New South Wales Court of Appeal CITATION : Adwell Holdings Pty Ltd v Mark Smith [2003] NSWCA 103 HEARING DATE(S) : 14/04/03 JUDGMENT DATE : 2 May 2003 JUDGMENT OF : Mason P at 1; Meagher JA at 2; Buddin J at 23 DECISION : Appeal dismissed with costs. CATCHWORDS : Expert valuation of real estate - Contention that expert valuer's figures were negligent - Onus on plaintiff to prove negligent - "Bracket Test" - Utility of "Bracket Test". Singer & Friedlander Ltd v John D Wood & Co [1977] EG 569 CASES CITED : Interchase Corp Ltd v ACN 010 087 573 Pty Ltd (Supreme Court , QLD, 520 of 1994, BC 200000188) Lion Nathan Ltd v Coca-Cola Bottlers Ltd [1996] 1 WLR 1438 Adwell Holdings Pty Limited PARTIES : v Mark Trevor Smith FILE NUMBER(S) : CA 40159 of 2002 COUNSEL : A: A Martin SC & S Higgins R: M McCulloch & H Stitt SOLICITORS : A: Christopher C Freeman & Co R: Murray Stewart & Fogarty LOWER COURT District Court JURISDICTION : LOWER COURT DC 854 of 2001 FILE NUMBER(S) : LOWER COURT O'Reilly DCJ JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40159 of 2002 MASON P MEAGHER JA BUDDIN J Friday, 2 May 2003 ADWELL HOLDINGS PTY LIMITED v MARK TREVOR SMITH FACTS The appellant (the plaintiff below) alleged that a valuation performed by the respondent, of certain premises of which the appellant was registered proprietor, was negligent. At the trial, on the evidence before him, O'Reilly DCJ found that the plaintiff had not discharged its onus of proof that, on the balance of probabilities, the respondent's valuation was negligent HELD per Meagher JA (Mason P and Buddin J agreeing) i. Since the decision in Singer & Friedlander Ltd v John D Wood & Co [1977] EG 569, judges have taken the figure of 10% (or, in some cases perhaps 15%) of the true figure to constitute an area, or "bracket", within which, prima facie, a valuation is not negligent. But the importance of that "bracket" notion must not be misunderstood. It is not a statement of some principle that no valuation within the bracket can, as a matter of law, be negligent. ii. Once one finds that a valuation is within the "bracket", one can infer that prima facie, but only prima facie, it is not tainted by negligence; one can never say that purely because a figure is within the "bracket" no negligence can be involved; but, on the other hand, if one arrives at a conclusion that a particular valuation is correct, one may turn to the "bracket" test as a check. iii. On any view of the functions of an appellate court, the trial judge's findings on the expert valuations could not be gainsaid, particularly as the expert witnesses concerned were not challenged as to their valuation figures. ORDERS That the appeal should be dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40159 of 2002 MASON P MEAGHER JA BUDDIN J Friday, 2 May 2003 ADWELL HOLDINGS PTY LIMITED v MARK TREVOR SMITH Judgment 1 MASON P: I agree with Meagher JA. 2 MEAGHER JA: This is an appeal by a disappointed plaintiff against a valuer, Mr Smith. The plaintiff, the current appellant, alleged, and still does allege, that a valuation done by Mr Smith of certain premises at a suburb called Neutral Bay (which the Court will presume is situated in Sydney), was negligent, and that it has suffered loss as a result. 3 The appellant is registered proprietor of the premises in question, which are at 116 Military Road, Neutral Bay. It consists of a seven story commercial office tower and a single level shopping centre. The building is known as the "Big Bear Centre". 4 By two written leases the appellant leased to Warner Bros. (Australia) Pty Limited suites 301 and 601 of the centre and to Warner Home Video Pty Limited suite 602 and the whole of Level 7 of the centre. 5 Clause 4.1 of the leases provided that the base rent was to be reviewed at the review date (1 September 1998) to ascertain a market "base rent" as at that date. By Clause 4.3 it was provided that if the parties were unable to agree on the base rent, it should be determined by a registered valuer nominated by the president of the Australian Property Institute, who would act in his capacity as an expert and not as an arbitrator. The parties were bound by such a determination. 6 Disagreement occurred, and the President appointed the respondent, Mr Smith, to determine the base rent. He set about his task and on 21 December 1998 came up with his written determination. He determined the base rent for suite 301 at $220 per square metre, and suites 601, 602 and level 7 at $230 per square metre. The appellant's contention is that the correct figures should have been: suite 301 $250, suites 601 and 602 $260, and level 7 $270. The appellant contended that the valuer's failure to arrive at the "correct" figures was negligent, and that the error cost it $151,375. Since the appellant is suing in negligence, the onus is on it to prove on a balance of probabilities that the respondent's valuations are wrong. 7 His Honour, Judge O'Reilly DCJ, found that it had not discharged that onus. I must say, after hearing the appeal, that I rather agree with him. In my view, the appellant did make some valid points adverse to the valuer, but their nature and importance was not such as to shake his Honour's judgment. 8 At the outset, I should deal with the so-called "bracket" argument. 9 In Singer & Friedlander Ltd v John D Wood & Co [1977] EG 569 Watkins J said: "The valuation of land by trained, competent and careful professional men is a task which really, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore, he cannot be faulted for achieving a result which does not admit of some degree of error. Thus, two able and experienced men, each confronted with the same task, might come to different conclusions without anyone being justified in saying that either of them has lacked competence and reasonable care, still less integrity, in doing his work." Since then, judges seem to have taken a figure of 10% (or, in some cases at least, perhaps 15%) of the true figure to constitute an area, or bracket, within which, prima facie , a valuation is not negligent. But the importance of that "bracket" notion must not be misunderstood. It is not a statement of some principle that no valuation within the bracket can, as a matter of law, be negligent. That such a valuation can still be negligent is not only a matter of common sense, but has been judicially developed in such cases as Interchase Corp Ltd v ACN 010 087 573 Pty Ltd (Supreme Court, Queensland, 520 of 1994, BC 200000188) and Lion Nathan Ltd v Coca-Cola Bottlers Ltd [1996] 1 WLR 1438. Once one finds that a valuation is within the "bracket", one can infer that prima facie , but only prima facie , it is not tainted by negligence; of course, it may have been arrived at by negligence, but that fact must be proved; one can never say that purely because a figure is within the "bracket", no negligence can be involved; but, on the other hand, if one arrives at a conclusion that a particular valuation is correct, one may turn to the "bracket" test as a check. 10 In the present case, his Honour, after finding that the respondent's figures were correct, said that in any event they were within the bracket which would apply if the appellant's figures were correct. 11 Mr Martin SC, learned senior counsel for the appellant, submitted that his Honour erred in holding, in effect, that the respondent's figures were correct solely because they fell within the "bracket" of the appellant's figures. But his Honour did no such thing. He found that on the evidence the respondent's figures were correct, and that the appellant had not shown them to be wrong, and then as a separate (and logically, quite unnecessary) exercise, found that the figures fell within the bracket. 12 On the papers, there were strong prima facie reasons why the respondent should have been accepted. The respondent called three valuers to give evidence on his behalf. They all agreed with his valuation. His Honour was much impressed by both the respondent and those three witnesses. He regarded the four of them as "credible practical men, well experienced in their fields". On any view of the functions of an appellate court, we can hardly gainsay that finding, particularly as the expert witnesses concerned were not challenged as to their valuation figures. 13 The appellant was in no such fortunate position. Of its supporting valuers, one, a Mr Willoughby, was disbelieved, and, from a reading of the transcript, obviously correctly so. Another, Mr Martin, without explanation, did not turn up. And its principal valuer, a Mr Beckett, was found to be of no assistance, although his evidence was "fair". Moreover, Mr Beckett's knowledge of the matters in dispute was obviously defective. His practice was situate in Silverwater, which, we were informed, is not Neutral Bay. 14 One must next turn from general to particular considerations. 15 One set of comparables consisted of the leases of a building, referred to in the evidence as the MOJO building or 339 Military Road, Cremorne. There were, apparently, two leases invoiced. One related to the ground floor of that building. However, that lease contained provision for a "fit-out contribution" of $350,000, which rendered useless any use of the rent in that lease as a comparable. The other was a lease of premises in Level 1 of that building. As to that lease, Mr Dunne, the lessee's agent (who ought to know what he was talking about) told Mr Smith it contained a provision for a 9½ months "rental holiday". An inspection of the lease itself shows no such provision. That means there was evidence going in both directions. His Honour suggested the "rent holiday" might have been the subject of a "side agreement". That does not seem to me an absurd suggestion. It certainly cannot be safely asserted, as Mr Martin SC did, that Mr Dunne's evidence was necessarily false. Mr Smith disregarded all MOJO leases entirely, and Mr Beckett eventually agreed he was entitled to. 16 Another, and more important, set of comparables were certain premises in the Big Bear Centre itself. In each case the lessee was Connell Wagner Pty Ltd. One lease was in respect of premises known as Levels 2 and 5 of the Centre. It was dated 1 March 1996. It was for a term of six years and four months. It contained a ratchet clause of $260 per square metre. The other lease was in respect of certain premises known as suite 2 of level 3. It was a lease for an initial term of six months but was followed by a series of options which had the effect, subject to the due exercise of each option, of providing an aggregate period of occupation by the lessee similar to that engaged by the lessee under the fixed term lease. 17 The valuer, Mr Smith, was of the view that the six-months-plus-options nature of the lease on level 3 made its use as a comparable of little use. He put it aside. What is more, Mr Beckett agreed that he should do so. As far as the premises subject to the first lease are concerned, Mr Smith accorded them little value because of the ratchet clause they contained. In an outburst of judicial exuberance, his Honour even expressed the view that the existence of that clause in the first lease precluded any other rent negotiated between the parties from being an "arm's length" transaction. 18 It was submitted by Mr Martin SC that Mr Smith should personally have inspected each and every set of premises, and was negligent in not doing so. However, in view of the facts that (a) he was fairly familiar with them, and (b) his supporting witnesses had visited them all, this submission becomes difficult to sustain. 19 Another complaint which Mr Martin made about the valuer was that he considered the premises to be valued something of a security risk. We were taken to the evidence of how many entrances and egresses there were, and what security arrangements were in place. However, there was no evidence called by the appellant to rebut the allegation that robberies had taken place in and about the premises. 20 Finally, it was submitted that the valuer, Mr Smith, placed excessive reliance on BOMA classifications. This is an internal trade method of classifying premises as Premium, Grade A or Grade B. There was much evidence – probably too much – about which category the subject premises fell into. There was general agreement that they came within either the Premium category or the Grade A category, but some uncertainty as to which. The surprising feature of the case in this regard, however, was that everyone treated it as irrelevant to the ultimate valuation, which it was. 21 Overall, Mr Martin SC has not established that the respondent valuer made any mistakes – at least, any mistakes of consequence; he certainly has not demonstrated that the respondent's valuations were wrong, and the onus was on him to do so. 22 In my view, the appeal should be dismissed with costs. 23 BUDDIN J: I agree with Meagher JA. ****** Last Modified: 05/05/2003 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.