Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39

December 4, 2018

SUPREME COURT OF QUEENSLAND

PARTIES:

MANGO BOULEVARD PTY LTD AS TRUSTEE FOR THE MANGO BOULEVARD UNIT TRUST (ACN 101 544 601) (Appellant)

MIO ART PTY LTD AS TRUSTEE FOR THE SPENCER FAMILY TRUST (ACN 121 010 875) (Respondent)

ROBERT WILLIAM WHITTON AS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF SILVANA PEROVICH (Respondent)

FILE NO/S:

Appeal No 6003 of 2017
SC No 9991 of 2016
SC No 1383 of 2017

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane – [2017] QSC 87 (Jackson J)

DELIVERED ON: 20 March 2018

DELIVERED AT: Brisbane

HEARING DATE: 27 September 2017

JUDGES: Fraser and Morrison and McMurdo JJA

ORDERS:

The appeal is dismissed
The appellant is to pay the respondent’s costs of the appeal, to be assessed on the standard basis

CATCHWORDS:

ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where there was a dispute between the two sides of a joint venture for the development of land – where the joint venture was formed pursuant to a Share Sale Agreement (SSA) – where the SSA contained a formula by which the price for shares was to be fixed according to the value of the land – where the arbitrator found that the value of the land ought to be calculated as the SSA provided but also with real life market considerations in mind – where the appellant alleged this finding had not been sought by the parties – where the arbitrator used that finding as a basis for rejecting the evidence of three of the appellant’s expert witnesses – whether the arbitrator afforded the appellant a reasonable opportunity to respond to or answer the arbitrator’s use of that finding

ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where it was contended that the arbitrator’s reasoning was based upon a finding notwithstanding that it was not a basis pleaded or argued by the respondents – where it was submitted that the arbitrator’s introduction of his own methodological approach to value involved a fundamental departure from the requirements of procedural fairness – whether the award was in conflict with the public policy of the State

FRASER JA: I have had the advantage of reading the reasons of Morrison JA and McMurdo JA. For the reasons given by McMurdo JA, I too agree with the orders proposed by Morrison JA.
MORRISON JA: The appellant (Mango Boulevard) and the respondent (Mio Art) were parties to a Share Sale Agreement under which an Arbitrator was appointed. The Arbitrator made Part 1 of his Award on 29 June 2016 and Part 2 on 8 December 2016. The question of costs has not yet been decided.
Mango Boulevard applied to set aside both Parts of the Arbitrator’s award. In general terms the basis for the application was that the Arbitrator failed to accord procedural fairness or acted in breach of the rules of natural justice in a number of respects, which constituted grounds for finding that Mango Boulevard was unable to present its case, or the award is in conflict with the public policy of this State.
That application was dismissed by the learned primary judge. Mango Boulevard has appealed that decision.
The grounds of appeal concern more limited questions than were raised before the learned primary judge. They are that:

(a)          the learned primary judge erred in not finding that the Arbitrator had conducted or resolved the arbitration in a manner that caused real unfairness or real practical injustice to the appellant in circumstances where:

(i)          the Arbitrator had made a finding that had not been sought by any of the parties to the arbitration to the effect that “prudent or rational developers would not buy such a Property [being the property the subject of the arbitration] unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it)”;

(ii)         that finding by the Arbitrator was based on evidence elicited orally by the Arbitrator from expert witnesses where:

(A)     that evidence was said by the Arbitrator to be relevant to the possible valuation of the property on the basis of en-globo land sales:

(B)     the appellant submitted that en-globo land sales were irrelevant;

(C)     the Arbitrator ultimately accepted the appellant’s submission that en-globo land sales were irrelevant subject to two qualifications that are not relevant;

(iii)        the Arbitrator used the finding described in paragraph (a)(i) as part of his reasoning for deciding the inputs into the calculation of value that was the question for determination in the arbitration, notwithstanding that this was not a basis pleaded or argued by the respondents;

(iv)         the Arbitrator used that finding as a basis for rejecting the evidence of three of the appellant’s expert witnesses as to the necessary inputs notwithstanding that:

(A)     this was not a basis for rejecting those experts’ evidence contended for by the respondents;

(B)     the finding, or the possible finding, or an implication of the finding for the expert’s opinion, was not put by the Arbitrator or the respondent to any of those experts when they gave evidence;

(C)     the Arbitrator did not raise the finding or possible finding with the appellant as relevant to whether the appellants’ experts should be accepted on the relevant inputs during or before the hearing of evidence;

(v)          the Arbitrator did not afford the appellant a reasonable opportunity to respond to or answer the Arbitrator’s use of that finding as the basis for:

(A)     deciding the inputs into the calculation of value;

(B)     rejecting the evidence of three of the appellant’s expert witnesses as to the necessary inputs;

(vi)         a substantial reason of the Arbitrator for rejecting the evidence of Mr Cox, an expert witness for the appellant, was that Mr Cox had not taken into account the application of the expectation of a prudent or reasonable developer of a 30 per cent or more profit on cost to the “real cost base” (which the Arbitrator never quantified) notwithstanding that:

(A)     the respondents did not raise the point with Mr Cox when Mr Cox gave evidence;

(B)     the Arbitrator did not raise the point with Mr Cox when Mr Cox gave evidence;

(C)     the Arbitrator did not raise the point with appellant when Mr Cox gave evidence or at any time during or before the hearing of evidence;

(b)          on the basis of the error in ground (a), the learned primary judge erred in not finding that the arbitral awards delivered by the Arbitrator on 29 June 2016 and 8 December 2016 should be set aside pursuant to ss 34(2)(a)(ii), 34(2)(a)(iv) or 34(2)(b) of the Commercial Arbitration Act 2013 (Qld).
For reasons which follow I would dismiss the appeal.
Background and approach of the learned primary judge
The Share Sale Agreement provided for the valuation methodology in cl 4.1, cl 4.3 and cl 4.4, which relevantly provided:

“4.1         The purchase price of the Shares shall be calculated as the greater of:

(a)          the difference between the purchase price of the Property set out in the Contract and the improved market value of the Property immediately after the Effective Date less $2,000,000.00; or

(b)          $5,000,000.00; …

4.3          For the purpose of clause 4.1(a), the valuation of the Property shall be a market valuation. …

4.4          The Valuer shall value the Property on the assumptions that:

(a)          Development Permits have been issued in respect of the whole Property which authorise the development of the Property on substantially similar terms to the terms of the Preliminary Approval, including substantially similar:

(i)      MCU;

(ii)     density per hectare;

(iii)     yield; and

(iv)     conditions;

(b)          the Project would achieve a Profit on Cost Percentage return of 25% (“Valuation”).

4.5          The cost of the Valuation shall be borne by Mango Boulevard.”
Clause 8.3 then provided that the Arbitrator “… in reaching a decision as to the value of the Property, must adopt the same methodology as provided in clause 4.4”.
Thus, cl 4.4 provided that in ascertaining the “improved market value of the Property immediately after the Effective Date” under cl 4.1, and the “market valuation” of the Property under cl 4.3, the Arbitrator was required to make the agreed assumptions, particularly that the Project would achieve a Profit on Cost percentage return of 25 per cent.
The Arbitrator found that the methodology to be applied was a variant of the residual value method, in accordance with the decision of PD McMurdo J in Mio Art Pty Ltd v Mango Boulevard Pty Ltd (No 2) and the Court of Appeal in Mango Boulevard Pty Ltd v Mio Art Pty Ltd. The essential aspect of that finding is in paras [103]-[104] of Part 1 of the Award, as follows:

“[103] Real life market considerations, that is, commercial reality, has another role to play in the making of the market valuation under the SSA. If the adoption of the selected amounts in respect of an item or items of cost and the financial return on them produces an improbable and counter-intuitive commercial result on the known indisputable facts, for example that the Respondent actually paid $22,000,000 for the Property and incurred other substantial expenses in respect of it before the Effective Date, and that competent and prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it), then there will be reason to question, and it would be in conformity with the contractual requirement of a market valuation, that there be at least a serious questioning and scrutiny of those inputs and income on them. In other words, a market valuation requires more than a simple acceptance of a computer generated number on the basis of one only highly contestable set of costs and income.

[104] In substance then I accept that the residual cash flow method, or the variant of it for which the SSA provides, is the method of valuation which must be adopted here. But that method certainly does not preclude, indeed the requirement of a market valuation requires, a testing on the bases of various sensitivities, of the result for which the parties contend, and, if found improbable by reference to the market, a revisiting and testing of the inputs and outputs producing that improbability. That is not to ignore the ultimate requirement of a profit of 25% on the assumptions required to be made. It is simply to measure against the evidence, all relevant market considerations operating on the Effective Date, including expectations and requirements of profit then.”
Before the learned primary judge, Mango Boulevard contended that the Arbitrator had thereby departed from the methodology stipulated under the Share Sale Agreement. That contention was rejected, the learned primary judge finding that the Arbitrator did not abandon the residual value method, but was not obliged to approach the question of value with his eyes closed as to the effect of the margin of profit and risk upon the value:

“[76] … my own view substantially accords with his view, that it is inevitable that a commercially aware person approaching the question of value through a residual value method of analysis must assess the reliability of the inputs and outputs of such a model with an eye to the hurdle or target rate of profit and risk. That the SSA requires a profit on cost percentage return of 25 percent to be deployed in ascertaining value for the contractual price formula does not necessarily prohibit the valuer or the arbitrator from any awareness of the likely parameters in arriving at the otherwise market driven components of the calculation.

[77] The effect of the arbitrator’s approach was that he accepted that when it came time to calculate value in accordance with the contractual price formula and methodology he was required to deploy 25 percent as the agreed rate for the “Profit on Cost percentage return”, using the contractual definitions, but up until that point he was not required to distort the inputs for the calculation of value if that would not have been the rate of profit on cost in an on market transaction.”
Ultimately the learned primary judge held that even if the Arbitrator had been wrong in law to take the approach he did, that was not an excess of jurisdiction that would engage the Commercial Arbitration Act 2013 (Qld).
Those findings and conclusion are not challenged on this appeal.
As the learned primary judge pointed out in respect of the point agitated on the appeal, Mango Boulevard’s submissions centred on the Arbitrator’s reasoning as exposed in the following passages of Part 1 of the Award:

“Real life market considerations, that is, commercial reality, has another role to play in the making of the market valuation under the SSA. If the adoption of the selected amounts in respect of an item or items of cost and the financial return on them produces an improbable and counter-intuitive commercial result on the known indisputable facts, for example that the Respondent actually paid $22,000,000 for the Property and incurred other substantial expenses in respect of it before the Effective Date, and that competent and prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it), then there will be reason to question, and it would be in conformity with the contractual requirement of a market valuation, that there be at least a serious questioning and scrutiny of those inputs and income on them. In other words, a market valuation requires more than a simple acceptance of a computer generated number on the basis of one only highly contestable set of costs and income.”

and

“Good valuation practice, in my opinion, also required that when the result as deduced by Mr Cox, as I hold it to be, was counter-intuitive and improbable, the valuation (and the opinions of the experts upon which the valuer depends) need to be revisited and questioned. Mr Cox did not do that. As Mr Davis agreed, “any prudent investor never makes an investment on the bases of one calculation. There would be multiple sensitivities normally” [my emphasis]. I thought Mr Cox on occasions in cross-examination rather argumentative than entirely responsive. The point is not that the Respondent’s figures did not show a profit of 25% upon the basis of the somewhat artificial method of valuation required by the SSA. Rather, the point is that, a prudent developer and purchaser would not have entered into a contract for the purchase of the Property at the time of the SSA and afterwards as I find, unless it could develop it and sell it for a profit on all of its costs (including, of course, the purchase price, holding charges, duties, opportunity costs and experts fees) of 30% or more. On the Respondent’s inputs and outputs, even ignoring the real and ascertainable costs, a profit of that nature was not remotely possible.”
The Arbitrator utilised that line of reasoning in his assessment of the evidence of various witnesses, but principally that of Mango Boulevard’s valuer, Mr Cox. That assessment is reflected in the following passages of Part 1 of the Award:

“In my opinion, informed people in the market would not have done, and acted upon the, as I find, unconvincing calculations that Mr Ovenden, Mr Cox, and to some extent Mr Thomas, now make about density, yield, and demand. There is a further reason why I reject the results and the components of those results. It is that their numbers, quantities and prices would produce an implausible, a non-market result having regard to two realities: the prudent investor/developer would be looking for a profit of more than 30%, indeed up to 45%; and the Respondent’s case, based upon its experts’ calculations cannot produce a profit of anything remotely of that order on its actual minimum expenditure of $22,000,000 plus holding and other substantial costs incurred before the Effective Date. Much of this was clear before the Respondent closed its case.”

and

“A further reason why I do not accept a deal of Mr Cox’s evidence, and his conclusion on value, is his inattention to, and ultimate failure to question how it could be, adopting the yields, outputs and inputs that he did, and on the generally indisputable facts that the Respondent:

(i)          provided $22,000,000 for, and in respect of, the purchase of the land in August 2004;

(ii)         had holding (e.g. rates and land tax) and opportunity costs on it from then until the Effective Date;

(iii)        engaged and paid undisclosed but further substantial sums to professionals and consultants (lobbyists included) to prove up its potential, and to obtain development approval for the Property;

(iv)         was not proved or claimed to be either an imprudent or inexperienced purchaser/developer and contractor, indeed was as the Respondent’s Counsel properly accepted, a “rational” developer;

(v)          as such would ordinarily look for a profit of more than (as I find) 30%;

that the Project would not yield a profit of anything like that percentage. (Mr Davis calculated the profit on the inputs and income of which he was instructed at only about 17%.)”
The learned primary judge referred to Mango Boulevard’s contentions that in circumstances where Mio Art did not raise the point, the Arbitrator did not raise it with Mr Cox, nor with Counsel for Mango Boulevard. His Honour accepted that in court proceedings it might be expected that a point of such significance in rejecting a valuer’s evidence would be raised with the valuer, and with the party relying on that valuer’s evidence. His Honour pointed out that whilst the arbitration was conducted in many ways like commercial litigation, it was not a court proceeding.
His Honour relied upon Trustees of Rotoaira Forest Trust v Attorney-General, a decision under the analogue legislation in New Zealand. The issue there was the scope of the cases as presented to the arbitrator, rather than fairness to a witness, the contention being that the arbitrators had adopted their own model of valuation in breach of natural justice. In particular his Honour relied upon what Fisher J said:

“… an arbitrator is not bound to slavishly adopt the position advocated by one party or the other. It will usually be no cause for surprise that arbitrators make their own assessments of evidentiary weight and credibility, pick and choose between different aspects of an expert’s evidence, reshuffle the way in which different concepts have been combined, make their own value judgments between the extremes presented, and exercise reasonable latitude in drawing their own conclusions from the material presented.”

The learned primary judge accepted that Mr Cox should have been asked to comment upon why he failed to consider whether his results were implausible against a general market expected return of 30 per cent, and whether that failure undermined his conclusions. Further, that the failure to ask him was a breach of natural justice, if counsel for Mio Art failed to do so.
However, observing that those questions were merely two of many factors articulated by the Arbitrator for rejecting Mr Cox’s evidence, his Honour was not persuaded that the error amounted to or caused real practical injustice to Mango Boulevard, such as to form the basis of a review on an application to set aside the award under s 34 of the Commercial Arbitration Act2013 (Qld). In so finding his Honour relied upon a passage by Neazor J in Burne v Young:

“The question comes down to whether the arbitrator, whose function is to hear and decide, has any obligation to say to a witness words to the effect ‘this is the conclusion I presently expect to draw from what you have said; do you want to say more about the point?’ If there was such an obligation litigation of any kind would be likely to be prolonged, and the decision maker would at least appear to be drawn into the arena by ensuring that the limit of every witness’ knowledge of the matter had been defined.”
His Honour’s reference to real practical injustice was an evident reference to what was said by the Full Federal Court in TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd, and adopted in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd, namely that an arbitral award will not be set aside under s 34:

“unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness. The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition.”

Submissions

Mango Boulevard submissions
For Mango Boulevard, Mr D Kelly QC, appearing with Mr Hodge, submitted that the learned primary judge fell into error by not setting aside the award for denial of procedural fairness. The substance of that contention was:

(a)          the Arbitrator adopted a chain of reasoning which was premised on an issue which had not been raised by any party in their pleadings, expert reports, cross examination or written and oral submissions;

(b)          this issue was variously described by the Arbitrator (who was not himself an expert) as one involving “prudent valuation practice” and “good valuation practice”;

(c)          the Arbitrator reasoned that: (i) “prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it)”; and (ii) therefore, the inputs determined by reference to the opinions of the experts ought to be capable of producing a 30 per cent to 45 per cent profit on all costs;

(d)          that issue was relied upon by the Arbitrator as a substantial reason for rejecting, not just the evidence of Mango Boulevard’s valuer (Mr Cox), but also the evidence of the town planner (Mr Ovenden) and engineer (Mr Thomas); however it was not put to any of those experts;

(e)          the learned primary judge limited his consideration of the Arbitrator’s chain of reasoning to but one aspect of Mango Boulevard’s complaints, which was that the Arbitrator, despite finding that Mr Cox should have applied the Arbitrator’s concept of prudent valuation practice and “good valuation practice”, had never raised this issue with Mr Cox;

(f)          the learned primary judge relevantly found that “the sting of the Arbitrator’s reasoning … was that Mr Cox should have taken something into account, but did not did [sic] so, and that reasoning was taken into account in a substantial way in rejecting his evidence”; that substantial reliance was sufficient, in itself, to demonstrate real practical injustice;

(g)          the learned primary judge correctly observed that “This is a finding of a serious kind against a professional person who is instructed to prepare his report and to give evidence as an expert … An expert witness should be given an opportunity to answer a criticism that they have not done so;”

(h)          the learned primary judge concluded that despite it being “… at least arguable that the failure to [give that opportunity] was a breach of the rules of natural justice”, he was “left unpersuaded that the posited error amounted to or caused real practical injustice” to Mango Boulevard; and

(i)          it should have been held that the Arbitrator failed to provide a fair hearing.
Mango Boulevard relied upon s 34(2)(a)(ii) and s 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld) which materially provided:

“(2)         An arbitral award may be set aside by the Court only if –

(a)          the party making the application furnishes proof that –

…

(ii)     the party making the application … was otherwise unable to present the party’s case; or

…

(b)          the Court finds that –

…

(ii)     the award is in conflict with the public policy of this State.”
It was submitted that natural justice and procedural fairness arise under both limbs, and a breach of the rules of natural justice is one that causes real practical injustice. In this context it is not necessary to prove that there would have been a different outcome had the hearing been fair. It is sufficient to show that the denial of procedural fairness deprived Mango Boulevard of the possibility of a successful outcome.
Further, it is well accepted in the context of arbitrations that a party is denied a reasonable opportunity of presenting its case where the Arbitrator introduces a new idea of his own on which the parties have not been able to comment or adduce evidence. If the Arbitrator intended to raise and rely upon his own issue, he was obliged to fairly reveal the issue so that the parties could, as a minimum requirement of procedural fairness, be given a full opportunity to understand, test and rebut the issue. The obligation on the Arbitrator is to provide a fair opportunity to address his arguments on all of the essential building blocks in his conclusion.
Real unfairness or practical prejudice was submitted to be evident from a number of features, including:

(a)          the finding at para [103] of the award was not sought by the parties;

(b)          the finding was based on evidence elicited in response to questions as to the en-globo valuation method, which was found to be irrelevant;

(c)          the finding was not the subject of pleadings, nor considered by the experts in the context of the residual value method, nor the subject of submissions;

(d)          the finding was used as a basis for rejecting the evidence of the experts, even though that was not sought by Mio Art; no experts addressed the method of valuation or analysis in the finding; and

(e)          Mango Boulevard was not given a proper opportunity to address the proposed use of the finding.

Mio Art submissions
For Mio Art, Mr Douglas QC, appearing with Mr D Keane and Mr Colditz of Counsel, submitted that there was no failure to provide procedural fairness, but even if there was, it was not enough to set aside the award. There was evidence, particularly elicited by the Arbitrator, as to the margin for profits and risk that a prudent developer would have required in transactions of the nature in question in 2007. The Arbitrator raised these matters with the parties and in particular Senior Counsel for Mango Boulevard. In particular, it was submitted that the evidence, as set out in [91] of the Judgment, makes it clear that the issue of what percentage return a prudent developer would be looking for in the market, as it existed in 2007, was a matter which was raised by the Arbitrator with the valuation experts for both parties, including Mr Cox and counsel.
It was further submitted that Mr Cox did not purport to give valuation evidence as to what the expectations of prudent developers were when purchasing en-globo blocks of land of the nature in question in these proceedings. His analysis was a comparable sales analysis of subdivided blocks of land based upon surrounding properties. When confronted with the Arbitrator’s views on using market expectations as a basis of checking the calculation performed pursuant to the contractual formula, Senior Counsel for Mango Boulevard relied upon Mr Cox’s answers which evidenced the limited nature of the evidence he gave. In light of the Arbitrator’s interest in the point Mango Boulevard could not just ignore it. They could have sought to obtain leave to call further evidence on the subject from a valuer, but no such application was made.
Further, the Arbitrator’s rejection of the evidence of Messrs Ovenden, Cox and Thomas was based upon the fact that the calculations which they had made in relation to density yield and demand were unconvincing.
It was submitted that the Arbitrator concluded that calculations based upon Mango Boulevard’s density yield and demand figures (which meant that the land was worth approximately $12 million and which was significantly less than what was paid for it in 2003) were flawed, and based upon yields which were not in accordance with the relevant planning instruments. His reference to the fact that a prudent investor/developer would be looking for a profit of 30 per cent to 45 per cent, and the fact that Mango Boulevard’s figures could not produce a profit of that order on its minimum expenditure of $22 million plus holding and other substantial costs, was used by the Arbitrator as a further reason as to why he was correct in his conclusions that the figures which had been used for the calculations by Mango Boulevard’s experts were not commercially realistic.
There was no reason to interfere with the findings of the learned primary judge. There was no real unfairness or practical injustice. The fact that the critical finding was not sought by any of the parties is irrelevant as the Arbitrator was entitled to take his own course. The Arbitrator’s questions and findings were not limited to the en-globo valuation method, and he was entitled to compare the ultimate result of the calculations by Mango Boulevard’s experts with commercial reality. It was irrelevant that the Arbitrator did not raise with the experts the use he intended to make of the answers he obtained. The issue itself was raised with the experts and the parties during the hearing.
Discussion
Notwithstanding the various ways in which Mango Boulevard’s contentions were put, they came down to this: the Arbitrator relied upon a view as to the impact upon the testing of the inputs in the valuation process by reference to what an expected market return would be, unimpeded by the Share Sale Agreement; that view was not pleaded, not put by Mio Art and not raised with Mr Cox; therefore there was a denial of natural justice.
In order to properly consider the points raised it is necessary to make a relatively close assessment of the course of the arbitration, and in particular those parts where it might be suggested that the point should have been raised but was not, or alternatively where it was mentioned. For that purpose it can be accepted that the point was not pleaded, and was raised by the arbitrator.
Question raised by the Arbitrator
The expert valuers gave evidence on 23 and 24 April 2015. On 23 April, Mr Robertson was in the course of his cross-examination when he was asked whether he had taken the 25 per cent return into account in using the comparable sales method. He responded:

“MR ROBERTSON: I’ve assumed that … a purchaser of that land is going to be paying a bit more, because it’s below commercial rate for a return and so … they would be able to pay a little bit more than what strictly a developer looking at a, say, 45 per cent return would pay for that land.”
Asked to explain what he meant, Mr Robertson said:

“MR ROBERTSON: Well, if the comparable sales are such that you … come to X amount, and then you come to an amount that you think that the person who’s looking for 25 per cent return will pay. And then, if you like, if you want to find the commercial rate you would then deduct a further amount – another percentage – that would reflect … what a normal person in commercial conditions, not taking into account the 25 per cent would pay.”
Mr Robertson was pressed to explain further, using a hypothetical example of an arms’ length market purchase at $100 million:

“MR ROBERTSON: Okay. So they’re looking at about a 45 per cent return. … normal developers look for between 40 and 50 per cent for a project of this size. So … you would think that that’s what they’ve paid for – based on that. They would pay a little bit more if they were only looking for 25 per cent.

MR CALLINAN: So you’re saying that the market would want a 40 per cent, so that 100 million … would enable the purchaser, after developing the property, to make 40 per cent. Is that what you’re saying?

MR ROBERTSON: That’s assuming that he has bought it on that basis of … if he wants to get 40 per cent return. This was a normal market transaction and he’s expecting a 40 per cent return, he … he’s paying $100 million. But … if you’re hypothesising that this developer only wants 25 per cent, he obviously can pay more for the land …”
The following day the Arbitrator posed a question as to the return that developers were seeking in 2007. Given what had been said by Mr Robertson the day before it may be fairly assumed that the Arbitrator’s question was prompted by his evidence. The question was in these terms:

“Mr Robertson, this gentlemen … may only be relevant if the in globo (sic) comparable sales are relevant, and they’re asked subject to that question being determined, but was there within … the business of buying and developing land, in particular residential land in large areas – a generally accepted profit component for which participants would look? I mean, here the contract requires a 25 per cent profit factor, but was there a standard profit that developers were looking for? And what was the competition in the business at the time? … For example, if there are a lot of competition for large parcels of residential land, one might expect that developers might be content with a lower profit margin. I don’t know. In about January 2007, do you know what developers were looking for? … no doubt it would depend upon different developers and access to finance and all sorts of things, but …”
The transcript at that point suggests that there may have been thought to be an objection to the question from Senior Counsel for Mango Boulevard but it was immediately made clear that there was no objection, and that was confirmed shortly thereafter.
Mr Roberston responded: “… and it also varied with the size, what type of project it was”. He then agreed that the profit also varied with the capacity of the particular purchaser, and continued: “…. your basic hundred lot-type subdivision, something like that, or 120 lot, is looking at about 25 per cent return, and then if you’re looking for, say, a 10-year project like this one, you’re looking at … 45 per cent – looking at somewhere in that area.”
The Arbitrator asked for clarification in respect of sales about 35 hectares (of which there were some) and Mr Robertson responded: “35 hectares is still a significant-size development, and they would be looking at 35 to 40.”
Re-examination by Senior Counsel for Mio Art then proceeded with a question directed at the price that might be paid for the land, depending on the desired profit. The example used was based on paying $14 million where the profit was 45 per cent, and Mr Robertson accepted the Arbitrator’s point that “more could be paid if the profit was only 25%”.
Mr Cox was then called. His adopted method of valuation was based on the residual cash flow method, which he said was dictated by the share sale agreement. Once his evidence in chief was completed the Arbitrator asked him a question similar to that asked of Mr Robertson:

“MR CALLINAN: Yes. Now, can you tell me this, and it may very well vary, but in about, say, January 2007 do you have any knowledge or feeling from your expertise for what the profit expectations were of substantial in globo developers?

MR COX: Yes, … the standard size developed were below 25 per cent, say 20 per cent. And as the developments became larger, approaching the size of the subject, … that profit margin increased because of the increased risk. And … I couldn’t give you a precise figure, I couldn’t. But 45 sounds a lot to me, 45 per cent.

MR CALLINAN: But it would be more than 25. Is that right?

MR COX: I suspect it would be, yes.

MR CALLINAN: Well, I thought that’s what you just said, that the market would have been looking for more than 25 … having regard to the site. Tell me if I’m wrong.

MR COX: No, I’m – I agree. That’s the way I see it. Yes.”
Mr Cox accepted that the application of the formula in the Share Sale Agreement produced a negative value for the land, which as he agreed, could not be right as a matter of reality. The passage is important in my view because of what was asked and the response:

“MR CALLINAN: Well, you’ve reached, in effect, applying the 25 per cent formula, a negative value for the land.

MR COX: Yes, yes.

MR CALLINAN: And you say, and I understand that, that it’s dictated by the formula. But we know that as at January 2007 this land improved … by the planning permit.

MR COX: Yes.

MR CALLINAN: It did have a value.

MR COX: Yes.

MR CALLINAN: Nobody is going to give it away.

MR COX: Yes, yes.

MR CALLINAN: Or say, “Look, you can have my land if you get – if you – – – ”

MR COX: I understand. Everything has got a value and nothing has got a negative value.

MR CALLINAN: I mean, but it just … as a matter of reality, that can’t be right.

MR COX: Yes. No, it’s – as I’ve said there, it’s hypothetical. It’s theoretical. Yes.

MR CALLINAN: I know, I know. Well, does that give you concern for the validity – I mean, I – I’m not pointing to any apparent errors or anything like that, but doesn’t that make you question … what you’ve employed in reaching your result? We know, in fact, that a developer would pay something for the land.

MR COX: I was not requested to do that – – –

MR CALLINAN: No, I know weren’t asked to do that. I know that. I know that.

MR COX: So I – as I say, I came to a revenue, being the top line, and I’m very confident with that figure.

MR CALLINAN: I understand your methodology.

MR COX: So someone else then applied the model, and out of that model came a negative value. And I believe it’s a function of the – – –

MR CALLINAN: Formula – contractual formula.

MR COX: But the construction and development costs with so much expense of earth moving and earth works – and a lot of that land on the northern side was low lying adjacent to Hays Inlet and – there’s a creek there, Saltwater Creek. So that involved costs that are greater than the average cost per lot for a subdivision. And I think that probably, in the model, was one of the large contributors to bringing the value down.

The Arbitrator returned to the question of the return that might be sought by developers, in the course of which Senior Counsel for Mango Boulevard made it clear that there was no objection to the question being explored, that “on one view, it’s relevant”, and that he would “make submissions later about its irrelevance”:

“MR CALLINAN: Well, I suppose if, in fact, as you say, the method dictated by the contract is only a check method – or is a secondary method, a check method … in the real world of the marketplace, … what do you think would be an appropriate – if you were … unconstrained by the contract, an appropriate profit to compare it, that a developer would be looking for buying this land in January 2007? And I understand there will be argument about this, Mr Sofronoff, … do you object to the question?

MR SOFRONOFF: I don’t object to information coming out. I can make submissions later about its irrelevance but – so, please – – –

MR CALLINAN: Thank you. All right.

MR SOFRONOFF: And on one view, it’s relevant to – – –

MR CALLINAN: Yes, quite, quite. I mean, I’ve got no view about it. … at the end of the day, I’ve got to decide what the proper valuation is … in accordance with the contract. But it will be no secret I’m struggling with that at the moment, Mr Cox. But do you have a view about what a smart developer or a prudent developer would do – would be looking for? Or do they, in practice, not look for that and they just use a kind of an intuitive judgment?

MR COX: I’m reluctant to make a pronouncement as to value or rates or discount unless I have thoroughly researched the market … or my findings are market-based. Now, I haven’t got the luxury of being able to tell you, and give evidence to you why my opinion to – to answer your question as such. I can only say I have never heard of 45 per cent before. It’s a huge amount. I think it would be more than the 25 per cent because this was a major lengthy project with a lot of outlays having to be thrown at it. And all that reflects risk, and up goes that profit factor. So it would be – I would – intuitively I say it’s around 30, 35 per cent, but I wouldn’t commit myself to that unless I had evidence of that.”

Hearing 11 August 2015
The parties served their written submissions in 2015, Mio Art on 19 May and Mango Boulevard on 23 June. As the arbitration approached the point of addresses the Arbitrator convened a directions hearing on 11 August 2015. The transcript reveals the Arbitrator raising various issues for the parties to address subsequently, covering about 14 topics. The further hearing was adjourned to September, for addresses.
Hearing 1 September 2015
On 1 September 2015, oral submissions commenced. It is evident from the transcript that considerable time was spent debating the nature and scope of the Arbitrator’s task in conducting the valuation.
The submissions also turned to some sensitivities that had been produced by Korda Mentha on behalf of Mango Boulevard, largely because the Arbitrator had previously intimated that they might be of assistance. As to those sensitivities the Arbitrator posed a question as to whether he could use them to test the veracity of the experts’ inputs and outputs, or, as the Arbitrator put it, “the improbability that all of your figures are right”:

“If I were to form the view that they, among other things, demonstrate that something isn’t right with your conclusion – that your value – not because it’s a negative value but because, on your figures, it would be far, far less than 25 per cent, put it that way, particularly when you take into account the realities of the cost to you of a minimum of 27 million. You remember that was the starting point. Or it was a bit less than that – I think it was 25 – which was 22 factored up to the affected date. It would not be unorthodox or wrong, would it, to say, “Well, having regard to those calculations and other matters, I don’t think your costs or your prices can be right; one or both of them.””
Senior Counsel for Mango Boulevard addressed that question saying that if that were the case then: (i) further submissions would be required, and (ii) unlike a trial where one party bore an onus of proof, since the exercise was to determine a value that would signify that the parties had not “given you the material upon which you can do that, [and] then we have to do that before you can conclude that you can’t decline a value”. It was finally put this way:

“It would remain to be seen after you had formed your views and if you had unfortunately come to that view that there was a gap caused by your disinclination to be satisfied, then either we could each point to material that persuades you to the contrary, point to material that you could otherwise use or then we would have to address the problem that arises in an arbitration like this, caused by what by definition would be a vacuum in the evidence in a crucial respect. And I would like to look at the authorities on that if it arises but I would expect, just thinking it through as a matter of principle, that we would then have to proceed accordingly to give you material upon which you could work.”

Hearing 10 February 2016
On 10 February 2016, the Arbitrator conducted a directions hearing at which Mango Boulevard was represented by Mr D Kelly QC. During the hearing some issues were raised by the Arbitrator, including:

(a)          that Mango Boulevard had a Jones v Dunkel inference to meet regarding all experts;

(b)          in response to a question from Mr Kelly QC as to what the inferences were, the Arbitrator said that there was a possible finding that Mango Boulevard’s income and costs inputs were wrong because they produced a non-commercial result which does not reflect a prudent market view of a 35 to 40 per cent return;

(c)          the Arbitrator said that he thought well before the close of Mango Boulevard’s case, its expert said 30 per cent or so was the market expectation;

(d)          the Arbitrator said he thought the correctness of the assumptions was an issue, and that anything under 30 per cent is not what the market place would do; and

(e)          the Arbitrator mentioned his not wanting to follow the formula slavishly without considering whether the result produced is sensible and commercial.
The Court was provided with a list of issues that was prepared by Mango Boulevard after that hearing. Mr Kelly QC conceded that the list relevantly reflected what was raised by the Arbitrator. The first three items on that list are as follows:

“1.          What consideration, if any, should there be of a “normal” profit margin for a prudent developer and is such consideration compatible with applying the methodology required by the SSA and determining the dispute the subject of the submission to arbitration?

2.           Is the development unprofitable or imprudent according to the evidence of Mango’s expert witnesses?

3.           Does the residual cash flow method have to produce a plausible result and what does it mean for a result to be plausible?”
The further hearing was set for 23 February 2016.
Hearing 23 February 2016
On 23 February 2016, the issues were raised again. Senior Counsel for Mango Boulevard said that he had been given the list of the issues raised by the Arbitrator and that it would be helpful if they were outlined by the Arbitrator, who said:

“MR CALLINAN: The particular matter that concerns me is this. According to admissible material, Mr Sofronoff, you had 15 people, many of them skilled and experts, looking at this property and dealing with this property between the share sale agreement and the effective dates. Not one of them was called. Now, included in that group is, for example, AC Nielson who were expert market consultants. It all appears from, you know, the best evidence, contemporaneous written material emanating from you. I infer from the material it is admissible and leading up to the date, the effective date, that Mr Atkinson, his absence is not explained, was in charge of this and was dealing with the council. Now, that does give rise to the possibility, and I emphasise possibility, of inferences.

If you allay that with the fact that you are not only the purchase under the share sale agreement, but you are experienced developers and you are experienced contractors. And you had the right to do the contracting and to do the – and to pursue the application and the development without tender. Yet nobody – nobody – from your side has given evidence about any of those matters. Also, before the close of the evidence, in your case it emerged, as a matter of rather begrudging concession on my impression and present, that no prudent developer would undertake this – would purchase this property without a return of at least 30 per cent. The evidence was a range of 30 to 45 per cent. But putting at 30 per cent.

Now, your client is a developer, by inference an experienced developer. He didn’t along and say, for example, “Look, we realised by the time of the effective date that we had made an imprudent development. We made a non-market development.” Now, you have to think about the implications of that.”
The Arbitrator then raised the figures for the returns mentioned in the evidence, making the point that they were not near a 25 per cent profit:

“MR CALLINAN: But it’s a minus number. It’s more than a bull’s roar away from 25 per cent profit. Now, I’ve already said to you that I think that the appropriate method of valuation is residual cash flow. That’s my interpretation of a contract. I don’t need to consider estoppel because I think that’s right. Although it’s perhaps a slightly adapted form of conventional residual cash flow method, because I’m not sure about all of the items and whether they would all be treated in the same way in a conventional one. But in any event, the contract governs the categories of items but not the amounts of the items. Now, I think the words “improved market value” and “market value” do have work to do, and that work is to make sure that the result of the various inputs and outputs is in accordance with proper market considerations. So residual cash flow, but it has to produce a plausible result. That’s my tentative view about the construction.

MR SOFRONOFF: I understand.

MR CALLINAN: So these are matters that you have to consider. Now, it might well be that I find both valuers’ evidence unacceptable. You have to consider that and Mr Douglas has to consider that.”
The further hearing was adjourned.
Hearing 15 April 2016
When the hearing resumed for addresses on 15 April 2016, the issues raised by the Arbitrator were the subject of submissions. Senior Counsel for Mango Boulevard and the Arbitrator debated what the evidence from each valuer was. That included the passages from the evidence of Mr Robertson and Mr Cox set out in paragraphs [38], [39], [42] and [43] above.
Then there was an exchange as to what the Arbitrator might do in terms of accepting or rejecting the valuers’ evidence. The Arbitrator warned that Mango Boulevard should not proceed on the basis that Mr Cox’s evidence would be accepted, just as Mio Art should not proceed on the basis that Mr Robertson would be accepted. The Arbitrator then posed this question:

“I would have thought it was part of any valuer’s general knowledge and understanding of the market. Any valuer who presumes to give evidence in relation to the value of the site or value of sites to have a knowledge of what the market looked for in terms of profit. You have to – you need to understand, with respect, that I may well find that the evidence demonstrates that the prudent developer would be looking for a minimum of 30 per cent. Now, you say I can’t do that. Are there any other reasons why I can’t do that in your submission?”
Shortly thereafter, the Arbitrator set out the proposition in these terms:

“MR CALLINAN: A minimum. And then the next proposition is assume that I were to construe the SA; that, yes, it requires a discounted cashflow method of valuation; and it’s a qualified method because you’ve got to disregard something that would almost always be taken otherwise into account: the 22 million plus holding costs. So you disregard that. So it’s an adapted form of cashflow method. But it also has to produce – it’s quite specific as to what items of costs and what items of output must be taken into account but, of course, it doesn’t prescribe and it can’t prescribe how much each of those inputs and outputs would be. But say I were to take the view that the words “improved market value” and “market value” in the contract have work to do, such inputs and outputs as the experts adopt must produce a plausible market value. And a plausible market value would be one that takes account of what the market normally looks for, which is a profit of more than 30 per cent.

MR SOFRONOFF: Are you – Mr Callinan, are you putting to me that – yes, I’m sorry. I should hear everything so I follow it.

MR CALLINAN: No, no. It’s the proposition that you have to examine the results and a prudent valuer, any competent valuer, would look at the inputs and outputs and say, “This result can’t be right because on the known facts the developer did pay 22 million.” By the effective date, it probably spent closer to 30 than 22 but whatever sum it is. But still the project on the inputs and outputs which I’ve been given can’t even make – can’t even make, what, 11 or 15 per cent. I’ve forgotten what it is, but you understand the proposition.

Now, it’s a matter of construction of the share sale agreement but one possible construction is that whatever – whatever results or whatever inputs and outputs do not produce a plausible market value or a probable market value even perhaps, they can’t be right.”
Senior Counsel for Mango Boulevard responded with a series of points:

(a)          the only evidence on the point from Mr Robertson was from someone without the relevant expertise to give the opinion;

(b)          as to the proposition that a prudent developer would expect a profit of 30 per cent, that involves adopting an interpretation of the contract contrary to its proper construction; the contract required two assumptions (i) a 25 per cent profit and the parties were stuck with that for the purpose of valuation, and (ii) that the development approval was obtained instantly and cost nothing; the clause is not a dictum to a valuer to arrive at a market value or a real world value, and if it did arrive at a real world, that was a coincidence;

(c)          when the Arbitrator said that he was posing that it be a “test of the inputs and outputs using the formula in the real world”, that the task was to make findings on the basis of the evidence as to cost and revenue, and then plug those figures into the formula; cost and revenue were proved, and then those figures could be applied using the 25 per cent profit margin; that “then there’s no room left for the expectation of a prudent developer’s profit margin to operate”;

(d)          that he understood the proposition that the Arbitrator was posing and “grappling with”;

(e)          the formula in the contract was an artificial formula but it bound both sides and “one can’t read it to conform with the reality so that a plausible figure is arrived at in favour of the claimant but then one ignores the fact that that interpretation means that the prudent developer has entered into a contract in which the assumed return of a prudent developer will never be achieved”;

(f)          in considering the formula there was no room for considering what a developer would wish to achieve by way of profit because that consideration cannot affect costs or revenue;

(g)          the evidence did not support such a finding;

(h)          there was no reason to think that the developer was trying to achieve a profit margin greater than 25 per cent;

(i)          it did not matter that a prudent developer might seek to make a profit greater than 25 per cent; what his client expected to make by way of profit was irrelevant; it was not pleaded nor adverted to; and

(j)           to approach the matter by reference to whether a plausible result had been achieved was “arguing from the wrong direction”.
In the course of that debate the Arbitrator responded to a comment by Senior Counsel for Mango Boulevard, namely “I fear I’m not getting anywhere, and I don’t want to waste everybody’s time”:

“MR CALLINAN: Well, I don’t want to be too argumentative with you, but I want to give you a full opportunity.

MR SOFRONOFF: No. No. I’m grateful for it, Mr Callinan. I don’t object or resent it at all, but I’m concerned that I don’t keep making the same point over and over.”
The passages referred to above reveal a series of occasions when the Arbitrator’s issue was identified, raised with witnesses on both sides without objection, and answered by Mango Boulevard.
First, when the evidence as to a developer’s normal return was first addressed it was by Mr Robertson, who was then cross-examined about it by Senior Counsel for Mango Boulevard and the Arbitrator. There was no objection from Mango Boulevard, Senior Counsel expressly saying he did not mind if the witness was asked that line of questions.
Secondly, Mr Cox was cross-examined by the Arbitrator about what significance could be drawn from the fact that the application of the stipulated 25 per cent return produced a negative value for the land, and whether that gave concern as to the validity of the result. Once again Senior Counsel for Mango Boulevard said there was no objection to the evidence. The position taken was that it was, on one view, relevant, but that submissions about its irrelevance would be made later.
The importance of the passages in paragraphs [42] and [43] above is that Mr Cox was asked to explain how he dealt with the fact that the application of the formula in the Share Sale Agreement produced a negative value for the land, something which he agreed lacked reality. More specifically, he was asked to explain whether that fact caused him concern for the validity of his result, and whether it made him “question … what you’ve employed in reaching your result”. Having said that he was not instructed to do that, and that the formula in the agreement constrained the result, he then answered by reference to some of the inputs (revenue, constructions costs and development costs) which were “greater than the average cost per lot for a subdivision”. The next question concerned what a market return or profit might be if the agreement did not constrain the exercise.
In my view it is plain that Mr Cox understood that he was being asked whether either of two facts, namely (i) the lack of reality in a negative value being produced by the strict application of the formula, and (ii) the fact that the expected market return was greater than the 25 per cent used in the formula, did or should have caused him to question the validity of his result or the factors employed by him in reaching that result. Those factors were the inputs such as revenue and outlays such as the costs of the project, all of which reflected the risk and, as he accepted, resulted in a required return higher than 25 per cent.

Further, in my view, by the exchanges on the subsequent occasions, as revealed below, Senior Counsel understood the thrust of the questions as well. Indeed, as by the responses referred to in paragraph [57] above, Senior Counsel was at pains to assure the Arbitrator that he understood the point, and was answering it.
Thirdly, over four months later when the first round of submissions commenced, the Arbitrator raised questions concerning the testing of the valuers’ inputs by the fact that the normal return was at odds with that in the Share Sale Agreement. Senior Counsel for Mango Boulevard acknowledged that if that was a path to be taken by the Arbitrator then one response was that further submissions would be required, and (possibly) further evidence would be required.
Fourthly, five months later again the Arbitrator specifically raised, as an issue to be addressed, that there was a possible finding that Mango Boulevard’s income and costs inputs were wrong because they produced a non-commercial (or implausible) result which does not reflect a prudent market view of a 35 to 40 per cent return. That issue was identified to the lead Senior Counsel for Mango Boulevard, in the form of a note which raised the consideration of a “normal” profit margin for a prudent developer and whether that consideration was compatible with the methodology under the Share Sale Agreement, whether the residual cash flow method had to produce a plausible result and what was required for the result to be plausible.
Fifthly, at the next hearing some two weeks later, Senior Counsel for Mango Boulevard invited an explanation of the issues from the Arbitrator, who did so, mentioning the disparity with a normal developers’ return, the impact on assessing the valuers’ inputs and outputs, and the need for a plausible result on the residual cash flow method.
Sixthly, seven weeks later submissions resumed, at which point the issues were debated. The Arbitrator warned that neither side should proceed on the basis that their expert would necessarily be accepted, and that he might find that a prudent developer would seek a return higher than the 25 per cent in the agreement. Senior Counsel said that he understood the point being made, but responded with specific points to answer the issue, including: (i) there was no acceptable evidentiary basis for such a finding; (ii) in any event it was irrelevant as the Share Sale Agreement specified what course to take, and that bound the parties; and (iii) the agreement precluded that it be a “test of the inputs and outputs using the formula in the real world”, as it imposed a return of 25 per cent.
The matters addressed at the hearings referred to above reveal that the evidentiary foundation for the proposition relied upon by the Arbitrator, and the process of reasoning to test the valuers’ inputs by that method, were raised with Mango Boulevard, and the subject of detailed responses by Senior Counsel for that party. The exchanges between Senior Counsel for Mango Boulevard and the Arbitrator leave no doubt that the point raised by the Arbitrator was fully understood, as were the options involved in responding, namely by way of further submissions and adducing further evidence on the point. That was the position at a time when, had it been so desired, Mango Boulevard’s case could have been reopened and further evidence given by Mr Cox or other relevant witnesses. No such application was made, Senior Counsel for Mango Boulevard attacking the proposition based on the proper construction of the Share Sale Agreement, the lack of an evidentiary foundation, and the irrelevance of the approach.
In the circumstances, the failure to plead the point in issue can be put to aside. This was a case where the parties accepted that the point was alive, and chose to answer it in ways that suited them. In particular, Mango Boulevard eschewed any objection to the point being agitated, and, having identified that further evidence might be necessary, chose to answer with legal submissions largely directed to its irrelevance.
In Part 1 of the Award the Arbitrator gave a number of reasons why he did not accept the evidence of Mr Cox. They included:

(a)          the failure to adequately take into account the need to promote and brand the project;

(b)          he tended to treat as almost conclusive of the question of price and saleability of small allotments, an absence of such sales in the immediate vicinity at the Effective Date; but did so without reference to the “exhaustive” work done by marketing consultants before the Effective Date;

(c)          he tended to understate yield and demand for smaller sites; his approach to density, yield and demand was “unconvincing”;

(d)          he could and should have made himself familiar with details of Mio Art’s negotiating positions and results in respect of the Project, both before and after the Effective Date; instead he managed to “insulate himself” from highly relevant matters;

(e)          Mr Cox was not more persuasive than Mr Robertson in respect of the inputs adopted for the valuation approach; he “lacked consistency, and was unable or reluctant to engage on matters on which I think he should have”;

(f)          his failure to ascertain the history of attempts to amalgamate the parcels of one particular sale rendered him liable to criticism; his approach to his use of that sale was “unsatisfactory”;

(g)          he took into account sales which, the Arbitrator found, were not comparable; he also failed to take into account one relevant sale; and

(h)          his reasoning as to comparable sales was rejected because he did not have due regard to the fact that the market was rising, and placed undue weight on the factor of price on the size of allotments, and too little weight on factors such as amenity and location; as well, on other matters he was unimpressive and unpersuasive, and failed to take fully into account the trend towards smaller allotments and tenements, and the council’s desire for, and insistence on that.
The Arbitrator expressly said that the impugned issue was a “further reason” for rejecting Mr Cox’s approach:

“There is a further reason why I reject the results and the components of those results. It is that their numbers, quantities and prices would produce an implausible, a non-market result having regard to two realities: the prudent investor/developer would be looking for a profit of more than 30%, indeed up to 45%; and the Respondent’s case, based upon its experts’ calculations cannot produce a profit of anything remotely of that order on its actual minimum expenditure of $22,000,000 plus holding and other substantial costs incurred before the Effective Date. Much of this was clear before the Respondent closed its case. … Mr Robertson, who I prefer on this point, was generally consistent. He said the market would want more than 30%. Mr Cox was quite unconvincing when he said that he would need to “thoroughly research” the market before pronouncing on a market expectation of a profit. In my opinion, any valuer of a substantial area of land in subdivision, or to be subdivided, should have a good knowledge of, or be at least conversant with, the likely level of market expectations of profit: even so, (intuitively) he effectively conceded 30 to 35%. I reject any suggestion that knowledge of this topic is not within the ordinary expertise of a competent land valuer.”
Thus it cannot be said, in my respectful view, that the impugned issue was the substantive reason why Mr Cox’s evidence was rejected. There were many more reasons than that.
I pause to say something about the rejection of the evidence of Mr Ovenden and Mr Thomas, Mango Boulevard’s town planner and engineer. Mango Boulevard’s contention was that the Arbitrator rejected their evidence by applying the same issue to their approach, although it was conceded that there were other bases upon which their evidence was rejected. In my view the contention cannot be accepted. First, there were a number of reasons advanced as to why the Arbitrator did not rely upon the evidence of each of Mr Ovenden, and Mr Thomas. Secondly, they were simply responsible for various inputs into the valuation opinion, which was only advanced by Mr Cox. Neither Mr Ovenden nor Mr Thomas was qualified to give valuation evidence. The impugned issue is concerned with valuation methodology.
It will be apparent from the reasons earlier that I am unable to agree with the learned primary judge’s conclusion in paragraph [104] of the reasons below. In my respectful view, Mr Cox was asked the substance of the relevant point.
However, even if one accepted that the Arbitrator did not squarely give Mr Cox a chance to answer the proposition that his valuation should be affected by the implausibility revealed by its comparison to a general developer’s return of 30 per cent or 40 per cent, I do not consider that an injustice was perpetrated upon Mango Boulevard. There are a number of reasons for that conclusion.
First, the issue was raised with Mr Cox in terms sufficiently clear that he could respond, albeit that his instructions as to the method of valuation required his strict adherence to the formula in the Share Sale Agreement. As the passages in paragraphs [42] to [43] above reveal, Mr Cox understood that he was being asked whether he should have questioned his result in light of (i) the lack of reality in a negative value being produced by the strict application of the formula, and (ii) the fact that the expected market return was greater than the 25 per cent used in the formula.
Secondly, Senior Counsel made it clear that there was no objection to the point being raised.
Thirdly, whatever Mr Cox understood, there is no reason to conclude that the point was misunderstood by Senior Counsel for Mango Boulevard. The exchanges set out in paragraphs [46] to [57] above reveal no misunderstanding and a considered response.
Fourthly, there was ample opportunity for Mango Boulevard to seek to recall Mr Cox and have him give further evidence. That no attempt was made to do so leads one to infer that there was no response that he could make that would be helpful to Mango Boulevard’s position.
In Amasya Croft J adopted what was said in TCL:

“In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (“TCL”), the Full Federal Court said that an arbitral award will not be set aside or refused recognition or enforcement under arts 34 and 36 of the Model Law—

‘unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness. The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition.’”
Contrary to Mango Boulevard’s contentions, it is not possible to conclude that there has been real unfairness or real practical prejudice in this case. Mango Boulevard understood the point and chose to respond to it in a particular way, which, as it happened, did not include recalling Mr Cox. That was a forensic choice made by Mango Boulevard.
Mango Boulevard were not denied a reasonable opportunity to present its case. What is required in terms of a reasonable opportunity to present the case is a question of fact and degree, and it is not intended to protect a party from its own failures or strategic choices, as was said in Amasya:

“In my view, the words “reasonable” and “full” as they are used in s 18 of the Act and art 18 of the Model Law respectively impose the same standard. What is required is that the arbitral process be fair and that each party be given a reasonable opportunity to present its case. This position is consistent with what was said by the Hong Kong Court of Appeal in Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1)—namely that the term ‘full opportunity’ in art 18 of the Model Law ‘cannot mean that a party is entitled to present any case it pleases, any time it pleases, no matter how long the presentation should take.’ This position is made express in s 18C of the International Act which provides that, for the purposes of art 18 of the Model Law, a party is ‘taken to have been given a full opportunity to present the party’s case if the party is given a reasonable opportunity to present the party’s case.’

The purpose of the requirement in art 18 of the Model Law is as stated by the Ontario Superior Court of Justice in Corporacion Transnacional de Inversiones SA de CV v STET International SpA: ‘The purpose of art 18 is to protect a party from egregious and injudicious conduct by … [an arbitral tribunal]. It is not intended to protect a party from its own failures or strategic choices.’”
Mango Boulevard had a reasonable opportunity to present its case, and did so in the way it determined was appropriate.
To set aside the award would effectively be to “bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases”, where there is no basis to do so.
In my view, the ground of appeal lacks merit.
Disposition of the appeal
I would propose the following orders:

1. The appeal is dismissed.

2. The appellant is to pay the respondent’s costs of the appeal, to be assessed on the standard basis.
McMURDO JA: The detailed reasons for judgment of Morrison JA allow me to state my reasons more briefly in agreeing with the orders which he proposes.
This was a dispute between the two sides of a joint venture for the development of land. The joint venture was formed in July 2003, pursuant to a number of agreements which included the so called Share Sale Agreement (“the SSA”). The joint venture vehicle was Kinsella Heights Developments Pty Ltd (“Kinsella”), which, on the date of the SSA, was entitled to become the registered proprietor of the subject land for a cost of $22 million. Kinsella had been wholly owned by the respondents’ side of this dispute. By the SSA, they agreed to sell half of their shares in Kinsella to the appellant company.
The SSA contained a formula by which the price for those shares was to be fixed. Under that formula, the value of the land, with the benefit of certain development permits which were yet to be obtained, was to be a factor in the calculation of that price. The higher was that value, the higher was to be the price to be paid by the appellant.
In particular, by cl 4.1 of the SSA, the price of the shares was to be calculated as the greater of:

“(a) The difference between the purchase price of the Property set out in the Contract [$22 million] and the improved market value of the Property immediately after the Effective Date less $2,000,000; or

(b) $5,000,000.”
It was agreed that Kinsella would seek a preliminary approval for a material change of use of the land. The purchase price for the shares was not to be paid until that preliminary approval was obtained, which was defined as the “Effective Date”.
The SSA provided for a sequence of steps by which the value of the Property was to be fixed for the purposes of cl 4.1, if that could not be agreed. The land was to be independently valued, and a party who was dissatisfied with that valuation could obtain an alternative valuation. If those two valuations differed by more than 10 per cent, a party could require the dispute about value to be mediated, or failing a resolution by that means, to be submitted to arbitration.
In an earlier proceeding, I held that in the events which had occurred, the parties were obliged to participate in such mediation, and failing a resolution, in an arbitration to be undertaken under the SSA. In that judgment, I was required to construe the terms of the SSA which prescribed the methodology by which the land was to be valued. Those provisions applied to any valuation in the course of the dispute resolution steps to which the parties had agreed, including a valuation by an arbitrator. An appeal against that judgment was dismissed, this Court agreeing with my interpretation of the relevant provisions of the SSA.
By cl 4.4 of the SSA, the land was to be valued upon certain assumptions. It was to be assumed that development permits had been issued in respect of the land, authorising its development on substantially similar terms to those of the preliminary approval. It was to be further assumed that “the Project would achieve a Profit on Cost Percentage return of 25%.”
The expression “Profit on Cost Percentage” was defined to be the profit of the project, being its income less its “Cost”, expressed as a percentage of that cost. The term “Costs” was defined by another provision to include the $22 million to be paid by Kinsella for the land. But as was common ground before me, that sum was not to be included in calculating the Profit on Cost percentage under cl 4.4.
In my judgment, I described the methodology of valuation, agreed within the SSA, as follows:

“The value was to be calculated by assessing the likely income, from which the total amount of the developer’s costs could then be ascertained given the assumed profit percentage. Once the total costs were ascertained, the assessed (or assumed) development costs apart from the cost of the acquisition of the land were to be subtracted from the total costs, resulting in the amount which the hypothetical developer would be prepared to pay for the purchase of the land, or in other words, the market value.”

Consequently, the valuation process, according to the SSA, was one in which the ultimate value would be the result of the valuer’s (or arbitrator’s) assessments of the likely income and development costs. Once those assessments were made, the valuation of the land was then a matter of calculation, rather than professional judgment. An agreed value would inevitably follow, because of the required assumption of a profit on cost percentage return of 25 per cent.
By the terms of other agreements between the joint venturers, made contemporaneously with the SSA, the appellant’s side was to fund the joint venture project. The appellant’s participation in the joint venture proceeded upon an apparent acceptance that the sum of $22 million was not substantially more than the value of the land in July 2003. But what was to be valued under cl 4.1 of the SSA was its value at a later date and with certain development permits and subject to certain other assumptions, including that of a certain profit margin. By cl 4.1, the parties anticipated that the value assessed in that way might be more or less than $29 million.
The reasoning of the arbitrator, which is challenged in this proceeding, sufficiently appears from these passages of the arbitrator’s first award:

“101.    It follows that the task for the valuer and the arbitrator is to determine the market value after making the assumptions that the SSA requires as to what items are costs, and income, and a profit of 25% which is in substance, to undertake a [variant of a] residual cash flow valuation. What I have said and what follows are, I think, consistent with the reasoning of PD McMurdo J at first instance in Mio Art Pty Ltd v Mango Boulevard Pty Ltd (No 2) and the Court of Appeal in Mango Boulevard Pty Ltd v Mio Art Pty Ltd, to which I am bound to, and do, defer.

102.        The work that the words “market value”, “market valuation”, and “improved market value” have to do is to ensure that the quantum of each of the items of costs and selling prices of lots to be assumed, is calculated on a proper and commercial, that is to say “market”, basis … Further, because a market result, a “market value”, must be determined (subject to an agreed profit of 25% and not some other “market” percentage profit), the costs and profit selected by the expert valuers must be capable of and produce a market value, that is, a market price upon which prudent parties would agree.

103.        Real life market considerations, that is, commercial reality, has another role to play in the making of the market valuation under the SSA. If the adoption of the selected amounts in respect of an item or items of cost and the financial return on them produces an improbable and counter-intuitive commercial result on the known indisputable facts, for example that the Respondent actually paid $22,000,000 for the Property and incurred other substantial expenses in respect of it before the Effective Date, and that competent and prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it), then there will be reason to question, and it would be in conformity with the contractual requirement of a market valuation, that there be at least a serious questioning and scrutiny of those inputs and income on them. …

104.        In substance then I accept that the residual cash flow method, or the variant of it for which the SSA provides, is the method of valuation which must be adopted here. But that method certainly does not preclude, indeed the requirement of a market valuation requires, a testing on the bases of various sensitivities, of the result for which the parties contend, and, if found improbable by reference to the market, a revisiting and testing of the inputs and outputs producing that improbability. That is not to ignore the ultimate requirement of a profit of 25% on the assumptions required to be made. It is simply to measure against the evidence, all relevant market considerations operating on the Effective Date, including expectations and requirements of profit then.” (footnotes omitted)
Before the primary judge in this proceeding, the appellant argued that the arbitrator’s reasoning in those passages was inconsistent with the requirements of the SSA and that it departed so far from them, that the arbitrator dealt with a dispute which was not contemplated by or within the terms of the submission to arbitration. The primary judge held that there was no departure from the requirements of the SSA and that, in any event, an error of law of that kind would not have meant that the award had dealt with something other than the dispute which the arbitrator was to resolve. The second of those conclusions could not be doubted. Understandably therefore, that argument is not pursued by the appellant in this Court. It is unnecessary then for this Court to consider whether the arbitrator’s reasoning involved a legal error by departing from the SSA. There was no challenge to the awards, under s 34A of the Commercial Arbitration Act 2013 (Qld), on the ground of an error of law.
The appellant’s challenge to the awards is upon the bases provided by s 34(2)(a)(ii) and s 34(2)(b)(ii) of that Act. As the primary judge noted, these grounds to set aside an arbitral award must be read in the context of the Act in question and the so called Model Law upon which it is based. I respectfully agree with the primary judge’s observations as follows:

“[84] The applicant submits that the arbitrator’s introduction of his own methodological approach to value, as it was described, involved a fundamental departure from the requirements of procedural fairness. Procedural fairness, as such, is not an express ground to set aside an arbitral award under s 34. Not surprisingly, however, it is considered to be a factor that may engage the ground that a party was unable fairly to present their case or the ground that an award is in conflict with the public policy of the State.

[85] However, it is necessary to bear in mind that those statutory grounds under s 34 are not satisfied, per se, by a failure to accord procedural fairness or any breach of the rules of natural justice as applied in other fields of discourse of the law. The context here is whether a statutory ground to set aside an arbitral award based on the Model Law is made out. In particular, s 18 of the CAA provides:

“The parties must be treated with equality and each party must be given a reasonable opportunity of presenting the party’s case.

Note—

This section differs from the Model Law to the extent that it requires a party to be given a ‘reasonable’, instead of ‘full’, opportunity of presenting the party’s case.””
In TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd (“TCL”), the Full Court of the Federal Court (Allsop CJ, Middleton and Foster JJ) considered a challenge, not unlike the present one, to an arbitrator’s award under the equivalent provisions of the International Arbitration Act 1974 (Cth). In an extensive discussion of the “public policy” ground under article 34(2)(b)(ii) (and article 36(1)(b)(ii)) of the Model Law (replicated in the provisions so numbered in the Queensland statute), the Full Court said that the rules of natural justice are within the conception of the public policy within those provisions. But the Court said that “the weight of authority is clearly to give a narrow meaning to public policy” in this context. Amongst the many authorities to which the Court referred were the judgments of Bokhary PJ and Sir Anthony Mason, sitting in the Court of Final Appeal of Hong Kong, in Hebei Import & Export Corporation v Polytek Engineering Co Ltd. In a passage which was quoted in TCL, Bokhary PJ said that “the award must be so fundamentally offensive to [a] jurisdiction’s notions of justice that, despite its being a party to the Convention, it cannot reasonably be expected to overlook the objection.” In another passage quoted in TCL, Sir Anthony Mason said that the public policy ground is limited to cases where the award is “contrary to the fundamental conceptions of morality and justice” of the forum. As the primary judge in the present case discussed, that narrow view of the public policy ground has been applied to a domestic award under the equivalent Victorian Act in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd.
In TCL, the court said that an award should not be set aside under article 34 of the Model Law unless there was “demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness”. That statement was endorsed by the Victorian Court of Appeal in Sauber Motorsport AG v Giedo van der Garde BV & Ors. It was applied to a domestic arbitration in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd, by the same judge (Croft J) in Blanalko Pty Ltd v Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Constructions) and Cameron Australasia Pty Ltd v AED Oil Ltd and by Hammerschlag J in Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd.
In essence, the appellant’s complaint is that it was not given an opportunity to present a case in respect of the reasoning of the arbitrator which I have set out above at [100]. It was the arbitrator and not the parties who considered that this reasoning was apt. It was raised only after the evidence had closed and it was not put to any of the witnesses whose evidence about likely income or development costs was said to be affected by that reasoning. Those witnesses were the appellant’s valuer, its town planner and its engineer. As is correctly submitted for the appellant, the arbitrator applied that reasoning as providing some of the justification for rejecting the evidence of those witnesses, in that he considered that their opinions could not have been correct because, according to their opinions, a profit on all costs (including the $22 million paid for the land) which was in the range of 30 to 45 per cent would not have resulted. Further, if the arbitrator’s reasoning was arguably inconsistent with the relevant terms of the SSA, the lack of any evidence to address that reasoning was yet more understandable.
However, the arbitrator clearly raised the possibility of this reasoning during the final addresses and it could not be said that ultimately, the appellant was denied an opportunity to argue a case in response to it. At a hearing on 10 February 2016, the arbitrator raised the possibility of this reasoning. After that hearing, a list of issues was prepared by the appellant’s legal representatives, which shows a clear understanding of what was being suggested by the arbitrator. There followed the hearing of 23 February 2016, at which the arbitrator again clearly described an approach which became the subject reasoning. On 15 April 2016, the appellant by its counsel made oral submissions on the subject. Ultimately therefore, the question was able to be addressed by submissions which were made some weeks after the subject was first raised by the arbitrator.
It must be accepted that this reasoning was not put to the appellant’s witnesses. The valuer was asked some questions about the rate of return ordinarily expected by developers for a project such as this one. But he was not asked to reconsider his evidence having regard to that rate of return and the price which had been paid for the land. However, it does not follow that there was such a denial of procedural fairness that a ground is established for setting aside the award.
The hearing did not conclude until two months had passed from the time at which the arbitrator raised the prospect of this reasoning. The appellant well understood what the arbitrator had in mind. Yet the appellant did not attempt to lead further evidence and, in particular, to recall any of these witnesses. It could be inferred that the appellant saw no benefit from doing so. But in any event, it was not denied the opportunity to do so. Although this arbitration had been conducted with many of the procedural steps of a commercial case in court, it would have been open to the appellant to seek to recall these witnesses. Indeed, even in a case in court, that course would have been difficult to resist. Unsurprisingly, the appellant did not endeavour to advance that case by recalling any of its witnesses. The proposed reasoning was to be answered not by arguments from a witness, but by submissions which addressed the proper interpretation and application of the SSA.
In my conclusion, the appellant was able to present its case, which it chose to do by oral argument at the hearing on 15 April 2016. No ground is established under s 34(2)(a)(ii). Nor was the award in conflict with the public policy of this State, to provide a ground under s 34(2)(b)(iii).
For these reasons, I agree with the orders proposed by Morrison JA.