Total & Universal Pty Ltd v Kingsway Property Investments

Real Property Act 1900 LEGISLATION CITED : Valuation of Land Act 1916 Valuation of Land (Rating and Valuation) Amendment Act 1981

Denovan v Wagga Wagga City Council (1984) 53 LGRA 358 Kelmea Pty Limited v State Rail Authority (Supreme Court of New South Wales, Bryson J, 10 December 1986 unreported) CASES CITED : Kelmea Pty Limited v State Rail Authority of New South Wales (New South Wales Court of Appeal, 29 June 1988, unreported) Mackay v Dick (1881) 6 App Cas 251 Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 Motrix Supplies Pty Ltd v Bonds and Kirby (Victoria Avenue) Pty Ltd (Supreme Court of New South Wales, Giles J, 12 September 1990 unreported)

Total & Universal Pty Limited - Plaintiff PARTIES : Kingsway Property Investments (No. 2) Pty Ltd - Defendant/Cross-Claimant Rail Corporation New South Wales - Cross-Defendant

K Andronos - Plaintiff COUNSEL : J S Hilton SC; M Tyson - Defendant/Cross-Claimant F Lever SC - Cross-Defendant

Makinson & d'Apice - Plaintiff SOLICITORS : Corrs Chambers Westgarth - Defendant/Cross-Claimant Dibbs Abbott Stillman - Cross-Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

5947/03 TOTAL & UNIVERSAL PTY LIMITED v KINGSWAY PROPERTY INVESTMENTS (NO.2) PTY LTD & ANOR JUDGMENT HIS HONOUR: Nature of the Case 1 The predecessor in title of Rail Corporation of New South Wales ("RailCorp") granted a long-term lease of land at 7 Darley Road, Leichhardt. The plaintiff became, in 1999, the assignee of the lessee's rights under that lease. The plaintiff agreed to assign its leasehold interest to the defendant. The question at issue between the plaintiff and the defendant is whether the plaintiff is entitled to be paid any more money than the defendant has already paid, as the price of that assignment. 2 In broad terms, the lease in question was one under which the rental payable could increase in a way that was directly proportional to the value of the land leased. The contract to assign the lease from the plaintiff to the defendant was entered at a time when it seemed as though a rent review was imminent. The plaintiff and the defendant agreed on a price for sale of the leasehold, that was $900,000, subject to adjustment using a formula whereby the purchase price for the lease would be reduced by an amount that was directly proportional to the amount by which the rent, as ultimately revised, exceeded a particular number of dollars per annum. 3 The rent review had still not happened by the date at which the plaintiff and defendant had agreed to settle the transfer. They agreed to settle it by the defendant paying a certain amount to the plaintiff, and then later adjusting that amount once the revised rent became known. 4 The plaintiff contends that there has never been an effective adjustment of the rent, and hence it is entitled to the whole of the difference between $900,000 and the amount it received on settlement. The defendant contends that there has been an effective adjustment of the rent, in consequence of which the plaintiff is entitled to receive nothing extra. The plaintiff has some alternative contentions, that various different statements of the value of the land that there have been since the settlement count as an adjustment of the rent, and that in consequence of whichever of those might be found to be in truth an adjustment of the rent within the meaning of the contract, the plaintiff is entitled to be paid some more money. 5 The people involved in the events that gave rise to this case have acted with multiple misunderstandings. Some of them have, sometimes, acted misunderstanding each other. Some of them have, sometimes, acted misunderstanding the context of legal concepts in which they were working, and thereby misunderstanding what they themselves were doing. 6 That there are these misunderstandings means that this judgment cannot be written simply. I will first state the facts that are involved in the case, with virtually no commentary on those facts. Then I will examine the legal context in which those facts occurred, and then revisit the facts in light of that legal context. PART A - FACTS The Lease 7 The lease in question related to land contained in numerous certificates of title, that together comprised Lot 1 in Deposited Plan 531936 and Lot 1 in Deposited Plan 541328. 8 The lease was for a term of 50 years from 1 December 1968. Para (c) of an unnumbered clause on the front page of the lease fixed the rent at $6,000 per annum: "… PROVIDED THAT … if on the First day of any December during the continuance of the term a sum calculated at the rate of eight per centum (8%) of the then current Unimproved Value (as determined pursuant to the Valuation of Land Act 1916 or any Act amending or in substitution for the same) of the freehold of the demised premises shall be greater than SIX THOUSAND DOLLARS ($6,000-00) then in the year commencing on such First day of December the rent shall be such greater sum calculated as aforesaid in lieu of SIX THOUSAND DOLLARS ($6,000-00) PROVIDED THAT if at any time there shall be no current Unimproved Value of the freehold of the demised premises (as determined pursuant to the Valuation of Land Act 1916 or any Act amending or in substitution for the same) and the Lessee shall not within one (1) month after being requested in writing by the Lessor agree upon an amount as the Unimproved Value of the freehold of the demised premises then the determination of the said Unimproved Value shall be referred to arbitration in accordance with the provisions of the Arbitration Act 1902 as amended …" 9 The rent was payable quarterly in advance, on the first days of March, June, September and December in every year. As well, clause 3 obliged the lessee to pay, amongst other things, "taxes and all impositions and outgoings of whatsoever nature" relating to the demised premises. 10 The lease also stated: "36. THE Lessor for the purpose of determining the rental hereinbefore reserved may at any time but not more frequently than once in every three (3) years require a new valuation of the freehold of the demised premises to be made pursuant to the Valuation of Land Act 1916 as amended or any Act amending or in substitution for the same …" 11 As well, by a separate document, the plaintiff had a licence to occupy some adjacent land that belonged to RailCorp. RailCorp Tries to Raise the Rent Before the Assignment 12 The rights of the lessee under the lease have been assigned several times. The plaintiff came to be the assignee through a transfer of lease document dated 23 December 1999. At that time the rental was calculated as though the Unimproved Value of the land was $1,080,000. That value resulted in a rental of $86,400 per annum. Because of the transitional provisions that governed the introduction of GST on long-term leases, no GST was payable on that $86,400. 13 RailCorp was entitled to have the land re-valued as at 1 December 2001, for the purpose of striking a new rent. 14 At the time the plaintiff acquired the lease, part of the land was zoned industrial, and part of it - about 40% in area - had no zoning allocated to it. 15 Around the time that the rent review was possible at the end of 2001 - the evidence is unclear about precisely when - some of the land the subject of the lease - again, the evidence is unclear how much - was re-zoned as "business". Mr Richard Heseltine, the man who had practical control of the operations of the plaintiff, was aware that that rezoning would increase the value of the land, and hence would increase the rent. While he had no firm basis for a view about what the rent might be, he thought it was possible it might double. 16 Knowing of the impending rent review, the plaintiff tried to find a purchaser for its leasehold. Three parties expressed interest. The plaintiff had sought consent of RailCorp to assignments of the lease to these potential purchasers on 31 May 2001, 19 September 2001, and 1 February 2002. However, all of those proposals came to nothing. One of the sales fell through because the prospective assignee had concerns about how high the rental would be. 17 At first, RailCorp tried to reach agreement with the plaintiff about the quantum of a new rent, without going through a formal valuation. In February 2002 an agent from RailCorp wrote to Mr Heseltine, asserting that it had: "… undertaken a review of the freehold value of the subject property. In accordance with the valuation we would like to advise that the new market rent has been assessed at $330,000 per annum. This new rental is to be effective from 1 December 2001 and will be adjusted accordingly and reflected on your next rent invoice." 18 A rental of $330,000 would have been an increase of around 380%. Mr Heseltine did the calculation that showed that a rental of $330,000 would result from the land being valued at $4.125m. 19 Mr Heseltine consulted the plaintiff's solicitor, Mr Richard Hale, a partner at Phillips Fox. Mr Hale entered into correspondence with Dibbs Barker Gosling ("DBG"), the solicitors for RailCorp. Mr Hale expressed suspicion at not having been provided with the valuation that the rental assessment was said to be based on, and at the expressions "freehold value" and "market rent" that the letter of February 2002 claiming a rental of $330,000 per annum had used. This was, he pointed out, not the terminology of the clause in the lease that entitled RailCorp to a rental increase. As well, he disputed whether the land that had been valued was identical with the land the subject of the lease. Given the multiple certificates of title that comprise the land that was subject to the lease, that part of the land that was physically occupied by the plaintiff was occupied pursuant to the licence agreement, rather than pursuant to the lease, that the subject land was an irregularly shaped strip adjoining a railway line, and that a small part of the land that had originally been leased had been resumed for road construction, it was plausible that an error might have been made in identification of the precise land the subject of the lease. 20 Mr Edmund Jansen, the Property Operations Manager of RailCorp, reviewed the lease in February 2002. He was aware, at that time, that the Valuation of Land Act did not then use the concept of Unimproved Value. He formed the view that in the application of the rent adjustment clause there was no obligation to use an assessment issued by the Valuer-General's Department. In his view, any valuer could determine it, provided that that valuer used the method provided by the Valuation of Land Act, in the form it had been in before the concept of Unimproved Value disappeared from the Act. Mr Jansen was the only one of the actors in this story who realised, prior to February 2006, that the concept of Unimproved Value had disappeared from the Act. The Contract for Sale 21 On 6 May 2002 the plaintiff entered a contract to sell its leasehold interest to the defendant. The contract was entered in the form of the Standard Form of Contract for Sale of Land in New South Wales (2000 Edition), with special conditions added. The table on the front page stated that the price was $900,000, and the deposit was $90,000. That deposit was duly paid. 22 The completion date was fixed to be Friday, 20 September 2002, or such earlier time as the parties may agree. The contract contained the following special conditions: "4.2 If the purchaser defaults in payment of any money under this contract then interest at a rate of 10 per cent per annum and computed upon the money overdue during the period of default shall be paid to the vendor without the need for any demand and without prejudice to any other rights of the vendor. … 13.1 The purchaser acknowledges that the rent under the Lease is to be adjusted with effect from 1 July 2002. 13.2 If the reviewed rent is more than $140,000 plus GST then the purchase price will be adjusted by using the formula: $900,000 - ( $A x $900,000) $140,000

Where A = Revised Rent (less GST) - $140,000. 13.3 Notwithstanding clause 13.2 the parties agree that the Purchase Price will not be reduced below $90,000." … 15.1 If the rent review due on 1 July 2002 (and referred to in clause 13.1) has not been finalised by 20 September 2002 then the purchaser may rescind but only before 27 September 2002. If the purchaser does not rescind by 27 September then the purchaser must complete the contract in which case the balance of the purchase price must be paid into the vendor's solicitors trust account … 15.2 If the rent review is settled prior to 31 December 2002, the parties agree to release the funds to the parties within 7 days so that the purchase price has been apportioned under clause 13 (and the parties agree that clause 13 does not merge on settlement.) 15.3 If the rent review is not settled by 31 December 2002 then the purchaser authorises the vendor's solicitors to release $90,000 per month to the vendor (the first payment to be made on 2 January 2003), and thereafter on the first day of each month. 15.4 If the rent review is settled after 31 December 2002 then the parties agree to distribute the balance of the funds in trust within 7 days of the rent review being settled so as to give effect to clause 13." 23 The parts of the special conditions to the Contract for Sale that I have quoted were drafted by Mr Hale, not by the solicitor acting for the defendant. 24 Notwithstanding that Phillips Fox was acting for the plaintiff in connection with the contract for sale of the leasehold, the defendant also instructed Phillips Fox to act for it concerning that contract. Mr Sevag Chalabian (a Partner) and, after 1 June 2002, Mr Andrew Parr (a Senior Associate) dealt with the matter for the defendant. 25 Mr Parr had begun employment at Phillips Fox on 1 June 2002, as a Senior Associate. He was at that time an experienced solicitor, and was given the carriage of the file relating to the acquisition of the leasehold for the defendant, under the supervision of Mr Chalabian. The usual course of his work sometimes involved him assisting Mr Hale in the conduct of files. He and Mr Hale worked on the same floor of the office building that Phillips Fox occupied. The 23 May 2002 Valuation at $3.05M 26 On 16 May 2002 DBG provided Mr Hale with the valuation upon which the February 2002 rental claim of $330,000 had been based. It was a valuation by Australia Pacific Valuations (NSW) Pty Ltd, a private firm of valuers. Furthermore DBG conceded it was based on a slightly larger area of land than the land actually subject to the lease. DBG's letter of 16 May 2002 stated that another valuation was currently being undertaken by the State Valuation Office ("SVO"), that would be the basis of "the rent increase to take effect from 1 July 2002". By that time a consensus had developed between the plaintiff and RailCorp that any rent increase would take effect from 1 July 2002, notwithstanding the provision of the lease that made rental increases operate from 1 December in a year. 27 Mr Jansen had already seen that valuation by Australia Pacific Valuations. He had been dissatisfied with some aspects of it, and had initiated the obtaining of another valuation from the SVO. 28 The SVO at the time was part of the NSW Department of Public Works and Services. It provides the services of a valuer to various New South Wales government entities. It is to be distinguished from the Valuer-General. The Valuer-General is a statutory officer, appointed under section 8 Valuation of Land Act 1916, to exercise certain specific powers conferred on him by that Act or other legislation. At the time relevant to this litigation, some of the activities of the Valuer-General were carried out, as a matter of administration, through Land and Property Information NSW. It in turn was part of the Department of Information Technology and Management. 29 On 23 May 2002 Mr Warren Hayter, a senior valuer with the SVO, wrote to Australia Pacific Valuations, stating that: "… the Land Value of No 7 Darley Road, Leichhardt has been assessed as $3,050,000 in accordance with the Valuation of Land Act 1916 (as amended) as at the base date 1st July 2002." 30 By 21 June 2002 Ms Beth McIntyre, a solicitor who specialised in litigation, had taken over the carriage of the file at DBG. On 21 June 2002 she wrote to Mr Hale, advising him of this valuation (but not providing a copy of it), and saying: "In view of the fact that the valuation initially obtained in relation to the site was obtained on a slightly larger parcel of land than that land the subject of the Lease (which error has now been rectified), our client will increase the rent for the property from 1 December 2002. The basis of this rent increase will be the Land Value provided by the State Valuation Office as noted above." 31 On 24 June 2002 Mr Hale replied to DBG, requesting a copy of the valuation, and saying: "As the value alleged by you is $3,050,000 it is still an increase of 282% over the valuation of $1,080,000 as at 1 July 1999. We are instructed by the tenant that they do not agree to this valuation and require that this matter proceed "to arbitration in accordance with the provisions of the Arbitration Act 1902 as amended". We note that this request is within the one month time period required under the lease." 32 Mr David Tanevski, the man who for practical purposes ran the defendant, has significant experience in property, including experience concerning commercial property in the Sydney market. When he became aware, in June 2002, of the SVO's assessment of the land value as being $3.05m, he took the view that that would result in a reasonable rental for the property. He formed that view based partly on his general experience, and partly on the fact that the defendant had already entered into a contract (that the plaintiff was unaware of, that was conditional, and as things ultimately transpired did not proceed) to sublease this particular property for a higher rental than would have resulted from a land valuation of $3.05m. 33 On 2 July 2002 Mr Hale wrote to both the relevant officer of the Valuer General, and also the relevant officer of the SVO, referring to the valuation of 23 May 2002, and saying: "We note that the copy of the valuation does not refer to the fact that part of the site is unzoned. As the value alleged by the State Valuation Office is $3,050,000 (that is an increase of 282% over the valuation of $1,080,000 as at 1 July 1999) we are instructed by the tenant ratepayer that they do not agree to this valuation and object to such assessment. Our client has instructed Terry Dundas of Egan National Valuers to represent them in obtaining a correct valuation." 34 That letter produced a very prompt response, I presume verbal, from the Valuer-General's Office, that led Mr Hale to write another letter, on 3 July 2002, to DBG and the SVO, saying: "We have today been advised by the Valuation Section of the Department of Land and Property Information that there is no change to the previous valuations and that therefore the current value under the act for rate purposes remains at an unimproved land value of $1,080,000 and that the current value for land tax purposes remains at $1,180,000. The State Valuation Office have been contracted by them to value the land in the Leichhardt area as at 1 July 2002, but this is not expected to occur until September 2002. We note that the proviso in rent paragraph (c) on the front page of the lease only applies if there is no current unimproved value. We therefore cannot agree that any valuation allegedly provided by the State Valuation Office is a valid current assessment of the land value as at 1 July 2002 for the purposes of the act." 35 DBG replied to Mr Hale on 4 July 2002 saying: "We reiterate our advice that our client will increase the rent for the property from 1 December 2002, and the basis of the rent increase will be the Land Value provided by the State Valuation Office as noted above. We are instructed that the Land Value provided by the State Valuation Office has been completed in advance of other land in the Leichhardt area so that your client might have some certainty in relation to the increase in rent from December 2002. Your client may, of course, follow the established procedures and lodge an appeal against the Land Value with the Land and Property Information New South Wales (LPI). On 1 December 2002 "the then current Unimproved Value" will be either $3,050,000 or an amended figure pursuant to an appeal to the LPI." 36 Mr Hale replied to DBG on 10 July 2002, saying: "We note that the purported land valuation (dated 23 May 2002 for a valuation at 12 July 2002) has not been approved by the Valuation Section of the Department of Land and Property Information and is therefore not the current unimproved value. In the meantime we have objected to the alleged valuation." 37 By 11 July 2002 Mr Dundas had ascertained that about 40% of the site was unzoned. On 11 July 2002 Mr Hale requested both the "Valuation Department, LPI" (ie the Valuer-General), and also the SVO, to provide a copy of the actual valuation on which the letter of 23 May 2002 had been based, "so that we can prepare our detailed response as part of the objection process". He said that one of his concerns about the letter of 23 May 2002 was that it was dated 23 May 2002 but purported to relate to a valuation date of 1 July 2002. As well, Mr Hale enquired whether the Valuation Department "proposes to authenticate" a 282% increase in the valuation, and "whether the valuation dated 23 May 2002 is officially sanctioned by your department and represents the unimproved land value as at 1 July 2002". 38 DBG remained adamant. It wrote to Mr Hale on 12 July 2002, saying: "Unless and until the valuation provided by the State Valuation Office is varied, our client is entitled to rely on it pursuant to clause (b) of the lease."

That reference to "clause (b)" was erroneous. Ms McIntyre says she was intending to refer to the provision I have quoted at para [8] above. 39 On 19 July 2002 the Valuation Department of the LPI wrote to Mr Hale, clarifying the situation: "The "land value as at 1 July 2002" advised to Australian Pacific Valuations by the State Valuation Office by letter dated 23 May 2002 is not a land value issued by the Valuer-General. It has no standing as a statutory land value in terms of the Valuation of Land Act 1916, and therefore conveys no statutory right to lodge an objection. The land values for the Valuation District of Leichhardt for the Base Date of 1 July 2002 are due for completion by the end of October, 2002. The contract valuer for this District, the State Valuation Office, has not yet submitted the proposed levels of value for Leichhardt to the Valuer-General for approval. The Valuer-General is therefore not yet in a position to comment as to the correctness or otherwise of the SVO's advice of 23 May 2002. When Notices of Valuation are issued during January, 2003, separate notices will be issued to both the lessor and lessee of the subject property. The Register of Land Values currently records Fielders Gillespie Ltd as the lessee. You would be well advised to formally notify the Valuer-General of the assignment of the lease to your client as soon as it is executed, so as to ensure that your client receives its Notice. Only upon the receipt of such Notice will your client be able to exercise its statutory right to lodge an objection to the land value which will be stated thereon." 40 Mr Hale passed that letter on promptly to DBG, and gave Mr Parr a copy of his letter to DBG that enclosed it. 41 Fielders Gillespie was one of the plaintiff's predecessors in title, as an assignee of the lease of the premises. The Valuer-General seems not to have realised that the assignment of the lease to the plaintiff had occurred years previously. Nothing was done to advise the Valuer-General that the plaintiff was already the assignee of the lease. 42 On 22 July 2002 Mr Hale wrote to the Valuation Department of the LPI and the SVO, with a copy to DBG, requesting that any future valuation should take into account the unzoned part of the site, and should follow a site inspection, and an examination of the council's zoning records. 43 In an affidavit in reply, Mr Heseltine gave evidence that in about July 2002 he had a meeting with Mr Tanevski in a coffee shop in Martin Place. Mr Heseltine gives evidence that the two men discussed what the Valuer-General's valuation of the property would end up being. I will not set out the substance of that evidence, as I am not persuaded that conversation of the type concerning which Mr Heseltine gave evidence actually occurred. 44 On 5 August 2002 DBG wrote to Mr Hale, saying: "A revised land value of the freehold of the leased property, as at 1 July 2002, will be issued by the Valuer General in January 2003. That valuation will become the basis for the rent payable under the lease from 1 December 2002. In view of the term of the lease, the lessee has standing to appeal against that valuation."

Mr Hale passed a copy of that letter on to the defendant's solicitor. The 14 August 2002 Valuation at $3.05M 45 Because SVO's letter of 23 May 2002 had been addressed to Australia Pacific Valuations, internal procedures of RailCorp prevented it from paying SVO for the valuation. On 14 August 2002 an officer of RailCorp emailed Mr Hayter, referring to the valuation of 23 May 2002, and asking for "a copy addressed to SRA rather than APV". Here "SRA" referred to RailCorp. 46 Mr Hayter obliged immediately, providing a letter, also dated 14 August 2002, that was addressed to the Property Operations Manager, Rail Estate, and said: "I refer to letter dated 25th of March 2002, from Mr Michael Covey of Australian Pacific Valuations and advise the Land Value of No 7 Darley Road, Leichhardt has been assessed as $3,050,000 in accordance with the terms of Lease L850036 (as amended by U673376) as at the date 1st July 2002."

Rail Estate is a name that the property activities of RailCorp were conducted under at that time. That letter did not come to the attention of anyone on behalf of the plaintiff or the defendant until 31 October 2002. 47 On 22 August 2002 Ms McIntyre had a telephone conversation with Mr Parr, to the following effect: PARR: "We hear that Mr Heseltine has put offers to the SRA to agree a new rent. The rent increase is an important issue for our client because it affects the purchase price." MCINTYRE: "I don't believe that the SRA will accept any offer, they have to follow the lease mechanisms." PARR: "Once the lease has been assigned our client is unlikely to continue to object to the valuation." 48 That last remark of Mr Parr was based upon his having been told the views that Mr Tanevski had already formed about the reasonableness of the rent based upon a $3.05m land value. 49 And Mr Parr had heard correctly that Mr Heseltine had been seeking to reach agreement with RailCorp about the new rent. However, those attempts of Mr Heseltine were unsuccessful. Ms McIntyre wrote to Mr Hale on 26 August 2002, saying: "We refer to your letter of 8 August 2002 requesting that our client consider your client's offer to set the rent for the above property at $135,000 plus GST for the period from 1 December 2002 to 30 November 2005. Our client's instructions are that it will rely upon the Valuer General's determination of the land value of the freehold of the leased property to set the rent for the leased property from 1 December 2002." The Variation of the Contract for Sale 50 On 23 August 2002 Mr Chalabian and Mr Parr wrote to Mr Hale, putting a proposal whereby completion of the sale could take place on 20 September 2002, at the purchase price that would result if the $3.05m valuation was ultimately adopted, and with adjustments being made later if that valuation was not adopted. Alternatively, the contract could be varied so as to make the price that would be payable if the $3.05m was the appropriate value the selling price, on a final basis and subject to no later adjustment. 51 On 27 August 2002 Mr Hale told Mr Parr that that alternative proposal was rejected. 52 On 2 September 2002 Mr Parr submitted to Mr Hale a draft transfer of the leasehold interest. He did that in accordance with the usual New South Wales conveyancing practice, whereby the solicitor for the purchaser of an interest in land prepares the transfer instrument in draft, submits it to the solicitor for the vendor, and, if the drafting is acceptable to the solicitor for the vendor, the solicitor for the purchaser receives that transfer back, executed by the vendor, at settlement. As at 2 September 2002, because of the price of the leasehold being subject to adjustment, the contract had been stamped on an interim basis by the Office of State Revenue, and (in accordance with the usual practice where the final amount of duty payable on the transaction is not known) the transfer had not been stamped. The transfer document that Mr Parr submitted showed the consideration as being $900,000, and was signed by Mr Chalabian, as the transferee's solicitor, for the purpose of certifying it correct for the purpose of the Real Property Act 1900. 53 Negotiations continued about the basis upon which an interim settlement might be achieved. Mr Hale proposed to Mr Parr, on 3 September 2002, that the documentation include a "requirement for purchaser to appeal against a VG determination if reasonably required by the vendor". After obtaining instructions, Mr Parr replied on the same day: "… the requirement of the purchaser to appeal against the Valuer-General's determination if reasonably required by the vendor was never discussed and is not agreed." 54 On 3 September 2002 Mr Hale emailed Mr Parr, saying: "In view of the proposal to settle without full payment - could you please confirm that I may retain the transfer of lease after settlement in escrow until final payment received (as it bears a receipt clause for the full amount) - you will not be able to register it anyway until the final amount is known." 55 Mr Parr replied the same day: "Unfortunately our mortgagee requires the transfer on completion and will retain it as part of its security arrangements (despite it not yet being stamped). We will seek our client's instructions to provide a written form of confirmation of settlement or undertaking to request its mortgagee to attend to stamping and registration."

The evidence does not reveal whether or not those instructions were ever given. 56 On 4 September 2002 Mr Parr emailed Mr Hale, saying: "Please delete the figure of $900,000 from the transfer provided to you. Please also confirm that the vendor authorises the purchaser to complete the Transfer with the correct amount of the purchase price (plus GST) when that amount is determined under the contract." 57 Mr Hale gave oral evidence, that I accept, that he believed that the confirmation so sought, was given. 58 Later on 4 September 2002 Mr Hale emailed Mr Parr saying: "Our clients have discussed today the issue of an appeal and our current instructions are not to press the point - on the basis that your client has assured ours that they will definitely not appeal as they do not wish to rock the boat with government departments. However, for the record, we would point out that should your client appeal and the valuation be reduced our client would be entitled to further consideration under the agreed formula." 59 On 6 September 2002 the plaintiff and the defendant entered a Deed of Variation. It made variations to the contract for sale of the leasehold interest, in the following respects: "1.1.5 Amending the date in Clause 13.1 to read 1 December 2002; 1.1.6 Adding a new clause 13.4 as follows: On the Completion Date the Purchaser must pay to the Vendor an amount equal to the sum of $231,428.61 (plus the GST payable in relation to that amount of $23,142.86 less the Deposit of $90,000 paid on the date of this Contract) in advance of final calculation and adjustment of the Purchase Price in accordance with Clauses 13.2, 13.5 and 13.6, plus an amount equivalent to the $24,000 bond paid by the Vendor as lessee under the Lease (plus interest accrued on that amount) held by the lessor under the Lease; 1.1.7 Adding a new clause 13.5 as follows: As soon as reasonably practicable and promptly after the rent to apply from the date in Clause 13.1 is determined in accordance with the Lease the parties must adjust and pay to the other party as required such amount as when added to or deducted from the amount of $231,428.61 paid by the Purchaser to the Vendor by way of Deposit and under Clause 13.3 as will make net payments by the Purchaser to the Vendor (or the Vendor to the Purchaser) in satisfaction of the Purchase Price equivalent to the amount calculated under Clause 13.2; 1.1.8 Adding a new clause 13.6 as follows: After any appeal of any relevant valuation of the Land by the Purchaser for the purposes of determining the rent to apply from the date in clause 13.1 is determined the parties must again pay to the other party such amount as is required to make net payments in satisfaction of the Purchase Price from the Purchaser to the Vendor equivalent to the amount calculated in accordance with Clause 13.2 on the basis of rent determined under the Lease after determination of that appeal, 1.1.9 Adding a new clause 13.7 as follows: If required by the Purchaser, on or after the Completion Date the Vendor must provide to the Purchaser such notice to the lessor under the Lease that the bond, and any interest accrued on it, under the Lease stands to the credit of the Purchaser; … 1.1.11 Deleting Clause 15;" 60 There was no provision in the Deed of Variation which required the defendant to appeal against any Valuer-General's determination, in any circumstances. 61 The interim settlement of the transfer occurred on 20 September 2002. At it, the transfer, still unstamped, executed under seal by the plaintiff, dated 20 September 2002, and with the amount of $900,000 that had originally appeared in it crossed out, but no other amount inserted as the consideration, was handed to the defendant's solicitor. The defendant paid the plaintiff the balance of the $231,428.61, adjusted by the usual conveyancing adjustments that are made on settlement of a sale of real estate. 62 On 20 September 2002 the plaintiff and the defendant also entered into a Deed of Assignment of Licence, relating to the areas of land that the plaintiff had occupied under licence. RailCorp Notifies Defendant of a Rent Increase 63 On 14 October 2002 Ms McIntyre faxed to Mr Jansen documents including a draft letter to the defendant advising of an increase in rent effective from 1 December 2002. Mr Jansen did not adopt her draft, and prepared a different letter. 64 On 31 October 2002 Mr Jansen wrote to Mr Tanevski saying: "We have been advised that the Lease of the above property (Lease No L850036) has been transferred from Total and Universal Pty Limited to your company, Kingsway Property Investments (No. 2) Pty Limited. The transfer was completed on 20th September 2002. Provision is made within clause 36 of the lease, once in every three (3) years, for a new valuation of the freehold of the demised premises to be made, for the purposes of determining the rental. The State Valuation Office has advised me that the valuation has been assessed as $3,050,000 in accordance with the terms of the Lease. Enclosed is a copy of the advice. The lease provides for the rental to be calculated at the rate of 8% of the valuation. Notice is given that the new rental, on and from 1st December 2002, will be $244,000 payable quarterly in advance at the rate of $61,000." 65 The advice from SVO enclosed in that letter the brief letter from SVO to RailCorp dated 14 August 2002, that I have quoted at para [46] above. 66 Mr Jansen hand-delivered that letter, himself, to the office of the defendant on 31 October 2002. He took that unusual course to make sure that the defendant would have a month after delivery of the letter, before 1 December 2002 arrived. He took the view that, if in that month the defendant had not objected to the amount of rent referred to in his letter, then the rent would be fixed, pursuant to the lease, at the figure he had nominated, from 1 December 2002. 67 On 12 November 2002 DTZ Australia, the managing agents who dealt with day-to-day tenancy matters concerning the property, sent a tax invoice to the defendant, that asserted that $66,673 was payable on 1 December 2002. That amount was the amount of quarterly rent plus GST that would be payable on 1 December 2002, if the rental were to be fixed at the annual rent nominated in Mr Jansen's letter of 31 October 2002. 68 Mr Kaizad Irani was a Portfolio Manager employed by RailCorp. This property was one of the ones for which he had responsibility. He reported to Mr Jansen. On 29 November 2002 Mr Irani wrote to Mr Tanevski, at Mr Jansen's request, saying: "I refer to Ed Jansens letter to you, dated 31st October 2002 and am writing to remind you that as of the 1st December 2002 the rent for the property will be $244,000.00 per annum. This sum is payable in advance, at the rate of $61,000.00 per quarter commencing on the 1st of December 2002, please ensure that a cheque for this amount is forwarded to our office by the due date." 69 As from 1 December 2002, the defendant has been paying rent to RailCorp at the rate derived from a valuation of the land at $3.05m. 70 When Mr Tanevski received the letter of 31 October 2002, he believed it was a valuation under the Valuation of Land Act, and effective for the purpose of the rent review under the head lease. He faxed a copy of it, immediately he received it, to Mr Chalabian, who did not tell him otherwise. His purpose in sending the letter to Mr Chalabian was so that Mr Chalabian could inform the plaintiff or its solicitors of the valuation, and the purchase price could then be determined. However, the defendant's solicitors did not do that immediately. The 17 December 2002 Notification of Value at $3.05M 71 On 17 December 2002 RailCorp received a Notice of Valuation relating to the property, showing it had a net land value of $3,050,000, as at 1 July 2002, and a gross land value of the same amount at that date. It identified the valuation as having been made on 23 September 2002. 72 A copy of that Notice of Valuation was probably sent to Fielders Gillespie, because Fielders Gillespie was still recorded on the Register of Values as the sitting tenant. Notwithstanding the Valuer-General's letter of 19 July 2002 (para [39] above) details of later assignments of the lease had not been notified to the Valuer-General for recording in the Register of Land Values. A copy of the Notice of Valuation was not sent to either the plaintiff or the defendant. 73 There was a flurry of activity on 17 January 2003. Mr Parr wrote to Ms McIntyre saying: "We are informed by the Valuer General's office that a valuation notice has been issued to the SRA in relation to the above land. Please provide us with a copy of that notice in order that we can confirm the appropriate rent and payments to the Vendor of the licence under which Kingsway Property Investments (No. 2) Pty Limited acquired registered Lease L850036." 74 As well, Mr Parr wrote a letter to Mr Hale, marked "without prejudice", and on the specific instructions of Mr Tanevski, saying: "We refer to the contract dated 6 May 2002 under which Kingsway Property Investments (No.2) Pty Limited ( Kingsway ) purchased the lease of the above land from Total & Universal Pty Limited ( Total ). We are instructed to inform Total that the landlord has notified Kingsway of determination of the rent under the lease and attach copies of the relevant correspondence dated 31 October 2002. We are instructed that Kingsway has accepted the notified rent and has paid the same. The rent for the purposes of clause 15 of the above contract has been determined and settled. Calculation of the purchase price for the lease under Clause 13 of the contract can now be made and such calculation produces a figure equivalent to the amount of the purchase price already paid. Kingsway will now proceed to stamp and register the transfer of lease." 75 The "correspondence dated 31 October 2002" referred to in this letter was Mr Jansen's letter of that date, quoted at para [64] above. It purported to be justified by the SVO's 14 August 2002 valuation, not by any decision of the Valuer-General. Clause 15 of the standard conditions of the contract had nothing to do with rent, and special condition 15 had been deleted by the Deed of Variation of 20 September 2002, so it is difficult to tell what the reference to "clause 15" in that letter was intended to be. 76 Also on 17 January 2003 Mr Parr wrote to an officer of the Valuer-General, explaining that the defendant had become lessee of the property on completion of a contract to purchase on 20 September 2002, and continuing: "A copy of the Transfer on completion is attached for your records. Please amend the records of the Valuer General and Land and Property Information NSW to record Kingsway as the current lessee (noting that prior changes of the lessee have not been notified to the Valuer General). The address details for Kingsway are as follows: [address] We understand that the valuation notices have already been issued to parties recorded as being the proprietor and lessee. We have obviously therefore missed out on the official valuation notice and request that you provide us with a copy of the property details setting out the valuation for all of the titles in the attached Transfer and the property as a whole. Stamping of the transfer will depend on calculation of rent under the lease, which calculation is dependent on the figures in the valuation notices. Accordingly, your urgent attention to this matter is requested."

At that date the transfer was in exactly the same form as it had been when handed over at the settlement. 77 Mr Hale did not accept that the rent had been validly determined. He replied to Mr Parr on 17 January 2003: "I refer to your "without prejudice" letter and email (as attached). I note the advice of Michael Croker, District Valuer (LPI) dated 19 July 2002 (a copy of which was previously provided to you) that although land values would be available in October 2002 the official Notices of Valuation are to be issued In January 2003 (and that those notices are the ones to which objections can be made). I note that I have previously asked for copies of the Notice of Valuation when issued. At present the advice of 14 August 2002 provided by you today is obviously is not a statutory land value. As the letter of 14 August 2002 is not a notification of a statutory land value it cannot be a valuation under the terms of the Valuation of Land Act 1916. Your comments about the fixing of the purchase price therefore appear to be premature." 78 I infer that it was after receiving that email from Mr Hale that Mr Parr wrote another letter, on 17 January 2003 to Ms Marguerite Ellis, the Office Manager of Land and Property Information NSW. That letter explained that the defendant had become the lessee, and that: "Under the terms of that long-term lease, registered No. L850036, the rent is determined after a statutory value of the land to be a percentage of that valuation. Under the terms of the contract under which Kingsway purchased the lease from Total and Universal Pty Limited, the purchase price was to be adjusted when the statutory valuation for the year 2002 became available. Determination of the purchase price would enable confirmation of the rent, and under a formula set out in the purchase contract, determine adjustments of the purchase price and thereby allow calculation of final stamp duty payable in relation to the contract and the transfer and subsequent registration of the Transfer of Lease. Please confirm valuation of the property known as 7 Darley Street, Leichhardt in order the we can attend to calculation of the purchase price adjustments consequent on that valuation, payment of stamp duty and registration of the Transfer of Lease." 79 The matter then went quiet until 10 February 2003, when Mr Hale sent Mr Parr an email that reminded Mr Parr of Mr Hale's email of 17 January 2003, and said: "Please advise urgently whether a proper valuation under the legislation has been issued and please provide a copy." 80 Mr Parr made enquiries of Ms Ellis. He obtained a certificate of land value under the Valuation of Land Act 1916, dated 11 February 2003, said to be based on a valuation made on 23 September 2002, and showing a gross land value of $3,050,000. It stated: "Land Value Basis: 6A(1) The land value is the freehold value of the land excluding any structural improvements"

It stated on its face that it was issued under the Valuation of Land Act 1916. 81 On 14 February 2003, before that Valuation Certificate was passed on to him, Mr Hale said to Mr Parr: "The transfer of lease can not be completed as no price had been settled or agreed and therefore the transfer of lease can not be stamped and registered." 82 On Friday, 14 February 2003 Mr Parr sent a copy of that Certificate of Valuation to Mr Hale and to Ms McIntyre, saying: "As the valuation is for the amount previously notified, no further payment under the Contract for Purchase of the Lease is payable by our client. We will accordingly proceed to stamp the contract and register the transfer of lease." 83 As Mr Hale and Mr Parr worked on the same floor of the same office, Mr Parr hand delivered that letter to Mr Hale. Mr Parr says that on the evening of 14 February 2003 "Mr Hale vigorously complained to me that he did not accept the Notice of Valuation as valid". 84 On 14 February 2003 at 5:23 pm Mr Hale sent an email to Mr Parr, that he copied to Mr Heseltine, Mr Chalabian, and Ms McIntyre, "confirming that I do not accept the Notice of Valuation as a valid valuation for the lease purposes". He identified what he saw as its deficiency - that the area of land valued was not the same as the area of land leased, because the area of land valued included the land that was subject to the licence agreement, and also included some land that had once been part of the area leased but had been resumed for the purpose of the City West Freeway. He concluded: "As the notice is clearly defective and since the High Court have thrown doubt on the whole valuation process in the Maurici decision handed down yesterday my suggestion (without instructions at this stage) is for all three parties involved to consider jointly objecting to the notice and commission an independent valuer agreed upon by the parties to represent them. There is also the issue that part of the site is unzoned (as was pointed out to the valuation department in our fax of 11 July 2002). Please note that I will not be in the office on Monday 17 February 2003." 85 The Maurici decision there referred to is Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111. That case had held that a valuation under section 6A(1) Valuation of Land Act 1916 of the land value of a parcel of land that was improved, in a suburb where vacant land was very scarce, was flawed when it was based on supposedly comparable sales that were all of vacant land. The bearing that Maurici's Case has on the value of the land involved in the present case is hard to see. Notwithstanding that, Mr Hale's vigorous rejection of the validity of the Certificate of Valuation was quite apparent. 86 Mr Parr reported to Mr Chalabian, by email sent at 5:44 pm on 14 February 2003, saying: "Richard has indicated that if we seek to fight his interpretation he would consider the parties are in conflict and that we should no longer act, probably for either party. This position certainly has some merit given the difficulty we will have getting the parties to agree a value. I suggest I first approach the valuer general's office to seek guidance as to a method of getting a revised valuation (being on notice of the technical faults of this valuation). Richard also indicated that we should not seek to complete the transfer on the basis of the valuation." 87 Mr Parr then replied to Mr Hale by email, at 6:05 pm, saying: "Richard, just to let you know, I have spoken to Sevag and have outlined your comments to him and without seeking the comments and document for himself he essentially agrees with you. We will seek a way forward to obtain a correct valuation either by objection or revision seeking a valuation of the actual lease area to resolve this matter." 88 Mr Parr was in the delicate position of finding that his client, the defendant, took the view that the valuation process was now complete, while Mr Hale, a solicitor senior to him and one of his employers, took the position it was not. As well as the email that Mr Parr sent on Friday, 14 February 2003, he had face-to-face discussion with Mr Hale. I accept that, in that discussion, he stated that any position that he personally might be taking about what should be done was subject to instructions. 89 On Monday, 17 February 2003 Mr Parr wrote to Ms Ellis, thanking her for sending the Valuation Certificate, and continuing: "On presentation of that valuation to the Vendor's solicitor, the Vendor's solicitor objected to the valuation on the following basis: 1 The notice refers to three (3) titles and incorrectly includes the land which is subject to a licence only and is not included in the premises leased from the State Rail Authority and is therefore not part of the leased premises that were to be valued. The offending land is Lot 1 in Deposited Plan 540008 of an area of 31.3 square metres. 2 The area of 5,589 square metres, said to be the area of the valuation, also includes areas resumed by the RTA, in relation to which we attach a copy of a letter dated 23 April 2001 and Notice of Resumption. The Vendor's solicitor states this includes a corner area of 19.6 square metres from Lot 12 DP1014318 and may include further land taken from the northern boundary of the site. 3 The vendor's solicitor therefore states that the area of the leased land can only be of the total amount of $5,538.7 square metres … different from the area quoted in the notice. Please let me know how we can proceed to obtain a valuation of the land that is currently leased from the State Rail Authority under Registered Lease number L850036. Please also confirm the rate per square metre is applicable for the land used in the valuation provided however, I suspect the Vendor's solicitor will not be satisfied. Please further confirm whether the valuation relates to unzoned land or otherwise. We are instructed by the solicitor for the Vendor that the valuer undertaking the valuation did not conduct a site visit and has not confirmed what zoned or unzoned land is included in the valuation calculations. We assure you of our eagerness to ascertain the true area leased and put valuation of that area to rest." 90 That letter was sent without Mr Parr showing it to Mr Tanevski beforehand. 91 On 19 February 2003 Mr Chalabian sent a letter to Mr Hale, that he wrote on the specific instructions of Mr Tanevski: "As presaged on Friday we are now instructed that our client wishes to take a different view from the view expressed by you in relation to the valuation. We have appraised our client of the conflict this may create and that our client's view will place our respective clients in dispute. Accordingly we have ceased to act in relation to completion of the sale of the lease of the above site and have advised our client to seek legal advice and assistance from another firm of solicitors in relation to the valuation and stamping and registration of the transfer. The instructions to us placing our client in dispute with the position taken by the vendor in relation to the valuation on Friday are set out below. Our client was at some pains to relay the below instructions and we undertook to put your client on notice of same and to inform you we are no longer acting on this matter. Our former client's/ the purchaser's view is as follows: 1 The area which has been included in the valuation and which appears not to be part of the leased premises (the purchaser does not admit this) is approximately 50 square metres. This is relative to a total site area of the valued premises of 5589 square metres. Therefore, it is less than 0.9% of the site area. In the purchaser's opinion this will have a negligible, if any, impact at all on the valuation. 2 The valuation is a proper valuation issued by the State Valuation Office for purposes of the lease and the purchaser/lessee has accepted same. 3 The purchaser does not intend to object to the valuation. 4 If the purchaser was of the view to object to the valuation (which it is not), the costs of the objection cannot justify any possible revaluation (which is in itself unlikely). 5 The purchaser further noted that the vendor has refused to pay licence fees from the settlement date and the purchaser has terminated its licence and removed it from the premises. We are to advise you that our client will be instructing another firm to commence proceedings against your client to recover the same. 6 Therefore, in these circumstances, the purchaser denies your client has any right to raise the issues it has raised and, as far as the purchaser is concerned, this matter is at an end. We regret any difficulty that may arise from our ceasing to act for the purchaser and will provide details of the new solicitor appointed by the purchaser to finalise the contract and transfer as soon as they are to hand. We are happy to assist transmission of any correspondence until such details are available but think it is appropriate that any such correspondence be directed to: [Mr Tanevski's address]" 92 The opening words of that letter refer back to the message that Mr Parr had communicated to Mr Hale on Friday, 14 February 2003 about his views being subject to instructions. 93 At the time the conveyancing file for the defendant was handed over by Phillips Fox, the transfer of lease remained unregistered, and in exactly the same condition it was in at the time it was handed over by the plaintiff's solicitor on 20 September 2002. The Plaintiff's Objection to the Notice of Valuation 94 On 21 February 2003 Mr Hale wrote a letter to the Valuer-General, headed: " NOTICE OF OBJECTION Lease Number: L850036 Total & Universal Pty Limited (ACN 087 798 552) ('Total') Valuation of Land Act 1916 Property: 7 Darley Street, Leichhardt " 95 It was a letter in ordinary prose, that set out the substance of the alleged defects that Mr Hale had communicated in his email to Mr Parr of 14 February 2003. It added: "… our client, Total, objects to the valuation. There is also the issue that part of the site is unzoned (as was pointed out to the valuation department in our fax of 11 July 2002). Our client's valuer, Terry Dundas, has also inspected the site and has advised that the valuation would need to take into account the easement and drainage effects on the site and the problems of the unusual site configuration. Would you please arrange for Terry Dundas to be provided with a copy of your valuation so that he can formulate a detailed critique of the methodology. Please also note that since your Department was put on notice last July of the difficult nature of this site that our client reserves all of its rights in respect of this defective valuation." 96 That letter was copied to Mr Heseltine and Mr Dundas, but not to anyone on behalf of the defendant, or RailCorp. 97 Mr Hale lodged that "notice of objection" without first reading the Valuation of Land Act. He believed that the Valuer-General would notify other interested parties, and give them the opportunity to make submissions. In fact, the Valuer-General did not notify either the defendant, or RailCorp, and dealt with the objection on the basis of submissions from the plaintiff alone. 98 The Valuer-General replied to Mr Hale on 27 February 2003, saying that the objection had been received outside the statutory period for objections, but that the Valuer-General had a discretion to accept out of date representations, and would consider the matters that Mr Hale raised. On 12 March 2003 the Valuer-General informed Mr Hale that he would treat his letter as an objection out of time. 99 Mr Dundas expressed his views about the inadequacies of the valuation process, and arranged an on-site meeting with someone from the Valuer-General. The Transfer of Lease is Registered 100 Without the knowledge of anyone on the part of the plaintiff, the transfer of lease became registered. A stamp indicating the payment of stamp duty was placed on the transfer on 20 March 2003. Someone filled in the blank in the transfer relating to the consideration paid, by inserting as the number of dollars "231.428.61". Alongside that figure appears the stamp that the Office of State Revenue applies to a document to indicate it has noted an alteration. As the amount of stamp duty payable could not be assessed until the purchase price was known, that figure must have been inserted into the transfer on or prior to 20 March 2003. 101 A marking on the face of the transfer indicates that it was received in the office of the Registrar-General no later than 3 April 2003. 102 On 14 May 2003 Mr Hale conducted a search, and obtained a copy of the transfer of lease, which revealed these facts to him. He forthwith emailed Mr Chalabian and Mr Parr (notwithstanding that they had ceased to act for the defendant), telling them of these facts, and saying: "You are, of course, aware that no consent had been given for the insertion of the purchase price into the transfer, since no valid valuation had been obtained. Attached is a copy of the transfer as registered and showing that a figure has been inserted which could not possibly be correct (as it is the lowest figure without any GST) … I require your immediate assurance that the transfer was blank as to price at the time you delivered the transfer to the purchaser or a third party on their behalf. Obviously there may be serious consequences if an unauthorised alteration has been made to a document and produced to the OSR & LPI - and the transfer still has Sevag's signature as the transferee's solicitor. I reserve all of my client's rights." The Valuer-General's Revised Valuation of 16 May 2003 at $2.3M 103 Meanwhile, the objection to the valuation, that Mr Hale had instigated on 21 February 2003, was advancing. On 15 May 2003 Mr Dundas wrote to Mr Heseltine, saying: "I have had extensive discussions/conferences with Mr Alan Vincent of the Valuer General's Office in relation to this matter. We have advised Mr Vincent of our concern in relation to the "usable" area of the site, in relation to the "actual" area of the site. Mr Vincent informs me he has inspected the site and agrees with our views, part of this site being unusable. Mr Vincent also agrees with our views as to the limited commercial potential of the site considering the shape of the area zoned for such. Accordingly Mr Vincent has advised he is prepared to recommend the value of the site be reduced to $2,300,000. I would tend to agree with such a level of value and would strongly recommend you accept this result. Of course you can take the matter to the Land and Environment Court, however I would stress there are risks in such action: the value could even be increased." 104 Mr Vincent's recommendation was accepted. On 16 May 2003 a representative of the Valuer-General wrote to Mr Dundas, saying: "I refer to your objection to the above valuation. The issues raised by you have been considered and it has been decided that the Land Value should be amended to $2,300,00. The relevant rating and/or taxing authorities will be notified of this amendment shortly." 105 The letter went on to advise of appeal rights against the decision. Plaintiff and Defendant Disagree Over Applicability of $2.3M Valuation 106 On 26 May 2003 Mr Hale wrote to Ms McIntyre, sending her a copy of the Valuer-General's letter of 16 May 2003, and of the transfer of lease, and saying: "We calculate an amount of $184,000 as the revised rent payable from 1 December 2002 - being 8% of $2.3 million" 107 On 26 May 2003 Mr Hale wrote direct to Mr Tanevski, saying: " Notice to Pay Second Instalment Transfer of Lease L850036 Special Condition 13.2 of Contract dated 6 May 2002 Total & Universal Pty Limited (ACN 087 798 552) to Kingsway Property Investments (No. 2) Pty Limited (ACN 100 314 118) Please find enclosed: 1 (Copy) Notice of Amendment to Original Valuation of Land under the Valuation of Land Act 1916 for the property at 7 Darley Road, Leichhardt; 2 Settlement Statement calculating an amount outstanding of $403,674.67 (including details of bank cheque requirements); 3 Copy transfer 9485976. Please forward the bank cheque to us immediately. If payment is not made within 7 days of the date of this letter our client reserves its rights to claim 10% interest under special condition 4.2 of the Contract. Please note we reserve our client's rights in respect of the unauthorised and unilateral insertion in the transfer of the incorrect figure for consideration. You are reminded of your statutory obligation to upstamp the Contract." 108 Mr Tanevski wrote back on 27 May 2003, denying that the defendant had any liability, questioning whether the contract provided for any variation of the price on the basis of an appeal lodged by the plaintiff, and also questioning whether the plaintiff had any right to appeal at all after it had ceased to be the lessee of the premises. 109 Soon after 26 May 2003 Mr Tenevski had a conversation with Mr Jansen, as follows: TANEVSKI: "Ed, what is going on? I have just received a letter from Heseltine's lawyers saying that there has been a new valuation issued for $2.3 million. What is all this about? JANSEN: "I am not sure David, but it is not a valuation we would be relying on. The valuation is $3.05 million" TANEVSKI: "How did he get a new valuation without your or my consent?" JANSEN: "I don't know" TANEVSKI: "Is the rent going to drop if this is the new valuation?" JANSEN: "No. We are not accepting it. The rent will stay the same" 110 RailCorp has continued to charge rent as though that valuation of $2.3m had never been made. The defendant has continued to pay the rent so charged. 111 By August 2003 the plaintiff, and by September 2003 the defendant, had handed the conduct of this matter to other firms of solicitors. The then solicitor for the plaintiff wrote a letter to the then solicitor for the defendant, outlining the plaintiff's contentions. The then solicitor for the defendant replied on 15 September 2003, to an allegation that the transfer document had been fraudulently altered in a way that was unauthorised. The response was: "The Transfer was amended by our client's lawyer to reflect the unambiguous provisions of the Contract." The Certificate of Value As At 1 July 2003 at $2.3M 112 There is another certificate of land value from the Office of the Valuer-General, relating to these premises. It records that for the valuing year 1 July 2003 the gross land value is $2.3m. That is said to be based on a valuation made on 28 October 2003. 113 An undated file note produced by the Valuer-General gives some insight into the factual basis for reduction of the valuation: " Base Date 2002 Land Value was reduced for the following reasons : SVO provided a BD 2002 LV of $3,050,000 on the following bases: 1. A section 6A(1) Valuation Basis. * Should have been section 6A(2) 2. A business zoning and component - CN "all neighbourhood centres" * 40% of the subject site is unzoned, under council's planning scheme - a sec 6A(1) LV Basis should have reflected this fact. 3. Site Area of 5589m 2 * This area was incorrect - the usable area is considerably less, by inspection. 4. Insufficient allowance was made for the subject property's shape & topography 5. Insufficient allowance made for the location of the property - somewhat isolated." The Determination of 11 August 2006 at $2.59M 114 On 11 August 2006 the Valuer-General made another determination of the land value of the property for the valuing year commencing 1 July 2002. That determination expressed both the gross land value, and the net land value, to be $2.59m. That determination came to be made after the Valuer-General became aware of criticisms that the defendant made of the way in which the valuation of $2.3m had been arrived at. Those criticisms included questioning the standing of the plaintiff to object, and the procedural fairness of the process through which the valuation of $2.3m had been arrived at. Both the defendant and RailCorp were given the opportunity to make submissions to the Valuer-General before the $2.59m determination was arrived at. PART B - THE LEGAL CONTEXT Operation of the Valuation of Land Act in 2002 and 2003 115 To understand some of the misunderstandings that occurred in the events relevant to this litigation, it is necessary to examine some aspects of how the Valuation of Land Act 1916 operated in 2002 and 2003. 116 The Valuer-General was a statutory officer, appointed under section 8 Valuation of Land Act 1916 ("the Valuation Act"). The functions of the Valuer-General were stated, by section 9 of the Valuation Act, to include: "(1) The functions of the Valuer-General include the following: (a) to establish and maintain the Register of Land Values, and for this purpose to maintain such databases as the Valuer-General thinks appropriate, (b) to enter valuations on the Register of Land Values on the basis of valuation recommendations made under this Act, (c) to enter into, manage and monitor valuation service contracts, (d) to make valuations of land as required by or under this or any other Act, (e) to deal with objections and appeals against valuations under this Act." 117 The Register of Land Values operates as follows: " 14CC Register of Land Values (1) The Valuer-General is to keep a Register of Land Values in such form as the Valuer-General thinks fit. (2) The Register is to contain such of the following kinds of information in relation to land as is within the knowledge of the Valuer-General: (a) information as to the ownership of the land, (b) information as to the occupation of the land, (c) information as to the value of the land, (d) information as to the title of the land, (e) information as to the location or description of the land, (f) information as to the area of the land, (g) such other kinds of information as is permitted or required by this Act or the regulations to be entered in the Register. (3) An entry in the Register as to a land value, allowance or apportionment factor ascertained under this Part is conclusive evidence of the ascertaining of the value, allowance or factor on the date shown in the entry. … 14DD Alteration of the Register (1) The Valuer-General is to make such alterations to the Register of Land Values as may be necessary for the following purposes: (a) to give effect to any reascertainment of a land value, allowance or apportionment factor, (b) to give effect to any decision on an objection or appeal under this Act, (c) to correct any clerical error or misdescription." 118 The "valuation service contracts" referred to in section 9(1)(c) are (pursuant to the definition in section 4(1) and the operative provisions in section 13A to 13H) contracts that the Valuer-General enters for the provision of valuation services to the Valuer-General. A valuation service contract might be a contested contract, or an uncontested contract. A contested contract, under section 13C, is entered following the calling of tenders. Any registered valuer, any corporation that has a director or employee who is a registered valuer, and any public agency that employs registered valuers is eligible to submit such a tender, under section 13C. An uncontested valuation service contract is one concerning which there is no direction to invite tenders, or that is awarded after an invitation for tenders has resulted in there being no successful tenderers (section 13D). 119 The SVO is empowered, by section 13G, to enter into both contested and uncontested valuation service contracts with the Valuer-General. It was pursuant to such a valuation service contract that the Valuer-General had engaged the SVO to conduct valuations of land in Leichhardt as at a base date of 1 July 2002. However, when the SVO carried out the valuation that resulted in its letter of 23 May 2002, and its letter of 14 August 2002, it was not acting pursuant to any such valuation service contract. Rather, it was acting as a valuer engaged by RailCorp. I infer that, for the purpose of performing its valuation service contract relating to valuations at base date 1 July 2002, the SVO saw no reason to depart from the valuation it had earlier performed. 120 The "valuation recommendations" that are, under section 9(1)(b) the basis of valuations entered on the Register of Land Values are (pursuant to the definition in section 4(1)) recommendations made under section 13H. Section 13H provides: "(1) Any valuation for which the Valuer-General is required under section 13C to invite tenders for contested valuation service contracts must, and any other valuation under this Act may, be made by the Valuer-General on the recommendation of a contract valuer." 121 Insofar as the Valuation Act requires the Valuer-General to make valuations of land, the only obligation that is relevant to the present case is that arising under section 14A(1): "The land value of each parcel of land in New South Wales, other than: (a) lands of the Crown, or (b) land that is within the Western Division and is not within the area of a rating or taxing authority, is to be ascertained each year." 122 It was, presumably, for the purpose of performing that obligation that the Valuer-General entered the valuation service contract with the SVO, relating to the valuation of land in Leichardt. 123 Section 14A(6) provides: "The power to ascertain a land value includes the power to re-ascertain that land value …" 124 It was pursuant to section 14A(6) that the Valuer-General made the determination on 11 August 2006 of the land value of the property for the valuing year commencing 1 July 2002. 125 Section 4(1) provides that a "general valuation means a valuation referred to in section 14A(1)". 126 Section 14B(1) provides: "Land that is valued for the purposes of a general valuation is to be valued as at 1 July in the valuing year in which the valuation takes place." 127 The evidence includes several certificates of land value. Such certificates are issued under the provisions of section 14EE, which provides: "(1) The Valuer-General may issue a certificate to any person certifying details of an entry in the Register of Land Values. … (3) A certificate under this section is conclusive evidence, as at the date specified in the certificate, that the details in the Register of Land Values in relation to a particular matter are as set out in the certificate." 128 It is not only as part of a general valuation that the Valuer-General can come to value land. Section 20 Valuation Act enables valuations of specific parcels of land or interests in land on the application of certain particular intereted persons, but section 20 has not been the basis for any valuation that is relevant to this case. 129 Section 48(1) states: "Each rating or taxing authority is to be given a list (referred to in this Act as a valuation list ) containing such of the information entered in the Register as relates to land within the authority's area. " 130 Section 48(2) requires such a list to be furnished to an authority other than the Chief Commissioner of State Revenue at least once in every four years. Such lists can be supplemented from time to time, under section 49. 131 Section 29(1) provides: "(1) On furnishing a valuation list to the council of a local government area, the Valuer-General must cause notice of each valuation contained in the list to be given to: (a) the owner of the freehold estate in the land, and (b) any lessee or occupier of the land who, under any Act, is liable to pay any rate or tax to a rating or taxing authority in respect of the land, and (c) any lessee of the land under a written lease for a term exceeding 3 years who, under the lease, is liable to pay the whole or any part of any rate or tax to a rating or taxing authority in respect of the land, and (d) any mortgagee in possession of the land." 132 The only definition of "lessee" that the Act provides, in section 4(1) is the unhelpful one that "Lessee includes sub-lessee". 133 I infer that it was in performance of the obligation under section 29 that the Valuer-General gave RailCorp the Notice of Valuation on 17 December 2002. 134 Rights of appeal arise under section 29, as follows: "(3A) A person to whom the Valuer-General has given written notice under subsection (1) may lodge with the Valuer-General written objection to any such valuation within such time as is stated in such notice. (3B) Where a person referred to in subsection (1) (b), (c) or (d) makes objection the person shall notify all other persons having any other estate or interest in the land to which the valuation relates that such objection has been made and of that person's reasons therefore." 135 So far as presently relevant, the time for lodging an objection is fixed by section 35: "(1) Except as provided by section 35A, an objection must be lodged with the Valuer-General, in accordance with the regulations, not later than 60 days after: (a) the date of service of the notice of valuation under section 29, …" 136 However, section 35A gives the Valuer-General a discretionary power to permit a person to lodge an objection after the 60 day period. 137 It is to be noticed that the only right of objection that is conferred is one that arises, under section 29, following the furnishing of a valuation list to the council of a local government area. The making of a valuation under section 20 does not give rise to any right to object. 138 Because the Valuer-General had not given the plaintiff written notice under section 29 (1) of the valuation contained in the Notice of Valuation of 17 December 2002, the plaintiff did not have the standing, under section 29(3A), to lodge any appeal against that valuation. However, even if the plaintiff had had standing to lodge an objection, section 29(3B) would have required the plaintiff to give notice of its objection to at least RailCorp, and the plaintiff did not do so. 139 Section 71 requires that, whenever any lease in writing for a term exceeding three years under which the lessee is liable to pay the whole or part of any rate or tax in respect of the land leased is assigned, then the assignee must give particulars of the assignment to the Valuer-General, within one month of completion of the assignment. 140 Section 71(2) provides: "The requirements of this section in relation to the giving of notice are taken to have been satisfied in relation to an event if notice of the event is lodged with the Registrar-General with a dealing, application or instrument as referred to in section 39 of the Real Property Act 1900 or section 184E of the Conveyancing Act 1919 within 1 month after the occurrence of the event." 141 As the transfer of lease in the present case was not lodged until March or April of 2003, the administrative means that section 71(2) provides for the Valuer-General to become informed of transfers of leases could not operate prior to that registration. No one on behalf of the defendant notified the Valuer-General of the assignment of the lease, after it had occurred on 20 September 2002. Thus, the Valuer-General was not obliged to give the defendant notice of the valuation contained in the Notice of Valuation of 17 December 2002, and, if the plaintiff had had standing to make an objection to that valuation, the plaintiff would not have been obliged to give the defendant notice of its objection. 142 Indeed, a Certificate of Land Value issued on 11 February 2003 showed that Fielders Gillespie Ltd was still recorded, on that date, as having an interest in the land. That recording persisted in the register notwithstanding that the Transfer of Lease to the plaintiff had been registered at the Registrar-General's Office at least by 26 April 2001 (the date of the earliest title search contained in the evidence). Thus, any administrative arrangements whereby lodgement of an assignment of lease triggers a change in the lessee recorded in the Register of Land Values had not worked in relation to that transfer. 143 The fundamental concept in the Valuation of Land Act is that of "land value". It is defined in section 6A as: "(1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made." 144 The "land improvements" referred to in that definition are themselves defined in section 4(1) as being: "(a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths, (b) the picking up and removal of stone, (c) the improvement of soil fertility or the structure of soil, (d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, (d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation, (e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and (f) underground drains." 145 It is "land value", in accordance with that definition in section 6A, that is ascertained under section 14A, recorded in the Register of Land Values under section 14CC, notified in a certificate of land value under section 14EE, notified to persons with specified interests in the land under section 29, and concerning which objections may be taken under section 34. 146 Prior to the enactment of the Valuation of Land (Rating and Valuation) Amendment Act 1981, there had been a section 6(1) in the Valuation of Land Act, that defined a concept of the "unimproved value" of land. It said: "The unimproved value of the land is the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require assuming that the improvements, if any, thereon or appertaining thereto and made or acquired by the owner or his predecessor in title had not been made. For the purposes of this subsection "improvements" in relation to land shall not include site improvements." 147 "Improvements" was not defined, but "site improvements" was defined to mean: "(a) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation; and (b) the excavation, grading or levelling of land, not being works of irrigation or conservation" 148 On 27 February 2006, when this case was previously listed for hearing, counsel for the plaintiff applied for an adjournment on the basis that it was necessary to amend the pleading to take account of certain court decisions that decided that "Unimproved Value", under the pre-1981 version of the Valuation of Land Act, was not the same as the present notion of "Land Value" under that Act. Only then did anyone who has carried out any activities relevant to the transaction with which this litigation is concerned on behalf of either the defendant or RailCorp come to know that any such court decisions existed. It was only shortly before 27 February 2006 that anyone on behalf of the plaintiff became aware of those decisions. 149 While the definition of "unimproved value" has some similarities to the definition of "land value" in the Valuation Act as it now stands, and in some instances the unimproved value of a particular parcel of land might be the same as the land value of that parcel, "unimproved value" is a different concept to "land value". The precise differences between the two concepts, and the course of legislation through which "unimproved value" came to be replaced by "land value" are traced in the decisions in Denovan v Wagga Wagga City Council (1984) 53 LGRA 358 at 360-361 (Cohen J), Kelmea Pty Limited v State Rail Authority (Supreme Court of New South Wales, Bryson J, 10 December 1986 unreported), Kelmea Pty Limited v State Rail Authority of New South Wales (New South Wales Court of Appeal, 29 June 1988, unreported), and Motrix Supplies Pty Ltd v Bonds and Kirby (Victoria Avenue) Pty Ltd (Supreme Court of New South Wales, Giles J, 12 September 1990, unreported), and I will not repeat that here. What matters, for present purposes, is that since 1981 there has been no concept of "unimproved value" in the Valuation Act. 150 One consequence, for the provision whereby the rent is fixed in the lease relevant to this case, is that the first proviso that I have quoted at paragraph [8] above could not operate after 1981. That is because, after 1981, there was not any "then current Unimproved Value (as determined pursuant to the Valuation of Land Act 1916 or any Act amending or in substitution of the same) of the freehold". 151 Thus, thereafter the rental had to be determined pursuant to the second proviso. In applying the second proviso, the Court of Appeal decision in Kelmea instructs that, as Clarke JA put it at 10 of the Butterworths Unreported Judgments version, " … a valuation would be obtained either from agreement or arbitration. Whatever the precise mechanism of determination the intended result was the unimproved value of the freehold of the demised premises which was to be determined in accordance with the principles which guide the Valuer General in determining the value under the relevant statute." 152 As Mahoney JA put it, with reference to the specific problem then before the court, where the lease fell to be construed at a time when there had been neither agreement nor arbitration, at 2 of the Butterworths Unreported Judgments version " … the arbitrator should determine the unimproved value in the same way as, for example, the Valuer General would have determined the unimproved value within s6 of the Valuation of Land Act 1916 for the purposes of that Act." 153 In Motrix Giles J said, at 10 of the Butterworths Unreported Judgments version, "Clearly the parties to the lease were seeking certainty in the manner in which the unimproved value governing the rental would be determined. They chose the statutory concept. That suggests they would not have chosen an ambulatory concept, even a concept made certain at any given time by invocation of the then current statutory concept. It suggests that they intended that the statutory concept in force in 1973 would apply in determining the unimproved value governing the rental. Consistently with this, they provided that the statutory concept would apply either because it was still in force, or (if it was not still in force) because agreement had been reached on the basis of the statutory concept previously in force or because an arbitration had proceeded on the basis of the statutory concept previously in force. Some weight is, I think, given to this when it is remembered that the lease was for ninety-nine years, a period during which quite substantial modifications to the statutory concept of unimproved value in force in 1973 could come about." 154 With modification to take account of the fact that the lease in the present case was entered in 1968, and ran for 50 years, those words are equally applicable to the rent clause involved in the present case. 155 I also accept, as applicable to the present lease, the following words of Giles J in Motrix at 12 of the Butterworths Unreported Judgments version: "In the present case the Valuation of Land Act as amended by the amending acts to which I have referred does not [still provide for the determination of unimproved value], and the reason it does not do so is not simply because the amendments gave the name "land value" to that which was formerly named "unimproved value". The reason is also because the statutory concept changed as a result of the difference in the scope of the exclusion (site improvements to land improvements) and as a result of the direction in relation to water rights, and it does not seem to me that it can matter that the change may be of no consequence to a valuation of the premises the subject of the lease. The lease addresses the concept, and the construction of [the clause] can not differ according to whether the premises are of urban land or rural land." 156 It follows that any determination of land value, under the Valuation Act as it was in 2002 and 2003, will not be a determination of the Unimproved Value for the purpose of the clause fixing the rent. Even though Mr Hale rejected the SVO valuations of 23 May 2002 and 14 August 2002 on the basis that they had not been made by the Valuer-General, and sought to object to the valuation notified to RailCorp on 17 December 2002 as though it was a relevant valuation for the purpose of fixing the rent, as a matter of the correct construction of the contract he was mistaken. Similarly, Ms McIntyre was mistaken in adopting, as a theme in her correspondence, that it would be a determination of the land value by the Valuer-General that would fix the rent. That is because any valuation that the Valuer-General made in 2002 or 2003 was of the "land value", and that was simply not the same as the "unimproved value". 157 It also follows that the various cases that the plaintiff puts in the alternative to its principal case, whereby it seeks to have the Valuer-General's valuations of $2.3m or $2.59m held to be a valuation of the land that is relevant for the purposes of fixing rental under the lease, must fail. 158 There has manifestly been no reference to arbitration, under the second proviso in the rent review clause. Thus, the only way that a rent could have been fixed pursuant to the rent review clause would be if the lessee had "within one (1) month after being requested in writing by the Lessor agree[d] upon an amount as the Unimproved Value of the freehold of the demised premises …" 159 In deciding whether that has happened, it is necessary to look to the substance of what it is that the second proviso requires to be agreed. In deciding that, the requirement that it be in agreement of an amount as the Unimproved Value seems to me to be important. In my view, having an agreement of that kind is not merely having an agreement on an amount that fills the same role as Unimproved Value fills in the lease -- i.e., an amount by reference to which a rental can be calculated. Rather, what is necessary is that the parties agree on the amount that the application of the statutory concept of Unimproved Value results in. 160 I accept that whether an agreement was made between RailCorp and the defendant, and the characterisation of that agreement, must both be decided on the basis of objective evidence, not of the parties' subjective intentions. 161 Considered on that basis, there was not an agreement of the type that the rental clause called for. Mr Jansen's letter of 31 October 2002 needs to be read in conjunction with the SVO notification of valuation that was enclosed with it. That referred to "the Land Value". Furthermore, the tenor of the letter of 31 October was that the SVO valuation was the type of valuation that of itself was effective to fix the rent. That letter does not mention the expression Unimproved Value. (I accept that that is not, of itself, fatal to any suggestion that there has been in substance an agreement upon the Unimproved Value, but it is a relevant fact.) Mr Tanevski knew nothing of, and never mentioned, Unimproved Value in the course of coming to pay the rental demanded. 162 Further, it seems to me that the letter of 31 October 2002 is not, in substance, a request in writing to agree, in the future, on the Unimproved Value -- rather, it is a peremptory informing that a particular result has already been arrived at. 163 The conduct of the defendant in not contesting the demands made by the letter of 31 October 2002 needs to be seen in the light of other communications from RailCorp to the defendant at that time. The issuing of the invoice by DTZ Australia on 12 November 2002, and Mr Irani's letter of 29 November 2002, each were communications appropriate to give the message to the defendant that, by reason of events that had already happened, it had an obligation to pay rent at the rate that resulted from the appropriate land value, for the purposes of the lease, being $3.05m. In that context, the defendant's failure to contest the demands made upon it, and its acquiescence in that demand by subsequently paying invoices issued to it, do not have the character of an acceptance by conduct of an offer or invitation to fix $3.05m as the Unimproved Value for the purposes of the rent clause. 164 What the defendant has in substance done is to come to pay rent at a particular rate, through a procedure that is not the procedure laid down by the rent review clause in the lease. 165 Under clause 13.2 of the contract for sale, it is only if the rental is reviewed by the process contained in the lease, and results in a rent of more than $140,000 plus GST that any adjustment to the purchase price takes place. As the rental has not been reviewed in accordance with the process contained in the lease, there is no occasion for the purchase price to be adjusted so as to make it less than $900,000. 166 However, under clause 13.5, the time for payment of any amount greater than $231,428.61 is "as soon as reasonably practicable and promptly after the rent to apply from [1 December 2002] is determined in accordance with the Lease …". Precisely because the rent has not been reviewed by the process contained in the lease, the time for making that payment has not arrived. That means that, insofar as the plaintiff's claim is put as a claim for a liquidated sum, and for interest pursuant to special condition 4.2 on that sum, the plaintiff's claim fails. Breach of Implied Obligation of Good Faith 167 The Statement of Claim pleaded that there was an implied term in the contract that the defendant would act in good faith in the exercise of its rights and duties under the contract. 168 One way in which that implied term was relied upon related to the manner in which appeal rights concerning valuation would be exercised by the defendant. In light of my finding that any valuations that the Valuer-General might arrive that, either in the first instance or following objection or on a redetermination, are all equally irrelevant to the operation of the rent review clause, no further attention needs be given to that way in which the implied term was relied upon. 169 Another way in which the implied term was relied upon related to conduct of the defendant that would deprive the plaintiff of the right to receive the amount that was due to it under clause 13.2. One strand in the argument of the plaintiff was that, if the defendant reached an agreement with RailCorp, outside the scope of the rent review provisions, about the amount of rental to be paid under the lease, and thereby deprived the plaintiff of the right to actually be paid the amount that had fallen due (though not yet payable) under clause 13.2, that would be a breach of the implied obligation of good faith. In submission, counsel for the plaintiff alternatively put it that it would be a breach of the implied obligation not to deprive a party of the benefit of the contract, of the type recognised in Mackay v Dick (1881) 6 App Cas 251. I will assume, for present purposes, that there are implied terms of each of these types that are binding on the defendant. 170 Even making that assumption, and also assuming that by reaching an agreement with RailCorp about the amount of the rental, by a procedure that was not the procedure envisaged by the rent review clause of the lease, the defendant breached those implied terms, I am not satisfied that the plaintiff has demonstrated it has suffered any damage. 171 To ascertain the quantum of damages for breach of contract, one asks what is the difference between the position that the plaintiff would have found itself in if the contract had been performed, and the position that the plaintiff finds itself in when the contract has not been performed. If the contract had been performed, the defendant would have turned its mind to what was the Unimproved Value of the land, in accordance with the concept of Unimproved Value found in the Valuation Act immediately before that concept ceased to have a place in that Act. If Mr Tanevski had turned his mind to that concept, and been fully advised about the differences between the present concept of Land Value, and the former concept of Unimproved Value, and considered exactly how those differences operated in relation to the site in question at Leichardt, I am not persuaded that he is likely to have decided that the Unimproved Value of the land was anything other than $3.05m. The differences between the definitions of Unimproved Value and Land Value are not shown to be ones that have any relevance to this particular parcel of land. For that reason, the plaintiff's case based on breach of an implied obligation of good faith, or an implied obligation of the Mackay v Dick variety, fails. Rectification 172 Though the plaintiff had pleaded a case based on rectification, no submissions were put in support of that part of its case. I therefore give it no more attention. Unconscionable Conduct 173 The plaintiff pleaded a case of unconscionable conduct, in a contingent way. That case was relied upon only on the following basis: " … should the Court find: (a) that the Valuation Certificate [issued on 11 February 2003 by the Valuer-General, and valuing the land at $3.05m] is capable of recording or comprising a valuation of the Unimproved Value of the Property as at 1 December 2002, or as being substitutable for a valuation of the Unimproved Value of the Property as at 1 December 2002; (b) that [the plaintiff] was not entitled to lodge an objection to the Valuation Certificate, and (c) on its proper construction the Contract as varied by the Deed of Variation does not require [the defendant] to take reasonable steps to object to or appeal from any relevant certification of the valuation of the Property" 174 As I have not found the first of those conditions, the circumstance in which the unconscionable conduct case is pleaded does not arise. The Cross Claim 175 The defendant cross-claimed against RailCorp, alleging that, if the plaintiff were to succeed in recovering any damages from it, that would mean that the defendant had been paying more rent to RailCorp, since 1 December 2002, than it had been obliged to do. The defendant alleged that such excessive payment of rent was caused by RailCorp misrepresenting the situation concerning the operation of the rent review, in the letter of 31 October 2002, by DTZ issuing the invoice, and by Mr Irani's letter of 29 November 2002. That misrepresentation was pleaded, in the alternative, as misleading and deceptive conduct, and as negligent misrepresentation. In circumstances where I have not found that the defendant has any liability to the plaintiff, those causes of action do not arise. 176 In the alternative, the defendant contended that, if there had been no valid agreement concerning the Unimproved Value of the property, or if there had been no valid determination of the rent to apply from 1 December 2002 in accordance with the lease, then the determination of the Unimproved Value of the property should be referred to arbitration. In my view there has been no valid agreement concerning the Unimproved Value of the property, but the defendant has acquiesced over a period of more than four years, in the rental demands made by the cross-defendant. In those circumstances, there is no dispute to refer to arbitration. Thus that aspect of the cross-claim fails, for a reason that is independent of the failure of the plaintiff's claim against the defendant. Orders 177 All the plaintiff's claims for relief are dismissed. 178 All the cross-claimant's claims for relief are dismissed. 179 If the parties are unable to agree on the order for costs that should be made in consequence of these reasons for judgment, I direct that, within 14 court sitting days of delivery of these reasons for judgment, the parties make an appointment with my Associate for argument on that question. **********

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