Knight v Rosshaven Marine Pty Ltd [1992] QCA 290

In our opinion, the argument cannot succeed. The judge had before him not only the figures fixed by the two valuers, but other information to assist him to assess which figure was more likely to be right. His Honour did not profess to have reached his conclusion by any process of exact reasoning, but no doubt merely did the best he could to fix a fair figure. It is not the law, in our opinion, that where two or more valuers give evidence as to their opinion of the market value of a piece of land, the court must accept one of the opinions given as precisely right unless there is direct evidence in support of the view that a figure different from any of them might be correct. We were referred to no authority in support of that proposition and reject it. One can see that if experts give conflicting opinions on a question of a very technical kind, the court may be unable to reject them all and form its own opinion. But land values are not generally matters of that sort.

Next, the appellant's counsel raised a question as to the valuation of a building described as the main building. One of the valuers saw it about a month before the relevant date, 14 November 1988, and one about a month after. It was not complete at the former date, but was complete at the latter. The evidence left it uncertain whether the building was complete on 14 November 1988.

One possible, if rather pedantic, view might have been thought to be that the appellants should fail on the issue of the value of the main building, on the ground that they had not discharged the onus of proof lying upon them. What the judge did was to approach the matter in what he described as a "broad brush way". On the basis of a photograph suggesting that at the date of the earlier valuation (which valued the building as completed) there was little left to do to complete the building, his Honour reduced the amount of the earlier valuation by $20,000. There was some evidence to suggest that the proper reduction was $25,000, but his Honour did not make so large a reduction, a course which benefited the appellants. In our opinion, the challenge to this aspect of the judge's valuation must fail for, on the rather unsatisfactory evidence presented to him, the judge did the best he could; there is no reason to think that the figure he arrived at was other than substantially correct.

The next point raised, and it is the only one which has, in the end, troubled us, is the value of what was described as a travel lift. This was used in the trust's business and had, as a chattel, a substantial value; one valuer gave a figure of $167,500 and the other, according to his Honour's analysis, should be treated as having valued the travel lift at $172,500.

Each of the valuers had valued the business on the basis that the travel lift belonged to the trust, but it turned out that that was not so. It was used in the trust's business under a lease which at the relevant date had subsisted for three years and had two years to run. The judge deducted from each of the estimates of the value of the business that amount which represented the value of the travel lift (as just set out). His Honour said:

"I find that on October 10, 1985 the defendant company leased from National Westminster Finance Australia Limited for a term of 60 months one complete Shiplift Marine Straddle Crane. At the relevant valuation date that chattel was therefore not the property of the defendant. Each valuation should therefore be reduced by the amount allowed were it an asset of the company. Having done that, I am not prepared to forget about that item. Whilst the defendant company may have had no legal or equitable interest in the travel lift it did have by virtue of the lease provisions a right to possess it and to use it in its business (subject to payment of rent) so it may be considered as an income-producing asset for the upcoming two years' remainder of the lease".

It was argued by counsel for the appellants that although the judge said that he was not prepared to forget about the travel lift, he made no explicit allowance for it; no express or specific figure is ascribed to it in the judge's reasons. However, that does not appear to be of any consequence. The appellants did not press for acceptance of the judge's view that the right to possess the lift had a value. The matter was argued, rightly as it seems to us, on the basis that the choice is between allowing a substantial figure for what might loosely be described as the trust's "equity" in the travel lift, on the one hand, and on the other, allowing nothing, because the trust had no interest in the travel lift.

The lease is in evidence. Under it, the respondent trustee agreed to pay 60 monthly instalments made up of rental and stamp duty of $3,668.69 each, the first on 10 October 1985 and thereafter on the same day of each succeeding month of the five-year term. On the relevant date, assuming that payments had been made in accordance with the lease, 38 payments had been made and 22 remained to be made; that assumption appears to us to be justified by the mode of conduct of the case. The amount remaining to be paid was therefore $80,711.18. The residual value stated in the lease was $42,253. The lease made no provision, however, for the acquisition by the respondent of property in the travel lift.

There was evidence from which it might have been inferred that, as a matter of commercial practice or at the least in the expectation of the respondent, it could acquire property in the travel lift from the lessor by making certain payments. That evidence, however, is fairly thin and requires some analysis.

Each of two valuers, a Mr. Finter and a Mr. Eales, made a valuation of the trust assets on behalf of the appellants. They were apparently provided to the respondent well before the trial, perhaps in the hope of resolving the matter by agreement. A Mr. Johnson, a director of the respondent, provided to the respondent's accountant "the basis of the valuations of Messrs J Finter and G Eales and has asked for our comments thereon", as appears from the accountant's letter - Exhibit 12.

The accountant's comment was to the effect that the valuations were defective in that they did not take into account, as an adjustment to the respondent's financial statements as at 30 June 1988, liability for assets under lease. The accountant pointed out that those assets had been incorporated in the valuation and that liability should therefore have been taken into account. Exhibit 12 went on:

"The lease payout figures as at 1 November 1988 were as follows:

The interpretation of this rather cryptic remark is the critical point.

The accountant's letter, Exhibit 12, was tendered without objection and appears to us to imply a view that the proper accounting treatment of the travel lift was to list it as an asset and treat the "payout figure" as a liability. It will be noted that the liability suggested ($106,571) is a greater sum than the figure of $80,711.18 remaining to be paid under the lease as at the valuation date, 14 November 1988. A further payment became due between 1 November 1988, the date of the payout figure, and 14 November 1988.

The accountant who wrote Exhibit 12, a Mr. Clarke, gave evidence at the trial on behalf of the respondent, but was not asked by either counsel any question which bore upon the correctness of the assertions he had made in Exhibit 12 about the treatment of the travel lift and other assets. Those assertions could only be regarded as matters of opinion, but they may, we think, fairly be inferred to be based upon the accountant's knowledge of the facts. In particular, we have come to the view that the reference to "payout figure" can, in its context, mean no less than that, on the facts known to the accountant, it would have taken that sum to put an end to the lease, implying of course that the lessee would by making the payment acquire the travel lift.

Mr. Clarke could not have meant by "payout" discharging the remainder of the liabilities imposed on the respondent by way of monthly payments, because the figure given is substantially higher than their total. The only other evidence throwing light upon the meaning of Exhibit 12 comes from one Skinner, the office manager of the respondent, who was asked at the trial what happened to the travel lift. He confirmed that the respondent still had it at the date of trial, which was 30 September 1991, nearly a year beyond the termination of the lease. He was also asked about the respondent's intention with respect to the lease as at November 1988 and said, in effect, that there had been at various stages "talk of what was to be done but ... no definite plans". He said that the talk was "as to whether it should be re-leased or bought out ...". He went on to explain that by re-leasing, he meant renegotiating the lease. The next question and answer were:

"It was a situation that rather than paying out the residual, that the lift would be re-leased for a period and at the end of that period, there would be a further residual to be paid out if the lift was to be acquired. Is that so?--I believe so, yes".

There is evidence here, although in an unsatisfactory form, that the respondent regarded itself at the relevant time as having a choice as to what should happen when the travel lift lease expired in September 1990; one possibility was that the chattel should be "bought out". This gives some support to the view which appears to be implicit in the accountant's letter that, at least as a practical matter, the respondent would have been able to acquire the lease by purchase. Of course, Mr. Clarke was speaking of the position not at the end of the lease, but during its currency. However, the views of the two witnesses are consistent and are supported by the circumstance that the respondent was able to retain the travel lift when the lease expired. The proper conclusion to be drawn is discussed below.

The next point taken on behalf of the appellants was that the judge incorrectly treated a particular asset, namely a pontoon. It was argued that, on the basis of documentary evidence, something in excess of $7,000 should have been included as an asset as being the respondent's "equity" in the pontoon. The answer to this contention is in the evidence of the witness Petrofiski who said, in effect, that the documentary evidence was based upon a misapprehension. That evidence of Petrofiski was not challenged and it is our view that the judge was entitled to accept it, as he apparently did. If accepted, the evidence supported a conclusion that, so far from having an equity either in a legal or commercial sense in the pontoon, the respondent had no interest in it. This point must fail.

Lastly, counsel for the appellants argued a point relating to certain plant consisting in a forklift, a pallet jack, a Toyota and a Holden, but that was abandoned during the course of the hearing.

To return now to the only question which, in our view, has real substance, we have come to the view that it should have been held that at the relevant date the lessor was prepared to sell the travel lift at the payout figure. Exhibit 12, supported to some extent by the evidence of Mr. Skinner, supports that view. The proofs advanced on this issue were not strong, but raised a case requiring answer and, left unanswered, were in our opinion enough to ground a finding in favour of the appellants. The taking of that course is justified in part by the notoriety of the practice in question. One could not assume as a matter of judicial notice that this sort of financing arrangement necessarily involved an understanding that the lessee may buy at a payout figure, but the Court should not pretend to be unaware of what Mr. Clarke's reference to a payout figure was intended to convey: see Duggan Begg and Lanyon, "Regulated Credit", p.13 and Bruce McKern Pollard and Skully, "Handbook of Australian Corporate Finance", pp.239, 240. The latter work explains a reason for the practice:

"The lessee is usually legally obliged to ensure that the lessor receives the residual value of the lease on expiry. Normally the lessee can expect to purchase the equipment for the residual value, and either sell it or retain it for further use. While this practice is universally followed, it is not legally supported by an option to purchase. For Australian tax reasons, the lease cannot include an option for the lessee to purchase the equipment from the lessor. The inclusion of such an option would transform the lease into a conditional sales agreement, under which the user of the equipment would be deemed to be the owner, and the advantages of leasing would disappear. Thus, legally the lessee has no rights to the asset, but in practice Australian lessors have conformed to the accepted market practice of sale to the lessee".

The question remains whether the practice, which would in a commercial sense affect the value of the business, may be ignored in a case of this sort. It might seem odd that a beneficiary should have his or her interest adversely affected by the circumstance that chattels used by the trustee in the trust's business have been acquired by one financing method rather than another. The anomaly would be particularly acute in a case where, as might easily occur, the business has nothing of any consequence but leased chattels in which it has, however, built up a substantial "equity". The question arises whether in a suit against the trustee which involves an assessment of the value of the trust, the circumstance (if it be the case) that the trust could turn the chattels into a substantial amount of cash should be ignored.

For the purposes of compensation on a compulsory acquisition, the decision of the High Court in The Minister v. The New South Wales Aerated Water and Confectionery Company Limited [1916] HCA 48; (1916) 22 C.L.R. 56 is authority on the question of taking into account an expectation of the kind here in question. There, the respondent held land under a lease for a term of years and the issue arose whether the Court should assess the value of its interest having regard to evidence that it had an expectation of a further lease at the end of the term. Griffith C.J. was of the view that while mere personal matters must be left out of account, the "hope or expectation" of a renewal in favour of the sitting tenant could be taken into account (64, 66). Barton J. (70) was prepared to accept that a purchaser might have offered more because of the possibility that he might be allowed to hold over, but thought this could not be "a factor of separate and specific valuation". Isaacs J. appears to have decided the case, following Emery v. Boston Terminal Co. 178 Mass. 172, on the basis that "legal rights are all that must be paid for" (81). Gavan Duffy and Rich JJ. did not decide whether "the probability of obtaining a renewal" could be taken into account. The case leaves open the point which is relevant to the present appeal.

On first principles, it is clear that the task of the valuing court is to estimate the price at which a willing purchaser and a willing vendor of the business would be likely to arrive, after negotiation. It does not appear to us that in assessing that price, reasonable expectations should be left out of account; goodwill, for example, may consist in an expectation that people will continue to be attracted by certain words and images with which a business is associated. In our opinion, on a sale of the trust business, the parties would treat as adding value the difference between the lift's inherent value (which on the evidence was about $170,000) and the price at which the lessor would probably have been prepared at the relevant time to sell it to the lessee (which on the evidence was about $106,571). That would require an assessment of about $60,000. Adding that to the value of the business found brings a figure of $808,670 and takes the appellants' interest to $40,433.50. They had been paid $37,500 for their interest and were thus short paid $2,933.50.

The excess is not a considerable one, but it appears to us that the appellants are entitled to judgment for that sum. Apart from that, the order for costs made below must be set aside. We propose to invite the parties to make written submissions on the question of costs, here and below.

2. The judgment appealed from is set aside and in lieu thereof judgment is given for the appellants in the sum of $2,933.50.

3. The order for costs made below is set aside.

4. The parties are invited to make written submissions on the question of costs, here and below.

CATCHWORDS: VALUATION OF PROPERTY - LEASEHOLD - Appeal from finding of value of trust property - whether judge obliged to accept one of two conflicting values - whether allowance ought to have been made for trust's "equity" in travel lift leased by trust and its ability to acquire it at an under value.

Solicitors: Cooper, Grace & Ward, for the Appellants

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Judgment delivered on 3rd September, 1992. Reasons delivered by Pincus J.A. and Thomas J. jointly, with separate reasons by Fitzgerald P. All concurring as to the proposed orders.

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SET ASIDE JUDGMENT APPEALED FROM AND SUBSTITUTE IN LIEU THEREOF JUDGMENT FOR THE APPELLANTS FOR $2,933.50.

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