Sablebrook P/L v Credit Union Australia Ltd

MORTGAGES - MORTGAGES AND CHARGES GENERALLY - REMEDIES OF THE MORTGAGEE - SALE UNDER POWER - MODE OF EXERCISE OF POWER - PRICE - where defendant exercised power of sale as mortgagee over land owned by plaintiff - where s 85 of the Property Law Act 1974 requires a mortgagee to take reasonable care to ensure a property is sold at market value - where the land was sold without putting it to the market by advertising or listing with local agents - where current valuation was not obtained at time of sale taking account of market movements - whether defendant breached statutory duty

REAL PROPERTY - VALUATION OF LAND - METHODS OF VALUATION - COMPARABLE SALES - SALES OF COMPARABLE LAND - RISE AND FALL OF MARKET - expert opinion on market value - where valuation depended on sales evidence of comparable land - where defendant relied on a valuation obtained four and a half months prior to sale - where evidence indicated an increase in market value - where land value was discounted to take into account a dispute over access to a swimming pool and risk of litigation - whether the land was sold at market value - whether plaintiff suffered loss as a result of defendants breach of duty

Property Law Act 1974, s 85

Boland v Yates Property Corp Pty Ltd [1999] HCA 64; (1999) 167 ALR 575, applied

Commercial and General Acceptance Ltd v Nixon [1981] HCA 70; (1982) 152 CLR 491, considered

The Commonwealth of Australia v Arklay [1952] HCA 76; (1952) 87 CLR 159, considered

Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299, considered

Emerson v Custom Credit Corporation Ltd [1994] 1 Qd R 516, considered

Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VicRp 26; [1976] VR 309, considered

Nixon v Commercial & General Acceptance Ltd (Unreported, Supreme Court of Queensland, No 343 of 1970), applied

Nixon v Commercial & General Insurance Ltd [1980] Qd R 153, cited

Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676, cited

Sewell v Agriculture Bank of Western Australia [1930] HCA 29; (1930) 44 CLR 104, distinguished

Spencer v The Commonwealth (1907) 5 CLR 418, applied

Stockl v Rigura Pty Ltd [2004] NSWCA 73, considered

[1] In April 2003 the defendant ("CUA") exercised its power of sale as mortgagee over land owned by the plaintiff ("Sablebrook") at Hervey Bay ("Lot 4"). It sold Lot 4 for $240,000 without advertising it for sale or listing it with a real estate agent. The figure of $240,000 exceeded a valuation of $225,000 that CUA had obtained in December 2002.

[2] Sablebrook alleges that CUA breached its statutory duty to take reasonable care to ensure that the land was sold at the market value. Sablebrook contends that the market value of Lot 4 was $450,000. CUA defends its sale by private treaty, and pleads that the market value of Lot 4 was in the range of $200,000 to $225,000. However, an expert valuer called by CUA as a witness, Mr Olive, expressed the opinion that the market value of Lot 4 at the date of sale was $255,000.

[3] In early 2003 there was a dispute between the owners of an adjoining lot and Sablebrook. The owner of the adjoining lot, upon which a small resort was situated, claimed an interest in Lot 4 to allow guests at the resort to access a swimming pool situated on Lot 4. The owner, a body corporate, threatened to commence legal proceedings. CUA sold Lot 4 to purchasers associated with the resort, and says this removed the threat of litigation which prejudiced both its ability to sell in a timely manner and the market value of Lot 4.

[4] Sablebrook relies on evidence to the effect that there was a significant increase in market values in Hervey Bay in late 2002 and early 2003. It says that CUA should have obtained a current valuation of Lot 4 prior to entering into the contract dated 28 April 2003. Sablebrook complains that Lot 4 was not "put to the market", whether by advertising or otherwise, and was not put in the hands of a real estate agent. It says that CUA did not take any real advice about the validity of the legal claims raised by the body corporate, despite the threat of litigation featuring in the decision to sell. It contends that the sale to purchasers who were the manager of the resort and the chair of the body corporate was not essential, and that the dispute with the body corporate presented no significant risk to CUA.

[5] A substantial part of the trial was occupied with evidence relating to the valuation of Lot 4 in late April 2003. Sablebrook contends that the substantial difference between the market value for which it contends, namely $450,000, and the sale price of $240,000 is indicative of a breach by CUA of its statutory duty.

[6] The first issue for determination is whether CUA took reasonable care to ensure that Lot 4 was sold at its market value ("the breach of duty issue"). If CUA breached its duty under s 85 of the Property Law Act 1974 ("PLA"), the issue then arises whether Sablebrook suffered loss as a result of CUA's breach of duty, and the measure of any loss ("the loss issue").

[7] The Bayvu Resort and Village, later known as Boat Harbour Resort ("the resort"), was constructed as the first stage of a proposed larger development. Sixteen units were built during the first stage on part of a larger development site. A large inground swimming pool was designed and positioned to service all the units that would eventually be built as part of the staged development. However, the developer went into liquidation and the development stopped.

[8] The 16 units that were constructed during the first stage of the proposed development were situated on land described as Lot 1 on Registered Plan 886673, which has a frontage to Charlton Esplanade ("The Esplanade"). To the south of Lot 1 was an area then known as Lot 6 on Registered Plan 886673. That area later was divided into two lots: Lot 4 with an area of 3,452m2 which has a frontage to The Esplanade, and to its west the balance of the original Lot 6 with an area of 8,252m2. This new Lot 6 had the benefit of an easement from The Esplanade across Lot 4. The easement occupied 446m2 and its southern boundary was 3.9 metres to the north of the southern boundary of Lot 4. The easement was 6.2 metres wide.

[9] Lot 4 had an irregular shape. It was fairly level and had views across The Esplanade to the Hervey Bay foreshore, but these views were blocked by natural vegetation, and at low tide there was an expanse of tidal mangrove flats. Lot 4 was low lying and, in common with many coastal communities in the area, might be subject to water inundation at times of tidal surge.

[10] The swimming pool was constructed in the vicinity of the northern boundary of Lot 4. At various times there was uncertainty about whether any part of the actual pool encroached on Lot 1. The pool had an area of paving around it which ran on to Lot 1, and this area was used for barbeques. A valuation that CUA obtained from Herron Todd White dated 16 December 2002 ("the HTW valuation") stated that the swimming pool and its surrounds appeared to encroach upon Lot 1, and recommended that a check survey be undertaken to determine the extent of the encroachment. Mr Brett's initial expert report in these proceedings stated that the subdivision was effected in a manner which left the swimming pool "spanning the common boundary" between Lot 1 and Lot 4. The extent to which the swimming pool and associated landscaping surrounds were within Lot 4 was clarified by a recent survey undertaken by a licensed surveyor, Mr Ratten, who gave evidence. Mr Ratten certified that the pool was contained wholly within the bounds of Lot 4. However, some part of the landscaping features were on Lot 1.

[11] In April 1997 Sablebrook acquired Lot 1, Lot 6 (which later became Lot 4 and the new Lot 6) and Lot 2 on Registered Plan 886673 from Bayvu Village Properties Pty Ltd (in liquidation). Sablebrook was associated with the partners of a firm of accountants, Davis Weinglass. The 16 units on Lot 1 were sold to various clients of Davis Weinglass in late 1997 as investment properties.

[12] Initially the units were rented to pensioners. After a while the units began to be used as holiday accommodation. The pool was repaired. The manager of the units wanted the holiday makers to be able to use the pool because the units were hard to rent without access to the pool. Sablebrook allowed this to occur. There was no agreement in writing or any kind of formal agreement. According to Mr Alan Davis, a director of Sablebrook, he told the manager of the resort that holiday makers could use the pool as long as the body corporate contributed towards its upkeep.

[13] The manager of the resort at the time, Mr Newland, owned three units in it. Access to the pool by holiday makers at the Resort was important to him and to the value of his management rights.

[14] During 2002 Sablebrook was contemplating selling Lot 4 to Mr Davis' wife. Mr Newland raised an issue in relation to the use of the pool by residents of the resort. Mr Davis could not recall in his evidence that one of the conditions of sale of the proposed contract between Sablebrook and Mrs Davis was the granting of an easement in favour of Lot 1. On 30 October 2002 Mr Davis wrote to Mr Newland advising that settlement of the sale of Lot 4 to Mrs Davis was set for 15 November 2002 and that it was, and always had been, their intention to allow an easement for the use of "all entities that pay to maintain the pool". The entities were said to include the 16 units at the resort.

[15] Mr Davis maintained, however, that prior to this Sablebrook had not granted an "easement": all he had said was that residents at the resort could use the pool as long as the resort maintained the pool. He denied that use of the swimming pool had been a feature in the marketing of the units because the swimming pool was not operational when investors purchased the units, and, in the case of Mr Newland, he did not meet Mr Newland until after he purchased three units in the resort. It was only after Mr Newland took over management of the resort that the units ceased being used as pensioner units. The evidence does not establish that Sablebrook granted an easement in favour of the body corporate of the resort. However, an informal arrangement existed to allow resort guests to access the pool, and Mrs Davis was prepared to grant an easement if she became owner of Lot 4 to enable use of the pool by all entities that paid to maintain it. The proposed sale to Mrs Davis did not proceed. The mere licence that Sablebrook gave to allow resort guests to access the pool did not give the body corporate an interest in Lot 4.

[16] CUA obtained the HTW valuation of Lot 4 dated 16 December 2002. At that time, the property was zoned Medium Density Residential and was valued as a unit site. HTW considered it to be an "inferior site due to its relative location and its low lying nature". Based on certain sales evidence HTW concluded that a value of $65 per square metre or $225,000 was the market value of the property as at 16 December 2002.

[17] Sablebrook was in default under its mortgage and on 3 January 2003 CUA issued a statutory notice of its intention to enter into possession and exercise its power of sale. Over the next few months discussions occurred involving Sablebrook and its solicitors, Mrs Davis' solicitors, the solicitors for the body corporate, and CUA and its solicitors.

[18] On 28 February 2003 the solicitors acting for the body corporate of the resort wrote to CUA's solicitors that they were instructed that:

"the development of the units proceeded on the understanding that the swimming pool area was a part of the common property of the Body Corporate and the purchase of the units and subsequent sale of the units also proceeded on the basis that that area was part of the common property"

It advised that the body corporate had only recently discovered that those improvements were actually constructed on Lot 4. It placed CUA on notice that the body corporate "intends to claim an interest in the land on which the improvements are constructed" and that if necessary the body corporate would commence proceedings to protect their rights.

[19] On 3 March 2003 CUA's solicitors asked the solicitors for the body corporate to advise the basis of any proceedings. That prompted the solicitors for the body corporate to write on 6 March 2003 in the following terms:

"At this stage, the Body Corporate is still investigating the circumstances that led to the construction of the pool on the lot over which your client has a mortgage and all causes of action are still being identified.

Subject to those further investigations, there are two main grounds on which our client is basing a claim for an interest in the land:-

1. In a Sale Contract for the lot between the current owner and Geraldine Davis, it was agreed for an easement to be granted to secure the rights of the Body Corporate to use the pool;
2. Under Parts 11 Divisions 1 & 2 of the Property Law Act, our client is of the view that they have reasonable prospects of success in application to the Court seeking the granting of an interest in the land in the circumstances.

In view of the substantial encroachment upon the client's property, our client seeks your client's co-operation in putting into effect a resolution to this issue that will be satisfactory to all parties.

As mentioned in previous correspondence, the meeting of the Body Corporate is currently being organised to consider an advice that we have prepared dealing with the matter in general and the grant of the easement in particular.

We would be grateful if you would advise your client's attitude to the claim."

[20] Sablebrook urged CUA to consider selling Lot 4 to Mrs Davis for $200,000. On 11 March 2003 Sablebrook's solicitors told the solicitors for CUA that units had been "sold off with the understanding" that there could be use of the pool on Lot 4 and that when Mrs Davis agreed to purchase she acknowledged this arrangement.

[21] On 14 March 2003 Mr and Mrs Newland submitted to CUA's solicitors an offer to purchase Lot 4 for $180,000 and sought a response before 4 April 2003 "as we are having an AGM on 5 April 2003 and the pool issue is a major discussion topic at this AGM meeting".

[22] On 25 March 2003 the solicitors for Sablebrook, who had been kept informed by the solicitors for the body corporate of their correspondence with CUA, wrote to CUA's solicitors seeking advice as to whether CUA's investigation of the body corporate's claims had been completed. They wrote:

"... it is our view that if the claim of the Body Corporate for Bayvu Resort is recognised this may have an effect on the value of the property. Griffith Parry confirm that their client Geraldine Davis remains ready and willing to proceed with the purchase of $200,000."

[23] On 28 March 2003 an internal memorandum prepared by a junior lawyer employed by CUA solicitors was written in relation to the Divisions of the PLA upon which the body corporate had relied in its solicitors' letter. But there is no evidence that this internal memorandum was used as the basis for advice to CUA. In fact, there is no reliable evidence that CUA sought, or obtained, legal advice from its solicitors about the viability of the body corporate's foreshadowed claims. CUA waived legal professional privilege in connection with relevant documents during the trial and there is no letter of advice or file note recording the communication of legal advice to CUA. It is possible that informal advice was given orally, but the evidence does not support a finding to this effect.

[24] The absence of satisfactory evidence about the legal advice that CUA was given arises, in part, from the fact that the officer of CUA who had direct conduct of the matter, Mr Ian Henry, had practically no recollection of the transaction. He frankly acknowledged that he could not recall the matter when asked about it, but when he read through the documents he was given before giving his evidence he recalled the matter because there was a swimming pool on a vacant block of land. Apart from that recollection, his evidence about events was dependent upon diary entries that CUA maintained on the computer system. Those diary entries do not record the communication of any legal advice to Mr Henry in relation to the body corporate's claim.

[25] Mr Dorey was a partner for CUA's solicitors, Bain Gasteen, at the time. His evidence was that he had no "direct recollection" of having reported to Mr Henry on the results of the research that had been undertaken by the junior solicitor in Bain Gasteen, but thought that, in accordance with his practice of dealing with Mr Henry on similar files, that there would have been a conversation where he discussed the potential risks involved. Bain Gasteen's internal memorandum of 28 March 2003 had suggested writing to the body corporate's solicitors and seeking copies of original sales contracts and other documents, and obtaining a survey of the land in order to determine if there was an encroachment. Mr Dorey's evidence was that the advice that he would have given to CUA was that there was "a potential claim" but that he would not have taken Mr Henry "through chapter and verse". He did not advise Mr Henry what to do because Mr Henry was an experienced recovery person and because around the same time there were offers from the managers of the resort. Mr Dorey's evidence was that he identified a potential claim and did not advise on its merits because at that time "a commercial solution" was being provided. The body corporate's potential claim and any legal advice in relation to it went no further because it had become "a dead issue".

[26] A CUA diary entry on 8 April 2003 records that Mr Henry spoke to Mr Dorey. It records that two of the owners of units at the development next to Lot 4 had offered $240,000 for Lot 4. It noted that CUA's valuation was $225,000. Mr Henry advised Mr Dorey that day to accept the offer. Mr Dorey did not know the date of the valuation, and Mr Henry did not tell him that the valuation was from December 2002. Mr Dorey thought that CUA's practice would have involved contacting the valuer if there was a significant period of time between the valuation and the sale.

[27] In the days after 8 April Bain Gasteen prepared contracts for the sale of Lot 4. By that stage the prospective purchasers had become Mr Newland and Ms Heather Howard, who was the chair of the body corporate. A contract was negotiated and dated 28 April 2003. CUA signed and returned it on 29 April 2003.

[28] CUA's ordinary practice was to sell properties with the assistance of local agents and to obtain a valuation upon entering into possession. Mr Henry acknowledged that CUA had little experience of properties in the Hervey Bay area, and that it relied on "valuers as such to supply us with any information". CUA's normal practice once a property came up for sale was generally to write to three or four agents in the area to obtain their appraisal of the property and advice about what they thought it was worth. This was because listing with agents and putting the property to market enhanced the prospects of achieving a maximum sale price. The reason that did not happen in the present case, to the best of Mr Henry's recollection, was that CUA had the HTW valuation and the offer that had been received from the adjoining owners.

[29] Mr Peter Carson was the Credit Services Manager for CUA at the time, and still is. His explanation as to why the property was not "taken to market" was that CUA had a valuation of $225,000 on the land and received an offer of $240,000. The figure of $240,000 exceeded by about six or seven per cent the valuation that CUA received. Mr Carson also mentioned that an offer of $200,000 had been made before CUA went into possession from Mrs David.

[30] Mr Carson did not have direct conduct of the recovery process. That was left to Mr Henry. Mr Carson was not aware that the body corporate appeared to resile from an earlier contention that the pool encroached upon its land and that it had accepted that the pool was built entirely upon Lot 4. In response to a leading question he said that he was concerned about the body corporate's claims, and under cross-examination he said that the issue of concern was how they might affect the "saleability of the land and the legal issues - potential legal issues around it". Mr Carson could not point to any legal advice that CUA received about the body corporate's threat of litigation as set out in its solicitor's letter dated 6 March 2003.

[31] Mr Carson did not reflect at the time on the currency of the HTW valuation. He said that if the price being offered was less than the valuation then there would have been a problem. CUA's usual experience at the time was to receive offers that were less than the valuations that it had. Here, the price being offered was more than the valuation. At that time CUA were about to contact local real estate agents and obtain their submissions about the sale of Lot 4. Mr Carson's evidence was that the offer of $240,000 made him "certain that the $15,000 premium over and above the valuation was something we just simply weren't getting in the market".

[32] The evidence indicates a simple process of reasoning by CUA. The purchase price of $240,000 exceeded the valuation and this made it "a good price". Mr Carson said that he had a concern about claims being made by the body corporate, but CUA did not obtain written advice or detailed oral advice about the strength of that claim. I find that the body corporate's claim did not feature significantly, if at all, in the decision to accept the offer of $240,000. The $240,000 figure was formally accepted on 29 April 2003 by CUA because it represented a perceived premium over and above the December 2002 valuation.

[33] Section 85 of the PLA required CUA "to take reasonable care to ensure that the property is sold at the market value". The terms of the statute are the essential point of reference. Guidance is available from cases in which courts have addressed similar issues to those raised in this case, including the absence of advertising and reliance upon a valuation. However, the statutory duty should not be replaced by a series of rules drawn from cases, including old cases decided under the general law in the context of a mortgagee's obligation to act in good faith.[1] As Connolly J stated at first instance in Nixon v Commercial & General Acceptance Ltd[2] "it is not possible to lay down hard and fast rules about valuations in this area."

Commentary based upon Nixon v Commercial & General Acceptance Ltd states:

"... it is prudent for a mortgagee to obtain a written professional valuation of the property before sale...Failure to obtain a valuation will not however automatically constitute a breach of section 85".[3]

CUA's submissions on the valuation issue, apparently based on this commentary, include the contention that:

"It cannot be that the mere failure to obtain an updated valuation per se will constitute a breach of the duty where the mere failure to obtain a valuation does not automatically constitute a breach of section 85".

"Although public advertisement may not be necessary in every case, it will be a rare situation where the mortgagee can satisfy her or his duty without it and where the sale is to be by auction, advertisement would seem to be obligatory".[4]

CUA submits that a mortgagee "has no absolute duty to advertise the sale of a property".

[36] Because Sablebrook's case for breach of s 85 is based upon certain pleaded grounds it will be necessary to address each of these grounds in turn, including CUA's submissions on these points and the cases that are cited in support of them. Before doing so it is appropriate to make some general observations about the statutory duty to "take reasonable care to ensure that the land is sold at market value". It does not impose a strict obligation to sell at market value. The statute does not impose a series of specific statutory duties in relation to valuations, advertising and the like. It imposes a single statutory obligation.

[37] In the leading authority on the section, Commercial & General Acceptance Limited v Nixon[5], Gibbs CJ stated that the material words of s 85(1) bear a close resemblance to those of s 10 of the Building Societies Act 1939 (UK). Gibbs CJ referred with apparent approval to the judgment of Vaisey J in Reliance Permanent Building Society v Harwood-Stamper:[6]

"I think that the 'reasonable care' which has to be taken is to make sure, to assure oneself, that the price at which the estate is proposed to be sold is the best price that can reasonably be obtained."

[38] Cases about the general law duty to act in good faith do not determine the content of the statutory duty. Brennan J stated in Nixon:[7]

"The statutory formulation, taking the sale at market value as the object to which the performance of the duty is directed, strikes a different balance between the interests of mortgagor and mortgagee from that which flows from the test of good faith."

[39] The statutory duty imposed by s 85(1) does not in its terms require the property to be put to the market. Circumstances might be imagined in which the statutory duty is performed without placing the property on the market. For instance, an

exuberant prospective purchaser may be prepared to pay far in excess of what a reliable current valuation and other evidence indicates is the market value of the property. In such a case, reasonable care may compel a mortgagee exercising a power of sale to promptly accept the offer before it is withdrawn. The fact that in such a situation the statutory duty may be performed without taking the property to the market by advertising it and listing it with real estate agents simply illustrates that each case must be determined on its own facts.

Failure to obtain a valuation at or about the date of entry into the contract

[40] Sablebrook's pleaded case is that CUA failed to take reasonable steps to ensure that Lot 4 was sold at its market value because it failed to obtain a valuation at or about the date of entry into the contract with purchasers. Its written submissions were that by the time of sale in late April 2003, the HTW valuation was "out of date and not by then reflective of the true market value". Its written submissions on this aspect relied upon certain evidence that the market was moving upwards at the end of 2002 and continued to do so into 2003. It submitted that if the subject property was increasing in value after December 2002 then CUA should have obtained a valuation at or about the date of entry into the contract in late April 2003 and that, at the very least, a proper valuation of Lot 4 at that time would have indicated that the purchase price of $240,000 was less than the market value. In those circumstances, the mortgagee would not have accepted the offer of $240,000.

[41] In its oral submissions in relation to the breach of duty issue, Sablebrook contended that it was not necessary for it to prove that there had been an upward movement in the market between December 2002 and April 2003. Whilst adhering to the submission that there had been a movement in the market during this period, its submission was that it was incumbent upon CUA to at least ascertain whether there had been a market movement and the extent of it. Sablebrook's case is that CUA's failure to obtain a valuation at or about the date of entry into the contract was a breach of duty because the HTW valuation of 16 December 2002 was not current, relevant officers of CUA had no particular knowledge of the Hervey Bay market, and made no enquiries of HTW or anyone else about recent trends in that market.

[42] CUA's principal submission was that the duty to take reasonable care to obtain market value can be satisfied in at least two ways:

(a) by taking the property to the market, so as to expose it to the greatest possible number of potential purchasers; or

(b) by selling it by private treaty at a price no lower than its market value as determined by a suitably qualified valuer.

CUA submitted it was not necessary to do both. It further submitted that the mere failure to obtain an updated valuation per se cannot constitute a breach of duty when "the mere failure to obtain a valuation does not automatically constitute a breach of s 85".

[43] Reliance was placed by CUA in this regard upon the judgment of Connolly J in Nixon v Commercial & General Acceptance Ltd.[8] In Nixon the principal issue in relation to the mortgagee's breach of duty under s 85(1) was its failure to advertise adequately, and it was this issue that was the subject of an appeal to the Full Court of Queensland[9] and a further appeal to the High Court.[10] Neither the Full Court of Queensland nor the High Court addressed the valuation point. At first instance Connolly J found that the mortgagee breached its statutory duty in respect of the advertisement of the auction sale, and in not having notified the mortgagors of negotiations for sale by private treaty so that the mortgagors could submit the names of possible purchasers. His Honour then dealt with the further submission that the mortgagee was in breach of its duty under s 85(1) because a written valuation was required. Connolly J observed that Pendlebury v Colonial Mutual Life Assurance Society Ltd[11] did not so decide. In Nixon the mortgagee obtained an opinion as to value from the agents that were retained to sell the property. In the circumstances, Connolly J held that there was no breach of duty by the mortgagee in failing to obtain a valuation. It was in this context that Connolly J stated "in my judgment it is not possible to lay down hard and fast rules about valuations in this area".[12]

The judgment of Connolly J in Nixon supports the proposition that, depending upon the circumstances of the case, the mere failure to obtain a valuation does not automatically constitute a breach of s 85. In that case, the mortgagee at least obtained an opinion as to value from the real estate agents that were retained by it. In this case, CUA did not engage a local agent and did not seek or obtain opinions as to value from any agents, local or otherwise. It is unnecessary to decide whether obtaining such opinions, rather than a written valuation, is sufficient to satisfy the statutory duty imposed by s 85(1). In Pendlebury[13] the High Court was concerned with an allegation of disregard by a mortgagee of the interests of the mortgagor and the adequacy of the notice of sale. Griffith CJ observed "it is not disputed that if a mortgagee sells by private contract he is bound to take reasonable means to ascertain the value before selling...".[14] No less a duty is imposed by s 85.[15]

CUA did not obtain an opinion from local agents about the market value of the property in April 2003, and had no particular knowledge of the Hervey Bay market. It had sold three or four properties at Hervey Bay in the two or three years prior to this sale. It relied upon the 16 December 2002 HTW valuation and submits that it was not obliged to obtain an updated valuation in order to comply with its duty under s 85. It submits that there was no good reason why it should not have continued to rely upon the HTW valuation, and notes that no evidence was called by Sablebrook about what an updated valuation from HTW in April 2003 would have said. It submits that in the absence of this evidence, Sablebrook was obliged to adduce evidence sufficient to prove that there was "a real change in market conditions" in Hervey Bay that would have made it "inevitable" that an updated valuation would have valued the land significantly higher than the price obtained for it. The evidence concerning market movement was said to be too general and that, although the evidence supported the inference that the Hervey Bay property market was in the early stages of moving in late 2002 and early 2003, there was no clear evidence that prices changed significantly between the date of the HTW valuation and April 2003. The sale for $240,000 was said to represent "a 6.7 per cent premium" above the valuation figure of $225,000 which was enough to take account of any movement in the market between December 2002 and April 2003. For these reasons, CUA submitted that it did not breach its statutory duty by failing to obtain an updated valuation.

CUA's defence in this regard rests essentially on two propositions. The first is that HTW's December 2002 valuation was correct or, at least, that CUA was entitled to rely upon it as a reliable opinion of the market value of Lot 4 as at 16 December 2002. The second proposition is that it was entitled to continue to rely upon that valuation in reaching the view that the purchase price of $240,000 was equal to or greater than the market value of Lot 4 in April 2003. Expressed differently, its case is that it was entitled to assume that the market in Hervey Bay and the market value of Lot 4 in particular, had not moved by more than 6.7 per cent between December 2002 and April 2003.

Sablebrook submitted that as the author of the HTW valuation was not called as a witness, it would be inappropriate to rely upon it as evidence of the market value of the property at 16 December 2002. It is unnecessary to decide, in the present context, whether the market value of the property in December 2002 was $225,000. HTW was a reputable valuer on CUA's panel and CUA was entitled to rely upon its valuation in December 2002 in the absence of material in the HTW valuation or elsewhere that cast doubt upon its reliability.

The critical issue is whether CUA acted reasonably in continuing to rely upon the HTW valuation in circumstances in which CUA had no information about movements in the property market at Hervey Bay and movement in the market for development sites such as Lot 4 in particular, between December 2002 and April 2003. The HTW valuation did not discuss market trends and CUA had no information concerning trends in the market in late 2002 and early 2003.

It did not occur to CUA that one reason that Mr Newland and Ms Howard were offering more than the December 2002 HTW valuation was that they knew more about the local market than CUA did, including any market movement that had occurred in late 2002 and early 2003. It would be hard for the prospective purchasers to know any less than CUA did about the state of the Hervey Bay market in April 2003. CUA's knowledge of the state of the market at that time was negligible. It had no real experience in the sale of properties in Hervey Bay and its officers had no particular knowledge of the Hervey Bay market. In the case of Lot 4, CUA did not adopt its usual practice of approaching local real estate agents to assist with the sale and to provide their estimate of the value of the land. CUA did not consult HTW, other valuers, local real estate agents or anyone else to ascertain whether the market had improved since December 2002, and the extent of any improvement.

The extent to which the market moved between December 2002 and April 2003 is contentious and that issue will be addressed in connection with the valuation evidence. The present issue concerns breach of duty, not the consequences of any breach. CUA made no inquiry about changes in the market in late 2002 and early 2003 in circumstances in which a mortgagee taking reasonable care to ensure that the property was sold at its market value would do so. It was a relatively simple inquiry to make.

The HTW valuation stated that the pool and surrounds appeared to encroach onto Lot 1. By March 2003 the body corporate had acknowledged that the pool itself was constructed on Lot 4, and a survey would have confirmed this to be the case. The body corporate was asserting an interest in Lot 4. CUA did not revert to HTW for advice about the impact of these developments on its valuation. CUA simply referred to the figure appearing in the HTW valuation without regard to its currency.

I find that its failure to obtain an updated valuation in April 2003, an updated valuation opinion from HTW or at least, an estimate of current market value from local real estate agents breached its statutory duty in circumstances in which it had no reliable information concerning the current market value of the land it proposed to sell by private treaty.

For completeness, I should refer to another matter. To the extent that Mr Carson had any regard to the offer made by Mrs Davis of $200,000 in 2002, this offer provided no reasonable basis to conclude that the market value of Lot 4 was no higher than $240,000 in April 2003. Mrs Davis' offer represented what was described in the evidence as a "friendly sale" between Sablebrook and the wife of one of its directors. In 2002 and early 2003 Sablebrook had its own reasons to support such a sale. However, the sale never eventuated, apparently due to an inability to obtain finance. Any sale contract in 2002 between Sablebrook and Mrs Davis for $200,000, which included a condition that Mrs Davis would grant an "easement" to the body corporate, provides no reliable indication of the market value of the land in April 2003, and CUA was not entitled to place any reliance upon that contract in determining the market value of the land in April 2003.[16]

Failure to offer Lot 4 to the public, to engage a local real estate agent and to advertise

[54] Mr Henry acknowledged that listing a property with agents enhances the prospects of achieving the best sale price. CUA's normal practice was to contact more than one local agent, receive submissions from them and choose the agent that would do the best job in selling the properties at the best prices.

[55] CUA did not advertise the sale. In its submissions, CUA relied upon authority which was said to support the proposition that a mortgagee "has no absolute duty to advertise the sale of the property". In Sewell v Agriculture Bank of Western Australia[17] Gavan Duffy, Rich and Dixon JJ observed that:

"The suggestion that notification or advertisement was necessary although the transaction was by way of private treaty is disposed of by the observations of Turner LJ in Davey v Durant [1857] EngR 742; (1957) 1 Deg & J 535 at 560...".

However, in Sewell the mortgagee which sold land to one of its employees had tried to sell the land by tender, having published notices in the government gazette, possible purchasers had been "looked for" and no offers were made to it. In Pendlebury[18] it was not disputed that some advertisement was necessary. In Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd[19] Lush J, in considering an allegation of insufficient advertising in the context of a statute that required a mortgage to act "in good faith and with regard to the untrusts of the mortgagor", stated that the mortgagee is not entitled to sell "without advertising so as to bring the property to the notice of persons likely to be interested and so as to bring to the notice of possible buyers the potentiality of the property to be sold."

[56] Nixon v Commercial & General Acceptance concerned sale of property by auction, and serves to illustrate that a failure to adequately advertise generally will constitute a breach of the duty found in s 85(1). In that case, Connolly J found that the defendant was bound to advertise effectively in The Courier-Mail to ensure a sale at market value of a property upon which a caravan park was situated at Bargara, east of Bundaberg. Brennan J observed:

"The duty, to be performed in the exercised of a power of sale, extends to the steps to be taken to attract potential buyers to the property, the negotiations for sale, and the settling of the terms of sale."[20]

[57] In Emerson v Custom Credit Corporation Limited[21] Pincus JA stated:

"But can doing nothing but exercising judgment, based upon knowledge of the market and the valuers' various opinions, satisfy the obligation imposed by section 85(1) of the Property Law Act 1974? Certainly, in the ordinary case, the mortgagee must be expected to advertise and otherwise make efforts to find a buyer at a good price, not merely to take the first offer which comes along."

[58] CUA did not take steps to attract potential buyers by advertising the property, listing it with agents or by any other means. CUA defends its decision to not put the property to the market on the basis that it was reasonable to rely on the valuation and sell the land by private treaty and that there were a number of aspects of the Lot that made this an appropriate method of sale. It was said that the land was not in a desirable part of Hervey Bay and, for a variety of reasons, had limited development potential which would limit its appeal to prospective purchasers. These submissions are misplaced. They relate to the market value of the land, not whether it was reasonable to not take the land to the market.

[59] CUA also submits that by selling by private treaty CUA saved the sales commission and marketing costs that would have been incurred in taking the land to the market. This matter did not feature in CUA's actual decision. The savings equate to between $7,450 and $7,950. On the valuation evidence of Mr Olive, upon which CUA relied at trial, the market value of the land at the time was $255,000 and there is no reason to suppose that proper marketing of Lot 4 would not have achieved at least this figure. Absent reliable current valuations or other reliable sources of information to indicate that the market value of the land was $240,000 or less in April 2003, reasonable care required CUA to engage real estate agents and incur marketing costs which Mr Carson estimated would have been between $1,000 and $1,500.

[60] The principal ground relied upon by CUA to justify not putting Lot 4 to the market was the swimming pool dispute. The threat of litigation was said to be of significance in two ways. First, it was likely to deter an ordinary purchaser from looking any further at the property if there were any alternative sites on the market that were free from the cloud of potential litigation, and even a purchaser willing to take on the risk of litigation with the body corporate would have required a significant discount in return. Secondly, the actual purchasers were said to be "the only potential purchasers who would not be deterred by the threat of litigation". That offer came from Mr Newland, the manager of the resort, and Ms Howard, the chair of the body corporate which was the source of the threatened litigation. CUA's submissions describe them as "unique purchasers" who provided the opportunity to defuse the threat of litigation.

[61] I accept that the risk of litigation from the body corporate, if known by or brought to the attention of prospective purchasers, would deter many of them, and induce those who remained to negotiate a discount. The amount of the discount would depend, in part, upon an assessment of the extent of the risk, including the preparedness of the body corporate to litigate and the merit of any claim that might affect the interests of a purchaser. However, Mr Newland and Ms Howard were not "unique purchasers". There is no evidence that they had sufficient voting power on the body corporate to induce a resolution of the body corporate's claims, and, of course, their interests as prospective purchasers of Lot 4 potentially conflicted with those of the body corporate.

[62] CUA did not have reasonable grounds to conclude that Mr Newland and Ms Howard were the only potential purchasers who could have negotiated terms of sale that defused any threatened litigation by the body corporate. For instance, Mrs Davis was prepared to negotiate a sale contract which provided for an "easement" to be granted to the body corporate. It is instructive that, as events transpired, the body corporate was prepared to settle for a mere licence that was able to be terminated upon seven days notice. CUA had no reasonable grounds to suppose that other potential purchasers would not agree to grant the body corporate certain rights of access or that other potential purchasers, upon obtaining legal advice about the body corporate's claim, might take the view that the threat of legal proceedings did not present a significant risk.

[63] CUA was not in a position to make an informed decision about the merit of the body corporate's threatened claim because it had not investigated its factual basis or obtained legal advice about its merits. CUA was entitled to assume that the threat of litigation by the body corporate was apt to deter potential purchasers. If anything, this made it all the more important for CUA to take the property to the market and increase the number of potential purchasers. Rather than doing so it chose to accept the only offer that was made to it in April 2003. That offer was made in circumstances in which the property had not been taken to the market by advertising or listing with local agents. In the result, the sale process involved one potential purchaser in respect of a property that had not previously been put to the market by Sablebrook or CUA.

[64] CUA did not contemplate that other parties might be prepared to purchase Lot 4 for more than $240,000 if the sale of Lot 4 was brought to their attention. Instead, CUA simply compared the offer that it received from Mr Newland and Ms Howard of $240,000 with the December 2002 valuation and concluded, on that basis alone, that $240,000 was a good price.

[65] In failing to put the property to the market in these circumstances, CUA failed to take reasonable care to ensure that the property was sold at its market value.

Failure to investigate the validity of the dispute

[66] Sablebrook advances substantial arguments that the dispute with the body corporate presented no significant risk. It submits that only a risk that the body corporate would be granted an interest in the land warranted serious consideration and that a mere licence or some other form of right of access in favour of the body corporate would not bind a future owner. It submits that there was no agreement, whether in writing or otherwise, between Sablebrook and the body corporate to grant an easement. Mrs Davis' agreement with Sablebrook did not bind Sablebrook to grant the easement; it was simply a promise given by her that she would grant such a right if she became the owner. The body corporate's reliance upon the provisions of the PLA were said to be without merit because the Divisions of the Act upon which it relied had no application in the circumstances.

[67] Sablebrook further submits that the "dispute" did not produce more than a few items of correspondence, and that by 6 March 2003 the body corporate had not advanced a case of any substance. Far from pursuing a threat of litigation, its letter of 6 March 2003 sought a resolution.

[68] The body corporate had indicated to its solicitor that it was serious about pursuing the issue but it had not received any detailed legal advice, and the cost of litigation to pursue a contentious claim may have exceeded the cost of constructing a pool on the resort's own land. It will be necessary to consider these matters in connection with the loss issue since they affect the extent of the discount which a party would negotiate in order to purchase property that was potentially affected by the dispute.

[69] In light of my previous findings in relation to breach of duty, it is strictly unnecessary to decide if the failure of CUA to further investigate the dispute in itself constituted a breach of its duty under s 85(1). Although Mr Carson gave evidence of a concern in relation to the potential legal issues and their effect on the saleability of the land, CUA did not seek or obtain legal advice about those legal issues. The impression I formed from Mr Carson's evidence is that the concern he said he had about the claims advanced in the body corporate solicitor's correspondence did not influence the decision to sell. The decision to sell was made for the simple reason that the price on offer exceeded the HTW valuation and was treated by CUA as representing a "premium" of $15,000.

[70] If a concern about potential legal issues had featured in the decision to sell, then the exercise of reasonable care to ensure the property sold at the market value required CUA to make some inquiries into the dispute and the extent of its likely impact on Lot 4's market value. CUA did not inquire what it might cost it or a potential purchaser to negotiate a resolution of the body corporate's claim. CUA did not seek or obtain legal advice about the potential legal issues that might be litigated. If the potential legal issues and the effect of the body corporate's claim were of real concern to CUA, then its duty under s 85 required it to make more inquiries into these matters than it did.

[71] The body corporate's claim became a dead issue so far as CUA was concerned once it received the offer of $240,000, and it did not pursue these inquiries.

[72] I find that CUA did not take reasonable care to ensure that Lot 4 was sold at market value in April 2003. It did not take steps to assure itself that the price of $240,000 was the market value. It did not assure itself that $240,000 was the best price that it reasonably could obtain. CUA did not have a current valuation, or some other reliable evidence of current value, as distinct from the December 2002 HTW valuation. The property had not recently been taken to the market by Sablebrook by advertising the property for sale and attracting offers either at an auction or by private treaty. Sablebrook attempted to achieve a "friendly sale" to the wife of one of its directors, but that sale did not come to fruition.

[73] CUA's submissions identified two ways in which it might have taken reasonable care to ensure that the property was sold at market value. The first was to take the land to the market. The second was to sell it by private treaty at a price no lower than its market value, as determined by a suitably qualified valuer. CUA did not adopt the second alternative because the HTW valuation related to the land's market value in December 2002 and CUA did not obtain an updated valuation, valuation opinion, reliable opinions from local real estate agents or any other reliable information about the land's market value as at April 2003. In the circumstances, on CUA's submissions it was required to take the property to the market. It failed to do so and thereby breached its duty.

[74] There was no reasonable justification for not adopting CUA's usual practice of listing a property for sale after contacting a number of local agents and appointing an agent who was considered would do the best job in selling the property. Because the sale of the property was prejudiced to some extent by the threat of litigation from the body corporate, CUA's obligation was to increase the number of prospective purchasers by advertising the property. Even if a majority of potential purchasers were deterred from making an offer because of the dispute, there was a prospect that some purchasers would acquaint themselves with the nature of the body corporate's claim and formulate an offer to purchase. If this had occurred there would at least have been more than one prospective purchaser. By not taking the property to the market CUA excluded the possibility of receiving an offer which exceeded the joint offer made by Mr Newland and Ms Howard. CUA failed to take reasonable care to ensure that the property was sold at its market value in April 2003 by permitting the sale process to turn into a one horse race.

[75] Section 85(3) of the PLA provides, in part, that "a person damnified by the breach of duty has a remedy in damages against the mortgagee exercising the power of sale". A claimant such as Sablebrook which claims damages must establish that it suffered loss "by" the breach. Issues of causation arise.[22] Sablebrook must prove that the purchase price obtained by CUA was less than the market value.

If the only breach of CUA's statutory duty had been its failure to obtain an updated valuation from HTW then a causation issue would have arisen concerning the updated valuation that HTW would have provided and the probable course of events that would have followed upon its receipt. However, CUA's breach of duty includes CUA's failure to put the property on the market.

CUA does not contend that the purchase price of $240,000 was the property's market value at the date of sale. It relies principally upon the expert evidence of Mr Olive whose opinion was that the market value of Lot 4 at the date of sale was $255,000. Sablebrook acknowledges that in any assessment of loss it is required to bring into account the amount CUA did not expend on sales commission and marketing costs in effecting a sale. Assuming marketing costs of $1,250 (a mid-point in the range suggested by Mr Carson) marketing costs and real estate commission on a sale at $240,000 would have been $7,700. In the event of a sale in excess of $240,000 additional commission would have been payable at the rate of 2.5 per cent.

[78] The substantial issues in relation to market value concern:

(a) the appropriate use of sales evidence of comparable properties;

(c) the impact of the pool and the body corporate's dispute over the pool on market value.

[79] The issue about the appropriate use of sales evidence in turn gave rise to a number of significant issues including:

• the extent of movement in the market prior to 28 April 2003;

• the appropriate use of evidence of sales that occurred after 28 April 2003 in arriving at a market value of Lot 4 as at 28 April 2003;

• how the features of Lot 4 compared to comparable properties, especially sale number 7 in Mr Brett's expert report.

[80] I shall summarise the evidence of Mr Brett, Mr Gees (whose evidence was directed to the issue of movement in the market), Mr Peach and Mr Olive. I also will refer to the evidence of Mr Buckley, a Hervey Bay solicitor, and Mr Rush, an architect. Mr Rush was engaged by the current owner of Lot 4 and gave evidence about the impact of the pool and the easement on the development of the property for residential units.

[81] Mr Brett's primary report dated 15 June 2006 concluded that the market value of Lot 4 was $500,000. He assumed that the swimming pool itself, and not just its surrounds, spanned the boundary. He further assumed that there were no agreements in place concerning use of the pool. His searches disclosed no easements on the title and no caveats, and he assumed that the prospect of a caveat being placed on the title to secure access to use the pool was quite remote. He assumed that any such claims by the body corporate would come to nothing. Mr Brett's initial view that the pool straddled the boundary led him to conclude that the owner of Lot 4 would not get involved in expensive litigation and would come to some agreement that the pool would remain and that the parties would have appropriate access to it. As a result, the pool would become part of any development that took place on the site. On the revised assumption that the pool was entirely within Lot 4 the matter was what an owner of Lot 4 could decide to do with the pool, including removing it without penalty. On the further assumption that the adjoining owner had little or no prospect of asserting an interest in Lot 4, Mr Brett concluded there seemed "so little prospect of anything coming of that to not be a matter to consider."

[82] The impact of the easement was addressed by Mr Brett in his Response Report. He concluded that the position of the easement had no bearing on development density but it affected amenity. This was because a purchaser of Lot 4 would have expected the easement to carry traffic during construction of any adjoining development, and after that development was completed traffic would pass close to units on Lot 4 along the southern part of the property. The adverse affect on amenity led Mr Brett to adjust downwards his valuation from the top of a value range of $130 to $145 per m² and to adopt the figure $130, resulting, in practical terms, in a value of $450,000.

[83] In response to comments by Mr Olive about the site's elevation, Mr Brett reported that he had been aware that the land was below minimum levels, however, this was not an issue in circumstances where development of Lot 4 would include basement parking for a multi-storey unit development.

[84] As to market movement, Mr Brett's primary report made the following comment on his sales evidence:

"The sales span a period of late 2002 to March 2005, May 2003 being the relevant date here.[23] They illustrate significant value increases, primarily after May 2003 but indicate interest in this market was emerging beforehand."

[85] Mr Brett said that when he provided his first report he formed his own view on what the market movements had been, not as a percentage increase, but that they had generally been increasing in value before the date of valuation and that the movement appeared to accelerate afterwards. His Response Report came after a report from Mr Peach which relevantly stated:

"The market was steady in 2002 and early 2003. Demand increased mid-2003 until early 2004 and price increases occurred. Demand for development sites in early 2003 was considered to be just fair, however, from mid-2003 until early 2004 demand increased resulting in capital growth."

[86] Mr Gees of Widebay Property Valuations disagreed with Mr Peach's analysis and stated in a report dated 4 May 2007 that "the market had moved dramatically since 2001." Mr Brett said that Mr Gees' report reinforced the view that he already had.

[87] Mr Brett's primary report included sales evidence derived from eight other properties, and he was examined and cross-examined about these sales. It will be necessary to return to some of the sales upon which Mr Brett relied, and the criticism made by CUA that Mr Brett placed excessive reliance upon sales that post-dated the subject sale.

[88] Under cross-examination Mr Brett was not prepared to concede that a caravan park in the vicinity of Lot 4, which he described as 'pretty average in its presentation" and "run-down" had any significant effect on the value of Lot 4. He did not accept that Lot 4 was located 'in the poor end of town" in 2003. Mr Brett's evidence and other evidence addressed the significant feature that Boat Harbour Drive is a significant thoroughfare and that when it intersects with The Esplanade one can either turn right and travel towards the subject site, or turn left in the direction of the Boat Harbour and a precinct in which there are commercial developments and shops. Mr Brett acknowledged the general superiority of sites that were closer to the Boat Harbour.

[89] Mr Brett acknowledged that the Hervey Bay market had "come off a very low cost base" and maintained the view that it had been moving off that low base before May 2003. He rejected the suggestion that he had placed excessive reliance upon sales that occurred after the date of sale, including sales that occurred after an announcement that the Hervey Bay airport would be upgraded to enable regular jet services to fly into Hervey Bay. Mr Brett also rejected the suggestion that the later sales upon which he relied were influenced by re-zonings that came into force in about May 2005. He said that the town plan first went on display much earlier.

[90] Mr Brett's opinion relied upon a sale that concluded on 8 May 2003 of a property situated on the corner of The Esplanade and Milner Street. The property had an area of 3,006 m2 and sold for $520,000, which equated to $173 per square metre. It is convenient to refer to the property as sale number 2 since it was the second sale appearing in Mr Brett's primary report and was referred to by this term in the evidence. Mr Brett's report described it as:

"A prominent corner site immediately opposite the Boat Harbour in a more valuable area than the subject. The various sales and re-sales illustrate value increases in this area."

The resales referred to are a resale of $760,000 on 19 March 2004 and a resale of $1,250,000 on 28 September 2004, which tend to confirm the evidence concerning the marked increase in the market after mid-2003. Mr Brett accepted that the 8 May 2003 sale for $520,000 was sold with a development approval in place for a high-rise development.

[91] Mr Brett's sale number 7 was a site with an area of 8,170m2 at 98 Pulgul Street which sold on 27 November 2002 for $960,000, which equates to $117.50 per square metre. Mr Brett's report described it as:

"A vacant corner site with good exposure to Boat Harbour Drive but lacking The Esplanade frontage. Sections of the land are slightly below road level."

Mr Brett rejected the suggestion that sale number 7 was a superior site to Lot 4. Under cross-examination Mr Brett acknowledged that, unlike Lot 4, sale number 7 was not subject to obvious impediments to its improvement such as the swimming pool situated on Lot 4 and the possibility of litigation in relation to it, and, unlike Lot 4, sale number 7 was not affected by an easement.

[92] Mr Brett acknowledged under cross-examination that the prospect of litigation over the pool:

"might well deter some purchasers, but [Lot 4] is still attractive at a price, and for the purchaser who comes along and says 'No need for litigation. I'm quite happy to enter into such an arrangement... If things don't work out, well I will fence it off and not use it'."

[93] As this passage indicates, Mr Brett assumed that the pool might be retained and integrated into any development, with arrangements with the body corporate of the resort about shared costs. However, if arrangements with the body corporate became unsatisfactory the pool area would be fenced off and the owner of Lot 4 would have sufficient room to construct a pool on Lot 4 without reducing the density of the development. Mr Brett adhered to the view that the threat of litigation over the swimming pool was something that a prospective purchaser would resolve by coming to terms with the body corporate on access and maintenance costs. He acknowledged that if the body corporate was serious about enforcing what it claimed to be its rights, then the threat of litigation would need to be taken into account, but that the worst outcome of the dispute would be for the owner of Lot 4 to give in and grant an easement. Mr Brett acknowledged that purchasers might not want to have an old pool on their site, particularly if they wanted to have a modern development, and that the presence of the swimming pool had the potential to be deleterious to the value of the land.

[94] Mr Gees is the principal of Wide Bay Property Valuations, and is a registered valuer. The opinions expressed in his expert report concerning the valuation of Lot 4 and comparisons with other sales were not relied upon by Sablebrook. Instead, Mr Gees' evidence was relied upon in relation to the market in Hervey Bay for land, and to support the valuation evidence of Mr Brett who relied to some extent upon Mr Gees' evidence about trends in the market. Mr Gees said that prices started to trend upwards in 2001 "through to late 2003". He disagreed with the evidence of Mr Peach who stated that the real estate market in Hervey Bay was considered to be steady in 2002 and early 2003. Mr Gees' evidence was that the market moved dramatically after 2001 with prices rising at a rate of approximately 10 per cent per annum and that price rises continued throughout the period 2001 to 2005, although the increases were not so dramatic from the latter part of 2003. Mr Gees' opinion was based in part upon published data and also upon his practice as a valuer in the area since 1991. My impression is that his opinions were significantly influenced by the number of valuation assessments that his practice handled. He gave evidence of having undertaken 360 valuation assessments per month in the Hervey Bay area in 2003 but that in 2004 to 2005 this volume had dropped to 200 jobs per month.

[95] Mr Gees' oral evidence was that the market in 2002 was on an upward trend and in 2003 it was "very close to its pinnacle". This movement in prices "came off a very low base". According to Mr Gees, the market had been through a downward spiral in the late 1990's and from 1998 to 2000 the market for residential development land was flat. What he described as the pinnacle reached in late 2003 was attributed to population movements to smaller towns captured in the term "seachange".

[96] Mr Peach is a professional valuer, and has been a registered valuer since 1986. He commenced practice in Victoria. He undertook some work in Hervey Bay on a limited basis in mid to late 2003, and moved to Hervey Bay permanently in October 2004. In his retrospective valuation prepared in January 2007, Mr Peach stated that the positive attributes of Lot 4 as a development site included:

• the large access easement which occupied an area 446m2 and placed a burden on the design layout for units to be constructed on the property;

• the old pool, which although well maintained, was only likely to be useful if Lot 4 was developed in association with the adjoining property to the north. This was regarded as unlikely and so the pool would have to be demolished and a new pool constructed befitting a new development;

• the potential legal action which Mr Peach believed had a negative impact on the value of the land and which would have deterred many purchasers as it would be regarded as "too hard" compared with other available sites.

Mr Peach concluded that Lot 4 was only a "fair" development site due to these negative attributes when compared with other development sites.

[97] Mr Peach's report valued Lot 4 as at 28 April 2003 based upon the sales evidence available as at 28 April 2003 since "the valuer would have no knowledge of sales occurring in the future". Based upon this sales evidence Mr Peach assessed the market value of Lot 4 at $70 per square metre or $241,640, which he rounded down to $241,000.

[98] In a subsequent expert's report dated 21 August 2007 Mr Peach addressed, amongst other things, Mr Brett's opinion that significant value increases were "primarily after May 2003 but indicate interest in the market that was emerging beforehand". Mr Peach agreed with this comment and stated that it is normal that interest in a market gains momentum and that after a period demand exceeds supply resulting in capital growth. Mr Peach stated that demand increased in mid-2003, namely the period between April and August 2003. In his opinion, whilst demand increased, it can take several months for capital growth to become evident in a market place, especially in a regional area like Hervey Bay where the number of sales of comparable property to the subject property are quite limited.

[99] Mr Peach's evidence in relation to movements in the market prior to April 2003 was based upon his analysis of sales information maintained by his firm's Hervey Bay office since 1995. He gave evidence that the average price across all categories in May 2003 was between $105,000 and $110,000 and that there had been only a nominal price movement during the previous 12 months, whereas by December 2003 the average price had risen to about $150,000.

[100] As to the subject property, Mr Peach regarded other parts of The Esplanade as much more highly regarded, with the prime sites having uninterrupted views. Lot 4 and other sites in its vicinity had a foreshore reserve with quite heavy natural vegetation which obscured views. More elevated blocks than Lot 4 were more valuable and the area in which Lot 4 was situated included older style townhouses and beach cottages. Mr Peach acknowledged that a development on Lot 4 would provide some views, but only from the first floor over the trees. The beach opposite was not a desirable swimming beach. It was prone to south-east winds, and to reach the water at low tide a swimmer would have to walk across about 500 metres of soft sand.

[101] According to Mr Peach, the mere fact that there was potential for legal action over access to the pool would be a matter of concern to developers who like to purchase "clean sites" that do not have any challenges with them. The large, older-style pool was associated with a development that occurred in the mid-1990's and did not complement the development of Lot 4 in 2003. The position of the pool restricted how Lot 4 could be developed and there were management issues associated with maintaining and sharing the old pool.

[102] Under cross-examination, Mr Peach accepted that the site could be developed to its "maximum potential" with the easement and with the pool. He adhered to the view that the threat of legal action over the pool would make many potential purchasers "walk away from the property", but accepted that some who were told of the threat of legal action would take legal advice and obtain a better understanding about the dispute. Mr Peach had not made inquiries into the dispute by placing himself into "the mindset of the prudent hypothetical purchaser" who might have investigated the dispute.

[103] Mr Peach used as sales evidence a sale on 24 October 2001 for $475,000 for a gently rising allotment on the corner of The Esplanade and Miller Street in a prime location directly opposite the Urgangan Boat Harbour. Mr Brett's report described this property as sale number 2 and did not report the sale on 24 October 2001. As I have previously stated, Mr Brett referred to subsequent sales as follows:

Mr Brett commented that these various sales and re-sales illustrated value increases in the area. The value increases reported by him tend to indicate that prices did not reach very close to their pinnacle, as Mr Gees suggested, in late 2003, but continued to increase during 2004.

[104] Mr Peach did not have regard to sales evidence that post-dated 28 April 2003 because he considered that it was not permissible to use such sales evidence. This included Mr Brett's sale number 2 for $520,000 which settled 10 days after the contract of sale for Lot 4.

[105] This resale raises the issue of what might be made of the price movement from $475,000 on 24 October 2001 to $520,000 on 8 May 2003. The price increase of $45,000 does not illuminate whether the land in question appreciated in value steadily between October 2001 and May 2003 or whether most of the increase of about 9.5 per cent occurred, for instance, in late 2002 and early 2003. Incidentally, Mr Olive disregarded sale number 2 which he described as a transfer between related parties and not an arms-length transaction.

[106] Mr Peach was cross-examined in relation to a number of sales. He accepted the fact that other locations were busier from a traffic perspective and were in a noisier location. This made Lot 4 superior in some respects but not superior in others. For instance, Mr Brett's sale number 2 was said by Mr Peach to be "a significantly superior site being close to the boat harbour, the commercial precinct ... with the restaurants and all the marina".

[107] A contentious issue that was the subject of evidence from Mr Brett, Mr Peach and Mr Olive was a comparison between Lot 4 and Mr Brett's sale number 7: the block on the corner of Boat Harbour Drive and Pulgul Street which sold on 27 November 2002 at a rate of $117.50 per m². Mr Peach's report described it as a gently sloping vacant corner allotment zoned for Future Residential and suitable for redevelopment. It was considered by him to be in a fair to good location to the rear of The Esplanade and overall to be superior to Lot 4 due to the size of the allotment and the absence of negative features associated with Lot 4. Its zoning meant that it could not be developed for multiple units without a rezoning. Mr Peach accepted that a developer would apply a discount to reflect the fact that a rezoning application would be necessary to develop the site to achieve a level of density which was permitted on many of the other sales that he considered. He also accepted that the size of sale number 7 at more than twice the size of Lot 4 would result in a lower rate per square metre than Lot 4. Its location on the much busier Boat Harbour Drive was a feature which Mr Peach accepted made it inferior to Lot 4 in terms of amenity for residents. Mr Peach accepted that the features to which he was taken to in cross-examination suggested that Lot 7 would have an inferior rate per square metre to Lot 4. However, Mr Peach adhered to the view that, overall, sale number 7 was superior to Lot 4 since it was a property free of encumbrances, it had a good frontage to depth ratio, it corner position allowed for a good development to be planned on the property and the property had good access from two streets.

[108] Mr Olive prepared an expert report dated 4 September 2007 which commented on the earlier valuation reports and provided a retrospective valuation of Lot 4. His report was based upon an inspection of the site on 23 August 2007 when the site had been inundated to a depth of up to six inches across the site following a period of heavy rainfall. The area opposite the site had heavy marine-type vegetation to a height of between four and five metres which would block views of the water from the lower level of any development on Lot 4.

[109] Mr Olive's report commented that a number of the sales upon which Mr Brett relied occurred well after the date of valuation and, on that basis, should not have been included or considered. One reason stated in his report was that the sales would not have been available to a valuer assessing the value of the subject property as at the date of sale. He stated that sales to which Mr Brett had reference in March and September 2004 should not have been considered. Mr Olive addressed the issue of reliance upon post-April 2003 sales in his oral evidence because this issue emerged as a significant area of contest between the parties in relation to the valuation evidence, it is appropriate to quote a lengthy passage from Mr Olive's evidence on this aspect:

"There are certain circumstances when a valuer looks at sales post the date of valuation. I have done this myself in resumption matters where we don't have a body of sales evidence sufficient to form a second opinion prior to the date of valuation, and if there is some really good on-point sales evidence within a reasonable period after the date of valuation, they can be taken into account. It is a matter of how much weight you give them. If they are within a few weeks and nothing has dramatically occurred in the market, assuming we have a stable flat market you can have some greater confidence on sales subsequent to the date of valuation. In regard to Mr Brett's valuation, he has three sales prior to the date of valuation, and refers to ten afterwards...The majority of his sales are subsequent to the date of valuation, and some are even 18 months after the date of valuation, and within his own report he says that the market picked up substantially after the date of valuation, and that really brings in the danger in bringing in those subsequent sales. If we have a flat market we have a date of valuation and then soon afterwards the market takes off, we can't rely on that subsequent evidence because it is evidence within a different market condition, and those market conditions can change quite dramatically, quite quickly."

[110] Mr Olive described the prevailing market conditions within the Hervey Bay property market before the date of sale as "quite stagnant" with a number of development sites on the market with the subject property in an area that was seen to be on the fringe of development, away from the marina precincts. After the date of sale there were announcements of an airport upgrade and of direct flights from Sydney via major airlines into Hervey Bay. An airport industrial estate was announced and there was market activity that saw the market pick up.

[111] Mr Olive described the body corporate's claim of rights of access to use the pool as "a blot on the title" and that any prudent developer would seek to solve the problem. His evidence was that a prudent developer would inquire about alternative sites since experienced developers tend to shy away from anything that has a legal threat. Someone who purchased a property without condition would inherit a risk, including the risk of having to retain the old pool and this might affect the sale of new units. If a prudent developer considering purchasing the site was not deterred by the risk of litigation and did not want to get into potentially expensive litigation then an alternative was to "shout" the neighbour a new pool on its site and demolish the existing pool. Mr Olive thought it would cost around $35,000 to build a pool on Lot 1 at the relevant date, with additional costs to relocate water and electricity services along with the cost of digging out the old pool, backfilling it and compacting the site. Overall, the cost was in the vicinity of $50,000. He acknowledged that this approach may be "a little bit conservative" but it was the approach that he took in relation to the pool issue.

[112] This approach was reflected in Mr Olive's retrospective valuation which arrived at an initial value for the site based upon a rate of $95 per square metre ($327,940) and then discounted a figure of $22,300 on account of the easement area (a discount of $50 per square metre for the easement area) and a further discount of $50,000 on account of the pool, arriving at a figure of $255,644 which was rounded to $255,000.

[113] Mr Olive defended his methodology and his analysis under cross-examination. He was an impressive witness in both the manner in which he gave his evidence and in his justifications for arriving at his valuation opinions. I generally prefer his valuation opinions to those advanced by Mr Brett and Mr Peach. My acceptance of the valuation evidence given by Mr Olive is subject to certain qualifications. The first relates to the discount of $50,000 on account of the pool issue. For reasons that I shall give when discussing this issue, I consider that his discount of $50,000 is excessive, and that a prudent purchaser, which informed itself of the body corporate's claim, probably would have been able to resolve any dispute with the body corporate without having to incur the total cost of building a new pool on the body corporate's land. In addition, if the prudent purchaser was minded to remove the existing pool in order to enhance Lot 4's development and the appearance of any new development, it would have incurred the cost of removing the old pool, backfilling and compaction in any event. This component would form part of the development costs reflected in the market value of the land as a development site and should not be included as an additional amount to be discounted. The second qualification relates to one aspect of Mr Olive's consideration of a comparable sale, namely Mr Brett's sale number 7. The third qualification is the extent to which the market moved in late 2002 and early 2003, which I later discuss.

[114] Mr Olive did not make any enquiries about the merits of the threatened legal action by the body corporate. His approach was that a prudent developer would have allowed some money to solve the threat, whether through litigation or by other means. He accepted that a prudent developer looking seriously at the site would seek detailed legal opinion about the body corporate's threat. Mr Olive was taken to a passage from Spencer v The Commonwealth[24] in which Isaacs J referred to

"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 reasons soever in the amount which one would otherwise be willing to fix as the value of the property."

[115] Applying this approach, Mr Olive said that at the date of valuation neither the adjoining body corporate, the owner nor the intending purchaser of the land would have been fully cognisant of the outcome of the legal dispute. The parties would have been acquainted with the disadvantage posed by the unresolved pool dispute about which legal opinions might differ. Based upon the advice that he had given to hundreds of developers on matters of property purchase, Mr Olive concluded that a prudent developer would allow a sum of money to resolve the issue, in either the cost of building a pool next door to resolve the issue or costs that would be incurred to resolve litigation. According to Mr Olive, the perfect acquaintance with the land referred to in the passage from Spencer could only be related to what information was available at the time. At the date of valuation, the threat of litigation was "real" and it was something that a prudent purchaser would strongly take into account. A prudent purchaser would make its own inquiries and seek at least preliminary legal advice. Mr Olive did not have available to him evidence of what that legal advice would have been as at the date of valuation. He accepted that the discount of $50,000 was for the resolution of the threat, and accepted that a potential purchaser might have reached the view that the risk of litigation was at the low end of the spectrum and this kind of adjustment was not required. However, Mr Olive said that this would only occur if the hypothetical purchaser had a high level of confidence in legal advice that it was a frivolous threat. To do otherwise would not be a prudent course of action.

[116] As to the easement, Mr Olive observed that it reduced the available width of the building with less balcony space at the front of the building to capture views to the ocean and generally required the units to be "squeezed tighter" onto Lot 4. He applied a discount based upon the area of the easement and adopted a discount of $50 per square metre, rather than reduce the rate per square metre across the entire site.

[117] Mr Olive was cross-examined extensively in relation to the sales evidence, including the sales evidence relied upon by Mr Brett. A significant difference in the respective opinions of Mr Brett and Mr Olive related to sale number 7 which Mr Brett regarded as an inferior property to Lot 4. Mr Brett acknowledged that the vacant corner site had good exposure to Boat Harbour Drive, but observed that it lacked The Esplanade frontage, and it also had the risk of having at least some of tis views blocked by neighbouring developments. In response, Mr Olive described sale number 7 as a more elevated site than Lot 4 with "no obvious development impediments". Boat Harbour Drive, upon which sale number 7 is located, carries the vast majority of destination traffic to the Boat Harbour and Mr Olive described this as having "a dramatic effect" on the markets perception of value since passing traffic is "clearly the key to value for current or future tourism related developments". Under cross-examination Mr Olive adhered to his view about the relative superiority of sale number 7. The larger size of sale number 7 at 8,170m2 did not call for any significant discount because both sites would attract developers seeking a site of up to 10,000m2. He acknowledged that sale number 7 had two busy street frontages but considered this was a very high exposure which depended on the type of use to which the site was put. He explained that some uses can benefit from greater exposure, such as tourist accommodation. By contrast, if one was seeking to construct permanent residential town houses or units, then frontages on two busy streets would be a disadvantage. Mr Olive acknowledged that Lot 4 had a superiority over sale number 7 for permanent residential amenity and that it was closer to the water. However, sale number 7 had the potential to be developed so as to provide views to the ocean, provided those views were not blocked by something bigger built in front of it.

[118] Sale number 7 at the relevant time was zoned Future Residential. At page 3 of his expert report Mr Olive described its zoning as High Density Residential and at page 15 of his report described it as having a "comparable" zoning to Lot 4. The zoning of Lot 4 at the relevant date provided for as-of-right use as a two level multi-unit dwelling, and approval could be sought to construct above the second level. Mr Olive explained his reference to zoning being comparable because at the time there was a stated intent from the council for the area in which sale number 7 was located to become multi-unit dwellings and this was well-known to the market. He said a purchaser who made enquiries with the local authority and its planner would be quite confident that the rezoning would take place. However, he accepted that this created some zoning uncertainty. Incidentally, Mr Brett in his Response Report stated that by May 2003 the potential for the various sites identified in his report was for multi-unit residential development notwithstanding their zonings.

[119] Mr Olive had regard to views from ground level on sale number 7 and the elevation of the land. Its topography meant that it had an uninterrupted corridor along Boat Harbour Drive that was not going to be built out. Lot 4 at ground level had no views because of its elevation and the wall of vegetation on the foreshore. Mr Olive acknowledged that there was a prospect that some of the views from sale number 7 towards the ocean might be built out by an adjoining development although such a development would be at a lower level.

[120] Overall, Mr Olive considered that sale number 7's elevation, its views, its corner position with alternative access from either road and the design flexibility of a corner block made it a superior site to Lot 4, notwithstanding its zoning at the date of valuation.

[121] The opinions of each expert valuer in the case involved an exercise of professional judgment in providing a retrospective valuation of Lot 4 as at 28 April 2004. Each adopted the direct comparison method of valuation which required the identification of comparable sales and appropriate weight being given to relevant circumstances, including market movements.[25] The exercise of professional judgment in making appropriate use of comparable sales arose in circumstances of limited sales evidence. The valuation task was dissimilar to one in which a valuer might have regard to a large volume of sales of similar property, such as sales of an ordinary domestic house and land. No other property was closely comparable. Properties to the north of Lot 4 on The Esplanade and in their vicinity were in a busier precinct which generally attracted significantly higher values. Sites that were suitable for development as tourist accommodation, depending upon existing or expected town planning approvals, might benefit from being located on a main road with a corner position, such as sale number 7. The Esplanade in the immediate vicinity of Lot 4 was not as elevated as other sites, but its location made it more attractive for permanent residential development than busier locations.

Sablebrook was critical of Mr Peach and Mr Olive in not having regard to subsequent sales. Reliance was placed by it upon a passage in The Commonwealth of Australia v Arklay[26] that "the best evidence of [market value] is that of comparable sales of other land either before or after the date of acquisition but this evidence is often not available". In Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax[27] Williams J stated:

"Values must be calculated in the light of circumstances which existed on the material date ... but subsequent events can be taken into account in order to determine the proper weight to attach to such circumstances. Subsequent sales are just as admissible in evidence as prior sales, provided that in all the circumstances they are comparable. If between the material date and the date of the subsequent sale, supervening events occur which alter conditions previously existing, the subsequent sales would not be comparable and would be useless ... The whole tendency of the courts is to admit evidence of any events prior to the date of trial which throw any real light on the issues."

[123] The authorities establish that sales after the relevant date can be taken into account in order to arrive at the market value of the subject property, but that supervening events which alter conditions that existed at the relevant date may mean that subsequent sales are not comparable and little or no use can be made of them. In this case, the proper use of evidence of sales either before or after 28 April 2003 required consideration to the circumstances of those sales, including movements in the market.

[124] An area of contention was the extent of movement in the Hervey Bay property market prior to 28 April 2003. Increased sales activity may not necessarily, or immediately, be reflected in an increase in price in circumstances where there is an abundance of existing stock. I consider that Mr Gees' evidence placed extensive reliance upon sales activity and, in particular, the number of valuations that he undertook in 2003 compared to 2004, in order to reach conclusions about movements in the market and when the market was very close to what he described as its pinnacle. Other evidence was generally to the effect that upward movement in prices continued after May 2003, and, in fact, accelerated after this time. This was due to a number of factors including announcements in relation to the extension of the Hervey Bay airport and town planning changes. Mr Brett concluded that significant value increases occurred "primarily after May 2003", but that sales before then indicated that interest in the market was emerging before May 2003. In circumstances in which there were significant increases in the Hervey Bay market after May 2003 caution was required in treating sales that occurred a substantial time after 28 April 2003 as comparable due to the difficulty in making adjustments for different market conditions. This was the cautionary approach of Mr Olive in his oral evidence that I have quoted.

[125] In addition to the evidence from valuers about movement in the market before May 2003, evidence was given by Mr Buckley, a local solicitor, who moved back to Hervey Bay in May 1999 and who was in practice throughout the relevant period. His evidence concerning market conditions does not have the same factual basis as a valuer's analysis of sales records. Instead, it was based upon his experience of conducting conveyances in the Hervey Bay market. His evidence was that the level of activity remained fairly static until the second half of 2002, then the number of transactions and prices increased dramatically after about July or August 2002 and that the boom continued until early 2008, during which time there were fluctuations. Mr Buckley said that prices started to spike in July or August 2002.

[126] I find that prior to May 2003 the market was not as flat as Mr Peach's analysis of the data available to him suggested. The increased sales activity that Mr Gees gave evidence about and other evidence, including evidence of interest by developers in sites in the vicinity of Lot 4, leads me to the conclusion that the market value of Lot 4 was increasing by late 2002 and that this increase continued prior to 28 April 2003.

[127] The evidence does not permit the extent of the market movement between late 2002 and the date of sale to be determined in percentage terms. Market movement was unlikely to be in excess of a rate of 10 per cent per annum during this period. No witness contends that it was. If regard is had to sale number 2, it discloses an increase on that property of less than 10 percent over a period of approximately 18 months between 24 October 2001 and 8 May 2003.

[128] I find that movement in the market prior to 28 April 2003 made the market value of Lot 4 at that date greater than the value of $65 per square metre adopted in the HTW valuation in December 2002, even when regard is had to the dispute that arose in early 2003 with the body corporate over the pool. CUA accepts, based on Mr Olives' evidence, that the market value of Lot 4 on 28 April 2003 was $255,000. It is unnecessary and inappropriate to speculate about the $30,000 difference between that figure and the HTW Valuation figure of $225,000. The relevant issue concerns the market value of Lot 4 on the date of its sale, not its value in December 2002, the accuracy of the HTW Valuation or the extent to which the assumptions upon which it was based no longer applied in April 2003.

[129] A major valuation issue is the appropriate use of sales evidence. A valuer is not engaged in a process of making mathematical adjustments to values deduced from each of the sales that provide comparable sales. The process involves an exercise of professional judgment in which the subject property is compared with a number of comparable sales.

[130] Mr Brett and Mr Olive each provided written evidence on sales evidence and they were cross-examined on the sales evidence. Each applied their professional judgment. There were areas of agreement but significant areas of disagreement, particularly in a comparison between Lot 4 and Mr Brett's sale number 7.

[131] One difference between Mr Brett and Mr Olive was that Mr Brett included amongst his sales evidence as sale number 2 a sale on 8 May 2003 of a prominent corner site opposite the boat harbour for $520,000. As I have noted, Mr Olive disregarded this sale because it was a transfer between related parties and not an arms-length transaction. Mr Olive's reason for disregarding this sale was not put to Mr Brett in cross-examination. Counsel for CUA explained this by reference to Cross on Evidence (Australian edition) [17445] on the basis that the rule in Browne v Dunn does not apply where, as here, pre-trial disclosure of Mr Olive's expert report placed Sablebrook and Mr Brett on notice that reliance on sale number 2 was in contest.

[132] There was no application for Mr Brett to be recalled to address the issue of whether valuation practice entitled Mr Olive to disregard the sale because his inquiries indicated that the sale was between related parties. There is no dispute that Mr Brett's sale number 2 was a superior site to Lot 4 at the material date. Sablebrook's submissions describe it as "an evidently superior sale because of its proximity to the boat harbour, better aspect and higher ground". The relevant exercise for valuation purposes, if regard was to be had to it, was to judge how superior it was, and what the market value of Lot 4 was when regard was had to it, and other sales evidence.

[133] A significant sale was Mr Brett's sale number 7. Mr Brett's evidence was that Lot 4 had a higher market value than sale number 7 because of its superior features. He adopted a figure of $130 per square metre to Lot 4 compared to the figure of $118 per square metre that he applied to sale number 7.[28] Mr Peach and Mr Olive recognised that Lot 4 had some advantages over sale number 7. However, their evidence was that, overall, sale number 7 was a superior site to Lot 4, even when account was taken of the fact it was zoned Future Residential, which constrained its development potential. I prefer their opinions in this regard.

I have had regard to the reports and oral evidence of Mr Brett, Mr Peach and Mr Olive, and the various criticisms that were made of their evidence by the parties in their submissions. The parties accepted in their submissions that the resolution of the valuation evidence essentially turned upon whether I should accept the opinions of Mr Brett or the opinions of Mr Olive in relation to the market value of Lot 4. I prefer the evidence of Mr Olive.

I find that Mr Brett's opinion of $130 per square metre did not accord sufficient weight to the disadvantages of retaining the existing pool and the effect the risk of litigation with the body corporate had on Lot 4's market value.

I prefer Mr Olive's analysis of the sales evidence to that of Mr Brett. I conclude that Mr Brett's opinion of $130 per square metre was significantly in excess of the market value of Lot 4 in April 2003.

An issue is whether I should accept that the value of Lot 4 as at 28 April 2003 was $95per m² subject to deductions for the easement and the pool, which is the value adopted by Mr Olive. It is unnecessary to repeat what I have already said concerning the features of Lot 4. Ultimately, there is not much dispute about its features and its advantages and disadvantages compared to comparable sales. Its quiet location made it more suitable than other sites for permanent residential development. Its location made it less suitable for holiday accommodation than other sites. It was low-lying but this feature was not necessarily a problem for a development that included a basement car park. It did not enjoy the same elevation as other sites, but unlike other sites there was no prospect of its views of the foreshore being built out. However, views of the sea were obscured or blocked by natural vegetation. Market conditions in April 2003 meant its zoning could not be exploited to the fullest by obtaining approval for the construction of a multi-level above two storeys. But, unlike sale number 7, Lot 4 did not require any approval or rezoning for the developments of a two level multi-unit dwelling.

I conclude that, subject to adjustments on account of the easement and the pool, the market value for Lot 4 was close to the $95 per m² adopted by Mr Olive. Mr Olive may have not placed sufficient weight upon the then zoning of sale number 7, even if it was well-known to the market at the time that the area in which it was located was likely to be rezoned for multiple unit dwellings. Mr Olive may also may have underestimated the extent to which the market moved between November 2002 (sale number 7) and April 2003. Taking these matters into account, I consider that his valuation opinion of $95 per m² is slightly less than the market value. I adopt a market value of $100 per m², subject to adjustments on account of the easement and the pool. This produces a value of $345,200 before those adjustments.

[139] The evidence establishes that the easement did not affect the development's density, but it affected the amenity of units developed on Lot 4. Mr Brett in his Response Report considered the effect on amenity during construction of any adjoining development and passing traffic along the easement would adversely affect the selling price of units on Lot 4. As a result he adjusted downwards the value of Lot 4 from $500,000 to $450,000. Mr Olive adopted the different approach of making a separate allowance for the easement of $50 per m² of the easement area of 446 m² or $22,300. I adopt this adjustment figure of $22,300.

[140] It was possible to develop Lot 4 whilst retaining the original pool. This was demonstrated by sketches prepared by an architect, Mr Rush, who prepared plans of three different schemes for the purpose of giving evidence. One scheme depicted the existing swimming pool and the easement in its original position. The preferred scheme, and the scheme which Mr Rush produced for a subsequent purchaser of Lot 4, provided for the existing pool to be removed and the easement to be moved closer to the southern boundary. Mr Rush explained in his evidence that the existing pool was replaced in his design with a modern L-shaped pool so that the pool was not "totally out of keeping with the design of the new buildings".

[141] Mr Brett, in his Response Report, did not make a downward adjustment on account of the age or location of the swimming pool. He took the view that a purchaser of Lot 4 had control over the pool in any future development since it was contained entirely within Lot 4. As was pointed out in Sablebrook's submissions, Mr Brett valued Lot 4 with the existing pool in place with its inhibition on the development of the lot. It was submitted that he did not regard the scope to share costs and access with the adjoining lot as a particular advantage. Instead, he recognised the fact that some purchasers who were not deterred by the prospect of litigation would conclude that Lot 4 was "attractive at a price" and would be happy to enter into an arrangement so as to avoid litigation. If the arrangement did not work out then the pool could be fenced off and not used by Lot 4 and a new pool constructed on it. The retention of the original pool would not have affected the density of the development of Lot 4, but it would have constrained the development and made it less attractive to purchasers of units. I find that Mr Brett's valuation of $130 per m² did not take adequate account of the impact of the existing pool on the development of the site if it was retained or the impact of the dispute over the pool on Lot 4's market value.

[142] Sablebrook advanced substantial arguments as to why the body corporate's foreshadowed legal claims lacked merit. I have previewed these arguments. I accept the submission that a proper consideration of the body corporate's previewed claims, as advanced in its letter of 6 March 2003, would have resulted in the conclusion that, if litigated, these claims were unlikely to succeed. The evidence of Mr Buckley, who acted on behalf of the body corporate at the time, indicated that he was contemplating "some equitable basis that would enable it to secure a better outcome". The basis for such a claim was not developed. A prudent purchaser who was not deterred by the threat of litigation, and which chose to investigate the factual and legal basis of the body corporate's foreshadowed claims, probably would have concluded that the claims lacked merit. The same conclusion would have been reached by CUA had it investigated the strength of the body corporate's claims. However, a prudent purchaser would have negotiated a discount on account of the risk that any sale would be frustrated or delayed by legal proceedings brought by the body corporate. In Boland v Yates Property Corporation Pty Ltd[29] Gleeson CJ restated the principle in Spencer v The Commonwealth[30] is that the starting point for the determination of the value of land is to consider:

"from the point of view of persons conversant with the subject at the relevant time, what, according to then current opinion of land values, a willing but not anxious purchaser would have to offer to induce a not unwilling vendor to sell the land. That is the market value."

Persons conversant with Lot 4 and the threat of litigation would negotiate some discount on account of the rise of litigation. The extent of the discount offered by a not unwilling vendor would be limited. The vendor would seek to negotiate a resolution of the body corporate's claims or, failing that might seek a court determination of the body corporate's claimed interest in Lot 4.

[143] The body corporate, or at least some members of it, gave indications to Mr Buckley of its seriousness to pursue litigation, if required. Mr Newland, who provided instructions on behalf of the body corporate to Mr Buckley in early 2003 was a prospective purchaser and had an interest in encouraging a reduction in the purchase price on account of threatened litigation from the body corporate to. I find that the body corporate's claim was capable of resolution because, if properly advised, the body corporate would have been reluctant to embark upon potentially expensive and hazardous litigation. The pool did not encroach on to the body corporate's land. Its foreshadowed claims under the PLA were doubtful. It did not have a sound basis to contend that it had an interest in the land to which CUA's interest or the title of a purchaser from CUA would be subject. Mr Buckley, its solicitor, did not think that it was in a very strong position. He thought it had "an arguable legal case". It is more likely than not, that if approached by CUA or by a prospective purchaser of Lot 4, the body corporate would come to an accommodation, rather than litigate. This was the tone of its letter of 6 March 2003.

[144] The fact that a prudent purchaser who investigated the body corporate's threat of legal proceedings may have been advised that the proceedings had relatively poor prospects and that, if pressed, the body corporate probably would resolve its claims does not mean that the purchaser would not have negotiated a substantial discount on account of the risk of litigation. The issue is the discount that would be negotiated by a willing but not anxious purchaser so as to induce a not unwilling vendor to sell land that carried such a risk. Neither party would be in a position to be certain of the merits of the body corporate's claim, its preparedness to litigate or the costs and delay involved in such litigation, including the extent of irrecoverable costs in the event of a successful defence of the body corporate's legal proceedings.

[145] Mr Olive applied a discount of $50,000 for the reasons explained by him. I consider that this discount is excessive. The solution of offering to "shout" the body corporate a new pool probably was not necessary in April 2003 in order to resolve the body corporate's dispute. If this solution had to be pursued in order to reach a commercial accommodation with the body corporate, then the cost of a new pool would have been around $35,000. The cost of removing the old pool, backfilling and compacting the site would have been incurred by a developer in any event. The figure of $50,000 also exceeds the discount that probably would have been negotiated between a willing but not anxious purchaser and a not unwilling vendor on account of the risk of incurring legal costs to resolve the body corporate's claim.

[146] I find that the body corporate's threat of litigation prejudiced what Mr Carson described as the "saleability" of the land. If persons conversant with the land had investigated the factual and legal basis of the body corporate's claim in April 2004 they would have concluded that it lacked merit. However, the threat of litigation devalued Lot 4 compared to the market value that it would have had without the risk of litigation. A discount of $30,000 is appropriate in the circumstances in order to arrive at the market value of Lot 4.

[147] I find that the market value of Lot 4 at 28 April 2004 was $293,000, which I arrive at as follows:

Adjustment on account of marketing costs and commission

[148] Sablebrook accepts that CUA's conduct in not incurring marketing and commission costs on the actual sale saved costs and expenses which otherwise would have been incurred by CUA as an incident of the sale[31]. I find that these costs and expenses would have been $7,700 on a sale at the price of $240,000. An additional agent's commission of approximately $1,3005 would have been incurred on a sale at $293,000. An appropriate adjustment is $9,000.

[149] It is not necessary for Sablebrook to prove that some identifiable individuals would have purchased Lot 4 for $293,000 in April 2003.[32] There is no basis advanced by CUA to suggest that if put to the market by the process of advertising and listing with agents that CUA usually adopted that Lot 4 would not have sold for its market value. Damages should be assessed by calculating the difference between the market value and the sale price, and then making an adjustment for the marketing costs and commission that would have been incurred by CUA as an incident of a sale at market value.

The difference between the sale price and the market value is $53,000. I assess Sablebrook's damages by deducting $9,000 from this figure. Sablebrook is entitled to judgment in the amount of $44,000.

[151] Sablebrook claims interest pursuant to the Supreme Court Act from 6 June 2003 to the date of judgment. The rate of interest claimed is the rate specified in the Practice Direction for default judgments, namely nine per cent. CUA does not contest the claim for interest. I calculate interest at $3,960 per annum. The period from 6 June 2003 to the date of judgment is approximately five years and four months. An award of simple interest for five years and four months is $21,120.

[152] There will be judgment for the plaintiff of damages in the amount of $44,000, together with interest in the amount of $21,120, namely $65,120.

[153] The parties will be heard on the question of costs.

1. [1] As to which see Kennedy v Trafford [1897] AC 180 at 184-185; Butt, P. 'The Mortgagee's Duty on Sale' (1979) 53 ALJ 172. Some authorities on the general law duty of a mortgage have recognised that it carries with it an obligation to take reasonable precautions to obtain market value. However, the position in Australia is not settled: Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Group Ltd [1978] HCA 21; (1978) 139 CLR 195 at 222-224. Views differ about whether the general law obligation to act in good faith is subsumed by the statutory duty: Cameron v Brisbane Fleet Sales Pty Ltd [2002] 1 Qd R 463 at 470 [37] c.f. Benzlaw & Associates Pty Ltd v Medi-Aid Centre Foundation Ltd [2007] QSC 233 at [143].
2. [2] Unreported, Supreme Court of Queensland, No 343 of 1970.
3. [3] Duncan & Vann Property Law and Practice at [7.2070].
4. [4] ibid at [7.2060].
5. [5] [1981] HCA 70; (1982) 152 CLR 491 at 497.