Reported Decision : (2001) NSW ConvR 55-985 New South Wales Supreme Court CITATION : Kanivah Holdings P/L v. Holdsworth Properties P/L and Ors [2001] NSWSC 405 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50129/99 HEARING DATE(S) : 30 April, 1-3 May 2001 (and later written submissions) JUDGMENT DATE : 21 May 2001 Kanivah Holdings Pty Ltd [ACN 075 802 194] (Plaintiff) PARTIES : Holdsworth Properties Pty Ltd [ACN 058 261 242] (First Defendant) Egans National Valuers (NSW) Pty Ltd (Second Defendant) Keith Norris (Third Defendant) JUDGMENT OF : Palmer J G. Inatey SC, M.R. Gracie (Plaintiff) COUNSEL : R.C. McDougall QC, S. Ivantsoff (First Defendant) L.P. Robberds QC, C.E. Adamson (Second and Third Defendants) Emerys Law Firm (Plaintiff) SOLICITORS : Minter Ellison (First Defendant) Phillips Fox (Second and Third Defendants) CATCHWORDS : LANDLORD AND TENANT [51] - Determination of rent under review clause of the Lease - principles upon which Court will review. - EVIDENCE [24-29] - Rent determination final and binding - whether determination of the valuer in accordance with the Lease - whether evidence extrinsic to determination itself admissible - conflict of authority in New South Wales - UK decisions and decisions of Queensland and Western Australian Full Courts considered, not followed. Legal & General Life of Australia Ltd v. A. Hudson Pty Ltd (1985) 1 NSWLR 314 Holt v. Cox (1994) 15 ACSR 313; (1997) 23 ACSR 590 Fermentation Industries (Aust) Pty Ltd v. Burns Philp & Co Limited (NSWSC 12 February 1998) Mayne Nickless Ltd v. Solomon [1980] Qd. R. 17 Campbell v. Edwards [1976] 1 All ER 785 Dean v. Prince [1953] 1 Ch 590 Joint Coal Board v. Noone Pty Ltd (12 June 1984, SCNSW) Karenlee Nominees Pty Ltd v. Gollin & Co Ltd [1983] VR 657 Burgess v. Purchase & Sons (Farms) Ltd [1983] 1 Ch 216 Wamo Pty Ltd v. Jewel Foodstores Pty Ltd (1983) 2 BPR 9611 Email Ltd v. Robert Bray (Langwarrin) Pty Ltd [1984] VR 16 CASES CITED : Payce Properties Pty Ltd v. Harrison's Timber Pty Ltd (14 December 1990, SCNSW) Fisons Pty Ltd v. Rostinga Pty Limited (NSWSC 18 April 1991) Horwitz Grahame Books v. Mid-City Centre Pty Ltd (1990) ConvR 55-514 R&A Dally & Co Pty Ltd v. Giex Pty Ltd (No 2) (1991) NSW ConvR 55-605 Ricciardello v. Caltex Oil (Australia) Pty Ltd (WA Supreme Court, 23 April 1991) Strang Patrick Stevedoring Pty Ltd v. James Patrick & Co Pty Ltd (1993) 32 NSWLR 538 Karger v. Paul [1984] VR 161 Re Londonderry's Settlement [1965] Ch 918 Esso Australia Ltd v. Australian Petroleum Agents' & Distributors' Association [1999] 3 VR 642 Morgan Sindall Plc v. Sawston Farms (Cambs) Ltd (English Court of Appeal, 3 December 1998) A. Hudson Pty Ltd v. Legal & General Life of Australia (PC) (1986) 61 ALJR 280 Arenson v. Arenson [1977] AC 405 DECISION : Summons dismissed. Introduction 1 HIS HONOUR: By a Lease dated 28 April 1995 ("the Lease"), the State Rail Authority of New South Wales ("SRA") leased to Supenu Pty Ltd ("Supenu") land comprised in Folio Identifiers 14/749949 and 15/749949, known as 1 Railway Parade, Burwood ("the Land"). The term of the Lease was eighty years, commencing on 1 January 1992 and terminating on 31 December 2071. 2 On 1 April 1997, Supenu assigned the Lease to the plaintiff, Kanivah Holdings Pty Limited ("Kanivah") and on 8 May 1997 SRA sold its freehold interest in the Land to the First Defendant, Holdsworth Properties Pty Limited ("Holdsworth"). 3 The Lease provides for periodic rent reviews. In the fifth year of the term, and in every third year thereafter, the current market rental of the Land is to be determined either by agreement between the Lessor and the Lessee or, if they fail to agree, by a valuer in accordance with detailed provisions set out in the Lease. 4 Holdsworth and Kanivah failed to agree on the current market rental under the Lease for the period commencing 1 January 1999. Mr Frank Egan, a director of the Second Defendant, Egan National Valuers (NSW) Pty Ltd ("Egan"), which carries on business as real estate valuers, was approached by the parties. The Third Defendant, Mr Norris, a director of Egan and a licensed real estate valuer, undertook the determination of the current market rental for the Land as at 1 January 1999, and furnished his determination to the parties on 24 September 1999. 5 The Lease provides that a valuer determining current market rental acts as an expert, not as an arbitrator, and that the valuer's determination is final and binding on the Lessor and the Lessee. 6 Kanivah is dissatisfied with Mr Norris' determination of the current market rental. By these proceedings it seeks a declaration that his determination was not made in accordance with the terms of the Lease and that it is, therefore, of no effect. Further, it seeks an order of the Court determining what is the current market rental of the Land as at 1 January 1999 and an order that Holdsworth repay to it all amounts which it has paid to Holdsworth in respect of rental since 1 January 1999 which are in excess of the current market rental, as determined by the Court. 7 In the alternative, Kanivah claims damages in tort and contract against Egan, Mr Norris, or both of them, on the basis that Egan was negligent in procuring Mr Norris to carry out the determination on its behalf, and that Mr Norris was negligent in the manner in which he carried out the determination. 8 In very broad summary, the issues between the parties are: was Mr Norris appointed directly by the parties to conduct the rent determination, or was Egan appointed on the understanding that it would procure Mr Norris to conduct the determination as its agent or nominee; is Mr Norris' determination of the current market rental a determination in accordance with the requirements of the Lease, so that it is final and binding on Kanivah and Holdsworth; did Egan and Mr Norris, or either of them, breach any duty of care to Kanivah in the manner in which the rent determination was made. The relevant terms of the Lease 9 It will be necessary to give close consideration to the relevant terms of the Lease. Clause 1(c) provides that the current market rental shall be determined as at 1 January 1996 and as at the date of each successive third anniversary of such date during the remainder of the term. 10 Clause 1(c)(ii) provides that prior to a review date Holdsworth may notify Kanivah of its assessment of the current market rental for the Land as at the review date. Clause 1(c)(ii)C(iv) provides that in the event of dispute: "… the current market rental shall be determined by a valuer appointed as hereinafter provided. The determination of the valuer of the current market rental shall be final and binding on the Lessor and on the Lessee." 11 Clause 1(f) provides for the qualification of a valuer who is to be appointed to determine current market rental. Any such valuer: "i) shall be a full member of not less than ten (10) years standing of the (Australian Institute of Valuers and Land Economists) or of such other body representing professional valuers as shall most nearly have taken the place of the said Institute should it have ceased to exist and such valuer shall hold a current licence (or be otherwise permitted by law) to practise as a valuer of premises of the kind demised by this Lease and shall have at least ten (10) years experience in valuing leased commercial and other premises in the vicinity of the demised premises; (ii) shall act as an expert in making his determination of the current market rental and not as an arbitrator. He shall take into account any written submissions received by him from the Lessor or Lessee within twenty-one (21) days of his acceptance of his appointment but shall not be fettered by such submissions and shall determine the current market rental in accordance with his own judgment and opinion; and (iii) shall conclude his determination and shall inform the parties of it within two (2) months after having accepted his appointment, including providing the parties with sufficient written reasons for his determination of the current market rental of the demised premises." 12 Clause 1(d) provides: "d) Definition of Current Market Rental FOR the purposes of this Lease 'current market rental' shall mean the best annual rental that can at the review date reasonably be obtained for the demised premises having regard to: (i) the maximum annual rental that might then reasonably be obtained were the demised premises available to be leased by a willing landlord to a willing tenant with vacant possession; (ii) on the terms and conditions contained in this Lease; (iii) the position of the demised premises; (iv) the highest and best use to which the demised premises may be put; and (v) the usual valuation principles in the state of New South Wales, to the extent to which those principles are not inconsistent with the criteria set out in this sub-clause 1(d). AND not having regard to: (iii) any building structure or other improvement erected on the demised premises by or on behalf of the Lessee after the commencement of the term of this Lease at the expense of the Lessee; (iv) the value of any goodwill attributable to the Lessee's business and the value of tenant's fixtures and fittings on the demised premises; and (v) any deleterious condition of the demised premises if such condition results from any breach of any provision of this Lease by the lessee but otherwise assuming that all covenants on the part of the Lessee contained in this Lease have been fully performed and observed." Who was appointed as valuer 13 By letter dated 6 May 1999, Holdsworth notified Kanivah pursuant to Clause 1(c)(ii) of the Lease that its assessment of the current market rental of the Land as at 1 January 1999 was $600,000 per annum. 14 By letter dated 13 May 1999, Kanivah's solicitors notified Holdsworth that Kanivah rejected Holdworth's assessment of the current market rental and, in accordance with Clause 1(e) of the Lease, requested that Holdsworth nominate three valuers for the purpose of determining current market rental. On the same day, Kanivah's solicitors wrote directly to Mr Frank Egan enclosing a copy of the Lease and explaining the background of the rental dispute with Holdsworth. The letter proceeded: "Our client is of course rejecting the Lessor's assessment pursuant to the provisions of the Lease. It wishes to engage you however to provide it with your opinion of the true market rental. We undertake for and on behalf of our client to meet your expenses of preparing the valuation and in connection with any other matter we might require of you to assist our client in resolving the dispute. We would be grateful if you would advise your charge and confirm that you are willing to accept our client's retainer." 15 On 2 June 1999, Weeroona Management Pty Ltd ("Weeroona"), acting on behalf of Holdsworth, wrote to Egan (i.e. the Second Defendant) for the attention of Mr Keith Norris. After setting out some of the background, the letter continued: "Holdsworth and Kanivah have agreed to appoint you pursuant to clause 1(e) of the lease to determine the current market rental as at 1 January 1999 pursuant to clause 1(c) of the lease, subject of course to your agreeing to accept the appointment." 16 On the same day, Weeroona wrote to Kanivah noting: "… your agreement to jointly appoint Egan Valuers to determine the current market rental …" 17 By letters dated 8 June 1999 on the letterhead of Egan, Mr Norris wrote to Kanivah and Holdsworth in the following terms: "I understand that Holdsworth Properties Pty Limited and Kanivah Holdings Pty Ltd, the Lessor and Lessee respectively of the abovementioned premises, have agreed jointly to appoint me to determine the current market rental of the subject premises pursuant to Clause 1(c) of the relevant Lease. I am pleased to accept the appointment on the following bases: Written submissions should be forwarded to me within twenty one (21) days of the date of this acceptance (refer Clause 1(f)(ii) of the subject Lease. Following receipt of submissions I will inspect the property and comparables and then seek final oral submissions. I note Clause 1(f)(iii) requires me to conclude my determination and inform the parties within two (2) months of accepting this appointment, however as I have two (2) weeks leave scheduled for early July I seek your agreement to extend the conclusion to, say 23rd August. My fee for acting in the matter will be $8,500. I note the provisions of Clause 1(g) in this regard, which states … … In accepting this appointment I confirm that I comply with the qualifications set out in Clause 1(f)(i) of the Lease and do not have any conflicts of interest in the matter. Should you have any queries do not hesitate to contact the writer." The letters were signed "Keith Norris, Director, Egan National Valuers (NSW) Pty Ltd". 18 By letter dated 16 June 1999 addressed to Egan, for the attention of Mr Norris, Kanivah advised that Holdsworth and Kanivah had agreed to extend the date for written submissions. 19 On 21 June 1999, Holdsworth wrote to Egan, for the attention of Mr Norris as follows: "Dear Mr Norris, Re: Market Rent – 1 Railway Parade Burwood Thank you for your letter of 8 June 1999. We note the conditions of your acceptance of the appointment which are acceptable to us. We shall assume unless you advise us to the contrary that they have also been accepted by Kanivah Holdings Pty Limited." 20 Kanivah submits that Holdsworth and Kanivah requested Egan to accept appointment as the valuer to determine the current market rental under the Lease, and that Mr Norris accepted the appointment on behalf of Egan and conducted the determination on behalf of Egan. Holdsworth, Egan and Mr Norris submit that it was Mr Norris directly who was appointed to conduct the determination. 21 I am unable to accept Kanivah's submission. The communications between Kanivah and Holdsworth as to the appointment of a valuer must be understood in the context of the provisions of the Lease which both parties were seeking to invoke. Both parties were seeking the appointment of a valuer whose determination would be final and binding in accordance with Clause 1(c)(ii)C(iv) of the Lease. Such a determination could not be made except by a valuer who satisfied the qualifications required by Clause 1(f)(i) of the Lease. 22 Egan itself could never have satisfied the requirement of Clause 1(f)(i) that the valuer appointed be a full member of the Institute of not less than ten years' standing. The constitution and by-laws of the Institute make it perfectly clear that only a natural person may be a member. 23 Further, the requirement of Clause 1(f)(i) that the valuer have at least ten years experience in valuing premises in the vicinity of the Land strongly suggests that it is direct and continuous personal experience in valuing such premises which is required of the valuer, not the collective experience which a corporation might claim if various staff members carried out isolated valuations in the vicinity over a period of ten years, no such staff member perhaps performing more than one such valuation in that time. 24 Mr Norris' curriculum vitae demonstrates that he amply satisfied the requirements of Clause 1(f)(i), and he so certified to Holdsworth and Kanivah by his letters dated 8 June 1999. 25 Accordingly, notwithstanding loose references in the communications between the parties which might point to the appointment of Egan as valuer, I am satisfied that they intended to appoint only a valuer qualified under Clause 1(f)(i) of the Lease, that only Mr Norris was so qualified, and that the parties directly appointed him personally to conduct the rental determination. The parties' submissions to Mr Norris 26 On 8 July 1999 Weeroona, on behalf of Holdsworth, provided to Mr Norris the submissions of two valuers retained by it, Messrs Byron and Neskovski. 27 Mr Byron's submission drew attention to the rent review procedure provided in Clauses 1(c) and 1(d) of the Lease, and advised that Mr Byron had been unable to obtain any recent comparable ground leasings of sites of a nature, zoning and location similar to the Land which would allow a direct comparison of rental values. Mr Byron therefore considered that the most appropriate method of assessment would be to determine the rental as a percentage of the property's current land value. 28 Mr Byron then addressed the requirement in Clause 1(d) of the Lease that the current market rental be determined having regard to the highest and best use of the Land and with vacant possession. He submitted that the highest and best use was a mixed retail/commercial and residential development, comprising ground floor retail and commercial areas, with upper floor residential apartments. 29 He referred to the fact that on 6 January 1999, Burwood Council had granted a Deferred Development Consent in respect of the Land for a retail and commercial office development comprising three buildings of two, seven and nine storeys, having a total gross floor area of 15,786m2, and on-site parking for 369 cars. He suggested that Burwood Council would approve an amendment to the Development Consent allowing for residential apartments within the upper floors of the proposed buildings. 30 Mr Byron then addressed the question of current market land value. He submitted that the most appropriate and accurate method of valuation was by direct comparison of sales of similar development sites in the immediate area. 31 Mr Byron assessed the proposed mixed retail/commercial and residential development for comparison purposes as the equivalent of 140 residential home units and, on the market evidence available, considered that the Land would therefore have a value of between $50,000 and $55,000 per home unit. After deduction of costs and expenses, he arrived at a current market valuation for the Land of $6,865,000 which, he said, equated to a rate of $1,788 per square metre and was consistent with the sales of comparable land which he had analysed. 32 He considered that a fair market rental for a ground lease of a property of the same nature as the Land would be in the order of 8% to 9% of its current market value, indicating rentals within the range of $549,000 to $617,850 per annum. Mr Byron accordingly adopted a current market rental for the Land as at 1 January 1999 of $585,000 per annum. 33 Mr Neskovski's submission also directed attention to the Deferred Development Consent which had been granted by Burwood Council, noting that the total gross floor space of the building was restricted by that Consent to 15,826m2. Mr Neskovski was of the view that the highest or best use of the Land was not, however, retail/commercial, as permitted by the Development Consent, but was a mixture of retail/commercial on the ground floor and two towers of residential apartments. He said that the current Development Consent nevertheless provided assistance in determining the potential size, density and achievable building envelope that could be developed on the Land. In his view, the current Consent indicated that a gross building area of 15,826m2, together with four levels of basement car parking, was achievable. 34 Mr Neskovski was not aware of any recent lettings of sites of a nature similar to the Land in the Sydney metropolitan area which could give a direct indication of the Land's current market rental. He said that, traditionally, in such a case the rental value has been determined as a percentage of the property's current land value. 35 After examining the returns derived from a number of properties which Mr Neskovski regarded as useful comparisons, he concluded that the net rate of return which should be applied to the current market value of the Land was in the range 8% to 8.5%. He then analysed comparable sales of land and arrived at a rate of $2,000 per square metre, producing a current market value for the Land of $7,600,000. Applying to that figure a return of 8% per annum produced a current market rental of $608,000 per annum; applying a rate of 8.5% per annum produced $646,000 per annum. Mr Neskovski adopted a current market rental of $625,000 per annum. 36 On or about 13 July 1999, Kanivah's valuer, Mr Rowlands, provided his written submissions to Mr Norris. Mr Rowlands prefaced his assessment of the highest and best use of the Land with the observation that economic analysis had revealed that the Land was "somewhat uneconomic to develop" . A Development Approval granted in 1996 was, he said, uneconomic because of market reluctance to accept leasehold strata title. In his view, the existing conditions as to car parking imposed in the Deferred Development Consent granted on 1 January 1999 made commercial development of the Land not viable. A feasibility study, which he set out, in his view supported that proposition. 37 Accordingly, in Mr Rowlands' opinion, the highest and best use of the Land was as an office/retail mix less extensive than that for which the Deferred Development Consent had been granted. 38 Mr Rowlands then expressed the view that the appropriate method of establishing current market rental for the Land would be "on the basis of a land value assessed off the available sales evidence" . Mr Rowlands referred to the sale of the freehold of the Land, subject to the Lease, from SRA to Holdsworth on 8 May 1997. He then referred to the sale of the freehold of the property adjoining the Land in May 1999. For reasons which he gave, he was of the opinion that the value of the Land was more clearly aligned to the value of the adjoining property as evidenced by the sale in May 1999. On this basis, Mr Rowlands came to the conclusion that the current market value of the Land was $1,920,000. To this figure he applied a return rate of 8% per annum, which produced a current market rental of $153,600 per annum. 39 It will be noted that all three submissions made to Mr Norris proceeded on the basis that once the highest and best use of the Land had been established, the current market value of the Land should be ascertained by reference to comparable sales of land with the same or similar use, and a rate of return per annum should be applied to the current market value so determined in order to produce a figure for current market rental. The significant difference between Holdsworth's valuers and Kanivah's valuer was that the current market value of the Land was, at the least, $6,865,000 in the opinion of Holdsworth's valuers, whereas Kanivah's valuer considered it to be less than $2,000,000. The rates of return applied by the three valuers did not differ so greatly. Mr Norris' determination 40 Mr Norris provided his written determination of current market rental to Holdsworth and Kanivah under cover of a letter dated 24 September 1999. In the determination he notes that his appointment was pursuant to the provisions of the Lease, a copy of which he annexes. He notes that he has read the submissions of Holdsworth's valuers and Kanivah's valuers, that he has inspected the Land and the properties relied upon by the valuers as providing comparable sales, and that he has spoken to the valuers to enable them to address their written submissions so that he could clarify various matters arising from those submissions. Finally, he records that he has made his own enquiries and investigations. 41 The determination then sets out the location of the Land, the character of the neighbourhood and the nature of its development, the shape, dimensions, area and zoning of the Land, and the date upon which he inspected it. 42 The determination notes that the Land has been the subject of two development approvals: one, granted in 1996, for a residential/commercial proposal comprising home units, office, retail and restaurant uses, and three levels of car parking; and the other, granted in 1999, for a commercial office/retail proposal incorporating 15,785m2 and underground parking for 367 cars, including 78 spaces for public parking. 43 The determination sets out an epitome of the Lease, particularising the premises, the parties, the term, the present rental, the incidence of liability for outgoings and the permitted use. No other provision of the Lease is referred to in the epitome. 44 Mr Norris then notes the current market rentals proffered by the valuers for Holdsworth and Kanivah in their respective submissions. He proceeds: "In arriving at my determination I have considered all submissions, both written and oral. I have made my own enquiries regarding Town Planning and have read all relevant documentation, including the subject Lease. Further, I have inspected comparables submitted by the respective Valuers and made my own enquiries. The lease requires me to determine the Current Market Rental Value at the date of review." 45 The provisions of Clause 1(d) of the Lease, which regulate the matters to which the valuer must have regard in determining current market rental, are then quoted verbatim. 46 The determination proceeds: "13.0 RENTAL BASIS : None of the Valuers in this matter has been able to provide direct current market rents for similar sites. Indeed, I have also been unable to uncover any such direct rental comparisons. The Valuers have therefore relied upon a basis of valuation that is common in relation to the leasing of commercial/industrial sites. Generally, such Leases provide for a set percentage rental return to be applied to a market value of the land. The market value of the land is generally arrived at in such cases by valuing the land according to its 'highest and best use'. Mr Byron, for the Lessor, considers a reasonable percentage return applied to the assess land value to be in the range of 8%-9% and adopts a rental reflective of an 8½% return. Mr Neskovski argues for a rental range of 8%-8.5% if the land is valued on a residential basis as its highest and best use and adopts a rental reflecting an 8.3% return. Alternatively Mr Neskovski submits that if the highest and best use of the land is commercial the ground rental percentage should be 8.75%-9.25% and adopts a rental reflecting an 8.9% return. Mr Rowlands, for the Lessee maintains that an 8% return is applicable. In my experience ground rental returns historically have ranged between 6%-12% depending upon the land use and prevailing economic conditions. I consider an appropriate ground rental return to be 8% applied to the highest and best use land value. 14.0 HIGHEST AND BEST USE: The Valuers for the Lessor submit that the highest and best use of the land is redevelopment for ground floor retail/commercial and high rise residential above. The Lessee's Valuer argues that residential development is not feasible because there is market reluctance to accept leasehold strata title. My concerns as to the feasibility of strata title residential development caused me to seek expert legal advice in relation to a number of matters, including: – Do the provisions of the Lease, particularly Clauses 1(d)(i) vacant possession and 1(d)(iv) 'highest and best' use preclude me from having regard to the leasehold nature of the property in carrying out my determination? – Is leasehold residential strata title permissible for the subject site? – General advice in relation to submissions put to me. The expert advice upon which I have relied may be summarised as follows: – The provisions of the Lease do not preclude me from having regard to the leasehold nature of the property. The reference in Clause 1(d) to the highest and best use can only mean in the context of the clause the highest and best use to which the Demised Premises may be put having regard to the terms and conditions of the Lease, the position of the Demised Premises, usual valuation principles in the State of New South Wales and the description of current market rental contained in Clause 1(d)(I) and disregarding the matters set out in Sub-Clause (ii), (iv) and (v) of Clause 1(d). – The Strata Schemes (Leasehold Development) Act 1986 does not apply to the land held by a proprietor other than a prescribed authority. With the assignment of the freehold from the SRA to a private company, the ability to subdivide under the Leasehold Act has now been lost. – In relation to the Strata Schemes (Freehold Development) Act 1973 the registration of a strata plan under that legislation is not something which is contemplated by the Lease. The landlord's registration of the strata plan effectively results in the landlord creating common property owned by a third party (the Owners Corporation). The landlord has lost the fee simple of that property and is otherwise subject to the provisions of the Freehold Act with which it would not otherwise have to comply. The abovementioned legal situation is in addition to the market acceptance problems I foresee in having to sell strata units subject to a Ground Lease that is reviewed to market three yearly. The overwhelming market evidence produced by the Valuers in relation to any proposed residential redevelopment related to freehold site sales for strata development. Alternatives such as Company Title or a site restricted to investment flats would, in my view, require substantial discounting of the effective rate per unit site demonstrated by freehold strata site sales. Having regard to the above, I have therefore concluded that the highest and best use of the land is as a retail/commercial site. 15.0 COMMERCIAL SITE VALUE: In considering the value of the subject site for commercial/retail development I have considered comparable sales evidence and a land residual exercise having regard to the existing commercial Development Approval. I consider commercial site sales evidence at Parramatta to be the most comparable evidence available. After adjusting the above evidence for shape, size, location and timing I consider that the subject commercial site indicates a value of $320 per square metre NLA. I note further that the site has been subject to the following sales: Lessor's Interest Purchased from SRA on the 18th May, 1997 for $2,110,000 Lessee's Interest Purchased on the 1st April, 1997 for $2,021,370 Total Consideration for Lessor's/Lessee's Interests $4,131,370 Having regard to the deduced rate per square metre of NLA, I have concluded the market value of the land on a commercial redevelopment basis, at the relevant date to be (rounded) $4,350,000. Application of my concluded ground rental rate of 8% results in the following calculation: $4,350,000 x 8% $348,000 16.0 DETERMINATION: I hereby determine the Current Market Rental Value of the herein-described premises, as at the 1st January, 1999, in the sum of THREE HUNDRED AND FORTY EIGHT THOUSAND DOLLARS ($348,000)." When is an expert's determination final and binding 47 Where, as here, parties to a lease have provided that a rent review dispute is to be resolved by the determination of a valuer, acting as an expert and not as an arbitrator and that the determination is to be final and binding, then the determination may be successfully impeached as invalid only if it is shown to be tainted by fraud or collusion, or if it is shown not to have been made in accordance with the determination process, if any, specified in the lease. In either case, this is so because the determination is not one for which the parties have contractually stipulated. Further, if the determination has been made in accordance with the terms of the parties' contract, a mistake by the valuer in the reasoning process by which the conclusion was reached will not vitiate the determination. Where mistake is shown, the critical question is its characterisation: has it resulted in a determination which has not complied with the requirements of the parties' contract – for example a valuation of the wrong property or interest, or a valuation failing to take into account matters which the contract required to be taken into consideration – or has the mistake occurred in the process of carrying out, even if negligently, the valuation process required by the contract? In the former case, the determination is of no force and effect; in the latter case, it is final and binding. 48 In my view, these principles are now well settled: see Legal & General Life of Australia Ltd v. A. Hudson Pty Ltd (1985) 1 NSWLR 314, at 335-336 per McHugh JA; Holt v. Cox (1994) 15 ACSR 313 and, on appeal, (1997) 23 ACSR 590, at 594ff per Mason P.; Fermentation Industries (Aust) Pty Ltd v. Burns Philp & Co Limited (unrep., NSWSC 12 February 1998, Rolfe J). 49 The parties are not at issue as to the formulation of these principles; rather, they are at odds as to how the principles apply to the facts of the case. Kanivah contends that the determination of Mr Norris is of no effect because he failed to comply with the determination process provided in the Lease in a number of critical respects, and that these errors resulted in a determination different in character from that for which the parties contractually stipulated. Holdsworth, Egan and Mr Norris contend that Mr Norris committed none of the errors attributed to him and that, even if some error is shown, it is error only in the process of reasoning whereby Mr Norris produced the contractually stipulated determination. 50 For the sake of brevity, I will refer hereafter to error resulting in a determination different in character from that for which the parties have contractually stipulated as "vitiating error" . May the Court go behind the face of the determination 51 An evidentiary point of principle on which the parties differ is whether the Court can, or should, have regard only to what appears on the face of Mr Norris' determination in considering whether any vitiating error is shown. The issue is important because Kanivah relies upon evidence given not only by Mr Norris but also by other experts, in affidavits and in cross examination in the proceedings, to show that Mr Norris' determination did not conform to the requirements of the contract; Holdsworth, Egan and Mr Norris rely on extrinsic evidence to show the opposite. That evidence was certainly admissible on the issue whether Mr Norris breached a duty of care to Kanivah in conducting his determination, but the question is whether, and to what extent, it is admissible on the issue whether his determination is in conformity with the requirements of the Lease. 52 There has been a divergence of judicial opinion on this question in the United Kingdom and in Australia. It is therefore necessary for me to review the present state of the law, as briefly as might be, to explain the conclusion to which I have come. 53 Holdsworth submits that as a matter of principle the Court must determine the validity of Mr Norris' determination by a consideration of matters appearing entirely within the four corners of the document, and that extrinsic evidence is simply inadmissible. As authority for this proposition, Holdsworth relies upon Mayne Nickless Ltd v. Solomon [1980] Qd. R. 171, a unanimous decision of the Queensland Full Court. 54 In that case, a lease provided that when the rent fell due for review it was to be determined by an independent valuer. The lease did not require the valuer, in making his determination, to give a "speaking valuation", i.e. one which gave reasons. In delivering his determination, however, the valuer chose to give reasons. The lessee resisted payment of the increased rental on the basis that the valuer's determination was invalid. 55 Sheahan J, with whom the other members of the Court concurred, observed that the case had been conducted in the Court below as a valuation case involving a disputation between valuers, "the very situation which the rental clause in the lease was, I should imagine, designed to avoid" . His Honour noted that Counsel for the lessee had properly conceded that if the valuer had not revealed his methodology – that is, if he had delivered a "non-speaking valuation" – then the lessee could not go behind it. However, his Honour noted, the lessee's Counsel had submitted that if the valuation was a speaking one and if it appeared from its face that the valuer proceeded on a wrong basis, then the valuation was not one by which the parties had contracted to be bound. Reliance was placed upon Campbell v. Edwards [1976] 1 All ER 785, and the now settled principles referred to in paragraphs above. 56 Sheahan J referred to the decision of Harman J at first instance in Dean v. Prince [1953] 1 Ch 590. There, a company's auditors had been appointed pursuant to a provision in the company's articles of association to value a company's shares, acting as experts and not as arbitrators. The relevant article did not require the auditors to give a speaking valuation. The auditors at first gave a non-speaking valuation but, after requests for explanation from the dissatisfied shareholder, forwarded their notes showing how they had arrived at their conclusion. The dissatisfied shareholder challenged the valuation on the ground that it had been based on a fundamental error. The defendants submitted that the auditors' original non-speaking valuation was final and binding and, there being nothing wrong with that valuation on its face, it was not legitimate to go behind it and to look at explanations subsequently offered by the auditors. 57 Harman J held (at 594) that "if (the auditors) had chosen to keep silent I do not think that any Court would have obliged them to explain their reasons; but they have not been strong minded enough to do that. It is therefore open to the plaintiff to question them" . 58 His Lordship reached that conclusion by analogy with the well settled position of trustees and directors exercising a discretion: the Court will not oblige them to give reasons but, if they do, those reasons may be impeached in Court (at 593). 59 Dean v. Prince was taken on appeal to the Court of Appeal ([1954] 1 Ch 409), but not upon this point. Nevertheless, Evershed MR said, at p 417: ""Having regard to the form of the article (whereby the auditor was appointed to value the shares) it is not in doubt that, were it not for one circumstance (namely, that the auditor chose to expose his reasons) , Mrs Dean could not have questioned the validity and conclusiveness of Mr Jenkinson's certificate, since no sort of imputation has been made, or could be made, of Mr Jenkinson's integrity." 60 Sheahan J then traced the history of the development of the modern principles upon which an expert valuation would be held to be invalid, commencing with the often cited decision of Lord Denning MR in Campbell v. Edwards [1976] 1 All ER 785. That history has been comprehensively reviewed by McHugh JA in Legal & General Life of Australia Limited v. A. Hudson Pty Ltd (see above). Sheahan J continued, in a passage which is strongly relied upon by Holdsworth, as follows at p 178: "In the instant case the valuation of Mr Wolfs is, I consider, a 'speaking valuation' in the sense that it is one which, on its face, discloses the method of valuation used, namely replacement costs less depreciation. For the purpose of this appeal I am prepared to assume that it is open to be impeached and set aside for mistake. In such case it is necessary to consider firstly whether any of the grounds of appeal have been made out. On this point I would reject all those grounds of appeal which assign error in the valuation other than such ground or grounds as asserts that the basis or method of valuation namely replacement costs less depreciation is erroneous or mistaken. I would do so for the reason that the grounds I reject are not matters which could be said to appear on the face of the valuation. If a 'speaking valuation' can be impeached for mistake then I would regard it as sensible to hold that the mistake must appear from a reading of the valuation and not from cross-examination of the valuer and answers elicited therein, which the appellant in part has attempt here. See Gold Coast City Council v. Canterbury Pipelines (Aust) Pty Ltd [1968] 118 CLR 58; Evans v. National Pool Equipment Pty Ltd [1972] 2 NSWLR 410." 61 His Honour was considering whether particular grounds of appeal challenging the validity of the valuation should be entertained by the Court. In other words, he was considering what were the legitimate boundaries of the contest before the Court, not by what evidentiary means the contest might be fought within those boundaries. I do not construe his Honour as holding that evidence extrinsic to the determination itself is never admissible on the issue whether the determination is vitiated by error. 62 In my view, what his Honour is saying is that the Court should not entertain a contest as to the validity of a speaking valuation on a particular ground unless the complainant can point to something on the face of the determination which gives a foundation to the claim of vitiating error on that ground. The complainant is not at liberty to embark upon a valuation case at large, as the parties in Mayne Nickless had done in the Court below. I do not understand his Honour to be saying that if a ground for invalidity appears from the face of a speaking valuation neither party may adduce evidence to support or oppose the challenge on that ground. 63 In Joint Coal Board v. Noone Pty Ltd (unrep. 12 June 1984, SCNSW), Yeldham J considered Mayne Nickless and later authorities including Karenlee Nominees Pty Ltd v. Gollin & Co Ltd [1983] VR 657, Burgess v. Purchase & Sons (Farms) Ltd [1983] 1 Ch 216, Wamo Pty Ltd v. Jewel Foodstores Pty Ltd (1983) 2 BPR 9611, Email Ltd v. Robert Bray (Langwarrin) Pty Ltd [1984] VR 16, and Legal & General at first instance. His Honour was of the view that the valuation in the case before him was a "non-speaking valuation". His Honour proceeded: "But whether my decision as to the nature of the valuation is correct or not, I entirely agree with respect with Sheahan J in Mayne Nickless v Solomon, supra, that, assuming this was a speaking valuation, and assuming it may be impeached or set aside for mistake, such mistake must appear from a reading of the valuation itself and not from cross-examination of the valuer and answers elicited therein or, I would add, from collateral material tendered in evidence by the parties seeking to impeach the document. The conclusion of Sheehan J is supported by what Lord Denning MR had said in Campbell v. Edwards, supra (at 407), that in the case of a 'speaking' valuation, if a valuer gives his reasons or calculations 'and you can show on the face of them that they are wrong, it might be upset'. There is simply nothing on the face of the present valuation to indicate error." 64 The opposite view was taken by Cole J in Payce Properties Pty Ltd v. Harrison's Timber Pty Ltd (unrep., 14 December 1990, Supreme Court of New South Wales, Commercial Division). A rent review clause provided for rent reviews to be determined by reference to the value of the subject land. The lease did not require a speaking valuation, but the valuer nevertheless gave one. The lessee challenged the validity of the determination on the basis, inter alia, that the lease required a valuation of the Land in its actual condition, whereas the valuer's determination showed that he had valued it on certain assumptions. It was said that the determination was therefore not in accordance with the requirements of the Lease. The lessor sought to call the valuer himself. It was objected by the lessee that the valuer's evidence should not be admitted. Cole J said: "As a matter of principle it seems to me that if it is questioned whether the valuation obtained is in accordance with the contract, evidence upon that matter need not, of necessity, be restricted to simply the clause and the valuation. I see no reason in principle why oral evidence should not be admissible to assist a Court in determining whether the valuation accords with the contractual requirement. That is not evidence to correct an error in a valuation: it is evidence to determine whether the contractually required valuation has been obtained. I understand my view to accord with that of Bryson J in Horwitz Grahame Books v. Mid-City Centre Pty Ltd (1990) ConvR 58829, and of Hodgson J in Nuholo Pty Ltd & Anor v. Venture Stores (Retailers) Pty Ltd unreported 16 March 1990. Admitting Mr Manning's evidence as I do, it is clear that he satisfied himself of the factual matters expressed as assumptions in the report." 65 His Honour was dealing with a speaking valuation which showed on its face a particular ground for a claim of vitiating error. His Honour admitted evidence going to that particular ground. To that extent, the result of his decision was consistent with the decision of the Full Court in Mayne Nickless, although his reasons for arriving at that result were not. 66 In Fisons Pty Ltd v. Rostinga Pty Limited (unrep., NSWSC 18 April 1991), Cole J had to consider a challenge to a non-speaking valuation. Evidence was tendered to challenge the valuation for vitiating error upon a ground that could not be shown on the face of the valuation. His Honour was therefore dealing with a situation quite different from that which he had confronted in Payce. His Honour nevertheless admitted evidence directed to showing vitiating error. In support of that decision, he said merely that he remained of the view which he had expressed in Payce, quoting the passage from his judgment which is set out in paragraph 64 above. It is clear that his Honour was of the view, in Payce as well as in Fisons, that evidence was admissible to show vitiating error, regardless of whether the valuation was speaking or non-speaking. 67 This had been the conclusion reached by Bryson J in Horwitz Grahame Books v. Mid-City Centre Pty Ltd (1990) ConvR 55-514, upon which Cole J had relied in Payce. There, a valuer delivered a non-speaking determination of rental under a lease. The plaintiff challenged the determination for vitiating error, and sought to tender evidence as to what the valuer had in fact done. The defendant objected that the evidence was inadmissible. Bryson J observed that without such evidence there would have been no basis at all for a finding that the valuer's decision was affected by error. Whether or not the evidence was admissible was, therefore, critical to the issue before the Court. 68 His Honour referred to the judgment of McHugh JA in Legal & General, and said at 58,834: "Within the terms of the opinion stated by McHugh JA the view expressed elsewhere that a 'speaking' valuation is open to review in respect of mistakes which appear from its own terms although not otherwise (as was contemplated in Joint Coal Board v. Noone Pty Ltd) does not appear well based; if the effect of the parties' agreement is that they are bound by a decision the result, subject to any express provision of their agreement, follows that they are bound by the decision whether or not it states reasons in its face, and whether or not those reasons are correct. McHugh JA does not say that it is significant whether the decision is a 'speaking' decision or not, and I take this as an indication that he did not regard it as significant. When mistake is such that the valuation is not in accordance with the agreement, there appears to be no reason in principle for limiting the available factual material to prove that there had been a mistake to the express terms of the decision. During argument I gave examples such as that the valuer had been seen to inspect, measure up and make inquiries at the wrong property after a change in the street numbers, or had inspected a property with an apparently correct street address in the wrong suburb. The examples were rather gross but they are useful to illustrate the difficulties of rejecting evidence extrinsic to the terms of the valuer's determination." 69 In R&A Dally & Co Pty Ltd v. Giex Pty Ltd (No 2) (1991) NSW ConvR 55-605, a valuer delivered a valuation fixing rental under a lease. The lessee claimed vitiating error and sought to tender evidence in support of its contention that the valuer had, in the course of a speaking valuation, disclosed a basis for the valuation which was not in accordance with the requirements of the contract. The case was, therefore, different from Horwitz Grahame in that that case was concerned with a non-speaking valuation. Nevertheless, McClelland J (as his Honour then was) followed Horwitz Grahame in admitting the evidence. 70 In Ricciardello v. Caltex Oil (Australia) Pty Ltd (unrep., WA Supreme Court, 23 April 1991), the Full Court of Western Australia (Malcolm CJ, Rowland and Walsh JJ) had to consider a challenge to a speaking valuation. After reviewing certain of the authorities, Rowland J (in whose judgment the other members of the Court concurred) said, at p.9: "I would also adopt the reasoning of Sheahan J in Mayne Nickless Ltd v. Solomon that the relevant mistake must appear from a reading of the valuation. In Horwitz Grahame Books Pty Ltd v Mid City Centre Pty Ltd (1990) NSW ConvR 55,514 Bryson J followed the approach of McHugh JA and considered whether the valuation was made in accordance with the terms of the contract. He also was of the opinion that it did not matter whether the valuation was a speaking valuation or not. He decided that if it can be shown that the valuation is not in accordance with the contract, there would appear to be no reason in principle to limit the available factual material to prove that there has been a mistake. I have some doubts about this approach. It is true that McHugh JA did not seek to draw any such distinction, but that does not mean that one may not exist and where, as in the present case, there is a speaking valuation, then it seems to me that it should be construed as any other document and its proper construction will decide what it means. This is consistent with the approach of the Full Court of the Supreme Court of Queensland in Mayne Nickless Ltd v. Solomon already cited." 71 Such was the state of the law when Giles J came to consider the question again in Strang Patrick Stevedoring Pty Ltd v. James Patrick & Co Pty Ltd (1993) 32 NSWLR 538. A valuer had given a non-speaking valuation of a crane pursuant to a price-fixing mechanism in a sale agreement. One of the parties claimed vitiating error. At 587, his Honour said: "Strang Patrick did not submit that evidence was inadmissible in the case of a non-speaking valuation to show what the valuer had done. In my opinion its restraint was correct, notwithstanding some support in the authorities for the contrary position: see Dean v Prince [1953] CH 590 at 593-594 (reversed on the substantive decision [1954] Ch 409); Frank H. Wright (Constructions) Ltd v. Frodoor Ltd [1967] 1 WLR 506 at 525-526; [1967] 1 All ER 433 at 454; Arenson v. Arenson [1973] Ch 346 at 363; Campbell v Edwards [1976] 1 WLR 403 at 407; [1976] 1 All ER 785 at 788; Baber v Kenwood Manufacturing Co Ltd [1978] 1 Lloyd's Rep 175. In principle, when the question is whether the valuer failed to make his determination in accordance with the contract that is something open to evidence regardless of whether the valuer disclosed what he did. At least unless the parties have expressly agreed that what the valuer did may not be investigated, whether the valuation complies with the terms of the contract should not be foreclosed because the valuer does not describe his performance. This view has been taken in Horwitz Grahame Books Pty Ltd v Mid-City Centre Pty Ltd (1990) NSW ConvR ¶ 55-514, Payce Properties Pty Ltd v Harrisons Timber Pty Ltd (Cole J, 14 December 1990, unreported), Fisons Pty Ltd v. Rostinga Pty Ltd (Cole J, 18 April 1991, unreported), and R A Dalley & Co Pty Ltd v Giex Pty Ltd (1991) NSW ConvR ¶55-605, and I will so approach the present case." 72 In noticing the authorities contrary to his own view of the matter, Giles J did not expressly refer to Joint Coal Board v. Noone (although that case had been cited in Horwitz Grahame, to which his Honour did refer). Further it does not appear from the report of the case that the decisions of the Queensland Full Court in Mayne Nickless, and of the Western Australian Full Court in Ricciardello were cited in argument to his Honour. 73 In Holt v. Cox (1994) 15 ACSR 313, Santow J, at first instance, followed the decision of Giles J in Strang Patrick Stevedoring. Again, it does not appear that Joint Coal Board, Mayne Nickless and Ricciardello were cited to his Honour. 74 The position which now confronts the Court in this case may be summarised thus: there are conflicting decisions of Judges at first instance in New South Wales directly in point – Joint Coal Board would reject extrinsic evidence, Horwitz Grahame and the decisions which follow it would admit extrinsic evidence. The decision of the New South Wales Court of Appeal in Legal & General does not determine the question one way or another. The decisions of the Queensland Full Court in Mayne Nickless and the Western Australian Full Court in Ricciardello and the various English decisions relied upon therein, although highly persuasive, are not binding upon me. There is no other appellate decision on the point which binds me. In this conflict of opinion, it appears that I must decide the matter for myself. 75 It seems to me that the origin of the view expressed in some of the modern cases that the Court cannot go behind the face of the valuation unless the valuer chooses to give reasons is the decision of Harman J in Dean v. Prince to that effect. The reason for his Lordship's decision was that a valuer making a determination in the exercise of judgment and discretion was in a position analogous to that of a trustee exercising a discretionary power. In my opinion, with great respect, the analogy between a valuer making a determination in accordance with the requirements of a contract and a trustee exercising a discretionary power is not a sound one. 76 There are many decisions of the Courts to the effect that where a trustee is given an absolute and unfettered discretion to exercise a power, the Courts will not examine or review the manner in which the discretion is exercised so long as it is exercised without malice or improper motive, after actual consideration of the question in issue, and within the purpose for which the power is conferred: see Karger v. Paul [1984] VR 161, at 163ff and the cases therein cited. There is but one exception to that general proposition. If the trustee chooses to give reasons for the exercise of the unfettered discretion – which the trustee is not in any way bound to do – then the Court can examine their sufficiency. The reasons underlying the rule that trustees are not bound to disclose their reasons have been explained by Harman LJ in Re Londonderry's Settlement [1965] Ch 918, at 928, as follows: "… trustees exercising a discretionary power are not bound to disclose to their beneficiaries the reasons actuating them in coming to a decision. This is a long-standing principle and rests largely, I think, on the view that nobody could be called upon to accept a trusteeship involving the exercise of a discretion unless, in the absence of bad faith, he was not liable to have his motives or his reasons called in question either by the beneficiaries or by the court." 77 In the same case, Salmon LJ said, at 937: "Another ground for this rule is that it would not be for the good of the beneficiaries as a whole, and yet another that it might make the lives of trustees intolerable should such an obligation rest on them: Re Beloved Wilkes' Charity (1851) 3 Mac. & G. 440; Re Gresham Life Assurance Society; Ex parte Penney (1872) 8 Ch. App. 446. Nothing would be more likely to embitter family feelings and the relationship between the trustees and members of the family, were trustees obliged to state their reasons for the exercise of the powers entrusted to them. It might indeed well be difficult to persuade any persons to act as trustees were a duty to disclose their reasons, with all the embarrassment, arguments and quarrels that might ensue, added to their present not inconsiderable burdens." 78 The "right to silence" rule has been applied not only to natural persons acting as trustees of family trusts, but to corporate trustees acting in a commercial context: see e.g. Esso Australia Ltd v. Australian Petroleum Agents' & Distributors' Association [1999] 3 VR 642, at 651ff. 79 The position of an expert valuer carrying out a determination in accordance with the requirements of a contract between two other parties is very different from that of a trustee exercising an unfettered discretion under at trust instrument such as a will or settlement. There is no warrant for importing into the law of contract a rationale developed in quite a different context in the law of trusts. True it is that the valuer, as expert, is called upon to exercise skill, judgment and an element of discretion, but he or she must exercise that discretion within the confines of the character of the valuation which the parties to the contract have stipulated will bind them. The valuer's discretion does not permit a refusal to take into account the matters which the contract directs be taken into account, nor does it permit a valuation upon a basis different from that which the contract requires. 80 In my opinion, unless the contract clearly provides that the expert valuer's reasons for a determination are unexaminable, then either party to the contract is entitled to call into question whether the determination conforms with the contractual requirements. That question is not for the valuer to determine in effect, by exercising a discretion not to disclose reasons, thus depriving the parties of a means of ascertaining the matter for themselves. The contract may entitle the valuer to give only a non-speaking valuation, but that is not the same thing as prohibiting the parties from eliciting, by legal process or otherwise, what the valuer has actually done. 81 I am persuaded that the decision in Horwitz Grahame and the subsequent decisions following it are correct and that I should follow them. I hold, therefore, that I am entitled to go behind the face of Mr Norris' determination and to have regard to extrinsic evidence in order to decide whether that determination has been conducted in accordance with the requirements of the Lease. Did Mr Norris have regard to the terms of the Lease? 82 Kanivah submits that Mr Norris' determination does not conform to the requirements of the Lease in two essential respects: first, in that he failed to have regard to the matters to which Clause 1(d) required him to have regard; second, in that he failed to provide "sufficient written reasons for his determination" , as required by Clause 1(f)(iii). 83 There is no suggestion by Kanivah that Mr Norris' determination is tainted by fraud or collusion. 84 Kanivah first submits that Mr Norris failed to determine the best annual rental that could reasonably be obtained "having regard to … the terms and conditions contained in this Lease" (Clause 1(d)(ii)). Kanivah points to a number of clauses in the Lease which its experts, who were called to give evidence, say were onerous and would have brought about a substantial diminution in the rental had they been given proper consideration by Mr Norris. 85 The particular clauses relied upon are Clause 4 (which specifies the use of the premises), Clauses 14 and 29 (which provide that at the expiration of the Lease some seventy-one years hence Kanivah may be required to demolish the premises), and Clauses 8, 19, 20 and 21 (which give Holdsworth a right of prior approval in respect of development on the Land). 86 Kanivah submits that the fact that these Clauses were not expressly referred to by Mr Norris in his determination demonstrates that he did not even read them and therefore could not have determined the rental "having regard to the terms and conditions contained in the Lease" . 87 I cannot accept that submission. Mr Norris' determination expressly stated that Mr Norris had read all relevant documentation, including the Lease (which he annexed), and the submissions of the parties' valuers. It is significant in this regard that Kanivah's own expert valuer, Mr Rowlands, in his submission to Mr Norris dated 13 July 1999 which was intended to argue persuasively for the lowest possible rent, did not advert at all to any of the terms and conditions of the Lease which Kanivah now says ought to have been regarded by Mr Norris as of such importance. 88 I am satisfied that the Mr Norris' determination shows on its face that he complied with Clause 1(d)(iii). 89 The extrinsic evidence supports that finding. Mr Norris' evidence was clear and unshaken that he had read the Lease carefully, he had considered its terms and had come to the conclusion that none of them impacted adversely on the methodology by which he proposed to fix the rental. I accept that evidence. 90 I find that Mr Norris carried out his determination "having regard to the terms and conditions contained in the Lease" , as required by Clause 1(d)(ii). Did Mr Norris have regard to the highest and best use? 91 Kanivah submits that Mr Norris failed to have regard to "the highest and best use to which the premises may be put" , as required by Clause 1(d)(iv). 92 It is quite clear from the face of Mr Norris' determination that he did give careful consideration to what he considered to be the highest and best use of the Land. He stated that he took into account the submissions of the lessor's and lessee's valuers; he set out the legal advice which he had obtained as to whether he could have regard to the fact that the Land was subject to a long-term lease in considering its highest and best use; and he set out his conclusion that the highest and best use of the Land was as a retail/commercial site. 93 Kanivah contends that such a conclusion was not sufficient for the purposes of Clause 1(d)(iv) of the Lease. Kanivah submits that that clause did not permit merely a generic determination of highest and best use; that was only the first step required, it says. What was then required was that Mr Norris proceed to determine with precision what Kanivah could actually and economically construct on the Land in order to produce the maximum lettable area at the highest possible rent. In order to do this, Mr Norris would have to determine for himself the exact composition of the development on the Land – for example, how many shops, of what character, whether cinemas, supermarkets, food outlets or specialty shops, how many office floors, what open spaces, and so on. He would have to produce feasibility studies for what he had in mind; to do that, he would have to commission plans and specifications from architects, and reports from engineers, quantity surveyors, town planners, and so on. 94 It is not to the point, says Kanivah, that none of this information was provided to Mr Norris by Kanivah; it is not to the point that Kanivah apparently regarded the Land as "somewhat economic to develop" and may very well not have wished to go to the expense of producing or procuring all of this information for the purpose of a rent determination based upon a use of the Land with which it fundamentally disagreed; neither is it to the point that Mr Norris was allowed only two months to make his determination. What is to the point, says Kanivah, is that this exercise was what the Lease required Mr Norris to carry out in order to arrive at his determination of the highest and best use of the Land; how he did it was a matter for him. He did not carry out this exercise, so that his determination is vitiated. 95 I cannot accept that submission. Clause 1(d)(iv), in my opinion, requires the valuer to do no more than "(to have) regard to the highest and best use" . It does not require him to determine what that use is as a matter of objective fact. All that he is required to do is to form an opinion of the generic highest and best use to which the Land may be put, and then to take that use into account, amongst other factors, in making his determination. That is exactly what Mr Norris' determination shows that he did. 96 Kanivah says that Mr Norris committed vitiating error in selecting a retail/commercial use as the highest and best use of the Land. It says that that use was not a use submitted by any of the parties' valuers. In my opinion, that in itself does not demonstrate vitiating error. It simply shows that, in the exercise of his own judgment and skill, Mr Norris formed an opinion as to the highest and best use of the Land which differed from those of the parties' own valuers. 97 Next, Kanivah says that Mr Norris committed vitiating error in forming his opinion as to highest and best use by taking into account the Deferred Development Consent which then pertained to the Land. It says that he relied on a net lettable area of 13,549.7m2, which was erroneous in that it took into account an area of 531m2 which was owned by Burwood Council and was not actually part of the Land, although negotiations had commenced with the Council to make that area available for car parking. 98 Further, it says, even if the Deferred Development Consent could be relied upon, Mr Norris was in error in basing his projected rentals from income to be received from all 369 car spaces which the existing consent envisaged, when 78 of those spaces were required for free public parking. 99 None of these claimed errors appears on the face of Mr Norris' determination but, says Kanivah, extrinsic evidence shows that this is what happened. In my view, all of these criticisms are ill-founded. If Mr Norris had arrived at his rent determination solely on the basis of a land residual exercise producing a certain net lettable area, the criticisms might have had some relevance, although even then if there was error it would have been error in working out a calculation rather than error in failing to address the correct question required by the Lease. However, it is clear from Mr Norris' determination that Mr Norris did not found his decision upon the results of a land residual exercise. He came to his conclusion using comparable commercial site sales at Parramatta. 100 The extrinsic evidence supports that finding. I accept Mr Norris' evidence that he relied upon comparable sales rather than upon a land residual exercise because he thought that there were too many uncertainties and variables in such an exercise. 101 Accordingly, I find that Mr Norris' determination shows that he complied with the requirements of Clause 1(d)(iv) of the Lease in that he formed an opinion as to the generic highest and best use of the Land, and had regard to that use in arriving at his determination. Did Mr Norris have regard to the position of the premises? 102 In his opening of the case, Mr Inatey SC, who appeared with Mr Gracie for Kanivah, foreshadowed an attack on the determination founded upon alleged failure by Mr Norris to have regard to the position of the premises as required by Clause 1(d)(iii) of the Lease. The attack was apparently based on the fact that Mr Norris used the word "location" in his determination when describing the premises, its characteristics, dimensions, area, neighbourhood, zoning and permitted uses, rather than the word "position". There was no substance whatsoever in this ground of attack, and Mr Inatey very properly abandoned it in his final oral submissions. Did Mr Norris have regard to usual valuation principles? 103 Next, Kanivah contends that Mr Norris failed to have regard to usual valuation principles as required by Clause 1(d)(v) of the Lease. The contention seems to come down to this: Mr Norris used comparable sales of commercial sites at Parramatta as the basis for his determination; contrary to recognised valuation practice, he did not make any adjustments to his calculations based on those sites having regard to the irregular shape of the Land, its regional location, its position adjacent to a railway line, and site-specific usage relevant to the size and position of the premises. 104 Further, Kanivah says that Mr Norris did not have regard to the most comparable sales evidence, which was the sale of the site adjoining the Land. 105 None of these criticisms is sustainable. Mr Norris states in his determination that he made adjustments to the commercial site sales evidence at Parramatta for shape, size, location and time. 106 The extrinsic evidence supports this finding. I accept Mr Norris' evidence that he made these adjustments. That evidence was unshaken in cross examination. 107 Further, in his written submission to Mr Norris, Mr Rowlands had laid emphasis on the sale of the adjoining site and had expressed his opinion that the value of the Land was more closely aligned to the recent sale of that site. Mr Norris said in his determination that he had paid regard to the parties' submission. I accept that he did so. 108 The extrinsic evidence supports this finding. I accept Mr Norris' evidence that he paid close regard to Mr Rowlands' submission and to the evidence provided by the sale of the adjoining site. As he was entitled to do in the exercise of his own judgment, he came to a conclusion different from that of Mr Rowlands. 109 I am satisfied that, in the use which he made of comparable sales, Mr Norris' determination had proper regard to valuation principles as required by Clause 1(d)(v) of the Lease. Did Mr Norris give sufficient reasons? 110 Finally, Kanivah submits that Mr Norris' determination is vitiated in that he did not give "sufficient written reasons" for his determination, as required by Clause 1(f) of the Lease. 111 There is no dispute that Mr Norris, in his determination, gave written reasons: the critical question is whether they were "sufficient". The question immediately arises: sufficient for what purpose? 112 One must bear in mind that the original parties to the Lease were commercially sophisticated and experienced in property transactions. The present parties likewise are commercially sophisticated and experienced in property transactions, and have acquired their respective interests in the Lease doubtless being acutely aware that the rent review mechanism provided that a determination by the expert valuer would be final and binding. 113 Such a provision is not unfamiliar in a lease of this character and duration. Its purpose clearly is to avoid lengthy and expensive litigation in which the parties deploy troops of competing valuers to argue what is, in the end, a matter of opinion founded upon professional experience and judgment. Where parties to a commercial agreement have agreed to resolve a dispute by reference to an expert valuer in this way, the Court should, as a matter of general principle, be slow indeed to construe the contract in such a way as to facilitate a full-blown valuation case because one of the parties is dissatisfied with the result: see Morgan Sindall Plc v. Sawston Farms (Cambs) Ltd (unrep. English Court of Appeal, 3 December 1998) per Walker LJ at para 24; Mayne Nickless at 174B-D; A. Hudson Pty Ltd v. Legal & General Life of Australia (PC) (1986) 61 ALJR 280, at 281. 114 Nevertheless, that general principle must give way in this case if there is a contractual stipulation to the contrary in the Lease. 115 Mr Inatey submits that because the readers of Mr Norris' determination were sophisticated commercial people and had the assistance of expert valuers, Mr Norris was required by Clause 1(f) to give very full reasons and explanations for what he had done and why. That is so, he says, because the parties would be able to understand fully Mr Norris' reasoning process and therefore would be able to make an informed decision whether to challenge the determination as vitiated by error. Mr Inatey suggests that it would have been otherwise if the readers of the document were commercially inexperienced laymen unassisted by professional advice. 116 Accordingly, Mr Inatey submits, Mr Norris' determination should have set out a host of matters giving precise particulars of such things as: the basis upon which Mr Norris derived his figures for net lettable area (even though Mr Norris did not found his determination on residual land value, but upon comparable sales), the identity of the comparable commercial sites at Parramatta, full particulars of all relevant characteristics and considerations of the Parramatta comparable sales, full particulars of all the adjustments made by Mr Norris to the relevant factors in the comparable sales, "the relevance, if any, of the sale from SRA to Holdsworth" , "what regard, if any, to any other comparable evidence Mr Norris had" , including comparable sites referred to by some of the parties' valuers, and so on. 117 There is a list of nineteen specific items of searching detail which Kanivah says that Mr Norris should have set out in his determination in order to satisfy the requirement for "sufficient reasons". I mean no disrespect when I say that the list reads like a set of interrogatories drafted by a punctilious Chancery lawyer. 118 I cannot accept Kanivah's submission. In my view, the requirement of Clause 1(f) for "sufficient reasons" obliged Mr Norris to disclose what he did and why only to the extent necessary to enable the parties, with the assistance of their experts, to see whether he had complied with the requirements of Clause 1(d) by having regard to the matters to which he was obliged to have regard, and by disregarding the matters which he was obliged to disregard. If it was apparent from the face of the determination that Mr Norris had addressed himself to the right questions, as the contract required, the parties would know that the process and calculations by which he produced his answers could not in law found a claim of vitiating error. On the other hand, if it was apparent from the face of Mr Norris' determination that he had not addressed himself to the right questions, as the contract required, then the parties would know that the determination would be of no effect regardless of what process and calculations had been used. This was all the contractual requirement to give sufficient reasons was intended to achieve. 119 In my opinion, the reasons given by Mr Norris in his determination were entirely sufficient to enable Holdsworth and Kanivah, with the assistance of their experts, to know whether he had addressed himself to the right questions under Clause 1(d) of the Lease. In this respect, I repeat what I have said in paragraphs 110 to 118 of this judgment. Conclusion 120 In the result, all of Kanivah's attacks on Mr Norris' determination fail. I find that the determination is valid and binding on Kanivah for the purposes of the Lease. Was Mr Norris negligent? 121 It is settled law that a valuer's determination may be binding as between the lessor and the lessee under a lease, even though it is the product of negligence for which the valuer will be liable to the injured party: Arenson v. Arenson [1977] AC 405; Legal & General at 335. 122 I think it fair to say that the claim that Mr Norris was negligent was only half-heartedly pressed by Kanivah. I intend no criticism when I say that Mr Inatey's written and oral submissions on this part of the case were perfunctory and that he did not draw to my attention any specific evidence which would support a submission that a competent valuer in Mr Norris' position could not have reached the rental determination which Mr Norris did. In my opinion, there was no such evidence. 123 All parties conceded that Mr Norris' conclusion as to the land value of the Land, to which he applied an 8% return rate in order to arrive at a current market rental, was a figure upon which minds might reasonably differ. Mr Norris explained in his evidence why it was that he regarded it as appropriate to rely upon comparable sales, rather than a residual land value exercise, and it is significant that the valuers for both Holdsworth and Kanivah in their submissions to Mr Norris similarly propounded a current market value for the Land derived from comparable sales as the basis for determining current market rental. Kanivah's valuer submitted that an 8% annual return rate was the appropriate rate to be applied in determining current market rent. That was the rate applied by Mr Norris. 124 I am unable to accept Kanivah's contention that Mr Norris was negligent in the manner in which he carried out his determination. Orders 125 The plaintiff's Summons will be dismissed. At the request of the parties, I stand the matter over for further argument as to costs. – o0o – Last Modified: 05/25/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.