consideration.[272] The "discarded" sale may be useful as a check on the valuation methods applied. Thus, Hyam commented in The Law Affecting Valuation of Land in Australia:[273]

"In arriving at an opinion as to value it is important that the valuer have regard to all material relevant to value and to check her or his valuation by as many methods as may be available: Ford v Minister for Housing (1964) 18 The Valuer 579; Minister for Navy v Rae [1945] HCA 6; (1945) 70 CLR 339; Brickworks Ltd v Minister for Public Works (1949) 29 LVR 67 at 87-88."

192 As indicated previously, it is clear that the Jam Factory is a large and complex site which is not replicated in all its elements, either physically, in the general vicinity, or in the sale or sales of a similar property. Consequently, if a broad range of comparable sales are to be considered in the general vicinity of the Jam Factory, a sophisticated analysis is required. The mixed use development of the subject land would indicate that sales of retail, office, residential and car-park land in the South Yarra vicinity may all be of assistance. This was the approach of both Mr Cundall and Mr Fitzgerald, who relied upon a variety of sales of this type in order to inform themselves about factors such as:

(b) the rate per metre to apply to the retail frontage of the site;

(c) the rate per metre to apply to the rear of the site;

(e) adjustments that may need to be made for location;

(f) adjustments that may need to be made for size; and

(g) the attractiveness of various uses in that location.

193 Mr Jackson, on the other hand, was of the opinion that none of the sales relied upon by the other valuers in the general vicinity of the Jam Factory were at all informative, other than the sale of 670 Chapel Street. Mr Jackson's opinion was that smaller sites and primarily residential sites ought to be excluded from consideration because they were likely to be purchased by a different class of buyer with a different development proposition in mind, as compared to the purchaser of a significantly larger site, such as the Jam Factory site or 670 Chapel Street. On the basis of the evidence of Mr Cundall and Mr Fitzgerald, to which reference has been made, I accept the submissions of the Valuer General and Stonnington that Mr Jackson's approach fails to have regard to the critical importance of location in determining land values. In the present circumstances, it does not appear that Mr Jackson has given sufficient weight to the very significant importance of the Chapel Street retail strip location of the Jam Factory. In my view, his approach also fails to have regard to the fact that the Jam Factory could be developed for a variety of uses (residential being one such use), that different parts of the Jam Factory could be developed for different uses, and that different parts of the Jam Factory may attract different land values.

194 In the context of Mr Jackson's approach, Mr Cundall and Mr Fitzgerald were both cross-examined extensively in relation to their reliance on sales of properties of smaller size than the Jam Factory site. The comments of Hope JA, and also of Morris J, to which reference has been made, indicate that a position may be reached that the extent of adjustments that need to be made with respect to a particular sale are so extensive as to indicate that it is not truly comparable.[274] It was put to both Mr Cundall and Mr Fitzgerald that the extent of the adjustments required for size, with respect to the so-called comparable sales they had relied upon, were so large that the sales could not be used reliably for the adoption of a particular figure with respect to the Jam Factory. Mr Cundall readily conceded that it would be preferable to be able to compare the sales of larger sized properties, but said that he needed to use the sales he had in the vicinity of the Jam Factory so as to provide a broad range of sales for the reasons already indicated. His evidence was that sales in other locations, such as the sale in Highett, which was relied upon by Mr Jackson, were simply not relevant. His evidence was that the sales he did use informed him of the amount that people were prepared to pay in that location, about the general level of the market and also provided comfort, in the sense of providing a check, on the rate that he had adopted for the Jam Factory site. Mr Fitzgerald's evidence in this respect was broadly similar.

195 Mr Jackson did not consider that the sale of residential property was relevant. In my view, this is to ignore the importance of the location of the Jam Factory site, and the importance of considering as many comparable and other sales as possible; and also to ignore the valuation and planning evidence that, as discussed previously, suggests that the highest and best use of the Jam Factory would include a mix of residential and retail, and possibly office, uses.[275] Mr Jackson sought to justify his approach on the basis that purely residential properties were, he said, more valuable than mixed use properties. This is, however, in my view, to put the 'cart before the horse' in terms of valuing with respect to highest and best use. This is indicated by the reference made by the Court of Appeal in ISPT Pty Ltd v Melbourne City Council[276] to the judgment of Biscoe J in Commonwealth Custodial[277] which, in turn, made reference to the following passage in the judgment of Jacobs J in Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources:[278]

"Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is the commercial use, for the highest and best use means exactly what it says - the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what the use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value." (Emphasis added)

196 In any event, Mr Cundall did not agree with Mr Jackson's assertion with respect to the comparable value of purely residential properties. It was put to him in cross-examination that:

"When one develops a high intensity, upmarket residential complex one achieves a lot better return on a per metre basis than one does with a retail development of the same actual physical area."[279]

In response, Mr Cundall's evidence was that he agreed that there is an underlying premise in his valuation that retail use is superior in terms of value to residential use. He also said that the sales evidence demonstrated that it was not the case that the price per square metre of land for residential property is necessarily higher than for retail property. Further, he said that the strip along Chapel Street provides a much higher return on a per square metre basis for the size of the building on the basis of retail use. The point is illustrated by a response from Mr Cundall in relation to the effect of moving away from the Chapel Street strip where he said:[280]

"Again, the rental on retail shops is significant, and it also depends on the location. As you go down Garden Street, the further away from Chapel Street, you would expect the rentals for the shops to fall away; however, again, there comes a certain point in time where it would fall away to maybe another use, such as residential or office or whatever, and becoming more problematic to use. Certainly it could generate - could have a possibility of generating substantial income."

197 More generally, Mr Cundall said that Mr Jackson's comparison between residential and retail properties was not a meaningful one, generally or in terms of costs. The following question from Mr Batt SC and Mr Cundall's response provides a clear statement of his opinion:[281]

"[Mr Batt]

Not for the moment getting into matters such as costs of construction, if one just looks at the realisation side of things, it follows from both that pricing per metre and the efficiency factor which work on each other cumulatively, that when one develops a high intensity, up-market residential complex one achieves a lot better return on a per metre basis, both given pricing and efficiency, than one does with a retail development of the same actual physical area?

[Mr Cundall]

Your Honour, what happens in regard to, say a shopping centre development such as Mr Batt just outlined compared to a residential component, whether within that same centre in the back or as a separate matter is that quite often the retail component is actually on one title, it's not on multiple titles, it is on one title and it's leased out. It's let to multiple tenancies and there's a yield, obviously if there's an income there's a yield and obviously they sell, as we indicated, if they are on their own title and capable of being sold as a centre, and I'm then being asked to compare that to an apartment either tower or something of that order which I presume it is, which have actually been subdivided and being able to be sold off individually, obviously with their associated car parking and that sort of thing. So the answer is, it is a little bit chalk and cheese to compare them exactly but the inference that there's a greater utility or that the 90 per cent area of residential apartment, or residential apartment buildings being able to be utilised is correct then the other side of the coin is, there is a larger mall area associated with obviously retail and also there's the office components and that sort of thing but I don't actually think it flows - we're talking about sort of comparing apples with oranges in regard to costs. Obviously as you go higher up, the costs of construction are going to be slightly different as well."

In any event, Mr Cundall said that there was nothing to stop the Jam Factory site being used for a series of shops on Chapel Street, and using the remainder of the site (in the order of 15,000m2) for residential development if that provided a greater profit incentive. More particularly, the evidence was that the raw price per square metre for the Palermo Street site compared with the sites with commercial frontages (for example, 256 Chapel Street and 162-163 Commercial Road and 227-233 Toorak Road) demonstrated this to be the case.

198 Additionally, sales evidence produced by Mr Cundall demonstrated that the price per square metre for the shops built over the railway line north of the Jam Factory buildings was between $21,000 and $26,000 in 2006, which is significantly higher than the price per square metre for residential property quoted by Mr Jackson. In the course of his re-examination, Mr Cundall adjusted those rates upwards to account for the significant rise in the market between 2006 and the relevant date. His evidence was that the adjusted figures for the price per square metre at the relevant date would be between $30,493 and $36,981 per square metre.

199 In my view, the point is concluded, at least in general terms, by Mr Cundall's comment in the course of his evidence:[282]

"[T]he rentals that can be achieved from shops in prime areas is significantly more than the rental for a residential property in that similar area. That's why you don't get residential apartments or shops [sic] or residential properties fronting main retail strips, it's just demonstrated time and time again that the income that can be derived from it, and hence the capital value that obtained from selling those properties, is significantly more than a residential component, so therefore you wouldn't - that's why - you just need to look up and down Chapel Street, that's why there aren't any residential properties fronting that part of Chapel Street, because the retail component is significantly more valuable from the point of view of returns and also capital value than what would be ascribed to residential."

200 Mr Fitzgerald agreed with Mr Cundall that there was nothing to prevent the Jam Factory site being developed for primarily residential purposes, with a row of shops along Chapel Street if that was the highest and best use of the site. Nevertheless, all of the experts did agree that the highest and best use of the Jam Factory site would probably involve a greater retail component, a position consistent with the evidence that the owner of 670 Chapel Street sought variations to its 2004 permit to allow the inclusion of a greater proportion of retail use premises.

201 Also consistent with Mr Cundall's evidence, Mr Fitzgerald's evidence was that the Jam Factory site is more valuable as a result of the extent of its retail component constituted by the shops along Chapel Street. Further, in relation to the residential and retail use comparison made by Mr Jackson, Mr Fitzgerald expressed the opinion that such a comparison cannot be made in terms of deficiencies in the way that Mr Jackson did, as a variety of other factors need to be considered, including the build cost, location, the particular circumstances of each case, and the extent to which developers may wish to spread risk.

202 The approach of Mr Fitzgerald and Mr Cundall, in having regard to sales of purely residential properties, is also consistent with the Market Analysis report prepared by Charter Keck Cramer for Challenger Management Services Ltd, dated 15 July 2008. In providing project profiles to enable Challenger to assess redevelopment proposals, reference was made to residential projects in the vicinity, including the Society building, the Simmons Street site, and other residential projects in the area.

203 In relation to car parking, Mr Fitzgerald's evidence was that it cannot be said, as a general proposition, that there are higher costs associated with car parking for a retail rather than residential development. He said that this was because these costs depend on a variety of factors, including the extent to which the car parking for any retail component is a commercial car-park, the types of retail uses (for example, a mix of day and night uses) and the type of residential development (for example, luxury apartments may require two car parking spaces per apartment, whereas more basic accommodation may not require a parking space).

204 To the extent that cost of construction issues were raised, there was no evidence in support of any proposition along the lines that the cost of construction does not increase commensurately with the return obtained as one goes "higher" for residential apartments.

Relevance of permits issued after the relevant date

205 An issue which arose, and which was in dispute, was the extent to which regard should be had to planning permits existing at the time of the sale of a particular property, and the extent to which regard should be had to permits that were issued subsequent to the relevant sale date. Reference has already been made to the Falconer principle that "evidence of future events is admissible not to prove a hindsight, but to prove a foresight".[283]

206 The issue arose because Mr Jackson used permits which had been issued subsequently to the sale dates for two of the three comparable sales which he relied upon to determine the development yield of those properties as at the relevant date. The properties were 670 Chapel Street and the Abbotsford Street site in Victoria Street, Richmond. Mr Jackson's use of a subsequently obtained permit is demonstrated by reference to his GFA analysis of the Victoria Street site. Based on the 2008 sale, his figure was $477 per square metre; but using the GFA approved under a permit issued in 2009. Mr Jackson's explanation for this approach, in relation to a question on this issue with respect to 670 Chapel Street, was as follows:[284]

"In my opinion, the proper way in analysing a sale was to try to ascertain what was the view of the purchaser at the time. That is, in paying the price they were prepared to pay for the property, what did they intend to do with the property. If that intention, as it's been demonstrated, was to undertake a different form of development, then it should be analysed having regard to those facts."

207 Mr Cundall's position was that it was inappropriate to make adjustments to comparable sales to take into account some future permit that might have been granted later. This position was also consistent with Mr Cundall's approach to property improvement:[285]

"The analysis I undertook basically didn't impute any value to the building that was there and I undertook the analysis back to a vacant level and didn't impute any value to that original building. It was put to me by Mr Batt, I looked at it through the prism of that particular purchaser having some value to it. Obviously, on that basis I answered those questions. With regard to any other purchaser, whether they would have seen added value in that building is a matter for that particular purchaser and, Your Honour, that's a difficulty in regarding to trying to put yourself in the minds of any prospective purchaser from a valuation point of view, we really don't know what they have in mind and consequently, my opinion is the basis of an analysis back on a rate per square metre as opposed to what someone may or may not do with a building is the principal and the primary method which we really should adopt in that regard."

208 I accept that the approach adopted by Mr Cundall is the correct approach, and that Mr Jackson's use of permits obtained subsequent to the sale of a property which is being considered do not fall within the Falconer principle. In the absence of any evidence having been led to establish a foresight at the time of the sale of a property that the permit would be obtained, these permits represent, in my view, merely value added to the property post sale; which is not relevant to the assessment of the sale as the date of sale of comparable property. The same would follow with respect to the sale of a property which was being relied upon as a check on a valuation, rather than as a comparable sale.

209 The extent to which a GFA or NLA analysis could be relied upon to establish site value was a major point of difference between the valuers. Mr Jackson's valuation methodology placed significant emphasis on plot ratios, and he made significant "adjustments" to his "comparable" sales based on this factor. In contrast, the approach of Mr Cundall and Mr Fitzgerald was to place far greater weight on the worth of land at a rate per square metre, rather than on the basis of plot ratios and dollars per square metre of GFA or NLA.

210 Although it was conceded that plot ratios may be useful as a factor to consider, it was stressed that they could also be unreliable indicators and ought to be treated carefully. In particular, Mr Cundall gave evidence that the "Guidelines on Valuation Methodology for Shopping Centres"[286] do not, contrary to the proposition put to him in cross-examination, require him to undertake a GFA analysis. Rather, he said, these Guidelines require a rate per square metre of land to be determined.[287]

211 Mr Fitzgerald rejected the GFA approach in relation to the Jam Factory site on the basis that the evidence demonstrated that the dollar rate per square metre of GFA, for even broadly similar sites in the Chapel Street area, was so different as to indicate its unreliability. Reference was made by Mr Fitzgerald to three sites in a similar location, namely, 6-10 Daly Street, 162-164 Commercial Road and 637-641 Chapel Street, which were purchased by the same party at a similar time for similar uses (namely, hotels), and for a similar rate per square metre; yet produce a very different dollar rate per square metre GFA. Further, Mr Fitzgerald said that Mr Jackson's use of the GFA analysis is quite different from the use that could be made of an analysis of this kind when comparing, for example, middle suburban shopping centres with broadly comparable built forms.

212 A further very significant difficulty with GFA analysis is that it invites speculation in relation to the development potential of a property, hence its potential GFA. Thus, Mr Cundall commented:[288]

"And that's why I don't use that as a primary method, because it all depends on what's proposed and what you accept as being proposed; whereas in reality we are looking at a site value with a building that doesn't exist, so that's why - actually, in my opinion, that exactly underlines why you don't use GFA as a primary method. I would disagree with that.

...

I'm looking at the subject property I actually do obviously contemplate, it's a large site, it's business zone 1, and as a vacant site which is under the site value definition, I have to look at it, it obviously has got development potential. As to exactly how much, we can't speculate, and I suppose the other - it needs to be put into context, Your Honour, when we are doing a valuation of 500 Chapel Street, the Jam Factory, we are doing that along with 2,000 other properties up and down Chapel Street, so we have to look at each individual one and make a decision, and we really can't go through a feasibility study process on each property to see what it would come up with because that would just be costly and impractical. The best way of looking at it is what do the sales show on a vacant basis and apply that."

It is clear that there is a real difficulty with trying to understand what it is a purchaser intended to do with land at the time of sale as a basis for comparing its yield to the hypothetical development potential of the subject site. It is also clear that purchasers buy land for a range of reasons, sometimes to develop the land, but in other cases to "land bank" while the market is moving, or if it suits their other circumstances.[289] Quite apart from these difficulties, the evidence of Mr Cundall and Mr Fitzgerald was that the position of purchasers with respect to the development potential of a property is taken into account in assessing sites based on a rate per square metre.

213 Mr Cundall also demonstrated that a number of different ratios could be adopted for the Jam Factory site, depending upon the assumptions made. This was shown by the number of different figures that had been used to derive the plot ratio for the Jam Factory site in this proceeding, depending upon the assumptions made in relation to GFA or NLA.[290] The problem of the GFA or NLA analysis is emphasised by Mr McNamara's comment that if he had carried out ten more assessments of possible development options, he might have had ten more schemes. It follows that further plot ratios would thereby be generated for the Jam Factory site.

214 The unreliability of the GFA or NLA analysis was also demonstrated by Mr Jackson's evidence. Mr Jackson said that the comparisons he made on a GFA basis between the sales of other properties and the subject property had been consistent (though he then went on to explain that he had used GFA net of car parking and services). This is, however, not the case, as is demonstrated by Mr Jackson's assumption that Mr McNamara's 45,000m2 figure for the redevelopment potential of the Jam Factory site was GFA, which was not the case. Further, Mr Jackson did acknowledge that one of the difficulties in considering plot ratios is that they will change with every planning permit that is issued in relation to a sale. He also acknowledged that a plot ratio for the Jam Factory site for a development of 45,000m2 is "markedly different" to the plot ratio for a 75,000m2 development.

215 Mr Jackson produced a number of graphs,[291] apparently for the purpose of illustrating that:

(a) the plot ratio for the Jam Factory was lower than for most of the other comparable sales used by Mr Cundall and Mr Fitzgerald; and

(b) the rate per square metre of GFA was higher than most of the other comparable sales used by Mr Cundall and Mr Fitzgerald.

However, as might be appreciated from the preceding discussion of the evidence in relation to the utility of GFA or NLA analysis, the comparison is not one of "like with like". The comparison was done on three different bases. The first, in relation to Mr Cundall's rates, was on the basis of an adjusted rate per square metre (and not his deduced rate per square metre), which does not take into account any adjustment for location, as indicated previously. Secondly, the comparison with respect to Mr Fitzgerald's rates was on the basis of an analysed rate, which does not account for size or location, as indicated previously. The third basis of comparison, in relation to Mr Jackson's rates, was on the basis of an "adjusted" land area analysis, which does not take into account his adjustments for size and location, again, as indicated previously.[292]

216 In relation to Mr Jackson's second bar graph (the rate per square metre of GFA graph), Mr Batt put to Mr Cundall the proposition that Mr Cundall's rate per square metre of GFA for the Jam Factory was high compared to other comparable properties listed in that bar graph, regardless of whether 45,000m2 or 54,000m2 was used to derive the plot ratio. Significantly, Mr Batt did not put that proposition to Mr Cundall based on the GFA of the Challenger proposal.

217 Additionally, Mr Fitzgerald, in his examination-in-chief, questioned Mr Jackson's placing of the Jam Factory near the bottom of the first graph, the plot ratio graph. He said:[293]

"Excluding the Highett Road property - and I think one can probably just exclude that generally - I do not understand why the Jam Factory site would have demonstrably lower development potential than any other site in that list. I just don't - that is contrary to my understanding of the way things operate, certainly in the Chapel Street retail precinct, in the City of Stonnington and I know Stonnington pretty well. I know it's a principal activity centre in terms of its proximity to transport, in terms of demand, in terms of the way developers would look at it. I do not believe that that sort of plot ratio is something that would evolve naturally from a development proposal on the subject site; and as it happened, when a development proposal was proposed for this site, it was much as we - I beg your pardon, much as one, I envisaged it - and it puts it, in terms of GFA, something about 4.4, 4.5 per cent - sorry, 4.4, 4.5:1, which is about where you would expect it to be in terms of that graph."

218 Cross-examination of Mr Jackson demonstrated that if the NLA figure for the Challenger proposal was used (that is, 75,673m2), then the rate per square metre adopted by Mr Cundall for the Jam Factory ($700 per square metre) and Mr Fitzgerald ($766 per square metre) would be in the bottom half of the rate per square metre of GFA graph. This undermines Mr Jackson's adjustment based on plot ratio. The adjustment is further undermined if the calculation is done on the basis of 85,000m2 GFA; where the dollar per square metre figure produced is even lower, it would place the Jam Factory site even lower down in the lower half of the rate per square metre of GFA graph.[294]

219 For the preceding reasons, I accept the evidence of Mr Cundall and Mr Fitzgerald that it is not appropriate to make adjustments on the basis of plot ratio and comparing the comparable sales to the Jam Factory site, and that Mr Jackson's graphs, the plot ratio graph and the rate per square metre of GFA graph, should be given so little weight as, in effect, to be disregarded. An alternative submission was put by the Valuer General in relation to these issues, namely that if plot ratio is adopted as the primary indicator, then Mr Jackson's use of 45,000m2 for the Jam Factory site ought to be rejected instead in favour of a higher number which should be adopted. This issue is addressed further below.[295]

220 As indicated previously, Mr Jackson was at odds with Mr Cundall and Mr Fitzgerald in relation to the utility of relying on sales of properties smaller than the Jam Factory site. As also indicated, Mr Cundall and Mr Fitzgerald agreed that it would be preferable to have more larger sized property sales to use as comparative sales, but the reality was that in order to obtain a reasonable number of comparable sales in the vicinity of the Jam Factory site, they needed to use the sales of smaller sized properties and make appropriate adjustments. Where the comparability was such that adjustments would need to be so extensive as to raise doubt that the property being considered was truly comparable, the sale may nevertheless be used as a check and to provide comfort in relation the valuation rate adopted.

221 In relation to size adjustment, Mr Cundall did not make a specific downwards adjustment for size. Rather, he looked at the deduced values for his comparable sales, then made a judgment having regard to size and location. By this method, he arrived at his figure of $3,500 per square metre for the Jam Factory. The application of his "size adjustor" was later and, according to his evidence, merely as a "cross check". Mr Fitzgerald's evidence cast somewhat of a new light on the discussion in relation to larger and smaller properties. Rather than confining the discussion to size adjustment, he observed that the opportunities for purchasing large intact sites were reducing, which is one of the reasons why, in his opinion, the rate per square metre was converging for smaller and larger sites. Previously, larger properties tended to attract a lower rate per square metre due, at least in part, to the more limited range of purchasers available. He said, however, that the capability of firms to develop larger sites has increased, and hence the range of purchasers and consequent demand has also increased. Additionally, he said that to compile a larger site now, a purchaser would be likely to have to pay a premium which, he said, supports the argument about convergence. In any event, Mr Fitzgerald did not use a land size adjustor, but used sales evidence to guide him as to the type of adjustments that would be needed to be made for size. Mr Fitzgerald said that his calculations of adjustments for size and location confirmed his view of the value of the Jam Factory site being in the order of $3,000 per square metre.

222 The approach to smaller property sales adopted by Mr Cundall and Mr Fitzgerald is supported by the decision of VCAT in Mirvac Funds Ltd v Moonee Valley City Council:[296]

"55. As we have indicated earlier, we consider it appropriate for the Council valuer to have undertaken the valuation in a manner that separately recognises and reflects the higher value of the portion of the land comprised in Lot 2, rather than valuing it at a lesser rate as part of the larger site. Lot 2 exists on a separate title with a different and much higher potential as prime retail floor space, particularly at the Puckle Street frontage. There is no valuation principle that automatically requires a discount to be applied for all larger sites, or the purchase of adjoining sites. Although this may be a statistical outcome derived from the analysis of multiple sales evidence, and is sometime therefore applied to comparative sales in the absence of other information, it is a rebuttable assumption. Some scarce or prime land may in fact attract a premium as smaller sites. We agree with the respondents that, given the scarcity and demand for shops in the prime shopping strip in Puckle Street, a developer wanting larger premises fronting Puckle Street would not obtain any discount for size, and would simply pay the prevailing rate.

56. Given Lot 2 has an area of 2,665 m², and the Puckle Street frontage area within this lot is 1,266 m², this means that comparative sales for smaller lots (such as the Young, Margaret, and Dean Street sales mentioned above) are of relevance to this part of the assessment. It is not appropriate to rely only on comparative sales for larger lots similar in size to the combined Lots 1 and 2 (i.e. 13,115 m² in total). It follows that we do not accept Mr Jackson's criticism that the land should have been valued only as a single integrated development site, nor that the sales relied upon by Mr Lynch are not comparable by reason of size."

223 As indicated previously, Mr Jackson did not use sales of smaller properties in the vicinity of the Jam Factory site as comparable sales. In the Mirvac case, VCAT commented on a similar approach in that case:[297]

"The difference is therefore not so much on the underlying values per se, but Mr Jackson's view (with which we disagree) that these sales of smaller sites are not comparable."

In this respect, it is also noted that in that case, VCAT did not rely on the sales evidence of sites in Highett and Camberwell. Instead, it chose to rely on comparable sales of sites in the immediate area of the subject property.[298]

224 For the preceding reasons, I am of the view that the approach adopted by Mr Cundall and Mr Fitzgerald was the correct approach. Of the two approaches, I prefer the opinion of Mr Cundall on the basis that the approach he adopted for size adjustment was more closely explained and less broadly intuitive than the approach adopted by Mr Fitzgerald. I do not, however, doubt Mr Fitzgerald's approach or his assessment of the importance of considering sales of smaller sized properties and the fact of, and reasons for, convergence of values as between smaller and larger sites.

225 Although the valuers agreed that adjustment for time between the sale date of the particular comparable on the relevant date should be made, there was no agreement as to the extent of any adjustment that should be made.

226 Mr Cundall derived a rate of 1.9 per cent per month by taking all commercial and non-residential properties within Stonnington that had been sold and re-sold between January 2006 and July 2008 and for which there had not been any planning or building permits issued, and then calculating the average per month change in the sale price. Mr Cundall produced a spreadsheet showing his workings and gave evidence that the list of sales was, as far as he could ascertain, complete. Additionally, he said that if he had relied solely on the 256 Chapel Street sales (there being two sales, one with a contract date in May 2007 and the second with a contract date in July 2008), then the monthly change would have been higher. Additionally, he said that even if figures from non-strata title properties had been used exclusively, his figure of 1.9 per cent per month would not change.

227 Mr Fitzgerald adopted a broader, less specific, approach to calculating time adjustments. He took the average movement of values in the Stonnington area between 2006 and 2008 as being 53 per cent (which equates to 2.2 per cent per month) and the average increase of commercial site values during that period as 48 per cent (which equates to 2 per cent per month). From these figures, Mr Fitzgerald derived his time adjustment rate of 1.25 per cent per month, a rate which he described as "an absolute minimum and as such is conservative".[299]

228 The time adjustment rate, the absolute minimum conservative rate, adopted by Mr Fitzgerald was also adopted by Mr Jackson. Initially, Mr Jackson did not make any adjustment of this kind, but did subsequently acknowledge that such an adjustment ought to be made. He agreed that an adjustment would have taken his originally analysed rate for the 670 Chapel Street property of $2,041 per square metre to a figure in excess of $2,500 per square metre. It was not until April 2010 that Mr Jackson adopted Mr Fitzgerald's rate of 1.25 per cent. The Valuer General submitted that it is reasonable to conclude that he did this for the purpose of preparation for the hearing of the case and, in effect, "retrofitting" his evidence to his site value. In this respect, reference was made in submissions to the "working" sheet which Mr Jackson said was prepared by him when he wrote his March 2010 report, which does show this adjustment for time. The document shows an adjusted rate for 670 Chapel Street of $1,974 per square metre, which is different to that contained in his March report. Mr Jackson produced this working sheet at the hearing and, although it was claimed that it had been prepared for the March report, the Valuer General submitted that Mr Jackson would have put the figure in his report if that had been the case and his figures in his report would have been the same as shown on the spreadsheet. In any event, as indicated, it was not until April 2010 that he adopted Mr Fitzgerald's rate.

229 I am of the view that the approach adopted by Mr Cundall was the correct one. I prefer the opinion of Mr Cundall on the basis that the approach he adopted for time adjustment was more closely explained and less broadly intuitive than the approach adopted by Mr Fitzgerald. I do not regard Mr Fitzgerald's approach as being strengthened by the later concurrence in it by Mr Jackson, for the reasons submitted by the Valuer General.

230 The position adopted by Mr Jackson was that the shape of the Jam Factory site made it less desirable for supermarkets and discount department stores. This thesis was, however, challenged by Mr McNamara with his proposed general redevelopment scheme, which demonstrated, broadly, that a supermarket and a discount department store could be accommodated within the site. Further, Mr McNamara's approach of placing a Target store on the upper level would mean that the rear of the site would be available for residential purposes and, it seems, would also be feasible in terms of structural arrangements and, nevertheless, still "draw" people through the site to the benefit of commercial tenants within the site. On this basis, it was submitted by the Valuer General, in my view persuasively, that Mr Cundall's adjustment for size of 7.5 per cent was generous to Challenger and, in the absence of contrary evidence or submissions, should be accepted.

231 The only evidence with respect to heritage issues before the Court is a "Heritage Appraisal" dated July 2008 prepared by Lovell Chen, architects and heritage consultants. The report is extensive and detailed. One of its conclusions in relation to heritage significance is that: "The heritage fabric which survives is essentially limited to the brick panels of the Chapel Street and Garden Street façades, the bluestone walling of the part of the Garden Street façade, and the chimney".[300] The concluding comments continue: "The contribution made by the building façades to the Heritage Overlay precinct has also been impacted and diminished by the works and changes outlined above".[301] Consequently, it would appear that the Valuer General is correct in submitting that the inference can reasonably be drawn from this report that a permit would likely be granted for demolition of the heritage façade. Accordingly, it was said one does not need to assume that it must be retained in the redevelopment of the Jam Factory. Consequently, the façade is not something that detracts from the value of the land for redevelopment purposes. Mr Jackson, on the other hand, argued that the heritage façade may not be an "improvement", but rather may constitute a "detriment" if it does not add value to the land.

232 The Valuer General also submitted that the façade does constitute an "improvement" and must be ignored for the purpose of determining site value on the basis of the provisions of sub-s 2(1) of the Act. Insofar as is relevant, these provisions provide as follows:

"Improvements, for the purpose of ascertaining the site value of land, means all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land and the benefit is unexhausted at the time of the valuation, but, except as provided in subsection (2AA), does not include-

(a) work done or material used for the benefit of the land by the Crown or by any statutory public body; or

(b) improvements comprising-

(i) the removal or destruction of vegetation or the removal of timber, rocks, stone or earth; or

(ii) the draining or filling of the land or any retaining walls or other works appurtenant to the draining or filling; or

(iii) the arresting or elimination of erosion or the changing or improving of any waterway on or through the land unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation;

...

Site value of land, means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made;

..."

233 The meaning of "improvements", and their opposite, "worsements", was discussed by Biscoe J in Commonwealth Custodial.[302] The discussion was in the context of corresponding New South Wales legislation, namely the Valuation of Land Act 1916. Biscoe J summarised the applicant's argument as follows:[303]

"If the highest and best use is mixed use then the existing buildings, being commercial, cannot be used for that use and do not add value to the land. A prospective purchaser, seeking to achieve the highest and best use, would demolish the buildings. The buildings therefore subtract from the value of the land and are 'worsements', not improvements."

234 In terms of improvements, Biscoe J said:[304]

"42 In my opinion, 'improvements', within the meaning of s 6A(1) of the Act, are human operations of persons on land which have the effect, as at the date of valuation, of enhancing its value compared with its natural state. A structure on land is not an improvement if it does not enhance the land's value compared with its natural state. The commercial buildings on the Ashfield Land enhance the land's value compared with its natural state. They are valuable to a purchaser who has a use for them. I do not accept the applicants' submission that 'improvements' have to add value to land for the purpose of its highest and best potential use. In my view, s 6A(1) should not be construed so as to attribute to the word 'improvements' a meaning which changes according to the use of the land. ...."

235 There was also the question whether an improvement is "exhausted", referring to a South Australian case[305] in which that term was used in the relevant legislation (as is the converse of that term "unexhausted" in sub-s 2(1) of the Act). In this respect, Biscoe J reasoned as follows:[306]

"55. However, the answer to the question whether an improvement is 'exhausted' depends upon whether one attributes to the word 'improvements' in s 6A(1) the meaning of no longer adding value to land in its natural state, or the meaning of no longer adding value to land for a use other than its existing use. The former meaning is correct, in my view."

236 The Valuer General, in his submissions, pointed to a different approach to this issue which was taken by VCAT in United Energy Ltd v Kingston City Council (Land Valuation) ("United Energy"),[307] where the issue in dispute was the impact of power lines on the value of the land. In finding that the power lines were not to be regarded as "improvements" for the purposes of the Act, the tribunal said:

"37. Section 5A(3) of the VLA requires, when determining a valuation, that regard be had to the highest and best use. This is also a commonly accepted principle of valuation procedure. It therefore seems counterintuitive that works or materials that actually detract from the highest and best use (i.e. the very basis upon which the land is being valued) can be treated as 'improvements' because they increase the value of the land on some other basis to the basis upon which the land is being valued. It begs the question: 'If it is not necessary that the power lines increase the value of the land for its highest and best use, then do the power lines really increase the value of the land at all?' The outcome in such instance leads to an artificial construct, as here, where the underlying value for the highest and best use becomes inflated by works or materials that are actually an encumbrance to that use. We do not believe that this is a sensible or correct outcome.

38. Moreover, s 2(2) of the VLA states:

'In estimating the value of improvements on any land for the purpose of ascertaining the site value of the land, the value of the improvements is the sum by which the improvements upon the land are estimated to increase its value if offered for sale on such reasonable terms and conditions as a genuine seller might in ordinary circumstances be expected to require. [emphasis in original]

The power lines and poles do not fit this description of the way in which improvements are dealt with under the VLA.

39. It follows that, in the circumstances of this case, we believe that the nature of the power lines is such that they would need to increase the value of the land in accordance with its highest and best use for residential purposes, in order to be considered 'improvements' as defined in the VLA. To the extent we need to decide the issue, we therefore prefer the views expressed in Caltex Oil above to those in Commonwealth Custodial.

40. Even if we were wrong on this issue, we are not convinced that the power lines even increase the value of the land compared to its natural state under the Commonwealth Custodial test."

237 The Valuer General submitted that to the extent that there is an inconsistency between the reasoning in the Commonwealth Custodial case and that applied in the United Energy Case, the former ought to be preferred. It was submitted that, adopting the reason in the Commonwealth Custodial case, the existing building on the Jam Factory site does add value to the land for a purchaser who has a use for it. Clearly, the façade, it was said, is an integral part of the building and hence the façade constitutes part of the improvements on the land, regardless of whether or not it constitutes an improvement from the point of view of the highest and best use of the land. In terms of the definition of "improvements" in sub-s 2(1) of the Act, it was said that the benefit of the buildings was not "unexhausted" as at the date of the valuation.

238 In my opinion, there is no relevant inconsistency between the decisions in the Commonwealth Custodial case and the United Energy case. In my view, the reasoning applied in the Commonwealth Custodial case would have led to the same result, applying the Victorian legislation, in the United Energy case. That is to say, that the façade of the building does constitute part of the building; consequently, I find that the façade constitutes an improvement for the purposes of the definition of site value, irrespective of its impact on highest and best use.

239 The Jam Factory site is subject to an agreement pursuant to s 173 of the Planning and Environment Act 1987 (Vic), which was made on 6 May 1997 between the then owner of the Jam Factory and the Stonnington City Council. The s 173 Agreement has been registered on the title to the Jam Factory under s 181 of the Planning and Environment Act. For present purposes, the critical provisions of the s 173 Agreement are contained in clause 7, which contains provisions with respect to car parking at the Jam Factory. Of particular importance is sub-clause 7.4(a), which provides:

"(a) if for one hour on each of any 15 days of any consecutive period of 100 days between 1 March and 30 November in any calendar year after the Completion Date all car spaces within the Car-park are full, the Council may by notice to the Owner require the Owner to provide 74 additional car spaces within the Centre to the satisfaction of the Council and within 3 months (or such longer period as the Council may determine) of the date on which the Council gives that notice to the Owner."

Sub-clause 7.4 contains ancillary provisions to sub-clause 7.4(a), including, in (d), provisions for reporting car arrival and departure patterns for the car-park, and occupancy of the car-park recorded over the period of 10.00am to 12 midnight on each day during the relevant month. The owner is required under these provisions to provide these figures to the satisfaction of the Council.

Both Mr Cundall and Mr Fitzgerald were of the opinion that the s 173 Agreement was obsolete in this respect, but Mr Jackson took a different view and considered that it adversely affected site value.

240 As the Valuer General submitted,[308] Mr Jackson based his opinion upon the following propositions or chain of reasoning:

"a. there is a shortage of car parking spaces in the immediate locality to the subject site;

b. the car parking spaces currently provided at the subject site supply car parking to the wider community, including traders along Chapel Street;

c. Council achieved this result by imposing the requirement to supply more car parking than the Jam Factory currently needs by way of the Section 173 Agreement;

d. Council would require the developer of the subject site to enter in to a Section 173 Agreement with respect to any development of the subject site;

e. Council would be expected to seek to achieve a similar result to that currently achieved under the Section 173 Agreement, namely, the provision of car parking in excess of that required for the development under clause 52.06 of the Scheme, by way of a new section 173 agreement; and

f. as a consequence, a hypothetical purchaser of the subject site would take this expectation into account when deciding what to pay to purchase it and would pay less for the subject site as a result of this consideration."

241 In my opinion, Mr Jackson's propositions or chain of reasoning is flawed for a variety of reasons.

242 First, there is no evidence to support the argument that there is a shortage of car parking in the vicinity of the subject site. The position appears to be quite the contrary, as Chapel Vision, the Jones Lang LaSalle Information Memorandum, the GTA reports and the 2007 Savills Report indicate that there are a large number of off-street car parking options near the Jam Factory. This position appears to be confirmed on the evidence of Mr McNamara and Mr Fitzgerald, that the top level of the Jam Factory car-park is closed to public access because it never needs to be used. Further, the evidence is that Stonnington has never activated the option in the s 173 Agreement for the provision of an additional 74 spaces because it has never been justified by demand. Mr McNamara's evidence, which was not challenged, was that Stonnington has ceased to monitor the car-park use. This was also supported by Mr Cundall.

243 Secondly, there was no evidence to support Mr Jackson's view that the car-park at the Jam Factory serves traders along Chapel Street, or at least outside the Jam Factory. Even if it did, there was no evidence as to the extent it did so in comparison with the other off-street car-parks identified by Mr Cundall and in the GTA reports.

244 Thirdly, Mr Jackson's assertion that Stonnington "imposed" the current car parking requirements under the s 173 Agreement for the purpose of ensuring that the car-park served the "wider community" appears to be mere speculation, as there is no evidence to support it. The s 173 Agreement itself makes no reference to the requirement or desirability of making the Jam Factory car parking available for use of persons not seeking to use the Jam Factory retail or entertainment facilities.

245 Fourthly, Mr Jackson's conclusion that Stonnington would require the provision of additional car parking at the Jam Factory site in the event of its redevelopment, by way of a new s 173 Agreement, is not supported by any evidence. It is not even certain that Stonnington or the responsible authority would require the developer of the site to enter into a fresh s 173 Agreement. Mr Jackson and Mr Cundall did consider that would be the case, but Mr McNamara said that not all large developments required such an agreement. It was submitted by the Valuer General that, given Mr McNamara's experience and credentials in town planning and shopping centre developments, his evidence should be preferred. In my view, the position in this respect can only be regarded as speculative. There is an apparent sufficiency of car parking in the area, quite apart from the car parking facilities provided at the Jam Factory site. Additionally, the fact that Stonnington or the responsible authority may require the developer of the Jam Factory site to enter into a fresh s 173 Agreement does not necessarily indicate a situation which would adversely affect the value of the site. First, in the event of significant redevelopment, it would be reasonable to assume that the developer would be as concerned as anyone else to provide adequate car parking facilities for the uses to which the redeveloped site was directed. In the preceding discussion, reference has been made to the car parking requirements for retail, residential and other uses, all of which one would expect to be adequately accommodated. Also, a reading of the present s 173 Agreement reveals that it deals with a number of other matters apart from car parking; such as traffic management measures and closure of Garden Street, paving and lighting at Garden Street, and more machinery or standard matters. For all these reasons, I am of the view that even if it is reasonable to suppose that a fresh s 173 Agreement would be required on redevelopment of the site, there is not, in my opinion, any basis for supposing that it would impose obligations which would materially affect the site. The evidence to date does not suggest this.

246 My views in relation to the possibility of the requirement of a fresh s 173 Agreement are, in any event, supported by the evidence of both Mr McNamara and Mr Negri, who accepted that the number of car parking spaces required to be provided at the Jam Factory site in any redevelopment would be determined by reference to the type and intensity of uses to be developed at the site. Neither took any purported "wider community" need into account which, in my opinion, is reasonable and appropriate having regard to the evidence considered in the preceding discussion; particularly having regard to the fact that the present s 173 Agreement is not, in my view, properly construed as presently catering or providing for "wider community" need. There is perhaps one reservation in this respect, in that it might be said that the monitoring provisions in sub-clause 7.4 and the corresponding additional car parking provision obligations have been included to avoid creating a "wider community" need for off-street car parking in the event that it was found that the car parking capacity of the Jam Factory as presently developed was insufficient to meet the car parking requirements for its existing retail and entertainment uses. Nevertheless, this is somewhat speculative and, in any event, is not the sort of "wider community" need upon which Mr Jackson is relying as a basis for his opinion. Further, both Mr McNamara and Mr Negri expressed the opinion that Stonnington or the responsible authority would be likely to permit the developer of the site to provide fewer car parking spaces than the site would notionally be required to provide under clause 52.06 of the Planning Scheme, though they did not agree on the precise reduction that would be permitted. It was submitted by the Valuer General that this opinion is consistent with the conclusions of the GTA reports. It was also submitted that Mr McNamara and Mr Negri were right to proceed in this manner, and that Mr Jackson's position on this point misconceives the effect of the relevant provisions of the Planning Scheme. The purpose of clause 52.06 of the Planning Scheme was said to be to require an owner to meet the demand for car parking generated by use or development on site, but not to require an owner to provide car parking so as to enhance other uses. In my opinion, this evidence is to be preferred to Mr Jackson's view which, as indicated, is not supported by evidence nor any analysis in this respect.

247 In my view, this outcome is also consistent with Chapel Vision. Consequently, it does follow that there is no basis to infer that Stonnington would require the developer of a site to provide more car parking spaces, than clause 52.06 of the Planning Scheme indicates that the development would otherwise require, in order to meet a "wider community" need. Apart from being at odds with Chapel Vision, it would also appear to be at odds with the broader trend under Melbourne 2030 to discourage the use of private cars.

248 In conclusion, I accept the position that the under-utilisation of the current car-park, the cessation of the Council's monitoring of car-park use under the s 173 Agreement, and the policy shift brought about by Melbourne 2030 and reflected in Chapel Vision and clause 52.06 of the Planning Scheme to discourage private car use, support Mr McNamara's, Mr Cundall's and Mr Fitzgerald's evidence that the s 173 Agreement is obsolete. Consequently, the developer might reasonably expect to be required to provide car parking on the subject site in accordance with clause 52.06 of the Planning Scheme and Chapel Vision by reference only to the type and intensity of uses proposed, and not by reference to any "wider community" need. Thus, I accept that, in accordance with the Spencer principle,[309] a hypothetical purchaser of the Jam Factory site being "perfectly acquainted with the land, and cognisant of all circumstances which might affect its value", would asses the market value of the subject site (and in any new development) according to the views of Mr McNamara and Mr Negri regarding the provision of car parking, rather than according to the view advanced by Mr Jackson. It follows that the s 173 agreement would not affect the price which a hypothetical purchaser would pay to buy the Jam Factory site.

249 There was a difference of view in relation to the effect of the four track railway line running along the northern boundary of the Jam Factory site. It is clear from observation that it is a busy railway line, which serves as the suburban railway for Pakenham and Cranbourne and as the main Gippsland railway. It appears, however, that there are some pluses and minuses flowing from the presence of the railway.

250 Mr Fitzgerald's evidence was that the effect of the railway line on the value of the Jam Factory site is neutral. He said that the negatives of noise and vibration would be mitigated and, in any event, is unlikely to be a nuisance for apartments constructed "well above the ground", "perhaps two or three storeys above", noting Mr Pedlar's[310] and Mr Quinn's[311] uncontested reports indicating that any particular construction requirements caused by the presence of the railway could be addressed in any development of the size and nature of a redeveloped Jam Factory. Mr Fitzgerald also cited the prospect that the railway frontage would require special construction solutions, but there is no evidence that these would pose any unusual difficulty or expense. Among the positives, Mr Fitzgerald considered that the railway would provide a reserve of uninterrupted light and air along the Jam Factory's northern boundary, which would enhance the amenity of many apartments and provide separation from surrounding uses. On balance, Mr Fitzgerald's view was these factors balanced each other out. He also sought some support for his view by noting that the sale of the property at 5-7 Yarra Street (a property a street width away from, and overlooking, South Yarra railway station) indicated that the presence of a railway did not have a major impact on value.

251 Mr Cundall, on the other hand, after adopting a deduced rate per square metre for the Jam Factory site of $3,500, made an allowance for the presence of the railway line of 12.5 per cent. Mr Cundall took the view that, all things being equal, a hypothetical purchaser of the land would prefer not to abut a railway line, as it could be a source of noise, vibration and restriction of access to a long boundary of the Jam Factory site. He said that while these factors could be mitigated, they are factors a hypothetical purchaser would prefer not to have to deal with. Mr Jackson agreed with Mr Cundall's approach. I accept that Mr Cundall's approach is justifiable and in the circumstances appropriate, if conservative.

252 A downwards adjustment on the rate per square metre for part of the land zoned PUZ4, namely, 534m2, was made by Mr Cundall. The extent of the adjustment on a rate per square metre of land was significant (from $2,800 to $840). However, considering the overall site and its value, it was a very small adjustment in absolute terms; totalling $448,560, which is less than 1 per cent of site value. Mr Jackson's table of adjustments did not adjust for the PUZ, but he did agree, in the valuer's joint statement, to Mr Cundall's percentage reduction for this PUZ land.

253 It was submitted by the Valuer General that this adjustment was conservative, in that existing rights would apply to retail uses in that location, and possibly to office uses as well, and there has been no suggestion that the PUZ would constrain the built form development of the site, or that permits could not be obtained for any uses contemplated for the site. Further, to the extent that the PUZ may require further or additional planning permission, it was submitted that it is not a requirement likely to be onerous, as the planning permissions would need to be sought for the whole redevelopment in any event.

254 On this basis, I accept Mr Cundall's allowance as being appropriate.

255 The evidence indicates that the SBO would have little, if any, effect on the value of the Jam Factory site. The SBO does require a permit for development, but the extent of the built form already existing along Chapel Street and the Challenger proposal, particularly including the basement car parking, demonstrate that it is not an impediment to development of the site.

256 Neither Mr Jackson nor Mr Cundall made any specific adjustment for the SBO. Mr Fitzgerald, on the other hand, made a 20 per cent allowance on his front lot in undertaking his "piecemeal" check approach to account for the presence of the SBO. Mr Fitzgerald said in evidence that, in retrospect, the 20 per cent was too high, which, in turn, means, that if he had not made that allowance, then the value of the subject property would, in his opinion, have been increased.

257 On this basis, I accept, that Mr Cundall's approach is appropriate, namely that there is no necessity for any specific adjustment for the SBO.

(1) there is no reason to depart in any material respect from the deduced rates for Mr Cundall's sales in his spreadsheet of comparable sales,[312] which provide a spread in the order of $2,747 - $8,064 per square metre;

(2) having regard to that spread of values, there is no reason to depart substantially from Mr Cundall's rate of $3500 per square metre for an "ideal" Jam Factory site; and

(3) having regard to the fact that Mr Cundall's adjustments to the $3,500 per square metre are generous as set out above, there is no reason to reduce his overall rate for the Jam Factory of $2776 per square metre.

259 It was common ground that the most similar site to the Jam Factory site, in size, character and other attributes, is the site at 670 Chapel Street (also known as the Vogue site). This site was the focus of the evidence, and was the only sale treated as a comparable sale by all three valuers. Consequently, the valuation evidence in relation to this site is now discussed in some detail, with reference to the submissions in relation to the other comparable and other sales data relied upon by the various valuers set out in the Appendix (Appendix 1 - Comparable Sales (Site Value)).

260 670 Chapel Street is, like the Jam Factory site, located in a substantial change area as defined by Chapel Vision. It is outside the nearby Forest Hill precinct in South Yarra. It is in an area with a preferred maximum height of 38 metres as specified in Chapel Vision. It should, of course, be noted that the date of the sale of 670 Chapel Street was in January 2006, which was before Chapel Vision had been adopted by Stonnington.

261 The valuers made various adjustments for the purpose of comparing 670 Chapel Street to the Jam Factory, but there was little common ground among the valuers as to which adjustments ought to be made, or the extent of those adjustments. The point was made by the Valuer General that the length of the list and the extent of disagreement between the valuers was good evidence as to why the analysis of just one South Yarra sale is unreliable. Emphasising the point, reference was made to the statement by Commissioner Nott in Hayes v Chief Commissioner of State Revenue:[313]

"Taking only one vacant land sale as a way of inferring a land value for the subject land (particularly if the sold land is some distance from the subject land and has somewhat different features) is not a sound basis for valuation. In Henderson v Shire of Liverpool Plains (1932) 2 The Valuer 179 at 180 Pike J said:

'I do not think any one sale can ever be taken as a sound basis for valuation ... I think the only way to get a sound basis is to get as many sales as possible so that you may get out what I might term the personal elements in those sales.'"

262 Mr Cundall made adjustments for time (45.42 per cent based on 1.9 per cent per month); terms ($1.1m); value of the permit (a 10 per cent allowance based on the 2004 permit with which 670 Chapel Street was sold); and the s 173 Agreement (an allowance of approx $1.8m on the basis of $1,000/square metre of land forfeited, which is the alternative option to the provision of 235 car spaces). Mr Cundall did not make any specific upwards adjustment to take account of location and zoning, nor a specific downwards adjustment for size. Mr Cundall arrived at his figure of $3,500 for the Jam Factory by looking at all of the deduced values for his comparable sales, as discussed previously. Mr Cundall did, however, make downwards adjustments to his rate for the Jam Factory site on the basis of shape (-7.5 per cent); the proximity to the railway line (-12.5 per cent); and due to the PUZ4 zoning (less than 1 per cent).

263 Mr Fitzgerald also made adjustments with respect to 670 Chapel Street, some of which were broadly similar to those made by Mr Cundall. He adjusted for the value of the permit (12.5 per cent); for the s 173 Agreement (approximately $1.8m); for demolition costs and the costs of relocating the drainage easement at 670 Chapel Street; and for time (1.25 per cent). Mr Fitzgerald did not make any adjustment for terms.

264 Mr Jackson, on the other hand, made adjustments for the sale price (apparently for terms); for size (-10 per cent); for location (+10 per cent); for development density (-30 per cent); for the railway line and the heritage façade (-5 per cent); and for time (34.5 per cent).

265 As has been observed, there was little common ground among the valuers as to which adjustments ought to be made, nor the extent of those adjustments. Nevertheless, the most significant points of disagreement between the approach of Mr Cundall and Mr Fitzgerald on the one hand, and Mr Jackson on the other hand, were: whether a 30 per cent adjustment should be made on the basis of plot ratio; the extent of the adjustments for location and zoning; and whether an adjustment should be made for the s 173 Agreement.

266 In relation to adjustment for time, I accept that Mr Cundall's rate of 1.9 per cent per month is to be preferred over the rate of 1.25 per cent per month adopted by Mr Fitzgerald and Mr Jackson, for the reasons already indicated.

267 In relation to terms of sale,[314] Mr Jackson made a slightly smaller allowance than Mr Cundall, and Mr Fitzgerald made no allowance for the nine months settlement period. Mr Cundall made the most generous allowance for terms. In the circumstances, I am of the view that it is appropriate to accept the slightly more generous allowance made by Mr Cundall.

268 The reason given by Mr Jackson for not adjusting for the s 173 Agreement was that the s 173 Agreement applying to 670 Chapel Street was the same imposition as that imposed by the s 173 Agreement on the Jam Factory site. Mr Jackson did, however, concede in cross-examination that the circumstances in which the s 173 Agreement was imposed on 670 Chapel Street were completely different from those which applied to the Jam Factory. Further, it was conceded by Mr Jackson that the car parking requirement at 670 Chapel Street was a legacy of the earlier Chia development of that site. Mr Cundall's allowance for the imposition of car parking was consistent with that adopted by Mr Fitzgerald and was, as submitted by the Valuer General, conservative in the sense that Mr Cundall valued the land after adjustments of $2,000 per square metre, but then took account of the fact that if the car parking was provided, it would also benefit the development. It was put to Mr Cundall that the allowance of car parking was arbitrary. As Mr Cundall conceded in his answers, the allowance is a matter of judgment. Having regard to the process of assessment adopted by Mr Cundall and his clear understanding of the nature and extent of the car parking requirements applying to 670 Chapel Street, and the origin of those requirements, I accept his judgment.

269 Mr Jackson made no allowance for the value of the permit applying to 670 Chapel Street, which appears to be consistent with his view of considering the site from the perspective of the actual purchaser who subsequently obtained a different permit. On the other hand, Mr Cundall and Mr Fitzgerald, who made similar allowances for the value of the permit, gave evidence that a valuer should look at the particular site as at the date of sale from an objective standpoint and not from the point of view of one particular purchaser. I accept that this is the correct approach, and accept Mr Cundall's allowance.

270 In relation to location and zoning, there was significant divergence between the view of Mr Jackson, and the views of Mr Cundall and Mr Fitzgerald. The latter both took the view that an adjustment in the vicinity of 40 per cent ought to be made on the basis of zoning and location. Mr Jackson was of the opinion that only a 10 per cent adjustment should be made for location.

271 Mr Cundall and Mr Fitzgerald were of the opinion that Mr Jackson's 10 per cent adjustment for location was too low because 670 Chapel Street is essentially in a non-retail area of Chapel Street, in marked contrast to the position of the Jam Factory site, which it was said is significantly superior as a retail site. Mr Cundall and Mr Fitzgerald were of the opinion that the Jam Factory has a significant retail presence in a prime part of Chapel Street as compared to 670 Chapel Street, which is at the northern fringe, north of Toorak Road, and does not have as much passing pedestrian traffic. Mr Fitzgerald commented that this northern part of Chapel Street is a "retail location that has to generate its own traffic". This is in marked contrast to the position in the area of Chapel Street in which the Jam Factory site finds itself. Mr Jackson agreed in cross-examination that 670 Chapel Street is at the northern fringe of the Chapel Street shopping district, and experiences significantly less pedestrian traffic than that in the vicinity of the Jam Factory. Further, he was asked whether he was familiar with the shops in the Como building, which is on the corner of Chapel Street and Toorak Road, just south of 670 Chapel Street. He said that he had acted on the Como development for a number of years and accepted that there had been "challenges" in letting out the Como shops, having been asked if there had been significant difficulty in this respect. Mr Jackson said: "One of the challenges is that it is not properly anchored by a major drawcard tenant. The noble idea that in an affluent area you can put a collection of shops together and people will come and shop there without a major attractor is just that, a noble idea".[315] Mr Cundall also saw Toorak Road as a divide and said that: "The site of 670 Chapel Street is in what I would term to be a secondary retail location ... whereas around the subject property it's actually almost the prime retail area. So it is a significant difference between the two sites".[316] Similarly, Mr McNamara gave evidence that until 670 Chapel Street was constructed, the area of Chapel Street north of Toorak Road was "not an attractive retail location".[317]

272 Additionally, the point was made that the Jam Factory site has a 118 metre frontage to Chapel Street, compared to 76 metres for 670 Chapel Street. Further, the zoning of the Jam Factory site is "Business one", which Mr Cundall said was the best zoning that one could have for a retail development. Mr Fitzgerald also agreed in this respect. Both Mr Cundall and Mr Fitzgerald were of the opinion that the Jam Factory is in a significantly superior location to 670 Chapel Street.

273 It was also submitted that the rear part of the Jam Factory is similar to or superior to the rear part of 670 Chapel Street for residential development. Mr Jackson, however, argued that 670 Chapel Street is superior to the Jam Factory for residential development. Both Mr Cundall and Mr Fitzgerald rejected this view. Mr Cundall's view was that the Society building apartments are selling for between $8,000 to $10,000 per square metre, according to the Charter Keck Cramer report, which is in the same range as was put to him with respect to the 670 Chapel Street apartments. Mr Fitzgerald was of the opinion that there is a "vibrancy" about the Jam Factory location that has been borne out by developments such as the Society development in Simmons Street. Additionally, Mr Fitzgerald considered that the views available from the upper levels of the Jam Factory would be as good as or better than those available from the upper levels of 670 Chapel Street.

274 For the reasons indicated, I am of the opinion that the views of Mr Cundall and Mr Fitzgerald are to be preferred to those of Mr Jackson in relation to the superiority of the Jam Factory site over 670 Chapel Street, both in terms of retail location and zoning, and that there is no other evidence that 670 Chapel Street would be a superior residential location to apartment developments at the Jam Factory.

275 Both Mr Jackson and Mr Fitzgerald agreed that a 10 per cent adjustment would be appropriate for the size of 670 Chapel Street in comparison to the Jam Factory. Mr Cundall approached the issue of size slightly differently in that he did not make a specific downwards adjustment for size, but, rather, as indicated previously, arrived at his figure of $3,500 per square metre for the Jam Factory by looking at all of the deduced values for his comparable sales and then making a judgment having regard to size and location. Mr Cundall's deduced rate per square metre for 670 Chapel Street was 22 per cent above his adjusted rate per square metre using the size adjustor. In cross-examination it was suggested to Mr Cundall that:

"[Mr Batt]

Even accepting, as Mr Jackson said in written and oral evidence, that 670 Chapel Street is inferior in terms of retail location, what I suggest to you is that you just moved too far up the scale in reaching $3,500 and could be justified once you take account of your $2,252 and the importance of that sale?

[Mr Cundall]

Well, the 2,252 is on the basis of looking at the subject property as being a larger sale, so I mean, that's already factored into that. So that 3,500 that I've adopted is based on the size of the subject property being 19,272 square metres. So I've made that allowance and as a comparison, having made an adjustment or allowance for 670 Chapel Street on that same basis, it comes out at $2,251. I'm happy with my analysis in regard to comparing the two."[318]

The reference to 22 per cent does not translate into a 22 per cent downwards adjustment. Rather, it translates into a downwards adjustment of 18 per cent if the 22 per cent figure was used to try to derive a downwards adjustment, which was not the analysis or approach of Mr Cundall with respect to size. In any event, I am satisfied that the result of applying the size adjustor approach followed by Mr Cundall produces a conservative figure, given the evidence of the other valuers, Mr Jackson and Mr Fitzgerald, that a 10 per cent adjustment is required for size.

276 The Valuer General submitted that an alternative way of looking at Mr Cundall's evidence with respect to the adjustment for size appears from his cross-examination in relation to adjustments for location, zoning and size had he made them. In summary, his evidence in this respect was that an adjustment for location and zoning from 670 Chapel Street and the Jam Factory would be in the order of 30 per cent to 40 per cent. The Valuer General submitted, on this basis, that:

"If one takes Mr Cundall's evidence that he arrived at the $3,500 absent the size adjustor, then once the upwards adjustment from his analysed rate of $2,747 for size at 40 per cent is done (to get to $3,846), it becomes apparent that his downwards adjustment for size would be in the order of 10 per cent - similar to Mr Jackson's and Mr Fitzgerald's evidence as to what would be reasonable in this respect."

277 Mr Cundall was the only valuer who made specific allowance for shape. As indicated previously, this was a conservative, even generous, allowance which, for the reasons indicated, I accept as being more than reasonable. Mr Cundall was also the only valuer who made specific allowance for the PUZ. Again, I am of the view that this was a conservative, even generous, allowance.

278 There are also design constraints affecting both the Jam Factory and 670 Chapel Street. In relation to the latter, 70 per cent of the site is subject to inundation and is subject to a Land Subject to Inundation Overlay (LSIO), which is more onerous than the Special Building Overlay which applies to the Jam Factory. Additionally, there is a wide drainage easement along the southern boundary of the 670 Chapel Street site. Neither Mr Cundall nor Mr Jackson made any specific allowances for the SBO, but Mr Cundall said that he took into account the fact that 670 Chapel Street is subject to an LSIO, and the Jam Factory an SBO, in his derived figure of $3,500 per square metre for the Jam Factory. There is no basis on the evidence for concluding that this approach was not appropriate.

279 No allowance was made by Mr Jackson for heritage. For the reasons previously discussed, this is, in my opinion, an omission, as the other valuation evidence indicates an apparently reasonable basis upon which such an allowance should be made. In relation to the railway line, as indicated previously, I am of the view that Mr Cundall's adjustment in this respect was conservative, even generous to the plaintiffs.

280 The use and limitations of plot ratio analysis has been discussed previously. As indicated, Mr Cundall's evidence was that he did not consider it appropriate to make an adjustment based on plot ratio.

281 The Valuer General submitted that Mr Jackson's analysis based on plot ratio must be rejected entirely. Mr Jackson's 30 per cent adjustment between 670 Chapel Street and the Jam Factory on the basis of plot ratio for potential development was "the largest downwards adjustment [he] made".[319]

282 The plot ratios used by Mr Jackson for his plot ratio analysis were 4.4:1 for 670 Chapel Street and 2.33:1 for the Jam Factory. His evidence was that he had made a 30 per cent adjustment, given that the GFA for 670 Chapel Street was approximately 50 per cent higher than the GFA for the Jam Factory (using the 45,000 square metre development scenario). Extrapolating the same exercise on the basis of the 75,673 square metre NLA for the Challenger proposal,[320] the point was made in cross-examination of Mr Jackson by Mr Garde QC that a $400 per square metre upward adjustment would need to be made to Mr Jackson's rate of $2,000 per square metre; a proposition with which Mr Jackson agreed. Using the same logic, an even greater adjustment would need to be made given that the 75,673 square metre Challenger proposal, which was put to Mr Jackson by Mr Garde, is the NLA of the Challenger proposal, not the GFA, whereas the 65,000 square metres that Mr Jackson used for 670 Chapel Street was the GFA. Consequently, assuming that the Jam Factory site is capable of being developed for 90,000 GFA (as per Mr Jackson's analysis of the GFA for the Challenger scheme), then the plot ratio increases substantially to the extent that the plot ratio for the Challenger proposal (using 90,000 square metres GFA) of 4.7:1 is 107 per cent of the 670 Chapel Street plot ratio of 4.39:1 (i.e. 7 per cent higher). It follows that an upward adjustment should be made to the Jam Factory rate, rather than a downward adjustment. Applying Mr Jackson's logic of a 30 per cent adjustment for a 50 per cent change in plot ratio, then one would need to provide an upward adjustment of 3/5 x 7 per cent, which equals 4.2 per cent, rather than a downward adjustment of 30 per cent. As a result, Mr Jackson's rate of $2,000 per square metre needs to be adjusted back up to $2,600 per square metre, plus adjusted upwards again by 4.2 per cent, as follows: $2,600 x 0.042 + $2,600, which equals $2709.

283 It is noted that Mr Fitzgerald made an adjustment which totalled approximately $436,000 for the demolition cost and cost of relocating the drainage easement at 670 Chapel Street. In the scheme of things, this is a relatively minor adjustment and does not materially affect the analysis.

284 In conclusion, I reject Mr Jackson's 30 per cent allowance for proper ratio for the reasons indicated. Increasing Mr Jackson's adjustment for time in accordance with Mr Cundall's evidence, again for the reasons indicated, produces a final figure which is closer to Mr Cundall's deduced rate per square metre for the Jam Factory. Additionally, rejecting Mr Jackson's evidence that 670 Chapel Street is superior from the point of view of residential development as well as for a supermarket, and accepting Mr Cundall's and Mr Fitzgerald's evidence that the Jam Factory is the superior site, in both instances for the reasons previously indicated, it is apparent that Mr Jackson's assessment is far too low and that Mr Cundall's assessment is more appropriate. Finally, I am of the view that Mr Jackson's reliance upon this one sale, on the basis of its vicinity to the Jam Factory, is not consistent with accepted valuation methodology. As discussed previously, valuation methodology seeks, with appropriate adjustments, to consider as many comparable and other sales as possible of similar properties in the same general area as the subject property, subject to reasonable adjustments for differentiating factors; short of such extensive adjustments which may indicate that the sales are not really comparable. On this basis, I am of the opinion that Mr Jackson's evidence on site value is to be rejected comprehensively and that Mr Cundall's evidence should be accepted for the reasons indicated previously.

285 To the extent that there is a lack of comparable sales evidence, capital improved value falls to be assessed by the capitalisation of the net market rental that the subject property is expected to generate for the foreseeable future.[321] It is common ground between the parties to this proceeding that this well accepted method of determining capital improved value is the appropriate valuation method to be applied to the Jam Factory. On this basis, each of the valuers calculated and assessed market rent for the tenancies in the Jam Factory and then capitalised that amount. Each valuer, however, assessed market rent differently and also used a different capitalisation rate.

286 In assessing capital improved value, the issue arises whether, on the proper construction of the definition of capital improved value in sub-s 2(1) of the Act, the Jam Factory should be valued as if for sale with vacant possession or as if fully let at market rate. Each of the valuers accepts that if the Jam Factory is to be valued as if it were for sale with vacant possession, a substantial discount would need to be made by way of a vacancy or letting up allowance. For the reasons indicated previously,[322] I am of the opinion that the statutory definition of capital improved value does not require any vacant to let deduction and that the proper approach is to determine the capital improved value on the basis of the actual position of the subject property as indicated, particularly in the Trust Company cases decided by the Supreme Court of South Australia, at first instance and in the Full Court, in 2008.[323]

287 Consequently, the issues for determination with respect to the capital improved value of the Jam Factory are:

(a) what is the net assessed market rent of the Jam Factory;

(b) what is an appropriate vacancy allowance for the Jam Factory;

(c) what is the capitalisation rate of the Jam Factory; and

(d) what would be an appropriate vacant to let deduction for the Jam Factory (assuming that I am wrong in my opinion that no such deduction is required under the definition of capital improved value contained in the Act).

288 Mr Jackson's evidence was that, in order to determine the assessed market rent, he assessed the market rent (rather than actual rent) for each of the areas within the Jam Factory capable of occupation; assumed that the lease for the cinema was a long-term lease and that the leases of the specialty shops varied from long-term to monthly tenancies; assumed that all lettable areas in the Jam Factory were in fact let (an artificial assumption); and then deducted from the gross assessed market rent all applicable outgoings. A significant difference between Mr Jackson's approach and that of Mr Cundall and Mr Fitzgerald was that while Mr Jackson assumed that the Jam Factory premises were fully let, Mr Cundall and Mr Fitzgerald calculated an appropriate allowance to take account of vacancies and deducted this from the assessed market rent. In relation to the assessment of rentals, the main areas of dispute between the valuers were with respect to the cinemas and offices.

289 Mr Fitzgerald's opinion that the net assessed market rent of the Jam Factory was $8,225,777, which was slightly higher than Mr Cundall's figure of $8,168,577. Both were higher than Mr Jackson's figure of $7,585,013.

290 It was common ground that the passing rent of the Jam Factory cinemas is $32/seat/week. The valuers were all of the opinion that this rent is above market and, for present purposes, should be adjusted downwards. The difference between them was the extent of the downward adjustment required.

291 Challenger submitted that Mr Jackson's assessed rental for the cinemas should be adopted or, alternatively, that the assessed rentals put forward by Mr Cundall and Mr Fitzgerald were too high and should be reduced. Challenger noted that Mr Jackson had considered a variety of matters in reaching his conclusion, having noted the passing rent per cinema seat per week at the Jam Factory as at 1 January 2008, and that a review of the terms of the current leases of the cinemas confirmed the view that the passing rent at the valuation date was the product of fixed rental increases provided for under the leases; which maintained the rent at an artificially high level, as these provisions meant that it could not fall.

292 Mr Jackson calculated the passing rent per cinema seat per week at other cinemas which he assessed as being comparable; namely, Village Doncaster, Village Rivoli, Hoyts Victoria Gardens, Village Southland and Village Knox Ozone. The range of rents on this basis was between $7.92 and $25.88 per cinema seat per week. Mr Jackson then assessed the Village Rivoli as the cinema most comparable to the Jam Factory, with a rent per cinema seat per week of $25.88. He then adjusted the Village Rivoli figure downwards by 10 per cent to take account of its smaller size as compared to the Jam Factory; namely, 2,364 seats compared to 1,587 seats at the Rivoli. He also said that this adjustment was to reflect the position that, in his view, the Rivoli was let at an over-market rental because Village had signed a generous lease to maximise the sale price when Village sold the Rivoli to a property trust.[324] Mr Jackson then calculated the occupancy cost for Village at the Jam Factory as at the valuation date (being the gross actual rental liability divided by the moving annual turnover) at 28.27 per cent. His opinion was that cinema operators prefer to maintain occupancy costs between 15 per cent to 18 per cent, and that a figure of 28.27 per cent would be unsustainable for the profitable running of the business. Consequently, he concluded that the current passing rent per cinema seat per week at the Jam Factory was too high and that the market rent on this basis for the Jam Factory cinema was $22.50 per seat per week, which reflected an occupancy cost of 20 per cent, which he said erred "on the side of generosity". On this basis, Mr Jackson calculated the assessed gross rental for the cinemas on 2,364 seats at $22.50 per week, as $2,765,880.

293 Mr Cundall's evidence was, on the other hand, that the most comparable centre to the Jam Factory for the purpose of analysing cinema rentals was Chadstone. He was also of the view that the Victoria Gardens and Doncaster cinemas were not as comparable. Additionally, Mr Cundall said that the rates applicable to Doncaster were not reliable due to the circumstances under which they were negotiated in the process of renovations during 2007 and 2008 of Doncaster Shopping Town or Westfield Shopping Town.[325] Mr Cundall emphasised the point that the Jam Factory cinemas are in a premier entertainment strip in South Yarra, amongst restaurants and in a prime retail area in Chapel Street.

294 In any event, it was submitted by the Valuer General that Mr Cundall's assessed rate of $28 per cinema seat per week for the Jam Factory compared favourably with the rates for the cinemas at Chadstone and at the Rivoli.[326] As to the comparability of the Jam Factory cinemas as compared to those at Chadstone and the Rivoli, Mr Cundall said:[327]

"... in regard to the Chadstone centre, you will see it's got, the fourth column in, the seats, it's 3,633 seats compared with the Rivoli which is 1,587 and 2,374 for the Jam Factory. I will skip a couple of columns, Your Honour. You can see that the turnover, what they call the MAT on the Chadstone Centre is of similar consequence and size to the turnover at the Jam Factory, one's just above $14 million, the other one is just below. The interesting thing therefore, Your Honour, which then, as a little bit of analysis coming out of that, on an area per square metre, i.e., of building size, the turnover on the Jam Factory is actually slightly superior and if you then equate that on a per seat basis, what it means is, we are turning over $5,879 per seat compared to $4,000. So that actually just points to the fact that the Jam Factory, if you were comparing those two directly, is probably actually slightly superior to Chadstone and certainly superior to the Rivoli."

295 Challenger criticised Mr Cundall's report on the basis that he did not explain how he came to the figure of $28 per seat per week for the Jam Factory cinemas. Further, it was said that he had accepted that the rental paid per cinema seat per week is the most common indicator for cinema valuations, but that he did not discuss this in his report. Additionally, it was submitted that Mr Cundall was unduly limited in determining that only the Rivoli and Chadstone cinemas were comparable to the Jam Factory cinemas. It was said that he should have had regard to the rents being paid at Doncaster and Victoria Gardens; where the rates were, for Doncaster, $8.27 per seat per week and, at Victoria Garden, $11 to $12 per seat per week, neither of which Mr Cundall was aware of at the time he wrote his report and to which he had no regard in determining his figure of $28 per seat per week. Challenger, in its submissions, said that when Mr Cundall was cross-examined on his decision to limit his comparables to two, his response was:[328]

"I obviously looked at other rentals of other cinemas and they are quite often significantly lower on a per seat per week basis, or whatever basis you like to compare with, but I think what has to be reflected here is the quality of the actual Village Cinemas at the Jam Factory and I think comparing it with Chadstone is a reasonable comparison." (emphasis added)

It was submitted that when asked about the age of the fit-out of the Village cinemas at Chadstone for the purposes of comparison with the Jam Factory, Mr Cundall admitted he was unaware of the date of the fit-out at Chadstone. Challenger submitted that, relying upon Mr Cundall's emphasis on "the quality of the actual Village cinemas at the Jam Factory", both the locations and quality of the cinemas at Doncaster and Victoria Gardens make those cinemas as relevant for comparable purposes as those at Chadstone and the Rivoli. In terms of comparables, it was also submitted that it was not clear why the Rivoli should be more relevant to the assessment than Victoria Gardens, or why Chadstone should be more relevant than Doncaster, which is a super regional centre, having noted that Mr Cundall, in re-examination, said that he did not consider Victoria Gardens to be comparable to the Jam Factory, commenting: "[p]urely it gets back to location".[329] Finally, Challenger submitted that Mr Cundall, in adopting his market rental of $28 per seat per week for the Jam Factory, did not have regard to whether the resulting occupancy cost of 24.75 per cent was too high. It was submitted that this was significant because Mr Cundall did not express an opinion as to the appropriate occupancy cost for a cinema but, rather, answered by reference to the opinion expressed in the Savills Report. It was submitted by Challenger that, even accepting the figures in the Savills Report, that occupancy cost for cinema complexes should lie within the range of 15 per cent to 25 per cent, Mr Cundall's figure was at the top of that range. Finally, it was submitted that Mr Cundall had made incorrect assumptions about the Village cinemas lease at the Jam Factory in that, as a result of a variation of the lease, there had not been any market review in 2009 but, rather, a CPI review with a ratchet. Mr Cundall was not aware of these terms and did not know that the 2003 market rent review option had not taken place.

296 The 2008 Savills Report was prepared for Challenger by Savills (Vic) Pty Ltd, presumably for the benefit of its investors, pursuant to statutory duties relating to publication of financial information and accounts. The Valuer General submitted that the rental per seat per week for the Jam Factory which Mr Cundall regarded as appropriate was consistent with the conclusions in the 2008 Savills Report, namely, that:

(a) the cinema rents that it has analysed in relation to other premises are not directly comparable because they are either stand alone cinemas or attached to shopping centres whereas the Jam Factory is located in a prime retail strip, incorporates a number of restaurants and entertainment type tenancies and is located in an historic building with limited competition; and

(b) while the rents for the Jam Factory cinemas are at the upper end of the rental evidence, they are acceptable for valuation purposes and in line with market at the date of valuation.

297 Mr Jackson, on the other hand, dismissed this assessment contained in the 2008 Savills Report as unconvincing and subject to a circularity in reasoning.[330] Nevertheless, I am of the opinion that the 2008 Savills Report is logical and highly convincing. On the basis of the evidence already considered and, further, as indicated in the 2008 Savills Report, it is clear that the Jam Factory cinemas are situated in an exceptional location at the high end of the market and, accordingly, it would be expected that they would command a high rent. It follows, on the basis of this evidence, that it is not surprising that the Jam Factory cinema rents are higher than other analysed cinemas.

298 In conclusion, I am of the view that it is reasonable to accept that the range of occupancy costs for a cinema complex would lie between 15 per cent and 25 per cent on the basis of the figures contained in the 2008 Savills Report. As has been noted, Mr Jackson's evidence was that the range was 15 per cent to 18 per cent and that a 28.27 per cent occupancy cost would be unsustainable. In this respect, it should be noted that Mr Jackson has not claimed any expertise in relation to the assessment of profitability or the manner in which cinema businesses might be conducted profitably. As a matter of general logic, it might well be, and has not been suggested to the contrary, that a cinema situated in an exceptionally good location may bear an occupancy cost outside this range. In any event, on the basis of the Savills occupancy cost range, Mr Cundall's assessment is towards the top of that range but, again, this is consistent with the evidence and the position which he took that the Jam Factory is in a relevantly exceptional location, so it would follow that its occupancy cost would be expected to lie in the upper part of a range such as this.

299 Mr Fitzgerald's assessment of the appropriate rent per seat per week for the Jam Factory cinemas was $26.70. Challenger submitted that this figure was too high and should be rejected on the basis that Mr Fitzgerald had little experience in valuing cinemas and that his knowledge of comparable cinemas was extremely limited. Challenger also submitted that his choice of comparables was unduly limited and that he did not give due consideration to occupancy cost. Mr Fitzgerald's assessment was slightly lower than that adopted by Mr Cundall, but Mr Fitzgerald did acknowledge that his rate was conservative and that a higher rental assessment would be defensible on the evidence available. Mr Fitzgerald's assessment was criticised by Challenger on the bases indicated, particularly because he had no data on the Victoria Gardens cinemas and had not considered the cinemas at Doncaster or Century City Walk.

300 In my opinion, the criticisms made by Challenger of Mr Fitzgerald's assessment carry some weight. Nevertheless, having regard to Mr Fitzgerald's concessions and the views I have expressed with respect to the assessments of Mr Jackson and Mr Cundall, I am of the opinion that Mr Cundall's assessment of the cinema rental for the Jam Factory is to be preferred.

301 Both Mr Jackson and Mr Fitzgerald assessed the rate for the rental of office accommodation at the Jam Factory at very similar levels. There are two offices at the Jam Factory, Suite 101 and Suite 102. Mr Jackson's assessment of average rental for the two offices was $285 per square metre and Mr Fitzgerald's $280 per square metre. Mr Cundall's assessment was that the market rate of rental for these offices, which are the office components of the Village cinema tenancies, was $306 per square metre, excluding outgoings. This figure is significantly higher than the assessment of Mr Jackson and Mr Fitzgerald, particularly having regard to the fact that Mr Fitzgerald's assessment was of a gross figure, rather than a net figure.

302 Mr Jackson's evidence was that the passing rentals for both offices were too high for "office accommodation of that standard in that location with that sort of entry and frontage that it has, which is very poor compared to standalone office buildings".[331] Mr Jackson's evidence was that he adopted rentals which, in his opinion, were more indicative of the market, given the dated office space, and lack of identity. Further, it was his opinion that if these offices were offered on the market, it would be extremely difficult to lease them. Mr Fitzgerald's evidence was similar, as is evident in the following evidence he gave in cross-examination:[332]

"My particular recollection of the premises, of the office tenancies at the Jam Factory, and it was a long while ago, was that they were somewhat dated and probably in a sense they don't have a strong street presence either. You have to walk through the shopping centre or in the back door. It is a very conservative reflection perhaps but I would make the point that they are large spaces, relatively large spaces and it's lumpy amount of office to let if they fall vacant ..."

Mr Fitzgerald also pointed out that the offices do not benefit from the Chapel Street frontage because entry to them is at the back of the Jam Factory centre or off Garden Street, though he did also point out that office rentals are less sensitive to immediate location. Mr Fitzgerald did concede, nevertheless, that his assessed rate for office rentals was low compared to other rental figures he provided for offices at other locations in Chapel Street. Mr Cundall had not inspected the offices.

303 In terms of comparables, it should be noted that Mr Jackson conceded in cross-examination that he did not use any comparables to derive his figure for office rental. On the contrary, he said that: "...I thought in terms of this matter all the valuers were extremely close on their net rental assessment and it didn't seem to be a matter that any of us delved further or required further information."[333] In contrast, Mr Cundall had access to information about office rentals as part of his contract with Stonnington and provided a comprehensive analysis of office rentals. On the basis of this analysis and the other matters to which reference has been made, I am of the opinion that Mr Cundall's assessment should be accepted as the outcome of a considered and reasoned assessment of comparables. The figure is higher than Mr Fitzgerald's, a valuer who also had access to Stonnington information in this respect. However, Mr Fitzgerald did not provide or evidence the same analysis of comparables and conceded that his assessment was conservative. A conservative assessment of this nature, particularly given the difference with Mr Cundall's assessment, would appear to indicate a concession that the assessment is one at less than the market rate and also that it is contrary to the principle expressed in ISPT Pty Ltd v Melbourne City Council[334] that the valuer must: "... ascertain the full return which may reasonably be expected from the sale of the land, not the most conservative value".

304 The valuation evidence in relation to the car-park rent and the rent paid by other tenancies, including the specialty shops, was generally similar. For the car-park rent, Mr Jackson adopted $2,385,717 and Mr Fitzgerald adopted the very similar figure of $2,350,000. Both adopted what was effectively the actual passing rent as the market rent. Mr Cundall, on the other hand, adopted a figure of $2,058,725. It was noted in Challenger's submissions that the CBRE trust valuation as of 30 June 2006 assessed market rent below the passing rent, stating a passing rent of $2,274,908 and a market rent of $1,935,000 prior to adding outgoings. Challenger submitted that the approach to the assessment of car-park rent was an indicator of Mr Jackson's impartial approach to valuation. This is, of course, but one instance and a matter which needs to be viewed against the broader picture, to which reference has already been made. In any event, in terms of the position of Challenger, the most favourable assessment would be that adopted by Mr Cundall.

305 The valuer's assessment of the market rent of the other tenancies, namely, Borders, Virgin, TGI Fridays, Angeluccis, Villa & Hutt, specialties, ATMs, external tenancies and other tenancies produced totals ranging from Mr Jackson's assessment of $4,284,788 to Mr Fitzgerald's assessment of $4,541,675. Mr Cundall's assessment was between the other two valuers, namely, in the sum of $4,415,156. Challenger submitted that Mr Jackson's assessment should be adopted because of his extensive experience in valuing shopping centres and that, further, a line-by-line comparison showed that on many tenancies Mr Jackson adopted the higher rental, highlighting his impartial approach to the valuation process. Again, this is a matter which needs to be viewed against the broader picture and, particularly, his assessment in relation to some matters of far greater significance in relation to the overall valuation assessment, whether of site value or capital improved value. It was submitted that Mr Fitzgerald's assessment should not be accepted as he did not prepare any detailed comparison but, rather, simply adopted the analysis of Mr Webb, which was prepared in the course of the municipal valuation process.[335] In the overall scheme of things, it makes little difference whether one accepts the assessment of Mr Jackson or Mr Cundall on these figures. Nevertheless, my preference is for Mr Cundall's figures having regard to the deficiencies highlighted in relation to Mr Jackson's approach to other aspects of the valuation exercise and also because it is undesirable, unless absolutely necessary, to pick and choose between particular aspects of the valuation evidence, at the risk of the Court constructing its own valuation.[336]

306 Mr Jackson adopted the artificial assumption that all premises within the Jam Factory would be fully let. He said that this approach represented the most optimistic position that could be taken and, consequently, Challenger submitted that it therefore represents the most generous assessment of rents which, in turn, would increase the investment value of the Jam Factory.

307 Mr Cundall assumed a 5 per cent vacancy rate for all tenancies within the Jam Factory and an allowance for letting up costs and legal fees of 14 per cent of the actual gross rent lost as a result of the vacancy. Mr Fitzgerald, on the other hand, assumed a 3 per cent vacancy rate and a 2.75 per cent lease incentive allowance, thus providing for a total deduction of 5.75 per cent from his gross assessed market rent. Mr Fitzgerald conceded in cross-examination that showing a vacancy rate of 3 per cent was a conservative position. This was clearly conservative, given Mr Jackson's agreement in cross-examination that the Jam Factory vacancy rate was only slightly more than 1 per cent but, in any event, was relatively low.

308 Challenger submitted that it should be noted that the vacancy factor may be expressed either as a line item, as Mr Cundall and Mr Fitzgerald have done, or alternatively as part of the capitalisation rate. It was said that Mr Cundall accepted that if he had adopted the second alternative, his capitalisation rate would have been 7.8 per cent, meaning that his vacancy allowance would translate to an increase in his assessed capitalisation rate of 0.6 per cent. Challenger submitted that Mr Jackson's generous assumption that the Jam Factory is fully let should be taken into account when consideration is given to the capitalisation rate, given the fact that both Mr Cundall's and Mr Fitzgerald's allowances for vacancy would otherwise be expressed as an increase in their capitalisation rates to 7.8 per cent and 7.35 per cent respectively.[337] Challenger submitted that if this approach were adopted, Mr Jackson's capitalisation rate of 7.5 per cent would lie in the middle of both these figures.

309 It is clear on the evidence that Mr Cundall's allowance of a 5 per cent vacancy rate is generous as far as Challenger is concerned. Mr Jackson's assessment of zero for the vacancy rate may be said to be generous as far as it would not reduce and may increase the capital improved value of the Jam Factory. It is, nevertheless, on the evidence, inaccurate. In my view, Mr Cundall's assessment should be adopted on the basis that it is a considered and reasoned assessment. Although it may be said to be a little conservative on the evidence, it does attempt to accord with reality and it is desirable, where possible, not to pick and choose components of the valuation evidence.[338]

310 In relation to outgoings, Mr Jackson adopted the lowest figure of $2,940,342, whereas Mr Cundall adopted a figure of $3,282,485 and Mr Fitzgerald $3,004,019. It is also noted that the 2007 Savills Report (as at 31 December 2007) showed adopted outgoings as $3,012,587.

311 Challenger made the point that these figures indicate Mr Jackson's impartiality in adopting the figure least favourable to it. Although Mr Cundall's figures are somewhat higher than Mr Fitzgerald's and the figure shown in the 2007 Savills Report, I am of the opinion that his assessment should be adopted for the same general reasons as indicated with respect to the adoption of his figures with respect to the vacancy allowance.

312 On the basis of the net market rentals for the tenancies at the Jam Factory, each valuer then assessed the capitalisation rate for the Jam Factory by reference to sales of properties which they considered to be comparable. The capitalisation rates assessed were 7.5 per cent by Mr Jackson, 7.2 per cent by Mr Cundall and 6.75 per cent by Mr Fitzgerald.

313 Mr Jackson gave evidence that the capitalisation rate is "the return that a prudent investor would require in buying the property, having regard to the attributes of the property, the security of that income stream, the likelihood of being able to maintain and potentially grow that income stream into the future, potential requirements for capital expenditure at some point in the future, economic conditions as they might be at the time and also risk".[339] This understanding of the capitalisation rate was common ground between the parties. Consistently, the Valuer General described the capitalisation rate as representing, in simple terms: "... the price which each valuer considered that a hypothetical purchaser would attribute to the risk of owning the Jam Factory".[340] Continuing, the Valuer General noted that the higher the capitalisation rate, "the greater the annual return which each valuer considered the hypothetical purchaser would demand for the investment of his or her capital in the Jam Factory".[341]

314 The particulars of each sale relied upon by each of the valuers is set out in the Appendix (Appendix 2 - Comparable Sales (Capital Improved Value)).

315 Mr Jackson gave evidence, which was not challenged, that the categories of shopping centres are:

(a) super-regional - meaning it has two department stores, at least two supermarkets, two discount department stores, and is a major regional shopping centre, examples being Chadstone, Doncaster, and Southland;

(b) regional - meaning it has one department store, two supermarkets, two discount department stores, and other specialty shops, examples being Knox Shopping Centre, Knox City, Greensborough Plaza, and Northland;

(c) subregional - being the broadest category, including one supermarket, one discount department store, and other specialty shops; and

(d) neighbourhood - which may be a freestanding supermarket, or a supermarket with some specialty shops (an example being the Coles on Clarendon Street, South Melbourne).

It was also accepted that shopping centres were to be distinguished from standalone cinema complexes or cinemas with a cinema based anchor tenant for capitalisation rate purposes. It was also accepted that cinema complexes will have a higher capitalisation rate than subregional complexes with a supermarket or discount department store.

316 On the basis of the valuation evidence, Challenger submitted that the key factors leading to higher capitalisation rates being applied to cinemas than shopping centres are:

(a) a Coles or Woolworths lease is regarded more favourably than a cinema based lease;[342]

(b) the cinema business is volatile because it is based on discretionary spending, whereas sales by Coles' or Woolworths' are constant;[343]

(c) a cinema attracts people to the centre, and hence the other specialty shops, in the evening, whereas a supermarket or discount department store attracts people throughout the day, thus increasing the desirability of the centre for other tenants;[344] and

(d) as a consequence, a prudent purchaser would view the Jam Factory as a high risk investment when compared to a supermarket or discount department store based centre.[345]

As indicated by the footnote references to these matters as listed, the only valuer who subscribed to proposition (d) and who would view the Jam Factory as a high risk investment in comparison to a supermarket or discount department store based centre was Mr Jackson. The other valuers, Mr Cundall and Mr Fitzgerald, disagreed with this assessment, principally because it failed to have regard to the nature of the Jam Factory centre and its prime location in one of the best and most sought after retail and entertainment locations in Australia. These views are discussed in more detail below with respect to the derivation of the capitalisation rate, the relative advantages and prime location of the Jam Factory having been discussed previously.

317 Consistently with Mr Jackson's position, as indicated, he approached the categorisation of the Jam Factory as a cinema based complex and not as a shopping centre or a standalone cinema complex. This was said, by Challenger, to be to some extent the approach adopted by Mr Cundall, who expressly rejected the proposition that the Jam Factory should be treated as analogous to a subregional shopping centre for the purpose of deriving a capitalisation rate. On the basis of the cinema based complexes, which Mr Jackson regarded as comparables, he derived a capitalisation rate range from 7.77 per cent to 10.27 per cent. The lowest capitalisation rate for a cinema based complex he derived was for the Rivoli sale in June 2006 at 7.77 per cent. Mr Cundall assessed this sale at 7.8 per cent. It was submitted by Challenger that all valuers recognised this sale to be a useful comparable. Mr Jackson also considered shopping centre capitalisation rates. Challenger submitted that Mr Jackson then took a conservative approach in determining that the proper capitalisation rate for the Jam Factory should be 7.5 per cent, a figure which was said to be below the capitalisation rates of all the cinemas he considered as comparable sales. In terms of comparables, the Valuer General, on the other hand, submitted that some of the sales treated by Mr Jackson as comparables, namely a sale in Glenorchy, Tasmania, of a four screen cinema complex, and a sale of an eight screen cinema complex at Shell Harbour in New South Wales, were irrelevant, having regard to the attributes and location of the Jam Factory. Additionally, it was said that Mr Jackson relied on two sales which took place after the relevant date for valuation and also after the Global Financial Crisis.[346]

318 Challenger also relied upon the two Savills Reports in support of Mr Jackson's assessment. In particular, reliance was placed on the fact that the Savills Reports state that the Jam Factory is not a regional shopping centre and is not a standalone cinema and thus should not be valued applying the capitalisation rate for either. It was noted that the 2007 Savills Report (as at 31 December 2007) concluded that cinemas sell on the basis of a capitalisation rate between 8.5 per cent and 9.5 per cent, but that as the Jam Factory is not a cinema, 7.75 per cent would be an appropriate figure. The 2008 Savills Report (as at 31 June 2008) also referred to 7.75 per cent as the appropriate capitalisation rate. Similarly, the Jones Lang LeSalle Report[347] (as at 30 June 2006) concluded that 7.75 per cent is the proper capitalisation rate.

319 In summary, Mr Jackson's evidence was that the cinema business is volatile and that he could not imagine an entertainment complex selling in the investment market under a capitalisation rate of 7 per cent. He also said that the Jam Factory would be viewed as a high risk investment and an investment with less potential for growth compared to a supermarket or discount department store based centre because it is a cinema based centre. He said that: "... cinema complexes will be higher than a subregional yield ... The major tenant is not viewed as favourably and the level of growth and ability to support ... specialty shops is far less attractive".[348] He also said that car parking is a high risk element and that specialty shops are a higher risk element.

320 Challenger submitted that Mr Cundall largely adopted a similar approach to Mr Jackson and that his capitalisation rate supports Mr Jackson's assessment. His approach to deriving an appropriate capitalisation rate for the Jam Factory was, however, somewhat different to that adopted by Mr Jackson.

321 Mr Cundall's evidence was that the sales he relied upon as comparables demonstrated that a centre in the location of the Jam Factory, being in South Yarra with a Chapel Street frontage, with Village Cinemas as a major tenant and an important specialty tenancy offering, would be priced by the market at a capitalisation rate of 7.2 per cent. Two sales particularly influenced Mr Cundall. They were Prahran Central and the Rivoli cinemas. Mr Cundall was of the opinion that the most relevant sale was that of Prahran Central, a sale which was not relied upon by Mr Jackson.[349]

322 Mr Cundall said that he had regard to Prahran Central because it is close to the Jam Factory, and because its occupation exhibits similar characteristics to the Jam Factory. There is one major tenant, a Strike Bowling alley in the basement, offices and approximately 40 specialty shops. Mr Cundall also said that it had limited development potential because of the presence of strata titled apartments above its retail component. Prahran Central sold in November 2006 for $34,611,187 on a yield of 6.2 per cent. This was in contrast to the Rivoli cinemas, which provided an upper band for Mr Cundall's analysis. The Rivoli cinemas sold in June 2006 for $23 million on a yield of 7.8 per cent.[350]

323 Mr Cundall said that Prahran Central demonstrated the strength of yields for a complex in a strong location but, nevertheless, agreed in cross-examination that, "All other things being equal", he would assess a lower capitalisation rate for the Jam Factory than for Prahran Central.[351] The reasons advanced by Mr Cundall for assessing a higher yield of 7.2 per cent for the Jam Factory was because of the uncertainty created in the market at the relevant date as a result of the Centro Group's refinancing issues, and also because of the fact that the market was then generally starting to turn. He said that the situation regarding the Centro Group and other shopping centres at that time had deteriorated markedly.[352]

324 In cross-examination with respect to his reliance upon the sale of Prahran Central, Mr Cundall rejected the proposition that a smaller centre such as that is less risky than a larger one, like the Jam Factory. In this respect, he noted that both Pakenham Place and Peninsula Village both sold with lower yields than he assessed for the Jam Factory. Mr Cundall agreed with the proposition that lower land tax might result in a stronger yield, but nothing was put into evidence to suggest that Prahran Central or the Rivoli cinema pay land tax. I accept that in the absence of evidence it is not open for the Court to infer that yields for these properties are affected by any possible land tax burden.

325 In relation to the Rivoli cinema, Mr Cundall's evidence was that it was a substantially weaker or less desirable site by comparison with the Jam Factory and that, consequently, the reported yield for the sale of the Rivoli cinemas should be regarded as setting the upper yield return for the Jam Factory. Mr Cundall nevertheless acknowledged that the Rivoli cinemas cannot be compared directly with the Jam Factory because, as Mr Jackson described it, it is purely a cinema complex of eight screens and 1,587 cinema seats, and is also a building listed under the Heritage Act 1995 (Vic) with, as a consequence, much less development potential than the Jam Factory. However, Mr Cundall said that the sale of the Rivoli cinemas in June 2006 was indicative of the price of the risk that the market would place upon a limited entertainment based centre before the Global Financial Crisis.[353]

326 The sale of Pakenham Place in Pakenham in December 2006 for $60,500,000 was a sale of a subregional shopping centre to which Mr Cundall had regard. Mr Cundall analysed the yield at 5.48 per cent (compared with Mr Jackson's analysed yield for the property of 5.8 per cent and Mr Fitzgerald's analysed yield of 5.75 per cent). The other subregional shopping centre sale to which Mr Cundall had regard was of the Peninsula Village in Somerville, which sold in October 2007 for $65,200,000 with a reported yield of 6.5 per cent. Mr Jackson arrived at the same yield for this property. Mr Cundall said in his evidence that both these sales demonstrated, in different ways, strength in yields: Pakenham Place, because of its inferior location; and Peninsula Village, because of its occurrence close to the relevant date.

327 As has been noted previously, Mr Cundall's assessed yield for the Jam Factory took account of uncertainty in the market for large complexes due to problems at the relevant time being experienced by the Centro Group in refinancing. Mr Cundall was cross-examined at length by Mr Wren SC in relation to his analysis of the effect of the position of the Centro Group on the market at the relevant date, but he did not accept the position as put by Mr Wren.

328 Mr Fitzgerald considered that for the purpose of assessing the capitalisation rate, the Jam Factory should be regarded as falling somewhere between an entertainment facility and a retail facility. In relation to the entertainment facility aspect of the Jam Factory, he was of the view that regard should be had to the fact that the cinemas were performing very well and were in a strong location. He was also of the opinion that a yield for the Jam Factory below that of Prahran Central was justifiable, noting that he did, nevertheless, adopt a yield for the Jam Factory more than half a per cent higher than that of Prahran Central. His evidence in this respect was that: "The yield you would expect on the subject property would be better than Prahran Central in relation to its development potential, in relation to the fact that it's not in a heritage building, and in relation to the fact that it occurred [at] ... a time when the market was considerably firmer".[354] Thus, he considered that the redevelopment potential of the Jam Factory was relevant to the issue of the capitalisation rate.

329 Mr Fitzgerald considered that the 2006 sale of the Rivoli cinemas was a relevant sale and supported his capitalisation rate for the Jam Factory given "the greatly superior location of the subject property, significant retail potential and an ability for redevelopment".[355]

330 Mr Fitzgerald was also of the view that the reported yield of 6.3 per cent in relation to the Karingal Hub Shopping Centre informed his views; but he noted in examination-in-chief that the Karingal Hub Shopping Centre did not include a cinema complex. He was of the opinion that the consequent yield adjustment was only minor.

331 All the valuers emphasised that the presence of a major tenant, whether a supermarket, department store or discount department store, was an advantage. This was because each would be a large and reliable tenant and also because, as a result of the nature of their retail operations, they would attract a regular flow of customers to the centre. The specialty shops within such a centre are then able to profit from this reliable flow of customers drawn to a major or anchor tenant. Mr Jackson placed significant reliance on this factor or consideration in his assessment of the Jam Factory; but as the evidence of the other valuers indicated, failed to have regard to the somewhat unusual nature of the Jam Factory, given its particular location. Because of its location, the Jam Factory does not rely on one anchor tenant to attract all of its patrons. It is, rather, the Chapel Street location that provides the steady pedestrian stream; it is the location itself that draws the visitors, so that Chapel Street is, with respect to the Jam Factory, "the anchor". Consequently, the cinemas at the Jam Factory do not draw all visitors there - they are drawn by Chapel Street.

332 There are also other factors flowing from location in this particular case which are relevant when it comes to assessing risk, hence the capitalisation rate. A high proportion of the retail outlets in the Jam Factory actually have frontages to Chapel Street. This means that, rather than the specialty shops being "high risk elements", as Mr Jackson indicated in his evidence, the specialty shops with Chapel Street frontages are low risk elements. This follows from Mr Cundall's evidence that for "shops [sic] in Chapel Street, depending on location and size, you are talking 4 per cent or so yields".[356] Additionally, rather than having a high vacancy factor as Mr Jackson indicated in his evidence,[357] the Jam Factory has a very low vacancy factor.[358]

333 Consistent with this assessment, Mr Fitzgerald's evidence was:[359]

"It is fair to say that the Jam Factory does not comfortably sit in any one broad category as a retail property/ shopping centre. It is not a traditional supermarket plus DDS plus specialty centre, it is anchored by a strongly performing Village Cinema complex and is also characterized by significant Chapel Street exposure. Its size makes it comparable to a subregional centre, yet its location and exposure to one of the strongest inner suburban retail strip shopping centres give it an inner city flavour."

334 Additionally, on the basis of the evidence of the valuers, it could not be said that the Jam Factory cinemas ought to be regarded as "risky" cinemas. In my view, it is correct to say that the Jam Factory is known far and wide for its cinema offer and, further, it is noted that Village Roadshow Limited has set up its international and national headquarters at the Jam Factory. I accept the Valuer General's submissions that while the identity of the tenant and the length of the lease may not be a relevant factor to take into account, the circumstances that the site is occupied by one of only a few well-recognised international cinema operators is a relevant factor to consider.

335 Finally, in relation to the capitalisation rate adopted by Mr Cundall, it is noted that he expressly considered the issue of whether to adopt a capitalisation rate of 7.5 per cent or 7.2 per cent, and settled on the latter. Mr Cundall indicated his reasons, including reference to the state of the market at the time.[360]

336 On the basis of the valuation evidence, for the reasons indicated, I accept the Valuer General's submission that Mr Cundall's assessment best reflects how the available evidence demonstrates that the market would price the risk of purchasing the Jam Factory, considering its unique qualities and the prevailing market 'mood' as at January 2008, the valuation date. It follows that Mr Jackson's capitalisation rate is too high, Mr Fitzgerald's is too low and that Mr Cundall's capitalisation rate is appropriate on the evidence available, acknowledging that it errs on the conservative side.

337 For the reasons indicated previously, I am of the opinion that the definition of capital improved value contained in sub-s 2(1) of the Act does not require any such allowance or deduction to be made.

338 Nevertheless, it may prove helpful to consider whether the valuation evidence would, in any event, support the making of any such deduction or allowance.

339 Mr Cundall's evidence was that there is a whole range of assumptions embedded in a vacant to let deduction, in particular that:

(a) the deduction or allowance to be made depends entirely on the assumptions made about how long it would take, progressively, to let up the centre and upon which tenants arrive first. This would, in turn, depend upon the type of centre and the degree of notice available to the hypothetical landlord of the leasing requirement; and

(b) the vacant to let deduction or allowance is such an "artificial concept" that there is no rule of thumb as to the likely take up rates for tenants. Even with the centre being developed initially, it is unlikely that finance would be obtained for any major undertaking until at least 80 per cent of the leases had been secured.

The Valuer General referred to and relied upon Mr Cundall's "Answers to Questions" which it was said analysed these issues in detail.[361] The difficulty with this analysis and the critical effect of the underlying assumptions on its outcome are made very clear in Mr Cundall's answers to these questions. He commenced his analysis and answers by asking the fundamental question, "What does 'vacant' mean?". Mr Cundall said that this broad question raised, in turn, three subsidiary questions:[362]

"a) Does it mean the subject land is devoid of (or without) tenants and the owner must commence a process of seeking them out? I will term this a 'prairie' vacancy. This is termed in the sense that the subject land is entirely devoid of sitting and prospective tenants.

1. b) Does it mean that the subject land is without tenants at the relevant date, however that the previous pool of tenants is available to any prudent purchaser to commence lease negotiations immediately? I will term this 'readily available tenants' concept of vacant.

1. c) Does it mean that the subject land is without tenants at the relevant date, however a genuine seller, or prudent purchaser would have prior opportunity to undertake a pre-leasing exercise (as often happens in the real market) and have the tenants pre-leased for the next day after the relevant date?"

Mr Cundall then turned to consider the assumptions that Mr Jackson and Mr Fitzgerald had made with respect to the meaning of "vacant":[363]

"Mr Jackson at page 30 of his Witness Statement of 2 March 2010 outlines that it is his

'experience and court interpretation, the definition of an estate of fee simple unencumbered by any lease, mortgage or other charge is to be assessed on the basis of vacant possession'.

Thus there appears to be an assumption that 'unencumbered by any lease ...' means the subject land has to be vacant. Further statements by Mr Jackson on the same page tend to indicate that he is contemplating a 'prairie' vacancy.

Mr Fitzgerald at page 56 of his Witness Statement of 3rd March 2010 refers to a 'Vacant to Let Allowance'. He states:

'In following the recent convention in making a vacant to let allowance I have not necessarily agreed with it'.

'... rating on Capital Improved Value has always had the attraction of being readily understandable to the broader constituency as it relates to market value. Making greater allowances to accommodate ever more theoretical interpretations of statutory definitions moves the process away from this fundamental strength. To the broader rate-paying community these allowances look more like a 'free kick' to shopping centre owners.'

Again, like Mr Jackson, Mr Fitzgerald does not define vacancy, or 'vacant to let', but his basis of calculations suggests that he has made a 'prairie' vacancy assumption.

The difficulty in determining the assumptions to be made and the effect on the overall analysis is examined in detail in Mr Cundall's Answers to Questions by reference to a variety of considerations relevant to the provisions of leases, tenancy mix and the process of letting.[364] In so doing, he highlighted a variety of difficulties in the approach taken by Mr Jackson and Mr Fitzgerald in relation to this issue. In terms of his own analysis, Mr Cundall highlighted the effect of adopting a "prairie" concept (where the land is devoid of sitting and prospective tenants) on one hand, or a "readily available tenants" concept on the other. In particular, he noted that in the former, a twelve month letting up period would be appropriate and in the latter, approximately four months. Centre marketing costs, letting advertising costs and lease incentives would, he said, also be greater in relation to a "prairie" assumption. In monetary terms, Mr Cundall summarised the outcome of the different assumptions as follows:

340 The difficulties with the underlying assumptions and unknown facts highlighted in Mr Cundall's evidence were not, in my view, satisfactorily or reasonably addressed in Mr Jackson's evidence.

341 Mr Jackson's evidence was that he adopted a twelve month letting up allowance based on his experience with major and specialty tenants and complex lease negotiations. His calculation was based on the assumption that in the fourth month after vacant possession, 35 per cent occupancy would be achieved, and this would increase through to the twelfth month when 100 per cent occupancy would be achieved. Mr Jackson described his assumptions for this letting up period as "extremely aggressive".[365] This is, on the basis of Mr Cundall's analysis, clearly an application of the "prairie" notion of vacancy which, for the reasons he advanced and having regard to the evidence already considered in relation to the prime retail location of the Jam Factory, is, in my opinion, an entirely inappropriate assumption on which to proceed with this analysis. Mr Cundall's evidence, and the other evidence in relation to the location of the Jam Factory, would indicate that if any vacant to let deduction were to be made, it should be on a "readily available tenant" basis. Additionally, having regard to the fact that Mr Jackson was prepared to assume a zero vacancy rate for the Jam Factory,[366] which naturally implies very strong demand for tenancies at the centre, it would follow that Mr Jackson's assessment of the time it would take to let up the Jam Factory is grossly excessive and ought not to be accepted. Mr Fitzgerald's analysis and assumptions in this respect are, on the other hand, more reasonable if any deduction or allowance were to be made in this respect; but allowing for and adjusting from his assumption of what appears to be a "prairie" vacancy position.[367]

342 The reservations expressed by Mr Cundall as to the veracity of any such allowance or deduction have been referred to in general and more specific terms. Subject to these reservations, Mr Cundall's opinion was that an allowance or deduction of $6,244,429 would be reasonable, assuming "readily available tenant" vacancy. For the reasons indicated, I would, if such a deduction or allowance were to be made, be of the view that it should only be made on this basis; and, also for the reasons indicated, I accept Mr Cundall's opinion in relation to its components and quantification.

343 For the reasons indicated, I accept Mr Cundall's opinion as to the site value and capital improved value of the Jam Factory as a fair assessment of the subject property and find that there is no "vacant to let" deduction or allowance to be made on a proper construction of the provisions of the Act.

344 I will hear the parties further in relation to the question of costs and in relation to the form of the orders flowing from these reasons.

1.0 Property Number 1: 67 - 73 Surrey Road, South Yarra[368] (the Palermo/"Clara")

1.1.5 Raw Rate: $1,696 per sqm ($2000 analysed rate per Mr Fitzgerald[369] and $2051 deduced rate per Mr Cundall[370]).

1.2 This site is across the railway line, approximately 20m from the subject site.

1.3 Mr Cundall and Mr Fitzgerald's evidence was that the Jam Factory site is superior but that this sale gives a bottom line or floor on a rate per sqm,[371] given the relationship of the land to the rear of the Jam Factory site.[372]

1.4 Regardless of the direct applicability of the "4321 rule" to the subject property, Mr Cundall's evidence was that this sale is a good basis for assessing a floor on the value of the back of the Jam Factory site, noting that:

1.4.1 The rear of the Jam Factory could be subdivided off;

1.4.2 The zoning of the Jam Factory is more flexible (B1 cf R1);

1.4.3 The Jam Factory is a better shape and not encumbered by easements to the same degree;[373] and

1.4.4 The Jam Factory is within Chapel Vision, but the Palermo St site is not.

1.5 Mr Cundall's evidence was that its proximity to the Jam Factory clearly makes it a useful and relevant sale.

1.6 Mr Fitzgerald undertook a similar exercise whereby he split the site into 3 sections and ascribed a rate per sqm for each element of the property based upon comparison with other sales.[374] Mr Fitzgerald also took the view that there is a strong correlation between the rear part of the Jam Factory and the sale at Palermo St.[375]

2.0 Property Number 2: 7-13 Simmons St, South Yarra[376] (the Society)

2.1.5 Raw Rate: $4,550($4,500 analysed rate per Mr Fitzgerald[377] and $4,773 deduced rate per Mr Cundall[378]).

2.2 Mr Cundall's evidence was that its proximity to the site makes it a useful sale, but that the Jam Factory site is in a superior location.[379] As discussed,[380] the fact that those apartments are selling at a similar rate per sqm to the Vogue apartments (670 Chapel Street) tends to confirm Mr Cundall's view that the location of the Vogue apartments to the north of Toorak Road is not "superior" for residential development than land in the vicinity of the Jam Factory.

2.3 Mr Fitzgerald's evidence was that the units sold out in about two and a half months and "that's the sort of thing you could well and truly envisualise [sic] on the rear sections of the Jam Factory."[381]

2.4 This is a useful and relevant sale to inform as to the value of the residential component noting that the site is about 100 m behind Chapel Street. It points to a significant level of value for the rear of the Jam Factory site having regard to its residential potential. It supports Mr Cundall's $3,500 per sqm.

3.0 Property Number 3: 201-209 High Street, Prahran[382] (Vision Australia)

3.1.5 Raw Rate: $5,055 ($5,150 analysed rate per Mr Fitzgerald[383] and $5,167 deduced rate per Mr Cundall[384]).

3.2 Mr Cundall's evidence was that this is one of the primary sales that he relied upon.

3.3 Mr Jackson's evidence discounted this sale because it did not "transact".[385] However, Mr Cundall's evidence was that the fact that it did not settle does not affect its value as a relevant sale to rely upon: for all intents and purposes until the Global Financial Crisis hit in late 2008 that sale had transacted and the deposit had been paid (and that deposit was subsequently lost when the company went bankrupt).[386] Mr Fitzgerald was of the same view, noting that several bids in excess of $20 million were received[387] and that in his view the purchaser was a renowned bidder, well informed and acting in good faith on matters known at the time of sale.[388]

3.4 That proposition was supported by Mr Fitzgerald's evidence that the site was heavily contested during the sale process.

3.5 This is a site of significant size, in a moderate change area, and its deduced rate is $5,167/sqm.[389] Mr Fitzgerald's analysed rate was $5,150.[390]

3.6 Mr Cundall's adjusted rate using the land size adjuster was $3,057/sqm (ie $5,167 is 69 per cent higher than $3,057).[391] Mr Fitzgerald's evidence was consistent in the sense that he would make a 65 to 70 per cent adjustment.

3.7 Given its inferiority to the Jam Factory site in terms of location and zoning,[392] it is a highly relevant sale and supports Mr Cundall's analysis. It also supports the rate of $3,500 per sqm showing the value achieved in an inferior location.

4.0 Property Number 4: 256 Chapel St, Prahran[393]

c. Raw Rate: $6,757 ($7,400 analysed rate per Mr Fitzgerald[394] and

$7,489 deduced rate per Mr Cundall[395]).

c. Raw Rate: $9,459 ($9,500 analysed rate per Mr Fitzgerald[396] and $8,064 deduced rate per Mr Cundall[397]).

4.2 As set out above, Mr Cundall's evidence was that this sale demonstrates:

4.2.1 Movement in the market between 2006 and 2008; and

4.3 On those reasons alone, it was treated by Mr Cundall as a relevant and useful sale. Mr Cundall's deduced rates of $7,489 and $8,064 (and as adjusted using the land size adjuster $4,115 - $4,431) support his figure of $3,500 for the Jam Factory site, noting the similarity of its location in a retail sense to that of the Jam Factory.

5.0 Property Number 5: 162-164 Commercial Rd, Prahran[398] (the Cullen)

5.1.5 Raw Rate: $5,269 - $5,329 ($6,600 analysed rate per Mr Fitzgerald[400] and $7,501 deduced rate per Mr Cundall[401]).

5.2 Mr Cundall's deduced land value ($7,501) and land value adjusted for size ($4,144) for this site was significantly in excess of his $3,500 adopted for the Jam Factory site.[402] Mr Cundall found this sale helpful in establishing "what someone would pay for something with a bit more retail exposure", noting that he does not "equate Commercial Road to Chapel St. It is of a lower order".[403] This shows a high level of value achieved for a site inferior to the Jam Factory site.

6.0 Property Number 6: 2-6 Murphy Street, South Yarra[404]

6.1.5 Raw Rate: $6,974 ($5,650 analysed rate per Mr Fitzgerald[405] and $5,050 deduced rate per Mr Cundall[406]).

6.2 Mr Cundall's evidence was that the adjusted figure (according to the land size adjuster) of $2,729/sqm does reinforce his $3,500 figure for the Jam Factory site given the superiority of the Jam Factory location on Chapel St.[407]

7.0 Property Number 7: 2-4 Yarra St, South Yarra[408]

7.1.5 Raw Rate: $12,097 ($12,100 analysed rate per Mr Fitzgerald[409]).

7.2 This was not one of the sales Mr Cundall thought relevant. Mr Fitzgerald's evidence was that the fact that this property is next to the railway line minimally affected the sale price.[410]

8.0 Property Number 8: 227-233 Toorak Rd, South Yarra[411]

8.1.5 Raw Rate: $10,410 ($10,500 analysed rate per Mr Fitzgerald[412] and $10,390 deduced rate per Mr Cundall[413]).

8.2 Mr Cundall's evidence was that this sale is one of his three sales of most direct relevance.[414] Mr Cundall's evidence was that although Toorak Road is a significant retail area, the Jam Factory site is in a superior location.[415] Mr Cundall's evidence was that this sale demonstrates the high land values being achieved in the area.[416]

8.3 Mr Fitzgerald was also of the view that this sale provides a clear indication of the strength of the market for development sites in the vicinity of the Jam Factory site around the relevant date.[417]

8.4 Mr Fitzgerald's evidence was that this sale (in drawing a comparison with 2-4 Yarra St) demonstrates that the rates per square metre paid for larger properties relative to smaller properties is "converging".[418]

8.5 It was put to Mr Cundall that as a valuation approach sales with analysed rates of $10,390 could not help him to settle on a figure of $3,500 with reliability.[419] I rephrased the proposition as follows: "Mr Batt is putting to you that the extent of the adjustment you've had to make is indicative of it not being a comparable sale."[420]

8.6 Mr Cundall said that it still informed him as to what was happening in the market.[421]

8.7 Mr Cundall was cross examined about his allowance for demolition costs, given that Mr Cundall's understanding was that at the time of sale the purchaser intended to retain the building. His evidence was that he allowed for interim rental, but also for demolition costs on the basis that it was a redevelopment site. He conceded the point that, if one was standing in the shoes of the purchaser at the time, then it may be that an allowance would not be made for demolition and instead an allowance would be made for improvements.[422]

8.8 On that basis, Mr Cundall gave evidence that even if the analysed sale as adjusted for size was $5,322/sqm[423] instead of $6,006/sqm (as a result of retaining the building, not demolishing it), then he would not revisit his $3,500 because it is still a high sale. He said that it was always the case that the $33 million was a "big sale".[424] It is well above the rate of $3,500 he adopted.[425]

8.9 Mr Batt SC put to Mr Fitzgerald that "if a purchaser buys it on the basis that the improvements are of utility to them, then rather than demolition allowances, one would adjust for such value as the improvements are properly seen to have added [value]."[426] Mr Fitzgerald noted that a valuer does not take into account what was in the mind of the purchaser, but rather what is "reasonable"[427] and that the specific circumstances of the individual purchaser does not always represent a reasonable representation of how the market would have viewed the property.[428] On the basis of this evidence, it appears that this is the correct approach to take.

8.10 Mr Fitzgerald noted that this was not an "out of line market sale" given that there was strong interest in the site.

8.11 Further, it appears on the evidence of Mr Fitzgerald and Mr Cundall that it would be unrealistic to contemplate retaining that building on the site in the long term. It is a major redevelopment site. Rather, the retention of the existing building in the short term gave the developer a platform to negotiate a maximal outcome for the site, relying on the existing scale and bulk as a reason to be able to build a substantial building. It is noted that:

8.11.1 the Age article indicates that the proposed redevelopment which kept the building was for a 32 level apartment tower possibly with another tower to the rear;[429] but

8.11.2 the later proposal was for demolition of the building and redevelopment with a 24 level tower.

8.12 Further again, the Jones Lang LaSalle Information Memorandum promoted the site as a "redevelopment site" with the "potential to build a new building in the future".[430] It is noted that Mr Cundall was not taken to this reference in the document.

8.13 On the basis of the evidence of Mr Cundall and Mr Fitzgerald, the Toorak Road sale is very pertinent to show the very high prices for land for major redevelopment sites being paid in the Jam Factory environs.

9.0 Property Number 9: 670 Chapel St (Vogue)[431]

10.0 Property Number 10: 637-641 Chapel St, Sth Yarra[433] (the Olsen)

10.1.5 Raw Rate: $4,219 ($5,300 analysed rate per Mr Fitzgerald[434]).

10.2 Mr Cundall's evidence was that he did not use this sale because the sale of 162-4 Commercial Road tells a similar story but was more pertinent due to its location.[435]

10.3 Mr Fitzgerald said this property was helpful in making size adjustments. The size adjustment required between this property (1460sqm) and 670 Chapel St (14,699 sqm) is in the order of 47 per cent. In Mr Fitzgerald's view, it was reasonable to make a 10 per cent adjustment between the subject site and 670 Chapel St. He was comforted in this view when he looked at the difference between 637 Chapel St and 670 Chapel St.[436]

10.4 Mr Fitzgerald also used this property to make a locational adjustment. He compared it with 256 Chapel St, took into account the size differential and took the view that the remaining differential was related to location. He calculated a 40 per cent difference for location. Mr Fitzgerald's view was that this locational difference of 40 per cent could then be applied to compare 670 Chapel St with the Jam Factory.[437]

11.0 Property Number 11: 6-10 Daly St, Sth Yarra[438]

11.1.5 Raw Rate: $5,025 ($5,800 analysed rate per Mr Fitzgerald[439])

11.2 This was not one of the sales Mr Cundall thought relevant.

12.0 Property Number 12: 1-21 Somers Ave, Malvern[440]

12.1.5 Raw Rate: $2,711 ($2,450 analysed rate per Mr Fitzgerald[441])

12.2 Mr Cundall's evidence was that this sale provides a floor on the values of the Jam Factory site.[442] It was not a primary sale that he relied upon.

12.3 Mr Fitzgerald used this sale, among other things, as evidence that the rates per square metre paid for larger properties relative to smaller properties is "converging".[443]

12.4 He agreed that the property was not "a directly comparable" property but "it assists me to benchmark values in relation to my property"[444].

13.0 Property Number 14: 601-603 Victoria St, Abbotsford[445]

13.1.5 Raw Rate: $2,125 (Mr Jackson did not include an analysed rate or deduced rate in the same way as did Mr Fitzgerald or Mr Cundall, but rather a "rate sale indicates $m2" including an adjustment for size and location, namely $1,835)[446]

13.2 Mr Cundall's evidence was that the sales evidence that he adopted is far more pertinent due to location.[447] It is very difficult, he said, to make a location jump between Chapel St and Abbotsford.[448] Mr Cundall said that if this were to be done, then you would need to "say how you make the jump, and you would have to go into a very complex series of looking at sales of other properties around that site compared to around the subject site."[449]

13.3 Mr Fitzgerald was also of the opinion that it is not a relevant sale[450] other than to demonstrate that the Jam Factory is a better site.[451]

13.4 On the basis of Mr Cundall and Mr Fitzgerald's evidence and the answers given by Mr Jackson in cross examination, the Valuer General submitted that:

13.4.1 It is not within a retail strip;[452]

13.4.2 It has a short frontage to Victoria St;[453]

13.4.3 There is no prospect of integrating it with Victoria Gardens which is some 300m away;[454]

13.4.4 It is surrounded by older industrial style buildings;[455]

13.4.5 As at the sale date, the permit had not yet been issued (it was issued more than 1 year later in October 2009);[456]

13.4.6 The planning controls were much more restrictive than those relating to the Jam Factory including that the development must respond to the medium scale of up to five storeys of the buildings in the vicinity of the site;

13.4.7 The planning policies of specific relevance to the site are very different to those pertaining to the Jam Factory (for example that development must protect the operation of the brewery) and have little if anything to do with retail.[457]

13.4.8 Further, the evidence of Mr Cundall was that Mr Jackson's analysis was flawed - for instance he did not make an adjustment for demolition costs,[458] and Mr Fitzgerald's evidence was that Mr Jackson's adjustment for GST was not well explained and is questionable.[459]

14.0 Property Number 15: 284-286 Highett Rd, Highett[460]

14.1 The site has the following features:[461]

14.1.5 Raw Rate: $946 (Mr Jackson did not include an analysed rate or deduced rate in the same way as did Mr Fitzgerald or Mr Cundall, but rather a "rate sale indicates $m2" including an adjustment for size and location, namely $1,750)[462]

14.2 Mr Cundall's evidence was that "this site has no relevance in regard to the valuation" because "we need to look within the location of the subject property itself to ascertain a valuation based on local sales."[463] Mr Fitzgerald was also of the opinion that it is not a relevant sale. It has nothing to do, he said, with what drives values in Chapel Street.[464]

14.3 Mr Cundall noted that the Highett site has a site area of 11,100m2 and was sold for $10,500,000 in November 2008. He then compared it with 256 Chapel Street which is approximately one tenth of the size (1,110 m2) and was sold for the same price ($10,500,000) only a few months earlier (in July 2008).[465]

14.4 On the basis of Mr Cundall's evidence and, it seems, on that basis alone this site should be ignored.

14.5.1 Mr Jackson made a 70 per cent adjustment for location for this sale.[466]

14.5.2 Mr Jackson's table of plot ratios shows Highett with a plot ratio of 1.42:1.[467]

14.5.3 Highett is simply not comparable with Chapel Street, which Mr Jackson acknowledged as one of the leading suburban retail strips in Australia.[468]

14.5.4 The evidence was that Highett is a neighbourhood activity centre; but not even a Major Activity Centre. On the other hand, and in marked contrast, the Jam Factory site is in the Prahran/South Yarra Principal Activity Centre.

14.5.5 The planning controls for the Highett activity centre contain maximum height limits.[469] They demonstrate that this is not an area that is envisaged for major change, as is the Jam Factory site.

14.5.6 The Highett sale was made after the Global Financial Crisis had struck[470]. The property was purchased for $16.5M in 2005 and sold 3 years later for $6M less than the purchase price.[471] Mr Fitzgerald's opinion was that "we can only imagine, speculate - Multiplex as a large construction company would be feeling the pressure of the GFC ..."[472]

APPENDIX 2 - COMPARABLE SALES (CAPITAL IMPROVED VALUE)

13.3.1 This complex was classified by Mr Fitzgerald as being a 'neighbourhood' shopping centre. It has a Strike Bowling Alley as a major tenant, two offices, and approximately 40 specialty shops. It sold in November 2006 for $34,611,187, with an analysed yield of 6.2 per cent. Both Mr Cundall and Mr Fitzgerald had regard to this sale.

13.4.1 Mr Cundall's next sale was Pakenham Place. Mr Jackson and Mr Fitzgerald also had regard to this sale when making their capitalization rate assessments.

13.4.2 Pakenham Place is a subregional shopping centre with three majors, 27 specialty shops, and 9,170 sqm of development land. It sold in December 2006 for $60,500,000.

13.4.3 Mr Cundall analysed the yield at 5.48 per cent. This compares with Mr Fitzgerald's analysed yield for the property at 5.8 per cent and Mr Fitzgerald's analysed yield of 5.75 per cent.

13.4.4 The relevance of this sale for Mr Cundall was twofold:

a. the property is a substantial shopping centre, indicating that it would be a less risky investment than the Jam Factory;

b. however, the property is located 'out in Pakenham'.

13.5.1 Mr Cundall had regard to the sale of the Rivoli Cinema in June 2006. Mr Jackson also had regard to two sales of this property, the first in June 2006, the second in June 2009.

13.5.2 Rivoli Cinema sold in June 2006 for 23,000,000. Mr Cundall cited a reported yield of 7.8 per cent. Mr Jackson analysed the yield at 7.77 per cent. While this sale was transacted between related entities, both Mr Cundall and Mr Jackson treated it as being at arms-length, market terms.

13.5.3 Mr Jackson also considered the sale of the Rivoli Cinema in June 2009 for $20,200,000. Mr Jackson analysed a yield of 10.27 per cent. Mr Jackson attributed this higher yield to the Global Financial Crisis.

13.6.1 This was the final sale which Mr Cundall took into account when assessing a capitalization rate. Mr Jackson also took this sale into account.

13.6.2 Peninsula Village is a sub-regional shopping centre with two majors, four mini majors, 24 specialties, two offices and a gym.

13.6.3 Peninsula Village sold in October 2007 for $65,200,000. Mr Cundall cited a reported yield of 6.50 per cent. Mr Jackson arrived at the same figure for his analysed yield.

13.6.4 Mr Cundall considered that this sale was largely unreliable because it was purchased off the plan by Centro just as it was about to experience difficulties. The complex remains incomplete.

14.0 George Street Cinema Complex, Sydney, New South Wales

14.1 This complex has eleven screens, 2,706 seats and eight shops. It sold for $85,000,000 in October 2009, almost two years after the relevant date, and after the Global Financial Crisis, with a yield analysed by Mr Jackson at 8.28 per cent. Only Mr Jackson relied upon this sale.

15.0 Glenorchy Cinema Complex, Glenorchy, Tasmania

15.1 This complex has a Village cinema, six specialty shops and a civic centre. It sold in December 2007 for $7,450,000, with a yield analysed by Mr Jackson at 8.78 per cent. Only Mr Jackson relied upon this sale.

16.0 Shellharbour Cinema Complex, Shellharbour, New South Wales

16.1 This property comprises a cinema and a shop. It sold in August 2006 for $8,650,000, with a yield analysed by Mr Jackson at 8.00 per cent. Only Mr Jackson relied upon this sale.

17.1 This is a sub-regional shopping centre comprising two supermarkets, two discount department stores, and approximately 100 specialty shops. It sold in May 2006 for $182,400,000, with a reported yield of 6.32 per cent. Only Mr Fitzgerald relied upon this sale.

18.0 MacArthur Central Shopping Centre, Brisbane, Queensland

18.1 This is a sub-regional shopping centre with a supermarket, discount department store, and 42 specialty shops. It sold in May 2006 for $119,500,000, with a reported yield of 6.32 per cent. Only Mr Fitzgerald relied upon this sale.

19.0 Lakes Village Mount Gambier, Mount Gambier, South Australia

19.1 This is a sub-regional shopping centre in a country town with a supermarket, discount department store, and 35 specialty shops. It sold in June 2007 for $51,500,000, with a yield analysed at 6.67 per cent. Only Fitzgerald relied upon this sale.

[1] See sub-s 23(3) and sub-s 25(1) of the Valuation of Land Act 1960 (Vic).

[2] (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).

[3] [2002] VSC 22 (25 February 2002).

[4] (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).

[5] [2002] VSC 22 (25 February 2002).

[6] (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).

[9] [2002] VSC 22 (25 February 2002); and see above, paragraph 10.

[10] See sub-s 22(1) of the Act; and see s 42 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic).

[11] Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541, 544-5: Wells J held that "it would be quite contrary to principle ... for the judge to bring a third set of opinions into the arena and to supplement or condemn testimony properly adduced before him in reliance on his own theoretical grasp of principles and precepts ... the judge cannot arrogate to himself the role of an expert". See also Minister for Environment v Florence (1979) 21 SASR 108 and Bronzel v State Planning Authority (1979) 21 SASR 513.

[12] 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 83.

[13] Minister for the Environment v Florence (1979) 21 SASR 108, 111 (Wells J).

[14] Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157, 161 (Dixon CJ and Kitto J); and see 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 80, fn 28; and Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541, 578 (Wells J).

[15] 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 81.

[16] (1974) 7 SASR 57, 83; and see Anthony v The Commonwealth (1973) 47 ALJR 83, 94 (Walsh J); Adelaide City Corporation v City of Port Adelaide Enfield [2000] SASC 271; (2000) 110 LGERA 153, 170 (Bleby J); and 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 81-3 (Batt J).

[17] (1973) 47 ALJR 83.

[18] 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996) 83.

[22] 101 Collins Street Pty Ltd v City of Melbourne (Unreported, Supreme Court of Victoria, Batt J, 2 April 1996).

[24] [2007] VCAT 652, [18].

[25] ISPT Pty Ltd v Melbourne City Council [2008] VSCA 180; (2008) 20 VR 447, [20], [24].

[26] [1997] 2 VR 615 at 668.

[27] Transcript of proceedings ("Transcript"), 1384.

[28] And in this respect I refer to the opening passages of the statement of Batt J in Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615, 668, which is set out above.

[29] And see the discussion of the Shell case below, paragraphs 55 and 75.

[30] See Boland v Yates Property Corporation Pty Ltd [1999] HCA 64; (1999) 74 ALJR 209, 245 [174] (Hayne J) and 268 [283] (Callinan J). Reference was made by Callinan J in Boland v Yates (at the page and paragraph cited) to the judgment of Wells J in Bronzel v State Planning Authority (1979) 21 SASR 513, 516. Callinan J said:

"[283] Wells J recognised the availability of different methods of valuation in Bronzel v State Planning Authority:

'... I am not disposed to reject any method of valuation adopted by either valuer on the ground that it is not worth considering; it seems to me that if Spencer's case ... is to keep its practical worth in this jurisdiction, this Court should be slow to reject any method that, in expert hands, is capable of yielding a result within bounds that are not too unreasonable. The limitations of every method must, of course, always be kept clearly in mind. I am of the opinion that the approach likely to result in the most direct and reliable resolution of the outstanding differences between the valuations is to consider the particular features of each valuation that are capable of yielding to adverse criticism.'"

[31] Boland v Yates Property Corporation Pty Ltd [1999] HCA 64; (1999) 74 ALJR 209, 267 [280] (Callinan J). Similarly, the Full Court of this Court said in Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] VicRp 61; [1983] 1 VR 657, 669 (Lush, Murphy and Jenkinson JJ):

"The valuation of land and buildings involves a matter of judgment. Opinions notoriously vary on this subject matter - it would be surprising to find two valuers who agree on the valuation to be given to land and buildings of the nature of the subject premises. There is no scientific exactitude in the valuations of land and buildings. They are as hypothetical as the hypothetical purchaser whom they assume."

[32] [2001] NSWCA 305; (2001) 52 NSWLR 705, 743-4 [85].

[33] These are the provisions of s 5A of the Act, incorporating amendments as at 2 July 2008, and agreed to be the provisions applicable at the relevant time or times in these proceedings.

[34] [2007] VCAT 652, [51], [53].

[35] ISPT Pty Ltd v Melbourne City Council [2008] VSCA 180; (2008) 20 VR 447, 468 and following.

[37] Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111, 121 [18].

[38] Melwood Units Ltd v Main Roads Commissioner [1979] AC 426.

[39] (Commonwealth Institute of Valuers, 4th ed, 1969) 120.

[41] (2001) 25 NSWLR 705; see paragraph 25 above.

[42] (1990) 76 LGRA 263.

[43] (1991) 71 LGRA 441, 454.

[44] (1981) 48 LGRA 409, 435.

[45] Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541, 551.

[47] [1907] HCA 82; (1907) 5 CLR 418, 440-1.

[48] [1981] 1 NSWLR 547.

[49] See Sorrell Council v Downie [2005] TASSC 2, [21]-[23] (Evans J); Maggiotto v Roads and Traffic Authority [2006] NSWLEC 54, [76]-[81] (Cowdroy J); Chino Pty Limited v Transport Infrastructure Development Corporation [2006] NSWLEC 768, [66], [102]-[103] (Pain J); Murdesk Investments Pty Ltd v Roads Corporation [2006] VSC 363, [38] (Osborn J).

[50] Housing Commission of New South Wales v Falconer [1981] 1 NSWLR 547, 558-9.

[51] [1981] 1 NSWLR 547, 563.

[52] [1981] 1 NSWLR 547, 576.

[54] [2009] NSWCA 289; [2009] 168 LGERA 71.

[55] See [2009] NSWCA 289; [2009] 168 LGERA 71, [70]-[85].

[56] [2009] NSWCA 289; [2009] 168 LGERA 71, [80].

[57] Plaintiff's Closing Submissions (Other than Concerning CIV), dated 26 November 2010.

[58] See below, paragraphs 97 and following.

[60] [2008] VSCA 180; (2008) 20 VR 447, 458-467, particularly at 458-460 [37]-[44].

[61] [1907] HCA 82; (1907) 5 CLR 418, 441.

[62] [1956] HCA 7; (1956) 95 CLR 245, 264.

[65] [1914] AC 569, 576 per Lord Dunedin.

[66] (1995) NSW ConvR 55-753 (Federal Court).

[67] (1988) 65 LGRA 410, 415 (SA Supreme Court).

[68] At [62]. See Spicer v Valuer General (1963) 10 LGRA 319, 320 per Else-Mitchell J.

[69] Thus, it has been recognised in respect of land which has the potential for development for urban purposes that there is a clear distinction which may be drawn between land ripe for subdivision and land having the potential for future subdivision and "banked" for that purpose: Crompton v Commissioner of Highways (1973) 5 SASR 301, 318-19.

[71] See, particularly, sub-s 5A(3)(a) and (f).

[72] See (2006) 148 LGERA 38, 45 [15], extracted above in paragraph 43, at paragraph 40 of the Court of Appeal judgment.

[73] [2007] VCAT 652, Morris J.

[74] (1988) 65 LGERA 410 at 415.

[75] [2009] VCAT 1924.

[76] [2008] VSCA 180; (2008) 20 VR 447, following the Tribunal decision at [2007] VCAT 652.

[77] [2007] VCAT 652, [61]-[68].

[78] [2007] VCAT 652, [61]-[68], [93].

[79] [2008] VSCA 180; (2008) 20 VR 447, 458-67.

[80] Plaintiff's Closing Submissions (Other than Concerning CIV) (dated 26 November 2010), particularly [60], [145].

[81] [1973] VicRp 28; [1973] VR 277.

[82] [1973] VicRp 28; [1973] VR 277, 282.

[83] [1984] VicRp 43; [1984] VR 544.

[84] [1984] VicRp 43; [1984] VR 544, 546-7.

[85] [1984] VR 546, 549.

[86] [2008] VSCA 180; (2008) 20 VR 447, 457 [35].

[87] [2007] VCAT 652.

[88] And see the discussion of other aspects of this submission, below, paragraph 81.

[89] Outline of Submissions on behalf of the Valuer General (Victoria) (5 October 2010), paragraph 17. It is noted, in this respect, that rating history in England and Wales dates back to the Poor Relief Act 1601 and in Victoria to the Local Government Act 1863.