Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Valuer-General of New South Wales v Oriental Bar Pty Limited [2016] NSWCA 48 Hearing dates: 4 February 2016 Decision date: 22 March 2016 Before: Basten JA at [1]; Simpson JA at [42]; Sackville AJA at [43] Decision: 1. Appeal allowed. 2. Cross-appeal dismissed. 3. Set aside Orders 3 and 4 made by the Land and Environment Court on 8 May 2015 in Proceedings 14/30010 and 14/30011. 4. Set aside Orders 3 and 4 made by the Land and Environment Court on 8 May 2015 in Proceedings 14/30012 and 14/30339. 5. Set aside Orders 3 and 4 made by the Land and Environment Court on 8 May 2015 in Proceedings 14/30013 and 14/30014. 6. In lieu of the Orders referred to in Order 3, make an order pursuant to s 40(1)(a) of the Valuation of Land Act 1916 (NSW) that determinations of land value of the property situated at 701 George Street, Haymarket (Mountbatten Property) for the base dates of 1 July 2010 and 1 July 2012, issued by the Valuer-General on 11 November 2013 be confirmed. 7. In lieu of the Orders referred to in Order 4, make an order pursuant to s 40(1)(a) of the Valuation of Land Act 1916 (NSW) that determinations of land value of the property situated at 358-387 Sussex Street, Haymarket (Star Property) for the base dates of 1 July 2010 and 1 July 2012, issued by the Valuer-General respectively on 11 November 2013 and 21 January 2014 be confirmed. 8. In lieu of the Orders referred to in Order 5, make an order pursuant to s 40(1)(a) of the Valuation of Land Act 1916 (NSW) that determinations of land value of the property situated at 198-200 Elizabeth Street, Haymarket (Triple Ace Property) for the base dates of 1 July 2010 and 1 July 2012, issued by the Valuer-General on 11 November 2013 be confirmed. 9. The respondents/cross-appellants pay the costs of the appellant/cross-respondent of the appeal and cross-appeal. Catchwords: VALUATION OF LAND – heritage listed property – unimproved land value – relationship between s 6A(1) and s 14G(2) of the Valuation of Land Act 1916 (NSW) – Valuer-General's determination affected by error as to gross floor area (GFA) – primary Judge makes finding that land value higher than Valuer-General's determination on the basis of correct GFA – whether primary Judge erred in subsequently adjusting land value downwards – whether sale price of comparable property had to be adjusted to take account of value added by a development consent for that property – whether sale price of comparable property should be adjusted to take account of GST – whether primary Judge double counted "land improvements" Legislation Cited: A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 38-325, 75, 135-5 Land and Environment Court Act 1979 (NSW), s 19(b), s 57. Valuation of Land Act 1916 (NSW), ss 4(1), 6A, 14A, 14B, 14G, 37(1) Valuation of Land Amendment Act 2000 (NSW) Valuation of Land and Local Government (Amendment) Act 1959 (NSW) Cases Cited: Barber v Valuer-General (1969) 17 LGRA 409 Commonwealth Custodial Services Ltd v Valuer General [2007] NSWCA 365; 156 LGERA 186 Federal Commission of Taxation v MBI Properties Pty Ltd [2014] HCA 49; 254 CLR 376 Holcim (Australia) Pty Ltd v Valuer-General [2009] NSWLEC 225 House v The King [1936] HCA 40; 55 CLR 499 Johns v Australian Securities Commission (1993) 178 CLR 408 Leichhardt Council v Roads and Traffic Authority (NSW) [2006] NSWCA 353; 149 LGERA 439 Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1979) 40 LGRA 353 Maurici v Chief Commissioner of State Revenue [2003] HCA 8; 212 CLR 111 McGeoch v Federal Commissioner of Land Tax (1929) 43 CLR 277 McKee v Valuer-General [1971] NZLR 436 Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332 Minister for Immigration and Ethnic Affairs v Gungor (1982) 63 FLR 441 Minister for Immigration and Multicultural Affairs v Thiyagarajah (2000) 199 CLR 343; [2000] HCA 9 Minister for Immigration and Multicultural Affairs v Thiyagarajah (FCAFC, unrep, 4 March 1998) Minister for Immigration and Multicultural Affairs v Wang (2003) 215 CLR 518; [2003] HCA 11 Oriental Bar Pty Ltd v Valuer-General [2015] NSWLEC 59 Owners of Ship 'Shin Kobe Maru' v Empire Shipping Co Inc (1994) 181 CLR 404 Storage Equities Pty Ltd v Valuer-General [2013] NSWLEC 137; 94 ATR 431Toohey's Ltd v The Valuer General [1925] AC 439; (1925) 25 SR(NSW) 75 Trust Company of Australia Ltd v Valuer-General [2007] NSWCA 181; (2007) 154 LGERA 437 Valuer-General v Commonwealth Custodial Services Ltd [2009] NSWCA 143; 74 NSWLR 700 Valuer-General v Fenton Nominees Pty Ltd [1982] HCA 46; 150 CLR 160 Valuer-General v Fivex Pty Ltd [2015] NSWCA 53; 206 LGERA 450 Valuer-General v In Adam Pty Ltd [2012] NSWCA 20; (2012) 211 LGERA 75 Wishart v Fraser (1941) 64 CLR 470 Category: Principal judgment Parties: Valuer-General of New South Wales (Appellant/Cross-Respondent) Oriental Bar Pty Limited (First Respondent/Cross-Appellant) Michael James Courtney (Second Respondent/Cross-Appellant) Starburst Pty Limited (Third Respondent/Cross-Appellant) Kelly Group Investments Pty Limited (Fourth Respondent/Cross-Appellant) Surfside Pty Limited (Fifth Respondent/Cross-Appellant) Dylcote Pty Limited (Sixth Respondent/Cross-Appellant) Bondtren Pty Limited (Seventh Respondent/Cross-Appellant) Representation: Counsel: Ms S Duggan SC / Mr R White (Appellant) Mr I Hemmings SC/ Ms A Pearman (Respondent) Solicitors: Crown Solicitor's Office (Appellant) Hatzis Cusak Lawyers (Respondent) File Number(s): 2015/149229 Decision under appeal Court or tribunal: Land and Environment Court of New South Wales Citation: [2015] NSWLEC 59 Date of Decision: 17 April 2015 Before: Pain J File Number(s): LEC 2014/30339 LEC 2014/30010-14 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. BASTEN JA: The respondent, Oriental Bar Pty Ltd, is the owner of three properties the subject of valuations undertaken for land tax purposes by the Valuer-General of New South Wales. Its objections having been dismissed by the Valuer-General, it appealed to the Land and Environment Court, pursuant to s 37(1) of the Valuation of Land Act 1916 (NSW). The appeals were heard in that Court's Class 3 jurisdiction. [1] 2. The fate of the appeals in the Land and Environment Court was somewhat curious: the trial judge, Pain J, carried out the necessary exercise in valuation, concluding that the values were, in each case, higher than those determined by the Valuer-General. Nevertheless, she allowed the appeals and declared values lower than those determined by the Valuer-General. [2] 3. Unsurprisingly, the Valuer-General appealed, seeking not the higher values established in the course of the appeal, but reinstatement of the values which he had determined. For reasons which may be briefly stated, that appeal must succeed in principle. However, Oriental Bar cross-appealed challenging the results reached by the trial judge. Oriental Bar identified a number of errors in construing and applying the statutory scheme, which, it was submitted, resulted in valuations well above an appropriate figure. 4. An appeal to this Court from an order or decision in the Class 3 jurisdiction of the Land and Environment Court is limited to an order or decision "on a question of law." [3] The Valuer-General, in support of his appeal, alleged that the trial judge had misconstrued her powers and made orders which, in the circumstances as found by the Court, were unavailable. There is no doubt that the matter raised by the Valuer-General involves a question of law. 5. The challenge by the cross-appellant, Oriental Bar, was directed to the valuation exercise undertaken by the trial judge. As it correctly submitted, it is logical to deal first with the cross-appeal as, were it to succeed, the matter would need to be remitted to the trial judge, or at least dealt with on a different basis from that on which she approached the matter. The cross-appeal raised three separate grounds which may be summarised in the following terms: 1. by taking into account the existing improvements on the land, the trial judge failed properly to identify the "land value" as required for the purposes of s 6A(1) and 14G(1) of the Valuation of Land Act; 2. the comparable sale on which the trial judge relied should have been adjusted to take account of the goods and services tax (GST) which was included in the sale price; and 3. the judge erred in adding the cost of excavation with respect to the Mountbatten Hotel back into the value in order to calculate the land value of the land. 1. For the reasons set out below the first issue raised on the cross-appeal must be rejected. For the reasons given by Sackville AJA, the other issues raised on the cross-appeal should also be rejected. In respect of each property, the cross-appeal should be dismissed. For the reasons set out below the Valuer-General's appeal should be upheld and the valuation determined by the Valuer-General should be reinstated. Subject to what follows, I agree with the reasons given by Sackville AJA and the orders proposed. Statutory construction 1. As this Court recently noted in Valuer-General v Fivex Pty Ltd, [4] the determination of land value pursuant to the Valuation of Land Act requires careful attention to the statutory scheme. The recitation of statements made in earlier cases dealing with different statutory language is of limited assistance; indeed, reliance on earlier authority, often involving paraphrasing of different language, is apt to mislead, unless attention remains squarely focused on the presently relevant provisions. 2. That is not to say, of course, that earlier judicial interpretation of a particular provision should not be followed in a case in which that provision is material and the earlier interpretation has not been affected by later amendments. The focus of much of the earlier case law was upon a provision which is now found in s 6A(1) of the Valuation of Land Act, which reads: 6A Land value (1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made. 1. As originally enacted, this provision was in s 6 of the Act and used the expression "unimproved value of the land" rather than the "land value of land". It is not uncommon for the phrase "unimproved value" to be used in a colloquial sense, as it was in the submissions for Oriental Bar. Nor is this language necessarily misleading, so long as it is borne in mind that the unimproved value in fact takes account of "land improvements" which, relevantly for the present case, include excavation and levelling of the surface of the land for the purpose of erecting of a building. [5] Further, care should be taken as to the implied exclusion of "improvements". 2. Of greater importance, the required assumption that the improvements "had not been made" is qualified by the following provision, namely s 6A(2), and, relevantly for the present case, s 14G(1). Because the land the subject of the valuations is "heritage restricted" such land is to be valued in accordance with the requirements of s 14G(1), which reads: 14G Valuation subject to heritage restrictions under EPI (1) Land that is heritage restricted on the date by reference to which its land value is to be determined is to have its land value determined on the basis of the following assumptions: (a) that the land may be used only for the purpose, if any, for which it was used when the value is determined, (b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, (b1) that all improvements referred to in paragraph (b) on that land are new (without any deduction being made because of their actual condition), (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land, (d) that the cost of construction of improvements on that land has no effect on its land value, with the result that there is to be no reduction in land value because of any difference between the cost of construction of the improvements referred to in paragraph (b) as new improvements and the cost of construction of other improvements used as a basis for comparison in the determination of land value. 1. In order to understand the relationship between s 6A(1) and s 14G(1), it is important to note the structure of the legislation. Section 6A comes within Pt 1 of the Act which is headed "Preliminary". Part 1 includes definitions (specifically s 4) and sections which are definitional in form, including s 6A(1). Part 1B (ss 14A–14EE), headed "Valuation of land", specifies in Div 1 that the land value of each parcel of land in New South Wales (with exceptions) is to be ascertained each year. [6] This exercise is described as a "general valuation" and requires a valuation as at 1 July in the relevant year. [7] 2. Part 1B, Div 2 is headed "How land is to be valued", and includes s 14G. The effect of s 14G(1) is to replace the assumptions otherwise found in s 6A(2), for the purpose of carrying out the exercise required by s 6A(1). However, there is nothing in the statutory scheme which expressly states that conclusion, which should, perhaps, be qualified in two respects. First, as Oriental Bar correctly submitted, the language of s 14G(1) imposes a limit on the nature of the assumptions permitted (and indeed required) by s 6A(2). However, nothing turns on the relationship between these provisions (s 14G(1) has been described as "in some ways the converse of" s 6A(2) [8] ) and it need not be addressed. Secondly, that fact, together with the imperative language of s 14G(1) (land "is to have" its value determined) suggests that, like s 6A(2), it qualifies s 6A(1). On that approach, it is implicitly given the same sort of priority as s 6A(2), which commences "[n]otwithstanding anything in subsection (1)". 3. That leaves open the proper identification of the relationship between the operative or definitional requirements of s 6A(1) and the mandatory assumptions in s 14G(1). 4. The approach underlying s 6A(1) was identified more than 80 years ago by Knox CJ and Dixon J in McGeoch v Federal Commissioner of Land Tax: [9] "In the legislation in Australia imposing tax on the unimproved value of land we think it is clear that the subject matter sought to be taxed has always been that part of the value of the land at the relevant date which has been commonly described as the 'unearned increment.' The value at any given date of any given parcel of land has been considered as including two factors, namely, (1) the portion of the value at the relevant date attributable to improvements on or appertaining to the land made by the owner or his predecessors in title and (2) the portion of the value at such date attributable to extrinsic circumstances, such as public roads or railways, increased settlement in the neighbourhood, public services brought within reach and other causes not brought about by the operations on the land of successive occupiers." 1. It is well established that the concept of a capital sum which the land "might be expected to realise if offered for sale" is the highest amount which might be obtained in the marketplace, bearing in mind the physical condition of the land and relevant zoning and planning controls over its possible use (the extrinsic circumstances). Over time, it became apparent that treating any improvements as not having been made was not only artificial but could give rise to anomalies. Statutory amendments sought to address those issues. Thus, the fact that "land improvements" were not to be disregarded took account of work which had been done on the land by way of clearing, soil improvement, excavation, reclamation and the construction of underground drains. [10] This was addressed in s 6A(1) itself. Secondly, disregard of all improvements removed the entitlement of the owner to maintain the current use of the land which might depend on existing use rights, not otherwise permitted by the applicable planning instrument. This was addressed by s 6A(2). Thirdly, it was thought appropriate to make allowance for constraints on development imposed by heritage restrictions. (Other forms of affectation were reflected in other provisions in Pt 1B, Div 2.) Adjusting the comparable sale 1. The primary challenge raised on the cross-appeal was the failure of the judge in dealing with the sale of a comparable property to subtract the value conferred by the existence of a development consent, together with a liquor licence, permitting it to be used as a restaurant and bar. This element of value was characterised as "profit and risk", being value which accrued to the land from the steps taken by the developer to secure development consent and the grant of the liquor licence. These factors, it was submitted, would have been taken into account by a purchaser and accounted for the bulk of the change in value between a sale in September 2011 (pre-consent) for $2.675 million and a second sale in November 2012 (post-consent) for $3.6 million, being an increase in value of some 34.6%, or $925,000. Although Oriental Bar could not (and did not) complain that the trial judge had adopted the second sale as the relevant comparable sale, it did complain that the sale had not been discounted to remove the increase in market value attributable to these factors. 2. It was common ground that the subject land was heritage restricted and hence that the assumptions identified in s 14G were engaged. The first assumption which must be made concerns the use of the land. Unlike s 6A(2), which allows a valuation to have regard to any purpose for which the land was being used or might be used, on the assumption that the actual improvements made might be continued, when considering heritage restricted land the assumption is that the land may be used only for the purpose for which it was used at the relevant date. [11] The second assumption is that the improvements actually on the land may be continued and maintained in order that the current use may be continued, but no further improvements may be made to the land. 3. It was common ground that the land value of the comparable land was to be ascertained by subtracting the value of the building from the sale price. What was in dispute was whether it was necessary to subtract from the comparable sale any value attributable to the extant development consent and liquor licence, pursuant to which it was used for a purpose comparable to that for which the subject land was being used. As explained by Spigelman CJ in Leichhardt Council v Roads and Traffic Authority (NSW), [12] and repeated in Commonwealth Custodial Services Ltd v Valuer-General, [13] the answer to this question must depend on the proper construction of the statutory provisions. 4. Most statutes are written on the basis of an understanding as to the state of the current law; but most statutes seek to vary the current law in some respect. The purpose of construing the statute is to determine the extent of the variation. The variation in the present case is affected by the addition to the exercise required by s 6A(1) of the assumptions in s 14G(1). The operation of s 6A(1), absent s 14G(1) (and absent s 6A(2)) was explained by the Privy Council in Toohey's Ltd in the following passage in explaining the fallacy in the approach adopted by the valuer (upheld by the Court on appeal): [14] "Proceedings are begun by the taking of a figure for the subject as it stands as licensed premises. It is obvious that this figure is composed of three ingredients; first, the bare lands itself; second, the buildings themselves constructed for and appropriate for licensed premises; third, the enhanced value due to the fact that the land and buildings in question are not only suitable for licensed premises but are in fact licensed premises. When, however, the subtraction sum is entered upon it is only item 2 that is subtracted from the total figure; the result being that item 3 is all included in the unimproved value. From this follows the extraordinary result that the land is enhanced by the value of a licence which could only be granted in connection with buildings – for a licence such as this cannot be granted to sell liquor without premises – in a calculation in which you are told to assume that no building is there." 1. As Biscoe J has noted, [15] the New Zealand Court of Appeal has held that a liquor licence is not an "improvement", but that nevertheless "consent already obtained is something not to be included at all in assessing the unimproved value." [16] That is consistent with the reasoning in Toohey's Ltd which treats it as necessarily appurtenant to an improvement and hence not part of the "bare land". Thus, a distinction is drawn between (a) the characteristics of the neighbourhood in which the land is situated and the availability of the land, in accordance with relevant zoning and planning regulations, for use as licensed premises, and (b) the existence of the particular licence or approval, which adds additional value to the land. In the language of McGeoch, the former constitute extraneous circumstances, the latter an improvement, in the broad sense of that term. 2. The question is whether that analysis should be applied to land which is heritage restricted, for the purposes of s 14G(1). It is not necessary to consider how a heritage restriction was approached prior to the inclusion of s 14G, but it may be assumed that the general effect of a heritage restriction (whether attached to a building or some other feature of the land) restricted the use to which the particular land could be put. However, if the heritage restriction attached to a building, so that the land could not be developed to its full economic potential, it would be unfair to the owner to value the land for tax purposes as if it could be so developed. The effect of the assumptions in s 14G(1) is that the land may be used only for the purpose for which it is presently used, and any building on it may be continued and maintained, but that no further improvements may be made. 3. Applying these assumptions involves a significant qualification of the assumption underlying s 6A(1), as described in Toohey's Ltd, that the improvements "are to be taken not only as non-existent, but as if they never had existed." [17] It is also inconsistent with the subtractions required in the passage from Toohey's Ltd set out above at [19]. 4. It is not necessary to decide whether s 14G(1) is also inconsistent with the ruling in Toohey's Ltd that it is wrong "to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure." [18] The question in the present case is a different one, namely whether, the subject land being valued on the basis of its current use, it is necessary to subtract from a comparable sale, the value of the development consent and the liquor licence applicable to the comparable property. However, were that to be done, an important point of equivalence would have been removed, so that the other sale would no longer be truly comparable. It would therefore not be a proper basis (without some further adjustment) for deriving a value of the heritage restricted land. Accordingly, there was no error on the part of the trial judge in failing to subtract from the comparable sale the value said to be attributable to that land enjoying the relevant consent and liquor licence needed for it to be truly comparable. Other grounds of cross-appeal 1. In respect of the other grounds of the cross-appeal, I am content to adopt the reasoning of Sackville AJA. I agree it must be dismissed. Valuer-General's appeal 1. The proceedings in the Land and Environment Court involved six appeals, relating to valuations at two different dates with respect to three separate properties. The grounds of objection asserted, in each case, that the land value as determined by the Valuer-General was "too high." The grounds then identified a methodology by which the correct value could be calculated. By reference to comparable sales, and a calculation of the net lettable area for each property, a rent per square metre was to be calculated, which could then be applied to the gross floor area of each property. From that stage, by a calculation not articulated in the grounds of objection, the land value of the subject property might be derived. 2. By the time the experts for each party had completed their inquiries and calculations, it was common ground that the valuations under challenge had over-estimated the gross floor area with respect to each property and were, in that respect, too high. Oriental Bar further contended that the valuations were otherwise too high, and in a far greater amount than that resulting from the inaccurate estimate of the gross floor areas. 3. The expert evidence tendered at the trial was duly evaluated by the primary judge who reached a conclusion as to the appropriate values for each property at the relevant dates. Those values, based on the expert evidence called for the Valuer-General, exceeded the values the subject of the appeal, even after allowing for the reduction in the gross floor areas. 4. As Oriental Bar had failed to demonstrate that the valuations the subject of the appeals were too high, the appellant failed and an order should have been made dismissing the appeals. However, that did not happen. Rather, the Court adjusted the valuations under appeal by way of a reduction based on the correct gross floor areas. 5. In order to determine whether, in taking this approach, the primary judge erred in law, it is necessary to have regard to the statutory provisions governing appeals to the Land and Environment Court. These provisions (ss 37-42) are found in Pt 4 of the Valuation of Land Act. The right of appeal derives from s 37 which is in the following terms: 37 Right of appeal (1) Any person entitled under Part 3 to object to a valuation may appeal to the Land and Environment Court if the person is dissatisfied with the Valuer-General's determination of any such objection to the valuation concerned (whether or not the person was the objector). … (3) No person or body has jurisdiction or power to conduct a review or hear an appeal in respect of the determination of an objection except as provided by this Part. 1. Given the way that the appeal proceeded, there was not (and could not be on appeal) any complaint that the Valuer-General had sought to demonstrate a value higher than that contained in the valuations. Because of the position that the Valuer-General took, there was no question raised as to whether the Court could reach a valuation higher than that appealed from. (The Valuer-General eschewed any such proposition.) In effect, the Valuer-General sought to offset the effect of one error (in favour of the objectors) with another (against their interests). That course may have been justifiable on the basis of s 39, which provides: 39 Grounds of appeal The appellant's and respondent's cases on an appeal are not limited to the grounds of the objection. 1. Critical to the Valuer-General's appeal is the scope of the powers of the Court, conferred by s 40: 40 Powers of Land and Environment Court on appeal (1) On an appeal, the Land and Environment Court may do any one or more of the following: (a) confirm or revoke the decision to which the appeal relates, (b) make a decision in place of the decision to which the appeal relates, (c) remit the matter to the Valuer-General for determination in accordance with the Court's finding or decision. (2) On an appeal, the appellant has the onus of proving the appellant's case. 1. There was little attention given in the course of submissions to the nature of the appeal in the Land and Environment Court. However, in broad terms, it should be understood as a form of appeal by way of new hearing, with the order made by the Court superseding the determination of the Valuer-General, by analogy with the reasoning in Wishart v Fraser [19] dealing with an appeal to Quarter Sessions from a magistrate. This conclusion is supported by three aspects of the statutory scheme. First, s 40(1) envisages that, in circumstances where the valuation is upheld, the court would make an order to "confirm" the decision of the Valuer-General. It would then be the confirmation by the court which had effect in law. A power to dismiss an appeal might be ambiguous in this regard, the power to confirm is less so. 2. Secondly, the effect of the court's decision is identified in s 41 which provides: 41 Giving effect to decision on appeal (1) Within 60 days after the decision on appeal becomes final, the Valuer-General must take any action that is necessary to give effect to the decision, which may include altering the Register of Land Values in any relevant respect. (2) If no appeal from a decision of the Land and Environment Court is instituted within 30 days after the day on which the decision is made, the decision of the Land and Environment Court is taken, for the purposes of this section, to have become final at the end of the 30-day period. 1. The power of the court to make a decision in place of the decision from which the appeal is brought, in circumstances where the appeal permits review of the merits on any material evidence, demonstrates with a degree of clarity that the appeal is in the nature of a rehearing. 2. Thirdly, while the powers of a court will generally be construed liberally and without implied constraints, [20] those powers are not entirely at large. The valuation exercise must be undertaken in accordance with the law as prescribed by the Act. If the application of a legally correct approach gives rise to a finding that the valuation as determined by the Valuer-General is not too high, the power of the court to make a decision involving a lower valuation is not engaged. This is a case in which it is right to apply the "elementary rule of statutory construction that powers conferred by general words are not intended to overrule or supersede powers conferred in specific terms." [21] 3. If that view were not to be accepted, and the power to set aside a valuation was held to be engaged because an error had been identified in the calculation undertaken by the Valuer-General, it would nevertheless be an arbitrary or capricious exercise of the power to determine the true valuation by taking into account only that error which, on findings made by the trial judge herself, was overwhelmed by an error in the other direction. Such an exercise of discretion would involve an error of law. (Indeed, the error is of such a kind as might be thought to deny the existence of the power, which, like all statutory powers, is subject to an implied constraint that it be applied only where the exercise is reasonably open.) 4. In a different statutory context, in Minister for Immigration and Ethnic Affairs v Gungor [22] Sheppard J stated, in relation to an appeal limited to an error of law: "It is in my opinion not correct to say that this Court is by these provisions given wide powers to make such orders as it thinks fit. Implicit in it powers are a number of restrictions. … The order which this Court can make after hearing the appeal is also similarly restricted to an order which is appropriate by reason of its decision. It follows that the only order which can properly be made is one the propriety of which is circumscribed by and necessary to reflect this Court's view on the alleged or found error of law." 1. This principle is applicable where the limit of the appellate jurisdiction is not confined to error of law. To similar effect, in Minister for Immigration and Multicultural Affairs v Thiyagarajah, [23] Sackville J considered the power of the Court to allow a matter which had been determined by the Refugee Review Tribunal to be remitted to the Tribunal, in circumstances where no relevant error had been identified: "The powers conferred by s 481 [of the Migration Act] arise on 'an application for review of a judicially reviewable decision'. In exercising those discretionary powers, the Court must take account of the outcome of the very application which enlivens the discretion in the first place. I do not think that, in exercising the powers conferred by s 481(1), the Court is entitled to take account of circumstances quite extraneous to the application for review." 1. These passages in the reasons of Sheppard J and Sackville J were approved by the High Court in Minister for Immigration and Multicultural Affairs v Thiyagarajah. [24] Even a power to make an order directing a party to do or refrain from doing any particular thing which the Court "considers necessary to do justice between the parties" is "not at large and the doing of justice between the parties means justice according to law." [25] 2. It is true that, in the present case, the error upon which the primary judge acted in making the orders of the Court was one which was identified in the course of the proceedings and was not extraneous to it. Nevertheless, had the proceedings been terminated once that error had been identified, over the objection of the Valuer-General, that would have involved a failure to exercise the jurisdiction of the Court. It might also be characterised as an error of law in failing to identify the scope of the jurisdiction. To accept the jurisdiction and make proper findings of fact in exercise of the jurisdiction, but then to fail to give effect to those findings by way of the only form of order reasonably open must also constitute an error of law. Conclusions 1. Orders should be made as proposed by Sackville AJA. 2. SIMPSON JA: I agree with Sackville AJA. 3. SACKVILLE AJA: This is an appeal and cross-appeal from a decision of the Land and Environment Court (L & E Court) given in the Court's Class 3 jurisdiction. [26] The Class 3 jurisdiction includes appeals under s 37(1) of the Valuation of Land Act 1916 (NSW) (VL Act) by persons dissatisfied with the Valuer-General's determination of objections to the valuation of land. An appeal (or cross-appeal) may be brought to this Court against an order or decision of the L & E Court on a question of law. [27] Background 1. The proceedings arise out of a determination by the appellant (Valuer-General) of the unimproved land value of three properties on which heritage listed buildings are constructed. In each case, the heritage building was used on the relevant valuation date as a hotel and for associated purposes. The properties are: * the Mountbatten Hotel at 701 George Street, Haymarket (Mountbatten Property); * the Triple Ace Hotel at 200 Elizabeth Street, Surry Hills (Triple Ace Property); and * the Star Hotel at 358-387 Sussex Street (Star Property). There is no dispute that each of the three Properties is "heritage restricted", as that term is defined in s 14G(2) of the VL Act. 1. The Valuer-General determined the unimproved land value for each of the Properties as at the base dates of 1 July 2010 and 1 July 2012. The respondents to the appeal (Objectors) (who are also the cross-appellants) lodged objections to the determinations. The Valuer-General allowed the objections, but only in part. The Objectors appealed to the L & E Court pursuant to s 37(1) of the VL Act. Because of the land tax regime in New South Wales, the Objectors sought a lower land value for the Properties. 2. The parties agreed in the L & E Court that the proceedings should be conducted by reference to one of the six disputed valuations, with the parties being given the opportunity to apply the findings to the other five disputed valuations. The disputed valuation selected for this purpose was that of the Mountbatten Property as at 1 July 2012. 3. The Valuer-General originally determined the land value of the Mountbatten Property at 1 July 2012 to be $2,750,000. An objection was lodged. On 11 November 2013, in response to the objection, the Valuer-General redetermined the land value of the Mountbatten Property to be $2,125,000 at 1 July 2012. 4. The Valuer-General made the redetermination by applying a value of $2,551 per square metre (psm) to the gross floor area (GFA) of the Mountbatten Property. Since the Valuer-General estimated the GFA of the Mountbatten Property to be 833 m2, he determined the land value to be $2,125,000. 5. In the L & E Court, the valuers called by the parties agreed that the Valuer-General's estimate of the GFA of the Mountbatten Property had been mistaken. Both valuers proceeded on the basis, accepted by the primary Judge, that the correct GFA for the Mountbatten Property was 675.3 m2. The other Properties were affected by similar errors. [28] 6. Although the valuers agreed on the correct GFA for the Mountbatten Property (and the other two Properties), their assessments of the land value were far apart. Mr Hill, the valuer called by the Valuer-General, assessed the land value of the Mountbatten Property at 1 July 2012 to be $2,510,000. Mr Roberts, the valuer called by the Objectors, assessed the land value to be $700,000. 7. The primary Judge preferred Mr Hill's approach to the determination of land value. After some adjustments, her Honour found that the land value for the Mountbatten Property at 1 July 2012 was $2,500,000. [29] This finding was based on the correct GFA for the Mountbatten Property (675.3 m2). 8. The Valuer-General's position in the L & E Court was that if the primary Judge accepted that the land value of the Mountbatten Property was higher than the Valuer-General's determination of $2,125,000, the L & E Court should reject the appeal and confirm the Valuer-General's determination. Counsel for the Valuer-General made it clear to her Honour that if she found the land value to be higher than the disputed determination, the Valuer-General did not ask the L & E Court to substitute the higher figure of $2,500,000 for that determination. 9. Despite her Honour's finding that the land value of the Mountbatten Property was $2,500,000, she did not confirm the Valuer-General's determination. Instead, in the final paragraph of the Primary Judgment, [30] her Honour said (somewhat surprisingly) that the land value of the Mountbatten Property (and the other two Properties) had to be "amended to reflect their actual GFAs". Her Honour therefore determined the land value of the Mountbatten Property by applying the rate of $2,551 psm adopted by the Valuer-General in the disputed determination [31] (as opposed to the higher psm supported by the Valuer-General's evidence in the L & E Court) to the correct GFA of 675.3 m2. 10. The result was that the primary Judge determined that the land value of the Mountbatten Property was less than the Valuer-General's determination. 11. After hearing further submissions from the parties as to the appropriate orders that should be made, [32] the primary Judge allowed the Objectors' appeal in respect of the Mountbatten Property. Her Honour declared that the land value of the Mountbatten Property at the base date of 1 July 2012, for the purposes of s 6A of the VL Act, was $1,722,704. [33] The other five appeals were also allowed and declarations as to land value made applying the same methodology as her Honour had used in relation to the Mountbatten Property. The Appeal and Cross-Appeal 1. The Valuer-General's appeal challenges the finding as to the land value of the Mountbatten Property made in the last paragraph of the Primary Judgment. The Valuer-General's amended notice of appeal identifies two errors of law said to have been committed by her Honour: "The primary judge erred in law in finding that, notwithstanding that she found at [100] that the actual land value was higher than the issued land value, she had the power pursuant to s 40 of the Valuation of Land Act, to make an order reducing the land value and upholding the appeals. In the alternative, her Honour erred in law in the exercise of her discretion in making the orders to reduce the land value and uphold the appeal in light of her finding that even if the land value was adjusted to take account of the correct gross floor area the land value would be higher than the issued land value." 1. The Valuer-General seeks orders from this Court setting aside the declarations made by the L & E Court and confirming the Valuer-General's determination of the land value of each of the Properties. 2. In their cross-appeal, the Objectors contend that in finding (before the amendment in the last paragraph of the Primary Judgment) that the land value was $2,500,000, the primary Judge failed to determine the land value of the Mountbatten Property in conformity with the requirements of ss 6A and 14G of the VL Act. (Section 6A states the criteria for determining land value; s 14G contains provisions applicable to land that is "heritage restricted". The provisions are reproduced below. [34] ) 3. In substance, the Objectors rely on three arguments. They say that the primary Judge erred by: * failing to determine the value of the fee simple in the Mountbatten Property as required by s 6A of the VL Act; * failing to adjust the land value to account for the Goods and Services Tax (GST) component of the single comparable sale on which her Honour relied; and * misapplying the provision relating to "land improvements" in s 6A(1) of the VL Act and in consequence overstating the land value to be derived from the only comparable sale on which her Honour relied. 1. The Objectors, like the Valuer-General, seek orders setting aside the declarations made by the Primary Judge. However, they also seek orders varying the determinations of land value in a manner consistent with the contentions stated in their cross-appeal. Statutory Framework 1. Subject to certain exceptions, the land value of each parcel of land in New South Wales is to be ascertained each year. [35] The valuation is to be made as at 1 July in the valuing year in which the valuation takes place. [36] The Valuer-General is empowered to value any parcel of land at any time. [37] 2. Assessment of land value is to take place in accordance with s 6A(1) of the VL Act located in Part 1 ("Preliminary"). This provision which, in substance, has been in the legislation from the beginning, [38] is as follows: "The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made." 1. Section 6A(1) uses the term "land improvements". That term is relevantly defined in s 4 of the VL Act as follows: "(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, …" 1. Section 6A(2) of the VL Act was introduced by the Valuation of Land and Local Government (Amendment) Act 1959 (NSW) (1959 Act). [39] The principal purpose of the provision, as Tobias JA explained in Commonwealth Custodial Services Ltd v Valuer-General, [40] is to ensure that land value should be determined having regard to the highest and best use of the land, including its use at the date to which the valuation relates. Section 6A(2) provides as follows: "Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made." 1. Section 14G of the VL Act was inserted by the Valuation of Land Amendment Act 2000 (NSW) and is in Div 2 ("How land is to be valued") of Part 1B ("Valuation of land") of the Act. Section 14G provides as follows: "(1) Land that is 'heritage restricted' on the date by reference to which its land value is to be determined is to have its land value determined on the basis of the following assumptions: (a) that the land may be used only for the purpose, if any, for which it was used when the value is determined, (b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, (b1) that all improvements referred to in paragraph (b) on that land are new (without any deduction being made because of their actual condition), (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land, (d) that the cost of construction of improvements on that land has no effect on its land value, with the result that there is to be no reduction in land value because of any difference between the cost of construction of the improvements referred to in paragraph (b) as new improvements and the cost of construction of other improvements used as a basis for comparison in the determination of land value. (1A) When the land value of heritage restricted land is determined on the basis of the assumptions required by this section, there is to be no deduction from or other adjustment of that land value on account of the effect on land value of any factor concerned with the land being heritage restricted land (other than the effect of those assumptions)." 1. In Trust Company of Australia Ltd v Valuer General, Campbell JA observed that: [41] "[s]ection 14G(1) is in some ways the converse of s 6A(2). Both of them provide a different method for valuation of land to that which is provided by s 6A(1). Section 6A(2) is concerned with ensuring that land is not undervalued when an existing use of the land is more valuable than any use to which the land could be put if the improvements on it had not been made, while s 14G(1) is concerned with ensuring that land is not overvalued when heritage restrictions on the land have the effect that continuing its existing use is less valuable than any use to which the land could be put if the improvements on it had not been made." 1. It will be seen that there are similarities between s 6A(2)(a) and (b) and s 14G(1)(a) and (b). However, s 6A(2)(a) requires an assumption that the land may be used for any purpose for which it was being used or for which it could be used at the valuation date. By contrast s 14G(1)(a) requires an assumption that the land may be used only for the purpose, if any, for which it was being used at the valuation date. On the other hand, there is not only a close textual resemblance between s 6A(2)(b) and s 14G(1)(b), but a "clear structural resemblance". [42] Section 14G(1)(c) and (d) have no parallel in s 6A(2). 2. The Valuer-General is required to give notice of each valuation of land to specified persons, including the owner of the freehold estate on the land. [43] A person to whom the Valuer-General has given notice may lodge a written objection to the valuation. [44] Section 34(1) specifies the only grounds on which objection may be taken under the VL Act to a valuation. The ground relevant to the present appeal is "that the values assigned are too high or too low". [45] 3. The Valuer-General is required to consider an objection that has been duly made and either allow or disallow it. [46] If the objection is disallowed in whole or in part, the Valuer-General must give reasons for doing so. [47] 4. A person entitled to object to a valuation may appeal to the L & E Court if dissatisfied with the Valuer-General's determination of the objection. [48] Section 40(1) of the VL Act provides that on appeal the L & E Court may do any one or more of the following: "(a) confirm or revoke the decision to which the appeal relates, (b) make a decision in place of the decision to which the appeal relates, (c) remit the matter to the Valuer-General for determination in accordance with the Court's finding or decision." On an appeal, the appellant has the onus of proving the appellant's case. [49] Primary Judgment 1. The primary Judge recorded that the Mountbatten Property had a three level building erected on it which was used for a hotel and budget accommodation. The uses at the valuation date were as follows: [50] "(a) Basement level - ancillary hotel uses. (b) Ground Floor - public bar area, gaming area (internal and external), office area, right of way. (c) First Floor - five dormitory accommodation rooms, communal dining, kitchen, laundry, communal toilet and bathroom, storage and a manager's office with bedroom. (d) Second Floor - ten dormitory accommodation rooms, communal toilet and bathroom and storage facilities." 1. The primary Judge noted that Mr Hill, the valuer called by the Valuer-General, and Mr Roberts, the valuer called by the Objectors, agreed that a comparable sales approach should be taken to derive the land value of the Mountbatten Property. [51] However, the valuers had selected different comparable sales. This largely accounted for the differences in their respective valuations. 2. Her Honour described at some length the different approaches taken by the valuers. Mr Hill's approach to determining the land value of the Mountbatten Property was as follows: [52] * On the basis of comparable sales, the land value of the Mountbatten Property was $3,925 psm of GFA, giving a total land value of $2,650,553. * An allowance should ordinarily be made for the effect of the heritage nature of the Property on rental values. In this case the effect was minor. * Because of the design limitations of the Property, the value should be reduced by 10 per cent. This produced a figure of $3,532.50 psm and a total land value of $2,385,497. * As s 6A(1) of the VL Act requires, an allowance for "land improvements" had to be made by taking into account the cost of excavation of the basement of the Mountbatten Property. This cost, amounting to $123,920, had to be added to the land value, producing a final figure of $2,509,417, rounded to $2,510,000. 1. After referring to the parties' submissions on the construction of ss 6A and 14G of the VL Act, her Honour addressed the question of onus of proof. As the passage was the subject of discussion in oral argument, I reproduce it: [53] "[47] The parties made conflicting submissions on how the onus of proof should apply in this case. Section 40(2) of the VL Act states the [Objectors] bear the onus of proof. They submit the onus is discharged as soon as it is shown that the land values are too high. As it is already accepted that the actual GFA should be used for the properties, not the higher GFA estimate used by the Valuer-General, the valuation figures must be lowered. …This it was submitted discharged the [Objectors'] onus and the Court would thereafter decide value and make orders as provided for in s 40(1)(a)(b) or (c) … [48] The Valuer-General submitted that the [Objectors] bear the onus of discharging their case meaning establishing the land value figures contended for in Mr Roberts' evidence. If Mr Roberts' sales are discarded by the Court the [Objectors] are unable to discharge their onus. [49] In my view the Court's powers on appeal identified in s 40(1) arise separately and apart from the onus provision in s 40(2). Section 40(1) specifies the Court's jurisdiction and should not be construed as being curtailed by s 40(2) in the manner contended by the Valuer-General's submission …The [Objectors'] approach to the application of the onus of proof is correct. At a minimum new valuation figures may be issued by the Court to take account of the actual GFA of the three properties." [Emphasis added.] 1. The primary Judge concluded that the only sale that should be considered as comparable for valuation purposes was the sale of an improved property in Riley Street Woolloomooloo (Riley St Property). [54] This finding is not challenged on the appeal. The Riley St Property was formerly a car/garage workshop, but was subject to heritage listing. It was sold on 24 November 2012 for $3,600,000 with the benefit of a development consent (DA) for use as a licensed restaurant and associated purposes. The primary Judge found that the sale of the Riley St Property with the DA was "conceptually comparable with the Mountbatten Hotel having existing use rights". [55] 2. The primary Judge noted that the Riley St Property had been the subject of a sale in September 2011 for $2,675,000, but that this sale had been without the benefit of the DA. She found that: [56] "the difference in sale price was generally agreed to reflect the securing of development approval and [in November 2012] a primary service authority (liquor licence), market movement and a profit and risk component." 1. Earlier in the Primary Judgment, her Honour addressed the Objectors' submission that a downward adjustment should be made to the comparable sale to eliminate the value attributable to the DA. [57] The adjustment was said to be required by the decision of the Privy Council in Toohey's which (according to the Objectors) required a development consent to be treated separately from the fee simple estate in the land to be valued. 2. As her Honour recorded, the Valuer-General submitted that s 14G(1)(a) of the VL Act restricts the assumed use of the land to the use in existence on the valuation date. [58] The Value-General further submitted to her Honour that it is inherent in the language of s 14G(1)(a) and (b) that the property must be valued on the assumption that it can lawfully be put to its existing use. This means, so the Valuer-General argued, that a valuer must assume that there are no legal impediments to continuing and maintaining the improvements on the land so that it can continue to be used in the same way. Unless a development consent is assumed to have been in place, there would be such an impediment. It followed that if the comparable sale price included a development consent permitting the same use as the land to be valued, no adjustment to the price was needed. 3. The primary Judge considered that the Value-General's submission correctly identified the approach to the DA, given the assumptions required by s 14G of the VL Act. [59] In her Honour's view, Toohey's was distinguishable as it was addressing unimproved land value only for the purposes of the predecessor to s 6A and was not concerned with the assumptions required by s 14G. Moreover, the Privy Council in that case was considering a liquor licence which, unlike a development consent or an entitlement to continue an existing use, does not run with the land. 4. Accordingly, the primary Judge rejected the Objectors' submission that a deduction of $1,000,000 should be made from the sale price of the Riley St Property. [60] The Objectors chose this figure as it represented the difference in price between the first and second sales of the Riley St Property. Her Honour reasoned as follows: [61] "The Mountbatten Hotel had existing use rights and I am required to assume no potential for alternative development under s 14G(1). Therefore comparable sales with existing use rights or development approvals in place do not require adjustment relative to the Mountbatten Hotel." 1. Both valuers deducted the value of improvements from the sale price of the Riley St Property in order to determine its unimproved land value. [62] Her Honour accepted Mr Hill's estimates of $800 psm as a "building area rate" for an industrial warehouse type of building. Since the GFA for the Riley St Property was 800 m2, the value of the improvements was $640,000, to which $150,000 had to be added for "excavation". [63] This produced a land value of $2,810,000 (that is, $3,600,000 less $790,000), equivalent to $3,513 psm. [64] 2. Her Honour added an upward adjustment of 10 per cent, as suggested by Mr Hill, to reflect the superior attributes of the Mountbatten Property. This produced a rate of $3,864 psm. However, a deduction of 10% had to be made from that figure for "rental differential". After making that deduction, her Honour concluded that a value of $3,478 psm of GFA could be applied to determine the unimproved land value of the Mountbatten Property. [65] 3. The primary Judge then made this finding: [66] "[94] Consequently, and as held above, when the rate of $3,478psm floor area is applied to the gross floor area of the Mountbatten Hotel of 675.30sqm, the resulting land value is $2,348,693. Mr Hill's final figure has changed in light of the additional evidence provided during the hearing in relation to the value of improvements requiring adjustment of the Riley Street sale with consequential changes for its adjustment in relation to the Mountbatten Hotel." 1. The primary Judge noted that both valuers agreed that a prospective purchaser of the Mountbatten Property would pay for the excavated basement area. [67] Her Honour accepted Mr Hill's evidence that the cost of excavation would be $123,920. When added to the land value of $2,348,693, the resultant land value was $2,472,613. [68] 2. The last three paragraphs of the Primary Judgment are as follows: [69] "[100] Applying the Riley Street sale the land value for the [Mountbatten Property] at 1 July 2012 is $2,472,613 which I round to $2,500,000. While this has been concluded on the basis of only one of Mr Hill's sales the unusual circumstances of the valuation evidence suggests that it the sensible course in this matter. No utility is served by further considering Mr Hill's other comparable sales. That amount is greater than the $2,125,000 figure of the Valuer-General … The Valuer-General is not seeking substitution of the higher figure as the s 6A(1) land value for the Mountbatten Hotel … [101] According to the Applicants the fee simple does not include GST. In Storage Equities Pty Ltd v Valuer-General [2013] NSWLEC 137 Craig J held that it did. The Applicants submitted that finding was not correct for various reasons. It is unnecessary that I resolve this issue as the amount of land value is substantially more than 10% greater than the amount contended for by the Applicants. [102] I assume that my finding in relation to the Mountbatten [Property] also means that the land values for the Star and Triple Ace [Properties] will be as found by Mr Hill, meaning higher than the amounts found by the Valuer-General. As indicated in par 49 the s 6A(1) land values of the three [P]roperties must be amended to reflect their actual GFAs … Accordingly all the appeals are upheld … The parties must file draft final orders for the Court to approve for the 2010 and 2012 base dates in the six appeals. … ." [Emphasis added.] The Appeal Submissions Valuer-General's Submissions 1. The Valuer-General submitted that the primary Judge's findings preceding the last paragraph of the Primary Judgment constituted a judicial determination of the land value of the Mountbatten Property for the purposes of s 6A(1) of the VL Act. Her Honour had made these findings after a detailed assessment of the valuers' evidence and on the basis of the correct GFA for the Mountbatten Property. 2. The land value determined by her Honour ($2,500,000) was higher than the Valuer-General's determination ($2,125,000). Thus the only ground of objection that the Objectors had taken or could take, namely that the Valuer-General's determination was too high, [70] had to be rejected. In these circumstances, so it was argued, the primary Judge had no alternative but to reject the appeal and confirm the Valuer-General's determination. 3. According to the Valuer-General, the primary Judge misunderstood the task she was required to perform under the VL Act. That task was simply to decide whether or not the Valuer-General's determination of land value was too high. Once her Honour decided that it was not too high, the only course open was to reject the appeal. She was not entitled to adjust the land value of the Mountbatten Property downwards. 4. Ms Duggan SC, who appeared with Mr White for the Valuer-General, broadened the argument in her oral submissions. She submitted that the primary Judge had failed to give any reasons for making the downwards "adjustment" to the land value and thus committed an error of law. Alternatively, she submitted that there was no rational basis for the primary Judge to adjust the land value of the Mountbatten Property when her Honour's findings as to the land value earlier in the Primary Judgment were based on the correct GFA of the Property. Accordingly, the primary Judge's exercise of the power to determine the land value was so unreasonable as to amount to a failure properly to exercise her discretion in the sense described in House v The King. [71] 5. Ms Duggan submitted that if the Valuer-General's argument was accepted, this Court should allow the appeal, set aside the orders made by the L & E Court and make orders dismissing the Objectors' appeals to the L & E Court. There would be no occasion to remit the matter, as the only conclusion open was that the land value of the Mountbatten Property exceeded the Valuer-General's determination. Objectors' Submissions 1. Mr Hemmings SC, who appeared with Ms Pearman for the Objectors, submitted that the primary Judge was entitled to amend the land value of the Mountbatten Property to correct the Valuer-General's mistaken estimate of the GFA. The Objectors had submitted in the L & E Court that even on the "worst scenario" for them, her Honour would adjust the Valuer-General's determination to take account of the true GFA for the Mountbatten Property. They had invited the Primary Judge to correct the Valuer-General's mistake and to make her own determination of land value pursuant to s 40(1)(b) of the VL Act. Her Honour had simply accepted this invitation and exercised the broad power conferred on her by s 40(1)(b) of the VL Act to make a decision in place of the Valuer-General's determination. She was entitled to take this course and was not bound to adopt the land value ($2,500,000) reflected in the earlier finding in the Primary Judgment. Reasoning on the Appeal 1. To some extent the Valuer-General and the Objectors seem to have had different perceptions of the issues requiring resolution by the L & E Court. In order to assess the competing submissions in this Court, it is necessary to say something about the course of the trial. Course of the Trial 1. On the fourth day of the six day trial, Mr Hemmings submitted to the primary Judge that the Objectors had satisfied the onus cast on them by s 40(2) of the VL Act of "proving [their] case". He said that the Objectors had discharged their onus simply by demonstrating that the Valuer-General's determination of land value was based on an incorrect estimate of the Mountbatten Property's GFA. Mr Hemmings put to her Honour that the "worst case scenario" for the Objectors was that she would substitute a lower land value for the Valuer-General's determination. The value would be calculated simply by multiplying the correct GFA (675.3 m2) by the value psm used by the Valuer-General in the disputed determination ($2,551). On this view of the case, the valuation evidence was relevant only because the Objectors wished to persuade her Honour that the land value should be even lower than their "worst case scenario". 2. Counsel appearing in the L & E Court for the Valuer-General (Mr White) expressly stated that he did not accept the Objectors' contention. He explained that the Valuer-General's case was that the primary Judge should accept Mr Hill's valuation and conclude that the land value of the Mountbatten Property was actually higher than the Valuer-General's determination. 3. Mr White clarified the Valuer-General's position on the fifth day of the trial. He invited the primary Judge to find that the Valuer-General's determination was correct and should not be disturbed. Mr White's invitation was made on the basis that Mr Hill's evidence, if accepted, supported a higher land value than the Valuer-General's determination. However, Mr White made it clear that he was not asking her Honour to determine a higher land value by exercising the power conferred by s 40(1)(b) of the VL Act, but instead only sought to uphold the valuation of $2,125,000. 4. On the sixth and final day of the hearing, Mr Hemmings made it clear that the Objectors were inviting the primary Judge to exercise the power conferred by s 40(1)(b) of the VL Act and "re-determine the correct land value". Mr Hemmings reiterated that (as he had argued) the Objectors had discharged the onus of showing that the Valuer-General's determination was too high and thus they had established that the appeal should be allowed. However, Mr Hemmings submitted that the primary Judge should accept Mr Roberts' valuation evidence and determine the land value at a figure lower than the Objectors' "worst case scenario". 5. As has been seen, in the Primary Judgment her Honour did not accept Mr Roberts' opinion as to the land value of the Mountbatten Property, generally preferring Mr Hill's analysis. Nonetheless, in the last paragraph of the Primary Judgment she "amended" the land value in the manner previously described. Her Honour asked the parties to file draft final orders. 6. The Valuer-General and the Objectors could not agree on the form of orders and filed competing draft orders. The Valuer-General, in reliance on her Honour's finding that the land value was $2,500,000, proposed that the appeal to the L & E Court should be dismissed. The Objectors, in reliance on her Honour's amended land value, proposed that the appeals should be allowed and that her Honour should make her own determination of the land value of the Mountbatten Property. Mr Hemmings submitted that the last paragraph of the Primary Judgment demonstrated that her Honour should adjust the land value down "at worst only to reflect the actual GFA". Did the "Amended" Land Value Involve Error 1. Mr Hemmings appeared to accept in this Court that the Objectors bore the onus of proving not merely that the Valuer-General's determination of land value was flawed, but that the determination was too high. If the only evidence before the primary Judge was that the Valuer-General's determination rested on an incorrect estimate of the GFA, the Objectors may well have discharged the onus of proving that the determination was too high. In the absence of evidence suggesting that the value psm adopted by the Valuer-General was too low, presumably the appeal would have been allowed and the L & E Court could have made its own determination of land value based simply on the correct GFA applied to the Valuer-General's value psm. 2. But this is not how the proceedings were conducted. The Valuer-General was permitted without objection to adduce valuation evidence that supported a higher value psm than had underpinned the Valuer-General's determination. Her Honour in substance accepted that evidence. In doing so, she made an express finding that the land value of the Mountbatten Property was higher than the Valuer-General's determination. 3. In making submissions as to the form of final orders Mr Hemmings did not explain why it was open to her Honour to disregard her finding as to land value based on the valuation evidence and determine the land value simply by adjusting the rate psm used in the Valuer-General's determination to account for the correct GFA of the Mountbatten Property. Despite the absence of any such explanation, her Honour expressed agreement with Mr Hemmings' submission and made a declaration as to the land value of the Mountbatten Property (and of the other Properties). In doing so, her Honour appears to have adhered to the view expressed in the last paragraph of the Primary Judgment that at worst, from the Objectors' point of view, the land values of the three Properties had to be adjusted downwards to reflect the correct GFA for each Property. 4. There are difficulties with the approach taken by the primary Judge. The Objectors invited her to exercise the power conferred by s 40(1)(b) of the VL Act and determine for herself the land value of the Mountbatten Property. Her Honour accepted that invitation. Beyond stating that she accepted the Objectors' "worst case" submission, her Honour gave no reasons for effectively ignoring her own evidence-based finding that the land value was $2,500,000, some $375,000 more than the Valuer-General's determination. That finding as to land value was of course based on the correct GFA for the Mountbatten Property. 5. It may be that her Honour took the view that the Valuer-General was somehow bound by the value psm that underpinned the challenged determination. But if this was her view, she did not explain why the Valuer-General was precluded from supporting a different value psm at the trial. Since s 39 of the VL Act states that the parties' cases on an appeal to the L & E Court are not limited to the grounds of the objection, it is not easy to see why the Valuer-General should be prevented from relying on valuation evidence that utilises a methodology different from that used in the Valuer-General's determination. In any event, as I have noted, the proceedings were conducted on the basis that the Valuer-General was entitled to adduce evidence supporting a higher value psm than that used in the Valuer-General's determination. 6. Nor did the primary Judge explain why it was appropriate to amend her evidence-based finding as to land value in order to correct the Valuer-General's mistake in estimating the GFA of the Mountbatten Property. The valuers agreed that the Valuer-General's determination was based on a mistaken estimate of the GFA. They made their own valuations on the basis of the correct GFA. In these circumstances, it is hard to see how the Objectors could be said to have satisfied the onus of proving that the Valuer-General's determination was too high. In any event, it is not apparent why the primary Judge considered that she should ignore her evidence-based finding as to land value, given that it was based on the correct GFA for the Mountbatten Property. 7. A fair reading of the Primary Judgment suggests that her Honour did what the Objectors invited her to do. That is, having found that the Valuer-General's determination was flawed because it was based on an incorrect GFA and having considered the expert evidence as to the land value of the Mountbatten Property at 1 July 2012, her Honour exercised the power conferred by s 40(1)(b) of the VL Act to "make a decision in place of the decision to which the appeal relates". 8. The Objectors have not identified any basis on which the primary Judge could reasonably have exercised the power in s 40(1)(b) of the VL Act as she did. The absence of reasons for apparently disregarding the evidence-based finding as to the land value of the Mountbatten Property reinforces the inference that there were no reasonable grounds for doing so. Her Honour evaluated the expert evidence and found that the land value of the Mountbatten Property exceeded the Valuer-General's determination. That finding was inconsistent with the conclusion she reached, without explanation, in the final paragraph of the Primary Judgment. 9. One way of characterising the error committed by the primary Judge is that, as Ms Duggan submitted, her Honour's exercising of the discretionary power conferred by s 40(1)(b) of the VL Act miscarried. The exercise of discretion was based on a misapprehension of the facts and produced, in the language of House v The King a result that is unreasonable and plainly unjust. [72] I did not understand Mr Hemmings to dispute that if her Honour's discretion miscarried, she committed an error of law for the purposes of s 57(1) of the L & E Court Act. In any event, by departing from the legal standard of reasonableness in the exercise of the power conferred by s 40(1)(b) of the VL Act, her Honour did not discharge her statutory functions according to law. She thus committed an error of law warranting the intervention of this Court. [73] 10. It follows that the appeal should be allowed. After considering the cross-appeal, I shall deal with the orders that should be made. Cross-Appeal: Valuation of the Fee Simple Estate Submissions Objectors' Submissions 1. The Objectors submitted that the primary Judge's finding that the land value of the Mountbatten Property was $2,500,000 was affected by errors of law. Their principal submission was that the primary Judge did not comply with the requirements of s 6A(1) of the VL Act, in that she did not determine "the capital sum which the fee simple of the land might be expected to realise". 2. According to Mr Hemmings, the primary Judge was required to consider whether the Valuer-General's determination was too high by reference to the assumptions stated in ss 6A(1) and 14G. Instead of determining the value of the "pure fee simple in the Mountbatten Property", in conformity with the statutory assumptions, her Honour incorporated extraneous elements into her assessment. Specifically, so Mr Hemmings submitted, her Honour failed to adjust the sale price of the Riley St Property (the only relevant comparable) for four factors that should have been excluded from the assessment. Those factors were identified by her Honour as accounting for the difference between the September 2011 sale of the Riley St Property ($2,675,000) and the November 2012 sale ($3,600,000), namely the granting of the DA in respect of the Riley St Property; the issue of the liquor licence; general market changes of 2.5 per cent; and a profit and risk component. [74] Her Honour therefore should have adjusted the November 2012 sale price by approximately $1,000,000 before regarding the sale of the Riley St Property as a true comparator. 3. Mr Hemmings submitted that the primary Judge's refusal to adjust the sale price of the Riley St Property to account for those factors was inconsistent with the decision of the Privy Council in Toohey's, which has been followed (not always enthusiastically) in Australia. Her Honour's error was to construe ss 6A(1) and 14G(1) as permitting an assessment of land value on the basis that the Mountbatten Property had a DA and liquor licence actually in place. In short, her Honour incorrectly construed s 14G as permitting the Mountbatten Property to be valued in its improved state, contrary to s 6A(1). 4. Mr Hemmings accepted that it is permissible, in assessing land value for the purposes of s 6A(1) of the VL Act, to take account of the potential for development of the land, for example by rezoning or obtaining a development consent for a higher use. But the Riley St Property had that potential at the time of the first sale in September 2011. Thus the difference between the sale price at that time and the sale a little more than a year later was the realisation of that potential. Mr Hemmings submitted that the difference had to be deducted from the second sale price before it could be regarded as a comparable sale for the purposes of assessing the land value of the Mountbatten Property. Valuer-General's Submissions 1. The Valuer-General submitted that the primary Judge determined the value of the fee simple in the Mountbatten Property in accordance with the assumptions required by ss 6A(1) and 14G(1) of the VL Act. Pursuant to these provisions: "in order to derive the value of the fee simple of the unimproved land, the Court was required to assume that the land could only be used for a hotel use, and that the only improvements that could be made to the land were those improvements already on the land at the relevant base dates, namely a 2-storey heritage-listed hotel. The highest and best use, or potential, of the unimproved land, was restricted to a hotel use, with a 2-storey heritage building erected on it." 1. According to Ms Duggan, the primary Judge made precisely those assumptions. Her Honour was not required to make an adjustment to the sale price of the Riley St Property to reflect the value of the DA or the liquor licence applying to the Property. Her Honour correctly held that s 14G(1) of the VL Act requires the valuer to assume that there are no legal impediments to continuing and maintaining the improvements on the land. [75] Thus there was no error in her Honour's finding that a sale of land with the benefit of a DA and liquor licence was "conceptually comparable" [76] with the value of the Mountbatten Property, given that the latter's use as a hotel could continue. 2. In her oral submissions, Ms Duggan emphasised that a hypothetical purchaser of the Mountbatten Property must be taken to be aware of the potential inherent in the subject land, including the absence of any legal impediment to the continuation of the existing use of the land. In effect, s 14G(1) introduces a "real world" state of affairs into the valuation process of requiring an assumption that the subject land has all necessary consents in place to permit the existing use to continue. For this reason the primary Judge was correct to regard the 2012 sale of the Riley St Property as a comparable sale, without the need for any adjustment to take account of the DA and the liquor licence. Reasoning The Statutory Assumptions 1. The legislation governing the determination of the land value of heritage restricted land requires the valuation to the conducted on the basis of a rather curious combination of assumptions. Section 6A(1) of the VL Act provides that the "land value of land" is: "the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require." 1. However, s 6A(1) also provides that the land value is to be determined on the basis of a "counterfactual" [77] or "notional" [78] assumption. It must be assumed that the improvements on the land (other than so-called "land improvements") had not been made. This assumption has formed part of the legislative scheme from the beginning and is not confined to heritage restricted land. The scheme contemplates a "hypothetical sale … of something which does not exist in the real world", although the hypothetical price is "determined by reference to market conditions in the real world". [79] Because of the character of the hypothetical sale, the concept of "land value" in s 6A(1) has been variously described as "artificial", "a mental exercise in unreality" and "unique". [80] 2. Section 14G, introduced into the VL Act much later than the forerunner to s 6A, is specifically concerned with the determination of the land value of heritage restricted land. Section 14G(1) requires assumptions to be made that reflect the actual position on the valuation date. Thus heritage restricted land is to have its land value determined on the basis (relevantly) of the following three assumptions: "(a) that the land may be used only for the purpose, if any, for which it was used when the value is determined, (b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, … (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land." 1. In addition, s 14G(1)(b1) qualifies s 14G(1)(b), in that it requires an assumption that all improvements referred to in s 14G(1)(b) are new, without any deduction being made because of their actual condition. This provision manages to combine an assumption founded on the actual position (the improvements on the land at the relevant date) with a counterfactual assumption (that all improvements on the land are new, without regard to their actual condition). [81] Construction of s 6A and 14G of the VL Act 1. Construing ss 6A(1) and 14G(1) of the VL Act harmoniously is a task not without difficulty. In undertaking that task, it is fundamental that close attention is paid to the text and structure of the relevant provisions. [82] Nonetheless, as Spigelman CJ observed in Commonwealth Custodial Services Ltd v Valuer-General, [83] when the courts have authoritatively pronounced upon the interpretation of particular legislation, subject to a contrary ruling by the High Court, that interpretation should be followed. A number of matters have been established by the case law. 2. First, in determining the land value of heritage restricted land, the applicable statutory provisions are ss 6A(1) and s 14G(1). Although, as has been seen, 6A(2) states certain assumptions in terms that to some extent are similar to assumptions in s 14G(2), the former do not apply to the valuation of heritage restricted land. This proposition was stated in Commonwealth Custodial Services Ltd v Valuer-General [84] and accepted by the parties to the present appeal. 3. Secondly, the assumptions required to be made by s 14G(1) in the valuation of heritage restricted land do not replace or negative the assumption in s 6A(1) that improvements on the subject land must be treated as if they had never been made. The land value is to be determined on the basis of the value of the fee simple estate in the subject land stripped of all improvements (other than "land improvements"). [85] That is, the subject land is assumed to be vacant land. 4. Thirdly, s 6A(1) postulates a notional sale. The sale is assumed to take place in a market in which the seller would be prepared to conclude a sale for the best price that could be obtained. [86] 5. Fourthly, the valuation of heritage restricted land as vacant land is to be determined on the basis of the assumptions mandated by s 14G(1) of the VL Act. However, s 14G(1)(b), insofar as it mandates an assumption that all improvements on the land may be continued and maintained for the purpose identified, is referring to improvements "in the real world". [87] 6. Fifthly, it has been accepted in New South Wales that the Privy Council's decision in Toohey's continues to apply to the determination of land value under the VL Act. This is so notwithstanding that the legislation has been substantially amended since the Privy Council's decision and that the reasoning in that case has been the subject of trenchant criticism. [88] Toohey's stands for the proposition that in determining land value pursuant to s 6A(1) of the VL Act, it is wrong: [89] "to begin with a valuation [of the subject land] which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure" Toohey's Does Not Apply 1. Since the Objectors relied on the decision of Toohey's, it is important to appreciate the limited scope of the proposition for which the case stands. In Commonwealth Custodial Services Ltd v Valuer-General, [90] Tobias JA disagreed with the reservations expressed by Spigelman CJ and Santow JA as to the continued applicability of the Privy Council's construction of the predecessor to s 6A(1) of the VL Act. Tobias JA considered that the Privy Council's construction was inevitable, given the statutory direction to value the subject land as if the improvements on the land had never existed. [91] 2. Tobias JA went on to explain that the impermissibility of valuing the subject land by deducting from its improved value the added value of the improvements, did not prevent a similar approach in considering comparable sales for the purpose of determining the land value of the subject land. His Honour said this: [92] "Although such a result [required by Toohey's] may be regarded as artificial or lacking in reality or even as rendering impermissible a method of valuation which is said to be rational (though in my view inherently unreliable), nevertheless that is what the statute requires. The fact that a similar method is used in deducing an unimproved land value from the sales of improved land is beside the point. However, … the use of such sales is far more reliable that directly valuing the relevant land as improved land and this is so for two reasons. The first is that with sales, the improved value of the sale land has actually been determined by the market. Only one exercise is then required: the deduction of the added value of the improvements to arrive at the bare land component of the sale price. The second is that [the method rejected by the Privy Council] requires the additional and primary exercise of determining the improved land value without reference to the market generally or to market sales of comparable land in particular. The weakness of this method is that this primary exercise of determining the improved value of the relevant land has not been tested in, let alone determined by, the market and for that reason alone is more likely to give rise to greater problems of unreliability." 1. Without necessarily endorsing the second of the reasons given by Tobias JA in this passage, the point is that the decision in Toohey's does not prevent the land value of the subject land being determined by the comparable sales methodology. Nor does it prevent a valuer adjusting comparable sales of improved land by deducting the value in improvements from the comparable sales to provide a guide as to the unimproved land value of the subject land. Since Spigelman CJ and Santow JA expressed reservations about the authority of Toohey's in construing the VL Act in its current form, their Honours can be taken as agreeing a fortiori with Tobias JA on this point. 2. The valuers in the present case differed in their assessment of the land value of the Mountbatten Property. But both proceeded on the basis that it is permissible, in determining the land value of heritage listed land, to consider sales of comparable land with improvements and apply a suitable methodology to assess and deduct the value of the improvements in order to value the land as vacant land. There was no error in her Honour accepting that this approach is consistent with ss 6A(1) and 14G(1) of the VL Act. Did the Primary Judge Err? 1. Mr Hill, whose valuation evidence the primary Judge largely accepted, set out his valuation methodology in detail. [93] Her Honour stated the principles that apply to valuing heritage restricted land in terms consistent with Mr Hill's methodology as follows: [94] "(a) The assumptions in s 14G must be made; (b) Under s 14G the land is still valued on the assumption that the improvements had not been made; (c) In considering the use to which the land can be put, and the scale of development that could take place on the land, the assumption has to be made that no improvements can be made to the land other than the improvements that are actually there at the base date or dates (the highest and best use restriction); (d) There is one further assumption that must be made, having regard to s 14G(1)(b1). The existing heritage building on the land is assumed to be new on the date of valuation …" 1. The primary Judge added an additional observation as follows: [95] "For each parcel of land, the valuers are required to value it as vacant land (other than for land improvements) upon the basis, first, that it would only be used for the purpose for which it was being used at the date of valuation; and, second, that the only building in which that use could be continued was the existing building upon the land, albeit in a new condition". 1. Her Honour's statement of the principles applicable to a determination of the land value of heritage restricted land are consistent both with the statutory language and the construction of that language adopted in the decided cases. I do not understand Mr Hemmings to have argued otherwise. His contention is that her Honour should have adjusted the 2012 sale price of the Riley St Property downwards to remove the factors accounting for the increase in the value of the Property between the first sale in November 2011 and the second sale in November 2012. 2. There is now no dispute that s 14G(1)(a) of the VL Act required the land value of the Mountbatten Property to be determined on the basis that the land could only be used for the purpose for which it was being used on the valuation date. Her Honour accepted Mr Hill's assessment that on the valuation date the Mountbatten Hotel was used for "hotel (pub) and budget accommodation". 3. Mr Hill correctly identified his task as determining the value of the Mountbatten Property as vacant land. He approached this task on the basis that the most likely hypothetical purchaser of the Mountbatten Property in that state was a person considering it as a development site. Thus the question that had to be answered was what price a hypothetical purchaser would be prepared to pay for an unencumbered fee simple estate in the Mountbatten Property, taking it to be vacant land and having regard to its potential to be used as a hotel and residential accommodation. 4. In these circumstances, s 14G(1)(b) of the VL Act required the value to assume that the improvements actually on the Mountbatten Property could be continued and maintained in order that the use of the Property as a hotel and residential accommodation could be continued. Section 14G(1)(c) required the further assumption that only the improvements already on the Mountbatten Property "may be made on the land". 5. Section 14G of the VL Act sets up what amounts to a valuation regime for heritage listed land grafted onto the pre-existing general regime. The language used in s 14G(1) is, to say the least, awkward. The awkwardness reflects, in part, the "highly artificial" task required by s 6A(1). It also reflects the tension between a series of hypothetical and "real world" assumptions incorporated in s 14G(1). 6. Allowing for the awkwardness, the language used in s 14G(1)(b) and (c) suggests that, in the case of heritage restricted land, the hypothetical sale of vacant land contemplated by s 6A(1) is to take place on two assumptions. The first is that the land may be used only for the purpose for which it was used on the valuation date – in the present case, for the purpose of a retail hotel and residential accommodation. The second is that the purchaser may continue to use all improvements that were actually on the land at the valuation date and may do so in order to continue the use of the land in place at that date. 7. The statutory concept of continuity of use of the land, including the improvements, implies that the hypothetical purchaser will know that the use of the improvements on the land at the valuation date can lawfully be continued. Accordingly, s 14G(1) contemplates that the valuation of heritage restricted land may be undertaken on the basis that a purchaser can continue to use the improvements for the purpose for which they were used at the valuation date and is able to do so on the assumption that all necessary consents and approvals are in place. In the present case, therefore, it was open to the valuer and to the primary Judge to determine the land value of the Mountbatten Property on the basis that a hypothetical purchaser could continue to use the improvements actually on the land as a hotel and residential accommodation. 8. This conclusion receives some support from the reasoning of this Court in Fivex. The issue in that case was whether s 6A(2)(b) of the VL Act permitted the land value of a non-heritage commercial property to be determined by reference to the actual improvements on the land or by reference to the more modest improvements that would be permitted under the applicable local environmental plan (LEP). The building actually erected on the land, in accordance with a development consent, achieved a higher GFA than would have been permitted under the LEP. 9. The Court held that s 6A(2) permitted regard to be had to the actual GFA. Since it was agreed that the land value had to be determined by applying a rate psm to the GFA, the result was a higher land value than if the theoretical maximum GFA under the LEP had been adopted. 10. The Court rejected a submission by the Objectors that s 6A(2) was concerned only with the purpose for which the land was used, as distinct from the nature of the improvement. Leeming JA said this: [96] "A mandatory assumption as to an existing building in the real world continuing is inconsistent with the subsection applying only to use for a purpose and eschewing regard to the nature of the use. None of this is to deny that what is to be determined is the unimproved value of the 'fee-simple', stripped of those improvements. Necessarily, the task required by the statute is a highly artificial one. However, the statute refers in terms not merely to the purpose of the existing use, but also to the actual improvements in the real world that enable that existing use to continue." [Emphasis in original.] Because of the similarity in language between s 6A(2)(b) and s 14G(1)(b), these observations seem to apply with equal force to the latter provision. 1. Fivex does not authoritatively resolve the issue in the present case. [97] But the reasoning supports the view that s 14G(1) requires an assumption that the pre-existing use of the actual buildings constructed on the heritage restricted land may be continued. If continuation of the use requires consents and approvals, they must be assumed to be in place. 2. Of course it was necessary for the valuer to deduct from the sale price of the Riley St Property a sum representing the cost of erecting the building actually on that Property. This Mr Hill did by assessing the cost of erecting the warehouse type of building on the land to be $640,000 and deducting that sum from the sale price of $3,600,000. A further deduction of $150,000 had to be made in respect of the excavation. The resultant figure of $2,810,000, when expressed as a dollar figure psm had to be applied to the Mountbatten Property to produce its land value. The land value for the Mountbatten Property took account of the assumed entitlement of the hypothetical purchaser to erect a building of the same dimensions of the building actually on the land and to use that building in the same way as the existing building on the Mountbatten Property was in fact used. 3. For these reasons, I do not think that the primary Judge erred by declining to deduct from Mr Hill's adjusted sale price of the Riley St Property a sum equivalent to the increase in the value of that Property between November 2011 and November 2012. Her Honour's refusal to make the deduction did not involve an erroneous construction or application of s 6A(1) or s 14G(1) of the VL Act. Specifically, it did not involve a departure from the requirement to determine the capital value of the fee simple in the Mountbatten Property on the assumption that the improvements thereon had not been made. 4. This conclusion does not mean that the primary Judge was bound to adopt Mr Hill's methodology to determine the land value of the Mountbatten Property. Depending on the circumstances, there may be several approaches that are consistent with the legislation. The only issue on this aspect of the appeal is whether the approach adopted by the primary Judge involved an error of law. In my opinion, it did not. The Cross-Appeal: GST Submissions Objectors' Submissions 1. The Objectors submitted that the primary Judge erred in failing to adjust the land value of the Mountbatten Property to ensure that it was "GST exclusive". Her Honour considered that it was unnecessary to do so because excluding GST would still not have produced a land value below the Valuer-General's determination. [98] 2. Mr Hemmings submitted that, depending on the resolution of other issues in the case, the treatment of liability to GST could make a difference to the outcome. He said that the primary Judge, in determining the land value of the Mountbatten Property, should have excluded a component for GST because s 6A(1) of the VL Act requires only the capital value of the fee simple estate of the subject land to be determined. Since GST consequences of a sale are quite distinct from the value of the fee simple estate, they must be excluded from any assessment of land value. 3. Mr Hemmings accepted that liability for GST on a particular transaction depends on a variety of circumstances. He also accepted that the status of a hypothetical purchaser of the subject land can never be known, since the transaction does not take place in the "real world". But these matters indicate, so he argued, that the VL Act is drafted on the assumption that land value is GST exclusive. 4. Mr Hemmings acknowledged that Craig J held in Storage Equities Pty Ltd v Valuer-General [99] that the land value is the amount expected to be received on the sale of land, including any GST which the vendor may be required to pay. However, Mr Hemmings invited this Court to hold that the case was wrongly decided and should not be followed. Valuer-General's Submissions 1. The Valuer-General's written submissions on the cross-appeal supported the reasoning of Craig J in Storage Equities. However, in her oral submissions, Ms Duggan contended that the GST issue simply did not arise in the present case because there was no evidence as to whether the vendor of the Riley St Property was liable to pay GST and, if so, how much. Nor was there evidence as to the GST consequences of a hypothetical sale of the Mountbatten Property, on the assumptions required by s 14G of the VL Act. All that could be said was the liability of a party to the hypothetical sale to pay GST would depend on a range of considerations that might vary from case to case. Reasoning on GST 1. The general principle under the GST legislation [100] is that: "an entity is liable to pay GST on any 'taxable supply', and is entitled to an input tax credit on any "creditable acquisition". For each tax period applicable to the entity, amounts of GST are set off against amounts of input tax credits to produce a net amount, which may then be subject to adjustments. The net amount, as adjusted, is the amount which the entity must pay to the Commonwealth, or which the Commonwealth must pay to the entity, in respect of the period." [101] There are, however, a range of complex provisions applicable to sales of commercial property. The result is that "the GST consequences of a sale … turns in part upon the personal circumstances of the parties". [102] 1. Thus a sale of commercial land is GST-free if it is the supply of a "going concern" and certain conditions are met. [103] But the recipient of the supply of a going concern may be liable to pay GST in certain circumstances. [104] On the other hand, a vendor of a commercial property such as a hotel may be able to take advantage of the "margin scheme" pursuant to which a concession at sale of GST is applied. [105] If GST applies to a sale, the precise position of the vendor providing the taxable supply will depend on the extent of input tax credits. 2. In Storage Equities, the L & E Court considered whether the land value of the subject land, for the purposes of s 6A(1) of the VL Act, should exclude a component for GST. The issue arose in that case because there was a good deal of evidence on the point. Among other matters, the evidence addressed the likely GST status of purchasers of properties used for the same purposes as the subject land and the likely impact of the GST on the sale prices of properties of that kind. The expert valuers agreed that the land value of the subject land depended on whether or not a "GST component" should be included. 3. To say that the evidence in the present case on this issue is scanty is an understatement. Mr Hemmings identified only one passage relevant to the issue of whether a GST component had to be excluded from the land value determined for the Mountbatten Property. He pointed to the following exchange, which took place during the concurrent evidence of the valuers: "HEMMINGS: I think uncontroversially, as a matter of process, what you've done here is to at page 44 start with a sale price of $3.46 million [for the Riley St Property]? WITNESS HILL: Yes. HEMMINGS: And is that one inclusive of exclusive of GST? WITNESS HILL: I've, I've assumed it to be inclusive. HEMMINGS: That's the November 2012 sale? WITNESS HILL: Yes." 1. Mr Hill was not asked what he meant by GST "inclusive". The contract of sale of the Riley St Property was not in evidence and Mr Hall did not suggest that he had seen the contract. The GST status of the parties to the sale of the Riley St Property was not explored. Nor was there evidence as to the GST consequences of the sale or, for that matter, of the sale of properties of a similar character. Similarly, there was no evidence of the likely GST consequences of a hypothetical sale of the Mountbatten Property. The valuers were not asked how any possible liability to GST might affect the price that the Mountbatten Property could be expected to fetch in an informed market. 2. In these circumstances, it is neither necessary nor appropriate to decide whether the determination of land value may sometimes require a GST component to be excluded. The evidence did not justify a finding that the only comparable sale was materially affected by any liability to pay GST in consequence of the sale. Nor does the evidence justify a finding that a hypothetical sale of the Mountbatten Property would be materially affected by the operation of the GST Act. 3. This ground of the cross-appeal is not made out. Cross-Appeal: Land Improvements 1. The Objectors accepted that the historical excavation carried out on the Mountbatten Property for the purposes of constructing a basement was a "land improvement" within sub-par (d) of the definition in s 4(1) of the VL Act. They therefore accepted that s 6A(1) required the land value of the Mountbatten Property to be determined taking into account the value of the excavation works. 2. Mr Hemmings' submission was that the primary Judge had erroneously double counted the value of the excavation works, thereby inflating the land value of the Mountbatten Property. Mr Hemmings said that the double counting occurred because the primary Judge had: * included the basement area of 61.2 m2 in the GFA of 675.3 m2, thereby attributing a value to the excavation works; [106] and * added to the land value of $2,348,693 the cost of the excavation works of $123,920, [107] thereby attributing further value to the same excavation works. 1. As was discussed in oral argument, this submission overlooks the fact that before reaching the figure of $2,348,093 as the land value, her Honour adopted a value psm that excluded Mr Hill's assessment of the value of the excavation works at the Riley Street Property. Thus at this point the value of the excavation works had not been included in the psm calculations. By subsequently adding in the sum of $123,920, to reflect the value of the excavation works, her Honour correctly applied s 6A(1) of the VL Act. There was no double counting. 2. In any event, in view of the conclusions I have already reached, even if this contention was sound it could make no difference to the outcome of the appeal. Orders 1. On the hearing of an appeal against a decision of the L & E Court in the Class 3 jurisdiction, the Court must: "(a) remit the matter to the [L & E] Court for determination by the Court in accordance with the decision of the Supreme Court, or (b) make such other order in relation to the appeal as seems fit." [108] 1. For the reasons that have been given, the Valuer-General's appeal must be allowed and the Objectors' cross-appeal dismissed. 2. As I have noted, the Valuer-General's amended notice of appeal seeks orders setting aside the declarations made by the L & E Court as to the land value of each of the three Properties at the valuation dates of 1 July 2010 and 1 July 2012. Ms Duggan submitted that it was appropriate to make these orders rather than remit the matter as there could only be one outcome of the Objectors' appeal to the L & E Court. 3. I accept the submission made on behalf of the Valuer-General. The result of the appeal and cross-appeal is to uphold the primary Judge's finding that the land value of the Mountbatten Property at 1 July 2012 was greater than the Valuer-General's determination and set aside the finding as to the "amended" land value of the Property. Since the land value of the Mountbatten Property at the valuation date was greater than the Valuer-General's determination, the only conclusion that the L &E Court could have reached was to confirm the Valuer-General's determination. Her Honour's finding as to the "amended" land value cannot stand. In these circumstances, the only conclusion that the L & E Court could reach is to confirm the Valuer-General's redetermination. 4. The appeal to the L & E Court in relation to the Mountbatten Property were Nos 14/30010 and 14/30011. In the appeal to this Court concerning those matters I propose the following orders: 1. Appeal allowed. 2. Cross-appeal dismissed. 3. Set aside Orders 3 and 4 made by the Land and Environment Court on 8 May 2015 in Proceedings 14/30010 and 14/30011. 4. In lieu of the Orders referred to in Order 3, make an order pursuant to s 40(1)(a) of the Valuation of Land Act 1916 (NSW) that determinations of land value of the property situated at 701 George Street, Haymarket (Mountbatten Property) for the base dates of 1 July 2010 and 1 July 2012 issued by the Valuer-General on 11 November 2013 be confirmed. 5. The respondents/cross-appellants (Objectors) pay the costs of the appellant/cross-respondent (Valuer-General) of the appeal and cross-appeal. 1. Similar orders should be made in relation to the appeals to the L & E Court concerning the Triple Ace Property and the Star Property. ********** Endnotes 1. Land and Environment Court Act 1979 (NSW), s 19(b). 2. Oriental Bar Pty Limited v Valuer-General [2015] NSWLEC 59 ("Oriental Bar") 3. Land and Environment Court Act, s 57(1). 4. [2015] NSWCA 53. 5. Valuation of Land Act, s 4(1), Land improvements, (d) and (d1). 6. Valuation of Land Act, s 14A(1). 7. Valuation of Land Act, s 14B(1). 8. Trust Company of Australia Limited v The Valuer-General [2007] NSWCA 181; 154 LGERA 437 at [58] (Campbell JA). 9. (1929) 43 CLR 277 at 290. 10. Definition of Land improvements in s 4(1). 11. Valuation of Land Act, s 14G(1)(a). 12. [2006] NSWCA 353; 149 LGERA 439 at [35]-[36]. 13. [2007] NSWCA 365; 156 LGERA 186 at [5]. 14. Toohey's Ltd v The Valuer-General [1925] AC 439; (1925) 25 SR(NSW) 75 at 77-78 (Lord Dunedin). 15. Holcim (Australia) Pty Ltd v Valuer-General [2009] NSWLEC 225 at [21]. 16. McKee v Valuer-General [1971] NZLR 436, 444-445. 17. Toohey's Ltd at 76. 18. Toohey's Ltd at 76-77. 19. (1941) 64 CLR 470. 20. Owners of Ship 'Shin Kobe Maru' v Empire Shipping Co Inc (1994) 181 CLR 404 at 421. 21. Minister for Immigration and Multicultural Affairs v Wang (2003) 215 CLR 518; [2003] HCA 11 at [33] (McHugh J). 22. (1982) 63 FLR 441 at 454, in relation to a decision under the Migration Act 1958 (Cth). 23. FCAFC, unrep, 4 March 1998, quoted by the High Court on appeal: (2000) 199 CLR 343; [2000] HCA 9 at [20]. 24. Thiyagarajah at [21] and [34]. 25. Thiyagarajah at [34], referring to Johns v Australian Securities Commission (1993) 178 CLR 408 at 433-434 (Brennan J). 26. Oriental Bar Pty Ltd v Valuer-General [2015] NSWLEC 59 (Primary Judgment). 27. Land and Environment Court Act 1979 (NSW) (L & E Court Act), s 57(1). 28. The correct GFA for the Triple Ace Property was 663.8 m2 compared with the Valuer-General's estimate of 714 m2. The correct GFA for the Star Property was 535.3 m2, compared with the Valuer-General's estimate of 600 m2. 29. Primary Judgment at [100]. 30. Primary Judgment at [102]. 31. See at [48] above. 32. The appeals were heard in the L & E Court over six hearing days in September and November 2014. The Primary Judgment was delivered on 17 April 2015. Her Honour heard further submissions on 8 May 2015 and made the orders on that day. 33. Allowing for some cents in the psm figure, this represents 675.3 multiplied by $2,551. 34. See at [64-65] below. 35. VL Act, s 14A(1). 36. VL Act, s 14B(1). 37. VL Act, s 14A(2). 38. Originally as s 6 of the VL Act. The only changes are that s 6A(1) substitutes "land value of land" for "unimproved value of land" in the opening words and now excludes "land improvements" from the assumption that the improvements on the land had not been made. Section 6 in its original form was the subject of the Privy Council's decision in Toohey's Ltd v The Valuer-General [1925] AC 439 (Toohey's). 39. Originally as s 6 of the VL Act. 40. [2007] NSWCA 365; 156 LGERA 186 at [46]-[57]. 41. [2007] NSWCA 181; (2007) 154 LGERA 437 at [58]. 42. Valuer-General of New South Wales v Fivex Pty Ltd [2015] NSWCA 53; 206 LGERA 450 (Fivex) at [50] (Leeming JA, Basten and Gleeson JJA agreeing). 43. VL Act, s 29(1). 44. VL Act, s 29(3A). 45. VL Act, s 34(1)(a). 46. VL Act, s 35B(1). 47. VL Act, s 35C(2). 48. VL Act, s 37(1). 49. VL Act, s 40(2). 50. Primary Judgment at [5]. 51. Primary Judgment at [11]. 52. Primary Judgment at [31]-[34]. 53. Primary Judgment at [47]-[49]. 54. Primary Judgment at [73], [78]. 55. Primary Judgment at [77]. 56. Primary Judgment at [75]. 57. Primary Judgment at [62]. 58. Primary Judgment at [63]. 59. Primary Judgment at [64]. 60. Primary Judgment at [75]-[77]. 61. Primary Judgment at [65]. 62. Primary Judgment at [80]. 63. Primary Judgment at [86]-[87]. 64. Primary Judgment at [88]. 65. Primary Judgment at [92]. 66. Primary Judgment at [94]. 67. Primary Judgment at [95]. 68. Primary Judgment at [96]-[97]. 69. Primary Judgment at [100]-[102]. 70. VL Act, s 34(1)(a). 71. [1936] HCA 40; 55 CLR 499 at 505 (Dixon, Evatt and McTiernan JJ). 72. House v The King [1936] HCA 40; 55 CLR 499 at 505; see also Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332 at [68] (Hayne, Kiefel and Bell JJ). 73. Minister for Immigration and Citizenship v Li at [66]-[67], [85]. 74. Primary Judgment at [75]. 75. Primary Judgment at [63]-[64]. 76. Primary Judgment at [77]. 77. Fivex at [27]. 78. Maurici v Chief Commissioner of State Revenue [2003] HCA 8; 212 CLR 111 at [16] per curiam. In this passage the High Court speaks of "notionally" removing the improvements from the land. 79. Fivex at [11]-[12]. 80. Commonwealth Custodial Services Ltd v Valuer-General [2007] NSWCA 365; 156 LGERA 186 at [119] (Tobias JA, citing Barber v Valuer-General (1969) 17 LGRA 409 at 410 (Else-Mitchell J) and Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1979) 40 LGRA 353 at 361 (Ash J)). 81. Section 14G(1)(b1) of the VL Act was introduced to overcome the decision in Valuer-General v Commonwealth Custodial Services Ltd [2009] NSWCA 143; 74 NSWLR 700. 82. Fivex at [26]. 83. [2007] NSWCA 365; 156 LGERA 186 at [4]. 84. [2007] NSWCA 365 at [84] (Tobias JA, Spigelman CJ and Santow JA agreeing on this point). 85. Fivex at [48]; Valuer-General v Commonwealth Custodial Services Ltd [2009] NSWCA 143; 74 NSWLR 700 at [11] (McClellan CJ at CL, Hodgson and Tobias JJA agreeing). 86. Trust Company of Australia Ltd v Valuer-General [2007] NSWCA 181; 154 LGERA 437 at [32] (Campbell JA, Beazley and Ipp JJA agreeing). 87. Fivex at [13] (citing Valuer-General v In Adam Pty Ltd [2012] NSWCA 20; (2012) 211 LGERA 75 at [24] (Handley JA, Allsop P and Tobias AJA agreeing); [47]-[48]. 88. See Commonwealth Custodial Services v Valuer-General [2007] NSWCA 365 at [2]-[15] (Spigelman CJ, Santow JA agreeing). 89. [1925] AC 439 at 443 (Lord Dunedin); Valuer-General v Fenton Nominees Pty Ltd [1982] HCA 46; 150 CLR 160 at 165 per curiam. 90. [2007] NSWCA 365 at [118]. 91. [2007] NSWCA 365 at [125], [127]. 92. [2007] NSWCA 365 at [131]-[132]. 93. The methodology is reproduced in the Primary Judgment at [27]. 94. Primary Judgment at [44]. 95. Primary Judgment at [45]. 96. Fivex at [47]-[48]. 97. The Court considered it unnecessary to decide whether the additional cost of securing a development consent for a higher floor space ratio (and therefore a higher GFA) had to be taken into account: Fivex at [22]. 98. Primary Judgment at [101]; see above at [85]. Her Honour made this comment before amending the land value to take account of the Valuer-General's error in estimating the GFA. 99. [2013] NSWLEC 137; 94 ATR 431 (Storage Equities). 100. The legislation is A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). 101. Federal Commission of Taxation v MBI Properties Pty Ltd [2014] HCA 49; 254 CLR 376 (MBI Properties) at [3] per curiam. 102. Fivex at [53]. 103. GST Act, s 38-325. 104. GST Act, s 135-5; see MBI Properties at [12]-[14]. 105. GST Act, s 75. 106. Primary Judgment at [94]. 107. Primary Judgment at [97]. 108. L & E Court Act, s 57(2). 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. Decision last updated: 22 March 2016