97 Documents in evidence reveal that Mr Martin maintained to Mr Sutherland that Sutherland Farrelly's commission on this sale should be based on $4.5m. Eventually, it was agreed that commission would be payable on $6.5m. Whilst I found Mr Martin's evidence to be generally credible and comprehensive, it seemed to me that on this issue his evidence was unsatisfactory. As was submitted by the plaintiffs, in relation to this matter he was evasive.
98 As was anticipated, the sale to HQQ had the consequence that both the HQQ proceeding and the Tranteret proceeding were resolved. The sale settled on 29 July 2003. The bank elected to take the course provided for by clause 26.1(a), returning the Westpac Bank guarantee to Tranteret, and receiving at settlement the full sum of $6.5m.
Consequences of Soiltech's retention
99 A reconciliation of the position under the licence agreement which Mr Carson, as agent for Pinnacle, entered into with Soiltech was produced by Mr Martin and tendered in evidence. The reconciliation reveals that the total EPA levies incurred from 26 November 2002 until Soiltech's eviction were $888,758, of which Soiltech paid $335,859, leaving a shortfall which had to be met by the bank, and which it has added to the secured debt, of $552,899. When assessing the total cost to the bank, and consequently to the borrower and the guarantors, of the decision to retain Soiltech, there must be deducted from this shortfall the licence fees that Soiltech paid. The fees total $165,500. Thus, the net additional liability is $387,399. Recovery action is continuing. It remains to be seen whether any further sum will be recovered.
100 It is not clear against what alternative this outcome should be judged. Mr Martin's evidence was that it was impractical to obtain any other short-term operator. In my view, there was no evidence which contradicted this assessment. Mr Martin and Mr Carson were concerned that considerable losses would result from a cessation of operations as a result of the potential effect which that might have had upon the EPA licence and the possibility that the EPA would require remediation work. The valuations they obtained confirmed that the value of the property without any licences was considerably reduced. The correspondence from the EPA confirmed that the EPA was considering suspension or revocation of the licence. Finally, it cannot be assumed that the eviction of Soiltech in late 2002 could have been accomplished. Such an attempt in late 2002 might well have resulted in further litigation. Soiltech's solicitors claimed Pinnacle was indebted to it.
Evidence of Mr Paul Anthony Pattison
101 Mr Paul Anthony Pattison is a chartered accountant with extensive experience in insolvency and reconstruction matters. Mr Pattison was called as an expert witness by the plaintiffs.
102 An edited version of a report he had prepared dated 8 April 2005 was tendered. Many of the conclusions he had expressed in that report were inadmissible but evidence was led from him orally as to the steps which, in his experience, would be taken by competent insolvency practitioners in the circumstances revealed by the material which he had set out in some detail in his report.
103 Mr Pattison said that the first step that ought to be taken is assessment of the property and the nature of the business conducted on the property. He said the property appeared to be unique and that it would be necessary to engage recognised specialist valuers. In this respect he said he would seek a valuer accredited in the area through the Institute of Valuers. Given the uncertainty as to the air space available on the site for landfill, he said he would have considered an aerial survey. In seeking a valuation, he observed that a valuation for mortgage purposes tended to be more conservative than a valuation for sale, the difference being 5 per cent to 15 per cent. He said the purpose of the valuation was to give a minimum market value which ought to be obtained for the property. He said that if the only offers received were below that valuation then it would be necessary to reconsider the sale strategy or to consider holding the property until market forces changed.
104 In relation to arrangements with an operator of the site, Mr Pattison said he would consider it necessary to assess the viability of Soiltech and to consider their past performance in meeting debts as and when they fell due. He said that if that assessment revealed them to be an operator in default, then it would be necessary to consider whether others might be interested in being an operator and, if so, to go to the market and find another tenant. Mr Pattison said that if it were known that Soiltech would not pay the amounts due as operator, then they ought not be kept on. He added that this was particularly so here given the fact that EPA levies would be incurred by the operator, but the liability for the levies would fall personally upon the receivers and managers. Mr Pattison also made the observation that if Soiltech were to remain as operator, he would expect the insolvency practitioner to seek security to ensure levies were recoverable from Soiltech.
105 In relation to the material which Mr Pattison had seen concerning the tender process, he expressed the opinion that the process adopted did not reflect normal practice. When asked why this was so, he referred to the fact that the dates for acceptance of tenders had been extended. He said that the danger with this practice was that tenderers would believe the process was a sham and would withdraw. He said the appropriate course if no acceptable tender was received by the due date was to conduct a "Dutch auction". He said that if the offers still did not reach the valuation then the appropriate course was to withdraw the property and offer it for sale by private treaty or by auction.
106 In relation to the tender accepted here, Mr Pattison expressed the view that the price obtained for the property was $4.5m, as $2m was already available to the company through the Westpac Bank guarantee.
107 Mr Pattison was also asked whether competent insolvency practitioners would consider non-complying tenders and he expressed the view that they would.
108 In relation to claims and litigation concerning the property, Mr Pattison said competent insolvency practitioners would act on the advice of their lawyers.
109 In cross-examination, it became apparent that there was a good deal of relevant material which Mr Pattison had not been shown. Mr Pattison had observed in his evidence-in-chief that he saw no evidence of advertising or the methods of advertising. In cross-examination he said that he had not assumed that it had not been done at all, but he had seen nothing about it in the material he was given. No complaint is made by the plaintiffs about lack of advertising. Mr Martin's evidence was that the property was widely advertised. Mr Pattison's observations in this respect were misconceived, due to the limited material he was given.
110 Mr Pattison also agreed that he had not seen the valuation by Ham & Murray prepared on the instructions of the receivers and managers. Ham & Murray are valuers accredited in the applicable area of expertise by the Institute of Valuers.
111 In cross-examination, Mr Pattison agreed that the terms of tender which were shown to him in the witness box were common and appropriate conditions.
112 Mr Pattison also agreed that maintenance of the EPA licence was a matter that would need to be considered, observing that the value of that licence would need to be weighed against the risks of continued operation and any liability that may fall back upon the receiver.
113 In relation to Soiltech, Mr Pattison had not been told what payments Soiltech had made.
114 In relation to Soiltech's caveats, he said the appropriate course was to rely on legal advice. He made similar observations in relation to the claim by HQQ for a mining lease.
115 Mr Pattison had not seen the correspondence from the EPA threatening the licence. Of even greater significance, he was unaware of the order and reasons of Ashley J of 3 March 2003 concerning the Westpac Bank guarantee. He agreed in cross-examination that he had assumed there was no impediment to calling up the Westpac Bank guarantee.
Evidence of Mr Nigel Rockliffe
116 An important part of the plaintiffs' case concerning its complaints in relation to the sale of the property was founded upon expert evidence given by Mr Nigel Rockliffe in relation to the value of the business conducted on the Daameeli land.
117 Mr Rockliffe is a financial analyst. He has extensive experience in project evaluation and litigation support. He was asked to conduct a valuation of the property for the purpose of this proceeding and was given a volume of material. He was asked to make a number of assumptions, one of which was that a licence for putrescible waste disposal, although not yet held, "will issue". He proceeded on the basis that this licence would be available by the point at which a business conducted on the property would need the licence, which in his analysis was in approximately ten years' time.
118 The valuation methodology adopted by Mr Rockliffe was the discounted cash flow ("DCF") method.
119 In cross-examination, Mr Rockliffe agreed he was not addressing the value of this property for the first time. In 2002, he had been engaged by Dr Irani to assist him in his dealings with Transwest. Mr Rockliffe had, in that context, conducted a presentation for Transwest, the powerpoint slides of which were tendered in evidence. Mr Rockliffe said there was no link between the work he did on that occasion and his present task. He said that he did not recall any involvement with the property after that presentation, which was held on 9 April 2002. He indicated on a number of occasions that, whilst on that occasion he was working to assist Dr Irani, in preparing his report for this proceeding and in giving his evidence he knew that his duty was to the Court. Whilst I do not doubt Mr Rockliffe's competence or integrity, the fact that he had previously worked for Dr Irani and had engaged in valuation work in relation to this very property for the purpose of, in effect, acting as an advocate for him with Transwest, means that, in my view, he is less independent than would be the case had he been approaching the matter for the first time. There is, accordingly, a need for additional caution in relation to his conclusions.
120 Perhaps the most important document relied upon by Mr Rockliffe in preparing his analysis is the analysis which Transwest undertook of the project consequent upon the approaches made to them, including the presentation by Mr Rockliffe himself. The analysis which Transwest prepared plays an important role in relation to Mr Rockliffe's revenue projections and a critical role in relation to his expenditure projections.
121 In relation to the revenue projections, Mr Rockliffe's report identifies five streams of income. There was considerable interchange between Mr Rockliffe and counsel for the bank in cross-examination in relation to these revenue streams. The most significant revenue stream is revenue related to low-level contaminated soil. The net present value of projected revenue from this source is assessed by Mr Rockliffe at a little over half the net present value of revenue from all sources. There was an historical basis, in actual figures from the period 2001-2002, for Mr Rockliffe's projection.
122 In relation to each revenue stream, Mr Rockliffe projected a "low", a "most likely", and a "high" revenue level, and for his eventual valuation he took a mean of those levels. For low-level contaminated soil, his "high" estimate is a little above the annualised actual levels for 2001-2002, his "most likely" estimate assumes a decline by one third, and his "low" estimate assumes a further slight decline. The next most significant revenue stream is from acid sulphate soils. Again, Mr Rockliffe did have an actual level of disposals in the 2001-2002 period. This became his "low" level. His "most likely" and "high" estimates came from Transwest's analysis. In relation to revenue from putrescible waste, Mr Rockliffe developed his own estimate, based upon regional waste management plans, one of which was from November 2004, and one of which was from June 2002. Mr Rockliffe assumed that a licence would be available and that disposals would begin in year 11. This assumption was controversial, but Mr Rockliffe made it clear that he had no expertise in matters of licensing and that he had assumed, as instructed, that a licence would be available. The fourth revenue stream was from solid waste, and Mr Rockliffe's estimates were based upon the actual disposal of "clean fill" in the 2001-2002 period. The annualised actual level became both his "most likely" and his "high" estimates and a "low" estimate assumed no disposal. His final revenue stream came from quarrying and in this regard he relied on Transwest's estimate.
123 In relation to expenditures, Transwest's estimates of cost structure were critical. Mr Rockliffe substantially adopted them.
124 Mr Rockliffe projected cash flow over a 25-year period, producing a total net cash flow of $48,228,228. To that figure he then applied a discount rate. He chose a discount rate of 15 per cent per annum real. In his report, he said this was "appropriate for a relatively low-risk project such as landfill operation." His valuation of the Daameeli landfill was $11.3m.
125 Mr Rockliffe made it clear that he is an economist and not a person with relevant expertise in either landfill operations or quarrying operations. His report states: