Events subsequent to completion of the Business Sale & Purchase Agreement -adjustments to EBITDA circumstances and calculations made post-acquisition at the instance of Foundation - submissions of Idoshore concerning significance as to fall in revenues subsequent to Foundation's takeover of operation of the Oxford Square Medical Centre
54 I have already extracted most of the defined expressions appearing in clause 1.1 of the Business Sale & Purchase Agreement, and in particular that of 'Business' and 'EBITDA', and of the 'EBITDA Benchmark' (amounting of course in the latter case to $250,000). Idoshore asserted that the non-exclusively defined expression 'Business' was 'a logical construct' and was not indicative of a legal entity. It was further argued by Idoshore that the defined notion of 'Business' found expression in activity conducted 'within the Foundation corporate organisation' following upon the subject acquisition, albeit confined in nature to 'the business operation' which had been conducted by Idoshore before the subject acquisition. There is a need to elaborate upon that submission at the outset to the extent that the definition of 'Business' the subject of clause 1.1 of the Agreement includes 'Goodwill' (being a defined term), 'the right to occupy the Premises', 'Plant and Equipment' (again a defined term), and 'the right to receive income from any sub-lease or license at the Premises', but all that does not involve any controversy, at least of substance, to my perception of the substantive issues arising.
55 As I have foreshadowed, Idoshore contended that the operation of the definition of EBITDA post-acquisition requires an examination to be undertaken of what revenues and expenses were relevantly involved in Foundation's operations at the OSMC after completion of the Business Sale & Purchase Agreement, in order to determine whether the same 'belonged' (to adopt Idoshore's expression) in some logical way to the 'Business' as so defined in and by the Business Sale & Purchase Agreement. Put another way by Idoshore more specifically, '[t]he issue is not whether they are costs and revenues of Foundation', since '[a]ll costs of the Business will be costs of Foundation because it is the corporate owner' of the Business, and further that '… necessarily, not all costs of Foundation incurred generally or in relation to the Business [were] costs of the Business' (the emphases being that of Idoshore). So much is in my opinion correct in principle. Moreover it was further said by Idoshore that regard should be paid to the definitions of 'Losses and Liabilities', 'Operating Costs' and 'Outgoings' appearing in clause 1.1 of the Agreement in order to gain an appraisal of the validity or otherwise of the descriptions or illustrations given by Idoshore to the broad notion of '[a]ll costs of the Business'. To those defined expressions may be incorporated reference to at least the definitions of 'Premises', 'Service Fees' and 'Taxes' appearing also in clause 1.1.
56 The principal breaches by Foundation of the Business Sale & Purchase Agreement, as well as the falsification of representations collateral to the formation thereof allegedly on the part of Foundation, were described by Idoshore as the 'load[ing] up' of the OSMC business with 'new costs', being principally the costs outlined as follows:
(i) 'a cost of a new management layer' of about $80,000 per annum incurred for at least the first and second years of operation of that Agreement;
(ii) 'the costs of corporate overheads' of about $48,000 per annum in respect of 'all years' from and after commencement generally of the operation of that Agreement; and
(iii) 'costs peculiar to Foundation (not of the OSMC business) and as an employer of a much larger size than Idoshore or OSMC as a stand-alone enterprise, being in particular group tax approximately $17,000 per annum in respect of 'all years'.
There is force in that assignment of significance relevantly by Idoshore concerning those so-called 'new costs'. It would be difficult to rationalise a proposition to the effect that costs of those descriptions, being personal or otherwise peculiar to Foundation, could have been objectively envisaged mutually by the contracting parties as being accommodated contextually within the costs measurement formula of EBITDA, those being costs originating on a non-arm's length basis and having no reflection correspondingly in the EBITDA components appertaining to Idoshore.
57 As I have foreshadowed, Idoshore submitted that the bringing of costs of those descriptions incurred into the calculation of the EBITDA of the OSMC, as costs incurred by or in relation to the 'Benchmark EBITDA', contravened clause 3.9 of the Business Sale & Purchase Agreement, since the same involved '… material changes to organisational structure, operations and strategic direction of the Business and Centre without consulting with, and receiving consent from the directors of Idoshore…', for the following reasons articulated by Idoshore:
(i) the 'new management layer' created by Foundation in relation to the OSMC operations involved 'material changes to the organisational structure' or 'operations' of the OSMC by way of introducing new staff and management with associated costs into the conduct of the Business for which there was no approval by Idoshore and which decreased EBITDA, as distinct from 'growing it' (see again clauses 3.9 and 3.10, where the theme of obligation on the part of Foundation as to growing 'the Business' appears);
(ii) the same thesis as in (i) above applied in principle in relation to contribution to costs of corporate overheads imposed, or otherwise made attributable to the OSMC operations, by Foundation;
(iii) costs incurred by Foundation in relation to the fact merely that it became the owner of the OSMC were not costs of the OSMC for the purpose of EBITDA accounting; thus it was not a relevant expense of the OSMC, for instance, that Foundation as an employer had 'overall', in the sense of 'over its whole medical centre empire', a large enough payroll to attract payroll tax than would have been otherwise the case if the OSMC was ex hypothesi its only enterprise involved in the engagement of employees; likewise the fact that Foundation was a stock exchange listed company 'could not justify inflicting some share of listing costs on OSMC', Idoshore not of course having been a listed public company.
58 There is force in principle in those submissions, in that Foundation appears to have introduced factors into its calculations which at least arguably stood outside a fair and realistic operation of the defined meanings of the 'Business' or the 'Centre' contained in Clause 3.9, and their implications in the context of the Business Sale & Purchase Agreement as a whole. In that latter regard, inherent in the Agreement's defined notion of 'outgoings' is that the same be 'of the Business' (as of course in turn defined). Idoshore emphasised, rightly I think in principle, that whilst 'Foundation could choose for its own reasons to incur costs or simply have them inflicted on it because of its peculiar characteristics', nevertheless Foundation '… could not… bring them to account in calculating the EBITDA of the Business after acquisition'.
59 Additionally to those principal breaches which Idoshore sought to thus frame, Idoshore postulated what it described as a 'second level of breaches of Clause 3.9 concern[ing] revenues'. To set the context for identifying those further alleged breaches, Mr O'Shanassy drew attention to 'the business management principles and revenue earning strategies of the Business of OSMC before sale', which he caused to be pursued by Idoshore prior to the Foundation takeover, being principally as follows:
(i) to grow gross billings by doctors;
(ii) to obtain an average of '50% or better from doctor retentions'; and
(iii) to maximise other revenues from medical practitioners who attended rooms at the OSMC for consultations and 'cross referring', those principal strategies were characterised by Idoshore as not 'properly' subject to change by Foundation without the permission of Idoshore at all after acquisition 'because of the said clause 3.9 of the Business Sale & Purchase Agreement', or 'where because of the change, EBITDA of the business is reduced'.
60 Yet as Idoshore postulated further, 'without [its] permission', under Foundation's operation of the 'Business' following upon 'Completion':
(i) the gross billings of the OSMC, which had been increasing prior to, and 'for a time' subsequent to, completion of the Business Sale & Purchase Agreement, 'were allowed to stagnate';
(ii) 'the doctors retention figure' was allowed to slip from 53% to 43% at a cost to revenue of over $100,000 per annum for each of years 2 and 3 after acquisition'; and
(iii) 'consultant "rent" revenues disappeared entirely in years 1, 2 and 3 and ordinary rent fell by $29,000 in year 2, the former being referrable to visiting specialists and the latter to room occupancies by general practitioners.'
The response of Foundation was not to put in issue that such falls in categories of revenues etc took place after completion of the Agreement, though Foundation did not accept that so much was in any way attributable to any breach of contractual obligation on its part. Nevertheless Foundation failed to provide a sufficient explanation for such declines in revenue.
61 By way of elaboration upon factor (i) immediately above, Idoshore submitted further as follows:
(i) the Deloitte expert report made on 5 February 2007 by the firm's partner Mr Phillips, of course on the instructions of Idoshore, postulated that the figures provided by Mr O'Shanassy from the records of the OSMC, '… far from showing a declining business, actually showed a growth trend for the business from 1 July 2000 (ie for the September 2000 quarter)'; completion of the Business Sale & Purchase Agreement by the '[giving of] possession/control to Foundation Medical' occurred subsequently on 31 January 2001 having been entered into on 14 December 2000; I observe that the average monthly billings for the three months ended 30 September 2000 was $98,956, thereby totalling $296,867 for that July to September quarter, and the average monthly billings for the nine months to 30 June 2001 was $106,729, involving an increase of 7.9% for that latter period (par 3.25 of the Deloitte report);
(ii) the Deloitte report postulated further that if the growth trend of the OSMC had been maintained after completion of the Foundation acquisition or takeover of the OSMC business on 31 January 2001, the '[f]orecast total billings (Static Average) ' would amount to $1,493,052 for the twelve months ended 31 January 2002 and the '[f]orecast total billings (Growth Trend)' would amount to $1,551,226 over the same period; the 'Static Average' was based on a calculation whereby the 'average monthly billings for the period 1 February 2001 to 31 July 2001 continue for the remainder of the year, ie 1 August 2001 to 31 January 2002', whilst the 'Growth Trend' was based on a calculation whereby the 'trend in the billings for the period 1 February 2001 to 31 July 2001 compared with 1 February 2000 to 31 July 2000 continues for the remainder of the year, ie 1 August 2001 to 31 January 2002'; EBITDA for the twelve months ended 31 January 2002, based on 22.4% per quarter ended 30 September 2000 and involving forecast total billings (static average), was calculated to be $334,444; forecast billings 'growth trend' was calculated to be $347,475. Neither of those outcomes occurred in the events which subsequently happened (see pars 3.119 to 3.121 of the Deloitte Final Expert Report headed Instruction 7a); and
(iii) in circumstances where Foundation 'has failed to explain in any probative way why the deterioration in revenue reflected in the accounts occurred, or what steps they took to arrest it', or why no attempt was made to consult contemporaneously with Idoshore in relation to that circumstance, 'the Court can and should prefer the growth trend analysis of Deloitte to determine the proper EBITDA Earn-Up'.
62 Relevantly to the prevalence of factors (ii) and (iii) above, Idoshore asserted the following additional matters:
(i) Foundation's expert witness Mr Gower, a chartered accountant and a director of his firm GCA Gower & Co Pty Ltd (and being incidentally a former partner of Deloitte Touche Tohmatsu for five years, and before then a partner of Duesburys for six years), conceded in the course of cross-examination (at transcript page 257) that he had no explanation for the 'drop of 10 per cent of the gross income';
(ii) the difference relevantly involved adversely to Idoshore (though not to the Foundation corporate group as a whole) was 'around… $100,000' which 'would otherwise fall directly to the bottom line';
(iii) accordingly Mr Gower was unable to explain, as he further appeared to at least implicitly acknowledge under cross-examination, that '… as part of [his] instructions absolutely no explanation by anyone within Foundation [was given to him] as to why it was that one of the key determinants of the business - that is to say the retention from doctors' billings, dropped from 53 per cent eventually down to 43 per cent over only three years…'.
63 By way of further elaboration upon factor (iii) immediately above, no explanation was said by Idoshore to have been provided by Foundation for 'the disappear[ance] entirely, in years 1, 2 and 3' following upon completion of the Business Sale & Purchase Agreement, of consultancy 'rent' revenues, or for the fall in 'ordinary rent' by $29,000 in year 2. It was submitted by Idoshore in that regard that '… a change in income stream (sundry and rental) of that magnitude, shows that it is more likely than not that Foundation made changes to the business which produced the collapse in sundry/rental income, and that although a reduction in income may have been unremarkable… a complete disappearance of income is inexplicable'. There is force in that submission but it is not a simple task, without more detail, to afford at least entire significance thereto. It was pointed out by Idoshore in any event that '[a]ny change sufficient to have that dramatic an effect would be a material change to the business', yet there was no cross-examination of Mr O'Shanassy as to whether he was consulted about any change in the management or in the running of the business, as Foundation was contractually required to do (see again clause 3.9). In outlined summary of Idoshore's case therefore, Idoshore contended that on the balance of probabilities, and in the absence of any satisfactory explanation by Foundation otherwise, which was said to have been not forthcoming, '… the loss of income reflected in Mr Gower's [evidentiary] table for the years 2002, 2003 and 2004 was caused by a material change in the way Foundation conducted its business, which in turn deprived Idoshore of the Earn-up, and contributed to Foundation's [so-called] embarrassing warranty claim', with the consequence that the loss 'ought to be restored to the account as income'.
64 Largely upon the basis of the foregoing submissions, Idoshore's case in broad summary was that the consequential effect upon the income generally and upon the EBITDA consequentially of the OSMC in Foundation's hands, was as follows:
(i) rental income of approximately $172,000 ($116,780 + $55,372), said to constitute the relevant calculation before acquisition, fell to $51,700 in year 1, $23,000 in year 2 and $49,800 in year 3, in each case of course post-acquisition, thereby representing losses in revenue of $65,000 for those first two years and $93,000 for that third year;
(ii) coupled with the loss of retention percentage in years 2 and 3, '$65,000 was lost in year 1 and $193,000 in year 2 and $165,000 in year 3';
(iii) expenses were increased by $145,000 ($97,000 plus $48,000) in year 1, by a similar sum in year 2, and by $80,000 in year 3;
(iv) accordingly the aggregate impact on EBITDA was $162,000 lost in year 1, $338,000 lost in year 2 and $245,000 lost in year 3, according to Idoshore's foregoing calculations.
65 Idoshore's case was therefore that but for the circumstances I have already recorded and upon the footing of its foregoing submissions:
(i) Idoshore would have had an 'earn up', or to adopt the language of clause 3.3(a) of the Business Sale & Purchase Agreement, an upwards 'Adjustment to Purchase Price';
(ii) Idoshore would have received what it called the 'purchase price balance'; and
(iii) 'Idoshore could not have been liable for any warranty claim', referring thereby to the claims made by Foundation pursuant to sub-clauses (n) and (p) of clause 10.1 of the Agreement (which have been earlier foreshadowed).
66 Idoshore claimed to have sustained loss and damage which would not have occurred but for the breaches of contract alleged, based on the following further calculations which it postulated:
(i) in year 1, EBITDA reported by Foundation was $69,534; an additional $162,000 of EBITDA, said to be 'the aggregate impact on EBITDA' calculated as above, would have yielded a $241,534 EBITDA;
(ii) in year 2, a loss of $12,980 was reported; a '$338,000 adjustment' would place EBITDA at $325,000;
(iii) in year 3, EBITDA was reported at $44,436; when 'adjusted for income and expenses, $289,436 would have been earned'; and
(iv) if the loss of income from 'the stalling' of the income growth is included, another $200,000 approximately would have to be added to EBITDA; that was said by Idoshore to be 'because the actual income was $1,076,751 in 2002, that of $1,042,467 in 2003, and that of $1,064,000 in 2004', 'whereas had even the growth actually enjoyed from July 2001 to September 2002 been continued, or even the 7% growth rate… after purchase', as calculated by Mr Phillips in the Deloitte report furnished to Idoshore, the income would have been in the order of $1.5m per annum, or $400,000 higher than was derived in the events which happened and were reported; so much represented '$200,000 of what would be substantially [the] bottom line addition to EBITDA'; that was said by Idoshore to be the case 'because all other costs of achieving that income had already been incurred'.
67 Accordingly Idoshore's case was further that given all relevant income and expense adjustments having been made, 'on the basis of what the business had done and was doing at the time of sale and shortly after, EBITDA would have been $441,534 in Year 1, $525,000 in Year 2 and $489,436 in Year 3'. Therefore the 'EBITDA figures in year 1 (1st Earn Up period) would have provided the following outcomes', so Idoshore presented to the Court (see again clause 3.3(a) of the Agreement):
· $441,534 - $250,000 ([so-called] EBITDA Benchmark) equals $191,534 (growth in EBITDA in year 1), which would have resulted in:
· $191,534 x 4.5 (earn-up multiple as per sale contract) equalling $861,903 as thereby payable to Idoshore.
68 The foregoing submission as to the likely EBITDA in the first 'earn-up' year of a figure in excess of $400,000 was asserted by Idoshore to be supported by the evidence of Foundation's expert Mr Gower, appearing at page 257 of the transcript for Day 4 of the hearing of the proceedings, where the following appears in the course of his cross-examination by senior counsel for Idoshore:
[Mr Cotman] 'Right. Well, can we then come back very briefly to the analysis of these three years and your page 13? If we go to the 2004 year, we have, yet again, a loss of about $100,000 of income by reason of the retention rate having gone from 53 per cent down to 43 per cent…?
[Mr Gower] That's - the difference there is about $124,000, I think.
[Mr Cotman] Yes. And, likewise, we have a loss of the rental income of about $54-odd thousand?
[Mr Gower] It's reduced by approximately that, yes.
[Mr Cotman] And in this year, at least, the surplus wages cost is - over the 2000 or two thousand and - September 2000 quarter, is only now only about $40-odd thousand, isn't it?
[Mr Gower] That's approximately right, yes… .
[Mr Cotman] Right. And so taking those four components into consideration, and the fact that the business earned [$]92,000, even under those circumstances, if the business had been conducted as it was being conducted in September 2000, or in relation to the revenue line as it was being conducted in the year ended February 2002, the business would have earned about $400-odd thousand, would it not?
[Mr Gower] That's - on these numbers, that's approximately right, yes.
[Mr Cotman] In other words, it would have earned around about $110,000 more that the target EBIT?---
[Mr Gower] That's what the numbers show. Yes'.
69 Further to Idoshore's submissions upon the issue which its senior counsel described as 'Gower's Impossible EBITDA Benchmark thesis', I was referred by Idoshore again to clause 3.3 of the Business Sale & Purchase Agreement, which provided for a '1st Adjustment to Purchase Price' by reference to the 'EBITDA Benchmark' of $250,000. Idoshore contended that in the course of the expert evidence of Mr Gower, given in support of Foundation's case, Mr Gower asserted that the '1st Adjustment to Purchase Price' was incapable of achievement, because it required the OSMC to 'significantly outperform' its own historical earnings and various other financial benchmarks, inclusive of '[r]evenue achieved by the [OSMC] both before and after Foundation's acquisition' (Gower, 1st Report, para [15]). Idoshore rejoined to the effect that the evident purpose of the attack was to justify and give some credence to the subsequent and 'dramatically lower' EBITDA for the years 2002, 2003 and 2004. That so-called 'attack on the EBITDA Benchmark' was said by Idoshore to have failed for reasons advanced by Idoshore, which I will summarise below.
70 The first reason so advanced by Idoshore was that the 'EBITDA Benchmark' was agreed by Foundation with Idoshore following the due diligence process, and thus antecedently to the formation of the Business Sale & Purchase Agreement. If the EBITDA benchmark was 'as profoundly overstated as a possible result for Business as Mr Gower's subsequent EBITDA calculations suggest', then as Idoshore thereupon postulated, the conduct of the respective parties in selecting that EBITDA (of course $250,000) was 'absurd'. It was submitted further by Idoshore that '[t]o the extent the collapse of post-acquisition EBITDA was a result of the bringing to account of costs not incurred previously and incurred apparently in breach of the Agreement', the selection of a $250,000 EBITDA benchmark, constituted for the purpose of course of giving definitive effect to that Agreement, was 'nothing short of a scheme to cause Idoshore to go into breach [of] the warranties, and [for] Foundation to recover that very excessive and unauthorised expenditure as a claim on warranties'.
71 The second reason advanced by Idoshore was that 'the evidence confirms that the EBITDA Benchmark was in fact economically rational'. In that regard, both parties were said to have at least implicitly or intrinsically agreed 'pre-purchase' to that circumstance or proposition. It was contended by Idoshore therefore that 'but for the changes in costs structure and revenues structure, the [Benchmark] would have been earned', that is to say, at least such 'Benchmark' figure would have been thereafter derived by the OSMC in the normal course, or would normally and reasonably have been so expected or anticipated. It was pointed out by Idoshore in that regard that '[w]hile the EBITDA was less for the period before 1 July 1999, when revenues were lower and costs higher in the amalgamation of the two practices' (ie the OSMC practice and the Kings Cross practice of Dr Grech), 'the circumstances of the business had changed by [that time]', such that the position of the OSMC, and thus the components of the OSMC business assets Foundation was buying would have improved 'as a result of various management decisions made and implemented by Mr [O'Shanassy]'.
72 The third reason advanced by Idoshore was that in the opinion of Deloittes' Mr Phillips, 'the use of the results [of the OSMC] to September 2000 for the benchmark was proper, and in fact was confirmed as proper when his analysis was done of [the] subsequent months' results'; I was referred generally in that regard to Deloitte's Final report made by Mr Phillips on 5 February 2007, as expert witness of course for Idoshore.
73 The fourth reason advanced by Idoshore was that the gross income of the business of the OSMC derived as from 1 February 2001 (when of course Foundation assumed control thereof following upon completion of the Business Sale & Purchase Agreement on the scheduled date of 31 January 2001) and continuing up to 31 July 2001, 'showed no decrease at all', and in fact 'showed an increase in gross income on Foundation's own figures', being a trend which Deloitte addressed specifically in the course of its analysis.
74 One of the 'central propositions' of Mr Gower's evidence was said by Idoshore to be that the September 2000 quarterly results of the OSMC 'were significantly better than previous results', that being explained by Mr Gower as the reason why the subsequent EBITDA calculations of Foundation for 2002, 2003 and 2004 'were so dramatically low', to adopt Idoshore's description. However it was submitted by Idoshore that the proposition so put forward by Foundation was 'destroyed' by Idoshore's analysis of the evidence as 'correctly undertaken and reasoned'. In that regard, exhibited to Mr O'Shanassy's affidavit was a table of gross revenues headed 'Oxford Square Medical Centre RX Summaries', which showed that the revenue figures of the OSMC for February 2001 to June 2001 and through to August 2001, were for each of those months $97,423, $122,621, $108,961, $124,982, $113,138, $123,706 and $109,748 respectively (it will be recalled that completion of the Business Sale & Purchase Agreement took place on 31 January 2001, having been entered into on 14 December 2000).
75 In relation to those gross monthly revenue statistics from February 2001 to August 2001, Idoshore drew attention next to the circumstance that Mr Gower could not recall having paid regard thereto, yet when presented therewith in the course of his cross-examination by senior counsel for Idoshore (at transcript pages 221 to 222), Mr Gower gave the following evidence concerning what Idoshore contended to have boiled down to significant concessions; after acknowledging in relation to those monthly figures, '[y]es, it certainly indicates that revenues were in the range of 92[,000] to 104,000 per month', Mr Gower's testimony under cross-examination thereafter proceeded as follows:
'[Mr Cotman] Which is pretty much the same range we see from the September quarter?
[Mr Gower] Approximately it appears to be, yes.
[Mr Cotman] Then [it] starts to grow quite strongly subsequent to purchase through to August of 2001?
[Mr Gower] That's right, the revenue does grow.
…
[Mr Cotman] The question I asked you was in the period subsequent to purchase down to August of 2001, one in fact sees the business consistently doing better than $100,000 a month of revenue?
[Mr Gower] Certainly from March onwards it does, yes.
[Mr Cotman] So that we're not looking at winters and we're not looking at peculiar features of the September quarter in relation to the revenue aspect of the equation are we?
[Mr Gower] Well, I don't know. These - I don't know whether there are such features. These figures tend not to indicate it.
[Mr Cotman] Quite?
[Mr Gower] They tend to be reasonably stable.
[Mr Cotman] Yes, but these figures are inconsistent with the view that September was a revenue spike due to winter aren't they?
[Mr Gower] That's correct, yes.'
76 Idoshore submitted therefore that given Mr Gower's acknowledgment that revenues remained 'in the range of $92,000 to $104,000 per month' through to August 2001, and further that 'it was pretty much the same range as we see from the September [2000] quarter', his attack based on the EBITDA benchmark must fail, since it was demonstrably not the case that the EBITDA September Quarter (for the year 2000) used for the EBITDA benchmark 'was in any way exceptional'. What was submitted by Idoshore to be exceptional was the post-acquisition expenses and collapse of 'net revenue (after retentions) and other income' of the OSMC. There is force in those Idoshore submissions. For essentially the comprehensive reasons propounded by Idoshore, it is readily apparent that Foundation's attack on the viability of the 'EBITDA Benchmark' as a basis relevantly for measurement failed and must be put aside.
77 Further in the foregoing context of Idoshore's submissions, reference was made thereby to Mr Gower's use of 'CCH Industry Benchmarks'. Idoshore contended that in the second Deloitte report, bearing date 5 February 2007, Mr Phillips explained why the use of CCH Benchmarks by Mr Gower was inappropriate. That 'wholly inapt' use of material was said to be further demonstrated during the cross-examination of Mr Gower, during which the following exchange occurred:
'[Mr Cotman] … what you have looked at as comparable figures is doctors running a medical practice delivering medical services?
[Mr Gower] That's correct.
[Mr Cotman] And what we are here looking at is a business providing facilities to doctors who conduct medical practices, the business of this operation being the facility-providing?
[Mr Gower] That's correct.
…
[Mr Cotman] And so, to the extent that you bring across the CCH figures and assert them into an analysis of Oxford Square Medical Centre, you are potentially doubling up whole bodies of costs, aren't you?
[Mr Gower] There is a potential doubling up of costs, yes.'
For the purpose of reference, the relevant testimony of Mr Gower to which I have referred appeared at transcript pages 221-222, which Idoshore specifically addressed at length and with emphasis.
78 What was therefore submitted by Idoshore to follow was that Mr Gower's explanation for the so-called 'dramatic reversal in Foundation's EBITDA calculations for 2002, 2003 and 2004 - being that the original $250,000 Benchmark was set too high - must fail', and that the reasons advanced by Foundation for the conclusion that the September quarter involved a 'spike' were 'recanted by Mr Gower', and yet further that his purported comparison with the CCH Benchmark 'was wholly inapt'. In my opinion, so much is clearly demonstrated by the thrust of those Idoshore submissions, which were made upon the basis of material which I have summarised.
79 Accordingly it was submitted by Idoshore, upon the basis of evidentiary material it addressed, that 'the only logical alternative explanations' were first, that 'the figures have been made up by Foundation', or secondly 'that something material happened in the business after about July 2002 which caused the 2002, 2003 and 2004 EBITDA calculations to fall dramatically in Foundation's favour', and thirdly that '[g]iving Foundation the benefit of the doubt [on that first proposition], in the absence of any probative explanation from Foundation, the Court can [and should] more readily draw the inference' inherent in that second proposition'. Those were formidable submissions. Upon the footing of the material I have reviewed, and in particular Foundation's resort to purported reliance upon non-arm's length expenditure, it suffices for me in all such circumstances to uphold the validity of the second proposition.