CATCHWORDS JUDGMENT No. \72,7 SB Trade Practices (consumer protection) - contracts for 'acquisition of 'assets comprising knackery and pet food business - production by vendors of valuation prepared by father of one of directors of vendors - valuation said to be inflated because of enhancement of amounts attributed to land and buildings to take into account profits being made by business - claim that valuation method was so unorthodox that valuation must have been made dishonestly - claim that vendors knowingly relied on dishonest valuation - challenge to findings of primary Judge in relation to this and other associated matters - causes of action for fraud and negligent misstatement also relied on - circumstances in which valuer may properly have regard to profitability of business activity carried on on land. Trade Practices Act 1974, 3.52 ANVITA PTY. LTD. v. SWAN PROPERTIES PTY. LTD. & ORS. No. Qld. G302 of 1987 Coram: Fox, Sheppard and Beaumont JJ. Date : 15 April 1988 Place: Brisbane GENERAL DIVISION CORAM: PLACE: STR No. Qld. G302 of 1987 wee ww FROM LE EOF THE FED) COURT BETWEEN : ANVITA PTY. LTD. Appellant AND: SWAN PROPERTIES PTY. ETD. First Respondent KARRABIN PASTORAL CO. PTY. LTD. Second Respondent WILLOWBANK PASTORAL PTY. LTD. Third Respondent DOUGLAS WILLIAM CROSS Fourth Respondent KERRY RODERICK HALL Fifth Respondent CYRIL CROSS Sixth Respondent FOX, SHEPPARD AND BEAUMONT JJ. BRISBANE 15 APRIL 1988 MI OF ER S Ts The appeal be dismissed. The appellant pay the costs of the respondents. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION ) ) ) No. Qld. G302 of 1987 ) } ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT BETWEEN : ANVITA PTY. LTD. Appellant AND: SWAN PROPERTIES PTY. LTD. First Respondent KARRABIN PASTORAL CO. PTY. LTD. Second Respondent WILLOWBANK PASTORAL PTY. LTD. Third Respondent DOUGLAS WILLIAM CROSS Fourth Respondent KERPY RODERTCK HALL Fifth Respondent CYRIL CROSS Sixth Respondent CORAM: FOX, SHEPPARD & BEAUMONT JJ. DATE: 15 APRIL 1988 REASONS FOR JUDGMENT THE _ COURT: Anvita Pty. Ltd. ("Anvita"), the appellant in this appeal, brought proceedings in against Swan Properties Pty. Ltd. this Court claiming damages ("Swan"), the first respondent, Karrabin Pastoral Co. Pty. Ltd. ("Karrabin"), the second respondent, Willowbank Pastoral Pty. Ltd. ("Willowbank"), the third respondent, Mr. D.W. Cross, the fourth respondent and a director of the first, second and third respondents and Mr. K.R. Hall, the fifth respondent and also a director of the corporate respondents, and Mr. Cyril Cross, the sixth respondent, a valuer and the father of Mr. D.W. Cross. The proceedings arose from the sale of assets owned by the corporate respondents employed by them in the conduct of a knackery business. The assets were sold in May 1985 under several interdependent agreements for a total price of $215,000.00. Anvita pleaded a number of causes of action against the respondents. Anvita's principal allegation was that the respondents had engaged in, or been involved in, conduct which was misleading or deceptive within the meaning of 3.52 of the Trade Practices Act 1974 ("the Act"). Several causes of action under the general law were also relied on. Mr. Cyril Cross was charged with fraud and negligent mig¢tatement. The other respondents were also said to be liable in this connection. Anvita's case, we were told, was that Mr. D.W. Cross and Mr. Hall arranged for Mr. Cyril Cross to issue an inflated valuation of the assets of the corporate respondents with a view to inducing Anvita to purchase the business; that the valuation was made available to Anvita by the corporate respondents; that Anvita was thereby induced to acquire the business which it later resold at a loss. The primary Judge dismissed the proceedings. His Honour held that no case had been established by Anvita either under s.52 of the Act or under the general law. Central to the dispute was the valuation prepared by Mr. Cyril Cross dated 5 December 1984. It was expressed to be made for the corporate respondents "trading in purchase of live stock, slaughtering on their own licensed premises and the wholesale and retail of meat for pet food, together with by-products." The purpose of the valuation was said to be: "To assess the value of improvements and the business and assets as a whole for the combined companies of West Moreton Pet Foods Pty. Ltd. as wholesalers and retailers of a wholly owned Pet Food Business incorporation; (a) Swan Properties Pty. Ltd. as Land Holders, 'b) Karrabin Pastoral Co. Pty. Ltd. as purchasers of all stock for slaughter. (c) West Moreton Pet Foods as distributors. Each of the above companies wholly owned and operated by the same Directors with the business operating on a distribution basis as allocated for profits in the interests of the share holders." Particulars of the real estate and improvements used in the business were then given. Inder the heading "Remarks' the following appears: "This business was commenced on 11/7/80. Takings to 30.6.81 were $148,561.30 30.6.81 to 30.6.82 were $212,486.10 30.6.82 to 30.6.83 were $220.818.41 30.6.83 to 30.6.84 were $320.574.19 30.6.84 to 30.11.84 were $130,622.78 An average of $26,124.55 Average July 80 to 30 June 81 per month $12,380.10 July 81 to June 82 $17,707.17 July 82 to June 93 $18,401.53 July 83 to June 84 $26,714.51 June 84 to Nov. 84 $26,124.55 There has been a steady increase in monthly sales since the start of this business. Indications, due to the knowledge of a continual supply to the trade, due to their own killing works, and the approval of an interstate licence, should see a further increase in gross takings. There seems to be no end to the supply of stock which are purchased at 40 cents a kilo, carcass weight at works, stock purchased by Karrabin Pastoral Company in general average around 27 cents a kilo for horses. I consider this to be a_ sound business with limited opposition, the Pet Food Industry is enormous with the added demand for provision of food for the very active Greyhound Racing Centre here in Ipswich, Brisbane, Lawnton, Gold Coast and Tweed, Capalaba racing centres." The document concluded as follows: "VALUATION: Land as is fenced $ 90,000 Improvements Slaughter House and Yards Replacement Value $90,000 Depreciation $40,000 $50,000 $ 50,000 Refrigerator and Boning Room Replacement value $45,000 Depreciation $10,000 $ 35,000 Feed Shed $ 200 3 Bricked pots and shed $ 2,300 2 Salt sheds $ 500 $ 3,000 Plant and Fittings at Killing Works § 8,000 TOTAL VALUES: Land $ 90,000 Buildings 88,000 Trucks 43,000 Refrigerated trailer 6,500 Plant at killing yards 8,000 Sale of three companies as going concern by way of shares 10,000 $245,500 Stock, shop fixtures and plant as a going concern at time of purchase." At the trial, Anvita attacked the valuation to the extent that it attributed a value of $90,000.00 for "land" and $88,000.00 for "buildings". It appeared that, in arriving at these figures, Mr. Cross "enhanced" the value of these items by adding in an amount of $45,000 being one-half of the net profits of the business in the previous year. This was illustrated by reference to a draft valuation prepared by Mr. Cross in 1983 in which he allowed a value of $60,000.00 for the land and $73,000.00 for the buildings. In his later opinion, Mr. Cross attributed the sum of $90,000.00 for the land by allowing an enhancement in value of $30,000.00 by reference to profits earned. He valued the buildings at $88,000.00 by allowing an enhancement in value of $15,000.00 by reference to the profits earned. In this way, $45,000.00 in all was added in to the 1982 figures. It was submitted before his Honour on behalf of Anvita that to enhance the value of the fixed assets by reference to actual profit earned, as distinct from profit potential, was so erroneous and so "unorthodox" as to indicate that it could only have been arrived at dishonestly. It was sought to support this contention by calling evidence from other valuers who expressed opinions that the land and the buildings were worth substantially less than the values attributed to them by Mr. Cross. The primary Judge rejected Anvita's challenge. His Honour said: "Although the close relationship between Cyril Cross and Douglas Cross, who negotiated the sale on behalf of the three companies involved, initially arouses suspicion as to the impartiality and genuineness of the valuation, I accept that Cyril Cross prepared the valuation at the request of his son in good faith, and honestly believed the business as a whole (including all the vehicles referred to in the valuation) to be worth $245,000.00 as at S December 1984. I do not accept the suggestion that the method adopted by Cyril Cross of enhancing the value of the land and improvements by reason of the profitability of the business was intended by him to mislead or deceive the applicant or any other prospective purchaser. In my opinion the document was prepared with a view to assigning a realistic value to the business as a whole in order to facilitate its sale. That there was a sanguine view of the property and the businesses by Mr. Cross Snr., influenced no doubt by the family relationship, need not he doubted, but is not to the point. The property was inspected by Mr. Cole subsequent to the presentation of the valuation. He could, of course, have sought a valuation from other sources. I deprecate the suggestion that a valuation prepared for a vendor and used by the vendor in selling a property, constitutes a warranty to a purchaser. It is notorious that valuers differ in opinion. A valuer is required to act competently and honestly. Beyond that he 15 not required to go." In support of the apreal, senior counsel for Anvita renewed his contention that it was erroneous and "unorthodox" in the extreme to enhance the value of fixed assets by reference to actual profit earned, as distinct from profit potential. He relied upon the following observations of Blackburn J. in The Mersey Docks and Harbour Board v. The Overseers of the Poor of the Parish of Liverpool (1873) L.R. 9 Q.B. 84 at p.97: "If the hereditaments are such as to afford peculiar facilities for carrying on any kind of business, that facility does, beyond all question, enhance the value of the occupation; but though the profits which may be reasonably expected to arise from such a business no doubt form an element in estimating the enhanced value of the occupation of tee the premises, the actual profits made do not form any element, except in so far as they afford evidence of what might be reasonably expected to be made from the occupation of premises affording facility for carrying on such a business. For instance, to explain our meaning, there can be no doubt that the annual rent of a shop in Cheapside is higher than the annual rent of a similar shop in a back street; and that the reason why tenants give a higher rent is because of the superior facility for carrying on business there. But the rent and the rateable value of the shop are quite independent of the amount of the shopkeeper's actual gains. The rateable value is the same whether the tenant is a flourishing trader or is carrying on business at aloss. So, no doubt, in fixing the rent of chambers in one of the Inns of Court, the facility for carrying on the legal profession in them is an element, and an important one, but the actual income of the tenant is not. The chambers command no more rent when let to the Attorney General than they would doif let to a young barrister just called who does not as yet pay his expenses." We have difficulty in accepting Anvita''s argument. In the first place, a valuation is, prima facie. not a statement of existing fact but the expression of an opinion. It may be possible in some cases to bring such conduct within the scope of s.52 by showing that such an opinion was not held or was not honestly held. But such a case does not appear to have been squarely put to the primary Judge. It may have been open to Anvita on its pleadings to seek to make out a case that what happened here amounted to a conspiracy between all of the respondents to deceive Anvita by procuring Mr. Cyril Cross to issue an inflated valuation. Even if such a case may have been open on Anvita's amended statement of claim, it was not directly put to the respondents' witnesses as fairness required. All that was suggested to Mr. Cyril Cross was that his approach was a departure from orthodoxy, or, as was said in argument on the appeal, "woolly". Of course, it is one thing to put to a valuer that his valuation was wrong in principle or in result. It isa very different thing to suggest that the opinion he expressed was not honestly held and that he was a party to a conspiracy to swindle Anvita. It is true that Mr. D.W. Cross and Mr. Hall were apparently aware that Mr. Cyril Cross' valuation would be in line with the price they were hoping to achieve and would be furnished to Anvita. But we are not satisfied that it was put directly to any of the respondents' witnesses at the trial that they were knowing participants in a scheme to give Anvita an inflated valuation with a view to inducing it to purchase the business. In those circumstances, it would be unfair to permit Anvita to mount such a case at this stage. In any event, his Honour found that the valuation was honestly made and nothing put to us has persuaded us to interfere with this finding. In the gecond place, the attack made by Anvita is limited to only two of the items involved in the transaction. This gives a restricted perspective of Mr. Cross' valuation. It purported to be, and was, a valuation of the "1mprovements and the business and assets as a whole" of the corporate respondents. It was not, and did not purport to be, a valuation of the land or the buildings looked at in isolation or ona "break-up" basis. It was a valuation of the business looked at as a going concern. No doubt it was prepared with a view to the sale of the business, but on the footing that the whole of the assets employed in the business would be sold ona going concern basis, as in fact happened. In that context, we think that in any event, it was reasonably open to Mr. Cross to assess the value of the lands by taking into account their "special" value interms of their potential for use in the conduct of a knackery business. In this regard, Mr. Cross could take into account existing and past profitability. To assess profitability, it was open to him to use the profit element in the way he did. As Isaacs and Rich JJ. said in The Minister for Home & Territories v. Lazarus (1919) 26 C.L.R. 159 at pp.166-7: "A building is, of course, indispensable to the business actually carried on upon the land, but not that building. If destroyed, it can be replaced, and the same business can proceed, with the same goodwill. The land itself, however, is different. If the goodwill of a business is personal only, it adds nothing to the value of the land. If it is attributable wholly or partly to the land, it pro tanto enhances its value, and that value is recoverable, not as goodwill eo nomine but as part of the value of the land." A further difficulty in accepting Anvita's argument 1s that although its attack 1s confined to the method employed by Mr. Cross in arriving at his valuation, there is no mention made in the valuation of the method in fact used by Mr. Cross and nothing extrinsic to the written valuation 1s relied on by Anvita. The valuation made it clear that what was being assessed was the value of a business as a going concern. The past profits of the operation were referred to in a way which would suggest to the reader that Mr. Cross attached some significance to profitability of the operation, as evidenced by past profits. What followed, and what is now sought to be challenged, is a bare statement of opinion that the land and buildings employed in the ween an sy 'pte 10. business had a certain value. It is true that it later emerged that Mr. Cross made some use of past profits in making his assessment of value but, as the passage we have cited from the Mersey Docks Case shows, profits in fact earned may provide some guide as to what profits may reasonably be expected to be earned in the future. As has been said, there is no statement, expressly or by implication, that any particular method of valuation was employed in arriving at this conclusion. In the absence of any reference to the method of valuation used, a reader of the document would be entitled to assume that the figures arrived at by Mr. Cross represented his opinion of the worth of the assets as a matter of his own judgment and belief. It is a notorious fact that there are no fixed and rigid rules for the valuation of a business. In the ultimate analysis, a valuation is a matter for the assessment of the valuer making appropriate use of the available information which, in his opinion, he judges to be relevant. It is not, as such, a representation or statement of any objective fact. It is not even a statement that any particular method of valuation has been employed. It is only a representation that the opinion is one which is actually and honestly held by its author. In the present case, the real thrust of the attack sought to be made by Anvita is that the relevant views expressed in the valuation document were not opinions actually and honestly held by Mr. Cyril Cross. This was essentially an issue of fact raising squarely the credibility of Mr. Cross. He was called to give evidence and the primary Judge had the advantage of seeing li. him. His Honour formed the view that his opinion as to the value of these assets was honestly formed. Such a finding should not be lightly disturbed. This is especially so when there has been a failure on the part of Anvita to confront the respondents' witnesses with the suggestion, now made, that actual fraud and dishonesty were involved on the part of all the respondents. It was submitted on behalf of Anvita that the valuation was misleading and deceptive because it concealed the use made by Mr. Cross of past profits which it was said, should have been disclosed as a separate item, namely, as "goodwill". The answer to the submission is that the document purported to be a valuation of a business as a going concern. The business was licensed to operate from the lands in question, and, in that context, as the passage cited from Lazarus' Case shows, it was open to Mr. Cross to attribute an enhanced value to the lands by reference to the profitability of the activity carried on there. It was equally open to Mr. Cross to have regard, in this connection, to actual profits as a measure of future profitability. It was further submitted on behalf of Anvita that Mr. Cross fell into error by enhancing the value of the land twice. The suggestion was that in doing his 1983 valuation, Mr. Cross enhanced the value of the land by reference to its profitability so ag to throw up a figure of $60,000.00. It was said that in making his 1984 valuation, Mr. Cross commenced with the figure of $60,000.00 as the enhanced value of the land but proceeded to -further enhance its value by allowing a further element for ~ gel = at 12. profitability. But our reading of the evidence given by Mr. Cross is that he did not, in fact, enhance the land value in his 1983 exercise. The suggestion of "double enhancement" should he rejected. In our opinion, the charge that, in issuing his valuation, Mr. Cross was guilty of misleading or deceptive conduct was rightly dismissed by the primary Judge. It must follow that we also agree with his Honour's dismissal of the common law count in deceit. Since the alleged involvement of the other respondents in this aspect of the matter had to depend upon a finding that Mr. Cyril Cross was guilty of common law fraud, or at least misleading or deceptive conduct in the statutory sense, his Honour correctly rejected the claims made against the other respondents of fraud and of involvement in the alleaed contravention of s.52 claimed. We note that the respondents also contend first, that, in any event, Anvita was not induced in the relevant sense to enter into the transaction by reason of conduct of any of the respondents; and, secondly, that Anvita had not shown that it suffered any loss as a result of its entry into the transaction. We need not express any vlew on 'these additional defences. We turn next to the claim that Mr. Cyril Cross was guilty of negligent misstatement in issuing his valuation. This claim raises in the first instance the question whether, in attributing enhanced values to the land and buildings, Mr. Cross acted without reasonable care and skill. " EW ee ae 13. The primary Judge held that Mr. Cross acted both honestly and competently. For the reasons already given, we think that it was reasonably open to him to employ a method of valuation which attributed an enhanced value to the fixed assets of the business by reference to past profits generated on the site. It is beside the point to refer, as Anvita sought to do, to opinions of other expert valuers that, in their estimation, these assets were worth substantially less than Mr. Cross believed to be their worth. Once it is accepted, as it must be, that it was reasonably open to Mr. Cross to adopt a particular method of valuation, whatever result it throws up, it must follow that the primary Judge was also correct in dismissing the claim of negligent misstatement. The appeal is dismissed with costs. I certify that this and the preceding Twelve (tar) pages are a true copy of the Reasons for Judgment herein of of the Court. Share Moblhw— Associate to Fox J. Dated: 15 April 1988 Counsel and Solicitors Mr. R.V. Hanson Q.C., with for Applicant: Mr, T. Carmody, instructed by Wheldon & Associates. Counsel and Solicitors Mr. R.I. Myers instructed by for Respondents: Dale & Fallu Dates of Hearing: 11 and 12 April 1988