Bromley Investments P/L v Elkington [2002] QSC 427

CORPORATIONS LAW - SHARES - application to approve compulsory acquisition of shares - whether price offered represents fair value - considerations and methods applicable to determination of fair value - whether there has been compliance under the Corporations Act - weight to be given to expert evidence where underlying facts not properly established.

Corporations Act 2001, s 664F, s 667A

Capricorn Diamonds Investments Pty Ltd v Catto [2002] VSC 105; [2002] 41 ACSR 376

Catto v Ampol Ltd (1989) 15 ACLR 307

CMB No 1 Pty Ltd v Cairns City Council [1999] 1 Qd R 1 Dashwood v Maslin [1909] HCA 62; (1909) 9 CLR 451

Diamonds Investments Pty Ltd v Catto [2002] VSC 105; [2002] 41 ACSR 376.

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Kizbeau Pty Ltd v W G & B Pty Limited [1995] HCA 4; (1995) 184 CLR 281

Lewis v The Queen [1987] NTCCA 3; (1987) 88 FLR 104

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705

Minister for the Army v Parbury Henty & Co [1945] HCA 52; [1945] 70 CLR 459

Ramsay v Watson [1961] HCA 65; (1961) 108 CLR 642

Re Bradberry [1943] 1 Ch 35

Thorpe v Brisbane City Council [1966] Qd R 37

Willis v The Commonwealth [1946] HCA 22; (1946) 73 CLR 105

D J S Jackson QC, with P A Freeburn, for the applicant

P E Hack SC for the respondents RJC Catto, Bowpine Pty Ltd and Tim Talty Pty Ltd (Superannuation Fund)

The respondent Elkington appeared on his own behalf

Shand Taylor for the respondents RJC Catto, Bowpine Pty Ltd and Tim Talty Pty Ltd (Superannuation Fund)

[1] The applicant Bromley Investments Pty Ltd, by application made under s 664F of the Corporations Act 2001, seeks -

(a) An order approving the acquisition of shares described in compulsory acquisition notices dated 11 April 2002 in respect of shares in the capital of Carrington Cotton Corporation Limited;

(b) A declaration that the price of $5.87 per share paid in cash represents fair value for such shares.

[2] The respondents to the application are persons or companies who failed to accept offers made by Carrington in October 2001 for the acquisition of the shares in Carrington not already held by the applicant or the executors of the estate of Ross Marchant. As a result of the acceptance of many of those offers, the applicant holds 11,819,098 of Carrington's 11,828,850 issued ordinary shares. The offers were made after litigation between the applicant, Carrington and major shareholders whom, for the sake of convenience, I will refer to as "Panizza Associates". The offer price was determined after negotiations involving the applicant and Panizza Associates. Holders of about 97% of the shares the subject of the offer, including Panizza Associates, accepted it.

[3] In consultation with its advisors, KPMG, the applicant decided to acquire the shares in Carrington not already held by it at a price of $5.87 per share. Price Waterhouse Coopers Securities Ltd (one of the three experts nominated by the Australian Securities and Investments Commission pursuant to s 667A of the Act) was instructed to prepare an experts' report.

[4] In compliance with s 664A of the Act, the applicant forwarded to the respondents a notice of compulsory acquisition, a copy of the experts' report and a form of objection. Notices of objection were received by the applicant from seven shareholders.

[5] The 12 respondents to the application between them hold 9,752 ordinary shares. Four of the seven respondents who submitted notices of objection gave notice that they wished to be heard and appeared on the hearing of the applicant in person or by counsel. Two of the respondents were not able to be located but notices were sent to their respective addresses in the share register.

[6] The objecting shareholders who appeared on the application, each hold 100 shares with the exception of Tim Talty Pty Ltd (Superannuation Fund) which holds 5000 shares. For convenience, I will refer to the objecting shareholders as "the respondent objectors" or "the objectors".

[7] Carrington has its registered office and principal place of business in Queensland. Its principal businesses are those of cotton grower, cotton ginner and owner operator of grain farms. The cotton and grain properties are all located in the Queensland/New South Wales border area. Carrington's total revenue from cotton sales in the year ended 30 June 2001 was $42,372,000 and the total revenue from grain sales was $1,348,000.

[8] Prior to its delisting on 1 September 1998, Carrington was a public listed company.

[9] The expert evidence consisted principally of -

(a) A report by Ronald Higham and Jeff Whiteman ("the experts") of Price Waterhouse Coopers Securities Ltd dated 11 April 2002 ("the Report");

(b) A further version of the Report ("the expanded Report") which identifies and, in some instances, includes within it information relied on by its authors in the course of its compilation;

(c) A letter dated 7 October 2002 from Price Waterhouse Coopers to the directors of the applicant revising some of the opinions expressed in the Report, having regard to additional information in existence but unknown to the authors of the Report at 11 April 2002;

(d) Valuations of Carrington's real property and improvements as at March 2002 by Timothy Bartholomew ("the valuer"), a registered valuer and director of Taylor Byrne Pty Ltd, valuers.

[10] The Report relies extensively on records of Carrington such as its books of account and annual reports and on information supplied by directors of Carrington. Some of that information has been verified on oath. The Report also adopts the Taylor Byrne valuations. None of the objectors called evidence.

[11] The Report states, inferentially, that it was prepared as an independent expert's report pursuant to s 667A of the Corporations Act 2001.

[12] It expresses the opinion that the price of "$5.87 per share in Carrington is fair since it is in excess of $4.77 per share being our assessment of the upper end of a reasonable value range". The Report also states that its authors, in forming that opinion, had regard to the fact that the proposed acquisition price is in excess of Carrington's share buyback offer in October 2001 of $5.75 per share.

[13] The Report utilises two bases of valuation, discounted cash flow (DCF) and orderly realisation of assets. It has regard also to the consideration paid for securities in Carrington in October 2001 as well as implied earnings multiples of Carrington's underlying earnings compared to such earnings multiples of comparable companies in the cotton and agribusiness industry sectors.

"A DCF approach involves the calculation of the net present value of forecast future cashflows using a discount rate which reflects a required rate of return for investment in the business. The discounted cashflow approach is the most appropriate valuation method to use when the earnings and cashflows of the company are not consistent year on year."

[15] The discount rate adopted was 9%. The Report considered a range of four cotton prices in 2002, 2003, 2004 and 2005. The highest prices within the range were "based on the highest price levels achieved historically for a sustained period". Cotton yields were assumed to remain at the 2001 level of 3.20 bales per acre. Grain sales and prices were set at levels forecast by Carrington's management. The NPV was then calculated at $112,549,000 on the basis of the highest of the four cotton prices selected.

[16] In order to arrive at "the upper end of a reasonable range for the equity value for Carrington's shares" a sum of $9,400,000 was added to the net present value figure of $112,549,000 on account of "surplus assets" and debt of $76,600,000 was deducted to provide a total of $45,400,000. When divided by 11,972,000 (the number of issued shares) the resulting value per share was $3.79.

[17] The "surplus assets" consisted of land owned by Carrington which was not being used to generate income.

[18] The valuation on the basis of an orderly realisation of assets adopted Taylor Byrne's valuations of land and improvements including water licences. Having regard to a likely realisation period of 12 months, Taylor Byrne's total valuation of $149,965,000 was discounted to $132.7 million. Plant equipment and other such non-fixtures were valued at $3.8 million and allowances were made for capital gains tax and marketing and selling costs. A net realisable value of $57 million ($4.77 per share) was arrived at.

[19] The Report concluded that the orderly realisation value, being substantially higher than that derived by application of discounted cash flow methodology, should be regarded as the upper limit of a reasonable valuation range for Carrington's shares.

[20] It was noted that the proposed acquisition price of $5.87 was higher than the orderly realisation value of $4.77 and the $5.75 offer price in the October 2001 buyback scheme. The Report is silent as to the explanation for the buyback scheme's offer price being considerably in excess of the valuations reached on the basis of discounted cash flow and orderly realisation methodologies.

[21] The October letter, utilising the additional information to which reference was made earlier, arrived at a new equity for Carrington of $58,204,000 or $4.86 per share on a discounted cash flow basis of valuation. That compares with the Report's original equity value and value per share respectively of $45,398,000 and $3.79.

[22] The principal reason for the change was that projected cotton sales used in the Report were markedly lower than prices achieved on sales of cotton sold forward by Carrington prior to March 2002.

[23] In the October letter the authors of the Report adopted $4.86 per share (in lieu of the highest valuation in the Report of $4.77) as being "the upper limit of a reasonable valuation range for Carrington shares". The opinion expressed in the Report that $5.87 per share was a fair price was affirmed.

[24] On 1 August 2002 an order was made requiring the respondents who had filed notices of appearance to serve on the applicant by 22 August 2002 "a statement setting out the grounds on which they intend to oppose the application". That order was varied on 6 September 2002 to extend such time to 13 September 2002.

"On the trial of this proceeding no respondent may rely on any ground not stated in a statement filed and served in accordance with the order of 1 August 2002 or this order."

[26] Two respondents served such statements. Gordon Elkington's stated ground was that "the evidence filed in the proceedings in support of the application does not establish on the balance of probabilities that the price offered for the securities to be acquired is fair".

[27] Robert Catto's grounds are contained in documents dated 22 August 2002 and 16 September 2002, respectively. His grounds, in substance, are -

1. The expert evidence does not "sufficiently address" the worth of the water licences [held by Carrington] and the valuer focused "in particular on the water licences of the group and the current market for such rights". As a result of these matters the proposed price is unfair.

2. The Report was in error in stating that the offer price in the share buyback scheme was negotiated between Panizza Associates and Carrington at "arms length". Both parties were under "significant duress" owing to the prospect of losing the litigation and Panizza Associates "were in danger of being locked into their shareholding" which was ostensibly unmarketable. "The [majority], presumably not having the money themselves, needed a solution which allowed them to use the company's money to see the end of the Panizzas."

3. The experts erred in applying "a selling and marketing discount, in valuing Carrington on an orderly realisation basis" as the Corporations Act contemplates continued trading rather than the sale of assets.

4. Compared with the offer price in the buyback scheme, the proposed acquisition price is unfair as there has been no interim dividend paid between the conclusion of the scheme and this application but in that period another cotton crop has been harvested.

5. Carrington's franking credits were used in the buyback scheme "to enhance the value of the selective capital reduction to those shareholders who participated". There is "no comparable adjustment for those remaining shareholders who are now being asked to leave".

[28] I will now address each of the objectors' contentions.

[29] I construe this ground as meaning that the valuer's treatment of water licences resulted in their being undervalued and that, in consequence, the values arrived at by the valuer were materially understated.

[30] There was a separate valuation report for each of the four aggregations of real property on which Carrington grows cotton. The properties concerned, their locations, areas in hectares and valuations are as follows -

[31] Valuation reports in respect of other real property and plant, such as Carrington's cotton gin were also prepared and tendered but they were not subjected to criticisms.

[32] Each of the subject valuations is extremely comprehensive and contains: real property descriptions; details of Local Government zoning; details of water rights, entitlements and usage; topographical descriptions; rainfall data; rainfall charts; details of irrigation plant, facilities and infrastructure; identification of fields under irrigation; details of other improvements; a schedule containing a detail analysis of each comparable sale; an analysis of existing and anticipated market conditions; a list of assumptions and a statement of the valuation's methodology.

[33] In each case the direct comparison method was used involving a comparison of the subject properties with other properties sold within the immediate area of the subject property and also within the adjoining Gwyndir and Namoi Valleys. The comparable sales were analysed to allow for the value of structural improvements, non-irrigated lands, storage dams and rotation lands so as to derive a value for "a licensed developed hectare rate based on water usages in the order of 6ML/ha".

[34] In the case of the Carbucky aggregation it was deduced that the property had excess water and a value of $13,472,676 (14,969.64 ml at $900 a ml) was attributed. A similar process resulted in $5,116,662 being attributed to excess water in the case of the Central aggregation. In the case of the Queensland property, a value of $1,750,000 was attributed to 5 "full" water licences and $50,000 to a restricted licence.

[35] Mr Bartholomew, the author of the valuation reports, was not required for cross-examination and Mr Hack SC, who appeared for Mr Catto, Bowpine Pty Ltd and Tim Talty (Superannuation Fund) made no submissions in address in relation to this ground of objection. It was not suggested that the methodology employed by the valuer in relation to water rights and licences was flawed and there is nothing on the face of the valuations which leads me to conclude that the valuer's opinions should not be accepted. Accordingly, I find that this ground has not been made out.

The offer price in the share buyback scheme was not at arms length and the valuation failed to have any or any proper regard to the use of Carrington's franking credits in the buyback scheme

[36] The buyback scheme was devised as part of the process of settling Supreme Court proceedings in which Panizza interests alleged oppression by the majority. The evidence did not disclose any inequality of bargaining power between the majority interests on the one hand and the Panizza interests (which held about 27% of the shares in Carrington) on the other.

[37] Offers under the scheme were made to all minority shareholders and the great majority of them accepted. One can only speculate about the existence of pressure on Panizza Associates to accept a lower price for their shares because of fear of losing the litigation, and the extent to which any such pressure affected the price they were prepared to accept. Their 27% shareholding, at the offer price of $5.75, had a total value of (very roughly) $7,250,000. That suggests substantial bargaining power. Also, any pressure on Panizza Associates which tended towards acceptance by them of a lower price may have been matched or exceeded by countervailing pressure on the majority to rid itself of a troublesome minority.

[38] In cross-examination, Mr Higham's attention was drawn to the fact that the $5.75 per share purchase price in the buyback included a $2.05 fully franked dividend. He conceded that this meant the offer price had a greater value to most offerees than a cash offer without such a component. Mr Jackson QC, who led Mr Freeburn for the applicant, submitted that the additional value per share arising from the inclusion in the price of a fully franked dividend for a shareholder on the top marginal rate was 12 cents per share (on the assumption that the shares were acquired for $1.00). Neither Mr Hack nor Dr Elkington disputed this calculation although Mr Hack submitted that it was of limited relevance. He contended that tax of 87 cents which would be saved on such a fully franked dividend should be regarded as the benefit or additional value to offerees. I do not accept that this is right. The benefit or value to each shareholder depends on matters such as those taken into account in Mr Jackson's calculation and will vary from shareholder to shareholder.

[39] Mr Higham said in cross-examination that he was aware of the dividend component of the offer price at the time of the Report, but did not quantify it because of the great many variables involved. No attempt was made in cross-examination to show that, had Messrs Higham and Whiteman considered the buyback offer price to be substantially more valuable than $5.75, their opinion of fair value would have been affected.

[40] As a result of the experts' limited consideration of the effect of the dividend component of the buyback offer price. I find their opinion that a fair value of $5.87 is supported by the buyback price of little weight. I regard it as unlikely, however, that they would have increased their valuation by reference to the buyback price, had they subjected the buyback scheme and price to further and detailed analysis. Apart from the consideration that the two conventional methods of valuation employed by the experts resulted in a conclusion that $4.86 was "the upper limit for a reasonable valuation range", the three sales of shares which were effected between 9 August 2000 and 10 August 2001 were at prices of $3.50, $3.45 and $3.80 respectively. Those sales are relevant although, being few in number and at a time when the shares were not listed on a stock exchange, they cannot be given much weight.[1]

[41] The existence of the buyback offer price is but one relevant consideration, albeit an important one.[2] Moreover, having regard to the circumstances in which the purchase price was struck, (which circumstances were explored in only a limited way in evidence), it needs to be treated with some caution. It may be said also that it was based on information available to directors and shareholders prior to October 2001 whereas the amended report relies on material information available up to 11 April 2002.

[42] The fact that the price put forward by the applicant does not include a dividend component is relevant but cannot, of itself, mean that it is not fair. Fairness must be assessed by reference to the total value or consideration for the shares rather than by reference to the composition of the consideration. As the above discussion indicates, a non-cash component may enhance the value of an offer price to some or all offerees but it is the extent to which it does so rather than the fact that it is not simply a cash offer which is relevant. No evidence was adduced with a view to showing that the failure to include a dividend component in the price so affected the value of the consideration in the hands of any respondent so as to result in unfairness.

The alleged error in applying a selling and marketing discount in valuing Carrington on an orderly realisation of assets basis.

[43] Even though there is no suggestion that the applicant may wish to cause Carrington to dispose of its assets, it has the option of taking that course should it deem it to be in its financial interests to do so by concluding, for example, that the return on capital does not justify continued trading. But no such course could be taken without Carrington's incurring and being obliged to meet costs of realisation. Consequently, if the respondents are to have the benefit of a valuation on an orderly realisation of assets basis, it is proper to take into account the costs of realisation. Plainly, valuation on such a basis contemplates the sale of assets with all the expenses consequent on such a course.

[44] The revised valuation in the October letter on the discounted cash flow basis exceeds that on the realisation of assets basis and even if there was substance in these allegations, contrary to my conclusions, there was no attempt to show that if the experts had not erred their conclusion as to value on the realisation of assets basis would have been affected to such an extent that their opinion (and any assessment) of fair value would have been affected also.

The proposed acquisition price is unfair in failing to take into account the consequences of the failure to pay an interim dividend.

[45] As I noted earlier, the respondents, between them, hold 9,752 ordinary shares out of the total issued share capital of 11,828,850 shares. All ordinary shares rank equally for dividend purposes. Consequently, the respondents, in total, have an entitlement to .066% of any dividend declared. It is therefore apparent that the difference in value of a respondent's shares, depending on whether a dividend had or had not been declared, was minimal. Apart from that, whether or not a dividend had been declared or paid had little or no bearing on the experts' valuations.

[46] Otherwise, this criticism has been addressed earlier and found to be of no substance.

Arguments advanced outside the grounds of opposition

[47] On the hearing, Mr Hack sought to ventilate a number of matters not within the scope of his clients' grounds of opposition. Objection to this was taken and upheld. Mr Hack then applied to amend the grounds of opposition "to challenge the report on the basis of the matters contained in the annual report for 2002". It would appear that the amendment was designed to open the way for a challenge to some of the contents of the Report on the basis of discrepancies between projections in respect of the 2002 year in the Report and actual results for that year as revealed by the annual report for 2002.

[48] The application was refused because the new ground was too imprecise to permit the applicant to know the case it had to meet and it was thus unnecessary to consider whether, if the amendment had been allowed, the applicant would have been in a position to meet the new case.

[49] Undeterred by this ruling, repeated on a number of occasions, Mr Hack, in address, presented a number of arguments, outside the grounds of opposition and not foreshadowed to the applicant prior to the hearing. I decline to entertain them as to do so would be unfair to the applicant. The applicant, properly, made it plain that it was presenting its case with a view to meeting the stated grounds of opposition and with a view to demonstrating that the requirements of the Act had been met. But as they have been drawn to my attention and as some of the respondents did not appear it is desirable that I give them consideration and express my views on their merits.

The Report should not be accepted as critical assumptions such as future cotton yields, cotton prices and expenditure have not been properly proved. In this regard it was further argued that, because of the discrepancy between projected earnings in the Report and in the annual report, it was not possible to be satisfied that there had been an adequate examination of "the underlying facts".

[50] It is plain that the statements or assumptions of fact which form the basis of an experts' opinion must be proved other than by the evidence of the expert unless the relevant facts are within the experts' own knowledge.[3]

[51] The evidence did not reveal that the experts had any relevant expertise in forecasting likely cotton yields or prices. Consequently some basis for the experts' assumptions in that regard had to be established. The experts, in preparing their Report, appear to have been paid little regard to these basic principles but, in fairness to them, they may not have adverted to the possibility that the Report would become the critical evidence in legal proceedings. It would seem that the deficiency in the Report was drawn to their attention and that this resulted in the preparation of a copy of the expanded Report "which identifies and merges the Report with the information which was relied on when compiling the Report".[4] The way in which it does so, however, is not entirely satisfactory. It is apparent that critical data and forecasts have been obtained from the management and directors of Carrington but the identities of the persons concerned and their relevant expertise are not revealed. This may be thought to be an oddly casual approach, having regard to the overall expense of the Report and the importance of the forecasts in the valuation process.

[52] Notwithstanding these deficiencies in the applicant's material, I conclude that I should resist the objectors' invitation to reject the expert evidence. Both versions of the Report went into evidence without objection. The stated grounds of opposition did not identify or rely on any evidentiary deficiencies in the Report and any case to be mounted in this regard only emerged in the course of the hearing.

[53] As this matter has been made a Commercial Cause I am able to exercise the power conferred by s 283 of the Supreme Court Act 1995 to "dispense with the rules of evidence for proving any matter where it is just to do so (including cases where expense and delay might otherwise be caused)".

[54] Resort may be had also to Rule 394 of the Uniform Civil Procedure Rules.

"If a fact in issue is not seriously in dispute or strict proof of a fact in issue might cause unnecessary or unreasonable expense, delay or inconvenience in a proceeding, the court may order that evidence of the fact may be given at the trial or at any other stage of the proceeding in a way the court directs."

[56] It is apparent that the approach of the objectors is to attempt to frustrate the application by opportunistically seizing on real or imagined defects in the applicant's material without giving any prior warning to the applicant. Prior to the hearing, the quality of forecasts as to crops, prices and expenses or the evidentiary basis or value of those forecasts were not raised as issues. No objector sought to make out a case that the experts' opinion as to a fair price was erroneous because another and higher price was a fair price or because another valuation principle should have been applied. Nor was it contended that, having regard to relevant facts, the forecasts made by the experts were unreasonable or unjustifiable.

[57] In those circumstances, I am of the view that the matters under consideration are not seriously in dispute and that to require strict proof would cause unnecessary or unreasonable expense, delay and inconvenience. I am also of the view that, to the extent it is necessary to do so, it is just to accept the loose hearsay evidence in the Report as proof of the matters in contention. I take into account in this regard the amount involved in these proceedings for each objector on the one hand and the cost to the applicant on the other.

[58] As I mentioned earlier, each objector who appears, other than Tim Talty Pty Ltd (Superannuation Fund), holds only 100 shares. Tim Talty holds 5,000 shares. No objector attempts to make out a case that the Report undervalues the shares or offers any opinion as to what a fair price might be. Mr Catto and Dr Elkington are experienced investors who have considerable experience in litigation of this nature. It thus appears likely that if the experts' opinion of value is overly conservative, the maximum sum in issue for each holder of 100 shares, at the outside, is unlikely to be more than a couple of hundred dollars. In Tim Talty's case, the maximum sum at issue is unlikely to be more than a few thousand dollars.

[59] Whilst the modest amounts involved in the proceedings do not absolve the applicant from establishing those matters required to be established by it under the Act, they are relevant to my reception and treatment of the evidence under consideration.

[60] In Dashwood v Maslin,[5] Isaacs J explains -

"Undoubtedly, with certain well recognised exceptions, the rights of the parties are not be determined except upon direct evidence of personal knowledge. But the rules of evidence have been adopted for practical purposes with the object of securing, so far as human methods will allow, the pure and perfect administration of justice. They are, however, only means to attain an end, and are not to be used so as to defeat it."

Section 283 of the Supreme Court Act 1995 and r 94 give statutory expression to a similar principle.

[61] From the material before me, I infer that the experts adopted the relevant projections and estimates as to yields, expenses and prices after extensive consultation with Carrington's management and directors. I infer also that the persons with whom consultations were held had expertise and experience which justified reliance by the experts on their respective opinions.

The experts failed to properly consider whether the sum of $420,000 on account of legal fees in the accounts to 30 June 2001 was abnormally high on account of the oppression action.

[62] In cross-examination, Mr Hack referred Mr Higham to legal fees of some $420,000 having been incurred by Carrington in the half year ended 31 December 2001 and obtained the concession that such fees, based on Mr Higham's experience, were abnormally high. Mr Higham though, said that he saw no reason to make any adjustment on account of the abnormality as the discounted cash flow basis of valuation looked to the future rather than the past. The matter was not further pursued.

[63] In the earlier cross-examination of a director of Carrington, Mr McGill, Mr Hack sought to establish that a substantial part of such legal expenses were attributable to the oppression action and other disputes between shareholders. Mr McGill referred to the incurring of legal expenses on environmental and property matters, and said that the level of expenditure was not "abnormal". This point therefore seems to lack substance and to have, at best, a marginal potential to impact on the experts' valuation range.

The Report did not contain any detailed profit and loss statements so as to enable any informed conclusion to be drawn about the experts' expenses projections.

[64] There is nothing in this point. There are in fact quite detailed profit and loss statements included in the Report, but it does not affect the validity of the Report that it is not accompanied by the books of account and other primary documents to which its authors may have had reference. The Report itself gives some description of the materials to which the experts had reference. In cross-examination Mr Higham spoke of a detailed investigation in the course of which his staff spent a number of days on site working through "the figures [in relation to expenditure] and seeking explanations from management".

The October letter erroneously failed to take into account matters which came into existence or which became known after the date of the Report.

[65] In support of this argument, Mr Hack pointed to cases in which it has been held that in assessing damages it has long been established that, although the assessment is required to be effected as at a particular date, the court takes into account relevant matters which become known up until the conclusion of the trial. The rationale is that "where facts are available they are to be preferred to prophecies".[6] Reference may be had also to Kizbeau Pty Ltd v W G & B Pty Limited[7], a case in which a purchaser of a motel business sought damages under s 82 of the Trade Practices Act for misleading and deceptive conduct by the vendor owner. Applying Gates v City Mutual Life Assurance Society Ltd[8], the Court concluded that damages were to be assessed by reference to the difference between the value of the business at the date of purchase and the price paid for the business. It was said in the judgment of the Court, in relation to the question of whether the conduct of the business and amendment to a relevant town planning permit after the date of purchase could be taken into account, that "This case falls into the class of case of which Willis and Bwllfa & Merthyr Dare Steam Collieries are examples" and that the Court in determining the value of the business for the purpose of assessing damages was bound "to avail [itself] of all information at hand of the time of making [its] award".

[66] Mr Hack pointed out also that such principles have been held to apply in cases of compulsory acquisition and compensation for injurious affection of land. In CMB No 1 Pty Ltd v Cairns City Council,[9] it was held, by a majority, that in assessing damages for injurious affection under s 3.5 of the Local Government (Planning & Environment) Act 1990 the court was obliged to take into account a rezoning after the date of assessment. The respondent to the appeal was the owner of land which was mistakenly rezoned by the appellant local authority under a new town planning scheme. The respondent, without knowing of the rezoning, sold the land which was subsequently rezoned to correct the mistake. It would seem that the purchase price was determined on the basis of the original zoning.

[67] It is apparent from this brief account of the facts that CMB No 1 Pty Ltd was a somewhat unusual case and it is hardly surprising that the court took into account the subsequent rezoning. The basis upon which McPherson JA considered that the subsequent rezoning was relevant appears in the following passage from his reasons - [10]

"It would follow from applying here what was said by Mahoney JA in Housing Commission v Falconer that the evidence in this case of the subsequent rezoning of the land and completion of the sale at 45 million would be admissible to support an inference as to the price which a hypothetical vendor and purchaser might have agreed on as the sale price of the land after the rezoning to Rural on 17 December 1993. The possibility that a further rezoning would occur, and the strong likelihood, approaching near certainty, that the Council would ensure that it did, are factors that would be taken into account by such hypothetical persons in arriving at a price that affords evidence of the value of the land at that date."

[68] A little later in his reasons[11] his Honour referred to Thorpe v Brisbane City Council[12], in which Gibbs J delivering the judgment of the Full Court relied on Minister for the Army v Parbury Henty & Co[13] where Williams J said -

"The amount of compensation, being a matter of assessment, can, like damages, be calculated in the light of any subsequent facts to the extent to which they throw light upon the items of value which can properly be taken into account in the calculation, having regard to the circumstances existing at the date of acquisition."

[69] Mr Jackson submitted that the time for determining the value of "the company as a whole"[14] is the date of the compulsory acquisition notice in reliance on Capricorn Diamonds Investments Pty Ltd v Catto[15] and a number of other authorities to like effect.[16] There was no contention to the contrary.

[70] Considerations applicable to the assessment of damages or even to the compulsory acquisition of land are not necessarily the same as those applicable to the compulsory acquisition of shares. In the case of damages, the Court is attempting to make an assessment of the loss suffered by the plaintiff with reference to a particular measure of damages.[17] Plainly, in a personal injuries case, for example, the fact of a complete recovery by the plaintiff prior to the trial or, conversely, a disastrous and permanent physical deterioration, will provide cogent, if not critical, evidence of the actual extent of loss. In the case of the compulsory acquisition of land or compensation for adverse affection, however, an event after the date on which compensation falls to be determined will not have, as a general rule, such a significant bearing on the amount of compensation. The subsequent event is relevant only insofar as it sheds light on circumstances existing at the compensation date. There are other considerations applicable to share acquisitions. Reliance on subsequent events as evidence of the value of shares at a particular date needs to be approached as a general rule, with even greater caution.

[71] Share prices are affected by a great many factors. Perceptions of potential sellers and buyers as to a variety of relevant considerations can be more important than the accuracy of those perceptions and the perceptions may change rapidly. A host of considerations including market sentiment and changes therein, changes in interest rates, economic conditions in the United States as well as Australia, whether a particular industry or market sector is enjoying market support, world market conditions for the product or commodity sold manufactured and/or traded by the company and so on may bear upon share prices. An increased profit or other favourable matter, when announced, may not have a positive effect on the share price as the matter may be in accordance with or below market expectations. There is thus obvious difficulty in taking into account for the purposes of determining share values events occurring after the assessment date.

[72] If matters after the assessment date need to be taken into account, it is necessary to look, not merely at matters which suggest that the valuation was too low but other matters which may suggest the contrary. The objectors, naturally enough, focus on the extent to which projections have fallen short of actual prices and sales in 2002 but make no reference, for example, to the effects of drought on Carrington's future crops. Similarly, no account is taken of any increased costs which may result from a drought or other factors or changes in market conditions which may have deteriorated since the date of the Report.

[73] If the applicant had been given notice of this argument, its counsel would have had the opportunity of preparing arguments in response. Instructions could have been taken with a view to seeing what evidence could be adduced to explain the alleged difficulties with the gap between projections and reality and the bearing of that gap on the reliability of the Report. It may have been possible also to show that, having regard to additional considerations such as those mentioned, the valuations were unaffected. In any event, on the material before me, there is no reason to suppose that had the experts taken into account all information available at the date of the October letter, the experts' critical conclusions would have differed in substance from those in the October letter.

Matters advanced by Dr Elkington in his submissions

[74] Dr Elkington did not cross-examine and his submissions were extremely brief. He submitted, at least inferentially, that the Report and expanded Report should be disallowed on the basis of the principle expressed by Heydon JA in the course of his reasons in Makita (Australia) Pty Ltd v Sprowles.[18] I understood that Dr Elkington, generally, was adopting submissions made by Mr Hack in reliance on the same reasons. He referred in particular to the quotation by Heydon JA of the following passage from the reasons of Maurice J in Lewis v The Queen - [19]

"There is a tendency amongst academics, professionals and others who develop skills in a particular area to mystify their field, often by the use of what seems to the outsider to be arcane language. It is the role of a prosecutor to strip forensic evidence of its mystery so far as is possible; trial by expert must never be allowed to take the place of trial by jury. The inability to articulate the principal tenets that need to be understood, to describe in ordinary language the methods used and the reasons that point to a particular conclusion, these are the hallmarks of unreliable science and the not-so-qualified expert."

[75] After referring to that passage Dr Elkington referred to two parts of the Report in which the experts explain their methodology and complained about the "almost incomprehensible analysis" of one passage and the lack of justification for the conclusions reached in another. He did not cross-examine Mr Higham on these matters but submitted, in effect, that it was not up to him to attempt to clarify points made in the Report, rather it was for the Court to be satisfied by the material put forward by the experts.

[76] I accept that parts of the Report referred to by Dr Elkington are not particularly clear and that the soundness of some of the conclusions reached cannot be verified by reference to other parts of the Report. The thrust of the experts' approach to the valuation, however, is plain enough. The experts are well qualified and it is not suggested that they departed from orthodox valuation practice. Part of the lack of justification complained of stems from the fact that some of the contentions are matters of opinion based on a number of intangible factors, including the experts' experience. In the absence of an effective challenge to the experts' competence or objectivity, I see no reason why I should reject the Report on the grounds now advanced by Dr Elkington who, as I mentioned, refrained from affording the experts an opportunity to meet his criticisms.

[77] Dr Elkington also sought to discredit Mr Bartholomew's real property valuations on the grounds that -

(a) The valuations seemed to be prepared for the ANZ Bank for the purpose of establishing a market value for mortgage security purposes which was contrary to the principle that the tribunal of fact should lean towards a more generous valuation than towards a meaner valuation;

(b) The analyses of comparable sales set out in the real property valuations were not fully explained.

[78] Mr Bartholomew gave an opinion as to the "current market value" of the subject properties and he defined market value in conventional terms. The fact that the valuations were obtained by a mortgagee for mortgage security purposes would therefore not seem to have any practical significance. Mr Bartholomew was not required for cross-examination and thus no attempt was made to show, by cross-examination, that the valuations arrived at were not, in fact, an opinion of the market value.

[79] In developing his argument, Dr Elkington referred to an observation of Santow J in Re Goodyear Australia Ltd v Green[20] that the determination of fair value calls for "a liberal estimate to compensate a compelled vendor for deprivation of its ownership interest and of the capacity to share in any future benefits, to the extent that these benefits would otherwise enure to that vendor". Similar views were expressed by his Honour in Holt v Cox.[21] In Capricorn Simmonds Investments Pty Ltd v Catto [22] Warren J remarked, referring to Commission of Succession Duties (SA) v Executor Trustee & Agency Co of SA Ltd[23], that "fair value may require a more liberal estimate of value within a range of possible values where there is a compulsory acquisition of property".

[80] Section 667C of the Act prescribes the manner in which "fair value" is to be determined. If there remains any scope for the making of a "liberal estimate" of fair value it is as well to have regard to words of Dixon J in the Executor Trustee case in order to understand the limitations of the approach.

"I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate."

[81] The evidence does not suggest that Mr Bartholomew erred on the side of a lower valuation in resolving any doubts he may have had. Nor, might I add, did the evidence disclose that the experts had acted inconsistently with the approach expounded by Dixon J. The contrary appears to have been the case. For example, they utilised the upper range of cotton price predictions when valuing on the discounted cash flow method.

[82] The valuations included conventional summaries of details of the comparable sales relied on by the valuer. It is neither normal nor practicable for greater detail in relation to such sales to be included in a valuation report of the nature of that under consideration. If Dr Elkington had wished to obtain further relevant information he could have sought it from the applicant or the valuer prior to trial or he could have cross-examined the valuer at the hearing.

[83] Dr Elkington did not object to the admissibility of the Report or the extended Report, rather his points went to the reliance which could be placed on their contents. I reject his submissions for the reasons earlier advanced. Moreover, the grounds on which he sought to rely were not within his stated ground of opposition (which did no more than state, in effect, that the applicant would be put to proof). It did not hint at a positive case. If I had considered that Dr Elkington's arguments had merit, it would have been necessary to decide whether it would have been just to permit the grounds of opposition to be amended appropriately. No such application was made and Dr Elkington is thus confined to his grounds of opposition.

[84] Section 664F(3) of the Corporations Act provides -

"664F(3) [Obligation to approve acquisition] If the 90% holder establishes that the terms set out in the compulsory acquisition notice give a fair value for the securities, the Court must approve the acquisition of the securities on those terms. Otherwise it must confirm that the acquisition will not take place."

[85] The concept of "fair value" is defined in s 667C as follows:

"667C(1) [Determining fair value] To determine what is fair value for securities for the purposes of this Chapter:

first, assess the value of the company as a whole; and

then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and

then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class).

667C(2) [Securities purchased in previous six months] Without limiting subsection (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account."

[86] The Price Waterhouse Report undertakes the tasks required by s 667C(1) and takes into account the matter required to be taken into account by s 667C(2). The objectors do not contend that there has been any failure to meet any of those requirements. It is not suggested that there has been non-compliance with any other requirements of the Act and I find that there has been compliance.

[87] For the above reasons, I find that the terms set out in the notices of compulsory acquisition give a fair value for the subject shares and I order that the acquisition of the respondents' shares on the terms set out in the notices of compulsory acquisition exhibited to the affidavit of Cameron Alan Jorss filed herein on 1 July 2002 be approved.

[88] Under s 664F(4) of the Act the applicant "must bear the costs that [the objectors] incur(s) on legal proceedings in relation to the application unless the Court is satisfied that [the objectors] acted improperly, vexatiously or otherwise unreasonably". Dr Elkington was entitled to put the applicant to proof and the other objectors were entitled to argue the grounds in their statements of opposition. Their respective attempts to go outside their grounds of opposition in the circumstances I have outlined were, in my view unreasonable. It was this conduct which caused the hearing to go into a second day and it is not appropriate that the applicant bear the costs of that day.

[89] I propose to order that the applicant pay the respondent objectors' costs of and incidental to the proceedings, including reserved costs but excluding the costs of appearances on 19 November, to be assessed on the standard basis.

[1] Cf Catto v Ampol Ltd (1989) 15 ACLR 307 at 322, 323.

[2] See s 667C(2) of the Act and Catto v Ampol Ltd (supra) at 315-316.

[3] Ramsay v Watson [1961] HCA 65; (1961) 108 CLR 642 and Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705.

[4] The quotation is from the affidavit of Geoffrey Whiteman filed 11 October 2002.

[5] [1909] HCA 62; (1909) 9 CLR 451 at 457.

[6] In re Bradberry [1943] Ch 35 at 45.

[7] [1995] HCA 4; (1995) 184 CLR 281, particularly at 295-296.

[12] [1966] Qd R 37, 44-45.

[13] [1945] HCA 52; [1945] 70 CLR 459, 514.

[15] [2002] VSC 105; [2002] 41 ACSR 376.

[16] Austrim Nylex Ltd v Kroll [2002] VSC 193; [2002] 42 ACSR 18; Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456; [2002] 42 ACSR 354 and Energex Ltd v Elkington [2002] QSC 363.

[17] See eg, Gates v City Mutual Life Assurance Society Ltd (1985-1986) 160 CLR 1 at 11-13.

[18] [2001] NSWCA 305; (2001) 52 NSWLR 705.

[19] [1987] NTCCA 3; (1987) 88 FLR 104 at 123-124.

[20] [2002] NSWSC 53.

[21] (1994) 15 ACSR 313 at 339.

[22] [2002] VSC 105; (2002) 41 ACSR 376 at 392-3.