(3) The notation "$155,000 squash income" on the instruction sheet (and therefore available to Mr Kennedy).
70 I have already found in [60] that, on the probabilities, Mr Kennedy did ask Mr Aghajanian for financial records, which were not furnished. Mr Kennedy says that he did not seek them more vigorously, because he would not have placed great reliance on them if he had them. It was submitted on the plaintiff's behalf that Mr Kennedy was "having two bob each way" in that, on the one hand, he said that he had been refused Nshan's turnover figures and that, on the other hand, he said that he would not necessarily have regarded them as appropriate to take into account in any event. In my view this criticism is not fair. The thrust of what Mr Kennedy said was that he did not have them, so could not advert to them, but that the vigour with which he pursued them was moderated by the fact that he would not have regarded them as determinative or of high significance in any event. The reason, he said, for this was that they were only the short term figures of an inexperienced operator, which did not necessarily show the turnover potential of the premises; he also pointed out in this context that it was the premises that he was valuing, and not the business, which reduced the significance of the actual turnover. That this stance was not unreasonable was attested to by Mr Windred and Mr Norris.
71 It is not, of course, correct to say that Mr Kennedy simply adopted the current rental as the basis of his rental capitalisation exercise. Doing the best he could, he calculated a putative rental figure of $180,000. This is a good 15% under the contractual rental, which exceeded $213,000. In selecting that figure, he bore in mind the best estimate he could make of the potential returns from the squash centre. In looking critically at this, it must be remembered that the evidence shows (although Mr Kennedy did not know it) that the previous operator had been taking some $30,000 a month and that Mr Aghajanian believed that he could increase his takings by $10,000 per month. That these figures were not achieved, in circumstances of increasing vicissitude, does not of itself mean that the hope for such figures was baseless in March 1985.
72 Another basis on which it is suggested that a much lower putative rental should have been adopted is that a rental should not be adopted as the basis of a capitalisation calculation for valuation purposes if the rental is more than one third or one fourth of the takings. One witness who, under cross examination gave some such evidence was Mr Carritt. He assented to a proposition that a notional rental should not be assigned to a property for rent capitalisation purposes that bears a ratio of more than one to four to the turnover of the property. Mr Smith enunciated a similar proposition but stipulated a ratio of one to three. Leaving aside the question that it is the potential turnover rather than the actual turnover which the valuer must take into account in such an exercise, I do not think that the mechanical use of a ratio of that sort is appropriate in valuing the property. Apart from anything else, as has been pointed out, people often purchase businesses or business properties where the return potential appears lower than justified by purely commercial considerations. For example, people purchase small businesses for the sake of being their own employers, rather than simply by reference to economic return. People, the evidence is, will buy into sporting complexes for the sake of having a way of life associated with sport, rather than simply for commercial considerations. Indeed, it would seem in this case that there were motivations of this sort in the Aghajanians' purchase of the squash centre. Mr Aghajanian regarded it as a property which would absorb his time and managerial abilities (by reason in part of the tripartite nature of the businesses contemplated) and would provide employment opportunities for other members of his family, rather than simply by reference to economic factors. I do not think what Mr Carritt did or thought in valuing the property in 1988, or extrapolations from it, are of great assistance in attempting to ascertain the value of the property in the totally different context of three years earlier, or in determining whether or not at that earlier time the way in which Mr Kennedy proceeded was appropriate.
73 It is suggested that another regard in which Mr Kennedy was guilty of a breach of duty was that, since he was proceeding on the assumption that the squash centre would produce a turnover which would support the actual rental, he should have made an express qualification to the report that he was proceeding upon that assumption, which he had been unable to verify. However, he was proceeding on a capitalised rental basis and he saw in other rentals to which he adverted support for the adoption of rent at the level which he did in fact adopt. He did advert in the valuation to the importance of management quality to the sustainability of the business and the potential difficulty that this presented to the value of the property as security, which was the purpose for which he was writing the report. There is no evidence in this case that Mr Kennedy contemplated that the report would be relied on by the proposing purchaser for the purpose of determining whether or not to enter into the transaction, or any evidence that valuers at the time were aware that prospective purchasers of such specialised properties as this relied, generally or at all, upon valuations procured by or for lending bodies in their decisions as to whether or not to buy. In my view, it cannot be said that Mr Kennedy was in breach of any duty in not putting any greater qualification than he did in the valuation.
74 Turning to proposition (6), so far as the rental element relating to the roller skating rink is concerned, there was criticism of Mr Kennedy for relying on material relating to a roller skating rink at Bomaderry which he had valued, particularly as being in a country area. However, the material available as to roller skating rinks was even more exiguous than that relating to squash courts, and in my view Mr Kennedy was right in adverting to what material was available. He himself had made some observation of the operation of the roller skating rink and, so far as the ability of both the squash courts and the roller skating rink to compete in the market was concerned, was very knowledgeable about the western part of Sydney and the availability and use of both squash courts and roller skating rinks in that area. I am unable to see that he proceeded wrongly or in breach of any duty in relation to what the way he approached the potential income of the roller skating rink.
75 In the context of this already difficult valuation exercise, the restaurant had its own difficulties. All seem agreed that the relevant portion of the squash centre was not suitable for independent operation as a restaurant because of the means of access, which, as the building stood, was available only through other parts of the premises. That could be changed, but it would take money. In addition, various difficulties were seen by different people as to the suitability of the premises for a restaurant. Mr Kennedy saw problems of competition, naming three other restaurants operating in the same general area as providing the greatest problem. He was of opinion that, although located in an industrial area, the premises had sufficient proximity to residential areas to permit successful operation as a restaurant, subject to the competition problem. Others took the view that the siting was too inaccessible to the potential clientele for a restaurant to be successful. However, it seems to me that the view of Mr Kennedy, with his high degree of knowledge of the area, and bearing in mind that there was some potential for operation of a restaurant facility as an adjunct to the sporting facilities, has not been proved to be wrong. Everyone was agreed that, at some rental, there was a potentiality for the use of the space, if it could not be operated as a restaurant, as storage space or for some other similar use. In my view it has not been demonstrated that Mr Kennedy was wrong in the figure he put upon the rental potential of this element. He clearly expressed considerable reservations as to its use as a restaurant. In any event, even if he were wrong as to this, the difference between the figure he assigned on the basis of use as a restaurant, and the minimum figure which it was conceded by others should have been put upon it, would not be sufficient to make the valuation wrong, bearing in mind that such a valuation needed to be regarded as having at least a 10% if not 15% margin of error.
76 Overall, it is put, in proposition (7), that Mr Smith's valuation of $650,000 should be taken to be correct. Once this is accepted, it may be inferred, from its large divergence from that figure, that the valuation is wrong, and must have been negligently prepared; in appropriate circumstances, an inference of departure from the standards of skill may be inferred by divergence from a valuation appropriately established to be correct, or from a body of evidence establishing a range within which reasonably skilful valuers would place the value. But in this case, I do not think that Mr Smith's valuation can be used in this way. Another valuer, in Mr Windred, came to much the same conclusion as Mr Kennedy as to the correct figure. And it is not proper to draw the inference that, because Mr Carritt valued the property at $650,000 as of 1988, that that was a correct or acceptable valuation of the property as at 1985. The significance of Mr Carritt, so far as the evidence of valuation was concerned, was that in 1988 after the sale of the premises for $730,000, Mr Carritt carried out a valuation of the squash centre as at that time and assigned a value to the property of $650,000. In doing so, he gave full play, and properly, to events after March 1985, including the sale of the squash centre at auction for $730,000, the disasters that occurred in the plaintiffs' conduct of the businesses, and the general sharp downturn in the fashionability of squash and the value of squash adapted premises, which by 1988, on everybody's account, had fully taken effect.
77 In assessing a value at a time in the past a valuer (and a Judge) must be careful not to fall a victim to the seduction of hindsight. Hindsight is a wonderful advantage. Lindgren J warned of the need to take particular care in a valuation case "to sift from the evidence the inevitable contamination of hindsight": MGICA supra at 335. In Kenney v Hall, Pain & Foster [1976] EGD 629 at 645-646 Goff J (as his Lordship then was), sitting in the Queen's Bench Division of the English High Court, discussing factors relevant to whether a contested valuation was erroneous, said:
"Moreover, since every valuation is a question of opinion, it is an axiom of the profession that if you take the opinions of 10 valuers on one property, you will get 10 different valuations. The present case is no exception. I had the assistance of no fewer than seven expert witnesses, and of these, five expressed opinions as to the value of the plaintiff's interest … Their opinions ranged from £40,000 to £98,000. This extraordinary range of opinion to some extent reflected three special factors. … Third, the experts were being asked to project their minds back in time to June 1973 and to rid themselves of the knowledge and understanding which they had since acquired of the market at that time, and it was generally accepted among them that it was difficult, if not impossible, to discard altogether the benefit of hindsight."