Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited & Ors.

Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited & Ors. - [2001] NSWSC 939 - NSWSC 2001 case summary — Zoe

[26]

[241] I return to the simple fact that the clear burden of a very great deal of the opinions which Mr Maconochie seeks to express on the markets/valuation issues relate in one way or another to the prospects for success of what both parties appear to accept as being the 'novel' Ausmaq proposition in the established financial markets around the world. To my mind in the very unusual circumstances of the issue as raised in these proceedings, Mr Maconochie's training, study or experience in the terms in which he has expressed it does demonstrate that he has acquired sufficient knowledge of the United States relevant markets as to be in a position to express expert class "d" opinions by way of an assessment of the detailed prospects for success of the introduction of the Ausmaq service into the United States markets . [Without being exhaustive I intend this finding to extend to cover expression of opinions as to the ascertainment of United States addressable markets and their extent, likely market penetration and prediction of market success] In reaching this view I have taken into account the extent to which Mr Maconochie is entitled to rely upon the full extent as sworn to, of his own study and analysis (weighed in the light of his further inquiries and obtaining of information in relation to particular research and in light of the background of his antecedent adjectival knowledge, such as it was in relation to the United States markets) of books and materials on a number of areas as having furthered his store of knowledge upon which to lay claim to having acquired the necessary 'specialised knowledge' . It particularly takes into account his earlier identified training and experience in relation to computer-based analysis and research involving complex mathematical models of physical and commercial systems and applying that experience in the conception, analysis, design and realisation of new projects and services . He has carried on research into the funds management industry in the United States including the structure of that industry. He examined and thought about the books and materials he read. He discussed aspects of the information with the persons identified. In investigating aspects relating to fee issues qua the Country fund proposition, he had the benefit of a volume showing all of the managed funds and investment companies in the United States showing the fees and the nature of the investment management operations. The holding does not however extend to suggest that he has been shown to have acquired specialised knowledge on which to be in a position to wholly or substantially base opinions as to relevant United States regulatory requirements.

[27]

[247] Hence amongst other areas Mr Maconochie seeks to provide market share estimates for the United States market; purports to undertake an analysis of the United States Mutual Fund markets; purports to set out revenue estimates based on this analysis; purports to express opinions in relation to a number of markets relying upon Cerulli data for market size and for determining addressable markets; estimates Ausmaq market share using a United Kingdom estimate as proxy; endeavours to calculate and to express opinions as to the revenue which NMG would have earned from Ausmaq had it followed the business path set out in JMG business plans; uses more than one method to endeavour to state revenue calculations including using an expected market share; seeks to give evidence in relation to new approaches to the nature of the Ausmaq offering; Ausmaq pricing structure to investors and advisers; Ausmaq superannuation and equities offerings; 'Ausmaq strategic alignment'; comparison between Ausmaq and Master Trusts; NMG cost to income ratio; and purports to express opinions as to the calculation of revenue which NMG would have allegedly earned from the New Zealand market had the business path set out in JMG business plans been followed.' [emphasis added] 8 The proposition for which the plaintiffs contend is that the court has either found and held, or alternatively, it is consistent with courts judgment, that Mr Maconochie possesses specialised knowledge on the basis of which, whether wholly or substantially, to be in a position: · To know [and presumably therefore to be in a position to express an opinion as to] the nature and proper use of and to calculate discount rates · To know [and presumably therefore to be in a position to express an opinion as to] the nature of and the proper use of cost to income ratios in respect of e-commerce financial services, including the Ausmaq Service; · To know [and presumably therefore to be in a position to express an opinion as to] how to calculate by reference to an assumed discount rates and/or cost to income ratio, the present value of the Performance Bonus payable to JMG 9 The plaintiffs' essential submission is these are not matters of valuation, but of financial and business expertise and specialised knowledge. 10 The plaintiffs quite simply take issue with this submission as contrary to the reasons expressed in paragraph 251 of the judgment.

[33]

· the suggestion that calculations of performance bonuses is a valuation exercise engaged in by Mr Maconochie to assess the bottom line valuation of Ausmaq/JMG's interest in Ausmaq. 18 In the result the defendant submissions' are of substance and should be accepted: · The application of discount rates to revenue projections is clearly a valuation exercise and clearly goes outside the field of "opinions going to market share of a particular product or Service including anticipated cash flow and cost projections". · Calculation of a cost to income ratio is clearly an exercise of accounting expertise since it involves calculation of gross operating revenue and operating costs, which in turn, as the defendants point out, require calculation of "total expenses" (including determination of net profit or loss) and sales revenue (according to approved Australian accounting standards) excluding extraordinary items. · Because performance bonus is a function of gross operating revenue, and because of the relevance of the cost to income ratio to it, calculation of the performance bonus is also an exercise of accounting expertise. · Both of the exercises identified by the defendants in relation to use of price-earnings multiples are clearly valuation exercises outside those in respect of which Mr Maconochie has been held to have specialised knowledge. They are the final step in the valuation process and quintessentially involve assessment of the different modes of or approaches to valuing the rights to the subject product or Service and as to why one mode or approach is correct or preferable to another mode or approach and involve a 'bottom line' valuation of Ausmaq. 19 The plaintiffs put forward a set of alternative submissions. The first is that the matters referred to in paragraph 8 above are not "pure valuation matters" such as valuing land or likely rents, but are matters which on the courts earlier judgment, Mr Maconochie, as an experienced businessman, can provide evidence, opinion or otherwise. In my view the submission is not of substance and should be rejected. I reject the submission that: · calculations performed by Mr Maconochie involving the use of discount rates should be accepted as an expression of Mr Maconochie's financial and business expertise and specialised knowledge. · calculations performed by Mr Maconochie involving the use of potential cost to income ratios should be accepted by the court as an expression of Mr Maconochie's financial and business expertise and specialised knowledge. · calculations performed by Mr Maconochie using price-earnings multiples should be accepted by the Court as an expression of Mr Maconochie's financial and business expertise and specialised knowledge. · opinions as to the likely value of the performance bonus payable to JMG may be given by Mr Maconochie. 20 The second of the alternative submissions was that any calculations of Mr Maconochie should be accepted by the court as a matter of calculation so that his respective opinions may be utilised as matters of assumption for the first plaintiff to prove aliunde the evidence to be given by Mr Maconochie, presumably to be assumptions which other witnesses are asked to make. This submission seems unexceptional if the precise calculations are clearly set out and one is not left to speculate as to these - section 136 orders may then be made accordingly - the calculations then being permitted as "Subj/Op/Calc".

Cases Cited (4)

CITATION : Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited & Ors. [42] [2001] NSWSC 939 FILE NUMBER(S) : SC 50113/98; 50026/99; 3991/00 HEARING DATE(S) : 22/10/01, 23/10/01 JUDGMENT DATE : 30 October 2001

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION - Commercial list Einstein J 30 October 2001 50113/98 Idoport Pty Limited & Anor v National Australia Bank Limited and 8 Ors 50026/99 Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus 3991/00 Idoport Pty Limited "JMG" v National Australia Bank Limited & Ors. Judgment on valuation issues 1 The judgment delivered on 21 March 2001 ([2001] NSWSC 123) dealt in paragraphs 245 - 251 with the question of Mr Maconochie's suggested expertise in relation to valuation issues and the like. A number of questions have now arisen as to the application of those reasons to particular paragraphs of Mr Maconochie statements. This judgment deals with those questions. 2 The burden of the defendant submission is that the court has held that Mr Maconochie has the specialised knowledge on the basis of which, whether wholly or substantially, to express opinions in relation to the potential or actual revenues and costs associated with the Ausmaq Service inasmuch as these relate to the commercial potential of Ausmaq in certain markets. The submission is that the court has held that Mr Maconochie does not have specialised knowledge on the basis of which, whether wholly or substantially, to press opinions that go to the issue of value of Ausmaq or JMG. 3 The defendants then take issue with Mr Maconochie's entitlement to express any opinions as to discount rates; the potential cost to income ratio of the Ausmaq Service; the likely value of the performance bonus payable to JMG and the appropriate price-earnings multiple for the valuation of the NMG and hence JMG. 4 The defendants' submissions deal closely with the true nature of a discount rate, a cost to income ratio, and a price - earnings multiple. In essence the submission is that selection of an appropriate discount rate is an exercise which, for the purposes of calculating damages by a court, requires to be undertaken only by accounting experts. Likewise in essence the submission is that calculation of a cost to income ratio is an exercise of accounting expertise. Likewise the submission is that price-earnings multiples are a method of calculating the value of a business based on its present day earnings and that use of this method is clearly a valuation exercise. As to the question of the performance bonus payable to JMG, the essence of the submission is that a close understanding of the Consulting Agreement throws up the fact that calculation of a performance bonus involves a number of parameters constituting a valuation exercise requiring accounting expertise. 5 The defendants detailed submissions in this regard were in the following terms: " Discount Rates

Selection of an appropriate discount rate is an exercise that, for the purposes of calculating damages for a court , should be undertaken only by accounting experts. Even where expert accountants do undertake such an exercise the correct rate is often the subject of debate (see for example P M Sulcs & Associates Pty Ltd v Daihatsu Australia Pty Ltd [2001] NSWSC 636 per Kirby J. at paragraphs 815-816 and 903-909. Note that Mr Maconochie addresses none of the points raised by the expert accountants in this case).

[2001] NSWSC 798

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (39 paragraphs)

Cases Cited (4)