Vicgrain Assets Pty Ltd v Hindmarsh City Council [1999] VSC 47

8. The fixed assets of the GEB were largely exempt from municipal rating. Section 19 of the Grain Elevators Act provided:

Notwithstanding anything in any Act, land used exclusively for any grain elevator under this Act shall not be deemed to be rateable property within the meaning of any Act.

"Elevator" was defined in section 3 of that Act to mean:

any elevator warehouse building or depot under the control of the Board at which grain is received (whether from within or without Victoria) for storage or forwarding and whether the same is provided with mechanical grain handling appliances or not.

14. Sub-section (1) of section 154 of the Local Government Act 1989 reads: "Except as provided in this section, all land is rateable." The Grain Elevators Act was repealed by section 39 of the Grain Act, with effect from 1 July 1995, the date of the sale of the business of the GEB to Vicgrain. Some 280 sites throughout Victoria, located in a number of different municipalities, which came within the definition of "elevator" in section 3 of the Grain Elevators Act, then became rateable for the first time, as the repeal of section 19 of the Grain Elevators Act had the effect that those sites were no longer excluded from section 154. (The assets acquired by Vicgrain from the GEB included a handful of properties in southern New South Wales with which this Court is not concerned.)

17. After the sale, Vicgrain informed the several rating authorities of the municipal districts in which the several sites were situated that the sites were now rateable, and provided information to assist the authorities in the preparation of valuations. In due course the authorities, including the three Rating Authorities which are parties to these proceedings ("the Councils"), caused municipal valuations to be made of each of the sites in their municipal districts pursuant to section 13DC(1) of the Valuation of Land Act 1960 ("the Act"). They issued Valuation and Rate Notices for the year ending 30 September 1996 in respect of each of the sites, some as supplementary valuations, others as part of a general valuation, depending on the rating cycle of the council in question. Notices of Objection to the valuations of all of the sites were lodged by Vicgrain, on the ground then set out in section 36(a) of the Act (now section 17(a)) that the value assigned to each property was too high. Those objections were dealt with by the rating authorities according to the procedure for reconsideration laid down by section 39 of the Act as it then stood.

20. Section 40 of the Act then provided, so far as relevant, that where an objector was dissatisfied with the decision, in accordance with section 39, of the valuer for the rating authority or the valuer-general as the case might be, or had received no response to the objection within two months, the objector might lodge with the rating authority a notice in writing requiring the authority to treat the objection as an appeal and to refer it to the Court. While differently expressed, section 22 of the Act, in the form in which it has stood since 1 July 1998, is, for the most part, to the same effect.

23. In May 1997, after compliance by most of the rating authorities with the procedure laid down by section 39 of the Act, it was agreed between all parties that only a limited number of the objections should actually be brought before the Court, so that the principles determined by the Court might be applied to all of the properties. Relevant procedural orders were made. On 30 October 1998, on the application of Vicgrain, and with the consent of the Councils, being satisfied that each of the matters raised questions of unusual difficulty or of general importance, I ordered pursuant to section 23(3) of the Act that each of the matters might be treated as an appeal to the Court irrespective of the amount of the valuation.

26. A number of the proceedings have settled, and in the event, the hearing concerned objections in respect of five sites only ("the five sites"). Those sites are:

7824 Yarriambiack Shire Council Murtoa (Marmalake) Inland Terminal

7823 Yarriambiack Shire Council Warracknabeal Sub-terminal & Workshop

7825 Buloke Shire Council Berriwillock Sub-terminal

7826 Buloke Shire Council Barrakee Grain receival & storage

7829 Hindmarsh Shire Council Detpa Grain receival & storage

35. Evidence was given at the hearing of this matter by Mr Barbour of Vicgrain; Mr Brooks, a grain dealer; three valuers, Mr Dudakov, Mr McKinnon and Mr Brown, who had valued the sites on instructions from Vicgrain; and the three Council valuers, Mr Treseder (for Yarriambiack), Mr Thompson (for Buloke), and Mr Cleary (for Hindmarsh). The Court was assisted by a visit to each of the five sites and to several other properties which were among those referred to in evidence as being the subject of sales which are said by one or more of the valuers to be comparable, although their comparability is in issue.

38. By arrangement between counsel Vicgrain presented its case first. There was some discussion of the question of who bears the onus of proof, a matter which I have not found it necessary to consider.

The statutory controls on the business of Vicgrain

42. The sale agreement in Schedule 1 of the Grain Act recites that the State of Victoria established the GEB by the Grain Elevators Act as a body corporate owned by the State, that at the date of that agreement the GEB was operating pursuant to the Grain Elevators Act, and that in accordance with the Grain Elevators Act:

the GEB constructed, and now operates and maintains facilities for receiving, storing and out-turning Grain and other dry and semi-dry bulk products and carries on related business activities.

Essentially the same business is now operated by Vicgrain (see paragraph 1 above). However, there are statutory controls on the business, as operated by Vicgrain, which require consideration in the present context. As at 1 July 1995, the date of the sale of the assets of the GEB to Vicgrain, there were in existence three sets of such statutory controls.

47. First, the effect of section 188 and Schedule 8 of the Transport Act 1983, as they then stood, was to prohibit the transport of bulk barley, oats and wheat by a commercial vehicle (i.e. by commercial road transport) for more than 60 kilometres, save where the grower transported it in his own vehicle. This restriction effectively entrenched the position of the railway authority in the bulk grain transporting system. It was repealed as from 31 December 1995.

50. Second, section 13 of the Grain Act provides that Part 3 of that Act is relevant legislation for the purposes of the Office of the Regulator-General Act 1994 ("the ORG Act"). Section 15 of the Grain Act, which appears in Part 3, when read with section 24 of the ORG Act, confers on the Office of the Regulator-General the power to regulate receival and shipping charges for grain to be shipped for export. Section 15(1)(b) reads:

(1) For the purposes of Part 3 of the [ORG Act] -

. . .

(b) the receival and shipping charges set by GEB in respect of any grain specified in Schedule 2 are prescribed prices for the prescribed services in respect of the regulated industry;

I take this provision as meaning that the charges presently appearing in Schedule 2 (see paragraph 27 below), which are subject to regulation under the ORG Act, were set by the GEB; this is on the basis that the adjective "specified" governs the noun "charges" rather than, as one might have thought, the noun "grain". That is certainly consistent with the interpretation put on the legislation by the industry. There is no other provision in the Grain Act which indicates the source of the charges in Schedule 2.

(1) The owner of a declared grain storage facility must not within the period of 2 years after the completion date [1 July 1995] permanently close the facility unless the owner has complied with this section.

(2) The owner of a declared grain storage facility must give the Office [of the Regulator-General] at least 60 days notice in writing of intention to permanently close the facility.

Sub-sections (3) and (4) provided machinery for information to be given to the Office of the Regulator-General by the owner of the facility and a determination to be made by the Office specifying that:

(a) the facility can be closed; or

(b) the closure of the facility would cause undue hardship to grain growers as a whole and therefore the facility must be maintained.

All save twelve of the 280 grain storage sites of Vicgrain were "declared grain storage facilities" by virtue of an Order in Council made on 4 July 1995. They included all of the five sites. It appears (see the unchallenged evidence of Mr Cleary and Mr Thompson) to have been generally accepted that no notice of intention to close a declared grain storage facility was given to the Office in the two year period, which expired on 30 June 1997.

67. Finally, sections 16 and 17 of the Grain Act require the owner of a site to provide access to it on fair and reasonable terms and conditions.

71. Much of what follows in this section as to the business of the GEB and Vicgrain derives from the evidence of Mr Barbour, Manager, Treasury and Assets of Vicgrain Assets, who was for a number of years in the employment of the GEB. Mr Barbour's qualifications and experience are in the accounting and audit fields. He is employed by Vicgrain Assets, not by Vicgrain Limited, the operating company. His name does not appear among the list of senior management in the prospectuses of Victorian Grain Services Limited (described in paragraph 46 below) or in the recent Annual Reports of the Vicgrain Group which were before the Court. No explanation was given as to why there was no witness from the operating company, or why there was not a more senior witness from Vicgrain. In cross-examination, Mr Barbour demonstrated at times a reluctance to agree to anything put to him, or to admit to knowing anything.

74. Mr Barbour summarised the principal activity of Vicgrain as:

receiving grain from farmers, testing that grain to see whether it meets the specifications determined by the marketers, that is principally the Wheat Board, the Barley Board and whoever else might be the principal purchaser of a particular type of grain. That grain is classified, it is then stored with grain of a like type, it may be treated with a pesticide or some other form of insect repellent or suppressant. It is then stored in the appropriate bins and under instruction from the owner of the grain, it is loaded on to either a road wagon or a rail train, and that particular load is taken to wherever, under instructions from the owner of the grain.

78. As to whether grain was transported or stored, Mr Barbour used grain received at Barrakee by way of an example. In a good year, 95% of grain received at Barrakee would be transported to Geelong for shipment overseas, but in a year when the price of grain was depressed, it might be moved into storage at Dunolly until a buyer was available.

81. Over time, and principally before the Second World War, the GEB established a network of sites to which grain could conveniently be transported by road from farms, and from which grain could conveniently be transported by rail to its three major terminals. Those terminals (which also receive some grain ex farm) are the export terminals at the ports of Geelong and Portland, and the metropolitan distribution point at Sunshine, which deals with output to the domestic market. The facilities of the GEB were accordingly constructed along railway lines. A few of those lines are now discontinued, and transport from the sites on those discontinued lines, such as Detpa, must be carried out by road. The Public Transport Corporation is still responsible for the movement of grain, chiefly by rail, but where necessary by road, after it is received by Vicgrain.

84. The two biggest customers of Vicgrain are the Australian Wheat Board and the Australian Barley Board, which have agreements for the transport of grain with the Public Transport Corporation. It is not necessary to consider here the relevant provisions of the Barley Marketing Act 1993 and the Wheat Marketing Act 1984 (Cth), pursuant to which the contractual arrangements between Vicgrain and the two Boards have been entered into. Other customers are grain traders, some large and some small, and some end users.

87. The smaller facilities, such as Barrakee and Detpa, receive grain directly ex farm, as do the larger facilities, such as Berriwillock and Warracknabeal, which are described as sub-terminals, and have substantially greater capacity. (The words "sites" and "facilities" seem to be used interchangeably, and I have followed this practice.) Marmalake (Murtoa) is one of two major inland terminals. The major function of those sites is the aggregation of grain received from the other facilities, although they do also receive some grain ex farm. They provide centralised storage and ship grain onward to the major terminals. They are able to accept delivery of different grains at the same time.

90. Many of the sites were on land leased from the railways. Prior to the sale, the freeholds of those sites were transferred to Vicgrain in consideration for the payment by the GEB of survey and Titles Office fees.

93. The GEB was established to deal only with wheat, and facilities were constructed to receive principally what was then called "FAQ" or "Fair Average Quality" wheat. The number of different types of grain ("segregations") received by the GEB, and later Vicgrain, has increased considerably and in 1996/97 there were 75 different segregations of wheat, barley, oats and other products. As to this, Mr Barbour explained at page 89 of the transcript:

What it means is that each one of these so-called segregations has to be put into a separate space, typically into a separate bin or separate shed, and kept separate from grain that might be of a like type - it might still be wheat but of a different specification - and the owners of the grain require those two specifications to be kept separate. The ultimate result of this is that, instead of having 10,000 tonnes in one hold of 10,000 tonnes capacity, one has 10,000 tonnes spread over four or five holds, none of which may be full.

97. He said that the terminal at Sunshine has approximately 38 separate holds in which to put different segregations of grain.

100. At the entrance to each site where grain is received, there is a small building called a "testing station" where grain is sampled on delivery to check its quality. It is tested for moisture content, impurities and protein level, and those tests together produce a classification. Grain of different qualities is kept separate. The testing stations are essentially portable.

103. Each site also contains a weighbridge for weighing loaded trucks on entry to determine the volume of grain received. Because of changes in the size and capacity of trucks, and in legislation relating to measurement, it has been necessary to upgrade a number of weighbridges.

106. The present base charge to owners of grain by Vicgrain for receival and shipping of grain is $19.50 per tonne of wheat, with other rates for other grains. This charge appears in Schedule 2 of the Grain Act, which is discussed further at paragraph 13 above. The charge is a flat rate, unrelated to the number of times the grain is handled. At a site such as Detpa, where the rail line has been closed, V-Line pays the cost of the additional handling to transport the grain to a site on a railway.

109. The capacity of the system, and of facilities within the system, is measured in "wheat equivalent tonnes", hereafter referred to as "tonnes" simpliciter. The total capacity of the system is 6.1 million tonnes, but the maximum amount of grain ever held in the system was 5.2 million tonnes in 1983-4. In the previous year, 1982-3, the amount held was 300,000 tonnes, the minimum amount ever held in the system. This variation indicates the fluctuations to be expected in the industry.

112. Mr Barbour said that the move by farmers into high yield crops, such as canola, has reduced the amount of grain coming to Vicgrain, because these crops yield a lower volume and consequently occupy less storage space than the traditional crops. Grain is also purchased and stored by independent grain dealers, such as Mr Brooks, who gave evidence in this matter, and there has been an increase in on farm storage of grain, enabling growers to deal direct with the ultimate purchaser.

116. At the receival and storage points, grain is received and stored in three different types of construction, namely silos or bins, sheds, and bunkers. Different types of silos and sheds are known by different names, referring to their manufacturer or place of manufacture.

Silos and bins are cylindrical buildings, and are more efficient than sheds, because for the most part they permit grain to be received at a below-ground pit and taken by elevator to the top of the bin. It is discharged by gravity feed at the base of the silo and by augur to a railway truck or motor truck. Silos cannot be divided to accommodate storage of different segregations.

Sheds are what their name indicates. In sheds, grain is pushed by a front end loader, and sheds can be divided by temporary concrete walls.

Bunkers are levelled earthen areas with either earthen walls or temporary concrete walls in sections. They are less efficient than silos or sheds. They are filled by portable elevators and emptied by loaders and trucks.

122. The various types of silos relevant to the five sites are:

Geelong: concrete, normally in clusters of four large bins, total capacity about 3,000 tonnes

Williamstown: concrete, normally in a two bin configuration, total capacity about 2,000 tonnes

Ascom J (jumbo): the largest steel bins, up to 8,000 tonnes

130. The types of sheds relevant to the five sites are:

Ascom H: large steel sheds, normally with concrete floors

136. The particulars of the values contended for in respect of each of the five sites are as follows:

Values contended for by Council after s 39 procedure:

Values contended for by Council after s 39 procedure:

Values contended for by Council after s 39 procedure:

Values contended for by Council after s 39 procedure:

Values contended for by Council (no s 39 procedure):

The valuers have indicated that there was not a significant change in economic circumstances so as to significantly change the values between the several valuation dates.

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

202. Counsel were in agreement that the ultimate issue before the Court was the determination of the correct capital improved value ("CIV") for each of the five sites. All of the valuers proceeded on this basis, given that the net annual value ("NAV") can be calculated as a percentage of CIV. No issue was taken by counsel as to site value, and I do not propose to refer to it further.

205. "Capital improved value" is defined in section 2 of the Act as:

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

It is not in issue that a given property can only have one CIV at the one time.

210. The statutory definition in effect requires the ascertainment of the market value of the land. The classic method of determining market value is that described by Isaacs J in Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418 at 441 in the following terms:

To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration.

214. Section 5A of the Act deals with determining the value of land and reads:

5A. (1) Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.

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

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

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

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

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

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

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

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

The basis of valuation - stand-alone or state-wide?

228. Each of the five sites was valued by the valuer for the relevant Council as a separate stand-alone facility, on the basis of comparable sales. The first issue before the Court is whether the decision of the Council valuers and Mr McKinnon to value the sites on that basis accorded with good valuation law and practice. The submission of Vicgrain is that each site should not be valued separately, but as part of a state-wide undertaking, which was one homogenous whole. On this basis, the first step is to value the undertaking as a whole. The value so found is then to be apportioned appropriately among the 280 sites, to achieve a separate value for each, as required by section 13DC(1) of the Act, cited in paragraph 34 above.

231. It should be noted that section 13DC(9) of the Act, dealing with the situation where "land comprising one undertaking extends continuously beyond the boundaries of any municipal district", is concerned with such items as railway lines and pipelines and is not relevant to the Vicgrain sites. Section 2(3) referring to "rateable land . . . which forms part of a larger property" is similarly not relevant.

234. The Council valuers were: for Marmalake (Murtoa) and Warracknabeal, Mr Treseder; for Berriwillock and Barrakee, Mr Thompson; and for Detpa, Mr Cleary. As has been said, they valued each site on a stand-alone basis. For Vicgrain, Messrs Dudakov and Brown each valued the sites on the basis of their being part of the Vicgrain undertaking considered as a whole.

237. Also for Vicgrain, Mr McKinnon, in conjunction with Mr Brown, valued each site on a stand-alone basis. (While Mr Brown joined in Mr McKinnon's valuations of the separate sites, he made clear that his view was that the valuation of the undertaking as a whole was his preferred method. For that and other reasons, it is convenient, in considering those valuations, to attribute them to Mr McKinnon alone, while not overlooking the contribution of Mr Brown.) Mr McKinnon gave two values for each site, labelled Assessments A and B. Assessment B makes no allowance for the statutory controls described in paragraphs 11 to 15 above. Assessment A is discounted by 10% from Assessment B, to allow for what was considered to be the effect of those controls. Mr McKinnon stated in his affidavit that he had been asked to adopt both approaches, but that he did not agree with the approach adopted in Assessment B.

240. The following table shows the CIVs derived by the several valuers in respect of each of the five sites, the Council valuations being those adopted after the section 39 procedure, where relevant.

Marmalake 1,700,000 568,455 905,800 1,364,000 1,500,000

Warracknabeal 1,725,000 732,148 849,600 1,120,000 1,232,000

Berriwillock 1,000,000 286,353 510,430 610,000 670,000

249. It will be noted that the several values formally contended for by Vicgrain in these proceedings, set out in paragraph 33 above, do not accord precisely with the results of any of the Vicgrain valuers, but appear to be most closely aligned with the values obtained by Mr Dudakov.

253. Mr Dudakov and Mr Brown both agreed in cross-examination that the principal distinction between the Vicgrain properties and the properties of any other business operating from a number of different sites, such as a chain of supermarkets, derived from the statutory controls on the operation of the Vicgrain business, which are described in paragraphs 11 to 15 above, and principally those controls imposed by sections 15 and 20 of the Grain Act. It was these last controls which rendered it appropriate, in their view, to determine the value of the sites by valuing the undertaking as a whole.

256. However, in this context I would refer to the three prospectuses which were before the Court relating to the issue of shares in Victorian Grain Services Limited, which, as set out in paragraph 2 above, is the company which controls both Vicgrain Assets and Vicgrain Limited. In each of those three prospectuses, the directors have set out at some length the various statutory controls on the operations of Vicgrain Limited, including those imposed by sections 15 and 20 of the Grain Act, and have stated formally:

The Board of Vicgrain [Limited] has advised the Board of [Victorian Grain Services Limited] that it considers that these regulatory provisions do not impose any greater restriction on the conduct of the Business than already exists owing to market forces and other state and federal regulatory regimes, such as the Trade Practices Act 1974 (Cwth).

While some of the witnesses, notably Mr Barbour, did not accept the meaning of this passage, it is clear and requires no gloss. It is difficult to maintain in the face of that expressed view of the Board of Vicgrain Limited, the company which operates the business, that the statutory controls significantly differentiate the assets of Vicgrain from the assets of any other business which operates from a number of different sites.

261. Further, it should be noted that there seemed to be among the valuers a misapprehension as to the effect of section 20, the operative parts of which are set out in paragraph 14 above. What that provision does, in respect of each "declared grain storage facility" (that is, almost all of the Vicgrain sites) is to restrict (not prohibit), for a period of two years from 1 July 1995 (not for ever), the permanent closure (not the sale) of that facility. Sale does not necessarily involve closure. Further, the only ground on which closure can be refused, set out in section 20(4)(b), is very limited: "that the closure of the facility would cause undue hardship to grain growers as a whole" (not even "to grain growers in the relevant district").

264. Although Mr Dudakov appeared at one point to be aware that section 20 related to closure, and not to sale, he referred to it consistently as a prohibition on sale of the facilities. Mr Brown referred to the section as containing a prohibition, rather than a restriction, on closure. These misapprehensions clearly affected their attitude to the effect of section 20 on the value of the facilities. Mr McKinnon, the other valuer instructed by Vicgrain, also regarded section 20 as a restriction on sale rather than on closure.

267. The three valuers called by Vicgrain, Mr Brown, Mr Dudakov and Mr McKinnon, indicated that they had taken their instructions on the Vicgrain business from Mr Barbour (as to whom see paragraph 16 above), and it may be that he was the source of the misapprehensions. In paragraph 12 of his affidavit he deposes that "The [Grain] Act imposes a restriction upon the sale or closure of sites purchased by Vicgrain". That statement is manifestly incorrect.

270. There was no evidence before the Court as to the actual effect of the statutory controls on the operation of the Vicgrain business. Given the statement of the Board of Vicgrain Limited which is cited in paragraph 46 above, that is hardly surprising. The fact that no notice of intention to close a facility was given by Vicgrain to the ORG during the two-year period (or since) is not relevant to the issue. I note that there is no evidence that Vicgrain has complained to the ORG that any prices set by it pursuant to section 15 of the Grain Act have been unfair.

273. It will be apparent from the foregoing that I do not consider the effects of the statutory controls as sufficiently significant to justify the valuation of the separate sites as part of the undertaking as a whole.

276. The second reason given by Mr Dudakov for his approach to the valuation was that the sale of the whole GEB undertaking to Vicgrain was on the most realistic basis and represented the highest and best use of the sites. In the Additional Notes to his affidavit, he said that in his view there was not at the relevant time a strong market for the majority of the sites, and the sales of which evidence was given were of properties which were not comparable with the Vicgrain sites. He continued:

It is readily acknowledged that the sale of Vicgrain's assets as a single entity by the State Government was a "bulk" sale. However, this was not done for political expediency. The strong likelihood is that the sale price achieved for the assets as a single entity may well have exceeded the value of the assets if valued individually, particularly if one were to take into account the time it would take to dispose of the assets. In other words, the sale by the government was on the most realistic basis and represents the highest and best use, particularly having regard to the legislative constraints. (Emphasis added).

The emphasised passage is unsupported, is inconsistent with what did occur when the assets were valued individually, and does not appear to me to provide a basis for his conclusion.

281. However, on the basis that the sale by the government complied with the Spencer concept of valuation (see paragraph 37 above) and was an appropriate market indicator, Mr Dudakov then proceeded to deduce the market value of the sites. He did this by deducting from the $51 million paid by Vicgrain for the assets of the GEB, amounts to cover those portions of the price applicable to the non-real estate assets and the non-grain handling real estate, and also making an allowance for stamp duty not being payable. He then proceeded to allocate the resulting amount among the 280 sites, on a basis related to utilisation.

284. Mr Dudakov said that the existence of the controls would make it difficult for commercial operators of grain storage facilities to operate commercially. Thus the only sensible operational alternative was to operate the assets as a whole. However, he agreed that if the sites were legally capable of being sold separately a different market would apply. (It should by now be clear that there was not in fact at any relevant time any prohibition on selling the sites separately.) He agreed at page 468 of the transcript that it was within the powers of a valuer to postulate a hypothetical willing but not anxious purchaser of each one of the appeal sites, regardless of their size.

287. The evidence as to the manner of negotiation of the sale of the GEB business to Vicgrain satisfies me that the sale did comply with the Spencer concept in that the price was not distorted for political or other reasons. However, it was not suggested during the hearing that that price was directly related to the value of the real estate of the GEB. As Mr Dudakov said at page 472 of the transcript:

property per se is not the relevant consideration in the purchase. What the entity is looking at is how much profits they can generate from that enterprise.

On that basis, it is difficult to consider the sale to Vicgrain as a comparable sale for the purposes of valuation of the sites.

292. Mr Brown was the other valuer who valued the assets as a whole, although he adopted an different procedure from Mr Dudakov, which it is not necessary to describe here. Briefly, he says in paragraph 3 of his affidavit that he approached the matter:

by looking at the operation of the former Grain Elevators Board and now Vicgrain in totality in attempting to derive a rental value for all facilities within their control via trading information disclosed in their Annual Reports.

The method was complex and contained arbitrary assumptions on matters which it is not necessary to consider here. He said that he valued on this basis because the statutory controls required a global approach, as being the only reasonable basis of estimating the value of the Vicgrain sites. He, like Mr Dudakov, found the distinction between the Vicgrain properties and a chain of supermarkets in one ownership to lie in the statutory controls. He did not take the $51 million sale into account in his primary valuation, but referred to it at the end of the process of valuation for confirmation of his findings.

297. In addition to relying on the statutory controls, Mr Dudakov and Mr Brown both said, in effect, that Vicgrain had taken the view that it could not be correct that the municipal valuations of the 280 sites totalled something of the order of $100 million, when Vicgrain had paid only $51 million for the whole entity. Mr Dudakov was referred to the Glenrowan site, valued by his method at $6,504 and sold in December 1996 for $80,000. He said at pages 424-5 of the transcript that while he could accept that the Glenrowan site, as a non-core asset, should be valued according to the demand for it, evidenced by the sale, if that sale was then applied to all of the sites:

it throws up a complete absurdity. . . . If you apply what one sporadic sale would be worth for one individual site to all of the sites, then it throws up a number which . . . is far, far in excess of the value of the whole, and that's the whole point of the exercise.

He made a similar comment saying that the logical conclusion of valuing Barrakee other than as part of the whole undertaking was "an absurdity, where the entire value of the entity is worth double or more what the entity sold for". He valued Barrakee at $8,598 as against the Council valuation of $34,500.

302. While the view taken by Vicgrain on this matter is understandable, the absurdity argument, of course, works both ways. If one starts with the Council valuations, the values obtained by Mr Brown and Mr Dudakov can be described as absurd. The sale of Glenrowan, referred to in the preceding paragraph, renders Mr Dudakov's valuation of that site absurd. Mr Brooks, the grain dealer who gave evidence, paid Vicgrain $45,050 in 1997 for handling charges at Detpa pursuant to a contract which gave him the exclusive right to store grain in that facility. Mr Dudakov valued Detpa at $50,344, slightly more than Mr Brooks had paid for the exclusive use of that facility for one year. That valuation can equally be described as absurd.

306. As Dixon CJ said in Turner v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245 at 268, "valuation cannot be made to depend entirely on a logical process or formula". Any valuation of the Vicgrain sites which, like the methods adopted by Messrs Brown and Dudakov, requires a single figure to be allocated among 280 sites, must inevitably be substantially dependent on a logical construct.

309. In Melbourne Tramway and Omnibus Company Ltd v Fitzroy (1899) 25 VLR 5, the Full Court held that the separate parts of a tramway undertaking lying in different municipalities should where possible be valued separately, for the purpose of being rated to the municipalities within whose districts they respectively lay. In the words of Madden CJ at 22:

The principles of apportionment of the rateable value of this tramway, as established by the authorities, is, first, that wherever it is possible reasonably to attribute accurately to each municipality the whole of the advantage which arises from all portions of the rateable property which is locally within its limits, that must be done; and, second, when this "parochial plan", as it is called, cannot, by reason of the inseparable interdependence of all the parts of the rateable property or of the impossibility on any account of arriving at a fairly accurate appropriation of the rateable value according to the local distribution of the parts of the undertaking, then the Court is to make the fairest distribution which it can, and this often is arrived at by dividing the whole in the proportion of the local mileage of the undertaking within each municipal district, or on some other equivalent equitable plan. In the present instance there seems no great difficulty (when once some principle is arrived at of adjusting the claim of the city of Melbourne in respect of the concentration of the traffic of all the suburbs within its boundaries, as has been done) in applying the parochial system to the undertaking.

313. Hood J at 35 referred to Sculcoates Union v The Dock Company [1895] AC 136 as establishing the proposition "that the apportionment of the rate, in a case like the present, is to be upon the parochial system whenever practicable". In that case Lord Herschell LC, with whom the other members of the court agreed, said at 143:

There are no doubt cases in which it is impossible to deal with the hereditament found in a particular parish by itself. It is not such as to be capable of being let to anybody by itself; its only value is as part of a system or undertaking. . . . But the present case is really not one of that description at all. The question is as to the amount at which certain docks ought to be rated which would have a rateable value if the whole of the rest of the dock system were extinguished tomorrow; they would still be docks, and be capable of being used as docks, and certainly a tenant from year to year would be willing to pay a rent for them as docks. They are capable of being considered, and their rateable value is certainly capable of conception without any reference to the general undertaking, as a part of which, in fact, they are at present used.

317. As Stephen J said in Riverbank Pty Ltd v Commonwealth (1974) 48 ALJR 483 at 484, the conventional valuation technique is the use of comparable sales evidence. Mr Canavan submitted that there were no truly comparable sales available to assist in the valuation of the Vicgrain facilities. A number of sales of grain storage facilities in Victoria and southern New South Wales were relied upon by the three Council valuers and by Mr McKinnon, although not by Mr Brown or Mr Dudakov.

320. Wells J said in Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 171 at 180:

. . . there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from those that are not. It is in my view, all a matter of degree: ... Just where the line is to be drawn is, it seems to me, the very sort of question that is fit for the expert valuer to determine; the assessment of the risks of adjustment is peculiarly within his sphere of skill.

And Hope JA said in Leichardt Municipal Council v Seatainer Terminals Ltd (1981) 48 LGRA 409 at 434:

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

327. Mr Treseder, Mr Cleary, Mr Thompson and Mr McKinnon all have considerable experience of valuations in rural Victoria. Each of them analysed and relied upon a selection of comparable sales. They also relied where relevant on the criteria set out in section 5A of the Act (see paragraph 38 above). Mr Thompson described the sales to which he referred as "demonstration sales" rather than "comparable sales", but nevertheless deposed that he had relied on them. Their selection of sales differed, as did the adjustments which they thought necessary to make. But none of them had formed the view that there were no sales on which he could rely. Mr Brown, whose experience is extensive, but, it would appear, is more in the urban than the rural field, agreed (subject to his preference for the global approach) with the analysis of Mr McKinnon. Mr Dudakov did not suggest that there were no comparable sales.

330. On the basis of that evidence, I am satisfied that there was sufficient sales information available to the valuers to enable the ascertainment of the market value of each of the sites as a stand-alone facility, noting the desirability, expressed in Melbourne Tramway and Sculcoates, of valuing on that basis wherever possible.

333. Mr Canavan also submitted that the three large facilities, Marmalake (Murtoa), Warracknabeal and Berriwillock, did not have economic viability as stand-alone grain handling and storage facilities, and to assume otherwise was to attribute to them an unrealistic highest and best use. However, I note Mr Dudakov's concession, set out in paragraph 54 above, that it was within the powers of a valuer to postulate a hypothetical willing but not anxious purchaser of each one of the appeal sites, regardless of their size.

336. Mr Cleary said at page 1047 of the transcript:

There are a number of potential purchasers of grain handling facilities both public, semi-public and private. You've got your state handlers, the VicGrains, the New South Wales Grains Board, et cetera. Major grain traders such as Brooks Grains; you've got storers, such as Andersons, you would have millers who may be interested in utilising their own facilities; farmers, for their own storage and perhaps utilising other nearby farmers' needs as well; and not that we've seen any evidence of it, but there's the possibility of investors with arrangements in hand for other people to rent those facilities.

Mr Treseder said that the substantial and increasing amount of private grain storage meant that Vicgrain could not be considered in isolation in the grain industry.

341. It was also apparent from the evidence of Mr Brooks, and the particulars given of the comparable sales, that there are many businesses, large and small, which are engaged in storing, handling and dealing in grain, and it is possible to hypothesise the expansion of one of those businesses to encompass an operation on the scale of any of those larger sites. The existence of those many businesses, in my view, renders it difficult to sustain the argument that any given Vicgrain site can operate only as inseparably interdependent (to adapt a phrase used in the passage from Melbourne Tramway cited in paragraph 60 above) with the other Vicgrain sites. Rather, the sites are like the docks in Sculcoates, in that (at 143):

They are capable of being considered, and their rateable value is certainly capable of conception without any reference to the general undertaking, as a part of which, in fact, they are at present used.

That finding distinguishes this case from Esso Exploration v Shire of Morwell [1986] VicRp 29; [1986] VR 289, where the principles applicable to the valuation of a single undertaking were extensively considered by the Full Court.

346. On the basis of the evidence before me, and the authorities to which I have referred, I find that the decision of the Council valuers and Mr McKinnon to value the five sites on the parochial basis, as separate stand-alone facilities, using the comparable sales method, accorded with good valuation law and practice.

350. That being so, the remaining issue before the Court is whether the Council valuers, in valuing each of the five sites on that basis, have performed that operation in accordance with good valuation methodology. I have already found (see paragraph 65 above) that there was sufficient comparable sales information available to them to enable the ascertainment of the market value of each of the sites as a stand-alone facility. The submission of Vicgrain was that if I should accept the submissions of the Councils as to the valuation methodology, as I have done, I should prefer the valuations of Mr McKinnon.

353. After describing the various types of storage equipment, namely silos and bins, sheds and bunkers, in somewhat more detail than appears in paragraphs 30 to 32 above, each of the Council valuers deposed in the following terms:

It is generally possible to proceed with the valuation of a grain handling facility by adopting rates expressed in dollars per tonne of storage capacity, referable to each category of storage comprised in the overall facility. In adopting such amounts, consideration must be given to the particular category of storage facility, its condition and capacity and to the factors referred to above in respect of storage facilities. I have followed this procedure for the purpose of valuing the Appeal Site.

357. In applying that procedure, the Council valuers did not all adopt the same dollar per tonne rates for the different types of storage. Nor did they all rely on the same comparable sales, or analyse those sales in the same way. They expressly took into account the weighbridge on each site, as well as other improvements, such as offices and warehouses, which were not used for grain handling and storage, although only Mr Treseder allocated specific values to specific improvements. Mr Cleary indicated his view that, for comparability, a specific value should only be attached to a weighbridge if it was unusually large. Most of the comparable sales on which the Council valuers relied had occurred after the dates of their original valuations. The valuers indicated their awareness of the existence of the major statutory controls, but do not appear to have regarded them as of great significance in the valuation exercise.

361. Mr McKinnon prepared his valuation after reading and considering the affidavits of the Council valuers. His valuations, like theirs, were based on a dollar value for each tonne of storage capacity, but he introduced a weighting factor as to which he deposed:

It is my opinion that the sales evidence demonstrates that price is not simply a function of capacity but is very much a function of location which is tied to demand for storage and grain throughput in a particular area. Sales can also be affected by local factors and by the quality of the particular facilities. Usage of a particular facility is in my opinion a significant factor in analysing an appropriate CIV or NAV in respect of the subject properties. A facility which has the option of being available for storage for the rice growers of southern New South Wales is significantly more valuable than a facility located, for example, at Manangatang or Chinkapook. . . .

The values assessed and referred to in this Exhibit have been determined by me in consultation with Mr Brown by reference to the comparable evidence to which I have referred and also take into consideration the average percentage capacity of utilisation over a 10 year period. The utilisation is taken account in the rate per tonne of capacity applied to the sites.

366. A "utilisation factor" in respect of each site was obtained by Mr McKinnon from a table prepared by Mr Barbour, and gave the percentage of the maximum storage available for that site which was actually used by Vicgrain over a period of ten years. It was not clear to me that it necessarily related to location, as suggested by Mr McKinnon. Location was taken into account by the Council valuers in the analysis of the relevance of the comparable sales.

369. The Council valuers were aware of the availability of the table containing the utilisation factors, and Mr Thompson referred in his valuations to the utilisation factor of the sites, listed with a number of other relevant matters. It does not appear that he regarded it as of major significance. Mr Cleary commented in his valuation that Detpa had reduced receivals since 1987/88 (its "utilisation factor" according to Mr Barbour's table was 0.50), but that in recent years it had been operated by a private grains trader who had utilised it at near maximum capacity. Mr Treseder's valuations do not refer to utilisation.

373. The other distinction between Mr McKinnon's valuations and those of the Council valuers was that he deposed that he had proceeded on the basis of legal advice that weighbridges do not form part of the land and are not rateable, while the Council valuers, as stated in paragraph 72 above, expressly took the weighbridges into account. Although that distinction is not of great significance in the overall context of these proceedings, it seems necessary to give it some consideration here. The second edition of the Oxford English Dictionary ("OED") defines "weighbridge" as: "A platform scale, flush with the road, for weighing vehicles, cattle etc."

376. It appears from the photographs and diagrams which are Exhibit C, and the evidence of Mr Barbour, that in the case of a modern weighbridge designed to take B-double trucks, what Mr Barbour described as the "weighbridge" is a flat plate of some undescribed material, which sits on top of six cells, which are in fact the weighing device, and which rest in slots in a concrete pad set into the ground. A photograph of an older and smaller 25 tonne weighbridge, which Mr Barbour indicated would have been constructed on the same principle, appears in Mr Cleary's valuation of the Detpa site, showing clearly the firm concrete strip of road surface, flush with the weighbridge area, extending before and beyond it in the gravel road approaching the silos and shed_._ The ends of that strip, as they abut the central area, would no doubt play their part in holding the concrete pad firm in the ground. Weighbridges are also depicted in the video which was in evidence, but the most useful depiction was that in Mr Cleary's valuation.

379. The only authority which was cited to the Court on this question, which presumably formed the basis of the legal advice given to Mr McKinnon, was the judgment of Giffard LJ in In re Richards Ex parte Astbury (1869) LR 4 Ch. App. 630, who said at 638:

The evidence is clear that weighing machines of this description are frequently put upon wheels and are so used. As regards these weighing machines, it appears that where they are placed inside the building the floor is prepared for them, and where they are placed outside the soil is prepared for them; that is to say, a square receptacle is made and is bricked, and when that square receptacle is made and bricked the weighing machine is placed in it, and may of course be taken out again, for it is not fixed by nails, or by screws, or in any other way. . . . if there had been a foundation of granite for a cannon or a large telescope, neither the cannon nor the large telescope would be a fixture. The preparation of the soil does not make the machine a fixture, nor does the fact of its being put into the receptacle so prepared for it make it a fixture.

383. The term "weighbridge" does not appear in that case. The OED cites five uses of the word (including "weigh bridge" and "weigh-bridge") before 1869, so it would appear to have been in common use by the date of the judgment. Thus, had the machines the subject of In re Richards been "weighbridges", it seems likely that they would have been so described. They were described as "weighing machines" of a description which "are frequently put upon wheels and are so used", and are therefore likely to have been considerably smaller than the 25 tonne weighbridges at Detpa and Barrakee, let alone the 60 tonne weighbridges at Berriwillock, Murtoa and Warracknabeal. The OED defines "weighing-machine" as "an apparatus (e.g. a combination of levers, a spring-balance) for weighing heavy bodies." The definition is illustrated by two quotations:

In 1844: The Weighing-machine is an important article of the barn furniture.

In 1864: There is a weighing-machine at our green-grocer's.

In my view, the machines the subject of the decision in In re Richards were weighing machines and not weighbridges. Accordingly, that decision is not of assistance in determining whether the weighbridges on the five sites are to be regarded as fixtures.

389. It is trite law that the test of whether a chattel has become a fixture so as to form, for legal purposes, part of the freehold, turns on the degree and object of its annexation thereto. (Holland v Hodgson (1872) LR 7 CP 328 at 334.)

392. In Monti v Barnes [1901] 1 QB 205 the English Court of Appeal found that dog-grates, resting in a house by their own considerable weight but not physically attached to the structure, were placed there with the object of improving the inheritance, and were therefore fixtures which passed to the mortgagee. AL Smith MR said at 207:

The question which has to be considered in such a case is whether, having regard to the character of the article and the circumstances of the particular case, the article in question was intended to be annexed to the inheritance or to continue a mere chattel, and not to become part of the freehold.

Collins and Stirling LJJ, the other two members of the Court, expressed themselves in similar terms, both employing the expression "annexation by weight".

397. In Reid v Smith [1905] HCA 54; (1905) 3 CLR 656 the High Court held that a house erected by a lessee, resting by its own weight upon piers or piles fixed into the ground, and not otherwise annexed to the freehold, had become part of the freehold, and that on the termination of the lease the transferee of the lease was entitled to an injunction to restrain the lessee from removing them. Griffith CJ at 663 noted that very few cases had arisen with respect to things not annexed to the freehold. After examining the authorities he found at 668:

I agree . . . that . . . there is a general principle that, if buildings are not actually annexed to the freehold, the onus may probably lie upon the person claiming them as real property to show affirmatively that they were erected with the intention that they should become part of the land. . . .the proper inference to be drawn from the facts is that these houses became part of the freehold. . . . the intention was that any dwelling-house put on the land should be considered annexed to the freehold.

All three members of the Court considered that the matter turned on the intention with which the object in question was brought on to or annexed to the land. Griffith CJ and O'Connor J both relied on Blackstone's presumptive equation of the common law with common sense.

402. More recent authorities were extensively considered by Ipp J of the Supreme Court of Western Australia in Eon Metals NL v Commissioner of State Taxation (WA) (1991) 22 ATR 601. His Honour cited Kearney J in Palumberi v Palumberi (1986) NSW ConvR 55,287 at 56,672, who said, after canvassing the relevant cases:

It would seem from the perusal of these and other authorities in the field that there has been a perceptible decline in the comparative importance of the degree or mode of annexation, with a tendency to greater emphasis being placed upon the purpose or object of annexation, or putting it another way, the intention with which the item is placed upon land. This shift has involved greater reliance upon the individual surrounding circumstances of the case in question as distinct from any attempt to seek to apply some simple rules or some automatic solution. . . . No standard solution is to be derived from (the decided) cases which upon ultimate analysis, are found to turn upon their individual facts.

406. Turning to consider the circumstances with which I am concerned, it is clear from the evidence before the Court that a weighbridge, for measuring the quantity of grain in each delivery to the site, is essential to the operation of a grain storage facility. It cannot be imagined that, in the construction of such a facility, the intention is that the weighbridge shall be any less permanent a structure than the sheds and silos. It is presumably an incident of its operation as a weighing device that the weighbridge must rest in the ground by its own weight rather than being attached to it. I am satisfied that the object and purpose of the placing of the weighbridge on the site is the better enjoyment of the freehold as a grain handling facility. Accordingly, I find that the weighbridges on the five sites are fixtures, and each is properly to be included in the valuation as part of the freehold, as was done by the Council valuers.

410. Mr Canavan, submitting that the valuation of Mr McKinnon should be preferred to those of the Council valuers, relied first on the fact that, responding as he did to the Council valuations in the context of these proceedings at a time well after the initial Council valuations were made, Mr McKinnon was the only valuer who had all of the comparable sales available to him before making his valuation, and he was the only valuer who relied on all of them. However, I do not perceive that matter as necessarily justifying a preference for Mr McKinnon's valuation. There are issues as to the relevance of the individual sales said to be comparable.

413. Mr Canavan then pointed out that Mr McKinnon had kept good records of his researches of comparable sales and his conversations with the parties to those sales, in contrast to Mr Treseder. It became apparent in cross-examination that Mr Treseder's records were minimal. However, while that made it difficult to test Mr Treseder's evidence, it does not necessarily go to the relative reliability of the two valuations.

416. Mr Canavan referred to Mr McKinnon's preference for adjusting his valuation to take into account his perception of the effects of the statutory controls. However, for the reasons set out in paragraphs 46 to 51 above, I accept the view of the Council valuers that the statutory controls are not of great significance in the overall context of the valuation of the five sites.

419. Finally, Mr Canavan submitted that the approach of Mr McKinnon had the benefit of an informed assessment of the relative value of different types of facility, on the basis of rationally consistent evidence of the utilisation factors provided by Vicgrain, which was in the best position to know. This is the major distinction between the methodology of Mr McKinnon and that of the Council valuers. However, it was clear from the evidence of Mr Barbour that the utilisation factor of a site is, inevitably, related in part to decisions by Vicgrain as to the operation of the site, in respect of such matters as segregations, the use of bunkers as opposed to silos, the temporary closure of sites, the use of the site for other than ex-farm receivals and the renting of sites to private individuals or outside organisations, as occurred at Detpa. Thus the utilisation factor cannot be said to be derive entirely from any inherent quality of the site such as locality. This view is borne out by the history of the utilisation of Detpa, cited in paragraph 75 above. I do not regard the weighting of the valuations in accordance with the utilisation factors as enhancing their validity.

422. I find that the Council valuers, in adopting the comparable sales method and employing their professional skill in the selection of appropriate comparable sales and in making the necessary adjustments to those sales, were acting according to good valuation law as expressed in authorities such as Riverbank, Brewarrana and Leichardt, cited in paragraphs 62 and 63 above, and in accordance with good valuation practice. I find the methodology of the Council valuers to be preferable to that of Mr McKinnon.

425. The Council valuers were extensively cross-examined, particularly as to their selection and use of comparable sales, and as to the respective values per tonne which they attributed to the different types of storage. Little purpose would be served here by a lengthy analysis of the results of that cross-examination. Particular decisions as to the proper adjustment of comparative sales, or the value per tonne to be placed on different types of storage, may well be open to challenge. However, given that I have found the methodology adopted by the Council valuers to be preferable to the methodology adopted by Mr McKinnon, it is not necessary, nor is it appropriate, for the Court to attempt to rework any of the individual Council valuations. See the judgments of the Court of Appeal in 101 Collins Street Pty Ltd v City of Melbourne (unreported; decided on 16 June 1997).

428. It is common ground that the relevant procedural provisions governing this hearing were those appearing in the Act as it has stood since 1 July 1998. On that basis, the section empowering the Court to make orders is section 26. Sub-section 26(1) reads:

(1) On the hearing of an appeal under this Division, the Court may make any order it thinks fit and may, by order -

(a) confirm, increase or reduce any valuation; and

(b) make any other amendment to a valuation or assessment notice it thinks fit.

It would appear that I may have power, under that sub-section, to set aside the valuation of a Council valuer and remit the matter to the Council to reconsider its valuation. Neither party suggested that as a possibility, and I have not considered making such an order. Nor have I considered whether I have power to do so, and I make no finding on that point.

435. Realistically, the task before me is to choose, in respect of each of the five sites, between the valuation of the Council valuer, as adopted after the section 39 procedure, where relevant, and the valuation of Mr McKinnon. For the reasons given, I prefer, in each case, the valuation of the Council valuer.

438. There will, for the reasons given, be an order in each appeal that the valuation the subject of the appeal be confirmed. Counsel may wish to make submissions as to costs.