Expert determination clauses in contracts concerning land
A Victorian Supreme Court decision demonstrates the importance in the wording of expert determination clauses
In Adnow Pty Ltd (as trustee for the Adnow Pension Fund) v Greenwells Wollert Pty Ltd  VSC 153, The Supreme Court of Victoria recently considered the drafting of expert determination clauses in contracts concerning land, specifically, whether an expert had carried out an expert determination in accordance with the requirements of an option deed.
The case concerned an option to call for the transfer of land at a price to be negotiated under clause 5 of an Option Deed. In the event an agreement could not be reached by the parties, an independent valuer was to be jointly appointed.
Clause 5 of the Option Deed required, amongst other things, that the independent valuer’s valuation must:
- have regard to the Australia and New Zealand Valuation and Property Standards (Valuation Guidelines), published by the Australian Property Institute
- proceed on the assumption that a precinct structure plan (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.
Adnow argued that the valuation was invalid as it did not comply with clause 5 of the Option Deed. As a result, it sought a declaration from the court that the valuation be set aside.
Adnow relied largely on three substantive grounds in alleging that the valuation should be set aside. It submitted that the independent valuer:
- was required by clause 5.7 (c) to 'assume, consider and apply the content' of the Precinct Structure Plan and on that basis he had failed to assume that the Precinct Structure Plan had been approved by the Minister, in accordance with clause 5.7 (c)
- failed to carry out a valuation in marking his determination as required by clauses 5.5 and 5.7 by failing to specify the matters to which he had regard to, failing to identify comparable transactions on which he relied on and by not providing analysis or workings to show the basis of calculations
- failed to have regard to the Valuation Guidelines, in accordance with clause 5.7 (b) and to specify the matters to which he had regard in making his determination as required under cl 5.7 (d).
The Court considered what the parties should be presumed to have intended by the Option Deed, determined objectively and having regard to the context in which it was created. 
The court held that the appointment of the valuer was to break an impasse between the parties and that they had agreed in advance that his determination would be final and binding. While not expressly accounted for in the option agreement, by agreeing to appoint the valuer, the parties agreed that his determination would be final and binding.
It is clear that Courts are reluctant to interfere with final and binding determinations. If experts have complied with the contract terms, parties will generally be bound by the determination, even if it is wrong. The principle for this arises from the leading case of Legal & General Life of Australia Limited v A Hudson Pty Ltd (1985) 1 NSWLR 314 (Legal & General). Justice Judd referred to and applied the oft-quote dictum from this case where McHugh JA said in part that:
In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgement of the valuer. It is whether the valuation complies with the terms of the contract. 
Precinct Structure Plan
The court had to consider whether the obligation to assume ministerial approval of the Plan 'imposed an implied obligation on the valuer to have regard to all, or some part, of its content' or if the intention was only that the valuer should make the required assumption of approval. Adnow submitted that the construction of 5.7 (c) required the valuer to 'consider, and perhaps adopt estimated yields from the [Precinct Structure Plan] or at the very least to explain why he had not adopted those estimates'.
The Court held that the parties’ only objective intention was that the valuer should make an assumption that the Precinct Structure Plan had been approved by the Minister. His Honour was satisfied that he had done so, and that this was made clear within his report. However His Honour was not persuaded that the valuer was required to undertake his own hypothetical application of the Precinct Structure Plan to the site by reference to the particular yield estimates. As a result, he did not fail to comply with the contract between the parties
The court did not regard the valuer’s failure to expressly state that it had applied the Guidelines as a defect or omission vitiating the report as non-compliant with the contract terms. The valuer was a fellow of the Australian Property Institute, and was bound to apply the Guidelines.
The valuer adopted a direct comparison approach to his valuation. His reasoning in arriving at a value per hectare was based on comparable sales data which he had considered in his market analysis. Referring to Justice Croft’s statement in Challenger Property Asset Management Pty Ltd & Anor v Stonnington City Council & Valuer General Victoria  VSC 184, Justice Judd emphasised that valuation practice is principally an art rather than a science and noted the inevitability that different valuers of an identical property will often arrive at different conclusions. Justice Judd also noted the Courts 'have not adopted a prescriptive position with respect to valuation methodology' and further, that 'care should be taken to ensure no single process of reasoning is elevated into a statement of principle'.
The process of assessment undertaken by the valuer involved a disclosed methodology, disclosed data and an exercise of judgement to arrive at a value per hectare. Further, he applied a hypothetical development model as a means of confirming the accuracy of his valuation. Regardless of the absence of a more elaborate reduction of the sales data or more detail regarding the hypothetical development model, His Honour was not persuaded the valuer failed to apply or have regard to the Valuation Guidelines when arriving at that figure.
Failure to specify matters
The court held there was no reasonable requirement requiring the valuer to 'state the obvious'.
The valuer had complied with the terms contained within clause 5 of the Option Deed and the valuation was upheld. Adnow’s application was dismissed with costs.
Adnow has appealed the decision.
The case demonstrates the importance in the wording of expert determination clauses. Courts will determine the parties' intention objectively looking at the terms and language of the contract. Provided a valuation is carried out in accordance with the terms of the contract, it will be binding on the parties.
Greenwells was represented by David Laidlaw and Nicholas Sparks of Maddocks.
To view a full copy of Adnow Pty Ltd (as trustee for the Adnow Pension Fund) v Greenwells Wollert Pty Ltd  VSC 153, click here.
 The court applied the legal principle determined in AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd & VENCorp  VSCA 173 at .
 The court applied the legal principle determined in Legal & General Life of Australia limited v A Hudson Pty Ltd (1985) 1 NSWLR 314.
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