New South Wales Supreme Court CITATION : Adwell Holdings Pty Ltd v Bourne (No 2) [2007] NSWSC 1151 HEARING DATE(S) : 12/10/07 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 12 October 2007 DECISION : Proceedings dismissed as from 15 November 2007 with no order as to costs. CATCHWORDS : LANDLORD & TENANT [51]- Rent- Rent review clauses- Reference to valuer- Valuer says valuation made on basis of his own experience after speaking with colleagues- Held this sufficient detail of reasons, no requirement to include particulars of persons consulted- Valuation complies with contract. LEGISLATION CITED : Retail Leases Act 1994, s 19 Adwell Holdings Pty Ltd (P) PARTIES : Robert James Thomas Bourne (D1) Phillip Rennie (D2) FILE NUMBER(S) : SC 3767/06 COUNSEL : B J Sharpe (P) A Hatzis (D1) SOLICITORS : Gary Cleary & Associates (P) Thorntons Lawyers (D1) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Friday 12 October 2007 3767/06 – ADWELL HOLDINGS PTY LTD v BOURNE (NO 2) JUDGMENT 1 HIS HONOUR: On 25 June 2007 I gave reasons in a dispute between a landlord and tenant which are coded Adwell Holdings Pty Ltd v Bourne [2007] NSWSC 730. The dispute was over the rent review provisions of leases covering the Henry Kendall Family Bistro and Tavern at West Gosford which was the subject of two registered leases in identical form apart from amounts as to rent. 2 I will not repeat the relevant provisions of the leases which are set out in my earlier judgment. As I noted there, the parties eventually agreed that for the purpose of assessing the rent they would nominate a Mr Phil Rennie as a specialist retail valuer. The leases were strange in at least one sense and that is that although the Retail Leases Act 1994 did not apply to the leases the parties elected that s 19 of that Act as in force as at 1 August 2005 should apply to the valuation. 3 As I noted in my earlier judgment, s 19(1)(e) provided that a valuation for the purposes of that section "is to be in writing, to contain detailed reasons for the specialist retail valuer's determination and to specify the matters to which the valuer had regard for the purposes of making his or her determination." 4 When the case came before me in June, I considered that Mr Rennie's then valuation did not comply with the requirement that he give detailed reasons for his determination. In general, it seemed to me that he had specified a series of matters which were relevant, but had not linked those matters to how he actually reached the figure that was his bottom line. 5 After a small amount of discussion it was agreed that the proceedings should be amended by adding Mr Rennie as a second defendant and that the court should direct him to provide further reasons. 6 These further reasons have now been delivered. They are in a document dated 29 August 2007 which has been marked as PX05. 7 Today, as before, Mr B Sharpe of counsel appeared for the plaintiff and Mr A Hatzis of counsel appeared for the first defendant. Both provided written submissions and both spoke to them and I was greatly assisted by what each had to say, both in writing and orally. 8 Essentially, Mr Sharpe says that although Mr Rennie does set out more matters of fact in his report PX05 than he had set out previously, the document still does not qualify as being a statement of detailed reasons for his determination specifying the matters to which he had regard. 9 I do not think it is actually necessary to go through the details of what Mr Sharpe puts, but he notices a number of errors and he notices what he would call a number of non sequiturs such as mentioning only ten poker machines as per the original poker machine licence and not the fact that there are now fourteen machines on the premises. However, Mr Sharpe's principal thrust is that the valuation shows that it was essentially based on, in his submission, information provided to Mr Rennie by unknown and unnamed people who are just described as "the majority view of the hotel brokers and valuers interviewed during my investigations." 10 Mr Sharpe says that it would at least be necessary for Mr Rennie to have specified who he spoke to and give at least some particulars as to their qualifications. 11 There are other examples in the valuation where it would seem that Mr Rennie has asked around and has acted on what he has been told without giving sufficient particulars to know whether the parties he spoke to were knowledgeable people or whether they had any access to hard data. Mr Sharpe also criticises the valuer for not descending into the realms that valuers normally descend into, namely, comparable figures. 12 However, Mr Rennie in his valuation does say (in the paragraph which for convenience has been marked 5 on exhibit PX05): "This assessment, as I understand and after my exhaustive investigations is unique without any precedence [sic] ie: to determine a rent of shop premises taking into account the Tavern use under the Retail Leases Act , the assessment to consider also the original approval to provide, by the Lessee, a poker machine licence ie: 10 poker machines". 13 What Mr Rennie seems to be saying is that having to assess the rent of this business when, uniquely, s 19 of the Retail Leases Act has to be applied, means that there are no precedents that he can look at. In particular, he seems to be concerned that the poker machines normally belong to the landlord rather than the tenant. 14 It must be remembered that what Mr Rennie was doing in the document he produced on 29 August was not a valuation, rather, he was providing the further reasons for the valuation he had already made. We suspected when we saw the original valuation that it was really a matter of guesswork based on his knowledge, skill and experience in the industry. The second document really confirms this. 15 He says there was no precedent. He says that he spoke to a number of hotel brokers and valuers. He made "exhaustive investigations" and he researched the figures that were normally used for various aspects of assessment of the rent of a shop that dealt with liquor and gaming and had some outside seating on a footpath and then he put together those matters and he made his assessment in two layers. 16 The Act does not require Mr Rennie to go about his valuation in any particular way. It does not say that he has to look at the future maintainable earnings or that he has to work on figures submitted to the liquor authorities or that he is to make a comparison with the rent of other shops in the area. He has to make his valuation according to his skill and experience, but then he has to give detailed reasons and specify matters to which he has had regard. 17 If (not that it is exactly correct in this case) the valuer makes his valuation by asking a few colleagues at a valuers' convention what they think and then averages out what they told him, then it seems to me that is the detailed reason for his valuation. The valuation might be quite unsatisfactory (I am not saying this one is), but those would be the detailed reasons for his valuation. 18 Mr Sharpe says that cannot be so without giving particulars as to the people he spoke to because, if one knows that, then one knows whether one can challenge the valuation. However, the answer to that proposition appears to me that primarily the parties have engaged a valuer because of his skill. Here, the valuer says it is an exercise without precedent. He says that he has talked to other people. He has also taken into account various figures and, to my mind, given details of how he made his valuation and he does not have to go any further. 19 Mr Sharpe pointed out various mistakes of fact he thinks the valuer made. However, the cases show that on the present case before me that is not a matter of any moment. As long as the valuation is made in accordance with the contract, the valuation stands whether there be errors in it or not. 20 Accordingly, in my view, we now have a situation where there is a valuation which complies with the requirements of the contract and I think that means that, subject to orders for costs being made, I can now dismiss the suit except that Mr Sharpe wants to consider whether in all the circumstances he should continue the action against the valuer who is now the second defendant. Accordingly, the thing to do is probably to order that the proceedings be dismissed from, say, 15 November 2007 unless certain things happen. 21 The matter of costs has been argued. Mr Hatzis and Mr Sharpe agree that it is inevitable that, other things being equal, the plaintiff should pay the costs of today. However, they do not agree on how the costs of the first tranche of this case should be borne. 22 Mr Hatzis said there should be no order as to costs because the plaintiff did not get what it sought, which was to have the whole Rennie valuation disregarded so that it could go back to the negotiating table. Further, it did not initially ask that Mr Rennie give further reasons and two of the three attacks on the valuation failed. On the other hand, Mr Sharpe says that the plaintiff did win the first round and got Mr Rennie's valuation held to be ineffective in its then form. 23 I think that there is probably a case for saying that the plaintiff should get some costs for that first exercise, but not its entire costs. The first exercise, however, would probably have been more expensive than the second exercise. There would be a lot of expense if I were to order costs on a partial basis both ways and having a costs assessor work them out. Thus, it seems to me, in the long run, that it is simpler and probably very close to a just result to say there should be no order as to costs of the proceedings generally. 24 The court indicates that the proceedings should be dismissed as of 15 November 2007 with no order as to costs and the exhibits are to be returned, but for more abundant caution, I will stand the matter over to 15 November 2007 at 9.30 am for mention before me. ************************ 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.