Leases, Contracts and Expert Determination Clauses – Why You Need a Lawyer to Review Your Documents!

The Supreme Court of Victoria as recently considered expert determination clauses in leases and other contracts concerning land.

These reasonably standard clauses cover things like the possibility of dispute between the parties about the important things ie. rent payable under a lease, or the value of land under an option agreement, and appoint an independent valuer to resolve issues by making an unbiased assessment. The key lesson we can learn from this case is that expert determination clauses must be worded to ensure the expert is bound to comply with both parties’ requirements.

The case considered by the Supreme Court, Adnow Pty Ltd (as trustee for the Adnow Pension Fund) v Greenwells Wollert Pty Ltd [2016] VSC 153 (as trustee for the Adnow Pension Fund) involved an option to call for the transfer of land at a price to be determined under cl 5 of the Option Deed – and in the event agreement could not be reached, price was to be determined by an independent valuer. “Independent valuer” was defined to mean a certified practicing valuer approved by both parties, and failing agreement was to be nominated by the president of the Australian Property Institute. The parties could not agree on a valuer and an independent valuer was appointed for them.

Clause 5.7 of the deed stated the valuation must:

  • Be in writing;
  • Have regard to the valuation guidelines (the Australian and New Zealand Valuation and Property Standards published by the Australian Institute);
  • Proceed on the assumption that a Precinct Structure Plan affecting the property had been approved by the Minister for Planning;
  • Specify the matters to which the independent valuer had regard in making the determination; and
  • Be provided within one month of his or her appointment.

Adnow argued the valuation should be set aside as:

  • The valuer failed to assess that the Wollert Precinct Structure Plan had been approved by the minister – and failed to assess the content of that plan, contrary to cl 5.7(c);
  • Contrary to clauses 5.5 and 5.7, the independent valuer failed to carry out a valuation in making his determination – he failed to specify which matters he had regarded, to identify comparable transactions he relied on, and there was no analysis or workings to show the basis for his calculations; and
  • The valuer failed to have regard to the Valuation Guidelines in cl 5.7(b) – the Australian and New Zealand Valuation and Property Standards published by the Australian Property Institute – particularly those found in Part 8.1 (valuation procedures), and Part 11.5 (feasibility studies).

So, the question the court asked was what was intended by the parties having regard to the circumstances in which it was created?

The court referred to other authorities which may shed some light:

  • McHugh JA in Legal & General Life of Australia Ltd v A Hudson Pty Ltd noted the question on whether a valuation is binding upon the parties depends on the terms of the contract – express or implied. The terms of the contract usually provide that the decision of the valuer is final and binding on the parties, the parties rely on the valuers’ skill and judgment, and agree to be bound by his decision. That valuation can stand even if made negligently. The question is not whether there is an error in the discretionary judgment of the valuer, it is whether the valuation complies with the terms of the contract.
  • In Challenger Property Asset Management Pty Ltd v Stonnington City Council & Anor, Croft J observed that depending on the particular circumstances, different methods of valuation may be appropriate, and that the Courts have not adopted a prescriptive position with respect to valuation methodology.
  • The Full Court in Karenlee Nominees Pty Ltd v Gollin & Co Ltd observed the valuation of land and buildings involves a matter of judgment, and that there is no scientific exactitude in the valuation of land and buildings.

In Adnow, the Court found the express terms of the contract required the valuer to perform his work in a particular way, and by their agreement to appoint the valuer, the parties had agreed that his determination would be final and binding. The valuer was required to make an assumption as to ministerial approval, but was not expressly directed to have regard to any particular part of the plan or data contained therein. Adnow argued there was an implied obligation on the valuer to either to consider or otherwise explain why he had not adopted Plan estimates, but the Court found these requirements were not specifically expressed in the contract.

The Court dismissed Adnow’s application with costs, the valuation was held to be valid and binding. His Honour Justice Judd did not regard the valuers’ failure to undertake his own calculations by reference to estimated yields found in the Plan meant his report failed to comply with the contract between the parties. He noted that the occasion for Adnow to raise any question concerning the interpretation and application of any part of the Plan, including a calculation of yield, was in submissions to the valuer, not in Court.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published May 15, 2016

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