DETERMINATION
10 I have no difficulty in accepting that the task of determining the appropriate annual budget of a business comprising its projected revenue, expenses and profit, including forecasting projected increases in revenue, underlying profit or ROCI, and the task of determining an appropriate medium-term target in relation to ROCI, is not the same as conducting a valuation. But that does not necessarily mean that an expert valuer such as Mr Samuel does not have specialised knowledge based on his training, study or experience such that he can provide opinions on the questions set out above that are wholly or substantially based on that knowledge.
11 For the purpose of the application, I consider Mr Samuel's report to be sufficient to show that he has the requisite specialised knowledge to provide the opinions that he has. I say that, first, Mr Samuel sets out how his specialised knowledge as a valuer equips him to provide opinions in relation to whether the information available to Brambles at the relevant times provided a reasonable basis for its budgets and forecasts.
12 At paragraph 122 of his report, under the heading "Methodology" Mr Samuel said the following:
(a) "Value is a forward looking concept. That is, purchasers in a market, formulate their economic decisions based on what the business or asset is likely to generate under their ownership. The valuation of:
(i) securities is therefore concerned with the cash flows that would be derived from dividends or the sale of the securities. Those cash flows are a function of the cash flows that will be generated by the underlying business; and
(ii) a business is therefore concerned with the future cash flows it will generate;
(b) Valuation necessarily requires expectations about future events to be assessed in order to establish the present value of the cash flows arising from those events;
(c) As future events are uncertain, they are subject to risk. A present value for the business or asset is determined by applying a discount rate to future cash flows to reflect that risk;
(d) It is axiomatic that a forecast that is:
(i) optimistic - i.e. anticipates higher cash flows than those that are likely to eventuate - will result in an over-valuation; and
(ii) pessimistic - i.e. anticipates lower cash flows than those that are likely to eventuate - will result in an under-valuation;"
Brambles did not quarrel with those statements, and I broadly accept them.
13 Importantly, Mr Samuel then said the following at subparagraph (e):
(e) As a valuer, when conducting valuations:
(i) it is therefore necessary to consider whether a forecast is "reasonable". Although this is a fundamental step in any valuation based on forecasts, there is little guidance as to what constitutes a "reasonable" forecast; and
(ii) I assess reasonableness by:
• identifying the key assumptions on which a forecast is based;
• determining the extent to which those assumptions can be verified objectively to supporting data; and
• assessing whether assumptions which cannot be verified objectively to supporting data nevertheless are based on sound reasoning and/or judgment and are not unduly optimistic or pessimistic."
14 The upshot of the Mr Samuel's proposition at subparagraph (e) is that when undertaking a business valuation which involves an assessment of the business's forecast, it is fundamental to consider whether the forecast is reasonable. Brambles did not suggest that was incorrect. In my view, it accords with common sense.
15 As the applicants submit, the starting point is that "[v]alue is a forward-looking concept". Because current or prospective business owners are concerned with the future cash flows to be generated by the business, valuation "necessarily requires expectations about future events to be assessed in order to establish the present value of the cash flows arising from those events", with discounts applied to the value of future cash flows to account for their inherent uncertainty. As Mr Samuel said, optimistic forecasts about future cash flows will result in over-valuations and pessimistic forecasts will have the converse affect. Therefore, it is fundamental for a valuer to consider whether a forecast is "reasonable".
16 Second, the necessary specialised knowledge may derive from a combination of training, study and experience. In my view, Mr Samuel's report indicates that he has been trained or has learned by experience to assess whether a business's budget or forecast is reasonable. He states that he has experience that includes "the valuation of shares, businesses and intangible assets for approximately 30 years in the context of acquisition, sale, IPOs and disputes." It is appropriate to infer that he has assessed the reasonableness of business forecasts on numerous previous occasions. Whether that is in fact the case can be tested in cross-examination.
17 Third, while I accept that the task of determining the appropriate annual budget and forecast is not the same as undertaking a valuation, Brambles' submission that Mr Samuel's approach is "inapposite" does not rise much above a mere assertion. Brambles does not explain why Mr Samuel's methodology was inapposite, or what different field of expertise ought be applied, save that it accepts that an accountant or company officer with experience in setting business budgets and forecasts would have appropriate specialised knowledge. I accept that such a witness may have appropriate specialised knowledge, but that does not mean that a valuer experienced in testing the reasonableness of budgets and/or forecasts does not. It may be that such a person may be in a position to provide better evidence, but that does not render Mr Samuel's opinion inadmissible.
18 Brambles argues that Mr Samuel is not qualified to opine on the quantification of the risks and opportunities identified by Brambles' management for the purposes of its budgets and forecasts, but it does not explain how such a quantification exercise is so removed from evaluating discounts to a business's future cash flow from the perspective of a valuer, such that the valuer's opinion strays "outside the lane" of his or her specialised knowledge. On the present material it is inappropriate to take so narrow a view of the specialised knowledge of a valuer.
19 Importantly, it was open to Brambles to put on evidence from, for example, a retired Chief Financial Officer of a large corporation with experience in determining budgets and forecasts, to explain why Mr Samuel's analysis fell outside the specialised knowledge of an expert valuer,. Alternatively, Brambles could have adduced evidence from an expert valuer to explain why or how Mr Samuel's analysis does not involve the specialised knowledge of valuer. Brambles did not, however, do so. Brambles' contention that there is something unique about financial forecasting for the purpose of developing a company's budget or forecast, such that it is outside the specialised knowledge of a valuer to offer an opinion as to whether the information available to the company at the time provided a reasonable basis for the budget or forecast, is not supported by evidence.
20 Fourth, Mr Samuel accepted (paragraph 122(e)(i)) that there is little guidance in the valuation standards and literature as to what constitutes a "reasonable" forecast, but in that context he then turned to point to various ways in which he said the available Australian and international standards and valuation publications were consistent with the approach he had taken.
21 I accept Brambles' contention that Mr Samuel's reference to an example in the Australian APES GN 20 Scope and Extent of Work for Valuation Services valuation standard provides little or no support for the proposition he advanced. That example concerned valuation in a context well removed from business valuation and from the circumstances of the present case. Further, in my view there is little support to be drawn from the USA Business Valuation Update publication or from the text by W Lonergan, The Valuation of Businesses, Shares and other Equity, to which Mr Samuel referred. But Mr Samuel accepted that there is little guidance in the standards and literature as to what constitutes a reasonable forecast, and his limited reference to them must be understood in that context.
22 Having said that, I consider the 2022 International Valuation Standards (IVS) to which Mr Samuel referred (which he said are not mandatory in Australia but are widely adopted by valuers as guidance as to valuation principles within Australia) does provide some support for the proposition that a valuer's training and experience may equip him or her to evaluate whether the objective information available to a company supports its budgets and forecasts. The IVS standards recognise that in performing a valuation, a valuer must undertake an analysis to evaluate the projected income/inflows and expenditure/outflows, the assumptions underlying the projected income/inflows and expenditure/outflows and their appropriateness. That indicates that a valuer must have training in, or develop experience in, evaluating the reasonableness of budgets and forecasts by reference to the various matters said to underpin them. For many types of business valuations it will be fundamental to a valuer's task that he or she be able to assess the reasonableness of the projected income, costs and profit.
23 Fifth, I am not persuaded that Mr Samuel's approach does not actually apply his specialised knowledge, and that he did not in fact follow the methodology set out in his report. It is not appropriate to describe Mr Samuel's opinions as merely the product of the observations of a "non-participating onlooker", in the sense described in Australian Cement at [6]. This is not a case where Mr Samuel's asserted specialised knowledge is derived from "watching practitioners do what they do, or even discussing with them why they do what they do".
24 Nor do the other cases upon which Brambles relies provide much support for its argument. As the applicants submit:
(a) Mr Samuel did not in terms or in substance purport to speak from a generalised "commercial perspective" like the accountant in AAPT. Having regard to his methodology, he provided opinions from the perspective of a valuer with specialised knowledge in evaluating the reasonableness of a business's financial budgets and forecasts for the purposes of valuing the business;
(b) Mr Samuel was not asked to make normative judgements about the reasonableness of Brambles' conduct in a context unfamiliar to him, like the economist in Stuart. In Stuart, it was clear that the economist was not equipped with specialised knowledge in banking conduct and practice to be able to offer an admissible opinion as to whether Rabobank failed to act reasonably and/or work with the Stuarts' financial difficulty in various respects: see Stuart at [120]. That is nothing like the position in the present case. Here, a well credentialled valuer is tasked with evaluating whether the objective material available to Brambles at the relevant times provided a reasonable basis for the budgets and forecasts that it made, and/or whether the budgets and forecasts were otherwise supported by defensible business judgements. Mr Samuel asserts that he has experience in undertaking such evaluations, has set out what appears to be an appropriate methodology, and articulates the factual basis and reasoning process upon which his conclusions are drawn; and
(c) it can be accepted that Mr Samuel's opinions sometimes stray close to the ultimate questions in the proceeding, but that does not render his opinion inadmissible: see s 80 of the Act. The Court well understands that it is its task to answer the ultimate questions in the proceeding, and that task will not be delegated to Mr Samuel. It will be answered by the Court weighing all the evidence, including deciding the weight, if any, to be given to Mr Samuel's opinions.
25 In my view, Brambles' objections boil down to issues of weight rather than admissibility, and I consider Mr Samuel's report to be admissible.
26 For completeness I note that, having decided the question of admissibility on the materials before me, I informed Brambles that it would have the opportunity to make a renewed application following cross-examination, if it wished to do so.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy.