McINTYRE v PERKES CARPENTER v PERKES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON (2) CJ, MAHONY (3) AND CLARKE (1) JJA 30 May 1989, 31 May 1989 [1989] NSWCA 142 Clarke JA There are two appeals before the court from judgments which Brownie J directed be entered and which arise out of the same transactions. In the first appeal Mr and Mrs McIntyre challenge the award of damages made in favour of each of the respondents in the sum of of $214,689. In the second appeal Mr Carpenter challenges an award of the same amount of damages in favour of each of the respondents. Both appeals arise out of the circumstances surrounding the purchase by the respondents, in association with three other persons, Messrs Pettit, Landon and Davies, of land at Wilberforce on which there was erected the Tropicana Hotel-Motel, the Australiana Pioneer Village and some other buildings. The owner of the land was Mawsons Hotels Pty Ltd which was not a party to the original proceedings and is not a party to the present appeals. The total purchase price the land was $1,250,000 and of this amount $600,000 was advanced by the vendor which took a mortgage back from the purchasers and $200,000 was advanced by one of the appellants, Mrs McIntyre, on the security of a second mortgage. Upon completion of the purchase the respondents and their joint venturers continued to conduct the businesses which had previously been run on the land including the business of a hotel/motel. They did not, however, do so successfully and in October 1982 Mawsons Hotels Pty Ltd re-took possession. Thereupon Mrs McIntyre sued the five purchasers to recover the sum of $200,000 which she had advanced and in due course obtained judgment. Her action, however, provoked a cross- claim from the present respondents in which they claimed damages for deceit against Mrs McIntyre and her husband. In addition they brought separate proceedings against Carpenter, an accountant who acted for the McIntyres, claiming damages in deceit and negligence. Both actions were heard together and in the ultimate Brownie J found for the respondents and directed the entry of the judgments I have already mentioned. The grounds of appeal upon which all appellants have relied have been limited. They have accepted the finding that Carpenter made a false misrepresentation for which they were all responsible in law but have argued that the trial judge erred in concluding that the misrepresentation induced the respondents, and the other purchasers, to enter into the contracts of purchase. In addition they have challenged his Honour's assessment of damages. It is necessary for me to say something more about the facts in order that a proper understanding of the argument which was addressed on the question of reliance may be understood. The hotel/motel which stood on the land which the respondents and their co-venturers purchased was called the Tropicana Hotel-Motel. The appellant, Mrs McIntyre, was the licensee and tenant of that hotel. She had, however, no interest in the Australiana Pioneer Village. Her husband also worked in the hotel. It would appear that Mrs McIntyre first became 2 UNREPORTED JUDGMENTS the licensee in 1977 and that she had continued to run the hotel business from that time until the land on which it was erected was sold in December 1980. During the whole of this time Carpenter acted as accountant for Mr and Mrs McIntyre. In June 1980 Carpenter prepared a profit and loss account of the hotel business for the 46 weeks preceding the making of the statement. At about the same time RE Bussell, Hotel Brokers, prepared a listing sheet of the hotel business which appears to have been based on the figures which Carpenter presented in his statement. On 29 October 1980 Landon, a hotel broker and one of the purchasers, informed the respondents that the hotel business was for sale and furnished them with copies of Carpenter's statement and the listing sheet. Both these documents contained information concerning the takings of the hotel business. The listings sheet indicated that the weekly takings were in excess of $14,000. Carpenter's profit and loss account for the business indicated that the sales for the period of 46 weeks totalled $640,566, the cost of sales totalled $250,302 and the operating profit for the period was $192,246. The respondents contended that the evidence demonstrated the falsity of these figures and this contention was upheld. It was found therefore that the two documents contained misrepresentations and that these misrepresentations induced the respondents to enter into the contract. Senior counsel for Mr and Mrs McIntyre did not contest the finding that misrepresentations had been made in these statements but disputed that it was open to the trial judge to conclude that the respondents had relied on these statements. The evidence which, according to the submission, denied the existence of reliance upon the figures in the June profit and loss account and the listing sheet was given by Mr Gye who said that on 1 November he had asked Mr McIntyre for copies of the tax returns in respect of the hotel business and had made it plain that he was not prepared to proceed with the purchase of that business, or the land on which the hotel was erected, without these returns. It was submitted that this evidence flew in the face of any suggestion of reliance. In my opinion this submission fails to take proper account of his Honour's process of reasoning. However I can put that to one side for the moment in order to concentrate upon the document which appeared to his Honour to be the critical one. That document was a trading and profit and loss account for the hotel business for the period between 16 September 1977 (when Mrs McIntyre commenced as Licensee) to 30 June 1978 and the years ended 30 June 1979 and 1980. That account had been prepared by Carpenter and was sent to the respondent Gye under cover of a letter dated 5 November 1980. Although Carpenter was not called to give evidence and did not explain why he sent the letter it is easy to infer that he did so upon instructions from McIntyre after a discussion between McIntyre and Gye which took place on 1 November at the hotel. During that conversation Gye had asked McIntyre for tax returns of the business and had been told by McIntyre that he was not prepared to supply those because they showed other business arrangements involving the McIntyres. What McIntyre offered in substitution was a statement prepared by Carpenter giving unqualified figures for the last three years. Gye retorted, so he asserted, that if he received those figures and they supported the picture which was painted in the earlier statement prepared in June he would be prepared to proceed. Upon this version of the conversation Gye was not prepared to proceed with the purchase of the land unless he received a statement from Carpenter, a qualified accountant, which, in effect, verified the June figures which he had URJ McINTYRE v PERKES CARPENTER v PERKES (Clarke JA) 3 previously received. The statement sent to Gye by Carpenter in November was consistent with the earlier figures showing gross sales of $721,524 for the year ended 30 June 1980 and a nett profit of $241,716. In essence the respondents' case was that the three statements, and in particular the statement sent under cover of the letter of 5th November, induced them to enter into the contracts of purchase. For their part the McIntyres presented a different story. Mr McIntyre said that he had arranged for Carpenter to prepare the statement in November and to send it to Gye in response to a request by Gye for a statement setting forth inflated figures in order to facilitate the deception of Gye's financiers. The critical question which fell to be decided by the trial judge was whether to accept Gye's account or MclIntyre's. He accepted, in this respect, the evidence of Gye and rejected that of McIntyre. Indeed he made it plain that he regarded McIntyre's credit as having been destroyed. In addition to the evidence given by Gye as to the need for some verification of the figures contained in the June statement both he and Perkes expressly said in evidence that they relied on the November 1980 profit and loss statement in determining to proceed with the purchase. His Honour accepted this evidence and concluded that the respondents had made good their claim of inducement. Senior Counsel for the appellant complains that this conclusion was erroneous. He submits that there was a body of objective evidence which established that the respondents did not rely on the November statement in determining to proceed with the purchase but had made up their minds to go ahead and bind themselves to a contract before they saw it. This submission involves a challenge to a finding of fact by a trial judge which was based, in part at least, upon his view of the credibility of the witnesses. A party who wishes to challenge a finding of that nature faces a formidable burden. As Samuels JA said in Chambers v Jobling, (1986) 7 NSWLR 1, at 20: "However that may be, the High Court, in cases which have followed Warren, has made it quite plain that the Court of Appeal is required to defer to the findings of the primary judge where these are based upon his assessment of the credibility of witnesses unless, as was said in Brunskill (Brunskill v Sovereign Marine and General Insurance Co Ltd, 59 ALJR 42), such a conclusion is quite inconsistent with established facts, or was glaringly improbable. In such a case, it seems that the appellate court can intervene only if the primary judge's decision can be seen 'to be clearly wrong on grounds which do not depend merely on credibility'...". Once the trial judge had rejected Mclntyre's version as to the reason why Gye wanted Carpenter's verification of the earlier figures it can hardly be said that the conclusion that Gye wished to have them in order to determine whether to proceed with the contract could be described as "glaringly improbable". Indeed counsel did not seek to suggest that it was. Rather he submitted that there was a body of objective evidence which told to the contrary. The respondents were first informed that the land and hotel business which was situated on the land were on the market on 29 October 1980. They were obviously very interested in the venture. By 30 October they had put together a team of five persons to carry out the purchase. On the same day Gye paid, out of his own money, an option fee of $10,000 for the right to purchase the property. Although the options - and there were a number - were not signed until 4 November 1980 it must be accepted that this action showed that Gye at least was serious about proceeding with the purchase. Also on the same day Gye spoke with Mr Arkell, a representative of the owner of the property, in terms which 4 UNREPORTED JUDGMENTS suggested that he was wishing to proceed with the transaction and in that conversation he made no mention of the fact that a final decision could not be made until further figures had been supplied by either the MclIntyres or their representative. On | November Gye and Davies visited the hotel and then on Monday 3 November the draft options were received by the respondent and further discussion took place between Perkes and Mitchell, who also represented the vendor. On 4 November Mrs McIntyre signed a licence transfer form. The options, which provided for a non-refundable option fee, were signed and Perkes and Pettit took part in an inventory at the hotel. The last mentioned of these events was said to be an important one because the evidence showed that inventories did not usually take place until it was determined that a sale was certain. These factors were all said to be quite inconsistent with the notion that the respondents were awaiting verification of the financial figures before deciding whether to proceed with the purchase. In addition it was pointed out that even though the respondents became suspicious that they might have been the victims of a misrepresentation as early as 1981 they did not make any positive allegation to that effect until January 1983. This, it was said, was quite inconsistent with the actions of persons who genuinely believed that they had been induced to enter into a contract by false representations. The only other matter relied upon which was, in my opinion, entitled to any weight, was the existence of some unsworn statements by persons which were admitted into evidence and not cross- examined upon and which were said to be inconsistent in some respects with the evidence given by the two respondents. Leaving aside for the moment the unsworn statements it is sufficient for me to express my opinion that not only do the factors pointed to by counsel for the McIntyres fail to establish that his Honour's conclusion was clearly wrong but they fail even to suggest error. No doubt each of those matters was a matter to which the trial judge's attention was properly directed as bearing upon the issue as to whose evidence should be accepted. That having been said they are not of such weight as to justify this court setting aside the trial judge's factual conclusion based, in part, on his view of the credibility of the witnesses. For instance, the payment of the option fee should be taken as indicative of an intention on the part of Gye seriously to consider proceeding with the transaction. That is, however, a very different thing from saying that it provided evidence of his concluded intention to bind himself and his partner to proceed with the purchase in the absence of further confirmatory proof from the MclIntyre's accountant. The final observation I would wish to make upon this submission concerns the unsworn statements. What occurred was that statements from a number of witnesses were tendered by counsel for the McIntyres and received into evidence. There followed the admission into evidence of McIntyre's statement and his cross-examination. This was somewhat lengthy but at the end of the cross-examination his Honour was in no doubt that McIntyre's credibility had been destroyed. It would appear that counsel for the respondents had the same perception for he thereafter declined the opportunity to cross-examine the witnesses whose statements had been tendered. He did so, he said, to avoid extending the length of the hearing in a significant manner. Those statements were, of course, entitled to serious consideration by the trial judge notwithstanding that they had not been verified on oath. In particular it was URJ McINTYRE v PERKES CARPENTER v PERKES (Clarke JA) 5 incumbent upon him to pay careful regard to any inconsistencies between the evidence of the respondents and that contained in the statements. It seems to me that this is what his Honour did. A reading of the judgment demonstrates that he gave the contents of those statements careful consideration but did not find that they provided sufficient reason for disbelieving the respondents on the critical issue of reliance. In my opinion it was open to his Honour to accept the evidence of the respondents, notwithstanding these statements, and no error has been shown. I would add that I reject the suggestion that it is incumbent upon a trial judge to accept assertions in a statement received in evidence, which is not verified on oath, in preference to the evidence of a witness whom he has seen and heard cross-examined in the witness box. The conclusion that his Honour did not err in finding that the November statement induced the entry by the respondents into the contract means that it is not strictly necessary to consider whether the earlier statements were also relied upon. Notwithstanding I should say that I do not find in Gye's statement on 1 November the basis for rejecting the conclusion that the respondents relied, in part at least, on these earlier statements. Indeed the consistency between the June and November profit and loss accounts appears to have been thought by the respondents to be very important. I would reject this first ground of appeal. The other grounds of appeal related to damages. It was first submitted that the respondents had suffered no loss because they got what they bargained for. This argument was developed in the following way. The trial judge found that the MclIntyres and Carpenter had fraudulently misrepresented the weekly takings of the hotel business for the twelve months ended 30 June 1980 as approximating $14,000. Evidence was led during the hearing which established that the takings of the hotel business for the first 54 weeks after the purchase by the joint venturers was completed on 17 December 1980 amounted to about $14,000 per week. In addition, although it might have been correct to say that the takings had not amounted to that figure for the twelve month period ended 30 June 1980, the representation promised no more than that the respondents were getting a business which returned $14,000 per week. As in fact the takings from the business did amount to $14,000 per week the misrepresentation, although it induced the entry into the contract, did not cause the respondents any damage. I am afraid I find this submission a trifle simplistic. It isolates the takings figures and disregards entirely the cost of sales, the overhead and the net profit. In particular it overlooks the fact that if the cost of sales is truly reflected but the takings are grossly inflated (which is what his Honour found) a totally incorrect figure of the profitability of the business will be arrived at. It was, after all, the profitability of the business that was important and the ratio between the takings and the gross profits was not altogether irrelevant. It is not suggested that during the period of 54 weeks to which our attention has been directed the cost of sales were of the same order as those shown in the statements in which the misrepresentations were made. All that is said is that the takings were as had been represented. There is, in my opinion, no substance in this submission. Counsel next argued that his Honour erred in assessing the value of each of the separate lots which made up the land which was purchased rather than assessing the value of the land as a whole. The initial difficulty with this submission is that the valuer, Mr Thomas, whose evidence the trial judge found acceptable in 6 UNREPORTED JUDGMENTS general, reached his end value by valuing each of the lots and by adding a valuation of the hotel business which had been supplied by another valuer, Mr Moneghittie. I fail to see how it could be said that his Honour erred in following the method adopted by the expert valuer who gave evidence. It was then said that Thomas valuation was validated by a comparison with the actual sale price of the land and hotel when it was sold by the mortgagee in July 1983. The sale price then was $750,000 which compared roughly with Thomas' valuation of $699,000. But the same comparison between his Honour's valuation, which differed materially from Thomas's because his Honour did not accept the factual basis of Moneghittie's valuation, revealed that his Honour's valuation was at odds with the sale price. There was no evidence, except that to which I have just referred which was given by Mr Thomas, supporting the view that a sale of the property in 1983 provided a reliable indication of the value of the property in December 1980. No one directed attention to the possibility that there was a fairly high level of inflation in New South Wales during that period and in my opinion the time gap between the two negates the value of the actual sale as a determinant of the actual value. Likewise, I am unable to see how the Thomas valuation can stand up when the factual basis for part of it was destroyed. His Honour was, therefore, left in a position where he had to determine the value as best he could with the imperfect materials which had been presented. He did this by adopting the Thomas figures in arriving at the value of the separate lots. He then turned his attention to the evidence of an accountant, Mr Goodacre, which he accepted, and which led him to conclude that the gross profit of the hotel business at the relevant time was $308,786. Deducting from that the overhead expenses of $241,279 (which should have been $241,719) which had not been in issue he concluded that the net profit was $65,067 per year. In order to determine the value of the business, according to the Moneghittie method, which his Honour did accept, it was necessary to capitalise that figure at 19 per cent. Upon the conclusion of the exercise his Honour determined that the value was $342,500. Insofar as he reached this conclusion by the application of figures and methods of valuation which he accepted it seems to me that he followed an acceptable course. Although there was a significant difference between his Honour's figure and the sale price two and a half years later I am unable to accept that there therefore must have been an error in his Honour's calculations. The respondents next challenge concerned the inclusion of the item of rent in the overhead expenses in determining the net profit upon which the valuation was based. There is no doubt that initially his Honour did include the rent which had been payable and paid by Mrs McIntyre during her tenancy. It was submitted that his Honour was not concerned to ascertain the value of the leasehold hotel business which was conducted by Mrs McIntyre as at November 1980 but was required to determine the value of the business, which was to be conducted upon the basis that the proprietors were the owners of the freehold, which was purchased by the respondents and their co-venturers. If the rent had been excluded from the overhead expenses then, clearly enough, the net profit and the consequent value of the hotel business would have been greater. There is, it seems to me, force in these submissions because the trial judge was concerned in assessing damages to measure the difference between the price paid and the real value of the land and business which the respondents purchased. That URJ McINTYRE v PERKES CARPENTER v PERKES (Clarke JA) 7 exercise involved concluding a view of the value of the hotel business without regard to the fact that Mrs McIntyre conducted the business as a tenant. It was necessary therefore to exclude the element of rent which would not have been payable by Mrs McIntyre when she operated the hotel business. I think, however, his Honour recognised this because the matter was drawn to his attention during a second hearing in 1988 following which his Honour delivered a second judgment in which he clarified some questions which had been raised by the parties. I would read that second judgment as accepting the proposition that rent should have been excluded from the calculations. Notwithstanding his Honour declined to alter his assessment of the real value of the land, including the hotel business, in November 1980. He declined to do so because he took the view that there were countervailing factors. They were the absence, in the overhead expenses, of any salary in respect of Mrs McIntyre and the inclusion of only a nominal salary for Mr McIntyre. Upon the basis, therefore, that persons who bought the business as an investment would have necessarily incurred wages which were not included in the McIntyre's overhead statements his Honour concluded that this factor needed to be balanced against the absence of rent. Insofar therefore as the one effectively cancelled the other out and because the assessment of value was a fairly rough and ready exercise in the light of the evidentiary material presented his Honour took the view that no reason had been shown for altering his original valuation. "T regard the net figure of $65,067 which I had previously found, as no more than the best evidence which, it seems to me, is available on the evidence, but to simply add to that figure an amount of rent, as the respondents now invite me to do, seems utterly inappropriate. Something must be added back into the calculation for other costs which the hypothetical purchaser would incur; and, importantly Moneghittie's method of approach does not discriminate between leasehold and freehold premises." Senior Counsel for the respondents sought to support his Honour's line of reasoning and added another countervailing factor which he said led to the same result even if one excluded from consideration the extra wages which the respondents would have had to pay. He submitted that the rent should be equated with the cost to the respondents of the acquisition of the capital necessary to secure the purchase of the freehold. According to this line of reasoning the freeholder who borrowed moneys to finance the purchase of the business would necessarily have had to pay interest equating the rent component in the profit and loss accounts presented by the MclIntyres. While I have reservations about the argument presented by counsel for the respondents, I must have regard to the question which confronts this Court and that is, whether in the ultimate, the appellants have shown that his Honour's figure of $65,067 for the nett profits of the business was an erroneous basis on which to carry out the capitalisation exercise. I would agree with his Honour that there was a paucity of evidence concerning aspects of rent, wages and capital costs, but, like his Honour, it seems to me that the purchasers of the land upon which the hotel was erected - assuming that they regarded the land as a form of investment - would have necessarily had to pay some regard to wages which they would have had to expend, unless they were prepared to give their own time to the business. The investor, it would seem to me, would necessarily seek to place a value on the cost of Mr and Mrs McIntyre's labour, and would deduct that as an overhead in arriving at a nett value. 8 UNREPORTED JUDGMENTS Bearing in mind the sparseness of the material and the need to arrive at a valuation which broadly equated the actual value of the property at the time of purchase, it seems to me that his Honour was not only placed in a difficult position but was accorded a degree of flexibility. It would have been wrong, as I see it, for him to have simply rejected absolutely the wage factor. If that view is right, then it is hard to say on the evidence that he was in error in treating that wage factor as approximating the rent which had been deducted by the MclIntyres. The point is not without difficulty, but having regard to the exercise in hand, I have not been persuaded at the end of the day that, in the ultimate, his Honour came to an erroneous view as to the value of the freehold on which the hotel was constructed. Accordingly I would also reject that argument. The final submission concerned the allowance of interest on the verdict moneys. This ground of appeal involves a challenge to the exercise of his Honour's discretion with the consequence that it is necessary for the appellants to show that his Honour mistook the facts, erred in principle, took account of an irrelevant factor, or failed to take account of a material consideration (House v The King, 55 CLR 499, at 505). It is said that his Honour made a basic error of fact. He assumed that the purchase moneys had been paid to the McIntyres and that they had retained it wrongly since the settlement of the purchase. This was, it was pointed out, quite wrong. The purchase moneys had been paid to the vendor of the land and the MclIntyres had not retained, wrongly or otherwise, moneys paid to them by the respondents. In my opinion this submission is based upon a misconstruction of his Honour's judgment. What his Honour said was that the McIntyres have had the use since December 1980 of what "is now to be seen as the claimants' money". I take this to mean that, as the respondents had established their case in deceit, the moneys which the respondents had been ordered to pay them should properly be seen as moneys to which the respondents had been entitled since the accrual of the cause of action. This occurred in December 1980. There is no substance to this ground of appeal. In the end the appellants have failed to make good their challenges to the judgments under appeal, with the consequence that the appeals should be dismissed with costs. I would add that although cross-appeals were filed no submissions were put before the Court in support of those cross-appeals, apparently because they had been abandoned. Accordingly, there should be an additional order that the cross-appeals be dismissed with costs. Gleeson CJ I agree with the orders proposed by Clarke JA. I am in general agreement with his Honour's reasons for those orders. I would only add some comments in relation to the ground of appeal concerning the allowance, if any, to be made in respect of rental taken into account in some of the figures which were put before the learned trial judge in relation to the operating results of the hotel business in question. It is to be borne in mind that the task of the appellants is to demonstrate to this Court that it should interfere with the valuation placed by the learned trial judge upon the freehold of the land on which the hotel was being conducted and, in particular, to demonstrate to the court that on the evidence before the learned trial judge the value which he attributed to the hotel was too low. The process of reasoning adopted by the learned trial judge in valuing the hotel was in accordance with the method of valuation adopted by a witness, Mr Moneghittie. The validity of that as a method of valuing the freehold of an hotel URJ McINTYRE v PERKES CARPENTER v PERKES (Gleeson CJ) 9 seems to have been common ground at the trial. It is important, however, to bear in mind that what was involved was a process of extrapolation from figures as to the operating profits of the business being carried on on the hotel premises. Where the task of a court is to value real estate it is not uncommon, and relatively simple in some circumstances, to look at the rental income derived by the owner of the freehold of the premises from tenants of the premises, make appropriate adjustments for any expenses incurred by the owner of the freehold and, applying a proper rate of capitalisation to the nett rental income, to deduce a freehold value. Where one is involved however, in the drawing of an inference as to the freehold value of land, by reference to the operating results of a rather more complex business being carried on on the land, the task of factual judgment involved can be more difficult. Obviously, for example, the efficiency or inefficiency with which the business is being carried on will affect its returns as will matters which may be personal to the operator of the business, such as the level of capitalisation which the operator has chosen to adopt. A variety of adjustments to the operating results may need to be made in order to reach a figure which constitutes a sound basis for inference as to the value of the freehold. The method adopted by Mr Moneghittie involved making an assumption as to the operating profits of the business at a particular time and then drawing a conclusion as to freehold value by applying an appropriate capitalisation rate to that assumed nett return. The particular assumption which Mr Moneghittie made was one which the learned judge was not prepared to accept. His Honour, in reaching his conclusion, adopted Mr Moneghittie's method but varied the figures by taking, as an appropriate basis for assumption of the operating results of the business, the report of another witness, Mr Goodacre. It was pointed out to his Honour that Mr Goodacre's figures treated as an operating expense to be deducted in calculating nett profit, an amount of rental paid by the operator of the hotel business. That, his Honour recognised in his second judgment, was a valid point, but his Honour also observed that there were other aspects of the computation of the profit and loss of the business in question which would have had a countervailing effect. The particular aspect to which his Honour made reference was the circumstance that the operating expenses taken into account by Mr Goodacre included only a relatively nominal weekly amount paid to Mr McIntyre for his services in relation to the operation of the hotel. It was pointed out in argument that there are other matters that might also have to be taken into account. It appears to be the case that at the trial there was little detailed examination of the appropriate adjustments, one way or the other, that would need to be made in order to come up with a figure concerning the nett operating results of the business, which would constitute a solid foundation for a conclusion as to the value of the freehold of the business. For example, the evidence of Mr Moneghittie showed that when he came to do his valuation exercise he excluded from the wages paid in respect of the hotel business the amount of approximately $100 per week paid to Mr McIntyre. His report describes that as an adjustment made "under industry norm". There does not appear to have been an examination in the evidence as to the nature of or reason for that "industry norm" or how it should be taken into account in the valuation exercise being performed by his Honour. 10 UNREPORTED JUDGMENTS In the result the learned judge came to the conclusion that although the present appellants had a valid point to make concerning the allowance for rental he was not persuaded, as a matter of fact, that the consequence of that was that he should alter his conclusions as to the value of the freehold which he had reached in the manner that I have described. His Honour's ultimate conclusion in that regard has, in my view, not been demonstrated in this Court to be erroneous. I also agree that the appeal and cross-appeal should be dismissed with costs. Mahony JA I agree with the judgment of the Chief Justice and Clarke JA. In deference to the arguments presented clearly and in detail by Mr Emmett QC and Mr Hallen, I shall add some observations of my own on two matters. First, the appellants submitted that the respondents did not rely upon what they, the appellants, had represented. The respondents said, in terms, that they did. Therefore, in substance, the appellants could succeed on this point only if they could establish the respondents should not be believed. The learned trial judge accepted the credibility of the respondents. Therefore, this Court should not intervene unless, in accordance with the principles which are now well settled, and to which Clarke JA has referred, the judge's findings can and should be set aside. Mr Emmett QC submitted that there were a number of matters which should lead to the conclusion that the appellants were not telling the truth and that the learned judge had erred in accepting their credibility. Giving the fullest consideration to what has been said in relation to these matters, I am not satisfied that it has been established that the judge's conclusion was wrong, or that he was wrong in accepting the credibility of the respondents. The second matter to which I would refer is the issue of damages. Mr Emmett QC submitted in detail that there were a number of errors affecting the learned judge's assessment of damages. Clarke JA has outlined the main submissions which have been made and I do not repeat them. I am not satisfied that his Honour erred. But I desire to say something in relation to one of the submissions, that is, the inclusion in the calculations in the initial assessment, of an amount in respect of rent. The appellants submitted that the learned judge erred in his assessment of damages because, in his assessment of the value of the property as at the date of the sale to the respondents, he failed to make an appropriate adjustment in respect of the rent then being paid for the premises. (The land was owned by a company and was leased to the McIntyre interests. However, it was the value of the land which was to be assessed.) His Honour valued the land by a capitalisation method based upon the nett profits apt to be derived from the property. To do this he was, of course, required to ascertain the nett profit apt to be derived from the use of the land as an hotel. It seems to have been accepted that such use was the best and highest use of the land for this purpose. To arrive at the nett profit his Honour took the gross profit from the calculations made by Mr Goodacre - no criticism is made of this. He then had to deduct the outgoings proper to be taken into account. It was in respect of this latter matter that criticism has been made. His Honour adopted for this purpose initially a total of the outgoings set forth in one of the exhibits. This included an amount for rent. An amount was paid for rent and was therefore included in the outgoings which, in fact, the McIntyre interests had paid. But it was submitted that to deduct a total of outgoings which included this amount for rent, was wrong. To calculate the nett profit to be derived from the use of the land, it was submitted, the rent should be eliminated. The fact that the rent URJ McINTYRE v PERKES CARPENTER v PERKES (Mahony JA) 11 had been included was pointed out to the learned judge. On further consideration of his preliminary judgment the learned judge accepted - in my opinion correctly - that the rent should be eliminated or should not have been included without adjustment and without reference to other factors. But he decided not to vary his judgment because of this. His reason was that there were, or probably were, other items of expenditure which should be taken into account, that is, which should be deducted in calculating the nett profit on which he based his capitalisation. He instanced, for example, the salary paid to Mr McIntyre and his son and, I think, the notional salary to which Mrs McIntyre might have been entitled. Mr Mcintyre and his son and Mrs McIntyre had worked in the business. No proper deduction had been made for the work of Mr McIntyre and, it may be, the position of Mrs McIntyre was not properly taken into account. On this basis his Honour concluded that his original assessment of the net profits had not been wrong. The valuation of a freehold upon which an hotel business is being conducted is a matter which requires careful consideration. The term "value" is one which has many different meanings. What essentially is to be done, at least in assessing value in such a case as this, is to calculate what, at the particular time, a ready and willing purchaser would have paid and a ready and willing vendor would have taken for the land. The method of arriving at this is, of course, ordinarily the method of comparable sales. But where, as is usually the case in relation to hotel premises of this kind, sufficiently comparable sales cannot be found, other methods may be adopted. The methods of valuation adopted in relation to freeholds of hotels have been considered in a number of cases: see for example the judgment of Sugerman J in Tooheys Ltd v Housing Commission of NSW, 12 The Valuer 224. It has been said that, in principle, a valuation is to be made by assessing the rental value of the land and the appropriate rate of capitalisation, and applying the one to the other. This was referred to by Sugerman J in Tooheys case at 224. In deciding what, for this purpose, is the rental value of the land, it is necessary, of course, to take into account what, if the land is used for the purpose of an hotel, will be the nett profit, because no doubt the rent to be paid will be affected by the nett profit to be expected from the land. However, in some cases the assessment by reference to rental to be obtained is not appropriate. Ultimately the thing to be determined is the price which is to be paid, and taken, by the ready and willing parties to whom I have referred, and this may, in some cases, be best determined in other ways. As Sugerman J pointed out in the Tooheys case at 225, in some cases parties are best able to assess this by reference to gross profit; in other cases nett profit has been used. The gross or nett profit is determined and then an assessment is to be made from that of the price which would be apt to be paid. In the present case there does not appear, at least from the papers now before the court, to have been any analysis in depth of the method appropriate to be adopted for valuing the land on which this hotel was being conducted in this particular area. The parties seem to have assumed - at least the proceedings proceeded on the basis - that the proper basis was the one to which the Chief Justice has referred. They assumed that the proper basis was to assess the nett profit to be derived from the conduct of this particular business on this land, and then to capitalise that nett profit so as to obtain a capital sum. 12 UNREPORTED JUDGMENTS What is involved, therefore, is what, for this purpose, is the nett profit and how it is to be used in the capitalisation process. In calculating a nett profit the matters to be taken into account as outgoings depend, of course, upon what is the nature of the nett profit which is being used in the particular calculation. But, in general, where a nett profit is being calculated for capitalisation purposes in a case such as this, valuation practice seems generally to have accepted that a "management factor" is to be deducted. I mean by this that where a nett rent or a nett profit is to be determined, there is to be allowed, as a notional or actual outgoing, the commission paid to an agent in deriving the rent or similar outgoings made to derive the profit. The question arises, therefore, why such an allowance should or should not have been made in the present case. I see no reason why some proper allowance should not have been made. It is clear that the McIntyre interests were working, in one fashion or another, in the business, and that the nett profit derived depended, inter alia, upon the efforts which they made. I see no relevant distinction in this regard between Mr McIntyre, his son or Mrs McIntyre. A person assessing the true nett profit for purposes of assessing the price to be paid would take into account that the nett profit would depend upon the proprietor or her family contributing to the business in some such way. It may be that in some cases the price to be paid by a purchaser would ignore this factor. In some kinds of small business it may be customary and necessary for the proprietor to work in the business, to the extent that no allowance may be made, in valuation calculations, for the proprietors work. But I do not think that in the present case the factor would be ignored. I think his Honour was correct in saying that some allowance, whether the exact amount of wages for the McIntyre interests or otherwise, would be taken into account. Therefore, the question that remains is whether his Honour was able to assess that amount and was right in assessing it at a figure such as would equate the rent which previously had been included in the deductions from the gross profits, so as to warrant his decision to refuse to vary the figure that had previously been taken. Having regard to the broad approach adopted to the valuations in this case, I do not see any error in what the learned judge did. I think the court is entitled, by a process of judicial notice or otherwise, to come to the conclusion that the allowance which would be made in respect of the wages or work done by the McIntyre interests in the present case, would approximate the figure assessed for the rent; at least it would do so to the extent that no variation in the assessment originally made by the leaned judge was required. I therefore agree with the orders which have been proposed. The orders of the Court will be that the appeal and the cross-appeal will be dismissed with costs. The stay of proceedings granted by Master Hogan in December 1982 is to be dissolved at the end of seven days from today's date. During that period of seven days and pending such dissolution there is to be a continuation of the stay proceedings in relation to the judgment given by Brownie J for the respondents against the present appellants. Counsel for McIntyre: A Emmett QC and J Machonachie Solicitor for McIntyre: Tony Garling Counsel for Carpenter: P Hallen URJ McINTYRE v PERKES CARPENTER v PERKES (Mahony JA) 13 Solicitors for Carpenter: Price Bent Counsel for the Respondent: TEF Hughes QC and VR Gray 5 Solicitors for the Respondent: Gye and Perkes