Network Ten Pty Ltd v TX Australia Pty Ltd - [2018] NSWCA 312 - NSWCA 2018 case summary — Zoe

NSWNSWCA

Network Ten Pty Ltd v TX Australia Pty Ltd

[2018] NSWCA 312

Court of Appeal (NSW)|2018-08-16|Before: Bathurst CJ, Meagher JA, Gleeson JA, Stevenson J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2018-08-16

Before

Bathurst CJ, Meagher JA, Gleeson JA, Stevenson J

Source

Original judgment source is linked above.

Judgment (19 paragraphs)

[1]

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[2]

[This headnote is not to be read as part of the judgment] TX Australia Pty Ltd (TXA) was a joint venture company established by Network Ten Pty Ltd (Ten), Nine Network Australia Pty Ltd (Nine) and Seven Network (Operations) Ltd (Seven) for the purpose of owning and operating transmission and retransmission facilities previously owned and operated separately by Ten, Nine and Seven. Each of Ten, Nine and Seven owned one-third of the shares in TXA. The relationship between each party was governed by a Shareholders Agreement entered into by TXA, Ten, Nine and Seven in 1999. Clause 10.2 of the Shareholders Agreement provided for the consequences which would occur if one of the shareholders committed a default, which included the appointment of receivers and managers to the assets of one of the shareholders. If such a default occurred, then the defaulting shareholder was deemed to have consented to the sale of their shares either to the non-defaulting shareholders or to a third party procured by the non-defaulting shareholders. In the absence of agreement on the price for the sale of the shares, cl 10.2(b)(ii) provided that the price would be "a price determined by [TXA's] auditor who will act as an expert and whose decision will be final and binding". On 30 June 2017, receivers and managers were appointed to the assets of Ten. The provisions of cl 10.2 were invoked. Since there was no agreement between the parties on the price for the sale of Ten's shares in TXA, PricewaterhouseCoopers (PwC) were engaged to prepare a "determination of the price" of Ten's shares in TXA. PwC were instructed by TXA to use various assumptions in the preparation of the determination. On 19 January 2018, PwC produced a report entitled "TX Australia Pty Ltd: Valuation of Network Ten Pty Ltd's shareholding in TX Australia Pty Ltd as at 30 June 2017". The effect of the report was the subject of dispute between the parties to the Shareholders Agreement. Ten claimed that the report did not "determine" a price for its shares in TXA for the purpose of cl 10.2(b)(ii), but that, if it did, then it had determined a price of $42.953 million. TXA, Nine and Seven claimed that the report had determined a price for Ten's shares in TXA, and that the price was "nil". The Supreme Court upheld the claim of TXA, Nine and Seven and declared that Ten's shares in TXA were required to be transferred to Nine and Seven for nominal consideration. Ten appealed from that decision. There were two main issues on the appeal: 1 Whether the report produced by PwC "determined" a price for the purpose of cl 10.2(b)(ii), and if so, what that price was; and 2 Whether the "price" required to be determined by cl 10.2(b)(ii) referred to the "market value" of the shares in question or a "fair and reasonable" price. Whether the report produced by PwC "determined" a price (i) Clause 10.2(b)(ii) requires that the auditor determine a single price. It is not sufficient for the auditor to determine a methodology or mechanism from which the price could be determined by applying that methodology or mechanism to the facts. This conclusion follows from the language and commercial context within which cl 10.2(b)(ii) operates as well as the relationship of cl 10.2(b)(ii) with related provisions of the Shareholders Agreement: [85]-[87] (Bathurst CJ); [128]-[129] (Meagher JA); [131]-[133] (Gleeson JA). (ii) The report produced by PwC did not determine a single price. The covering letter to the report expressly stated that PwC had "not been able to provide a valuation which … satisfies the purpose of the original engagement letter", and the executive summary to the report only identified various "possible outcomes" for the valuation based on different scenarios. The report did not identify any one scenario which was to be preferred. Nothing in the appendices to the report led to a different conclusion: [88]-[98] (Bathurst CJ); [128]-[129] (Meagher JA); [131], [134]-[141] (Gleeson JA). Whether "price" referred to "market value" or a "fair and reasonable" price (iii) Clause 10.2(b)(ii) requires the "price" to be determined objectively, in a manner which does not take account of the subjective circumstances peculiar to each party involved. This conclusion follows from the commercial context within which cl 10.2(b)(ii) operates as well as the relationship of cl 10.2(b)(ii) with related provisions of the Shareholders Agreement. Therefore, it would have been permissible for an auditor to determine the "price" by reference to market value: [120]-[126] (Bathurst CJ); [128], [130] (Meagher JA); [131] (Gleeson JA). Foley v Classique Coaches Ltd [1934] 2 KB 1; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 616; [1982] HCA 53; Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd's Rep 205; Australia Pacific Airports (Melbourne) Pty Ltd v The Nuance Group (Australia) Pty Ltd [2005] VSCA 133, considered. Spencer v Commonwealth (1907) 5 CLR 418; [1907] HCA 82; Franke v CIC General Insurance Ltd (1994) 33 NSWLR 373; MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451, referred to.

[3]

Judgment

BATHURST CJ: This is an appeal from a decision of a judge of the Equity Division of the Court declaring that the first respondent, TX Australia Pty Ltd (TXA), was required by a Shareholders Agreement between itself, the appellant, Network Ten Pty Ltd (Ten), and the second and third respondents, Nine Network Australia Pty Ltd (Nine) and Seven Network (Operations) Ltd (Seven) to register a transfer of Ten's shares in TXA to Nine and Seven. As will be seen, the transfers were for nominal consideration.
At all material times, Seven, Nine and Ten were the only shareholders in TXA. TXA is a joint venture company established for the purpose of acquiring certain assets from its shareholders and using the assets so acquired to supply transmission and retransmission facilities to them.
The relationship between TXA and its shareholders was governed by a Shareholders Agreement between them dated 14 December 1999 (the Agreement). Generally speaking, the Agreement provided that, on the happening of certain events, including the appointment of a receiver to the assets or undertaking of a shareholder, the shareholder in question would be "deemed to have given a transfer notice" to the other two shareholders. Effectively, the defaulting shareholder would be taken to have offered to sell its shares to the other two shareholders at an agreed price, or, failing agreement, at a price to be determined by the auditor of TXA acting "as an expert", whose decision would be "final and binding".
On 14 June 2017, Ten was placed into voluntary administration, and on 30 June 2017, receivers and managers were appointed to its assets. The provisions of the Agreement to which I have referred at [3] above were thereby invoked. The parties were unable to agree on the sale price for the shares, and on 30 August 2017, TXA engaged its auditor, PricewaterhouseCoopers Australia (PwC), to determine the price.
On 19 January 2018, PwC provided TXA with a document described as a "valuation" of Ten's shares in TXA (the PwC Report). TXA contended that the conclusion of that document was that Ten's shares had no value and should be transferred for nominal consideration. Accordingly, as agent for Ten, TXA offered Ten's shares to Seven and Nine for a total consideration of $1. That offer was accepted by Seven and Nine.
Ten contended that it was not obliged to transfer its shares at that price. First, it contended that PwC had not fulfilled the requirement in cl 10.2(b)(ii) of the Agreement to determine a "price", or that if they had, that price was $42.953 million. Alternatively, if PwC had determined a different price, Ten claimed that, by relying on "market value" in making the determination, PwC had not determined the price as required by cl 10.2(b)(ii) of the Agreement, and therefore, Ten was not obliged to transfer its shares.
By contrast, Seven, Nine and TXA contended that PwC's reliance on the concept of "market value" was in accordance with the Agreement, that PwC had determined that the shares had no value, and that the transfer price was therefore nominal or "nil".
The primary judge accepted the respondents' contentions and accordingly made a declaration that TXA was required to register the transfer of Ten's shares in TXA to Seven and Nine.
To understand the issues and the reasoning of the primary judge, it is necessary to refer to the provisions of the Agreement and the PwC Report in some detail.

[4]

The Agreement

The recitals to the Agreement stated that the "Shareholders" (Seven, Nine and Ten) had agreed to incorporate TXA for "the sole purpose of establishing and operating the Business on their behalf". The "Business" was defined in cl 1.1 of the Agreement as "the business of facilitating the roll out of digital broadcasting equipment located at each Site and each Leasehold Site and maximising the efficiency of the use of analogue and digital transmitters and translator facilities".
To give effect to that objective, cl 2 of the Agreement obliged Seven, Nine and Ten to transfer "free of any Encumbrance" certain "Sites" and "Leasehold Sites" set out in Schedules to the Agreement, shares in certain subsidiary companies, a tower on a certain "Site" owned equally by Seven and Ten, and equipment described as the "Nine Equipment", the "Ten Equipment" and the "Seven Equipment", details of which were also set out in Schedules to the Agreement. It is unnecessary to specify the assets to be transferred in any further detail.
Clause 2.30 contained an acknowledgment by each of the Shareholders that their "initial capital contributions" to TXA, including the value of each "Site" and "Leasehold Site", was $2,118,520.00 each, and that they would procure TXA "to issue to each of them 2,118,520 $1.00 fully paid ordinary shares" equalling the value of such capital contribution.
Clause 2.32 was in the following terms: "2.32 [TXA] will grant access to each Shareholder in respect of each Site and Leasehold Site at any time and without notice to [TXA] solely to ensure that the relevant Shareholder's broadcast signal is being transmitted from the Site or Leasehold Site free of technical problems."
Clause 3.1 set out the objectives and obligations of the Shareholders under the Agreement. So far as it is relevant, it was in the following terms: "3.1 The objectives of the Shareholders are to: (a) maximise the efficient use of the transmitter and translator facilities; (b) subject to the direction of the [board of directors of TXA], procure [TXA] to develop and operate the Business and develop and operate any other business which the Shareholders may wish to undertake or operate; and (c) subject to the provisions of this Agreement, share all profits and losses of [TXA], whether revenue or capital, in equal proportions. 3.2 In order to fulfil the objectives set out in Clause 3.1: (a) the Shareholders must give full effect to the provisions of Clause 2; (b) the Shareholders undertake that their respective services and experience shall be made available to [TXA] in a supervising and control role for the purpose of assisting in the establishment and continued operation of the Business through [TXA]; and (c) the Shareholders must: (i) co-operate and use their reasonable commercial endeavours to ensure that [TXA] successfully carries on the Business; (ii) not unreasonably delay an action, approval, direction, determination or decision that may be reasonably required of them pursuant to this Agreement; and (iii) give approvals or consents or make decisions reasonably required of them in good faith and in the best interests of [TXA] and the carrying on of the Business as a commercial venture."
Clause 5.3 provided that each Shareholder was entitled to appoint a director to the board of directors of TXA for every 16.66% of the issued capital of TXA which the Shareholder owned beneficially and that a Shareholder was not entitled to appoint a director if it owned less than 16.66% of the issued capital of TXA.
Clause 6.1 provided that decisions of TXA in respect of certain matters "shall only be effective if made with the prior consent and approval of at least 75% of the members" of the board of directors of TXA. These decisions included those in respect of "the amount of capital to be contributed by the Shareholders for the purposes of the conduct of the Business whether by way of debt or equity".
Clause 7.2 provided for the appointment of an auditor by agreement of the Shareholders.
Clause 8 dealt with the obligation of each Shareholder to contribute to funding and provided for share dilution in respect of a failure to do so. Relevantly, it provided as follows: "8.1 Each Shareholder must contribute to the funding requirements of [TXA] as determined by the Shareholders from time to time if at any time the expenses of the Business exceed the revenue of the Business or if the liabilities of the Business exceed the assets of the Business, such contribution to be in accordance with each Shareholder's Relevant Proportion. … 8.3 If a Shareholder ('the defaulting Shareholder') fails to make its contribution as contemplated by Clause 8.1, then: (a) within 30 days of such failure occurring, any one or more of the other Shareholders may (but without any obligation to do so) elect to contribute to [TXA] the amount that would have been contributed by the defaulting Shareholder; (b) any contribution made by a Shareholder pursuant to Clause 8.1 will be treated by [TXA] as a capital contribution and will result in the issue of new shares to the contributing Shareholder(s); and (c) the defaulting Shareholder acknowledges and agrees that its Relevant Proportion in [TXA] subsisting immediately prior to the date it fails to make its contribution as contemplated by Clause 8.1 will be diluted to the extent of the contribution which the defaulting Shareholder fails to make."
Clause 9 contained pre-emptive rights provisions. So far as it is relevant, it provided as follows: "9 (a) No share in the capital of [TXA] may be transferred to a person who is not a Shareholder so long as any Shareholder is willing to purchase the share in accordance with this Clause 9. (b) Except where the transfer is made pursuant to paragraph (e), the person proposing to transfer any share (the 'proposing transferor') must give notice in writing (a 'transfer notice') to [TXA] that the proposing transferor desires to transfer the share. That notice must specify the price for the share and will constitute [TXA] the agent of the proposed transferor for the sale of the share to the remaining Shareholders of [TXA] in their Relevant Proportions (the 'purchasing Shareholders') at the price so fixed. A transfer notice may include several shares and in that case will operate as if it were a separate notice in respect of each. A transfer notice is not revocable except with the sanction of the [directors of TXA]. (c) [TXA] must, within the space of twenty-eight (28) days after being served with a transfer notice, offer the share to the purchasing Shareholders in their Relevant Proportions and give notice of that fact to the proposing transferor. If the purchasing Shareholders agree to purchase the share in their Relevant Proportions, the proposing transferor is bound upon payment of the price as fixed under this Clause to transfer the share to the purchasing Shareholders in their Relevant Proportions. … (e) If the purchasing Shareholders do not, within the space of twenty-eight days after having been served with a transfer notice, agree to purchase the share in their Relevant Proportions, any one of the purchasing Shareholders may purchase the share on the terms and conditions set out in this Clause 9. (f) If no Shareholder wishes to purchase the share, the proposing transferor at any time within three months afterwards is at liberty to sell and transfer the share (or where there are more than one share those not placed) to any person and at the same price as that offered to the purchasing Shareholders. At the expiration of that 3 month period the proposing transferor must serve a fresh transfer notice pursuant to Clause 9(b) if the proposing transferor desires to transfer the share. (g) If the proposing transferor procures a person to purchase the share as contemplated by Clause 9(f) then any one of the remaining Shareholders may also offer to sell to that same person that Shareholder's share at a price and on terms specified by that Shareholder and in doing so, that Shareholder is under no obligation to first comply with any of the provisions of this Clause 9 relating to the transfer of any share. If such an offer is made, the purchaser must divide the total number of shares that it wishes to acquire among each of the selling Shareholders in accordance with their respective Relevant Proportions and purchase shares from each of the selling Shareholders on that basis."
Clause 10 dealt with default. Relevantly, it was in the following terms: "10.1 If: (a) a Shareholder is in breach of any obligation to be observed and performed by it under this Agreement and that Shareholder fails to rectify that breach within 30 days of receiving notice from the other Shareholders requiring rectification; … (h) a receiver or receiver and manager is appointed to any of the assets or undertaking of any one of the Shareholders; (i) any one of the Shareholders is placed under official management or an administrator is appointed under or pursuant to the provisions of the Corporations Law or any one of the Shareholders enters into a composition or scheme of arrangement with its creditors; … then the provisions of Clause 10.2 will apply. 10.2 (a) If any one of the events referred to in Clause 10.1 occurs (except for the events described in Clauses 10.1(b), 10.1(c), 10.1(d), or 10.1(e)) then the defaulting Shareholder is irrevocably deemed to have given to the non-defaulting Shareholders and [TXA] a transfer notice pursuant to Clause 9(b) for the sale of the defaulting Shareholder's Relevant Proportion. (b) The price for the defaulting Shareholder's Relevant Proportion will be: (i) a price determined and agreed by the defaulting Shareholder and [TXA] (acting as agent for the non-defaulting Shareholders); or (ii) in the absence of an agreement on the price within 7 days of the date when the transfer notice is deemed to be given, a price determined by [TXA's] auditor who will act as an expert and whose decision will be final and binding. (c) As soon as a price for the defaulting Shareholder's Relevant Proportion has been determined pursuant to Clause 10.2(b), the non-defaulting Shareholders may purchase the defaulting Shareholder's Relevant Proportion in their respective Relevant Proportions or may procure a third party to purchase the defaulting Shareholders Relevant Proportion, within 30 days of such determination. 10.3 The Shareholders acknowledge and agree that: (a) under no circumstances is a Shareholder entitled to the re-transfer to it of any of the Assets that the Shareholder may have transferred to [TXA] pursuant to Clause 2 but nothing will preclude a Shareholder from acquiring an Asset from a liquidator, receiver and manager or administrator."
It will be seen that, under cl 10.2(c), unlike the pre-emptive rights provisions in cl 9, the defaulting Shareholder had no right to offer its shares to a third party if the other Shareholders did not agree to acquire its shares. Rather, that right was vested in the non-defaulting Shareholders. No argument was addressed to the question of whether, if the non-defaulting Shareholders declined to purchase their shares or exercise their rights under cl 10.2(c), the defaulting Shareholder could avail itself of the pre-emptive rights provisions in cl 9.
It should also be noted that cl 13 of the Agreement provided for disputes to be the subject of expert determination. No reliance was placed on this provision by any party.

[5]

a The correspondence leading up to the PwC Report

In a letter of 7 August 2017 from Ms Eliza Penny, a partner at PwC, to Mr Paul Mullen, the executive chairman of TXA, Ms Penny stated that PwC's ability to undertake the work to determine the "price" for the purpose of cl 10.2 of the Agreement depended upon the following: "1. Receiving legal advice on the appropriate interpretation to be placed upon the term 'price' in clause 10.2 of the Shareholders Agreement. As you know we are not parties to that agreement and the concept of 'price' could have many different interpretations in a valuation context, depending on the parties' intention. We would then undertake any valuation adopting a methodology that was consistent with the legal advice that was provided to us. 2. The receipt of information from TXA relevant to the application of the methodology upon which we would rely for the purpose of the valuation (the methodology having been determined based on legal advice). For instance, it may be the case that information as to the cost of any ongoing broadcasting services that would be provided to Ten on an arm's length basis will be relevant. Any setting of price for services would be a matter for management. It would not be a matter for the firm."
In a response dated 21 August 2017, Mr Mullen indicated that PwC should assume that "price" referred to "market value - namely, the amount which a willing and knowledgeable, but not anxious, purchaser would pay a willing and knowledgeable, but not anxious, vendor for the asset in question".
PwC's engagement letter was dated 30 August 2017 and was addressed to TXA. So far as it is relevant, it was in the following terms: "Introduction We are pleased that you, TX Australia Pty Limited (TXA or you) have chosen to retain PricewaterhouseCoopers (PwC), to prepare a valuation of a 33.3% shareholding in TXA (TXA or the Company). This letter is to confirm the scope and purpose of the valuation, the proposed approach, timetable, fees and the general terms of business that will apply to the engagement. These are set out below and in the attached Terms of Business. Scope and purpose of valuation You have asked us to prepare an determination of the price, as defined below, of a 33.3% shareholding in the Company as at 30 June 2017 (the Valuation Date) and a report thereon (together, the Services). The purpose of the determination is to address various exit provisions in the shareholder's agreement relating to an alleged default of one of the parties. PwC expresses no opinion on the legal aspects of this default allegation. We understand the shareholders agreement refers to 'the price of a proportionate share' which is not a recognised valuation term. In the absence of this recognition, we have sought to rely on your instructions as to the appropriate basis of value to apply. You have informed us that Market Value is the basis we should apply. We will utilise the following commonly used definition of Market Value: 'the price that would be negotiated at the Valuation Date in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing, but not anxious seller acting at arm's length.' The concept of Market Value does not take into account the particular circumstances of any specific purchaser or seller. It therefore excludes any special strategic value that may be placed on the business by one particular purchaser. Accordingly, the actual market price achieved in a transaction may be higher or lower than our Market Value depending upon the circumstances of the transaction, the relative negotiating position of each party and the level of synergies the purchaser may be able to realise. By its very nature, valuation work cannot be regarded as an exact science and the conclusions arrived at in many cases will, of necessity, be subjective and dependent on the exercise of individual judgement. There is, therefore, no indisputable single value and we normally express our conclusion as falling within a likely range. However, to comply with the requirements of this engagement, we will provide you with a single point estimate, being a figure within that likely range. … Deliverables The deliverable for this engagement will include:

a draft presentation style report for you to review for factual accuracy and provide comment on; and
a final report which will typically include: - Executive summary; - Scope of our engagement; - Overview of the Company and financial results; - Industry analysis; - Valuation methodology; - Comparable company data; - Our conclusions as to the value of the Company
presentation to the TXA board of our report. Valuation date The valuation will be prepared as at the Valuation Date. The valuation will reflect the information available to use as at the date of our report that would have been available or reasonably foreseeable as at the Valuation Date. Economic conditions, market factors and changes in the performance of the business may result in the valuation becoming quickly outdated and may require updating from time to time or before any major decisions are taken based on the report. If you intend to make any major decision based on the results of the valuation more than three months (or sooner if there has been a material change in the business or market conditions) from the Valuation Date, you should consider obtaining an update of the valuation."

On 7 November 2017, TXA wrote to PwC stating that they had written to the legal advisors to the receivers and managers of Ten on two occasions, inviting Ten to supply "information" or "submissions" on "the valuation methodology that the auditor may choose to use in the determination", but had not received any response.
On 20 November 2017, Mr Mullen sent an email to Mr Richard Stewart, the partner at PwC who had been nominated in the engagement letter as the person responsible for the valuation. The email was in the following terms: "Thank you for yours and Andrew's time last week and for providing an update on the valuation of TEN's shares in TXA. We are disappointed that you have advised you are unable to determine a price for TEN's shares in TXA as a single point figure despite your agreement to do so in your engagement letter dated the 30th August 2017. At our meeting, we discussed the share price and the ongoing commercial arrangement with TEN being intrinsically linked. We both agreed to try to find a way forward, however, you maintained that this was impossible without knowing the most likely ongoing commercial arrangement with TEN to use as an input to the valuation. Therefore, in order to enable you to provide the agreed deliverable of a single point figure, TXA has calculated the most likely annual fee using a variation of the building block methodology (currently used in Australia in the regulation of infrastructure services) to account for the fact that this is not an arms' length transaction, based on the following assumptions:

No attribution for utilisation of existing asset base, i.e. depreciation
Future CAPEX based on 5-Year Plan, extrapolated for 20 years with zero return on capital
13% share of structures and power systems (7, 9, 10, ABC, SBS, CRA, SCA and ARN)
33% share of TXA CAPEX
25% share of GCT & CTF CAPEX
Future OPEX based on FY18 budget
33% share of TXA $6.8m OPEX (note: head office admin/management costs of $3.3m p.a. have been excluded)
25% share of GCT $0.3m & CTF $0.2m OPEX
No margin on operating expenditure
No income tax
Recharge power costs separately to account for c.50% increase in power costs Based on this approach, a national (5 metro markets) managed service fee of $3.2m + GST p.a. indexing annually at CPI + power costs to be recharged separately, is the most likely commercial arrangement. A 20-year contract term would be appropriate to reflect the expected future life of terrestrial transmission as the distribution method for free to air television. We look forward to your thoughts and hopefully a completed draft report to us by the end of the week."

[6]

b The PwC Report

On 19 January 2018, PwC produced its Report. The Report was entitled "TX Australia Pty Ltd: Valuation of Network Ten Pty Ltd's shareholding in TX Australia Pty Ltd as at 30 June 2017".
The Report included a covering letter from Mr Stewart to Mr Mullen in the following terms: "Valuation of Network Ten Pty Ltd's shareholding in TX Australia Pty Ltd In our engagement letter dated 30 August 2017, you requested us to prepare a valuation of a 33% shareholding in TX Australia Pty Ltd (TXA). In that letter, you asked us to prepare a determination of the price of that shareholding to address various exit provisions in the shareholders agreement dated 14 December 1999 between TXA, Network Ten Pty Ltd (Ten) and others. Subsequently, we agreed to a change to the engagement that is set out below. You asked us to proceed on the basis that the circumstances existing in relation to Ten had triggered the operation of clause 10 of the Shareholders Agreement. You also confirmed that TXA had authority to retain us for the purpose of this engagement, and have continued to do so, in the face of complaints from Ten that TXA does not have authority to do so. Some matters relevant to the engagement Prior to entry into the engagement we identified two conditions to be met (our letter of 7 August 2017). Those conditions were: 1. Receipt of legal advice obtained by TXA on the appropriate interpretation to be placed upon the term 'price' in clause 10.2 of the Shareholders Agreement, which we would then use to undertake the valuation adopting a methodology that was consistent with that legal advice. 2. Receipt of information from you relevant to the application of the methodology, upon which we could rely for the purpose of the valuation. We mentioned at the time and subsequently that information as to the cost of any ongoing broadcasting services that would be provided to Ten on an arm's length basis would be relevant. As to matters in 1 above, you advised us on 21 August 2017 that for the purpose of the valuation 'the price of a proportionate share' was to be determined by us applying Market Value (namely the amount which a willing and knowledgeable but not anxious purchaser would pay and a willing and knowledgeable but not anxious vendor would sell in accordance with the principles in the decision Spencer v The Commonwealth (1906) 5 CLR 418). We had understood this to reflect legal advice you had obtained. Only recently (your email of 30 November 2017) you have advised us that this was an assumption you wanted us to adopt, rather than being a reflection of any legal advice TXA may have received. As to the matters in 2 above, and as we have discussed, the nature of the future arrangements between Ten and TXA is a crucial element in any valuation. The current circumstances existing between TXA and Ten appear to be such that agreement as to those arrangements has not been reached as yet. As a result, by letter dated 20 November 2017 you instructed us to proceed on a particular basis as to ongoing arrangements. We queried whether this basis would reflect arm's length arrangements, following which you told us you were unable to confirm whether that would be the case. As a result, we have used the quote provided to ABC by TXA, because it represented the only available evidence of which we were aware of an arm's length arrangement involving TXA. We have also provided details of an outcome using your proxy as part of our sensitivity analysis. Engagement variation As a result of the two points above, we have not been able to provide a valuation which, in our view, satisfies the purpose of our original engagement letter. The valuation work we have been able to do, its outcomes and our approach is set out in this deliverable."
Under the heading "Our scope and process", the following comments were made: "Basis of value

We were instructed that our valuation should adopt the following definition of MV for the purpose of determining the price of Ten's shareholding in TXA: 'the price that would be negotiated at the Valuation Date in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and knowledgeable, willing, but not anxious seller acting at arms' length'
If a different approach were adopted, it may materially impact the outcome of our valuation. Through TXA, we requested input on this and other aspects of our role from Ten. TXA told us that they have not received any information or relevant correspondence in relation to valuation methodology from Ten in response to their requests. Ten told us it felt the circumstances were such that it was not in a position to provide substantive information to us. …
Information provided to us by TXA was generally detailed, comprehensive, logical to follow and was made available by Management in a timely manner. However, TXA was not able to provide us with information reflecting the commercial arrangements that would be put in place with Ten or confirm that TXA's proxy for the ongoing arrangements represented arm's length terms. The future arrangements between Ten and TXA are a key input into the valuation and as a result our valuation represents one of what may be a number of possibilities."

Alongside the heading to the executive summary of the Report appeared the statement that "Our valuation of Ten's share is based on a number of assumptions and represents one of what may be a number of possibilities". The following comments then appeared in the executive summary: "Valuation summary

Given the unique nature of TXA's business we analysed the potential buyer pool and considered the various valuation outcomes. We considered that the main potential purchasers are a combined Seven and Nine consortium under the shareholding agreement or Ten or the holder of Ten's TV licence (potentially CBS). Discussion of our work on this aspect is set out in the Approach section.
We considered what each potential purchaser would consider paying and possible outcomes, which we have summarised below. Seven and Nine:
In the event Seven and Nine purchase the Shareholding we consider that there are two likely operating scenarios: I. Ten ceases to be a customer of TXA and therefore Seven and Nine will bear all the excess operating costs and capital expenditure. II. Seven and Nine negotiate a long term commercial contract with Ten.
Under the first scenario, given a current negative equity position of TXA no additional value would be received by Seven and Nine in holding additional shares in TXA.
If a commercial contract was put in place with Ten as a customer, it is likely that Seven and Nine would be willing to pay for the incremental net present value (NPV) of this additional contract. Based on the fee proposal provided to ABC which is the only evidence provided of an arm's length arrangement for similar services ($7.3m for a period of 20 years) this would result in a value of $42.9m.
On 20 November 2017 you advised us of an alternative arrangement of $3.2m per annum plus power costs recharged separately however you were not able to confirm that this reflected your estimate of an arm's length transaction. If an alternative arrangement was in fact agreed which more closely aligned with $3.2m per annum, it would result in a value of $15m.
Note, as Ten's share of power costs has not been provided it has also not been included in the calculation and annual inflation has not been included. This is consistent with the ABC proposal. Ten or the holder of Ten's TV Licence:
In the event Ten or the holder of Ten's TV licence had the opportunity to purchase the Shareholding, we consider that they would pay up to the amount it would cost them to procure the same service at an arm's length rate adjusted for any net negative equity positions. They would do this only in the circumstances that the current shareholders agreement remained in place.
Based on the fee proposal provided to ABC, this would result in a value of $42.9m.
Again, if the commercial arrangement was in line with the alternative arrangement you provided on 20 November 2017 of $3.2m per annum, it would result in a value outcome of $15m.
We consider the most likely outcome to be that Ten or the holder of Ten's TV Licence would purchase the Shareholding or no transaction at all would occur.
This report assumes that the commercial rate that would be charged to Ten would be in line with the ABC fee proposal.
If the holder of Ten's TV licence acquires the share the current fee arrangements would be expected to remain intact.

There appeared underneath that summary a sensitivity analysis table which assumed various fees payable under a commercial contract for the provision of the services provided by TXA. Significantly, the outcome referred to as being based on the "ABC fee proposal", namely, the outcome with a contractual fee of $7.3 million resulting in an equity value of $42.953 million, was the only highlighted portion of the sensitivity analysis table. The table appeared as follows: "Sensitivity analysis (AUD'000s) Contracted annual fee ($'000) Equity Value 994 (0) 2,000 6,838 4,000 20,433 6,000 34,028 7,313 42,953 8,000 47,624 10,000 61,219 12,000 74,814

[7]

Note: all values above assume no inflation for first 20 years consistent with ABC proposal"

Alongside the heading "Industry overview" appeared the statement that "While TXA is in the transmission and retransmission industry, the Company is heavily dependent on the performance and profile of the Free-To-Air Television industry". The following remarks were then made in that section:

TXA is a market leader in Australia for the provision of transmission and retransmission facilities across the major metropolitans in Australia. TXA provides television transmission for broadcasters, markets its infrastructure facilities to access seekers and offers project management and technical maintenance services.
TXA has a number of third party customers including but not limited to BAI Communications, CRA, SCA, ARN, Motorola, Telstra, Vertical Telecoms and Optus. These customers are predominantly in the television, radio and telecommunications sectors.
TXA also generates revenue from their three shareholders. For FY18, a Shareholder contribution of $500,000 per shareholder is budgeted (refer to page 16 for forecast financials).
TXA's main competitor is Broadcast Australia, given it operates the transmission services for the national television broadcasters in the capital cities across Australia. It also owns 620 ground based towers in Australia, which has the largest site amount within TV/radio transmission service providers."

The "Industry overview" also stated that "TXA is in a unique industry due to the fact there are limited providers and large economies of scale". Under that heading, the following comments were made:

The market for the broadcast services provided by TXA is an unusual one. The key attributes that are relevant for the valuation are as follows:
there are a limited number of providers available to provide outsourced broadcast services, the predominate choices are TXA or Broadcast Australia;
networks also have the ability, given time, to establish their own infrastructure; and
substantial economies of scale exist around tower site acquisition, infrastructure provision and operating costs.
These attributes mean that the existence of TXA creates the ability of the three commercial networks to share costs and also provide third party services at substantial margins.
The structure of TXA means that the resultant profitability may not sit in the vehicle.
We have had regard to the industry and market structure in developing our valuation of TXA."

The Report included a section entitled "Company overview". Alongside the heading to that section, the following comments were made: "Ten is critical to the valuation. We understand their arrangements are not yet settled, so accordingly we have modelled a number of scenarios as discussed above."
The following comments were then made in that section:

The economic structure of TXA is broadly as follows:
third party customers are charged market rates, principally through TXA as well as the joint ventures established for this purpose (CTF and GCT); and
the shareholders are required to make contributions to the business where expenses exceed third party revenue and/or liabilities exceed assets. Recently, these contributions have been minimal as TXA has drawn on third party debt to fund capital requirements.
In our view, the implications for the valuation of the industry and company structure are significant for the following reasons:
third party investors are unlikely to be attracted to a model where the major customers are charged non-arms length rates;
if Ten exits, the remaining holders would prefer not to have a third party investor as this would likely disturb the current arrangements in terms of the location of the benefits which are convenient for financial reporting and tax purposes;
the economics of TXA are essentially a co-operative, whereby the majority benefits of the business remain in the financials of the members, rather than in TXA itself;
given the effective co-operative structure, the governance documents assumes a very significant role. The Shareholders Agreement, in our view, is the principal governance document in this regard. The main provisions that guaranteed continued operation as a co-operative is the 75% majority required for approval of budget and other matters;
given the cost economics described in the industry overview of the report, it would be in the interests of Nine and Seven to continue to have Ten as a participant to continue the sharing of costs between all three networks, although existence of other third party customers dilute the extent of this;
as the majority of potential buyers would largely be TV networks without an existing agreement or the remaining shareholders, this sets the hypothetical market for the transaction; and
accordingly, the question as to what would be the continuing arrangements of Ten is critical to the valuation."

The Report contained a financial forecast for the period from the 2018 financial year to the 2022 financial year. It forecast ongoing "Shareholder Contributions", totalling $1.5 million per annum.
In a section of the Report entitled "Approach", the following remarks were made:

Given the unique business of TXA, it was necessary to consider potential purchasers first and then consider the operating structures that may exist in order to assess the market value of the Shareholding.
Once the potential purchasers were identified we have estimated the value that may be derived by them under a number of operating structures. The value has been based on the forecast cash flow provided for TXA by Management and consideration of a potential commercial fee that TXA has asked us to assume would be charged if they continue to utilise the services of TXA. Potential purchasers We considered the following potential purchaser pool for the Shareholding:
Seven and Nine (as per the first rights under the existing shareholder agreement);
Ten or the holder of Ten's TV Licence (potentially CBS);
A financial purchaser i.e. a purchaser that is not operating in this industry and purely looking for financial gains as opposed to synergies; and
Note, we considered ABC and SBS as potential purchasers but disregarded them in the pool of potential purchasers as it is our understanding that they are likely to have current long term contracts in place for the services that TXA provide from another services provider in Australia. Potential operating scenarios We have considered the potential operating structures of TXA:
Ten ceases to be a user/customer of TXA;
The current arrangement of cost sharing continues for all three current shareholders (Seven, Nine and Ten);
A commercial contract is put in place with Ten at a market rate for the services we have been asked to assume by TXA; and
Commercial contracts are put in place with all three current shareholders.
The following page outlines our analysis on the implications and valuation outcomes of the potential purchasers and operating scenarios.
Details of calculations and assumptions are set out in forecast cash flow assumptions and appendices.

This section was followed by a page entitled "Potential scenarios and valuation outcomes", in which the results of analyses based on various assumptions were summarised. Under the heading "Seven 50%/Nine 50% (Seven and Nine purchase the holding)", two scenarios of relevance were set out: Seven/Nine only major users: Ten ceases to be a customer. Seven and Nine continue to be on a cost recovery basis This would occur if Ten was forced out and agreement was not reached on a fee that was considered acceptable to Ten. Seven and Nine would be required to cover costs and capex. Value outcome: $0 Seven/Nine: Cost recovery for Seven/Nine Seven/Nine likely to pay up to the amount of the additional value derived from a commercial fee charged to Ten providing the contract is locked in long term. Ten: Commercial rate Value outcome: $42.9m

[10]

A note to these scenarios stated that all values presented were "based on a commercial fee arrangement with Ten of $7.3m per year. If a commercial fee of $3.2m per annum as suggested by TXA was agreed the value outcomes presented above would be $15m" (presumably, rather than $42.9 million).
Immediately following this section, the Report contained a section entitled "Forecast cash flow assumptions". This section included the following comments: "Valuation of business 'as is'" In order to initially assess the value of the business 'as is' we have utilised management's cash flow forecast and applied a discounted cash flow methodology. As there are third-party minority shareholders in Gold Coast Translators Pty Ltd (GCT) and Combined Translator Facilities Pty Ltd (CTF) we have separately assessed the MV implied by the income approach for each of the businesses (TXA, GCT and CTF of which TXA has a 75% shareholding) (refer to Appendix 3 for detailed calculations) in order to assess the enterprise value of TXA. We have then deducted net debt of $14.1m to determine the Equity Value of TXA. This consists of $15.5m of interest bearing debt housed entirely in TXA and $1.3m of cash, which excludes 25% of the cash held by GCT and CTF. The following pages set out the key valuation assumptions. Based on our analysis, there is currently a negative equity value due to the large proportions of debt. We estimate the value for the Shareholding to be negative $3.4m. We consider that there would be no value in the equity under this scenario. Valuation of business for Financial Purchaser … Based on our analysis this results in a value attributable to the Shareholding of $14.4m. However we consider it unlikely that this would be the transacted value as other potential purchasers would out bid in a sale process and Ten would be an unlikely sales participant due to the asymmetric nature of the value outcome. Therefore, we consider that the outcome in not applicable in this case. … Valuation of business for Seven and Nine As per our analysis we consider Seven and Nine would be willing to pay up to the value they would receive for the services on commercial terms from Ten providing the agreement was long term in nature. We have again estimated the commercial fee based on the ABC proposal reduced for the current estimated contributions by Ten and have assumed that amount paid would be reduced by the negative equity position under the 'as is' scenario. … Under this scenario we estimate the value received by Seven and Nine by purchasing the Shareholding to be $42.9m. Valuation of business for Ten/CBS As per our analysis we consider Ten/CBS would be willing to pay up to the value of the amount it would cost them to acquire the services on commercial terms. We have again estimated the commercial fee based on the ABC proposal reduced for the current estimated contributions by Ten and have assumed that amount paid would be reduced by the negative equity position under the 'as is'. This scenario assumes that the Shareholders Agreement would continue in the same format. Under this scenario we estimate the value to be $42.9m."
This part of the Report contained a further section headed "Commercial contract assumptions": "Commercial contract It is our understanding that the commercial contract for ongoing arrangements has yet to be agreed between TXA and Ten. Therefore it was necessary to consider evidence of potential arm's length arrangements. We were provided with a quote to provide similar services to ABC in 2015 as well as indicative pricing from TXA. We note that the indicative pricing from TXA did not appear to include an allowance for a return on assets. After discussions with Management, TXA was not able to confirm that the indicative pricing provided was reflective of an arm's length transaction and as a result we have relied upon the quote provided to a third party as we considered it likely to be more reflective of an arm's length arrangement. Implied in this assumption is: that market conditions for the provision of broadcasting services have not materially changed based on the historical revenue changes in TXA's third party business; the service to ABC would be broadly consistent which would provided to Ten on an arm's length basis; and that the ABC arrangement was one that TXA was prepared to commercially accept. The commercial fee charge has been based on the proposal to the ABC adjusted for the fact that Ten do not broadcast in certain areas. The table opposite sets out the services provided which result in a fee of $7.3m and has then been adjusted down by the $500,000 assumed to be required to be contributed under the as is scenario. This has not adjusted for inflation over the 20 year period (consistent with the ABC fee proposal). In the ABC fee proposal, there were 55 sites in TXA's tender response, with fees totalling $12.2m. It is our understanding from Management, that TXA currently only transmits Ten content from 34 sites (due to the historic limitations of the 75% reach rule). In areas where TXA does not currently operate, TXA was planning to use WIN or Broadcast Australia sites to transmit ABC & SBS content. Due to the historic limitations, this totals $5.56m for the A+ sites and $2.03m for the re-transmission sites, a total of $7.59m, less the $278k discount, thus it is estimated the most TXA could charge Ten is $7.31m."
On the same page, there was a sensitivity analysis table identical to the one to which I have referred at [32] above, with similar highlighting on the outcome with a contractual annual fee of $7.3 million producing an equity value of $42.953 million.
Appendix 1 to the Report set out the valuation methodology. So far as it is relevant, it contained the following comments: "Discounted cash flow method This method indicates the Market Value of a business based on the present value of the cash flows that the business can be expected to generate in the future. … Selected valuation methodology We have selected the Discounted Cash Flow method approach as the methodology to value the Shareholding. This was because it enabled consideration of both the changing operations and ownership scenarios. The discounted cash flow approach has utilised the assumptions discussed in the 'Forecast Cash Flow Assumptions' section in order to arrive at an Enterprise Value of TXA. As we are assessing a 33.3% shareholding, it was necessary to calculate an equity value. To do this we have subtracted net debt of $14.1m (as at 30 June 2017) and considered discounts that may apply as explained on the next page in the discounted cash flow approach."
Appendix 3 contained three discounted cash flow calculations. The first calculation dealt with two scenarios entitled "As-is (Ten retains its shareholding)" and "Ten exits and does not use the services" respectively. In each case, the methodology produced a negative enterprise value of $3,912,000 for TXA on a stand-alone basis. However, that negative enterprise value was offset by 75% of the enterprise value of two companies in respect of which TXA held a 75% interest, namely, Combined Translator Facilities Pty Ltd (CTF) and Gold Coast Translators Pty Ltd (GCT). Seventy-five percent of the enterprise value of CTF was calculated at $1,619,000 while 75% of the enterprise value of GCT was calculated at $6,339,000.
What was described in Appendix 3 as "DCF method (2 of 3)" essentially amounted to an extrapolation of these figures with an adjustment for net debt. Because of the reliance placed by the respondents on this analysis, it is helpful to set it out in full: Valuation outcome (AUD'000s) As-is (Ten retains its shareholding) Ten exits and does not use the services TXA stand alone EV (3,912) (1,218) CTF EV (100%) 2,159 2,159 GCT EV (100%) 8,452 8,452 Consolidated EV (incl. 100% GCT and CFT) 6,699 9,394 CTF EV (75%) 1,619 1,619 GCT EV (75%) 6,339 6,339 TXA EV (incl. 75% GCT and CTF) 4,046 6,741 Less: net debt (14,121) (14,121) TXA Equity Value (100%, marketable, controlling) (10,075) (7,380) Ten shareholding (33.3%) (3,358) (2,460) Ten shareholding (PwC MV range) - -

[12]

The primary judgment

The primary judge identified four issues which were raised in the proceedings. Only two of them remain relevant for present purposes. The first is whether PwC was entitled to proceed on the basis that "price" in cl 10.2 referred to the "market value" of Ten's shares rather than a fair and reasonable price", and second, whether the PwC report "determined" the price of Ten's shares in accordance with cl 10.2(b)(ii) of the Agreement, and if so, for what amount.
So far as the first of the two issues is concerned, the primary judge suggested that, in a sense, the point was "moot" because the parties had agreed that the price would be determined by TXA's auditor, PwC. He noted that Ten did not suggest that the course PwC adopted was "one that was unavailable, let alone irrational". He stated that, provided that "PwC carried out the task entrusted to it - to 'determine' a 'price'", the fact that "it may have erred or taken irrelevant matters into account does not alone 'render the determination challengeable'".
Notwithstanding this, the primary judge expressed the view that the word "price" in cl 10.2(b)(ii) of the Agreement meant "market value". In rejecting the contrary submission that it meant a "fair and reasonable price", he stated that the determination of a "fair and reasonable price" involved the consideration of "what price is 'fair' and 'reasonable' in light of the individual circumstances of the vendor and purchaser" and that "those circumstances may not be the same for each purchaser".
The primary judge also noted that, if neither of the non-defaulting shareholders wished to purchase the shares, the defaulting shareholder could sell its shares to a third party. He said that, in that event, if "price" meant a "fair and reasonable price", then the circumstances of that third party shareholder might have to be considered, which could give rise to "a very wide ranging inquiry and lead to a circumstance where the 'price' to be paid to the defaulting Shareholder might, on any given day, vary depending upon the individual circumstances of the defaulting shareholder, the non-defaulting shareholders, or the third parties in question".
The primary judge stated that it was "unlikely that the parties would have intended this result" and that, if the parties had intended "price" to have this meaning, it was "unlikely" that they would have chosen TXA's auditor to make a "final and binding" expert determination about that matter. He stated, referring to MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451 at [59] (MMAL Rentals), that while TXA's auditor would be "well suited to determine independently the market value of a defaulting shareholder's shares in TXA because it would have detailed understanding of the financial position of TXA", he or she would be "less suited to conducting the more wide-ranging task of determining the 'fair and reasonable price' of the shares".
The primary judge also stated that his preferred construction of "price" as referring to "market value" was consistent with the use of the word "price" in cl 10.4 and cl 9(f) of the Agreement.
The primary judge also concluded that PwC had "determined" the price as required by cl 10.2(b)(ii) of the Agreement. He referred to the correspondence leading up to the PwC Report which I have set out above, and the covering letter to the Report dated 19 January 2018 and the various sections of the Report which I have summarised and extracted above.
The primary judge rejected the proposition that the statement in PwC's letter of 7 August 2017 that its ability to undertake the work was dependent upon legal advice being received amounted to "an unfulfilled condition precedent to PwC making the determination requested". He also referred to the statement in PwC's covering letter to the Report that "the nature of the future arrangements between Ten and TXA is a crucial element in any evaluation". He stated that "PwC's point was that, assuming Ten was no longer a shareholder of TXA, the amount (if any) it agreed to pay TXA for the provision of the transmission services would affect the value of its shares in TXA". He noted that it was "common ground that there was no long term commercial contract in place between TXA and Ten at 30 June 2017", a fact which he noted that PwC recorded in its covering letter to the Report.
The primary judge noted the submission by Ten that a "determination" of a price should be construed to mean "a single price" for the shares. He accepted that "PwC expressed a number of outcomes as to the market value of Ten's shares depending on what it described as various 'scenarios'". However, he concluded that PwC had "determined" a price. His reasoning was as follows: "[135] The first scenario is on the basis of TXA 'as is'. That is, if 'Ten ceases to be a customer of TXA and therefore Seven and Nine will bear all the excess operating costs and capital expenditures' of TXA. PwC opined that in that circumstance 'given a current negative equity position of TXA no additional value would be received by Seven and Nine in holding the additional shares in TXA' (see [98] above at the fourth bullet point) and that Ten's shares would have no value (for example see [100] above). [136] PwC did consider an alternative 'scenario'; namely 'if a commercial contract was put in place with Ten as a customer'. In that event PwC opined that Ten's shares would have a market value of $42.9 million (assuming it paid $7.3 million per annum for 20 years; the ABC figure see [98] above) or $15 million (assuming it paid $3.2 million per annum for 20 years; TXA's estimate of 'the most likely annual fee', see [94] above). [137] I do not think it follows from the fact that PwC put forward a range of 'scenarios' that it failed to reach a 'determination'. [138] The relevant determination will, as it were, self-select depending on the facts. [139] It is common ground that the first scenario reflects the facts; namely, the 'as is' position. [140] On my reading of the PwC Report, that is the relevant 'determination' that PwC made."
On this basis, the primary judge made the declaration in respect of which the appeal is brought.

[14]

a The submissions

Senior counsel for Ten referred to the terms of the agreement which I have summarised at [10]-[21] above. He also referred to cl 86 of the constitution of TXA, which he submitted contemplated that the auditor of that company might be a firm. Self-evidently, that is what occurred in the present case.
Senior counsel for Ten submitted that what could not be done in setting a "price" was give a range of values dependent on particular circumstances, with the price to be determined by the parties to the Agreement depending on which particular set of circumstances applied.
He emphasised that the requirement was to determine a "price" on the valuation date, which he submitted was the date of default. He accepted that there was no dispute that 30 June 2017 was the appropriate date for the auditor to have used as the valuation date.
Senior counsel for Ten referred to the email of 20 November 2017 from Mr Mullen to Mr Stewart, to which I have referred at [27] above. He submitted that the assumption which Mr Mullen asked Mr Stewart to make in that email, and the reference to the "most likely commercial arrangement" between Ten and TXA demonstrated that, when it came to the PwC Report, PwC understood that it was "most likely" that there would be a commercial relationship between Ten and TXA. However, he accepted that the email could be understood as not speaking as to the likelihood of such an arrangement being made, but rather, to the most likely arrangement if such an arrangement was made.
Senior counsel for Ten also referred to the engagement letter to which I referred at [25] above. He noted that PwC stated that they were acting on the instructions from TXA that market value was the "appropriate basis" to conduct the exercise. He stated that could not be seen as "a question of judgment".
Senior counsel for Ten noted that, under the heading "Basis of value" in the covering letter of 19 January 2018 which accompanied the PwC Report, it was noted that, if a different basis of valuation was adopted, it "may materially impact the outcome of our valuation". He referred to the sensitivity analysis table in the executive summary of the Report, which I have extracted at [32] above, and emphasised that the highlighted outcome was the one which stated a value of $42.953 million. However, he accepted that all PwC may have been doing was determining the sensitivity of the value to their key assumptions. Nevertheless, he submitted that, having regard to the sensitivity analysis table, the outcome of the valuation could not be zero.
Senior counsel for Ten submitted that the sensitivity analysis table showed that what PwC took from the email of 20 November 2017 from Mr Mullen to Mr Stewart was that there was a "likelihood" that there would be a commercial agreement between TXA and Ten, or the holder of Ten's television licence, and that the fee to be paid under such an arrangement was $7.313 million annually, which led to a valuation of $42.953 million.
Senior counsel for Ten referred to the various scenarios set out by PwC to which I have referred at [39]-[41] above. He accepted that the same discount rate was applied to each of those scenarios, and that there was thus no account taken of the probability or possibility that one or more of them would come to pass.
Senior counsel for Ten also referred to the "declaration" which stated that the PwC Report was prepared on a "limited scope basis". He accepted that this may have meant that they did not verify the assumptions which they were asked to make, and also submitted that "they didn't even accept one assumption they were asked to make", namely, the assumption that the "most likely commercial arrangement" would have involved a fee of $3.2 million, which was stated in the email of 20 November 2017, as I have set out at [27] above.
Senior counsel for Ten then referred to the relevant passages of the reasons of the primary judge, which I have set out at [60] above. While maintaining that, if PwC had determined a price, it was $42.953 million, otherwise, he submitted that it had not determined a price. He submitted that there could not be a process of "self-selection" as envisaged by the primary judge, as that was a process required by the Agreement to be undertaken by PwC.
In relation to the contention that PwC had determined that the shares had a nominal value, senior counsel for Ten submitted that this relied entirely on analysis of the dashes used in the table which I have set out at [48] above. He submitted that this evidence was in "stark contrast" to the sensitivity analysis table which I have set out at [32] above, pointing out that, where the equity value was said to be zero, the table said so. He also referred to the statements that the equity value was zero in the table which I have set out at [39]-[41] above. As a result, he submitted that the dashes could well indicate that PwC had no view on the question. He submitted that, if the contention that the price was determined to be "nil" arose purely out of the analysis of the table which I have set out at [48] above, it was "unsustainable" and "inconsistent" with the balance of the Report.
Senior counsel for TXA referred to the fact that TXA had sought information from Ten, and that ultimately, Ten's solicitors had written to PwC informing that firm that "No agreement for broadcasting services has been discussed by Ten and TXA, let alone agreed".
Senior counsel for TXA submitted that PwC was engaged to value "the 33.3% [shareholding] as at 30 June 2017 and thereby a price will be determined, because the price will necessarily follow from that valuation". He submitted that PwC undertook that task and that the only place in the PwC Report where they determined the valuation of the shareholding was in Appendix 3, to which I have referred at [47]-[49] above. He emphasised that the abbreviation "MV" was defined in the glossary as "market value".
Senior counsel for TXA submitted that the fact that PwC referred to three scenarios did not mean that a price was not "determined" for the purpose of the Agreement. He submitted that PwC said explicitly "We don't know if there is a contract or if there is going to be a contract … if there's not going to be a contract, or if there's not a contract, we say it's X. If there is going to be a contract we say it's Y." He submitted that, if PwC concluded that there was no contract, but did not make allowance for the possibility of there being one or someone coming to take up the excess capacity, then there may have been a mistake, but that such a mistake was not reviewable. He also submitted that the only relevant fact was "whether Ten would enter into a commercial agreement with TXA, not whether there are other purchasers out there". He emphasised that an agreement had not been reached between Ten and TXA, and that, if PwC should have taken the possibility of one being reached into account, then that was a non-reviewable error.
Senior counsel for TXA stated that PwC's conclusion was expressed in the table which I have set out at [48] above. He submitted that the fact that it was not "necessarily as well set out as it could be" was immaterial. He submitted that what PwC did fulfilled the request that was made of them.
Senior counsel for TXA submitted that the proposition that the PwC Report was a "determination" that Ten's shares' had no value was supported by the conclusion in the table which I have set out at [39]-[41] above. He also emphasised that the concluding line of the table at [48] above was entitled "PwC MV range", thus stating that it was PwC's market value determination. He submitted that, by contrast, there was no similar analysis of the calculations to which I have referred at [49] above. He referred to the fact that the calculations referred to at [47] and [49] above produced an "equity value" rather than a "market value". He submitted that the scenario on which he relied was the calculation which produced a market value.
Senior counsel for Nine adopted the submissions of TXA. She submitted that the alternative scenarios to that referred to at [48] above were simply included for "completeness", emphasising that the negative equity value in the first scenario was factored into the second scenario. Like senior counsel for TXA, she submitted that, irrespective of PwC's subjective views of whether the PwC Report met the requirements of the contract, it in fact did so.
Counsel for Seven effectively adopted the submissions of the other respondents.

[15]

b Consideration

It is important to bear in mind that the task imposed by the Agreement upon the auditor was to determine a price for the defaulting shareholders' shares in the absence of a price being "determined and agreed by the defaulting Shareholder and [TXA]" under cl 10.2(b)(i), and that the price so determined was a price at which the non-defaulting shareholders could "procure a third party to purchase the defaulting Shareholder's [shares]" under cl 10.2(c).
It did not appear to be in dispute that, if the expert failed to determine a price as required by cl 10.2(b)(ii) of the Agreement, but rather, performed some different task, then the determination would be liable to be set aside: see Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd (2015) 90 NSWLR 367; [2015] NSWCA 275 at [74]-[75] (Belvino) and the cases there referred to.
The reasoning of the primary judge is set out at [60] above. Essentially, the primary judge concluded that the price had been determined because it was simply a matter of applying the conclusions reached in the PwC Report to the particular scenario which fitted the facts. It was on the basis that what he described as the "as is" position reflected the facts existing as at the date of the valuation that he concluded that PwC had determined that the price was "nil".
I do not think that the auditor does what is required under cl 10.2(b)(ii) of the Agreement if all that is done is to provide a mechanism from which the price can be determined. This is for a number of reasons. First and foremost, the Agreement required the auditor to "determine" a price, not postulate a series of scenarios and the price or value which followed under each of those scenarios, leaving the parties to select which one was appropriate. The difficulty which would arise if it were up to the parties to select the appropriate scenario is amply demonstrated by a consideration of what would occur if the parties had failed to agree on which of the alternatives was appropriate.
Second, it must be remembered that the "price" to be determined is the price at which the non-defaulting shareholders may procure a third party to purchase the defaulting shareholder's shares under cl 10.2(c). That sits uneasily with the proposition that the auditor, rather than determining the price himself or herself, merely needs to determine a "self-selecting" mechanism.
In my opinion, cl 10.2(b)(ii) requires the determination of a single price at which non-defaulting shareholders can either purchase the shares or offer them to a third party. In these circumstances, in my respectful opinion, the primary judge was incorrect in concluding that it was sufficient for PwC to determine a "self-selecting" methodology from which the parties could determine a price.
It remains to be considered if PwC in fact determined a price in the PwC Report. Ten contended that PwC determined a price of $42.953 million, while the respondents submitted that the price that was determined was "nil".
The matter falls to be considered having regard to the whole of the PwC Report. The first thing to be noted is that the covering letter accompanying the Report stated, under the heading "Engagement variation", that PwC had "not been able to provide a valuation which, in our view, satisfies the purpose of the original engagement letter". The engagement letter, which I have set out at [25] above, stated that the scope and purpose of the valuation was to provide a "determination of the price". Thus, the comment of PwC in the covering letter, although not conclusive, rather tells against the proposition that the PwC Report determined the price.
In the executive summary of the PwC Report, which I have set out at [31]-[32] above, there first appeared a reference to what was described as "possible outcomes". After discussing these outcomes, the Report contained the sensitivity analysis table showing "equity values" based on various contractual fees which might be paid by Ten or a third party for the services provided by TXA. The sensitivity analysis table included a price which produced a zero value consistent with the conclusion that, if Ten ceased to be a customer of TXA, and Seven and Nine bore the excess operating costs and capital expenditure, no additional value would be received by Seven and Nine for Ten's shares.
Although referred to in the executive summary itself, the sensitivity analysis table did not include the arrangement referred to in TXA's email of 20 November 2017 to PwC, namely, a fee of $3.2 million plus power costs producing a valuation of $15 million. However, the sensitivity analysis table did include a scenario involving what was described as "an arm's length fee" based on what had been offered to the ABC for the services provided by TXA, which resulted in an equity value of $42.953 million.
While the latter figure was highlighted in the sensitivity analysis table, neither it nor any of the other "equity values" contained in it were stated to be the price for Ten's shares or their market value. If that amount had been the price determined, either as a figure between a range of possible values or on a stand-alone basis, it would be expected that PwC would have said so and explained the reasoning which led to that conclusion. It did not do so.
As I pointed out at [35] above, after stating that Ten was "critical to the valuation", PwC then stated that it had "modelled a number of scenarios". PwC did not state a view in that section of the Report on which scenario was preferred.
The Report then identified potential purchasers and potential operating scenarios. That led to the tables to which I have referred at [39]-[41] above. The next section, under the heading "Forecast cash flow assumptions", contained four factual scenarios on which "the business" could be valued. Apart from discarding the second set of assumptions, PwC expressed no preference for any of the other alternatives. The "Commercial contract assumptions" next referred to took the matter no further. Although there was a similar sensitivity analysis table to that appearing in the executive summary, and the figure of $42.953 million was again highlighted, there was no statement that this was the price determined pursuant to the engagement.
Then followed the appendices. I have summarised them at [46]-[51] above. As I pointed out, the scenarios which they covered were based on a series of different assumptions and ultimately came to the same conclusions as those which were set out in the tables which I have discussed at [39]-[41] above.
The respondents placed particular reliance on the "DCF method (2 of 3)" section in Appendix 3, which I have extracted at [48] above, and submitted that the row entitled "Ten Shareholding (PwC MV range)" showed that PwC had determined the market value ("MV") as zero, in other words, that a willing, but not anxious, buyer would not be prepared to pay anything for Ten's shares. If PwC had reached that conclusion, it is surprising that they did not say so expressly, rather than simply signifying this with a dash. Further, the first scenario from which that analysis was derived, entitled "As-is (Ten retains its shareholding)", assumes that there would be no sale of Ten's shares, which is hardly of assistance in determining the sale price. The second scenario, entitled "Ten exits and does not use the services", is only one of a number of assumptions PwC had previously referred to without expressing a preference for any one of them.
In these circumstances, it does not seem to me that PwC determined that the price was "nil" any more than it could be said that it determined that it was $42.953 million. The fact that they did not reach a particular determination of price is supported by the statement of limitations and the declaration in the PwC Report which I have set out at [50]-[51] above.
For these reasons, I am of the view that PwC did not determine a price. It should be noted that, in the engagement letter, PwC stated that they would provide a "single point estimate". Had they done so, they would have "determined" a "price" for the purposes of cl 10.2(b)(ii) of the Agreement. However, they did not do so.
It follows that the appeal should be allowed on this ground.

[17]

a The submissions

Senior counsel for Ten referred to the analysis which I undertook on the bases on which an expert determination can be reviewed in Belvino. He referred in particular to my comments at [81] and following to the effect that it was a matter of construction as to whether the parties intended to be bound by the expert's construction of the formula which he or she was required to use as distinct from the application of the formula so construed. He submitted that, there being no particular meaning of the word "price" in a valuer's field of expertise, the provision should not be construed as leaving the meaning of that word to the valuer. He submitted that "price" meant a "fair and reasonable" price.
Senior counsel for Ten referred to the provisions of cl 10.3, which denied an entitlement to a return of the assets contributed to the venture on a sale of shares pursuant to cl 10.2. He submitted that what was being looked at in the circumstances of the present case was "a closely held organisation dealing with a peculiar business model where in effect objectively the value doesn't necessarily sit for the organisations in the assets itself". He submitted that this was the sort of model where one would be looking at a "fair" price.
Senior counsel for Ten referred to the discussion by Spigelman CJ in MMAL Rentals at [52]-[60] of the meaning of the word "fair" in the context of the expression "fair market value", where the Chief Justice suggested that the word "fair" involved proceeding "on the assumption, which may be contrary to the facts of a particular contractual relationship, that there is no impediment to the process of bargaining, whether in terms of availability of information or restraints arising from the characteristics of a particular vendor or purchaser or otherwise". However, he submitted that the word "price" in the agreement in question in the present case meant something broader than that concept, and involved the concept of "true value", "real value" or "intrinsic value".
Senior counsel for Ten, while accepting that the concept of a "fair" price may involve "subjective" considerations, submitted that it was not beyond the expertise of an auditor to take account of such considerations. He submitted that an auditor would be in a position to "know intimately how this organisation runs and how this organisation is of value" to people dealing with it. He submitted that all the expertise of the firm appointed as an auditor could be called upon to consider those matters.
Senior counsel for Ten submitted that it was correct to say that the presumed intention of the parties was that the auditor could "determine a price by reference to what the auditor thought was just and equitable" between the parties. He also submitted that, objectively, notice could be taken of the fact that the parties intended, by contributing their assets to the joint venture, to "continue to reap the benefits" to be derived from them, so that the value of those benefits was a relevant consideration.
In its written submissions, Ten also referred to a series of cases which it submitted supported the proposition that, where a contract provides for a price, and a mechanism for establishing it without specifying any criteria for its determination, the usual implication is that the price is a "fair and reasonable" price. In its submissions in reply, it rejected the proposition that these cases only involved clauses dealing with the determination or review of rent payable under a lease.
TXA submitted that "cl 10.2 speaks of a 'price' that is to be paid … in exchange for Ten's shares". It submitted that the value was to be identified by determining a "market price" for the shares in accordance with the principles in Spencer v Commonwealth (1907) 5 CLR 418; [1907] HCA 82 (Spencer). It referred to the remarks by Gleeson CJ in Franke v CIC General Insurance Ltd (1994) 33 NSWLR 373 at 376 (Franke) that "generally in a legal context requiring valuation of real or personal property, the ordinary meaning of value is exchange value", that is, the price "which would be obtained for the property in question in an arm's length dealing between a willing but not anxious seller and a willing but not anxious buyer". It submitted that the concept of "exchange value" was "inherent in the concept of a 'price' of an asset".
TXA submitted that its construction was supported by cl 10.2, which conferred rights on non-defaulting shareholders to sell the shares to third parties. It submitted that the construction was also supported by the provisions of cl 10.4, which provided that, if one of the events referred to in cl 10.1(b), cl 10.1(c) or cl 10.1(d) occurred, which, generally speaking, identified circumstances in which TXA had become insolvent, then the shareholders agreed to cause the liquidator to sell the business "at a price and on terms acceptable to" the shareholders. It submitted that the primary judge was correct in considering that "price" in that clause was a price "acceptable to the shareholders that could be achieved in the market". It was submitted that it also contemplated an "exchange value". It submitted that the reference to price in cl 9(f) was to similar effect.
TXA submitted that this approach did not unduly restrict the auditor in determining the price, who would be able to obtain information from the parties and "consider a variety of approaches" to determining a market value, for example, "discounted cash flow" analysis, a "market approach" or a "net assets" value. It also submitted that the cases relied on by Ten arose out of rental determinations.
Senior counsel for TXA submitted that the fact that the auditor was a large firm such as PwC was not a reason to distinguish what was said by Spigelman CJ in MMAL Rentals at [59], to the effect that an auditor was an inappropriate person to determine a "just and equitable" or "fair and reasonable" price. He submitted that the construction of the word "price" could not depend on the identity of the auditor, who may be a sole practitioner. He also submitted that, having regard to cl 10.3, it was inappropriate to take into account the capital contributions made at the commencement of the joint venture in determining a "fair" price.
Nine made submissions that were basically in similar terms to those made by TXA. Senior counsel for Nine emphasised that, in contrast to the cases referred to by Ten in support of the proposition that "price" meant a "fair and reasonable" price, in the present case, the identity of any buyer was unknown at the time that the expert came to determine the price, it being either a non-defaulting shareholder or a third party. She submitted that, if the price were to be determined focusing principally on the circumstances of the vendor, the non-defaulting shareholders might find it "very difficult to procure a third party to purchase the shares", and that in those circumstances, the construction contended for by Ten would involve the real risk that the non-defaulting shareholders would be deprived of the "valuable right" of selling the shares to a third party.
Seven made similar submissions to TXA and Nine.

[18]

b Consideration

If PwC had determined a price by reference to the market value of Ten's shares, it would, in my opinion, be a determination in accordance with cl 10.2(b)(ii) of the Agreement.
In contending that "price" did not equate to "market value", but to a "fair and reasonable" price, involving the concept of "true value", "real value" or "intrinsic value", Ten relied on a number of cases where there was a requirement to determine a price by a mechanism such as arbitration or expert determination without the provision of any criteria by which the price was to be determined. Generally speaking, the cases state that, in those circumstances, it should be implied that the expert or arbitrator was required to determine a price which was "fair and reasonable".
In Foley v Classique Coaches Ltd [1934] 2 KB 1, an agreement to sell petroleum at "a price to be agreed by the parties in writing and from time to time", with disputes or differences to be referred to arbitration, was held to be enforceable, the price being a "reasonable" price according to Greer LJ at 11-12, or a "fair and reasonable" price according to Maugham LJ at 15. It may be assumed that a "fair and reasonable" price for a commodity such as petroleum could be readily ascertained.
A similar conclusion was reached by the Judicial Committee of the Privy Council in Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd's Rep 205 (New Hope Collieries). The proceedings involved a variation clause in a long-term agreement for the supply of coal at a price "to be agreed", with a comprehensive arbitration clause. It was held that the price was to be a "fair and reasonable" price. However, Sir Robin Cooke, who delivered the advice of the Board, emphasised that the decision was not a subjective one. He stated at 210 that the statement of basic intention in the recitals, together with the detailed pricing provisions for the first five years of the agreement, laid down "broad guidelines" which were likely to be of "much help in determining what is fair and reasonable for later periods".
Australia Pacific Airports (Melbourne) Pty Ltd v The Nuance Group (Australia) Pty Ltd [2005] VSCA 133 (The Nuance Group) concerned the power of a Review Board, the Chief Executive Officer, and ultimately, an expert to determine the financial terms of a lease for part of Melbourne Airport. Nettle JA made the following comments dealing with the question of whether the Review Board and the expert had sufficient guidelines to conduct a review of the financial terms of the lease: "[52] The judge below said that: '49. I have considered APAM's submission as to a lack of sufficient guidelines or criteria by which the Review Board, and subsequently the chief executive officers and the expert, could determine a request to amend the financial terms. The answer, in my view, is that the Review Board would consider the merits of a request placed before it in light of information provided and their knowledge of each party's position. The chief executive officers would similarly decide. If the matter were to reach the expert, the expert would be guided by the nature of the request for amendment, any resolution of the chief executive officers, the submissions of the parties and the terms of the Lease.' With respect I agree with his Honour. Contrary to the appellant's submissions, the expert would not be without guidance as to how he or she should go about the task of deciding the difference. The criterion or standard would be what is fair and reasonable as between the parties; and what is fair and reasonable would have to be assessed by reference to the original terms of the Lease. In effect the Lease itself lays down in broad terms the sorts of considerations which are to be borne in mind in determining how to decide the difference. To that may be added any evidence of circumstances and assumptions applicable at the time of and on the basis of which the Lease was entered into; and what has happened since and whatever may now be the facts and circumstances of each party; and of course the submissions of the parties. [53] It is true that those things may still leave a good deal of scope for an expert to move, and so it is possible that an expert could reach a decision which imposes significant change. But that does not strike me as particularly surprising. The parties have chosen to have their differences resolved by expert determination, and because the Lease is a commercial agreement I assume that they did so because they wanted the sort of flexibility that expert determination may afford. In that respect their choice seems to me to be little different to and no more remarkable than the choice of parties to a lease to leave to expert determination the rent which may be payable on a renewal or extension of the term or the choice of parties to a long term gas or coal sales contract to leave to expert determination what is henceforth to be paid or even what may be taken into account in determining future adjustments. Furthermore, in a number of respects the terms of the Lease more closely resemble the terms of an adventure in trade than of a landlord and tenant relationship. Some terms look a lot like a retail sales partnership or a franchise arrangement and the financial terms of the Lease are evidently geared to projected and expected sales performance in an apparently challenging retail market. Conditions of that kind are notoriously variable and productive of change in estimates and expectations over time. If the Lease is considered fairly and reasonably against that sort of background it is even less remarkable that the parties should have conceived of the need for changes in the financial terms of the lease over time and to have provided for it by means of the Review Board and chief executive officers' procedure in clause 19 and, failing agreement, by means of expert determination in accordance with clause 27.15. [54] APAM makes much of the existing detailed provisions for the adjustment of rent. It says that it would be illogical for parties to take the trouble of formulating such an elaborate and refined adjustment mechanism if they had really conceived that the whole thing could be altered by the device of a request for amendment and the imposition by expert determination of whatever is said to be reasonable. It contends that it is surely more likely that, whatever was conceived to fall within the ambit of clause 27.15, a difference about the rent was not. I do not think that takes the matter any further. The existing provisions for the adjustment of rent are not liable to be set at nought by recognising that a difference about a request for amendment may be resolved by expert determination. On the contrary, and for the reasons already expressed, those provisions will do much to inform any determination of whether a requested amendment is fair and reasonable having regard to circumstances which have occurred and are foreseen as likely to occur. They form part of the guiding principles by reference to which any expert determination should be made."
In Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 616; [1982] HCA 53 (Wilson Parking), Brennan J, as his Honour then was, although dissenting in the result, stated that, where there was "an hiatus in the machinery for fixing the rent, the court will lean towards a construction of the lease which treats the machinery merely as a means of ascertaining what is capable of being ascertained objectively as a fair and reasonable rent". His Honour noted that, in Sudbrook Trading Ltd v Eggleton [1983] 1 AC 444, the House of Lords had chosen to "construe a contract which requires the price to be fixed by a valuer as a contract for sale at a fair value to be ascertained by the valuer or, in default, by the court", referring to the judgment of Lord Fraser of Tullybelton at 483-4. Brennan J stated that it was not necessary to consider whether the decision should be followed to that extent in Australia. However, his Honour went on to say at 617 that, in the case before him, the parties "may be taken to expect that the rental would be fixed by reference to the ordinary considerations with which conveyancers are familiar, and that a fair and just rental would be fixed accordingly".
There are a number of matters which should be noted with respect to these cases. First, there was no suggestion in any of them that the "fair and reasonable" price would be determined other than by objective criteria. That was made clear in New Hope Collieries at 210 and by Brennan J in Wilson Parking at 617. Although Nettle JA in The Nuance Group at [52] stated that what could be taken into account was "the facts and circumstances of each party" at the time of the review, his Honour did not state that this involved the application of any subjective considerations.
Ultimately, the question is to be determined by the construction of cl 10.2(b)(ii) of the Agreement. The meaning of that provision, like any other provision in a commercial contract, is to be determined by "what a reasonable businessperson would have understood [it] to mean", requiring "consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be served by the contract": Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]-[17], [77].
In the present case, it seems to me that the price is to be determined objectively, and in particular, in a manner which does not take account of the subjective circumstances peculiar to each party. This is for a number of reasons.
First, the object of cl 10.2(b)(ii) is to enable the price to be determined promptly in default of agreement between TXA and the defaulting shareholder. It seems to me unlikely in these circumstances that the auditor would be required to investigate and determine a price based in part on the particular subjective circumstances of each party.
Second, and importantly, the price so determined is the price at which the non-defaulting shareholders, within a limited period of 30 days, could procure a third party to purchase the shares. If the price determined by the expert took into account matters other than the actual value of the shares objectively determined, the power to procure a third party to purchase the shares within that limited period of time may in truth have very little value.
Third, the expert is TXA's auditor. Such a person, whether a member of a large firm or otherwise, would be able to value the shares by applying, to adopt the words of Brennan J in Wilson Parking at 617, an approach by which the value will be fixed by reference to the ordinary valuation considerations with which the parties, as sophisticated commercial entities, would be aware. Such valuation considerations are matters an auditor would be well-qualified to take into account, as distinct from seeking to determine a price which is "just and equitable" by reference to matters including the subjective position of the parties: see MMAL Rentals at [52]-[60].
In those circumstances, it seems to me that PwC was correct in approaching the task by seeking to determine the "market value" or "exchange value" in accordance with the test laid down by Griffith CJ in Spencer at 431-432, namely, what would a person "desiring to buy the [shares] have had to pay for [them] on that day to a vendor willing to sell it for a fair price but not desirous to sell?": see also Isaacs J at 441. As Gleeson CJ said in Franke at 376, exchange value (the equivalent to "market value" as set out in Spencer) is "the price, in cash or in kind, which would be obtained for the property in question in an arm's length dealing between a willing but not anxious seller and a willing but not anxious buyer". That would be the price which the hypothetical third party referred to in cl 10.2(c) of the Agreement would presumably be prepared to pay.
That does not mean that PwC need apply any particular valuation technique to determine the price, nor does it mean that PwC is not entitled to make an assessment of the future prospects and cash flows of TXA in making the determination. Nor would it be inappropriate to take into account the fact that the value of the shares lies in access to the assets of TXA for use by the hypothetical purchaser in its business. These are all matters which may be relevant to the price that a willing but not anxious purchaser would be prepared to pay for the shares. However, the extent to which PwC considers it appropriate to take these matters into account is a matter for its judgment. It would not be reviewable by a court.
It follows that, had PwC determined the price by reference to market value, it would have performed the task assigned to it by the Agreement. The difficulty is that, as I have already concluded at [98] above, PwC did not determine the price.

[19]

Conclusion

In the result, the appeal should be allowed. So far as costs are concerned, Ten has only been partly successful, and in the event that it obtains a costs order in its favour, there may be an issue as to whether those costs should be paid by TXA rather than Seven or Nine. In these circumstances, I would make the following orders: 1. Allow the appeal. 2. Set aside the declaration made by the primary judge and in lieu thereof order that the proceedings be dismissed. 3. Direct the parties within 7 days to either file a consent order dealing with the costs of the appeal and the costs of the proceedings below or submissions as to the appropriate costs orders.
MEAGHER JA: I agree for the reasons given by the Chief Justice that this appeal should be allowed, and the suggested consequential orders made. The position in relation to the two issues - whether PwC "determined" a price and whether "price" described market value, rather than a fair and reasonable price - may be summarised shortly.
Under cl 10.2(b), if "[t]he price for the defaulting Shareholder's Relevant Proportion" is not agreed within a period of seven days, that price will be "a price" determined by the Company's auditor, whose decision is to be "final". In ordinary language, an auditor cannot finally determine a price by merely giving various opinions as to price, each of which is conditional on a particular scenario existing or later coming to pass. For the reasons of the Chief Justice at [85]-[86] above, contextual considerations only reinforce that construction. That being so, PwC's valuation report did not determine a price within cl 10.2(b)(ii) unless, properly understood, it also identified a single scenario as prevailing or, at least, ascribed a numerical probability to all scenarios, such that the weighted sum of the prices in each scenario might constitute the "price" determined. The review of its report at [89]-[97] above and [134]-[141] in the reasons of Gleeson JA below confirms that it did neither. This conclusion disposes of the appeal.
Nevertheless, this analysis also assists to resolve the meaning of "price" in cl 10.2(b). A price determined by the auditor under sub-para (ii) of that clause will be the price to be paid for the shareholding by any purchaser, including a third party procured by a non-defaulting Shareholder under cl 10.2(c). Accordingly, the parties would not be presumed to have intended that the price so determined would turn on circumstances specific to the eventual purchaser, whether those circumstances relate to the ongoing value of the shareholding to that purchaser or any equities arising between the vendor and purchaser from past contributions. That conclusion is supported by the other reasons in [119] above. In those circumstances, the parties should be taken to have adopted the test for market value in Spencer v Commonwealth (1907) 5 CLR 418 at 431-432, which is divorced from such considerations: see Commissioner of State Revenue v Placer Dome Inc [2018] HCA 59 at [23] (Kiefel CJ, Bell, Nettle and Gordon JJ), [158]-[160] (Gageler J). The method to be applied in determining that value remained a matter for the auditor.
GLEESON JA: I agree with Bathurst CJ. I would add the following brief observations by way of emphasis on the central question raised on appeal. That question is whether for the purposes of an exit provision in a shareholders' agreement, a company auditor acting as an expert "determined" a price at which the shares of a defaulting shareholder may be transferred to the non-defaulting shareholders or to a third party.
The terms of cl 10.2(b)(ii) of the shareholders agreement are set out at [20] of the reasons of Bathurst CJ. The shares the subject of the exit provision is the 33.3 per cent shareholding of the appellant (Ten) in the first respondent (TXA). The company auditor of TXA is PwC.
PwC was engaged by TXA to provide a valuation of a 33.3 per cent shareholding in TXA as at 30 June 2017. In its engagement letter dated 30 August 2017, PwC stated that it would normally express its conclusion as falling within a likely range, "[h]owever to comply with the requirements of this engagement, we will provide you with a single point estimate, being a figure within that likely range". If PwC had determined such a valuation, then the price of Ten's shareholding would have been determined by PwC for the purposes of cl 10.2(b)(ii) because price would follow from that valuation.
That PwC did not determine a valuation of Ten's shareholding for the purpose of the exit provision is apparent from the form and content of its report. PwC said so expressly in its cover letter dated 19 January 2018 that it had not been able to provide a valuation which satisfied the purpose of its original engagement letter, namely a valuation of 33.3 per cent shareholding in TXA as at 30 June 2017. And the format of PwC's report did not include its "Conclusions as to the value of the Company", as envisaged in its engagement letter dated 30 August 2017.
Whilst not determinative, both of these matters provide a rather stark indicator that PwC had not determined a price of a 33.3 per cent shareholding in TXA as at 30 June 2017.
Next, notwithstanding the heading on the Executive Summary at page 8 of the PwC report "Our valuation of Ten's share is based on a number of assumptions and represents one of what may be a number of possibilities" (emphasis added), the content of the Executive Summary makes plain that PwC had not in fact determined a single point valuation of Ten's shareholding as at 30 June 2017; the report contains no more than an analysis of a number of scenarios involving potential purchasers and possible operating outcomes.
That this is so is reinforced by the material appearing under the heading "Approach" at page 21 of the report. There it is stated that the summary on the following page headed "Potential scenarios and valuation outcomes" outlines PwC's analysis of "the implications and valuation outcomes of the potential purchasers and operating scenarios". Importantly, at no point does PwC decide, settle or resolve which of the potential scenarios and valuation outcomes constitutes its determination of the price of Ten's shareholding as at 30 June 2017. That is unsurprising given PwC's frank acknowledgment in its cover letter to the report that it had not been able to provide a valuation that answered the description of its original engagement letter.
Insofar as TXA and the other respondents pointed to the dash ("-") in the column in Appendix III at page 36 of the PwC report as being PwC's determination of a negative value for the price of Ten's shareholding as at 30 June 2017, that submission suffered from a number of obvious difficulties.
First, it sought to read out of context and in isolation one table in the appendices to the report addressing discounted cash flow calculations in respect of one of a number of scenarios.
Second, it ignored the purpose of the appendices to the report, as stated under the heading "Approach" on page 21 of the report, which was to provide the details of calculations and assumptions underpinning the various valuation scenarios analysed by PwC in the report.
Third, nowhere in the report did PwC say that the table on page 2 of 3 of Appendix III rather than any other table in Appendix III, including the table on page 3 of 3 which gave a valuation scenario assessed at $42.9 million, was PwC's determination of the valuation of Ten's shareholding as at 30 June 2017. Each valuation scenario analysed by PwC was no more than one of a number of possibilities considered by PwC. PwC did not fix upon any "one" of those possibilities as its determination. It follows that PwC failed to determine a price of Ten's shareholding as at 30 June 2017 as required by cl 10.2(b)(ii) of the shareholders agreement. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2018