Case: Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 ; (2008) 233 CLR 259
Outcome: applied
value is not a value arrived at by an ill informed market. The test was stated by Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 ; (2008) 233 CLR 259 at 276-277 [51] as: "Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property ( Spencer v The Commonwealth (1907) 5 CLR 418). In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value. Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments. As Isaacs J pointed out in Spencer v The Commonwealth ((1907) 5 CLR 418 at 441): 'We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property. (Emphasis added.)' The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property ." (final emphasis added) I am of opinion that prior to recent times the market was operating in an inefficient manner. Initially, the market was created and affected, in part, by the misleading and deceptive representations. These attributed to apartments in the resort an aura of being good, solid investments with the prospect of a guaranteed return for many years. After Mustara's collapse, a substantial number of sales occurred at higher price levels which have not been sustained since 2004. Even then, as Mr Dupont's analysis showed, from 2000 to 2004 the rise in sale prices for apartments in the resort was around 40% to 50%, while the rise of 84% in Wyong Shire for that period was substantially greater. Thus there was some, but not a full, appreciation that the value of an apartment in the resort was not as good as in the general area. But the subsequent drop of prices to levels generally materially below the original purchase prices off the plan, demonstrates that the market was not operating efficiently before this later time. Mr Dupont concluded that by March 2008 the value of apartments, based on the latest sales, had fallen to around 20% below their 2000 level while median apartment prices in Wyong Shire had increased 55% in the same period. I accept that evidence. I am satisfied that the present level of prices reflects the true value now of the apartments. The consequence is stark. The real value of the applicants' original investments in comparison to similar property in the surrounding area has decreased markedly over the eight or more years since they entered into their contracts to purchase. That decrease and its very different direction to the significant increase in value of immediately surrounding properties were not explained by any evidence. I discount the suggestion made to Mr Owers of a concern that some costly remedial work may be needed for the resort. There was no evidence of what that was or of any effect on the value of the apartments. No expert referred to it and I am not satisfied that, whatever the basis of the concern conveyed to Mr Owers was, it affords any explanation of this marked decrease in the market price of apartments in the resort. It is because this extraordinary reduction in prices for apartments in the resort has occurred but has not been otherwise explained on the evidence, that I reject Mr Tew's direct comparison approach between other sales of properties in the resort and the applicants' apartments as an appropriate way of valuing them at an earlier time than the present. Those earlier prices, while genuine market prices, did not reflect the true value of the apartments. I find that the market was not then operating as an efficient market: cf: Walker Corporation 233 CLR at 276-277 [51]. It may be that the purchasers who paid increased prices for apartments in the resort from the time of Mustara's demise till the current trend emerged were acting under a misconception that there was a real prospect of capital growth. But, even then those prices were generally significantly less than the increase in median prices in the immediate area. This is a sure indication that the values in the resort were affected by some factor outside ordinary market forces: i.e. by factors other than those bearing on the true value of the apartments. Significant (as opposed to normal market) capital growth was not a real possibility for these particular properties. They were in a resort with substantive restrictions on their use, either as a long-term residence for their owners or when let short term to other individuals. They had to be part of a resort complex if they were to be likely to earn any shorter term significant investment return. But the actual operations of the resort have been desultory compared to what was necessary in order to support a net return paid by a lessee over 10 years of 7% of the purchase price. I am satisfied, having considered the evidence for myself, that the true value of the apartments in the resort at the time each applicant purchased is better reflected by reference to the current and more recent sale prices. Since these are materially less than the purchase prices some seven to eight years later, I am satisfied that each of the applicants acquired on completion of their purchase an apartment which was worth less than what was paid for it. I prefer Mr Dupont's adoption of a capitalisation approach as opposed to Mr Tew's comparable sales approach. However, the methodology each valuer used and his reasoning process do not enable me to adopt either's ultimate valuation using their respective approaches. The market in 1999 and 2000 ascribed values to apartments in the resort that were distorted by the effect of the misrepresentations, including the earlier assurances by Landillo of guaranteed returns of 8%, then 7.5% (before Austcorp's involvement) and finally 7%p.a.