R & W Realty Pty Ltd v Chief Commissioner of State Revenue

The building on the subject land was constructed in 1980, and was formerly used as a branch of the State Bank.

The principals of the applicant were advised, prior to auction on 6 December 1997, that the anticipated price range of the property was $700,000-$750,000, which the principals, as participants in the property industry, " assessed … to be a fair market value for the property ".

The property was passed in at $950,000, and the asking price post-auction was $1,025,000. The highest bidder withdrew its interest, and, after negotiations, the vendor accepted the applicant's offer of $925,000, and the purchase was completed on 18 February 1998.

The CCSR's relevant determination of taxable land value at $970,000 was issued on 22 February 1999 .

The applicant lodged an objection on 1 March 1999 , pointing out to the CCSR that the property had been acquired for a sale price determined with the benefit of a public auction.

The sale price of $925,000 was " verified " by a valuation provided to the applicant's bank.

The applicant in its objection contended that the replacement value of the improvements to the land was $400,000, and cited to the CCSR some " similar properties " and their " current unimproved land value " in support of the objection.

On 5 March 1999 the CCSR advised that his " Objections Unit will check the land value/s with an independent land valuer ".

The CCSR rejected the applicant's objection on 1 July 1999 , and pointed out that the value to which the applicant objected had been: …determined … by our contracted valuer, the Valuer-General's Department. The Valuer-General's valuers are skilled and experienced in providing valuation services. They have advised that the most direct evidence for assessing land value is to compare the property with sales of comparable vacant lands. The comparison between the sales and the land being valued will relate to the size of the land, the services available to it and the uses to which it may be, or is being put.

Other factors relating to comparability could include surrounding developments and amenities; these would include both positive factors, such as parks or views as well as negative factors such as frontage to a busy road. Our valuers might use sales of improved properties by making allowance for the value of improvements in areas or for types of property development where there are no sales of comparable vacant land or inadequate numbers of such sales.

Your objection was referred to our valuer to review the land value, taking into consideration the issues raised in your letter. The review has now been completed. The valuer is satisfied the land value is correct and the Chief Commissioner has accepted a recommendation from the Valuer-General's Department that the land value not be altered. We therefore consider the land tax assessment to be correct and have disallowed your objection.

This applicant's appeal against that determination by the CCSR of its objection was lodged on 30 August 1999 .

The valuation report relied upon by the applicant sought to establish a land value by the deduction from the purchase price of an estimated depreciated building value which was calculated at $450,000.

The applicant also relied upon a quantity survey which arrived at a replacement cost for the improvements of $794,000, or, as at the base date of July 1998, $769,605. The quantity surveyor estimated the depreciated value of that construction as at July 1998 at $494,454.

The valuation evidence served by the applicant asserted that the land value of the property was $475,000, and the applicant continually contended throughout the proceedings for a land value of $475,000.

The expert valuer engaged by the CCSR (Mr Michael O'Leary, a senior valuer with the State Valuation Office) prepared a report which was served on the applicant only on the last business day prior to the hearing.

The applicant instructed its representatives to object to the respondent's relying upon that evidence, but not to seek a further adjournment should such opposition be unsuccessful. The evidence was subsequently admitted by Commissioner Nott.

In line with that expert evidence, the CCSR contended, from the beginning of the hearing, for a land value of $700,000.

In an affidavit filed for the CCSR on the question of costs, Mr O'Leary supported the original valuation of $970,000, but conceded that, when he reviewed that valuation in March 2000 for the purposes of the hearing of this appeal, additional sales evidence, including that in respect of the sale of the subject property, and the valuation of the improvements, including depreciation, at $225,000, led him to an amended base date value of $700,000.

During the proceedings that was reduced to $650,000, and Commissioner Nott was, therefore, faced with a contest between $475,000 and $650,000.

The value arrived at by Commissioner Nott, namely a land value of $620,000, represented a 36% reduction in land value, and resulted in more than a 50% saving in land tax.

In his affidavit of 25 July 2000, Mr O'Leary expressed the view that $620,000 was "very conservative ".

In reaching his decision, Commissioner Nott surveyed the relevant authorities and the comparable sales.

It is established law, and proper valuation practice, " to deduct the estimated value of improvements from the actual sale price of a comparable improved property to establish a deduced land value ". See NAP NAP Station Pty Ltd v Valuer-General (1989) 72 LGRA 275 per Stein J at 280. Those principles apply when there are no sales of vacant land available for relevant comparison.

Commissioner Nott dealt with the fact that frequently the cost, or depreciated cost, of buildings on land does not necessarily equal their value. Each case depends on its own facts and circumstances Valuer General (SA) v Fenton Nominees Pty Ltd ( 1982) 150 CLR 160.

Commissioner Nott came to a view, " not free from doubt ", that the current improvements did not make optimal use of the land, and that the value of the improvements is likely to be less than the depreciated cost of them, as provided by Mr Davies.

Commissioner Nott said (at par 50) that " ordinarily, comparable sales of vacant land are a better indicator of the land value than the hypothetical development method ".

This hearing commenced on the basis of an amendment to the original notice of motion, to which amendment no objection was made.

That motion as amended sought an order amending par 10A of the court's Practice Direction 1993 in such a way as to enable an order for costs to be made in favour of the applicant unless the respondent could establish that the circumstances were " exceptional ".

The power to give directions as to the procedure to be followed derives partly from the Land & Environment Court Rules 1996, Part 1 Rule 6 and partly from the inherent jurisdiction of the Court " to uphold, protect and fulfil its function by ensuring that justice is administered according to law and in an effective manner ": Logwon Pty Ltd v Warringah Shire Council (1993) 82 LGERA 158 (at 173).

The inherent objective of having Practice Directions is to seek some consistency of underlying principle. They are made by the Chief Judge of the court, albeit after consulting other Judges, Commissioners and frequent users of the court, but the power to make, amend or repeal Directions resides in the Chief Judge, and in no-one else.

Such powers are not exercised by the Chief Judge in the course of particular proceedings. It is clearly inappropriate for a Practice Direction to be capable of amendment from case to case, depending on their particular facts and circumstances.

Accordingly, even if I thought the Direction inadequate in its current form - and I do not - I, as a single Judge, not holding a Commission as the Chief Judge of this court, have no power to amend or repeal this Practice Direction, nor make a new one.

If I had such a power, I would decline to assert and exercise it in the course of hearing and disposing of a motion for an order for costs in a particular case.

In this regard, I accept Mr Preston's submissions and dismiss the first ground of the notice of motion.

In addition, I accept his submission that such an amendment would have a retrospective effect, which must be regarded as undesirable in itself, the parties having conducted their substantive litigation on the basis that the Practice Direction was in force in its current terms.

Ground 2 - Adoption of a Practice in Apparent Conflict with a Practice Direction

Once the hearing had commenced, Mr Parry, Counsel for the applicant, sought leave to further amend his notice of motion, in a way that would have me adopt as appropriate, a practice whereby, in applying paragraph 10A of the Practice Direction to cases such as this, I, and presumably this court generally, would, in effect, reverse the Practice Direction, and accede to an applicant's motion for costs unless the respondent established " exceptional circumstances ".

Mr Preston opposed leave to amend the notice of motion to include this ground. He said it worked a " nonsense ", and would also have undesirable retrospective operation.

I allowed the amendment, but, having heard the argument, I readily agree that it works a " nonsense ".

If a case can be made out that the Practice Direction always generates an unjust result on certain combinations of facts and circumstances, and should be amended, or departed from in all such situations, the Chief Judge may be asked to attend to the situation, in the normal way. However, such an objective should not be achieved by the fiction of adopting a practice which involves ignoring the Practice Direction.

Mr Preston referred to a line of authority holding the principle or guideline in the Practice Direction to be appropriate. See, e.g. Maurici v CCSR (No.3) (2000) 107 LGERA 222, and Outdoor Australia Pty Ltd v Auburn Council (1996) 89 LGERA 365 (plus the cases referred to therein). As I have already said, I myself, at least as currently informed, have no reservation about it.

Clearly, if the application of the principle or guideline at the heart of a Practice Direction can be seen to bring about an unjust result in a particular case, the court would not adopt an inflexible approach in the face of a meritorious submission. Such a departure in a particular case does not constitute, nor of itself would it justify, a formal amendment of the Practice Direction.

Already during the history of this case, circumstances have arisen - or, as Mr Preston put it, " mishaps " have occurred - calling for the making of orders for costs. Neither those " mishaps ", nor anything else in the facts and circumstances of this case as I have already summarised them, lead me to any doubt about the general wisdom and utility of the Practice Direction, its principles or guidelines, or its underlying policy.

I turn my attention, therefore, to the third ground of the applicant's notice of motion, namely that the circumstances of this case are, in terms of par 10A of the Practice Direction, so exceptional that the CCSR should be ordered to pay the applicant's costs.

The " injustice " argued by Mr Parry, in support of all three grounds upon which he relied, was that this appeal cost the applicant more than was saved as a result of its " success ".

He made arithmetical submissions showing that the imbalance between the amounts of costs incurred and land tax saved would disappear only if the court on appeal had made a quite extraordinary reduction in the value upon which the CCSR relied.

Mr Preston's written submissions catalogue a large number of cases in which " exceptional circumstances " have been found.

Each case turns on its own particular facts, and it is clear that the costs discretion must be exercised judicially, costs orders being in the nature of compensation and not punishment. See generally Latoudis v Casey (1990) 170 CLR 534, Oshlack v Richmond River Council (1998) 193 CLR 72, and Re Minister for Immigration & Ethnic Affairs, ex parte Lai Qin (1997) 186 CLR 622.

In this case the applicant was entitled to object to the CCSR's determination, the CCSR was entitled to reject that objection, and the applicant was perfectly entitled to challenge that disallowance in this court.

The applicant marshalled evidence for the appeal, concluding the correct value to be $475,000.

In his preparation the CCSR retreated from his earlier stand, and, during argument, reduced his contended valuation still further to $650,000.

Such a movement, without conceding the applicant's case, is not " exceptional " (cf Dunne v CCSR [2000] NSWLEC 52), even though the applicant had told CCSR about the sale details of the subject property more than a year before the hearing. (See Taxation Administration Act 1996 s 100).

The applicant did not compromise, and maintained its stance of $475,000. As a litigant, it was perfectly entitled to do so, albeit that its methodology did not find favour with Commissioner Nott, who arrived at a figure of $620,000, closer to the CCSR's final figure, than to the consistent case of the applicant.

Such events and stances in appeals of this nature are not unusual, and each party in this one, again not unusually, has had partial success in the end result.

The circumstances here do not differ markedly from those in some other class 3 cases where costs orders have been unsuccessfully sought. See, e.g., Maurici , and Murray Publishers Pty Ltd v Valuer-General (1994) 84 LGERA 13.

As Mr Preston pointed out, costs issues are not determined by an analysis of the " profitability " of litigation. In fact, leaving aside those circumstances of this case from which costs orders have already resulted, I find no other circumstances in any way " exceptional ".

Accordingly, I decline to make any order for costs in respect of the substantive proceedings.

The usual rule is that the costs of a notice of motion such as this should " follow the event ". See Maurici, and also MacDonald v Mosman Municipal Council (No.2) (2000) 107 LGERA 211. Mr Preston urges the court to apply that principle in this case.

I ordered each party to pay its own costs of the notice of motion in Thomson Landscape & Garden Supplies Pty Ltd v Hornsby Shire Council [2000] NSWLEC 59, in which Mr Parry appeared for the respondent, and he asked me to do the same here, in the event that his client failed to secure an order against the respondent for the costs of the substantive proceedings.

I found in Thomson that the applicant had quite a strong argument for the costs discretion to be exercised in its favour on the primary costs question. It could have gone quite easily its way, but, alas for Mr Parry, that is not the position here, where the applicant has been totally unsuccessful in making out any claim at all for an order for costs.

Accordingly, I am of the view that the usual rule should apply.

Having found no " exceptional circumstances ", beyond those dealt with in/by earlier orders of the court in these proceedings, the only order to be made now is that the applicant should pay the respondent's costs of this notice of motion, and I so order.

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