Ceepee Pty Ltd v Roads and Maritime Services
[2014] NSWCATAD 196
•12 November 2014
NSW Civil and Administrative Tribunal
New South Wales
Medium Neutral Citation: Ceepee Pty Ltd v Roads and Maritime Services [2014] NSWCATAD 196 Hearing dates: 31 May 2013, 26 August 2013, 12 August 2014 Decision date: 12 November 2014 Jurisdiction: Administrative and Equal Opportunity Division Before: S Montgomery, Senior Member Decision: 1. The decision under review is set aside.
2. The decision is made that the application for an operator's accreditation is granted with the condition that the accreditation be limited to eight cars.
Catchwords: Hire car - operator's accreditation -condition of accreditation - financial viability Legislation Cited: Administrative Decisions Tribunal Act 1997
Civil and Administrative Tribunal Act 2013
Passenger Transport Act 1990Cases Cited: Ceepee Pty Ltd v Roads and Maritime Services [2014] NSWCATAD 74
McDonald v Director-General of Social Security [1984] FCA 57; (1984) 1 FCR 354Category: Principal judgment Parties: Ceepee Pty Ltd (Applicant)
Roads and Maritime Services (Respondent)Representation: Searson Shannon & Co Pty Ltd (Applicant)
Smythe Wozniak Legal (Respondent)
File Number(s): 133072
reasons for decision
This matter was commenced in the General Division of the Administrative Decisions Tribunal ("the ADT") pursuant to the Administrative Decision Tribunal Act 1997 ("the ADT Act"). On 1 January 2014, the ADT was abolished and its functions were taken over by the Civil and Administrative Tribunal of New South Wales ('NCAT'). The present decision is therefore a decision of NCAT. However, because the proceedings to which it relates are 'part heard proceedings' as defined in clause 6(1) of Schedule 1 of the Civil and Administrative Tribunal Act 2013, they are to be determined as if that Act had not been enacted (see clause 7(3)(b) of this Schedule).
This matter relates to an application by the Applicant under the Passenger Transport Act 1990 ("the Act") for a private hire vehicle accreditation. A delegate for the Respondent granted that application but with condition that the accreditation be limited to three cars, whereas the Applicant sought accreditation for eight cars. The matter was initially heard before Senior Member Molony. However after the initial hearing of the matter, the Senior Member became unavailable. The President of NCAT determined to substitute the Senior Member for myself as permitted under section 52 of the Civil and Administrative Tribunal Act 2013 (the NCAT Act) and sought the parties' views in accordance with the provisions of section 52.
The Registrar of the Tribunal wrote to the parties in respect of the section 52 'substitution' issue. Neither party objected to me determining the matter. In the absence of any submission to the contrary, the Tribunal was reconstituted in accordance with section 52 (3) of the NCAT Act.
I have had the benefit of examining the full transcript of the directions hearings held before the President of the ADT, Judge O'Connor, and of the hearing before Senior Member Molony. I have read those transcripts and I have also listened to the recording of the hearing. I have also considered the material provided by both parties and I have taken that into account even though I may not specifically refer to all the evidence, material and submissions in these reasons.
The central issue before the Tribunal is the condition placed upon the accreditation granted to the Applicant to operate a private hire vehicle business in Port Macquarie ("the Business"). The Applicant has applied to the Tribunal for review of the decision to impose the condition. The condition limits the number of licences that the Applicant may hold to three. The Applicant had sought accreditation that would have limited the maximum number to eight.
When conducting a review of an administrative decision, there is no onus of proof on either party: McDonald v Director-General of Social Security [1984] FCA 57; (1984) 1 FCR 354 (Woodward J). Rather, the Tribunal "stands in the shoes" of the decision maker. The Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice: ADT Act, section 73(2).
The Tribunal may affirm, vary or set aside the Respondent's decision: ADT Act, section 63(3).
The history of the accreditation and relevant details relating to the general conduct of the Business are set out in my decision in a related matter which can be found at Ceepee Pty Ltd v Roads and Maritime Services [2014] NSWCATAD 74 ("the cancellation matter").
The Applicant's directors and shareholders are Peter Cristoforo and Christie Cristoforo ("the directors"). The Applicant acquired the Business from Bretabac Pty Ltd ("Bretabac"). At all relevant times Bretabac was controlled by Ms Cristoforo's parents, Mr Peter Williamson and Ms Cheryl Williamson.
As was noted in the cancellation matter, it is not in dispute that Mr Williamson agreed to 'stake' the directors in order that they could take over the Business. He financed and provided the necessary support to facilitate the acquisition. Bretabac could no longer operate the Port Macquarie business because it had agreed to the cancellation of its licences from 28 February 2013. The transfer was never intended to be an arm's length transaction. Mr Williamson's accountants and solicitors carried out the necessary arrangements so that the transfer could occur. The directors did not contribute their own funds to the Business but relied on Ms Cristoforo's parents to provide funds for the Business. Funding for the transfer was provided by way of a gift to the directors.
It is my understanding that the directors have moved to in Port Macquarie to operate the Business and that Ms Cristoforo has undertaken the requisite training to undertake the role of designated employed manager of the Business.
The issue for determination in this matter is whether a condition should be placed upon the accreditation granted to the Applicant to operate the Business. Underlying that issue is the issue of whether the Applicant is financially viable to operate the Business.
Issues in relation to the Applicant's fitness and propriety were considered in the cancellation matter. I do not propose to reconsider them in these proceedings.
I also note that the Respondent raised a number of issues in its written submissions that had not been previously raised in these proceedings. The Applicant has objected to the Tribunal dealing with those issues. The Applicant contends that it had no notice of most of those allegations and therefore could not adduce evidence in relation to them. I agree with that objection. Fairness requires that the Applicant have the opportunity to adduce evidence in relation to the issues raised by the Respondent. In the circumstances it is my view that the Applicant would be unreasonably prejudiced if matters first raised by the Respondent in written submissions after the conclusion of the hearing were to be considered. For that reason I will only consider those issues that were brought to the Applicant's attention prior to the conclusion of the hearing.
The material before the Tribunal
The Applicant relies on the Report of a forensic accountant, Ms Tamara Lindsay, dated 21 May 2013; executed bailment agreements; and an affidavit of Ms Cristoforo sworn 26 July 2013 and the accompanying exhibit read and tendered in the cancellation matter; and a bundle of correspondence between the parties.
The Respondent relies on a bundle of material filed pursuant to section 58 of the ADT Act (the Section 58 Bundle); and a memorandum from Ms Lindsay to Ms Garnett with handwritten annotations.
The parties also agreed that the transcript of hearing on 8 and 9 August 2013 in the cancellation matter should also be before the Tribunal in this matter.
Applicable legislation
Section 7 of the Act provides that a person who carries on a public passenger service must be an accredited service operator for that service. Section 38 of the Act provides for accreditation as a private hire vehicle operator. The purpose of accreditation is to attest that the accredited person is (or, in the case of an accredited corporation, the designated directors and managers of the corporation are) considered to be of good repute and in all other respects fit and proper to be responsible for the operation of a public passenger service, and that the accredited person has demonstrated the capacity to meet the government's standards of financial viability, safety of passengers and the public, and vehicle maintenance.
Section 38D of the Act provides:
38D Conditions of accreditation
(1) An accreditation under this Division is subject to:
(a) the conditions prescribed by the regulations, and
(b) such additional conditions as RMS, having regard to the purpose of accreditation under this Division, may impose on the accreditation.
(2) Conditions imposed by RMS may be varied (whether by amendment, addition, revocation or suspension of one or more conditions) by RMS from time to time by notice served on the accredited person.
(3) An accredited private hire vehicle operator who contravenes a condition of the operator's accreditation is guilty of an offence.
Maximum penalty: 1,000 penalty units.
(4) A variation of conditions imposed on an accreditation by RMS is, for the purposes of Division 3 of Part 5 (Administrative reviews by Civil and Administrative Tribunal), a variation of the accreditation.
Section 38E of the Act provides:
38E Variation, suspension or cancellation of accreditation
(1) Having regard to the purpose of accreditation under this Division, RMS may at any time vary, suspend or cancel any person's accreditation under this Division.
(2) The accreditation of a corporation is automatically cancelled when there is no designated director or manager.
There are no relevant conditions prescribed by the regulations and it is therefore an Applicant must satisfy conditions that the Respondent considers relevant. However, that consideration must have regard to the purpose of accreditation as provided for by section 38.
The Respondent's case
The Respondent submits that the Tribunal should have regard to the following matters when assessing whether the Applicant is financially viable to operate hire vehicles:
(1) the Applicant's history and management of the relevant business. In this regard, the Respondent submits that the history of the Business acquisition and the directors' inexperience in the industry and as business operators are relevant factors;
(2) the Applicant' s financial and management policies that allow for an assessment of the applicant's business risks and mitigation strategies. In this regard, the Respondent submits that there is no evidence that the Applicant has any relevant policies. There is nothing to indicate that the Applicant has done anything by way of assessing risks or developing mitigations strategies with respect to the financial aspects of its business;
(3) the relevant operating environment, which may involve an examination of the Applicant's management of factors operating within that environment and the impact of those strategies on the scale of the operation. In this regard, the Respondent submits that there is no evidence about the volume of business and the demand in Port Macquarie. There is no evidence of any contractual arrangements between the Applicant and agencies that might provide the Applicant with a guaranteed income stream;
(4) the profitability of the Business, which involves assessing operating margins and financial efficiency after removing the impact of capital grants and other one-off financial impacts. In this regard, the Respondent relies on the evidence of Peter Gunton, Senior Financial Analyst;
(5) the cash flow and the Applicant's ability to meet its financial obligations, including debts when they fall due. The Respondent submits that there is no evidence as to the Applicant's actual cash flow. The Respondent submits that Ms Cristoforo's evidence was that her parents had offered and will continue to provide cash to the Business as needed. The Respondent submits that it is appropriate to consider:
(a) whether the Applicant has a buffer against future adverse circumstances;
(b) the costs of allowing for the long term replacement/refurbishment of vehicles;
(c) the extent to which historical cash flows and profits (as far as available) are sustainable, and not reliant on non-recurring items or capital grants;
(d) the potential for growth and also the impact of growth (where appropriate). This is particularly the case for the Applicant's wish to operate eight vehicles in circumstances where the previous operator used five vehicles; and
(e) the extent to which the Applicant's cash flow and profits provide a stable base for its operation and serving any debt.
(6) the Applicant's capital structure - which allows for an assessment of the Applicant's long term funding structure - the sources of funding which the operator has used to acquire fixed assets (such as the vehicles, plant and machinery). In this context, the Respondent submits that there is no evidence of Bretabac's and/or Ms Cristoforo's parents' financial viability. The Respondent submits that it is relevant to identify any source of funding available to the Applicant via:
(i) external borrowings
(ii) capital grant contributions
(iii) cash and asset contributions from parent or associated entities
As I have noted above, it is the Applicant's financial viability which I consider is in issue in these proceedings.
The Respondent submits that the evidence establishes that the Applicant is not financially viable to operate any vehicles. It says that the evidence makes it clear that without Bretabac and Mr Williamson, the Applicant would not have a viable business:
(a) the Applicant would have no source of funds, other than the directors themselves but Ms Cristoforo has given evidence that she has not been required or is expected to make any financial contribution to the Applicant's business;
(b) the Applicant would not have persons with relevant experience in a management role to make relevant financial decisions or planning;
(c) the Applicant would have no premises for its administrative operation or its vehicles;
(d) the Applicant would have no persons to attend to day to day administration; and
(e) the Applicant would have no access to the work afforded by government agencies -such as DVA or Department of Health.
The Respondent submits that this application boils down to the Tribunal being asked to accept that the Applicant is financially viable because it has the backing of Bretabac and/or Mr Williamson to provide working capital and to continue to provide key services relevant to the Business (premises, administrative staff and a call centre) on non-commercial terms. The Applicant further asks the Tribunal to accept its financial viability without filing any evidence that Bretabac and/or Mr Williamson is at the present time and continuing in a position to 'stake' or support the Applicant's business.
I have discussed the general issues relating to the background to the acquisition of the Business and the operation of the Business since 27 February 2013 in my reasons for decision in the cancellation matter. I will not repeat that discussion here, but I note that I do not consider that Mr Williamson's support of the Applicant's business is of concern in these proceedings.
Mr Gunton, the Respondent's Senior Financial Analyst, advised the Respondent on the Applicant's hire car accreditation application. Mr Gunton gave evidence before the Tribunal and was cross-examined.
Mr Gunton had received a statement of financial capacity and viability from the Applicant's accountant - Maree Garrett & Associates. He sought further information with respect to the accreditation. In particular he sought the following:
- Hire car income and expenses estimate for the first year of trading;
- Statement of the directors'' liabilities and assets; and
- The intended funding source for hire car acquisition
In response to that request the Applicant's accountant provided further information. In a memorandum dated 14 December 2012 to the Respondent's A/Manager Licensing and Accreditation, based on his assessment of information provided by the Applicant's accountant, Mr Gunton expressed concern about the absence of any allowance for depreciation, advertising, administration/overheads, manager's salary and profit. He recommended that accreditation be granted for a maximum of 3 hire cars.
In evidence before the Tribunal is a further memorandum dated 18 April 2013 from Mr Gunton to the Respondent's Principal Manager Compliance & Regulation, David Tooze. The purpose of Mr Gunton's memo was to further advise on the Applicant's hire car accreditation application.
In part, the memo stated:
BACKGROUND
In December 2012, RMS's Licensing and Accreditation section asked me to assess the financial capacity of Ceepee Pty. Ltd. to conduct a Port Macquarie 8 hire car maximum operation. The company was only registered with the ASIC in November 2012 with its owners based in Melbourne.
This reference to me is normal practice with new hire car, taxi, and bus accreditation applications involving 3 or more vehicles. I sought and obtained information from Ceepee's accountant (again consistent with normal practice), and analysis of which formed the basis of my recommendation i.e. an accreditation award of a maximum of 3 vehicles. This reflected an intended reliance on debt funding on top of an already significant asset encumbrance, and containing the accreditation award for new applicants while giving them enough scope for business commencement (Tab A).
REVIEW OF COST DATA
Income and expense estimates for Ceepee's first year of business were sought and obtained. While these estimates gave a realistic picture of likely running costs, they excluded some important expenses, notably some which would result from the owners conducting a business from several hundred kilometres distant The data at Tab B estimates these additional costs, with the impact summarised in the table below.
Total income
$ 588,446
Total expenses
$371,396
Profits
$217,052
Profit/ expenses
58.44%
Costs identified in the original application
$ 216,200
Revised total expenses
$587,596
Revised profits
$852
Revised profit/expenses
0.14%
NB, The figures in the first 4 rows of the table are those provided in the original application.
The inclusion of these additional costs significantly reduces the forecast profit margin from 56.44% to a highly marginal 0.14%. The cost factors comprising the $216,200 additional costs are itemised below.
- Depreciation and interest - as noted in my previous advice at Tab A, the incurring of interest expense is foreshadowed by advice from Ceepee's accountant that a bank loan was the planned funding source for vehicle acquisitions. Though not involving a cash outlay, depreciation makes important provision for eventual working asset replacement. Depreciation and interest were estimated to add $139,200 to total expenses.
- Advertising and promotion - experience in reviewing hire car accreditation applications shows these to be significant especially for new businesses. Hire car operators cannot rely on "street flag fall pickups" like taxis and need to widely make their service known to potential customers, This would typically involve setting up a web site, ads in local papers and phone directories, and placing "flyers" with places of visitor and tourist accommodation and places of interest. .An outlay of around $5,000 may be needed to adequately cover Port Macquarie.
- Overheads - eg. administrative start-up, telephone, postage, parking / garaging fees.
- Manager's salary - the Melbourne location of the owners requires the appointment of a Designated Manager "on the ground" in Port Macquarie to run the Business. No provision for this expense was made in the original application. A figure of $60,000 is considered reasonable and has been included for this at Tab B.
- Owners' salaries have not been included. These are often drawn "below the line" with business profitability and tax planning considerations the key determinants. The above profit projection of just $852 would provide virtually no scope for the owners to draw a salary.
CONCLUSION
The application discloses, at best, a highly marginal operation in financial terms. The Information supplied, despite a request for further information, continues to lack important information to allow a proper assessment of financial capacity for the requested number of vehicles.
One very significant aspect of the matter in assessing financial viability is the fact that this is a new, start-up business. As such, the applicants would face costs in establishing and conducting a business, over a substantial distance. Typical start-up costs such as leasing or purchasing a business premises, office equipment, phone/broadband subscriptions, utility connections, website establishment, stationery, etc are not dealt with at all. There appears to be no identifiable provision in the financial plan for these important costs. This, linked with the very significant geographic distance between the proposed operation on the ground In Port Macquarie and its accredited operators in Melbourne, suggests a worrying degree of implausibility in the proposal. Accordingly, a reduced number of vehicles is preferable, at least until the start-up phase is completed (say one year) and the financial performance of the operation can be assessed further in the context, perhaps, of an application for an increase in the number of vehicles to be operated.
Submitted with Dec 12 application 2013 forecast $
Additional costs expected to be Incurred $
Drivers' commissions
235379
235379
Fuel
56000
56000
Repairs & maintenance
36000
36000
Registration & Insurance
12017
12017
Licence fees
24000
24000
Call centre fees
8000
8000
Depreciation & interest
0
130200
Advertising & promotion
0
5000
Overheads
0
12000
Manager's salary
0
60000
Total expenses
371396
587596
Profit
217052
852
Profit/expenses
58.44%
0.14%
Mr Gunton appeared at the hearing and was cross-examined. Under cross-examination Mr Gunton confirmed his view that the Applicant's income and expense estimates gave a realistic indication of the likely running costs of the Business, subject to additional expenses which he felt had been excluded from the Applicant's assessment. He conceded that he had no information to indicate that a business with the approved limit of 3 licences is any more likely to be viable than one with 5 licences.
Mr Gunton also confirmed his misunderstanding concerning the nature of the Business. His advice was given on the basis of his understanding that the Business was a "start up business". However, it is clear from the evidence that the Business was transferred as a going concern. Mr Gunton conceded under cross examination that he had not taken that into account, and that it would alter significantly the issue of viability.
As can be seen above, Mr Gunton asserted in the 18 April 2013 memorandum that requested information had not been provided. Under cross examination Mr Gunton acknowledged that the Applicant had in fact asked him what further information was required and he responded in writing by saying that no further information was required. He agreed that he had no requested information had not been provided and was unable to identify any request for information by any other person where the requested information had not been provided.
The Respondent submits that the Tribunal should be slow to accept Ms Lindsay's evidence as evidence of the facts about the operation of the Business. Ms Lindsay cannot give evidence of the facts as her role is confined to providing an expert opinion. The Respondent contends that she has no capacity to give evidence as to the actual facts and circumstances on which she was asked to form her opinion. The Respondent says that those facts must be proved by admissible evidence.
The Respondent says that Ms Lindsay was not asked to comment on Mr Gunton's opinion. She was asked to provide a report in which she was to address the following:
(1) is the Applicant's business financially viable?
(2) is the Applicant's likely to be able to meet its financial obligations in the operation of that business?
(3) does the limitation of the number of licences imposed by the Respondent assist the Applicant's financial viability?
In the course of her oral evidence, Ms Lindsay indicated she accepted the information provided to her on face value. The Respondent submits that some aspects of the Applicant's financial circumstances were not disclosed to her. She was not advised as to the level of funds provided by Mr Williamson and/or Bretabac with respect to the 'purchase of the Business' and 'working capital'. She agreed that she had not seen any document disclosing the value of any loan and/or gift from Mr Williamson to the directors of the Applicant. She had not seen a loan agreement. She had not seen any bank statements.
The Respondent also contends that while the Applicant expects to retain the work for the Department of Health, Department of Community Services and Department of Veteran Affairs, there is no evidence of any contractual arrangements with any of those government agencies. In relation to that work it submits that the evidence suggests that Bretabac remains the contractor and the Applicant relies on sub-contracts.
The Respondent further submits that Ms Lindsay accepted the running costs on face value. She did not question the costs of employees, call centre or administration. Ms Lindsay accepted that the information that the Applicant provided to her in regard to the administrative and booking services for the Applicant was correct and that the value was commercially reasonable.
The Respondent contends that reliance on the "business plan" alone is of limited assistance when the underlying factual assumptions were not revealed. There is no evidence before the Tribunal as to how the business plan figure for takings over a 12 month period was calculated and whether it is accurate. There has been no attempt by the Applicant to provide any updated figures which respect to the income generated by the Applicant since it commenced operations in early March 2013.
Ms Lindsay confirmed that she was not asked to assess financial viability beyond the business plan and appears not to have addressed any viability into the future.
The Respondent submits that Ms Lindsay's assessment was made on a different picture of the nature of the Business to that of Mr Gunton, and accordingly they were not comparing like with like.
For these reasons, the Respondent submits that Ms Lindsay's opinion should be given little weight. It submits that the Applicant's financial viability is wholly and completely reliant on the continued good will and funding by Bretabac and/or Mr Williamson. The Respondent further submits that the onus is on the Applicant to demonstrate that it is financially viable to operate the private hire vehicle business. The Tribunal could be not satisfied that the Applicant is financially viable to operate eight vehicles, or any vehicles. Therefore, the correct and preferable decision to vary the decision to declare that the Applicant is not financially viable to operate any vehicles.
The Applicant's case
The Applicant relies on the evidence of Ms Lindsay and Mr Cristoforo. As noted, the evidence of Ms Cristoforo that was given in the cancellation matter is to be regarded as evidence in these proceedings. I discussed that evidence in my reasons for decision in the cancellation matter and will not discuss it again here.
Ms Lindsay's evidence
Ms Lindsay is a forensic accountant. In evidence is her Expert Report On Financial Viability dated 21 May 2013. She also attended the hearing and was cross-examined.
Ms Lindsay accepted Mr Gunton's conclusions that the projected operating costs set out in the Applicant's Business Plan were "realistic", though incomplete, and therefore she concluded that a primary examination of the Business's costs was not necessary to complete her investigation. At paragraph 26 of her report Ms Lindsay stated:
The Gunton Memo states that "the income and expense estimates for Ceepee's first year of business (ie the Business Plan at Annexure D hereto) .,. gave a realistic picture of likely running costs". On the basis that the TRMS has taken no issue with the reasonableness of the projected operating costs set out in the Business Plan, I have not addressed that issue in this report.
At paragraph 23 of her report Ms Lindsay reached the conclusions:
In my opinion, for the reasons set out in detail in the body of this report:
(i) based on the Business Plan (which assumes an operation with 8 hire car licences), adjusted by myself, the Business is financially viable;
(ii) the Business is likely to be able to meet its financial obligations from its funds from operations;
(iii) limiting the number of licences to 3 does not assist in maintaining the financial viability of the Business; and
(iv) the "reasons" identified in the Gunton Memo do not suggest that the Business is not financially viable because, for the most part, those reasons are incorrect.
While Ms Lindsay conceded that Mr Gunton had correctly identified factors that had been omitted from the Applicant's business plan, she disagreed with Mr Gunton in regard to other items that he regarded as relevant to the Applicant's viability. In particular she disagreed with Mr Gunton that the Business was a start-up business. She stated at paragraph 72:
Contrary to what is stated in the Gunton Memo, the Business is not a start-up operation, but in fact has been in operation for around one and a half years prior to its acquisition by Ceepee, In my opinion, this factor significantly reduces the risk of financial failure and enhances the Business' financial viability, Further, Ceepee has net assets of around $95,000 which is a further factor indicating financial viability
Ms Lindsay provided the following specific comments on Mr Gunton's memo:
Profit contribution per vehicle
34 The Gunton Memo states that "the income and expense estimates for Ceepee's first year of business ... gave a realistic picture of likely running costs". The Gunton Memo does not comment on or criticise the gross income in the Business Plan. On the basis that the income and expenses set out in the Business Plan are not disputed by TRMS (they are adopted unchanged in the calculations in the Gunton Memo, and are not otherwise criticised in the documents provided to me), I have also adopted them in my calculations.
35. The Business Plan shows a profit of $217,051, calculated as follows:
Item
Amount
Gross takings
588,448
Drivers' commission (40%)
(235,379)
Gross profit
353,069
Expenses
(136,018)
Profit
$217,051
36. The components of the expenses of $136,018 are shown in Annexure D hereto. In my opinion, based on their description, and my accounting and business experience, some of the expenses are fixed in nature (in accounting terms this means that the expenses do not vary directly with fluctuations in gross income), and some of the expenses are variable (this means that the expenses are directly related to the generation of income and vary depending on the amount of income).
37. I have set out in the following table my opinion as to the nature of each of the expenses of the Business (ie whether they are fixed or variable):
Expense
Fixed
Variable
Fuel
$56,000
Repairs
$36,000
Call centre fees
$8,000
Licence
$24,000
'Rego' (ie registration)
$5,480
CTP insurance
$3,264
Insurance
$2,826
Public Liability
$448
Total
$44,018
$92,000
38. I have assumed that the Business Plan allows for the operation of 8 vehicles in a 12 month period of operation (Mr Gunton refers to a licence fee of $3,000 per vehicle, for 8 vehicles, totalling $24,000 per the Business Plan).
39. Given a gross profit of $353,068 (being Ceepee's 60% share of the gross takings), and variable expenses of $92,000, the profit contribution of 8 vehicles is around $261,000 ($353,068 minus $92,000), or $32,625 per vehicle per annum. Based on the Business Plan, this equates to each vehicle generating a profit contribution of around $600 per week. In my opinion, this amount of profit per vehicle significantly exceeds the additional fixed costs which may be incurred in operating an additional vehicle (ie licence fee, registration and insurance),
40. If the Business was limited to 3 licences, the gross profit contribution would be around $98,000 per annum (ie 3 x $32,625), Although this amount exceeds the fixed costs in the Business Plan (around $44,000 per annum), after allowing for the additional cost of interest, advertising, rent and the Designated Manager's remuneration (totalling between $29,000 and $44,000 - refer paragraph 71 below), the return to the owners is reduced to between around $10,000 and $25,000 over 12 months. I am instructed that when operated by Bretabac, the Business was at full capacity with 5 vehicles and was considering increasing its operation to 6 vehicles. On this basis, with only 3 licences, in my opinion, the Business runs the significant risk of losing long established customers because it will be unable to meet demand. If that happens, it is likely that the gross profit contribution per vehicle will decline, placing pressure on the ongoing financial viability of the Business.
41. In my opinion, the increase in variable costs associated with an increase of the former 5 licences to 8 is not likely to make the Business unviable, however, a reduction in the number of licences may. That is because the vehicle profit contribution will decrease while most of the fixed costs will remain the same. In my opinion, with 3 licences, the financial viability of the Business is challenged,
Interest and depreciation expense
42. The Gunton Memo allows for an interest expense on a "bank loan" for funding the purchase of vehicles, but does not indicate how the interest expense has been calculated, According to Mr Gunton's memo dated 14 December 2012 at pages 39 and 40 of the Section 58 Bundle, the interest expense amounts to $43,200 per annum, based on a loan of $480,000 (for the purchase of 8 vehicles at $60,000 each) and an interest rate of 9% per annum,
42. The Gunton Memo does not specify how the depreciation expense has been calculated. According to Mr Gunton's memo dated 14 December 2012 at pages 39 and 40 of the Section 58 Bundle, the depreciation expense amounts to $96,000 per annum, based on the acquisition of 8 vehicles at a cost of $60,000 each (total $480,000), depreciated at 20% per annum. Nothing is said by Mr Gunton about where he obtained the $60,000 purchase price from.
43. I have been provided with Ceepee's balance sheet as at 10 April 2013 (copy at Annexure F hereto). The balance sheet includes "Unsecured Loan" of $114,300 as a "non current liability". In accounting terms, classification of an item (asset or liability) as "non current" means that the amount will not be converted into cash within a 12 month period of the balance date (which in this case is 10 April 2013). That is, the balance sheet indicates that no part of the loan to Ceepee is repayable in the 12 months from 10 April 2013.
44. I have been instructed that at the time of the purchase of the Business, Mr Peter Williamson gifted funds to his daughter to acquire the Business, and provided further funds to his daughter for working capital of the Business. Pursuant to the Deed of Gift at Annexure E hereto, these amounts are gifts and are not repayable to Mr Williamson. On the basis that the gifts are not loans, no interest is applicable. In my experience, it is common for small businesses to be funded by informal related party loans (from directors or family members) which are treated as gifts or loans not expected to be repaid at all, or until the business is profitable or sold.
45. When acquiring the Business, the purchase included 5 Ford Sedans, manufactured in 2000 (one vehicle), 2002 (one vehicle) and 2003 (three vehicles), for a consideration of $10,000 each (refer to sale contract at Annexure H hereto).
46.The balance sheet at Annexure F includes an asset labelled "Motor Vehicles" at $165,000. I understand that Ceepee has recorded 3 licensed vehicles valued at $50,000 each and 2 unlicensed vehicles at $7,500 each. These are the 5 vehicles which were acquired by Ceepee when it acquired the Business. I have been provided with various documents relating to the purchase by Bretabac of 3 of those 5 vehicles (copies at Annexure G hereto). These documents indicate that the vehicles were purchased in 2011 for between $2,500 and $8,500.
47. The Business currently owns 5 vehicles. If it is accredited to hold 8 licences, the Business will need to acquire 3 further vehicles. Page 37 of the Section 58 Bundle indicates that the intended source of funding for these acquisitions is a loan from the ANZ Bank. It is not currently possible to know the cost of the proposed 3 vehicles. If they are acquired at the average of the cost of the 3 vehicles referred to in the documents at Annexure G (being around $5,500), and assuming 100% debt funding, the total loan will amount to around $16,500, I note that Mr Gunton adopts a purchase price $60,000 per vehicle, which would mean a loan of $180,000. Assuming Mr Gunton's interest rate of 9% per annum (which I consider is currently a reasonable assumption), the interest cost would range from around $ 1,500 to $ 16,200 per annum.
48. I am instructed that the TRMS' regulations allow a private hire car to continue to be used for private hire purposes until it is 30 years old, no doubt subject to road worthiness. On this basis, although it is likely that some repairs and maintenance expenditure will be required during their useful life, the 5 vehicles currently owned by the Business, which are between 10 and 13 years old, will not require total replacement for a very long period. However, given the profitability of the Business as set out in this report (paragraph 68 below), the Business will have sufficient funds to replace the current vehicles at less than 30 years of age if required.
49. In my opinion, based on the above, it will not be until many years into the future that the Business is required to expend monies on replacement vehicles. It is likely that the Business will retain sufficient profit from operations over that period to finance the acquisition of replacement vehicles at that time,
50. On this basis, assuming that the repairs and maintenance expense allowed for in the Business Plan (of $36,000 over 12 months) is sufficient to maintain 8 vehicles (and I note that the Gunton Memo accepts this expense as reasonable), I do not consider that any allowance is required in the short term for depreciation (for the purposes of setting aside funds for future asset replacement), In any event, even if it was necessary to remove several of the eight vehicles from service, if say repair costs were more than anticipated, in my opinion, the Business would not be rendered unviable.
Summary - interest and depreciation
52. In my opinion, on the basis of the above comments, the Gunton Memo allowance of $96,000 for depreciation is unnecessary.
53. In my opinion, on the basis of the above comments, between $1,500 and $16,200 should be allowed for interest. In my opinion, the Gunton Memo significantly overstates the interest expense at $43,200 per annum.
Advertising & promotion
54. In relation to advertising & promotion, the Gunton Memo states "experience in reviewing hire car accreditation applications shows these to be significant especially for new businesses". The Gunton Memo includes an expense of $5,000 for "setting up a website, ads in local papers and phone directories, and placing "flyers" with places of visitor and tourist accommodation and places of interest".
55. I concur that setting up a new business may involve some initial advertising and promotion expenditure. However, the Business is not a new business. Prior to its acquisition by Ceepee, the Business was owned by Bretabac, and had been in operation for some 18 months since September 2011. The Business was purchased by Ceepee as a going concern. It is not a start-up operation. The Business already has a web page (which was on line when under its former ownership), Based on my business experience, I consider that some expenditure may be required on ongoing advertising and promotion, Given the allowance in the Gunton Memo for all advertising, including "start-up" advertising, of $5,000, and the fact that the Business is not a "start-up" operation, I consider an allowance of $2,500 for advertising is reasonable.
Overheads
56. The Gunton Memo includes an allowance of $12,000 for overheads such as "administrative start-up, telephone, postage, parking/garaging fees".
57. It is apparent from the contract for the sale of the Business that computer equipment, office furniture and equipment, vehicle cleaning equipment and telephones were acquired as part of the Business, and thus no material additional ongoing cost will be incurred in that regard.
58. The premises occupied by the Business are leased from Bretabac at a rental of $200 per month ($2,400 per annum -1 assume this excludes GST) - see Commercial Lease Agreement at Annexure I hereto. I am instructed that the Business does not incur parking or garaging fees.
59. I am instructed that Bretabac will be providing administrative and booking services to Ceepee at a commercially reasonable price. I understand that these costs are included in the expense category labelled "call centre fees" in the Business Plan.
60. Under Ceepee's bailment agreement (sample at Annexure L hereto), the drivers are responsible for the purchase of, and maintenance of, their own uniforms, and for maintaining their driving licence. The drivers are also required to undertake training when required - I do not know if the training is provided internally or by a third party, or a combination of both. In any event, I would not expect there to be a material cost to the Company in this regard.
61. On the basis of the above, in my opinion, it is unnecessary to allow $12,000 for overheads, as suggested in the Gunton Memo. The Gunton Memo does not refer to a rent expense. I consider that an allowance of $2,400 per month should be made in this regard,
Manager's salary
62. The Gunton Memo includes an allowance of $60,000 for the cost of a "Designated Manager 'on the ground' in Port Macquarie to run the business".
63. I am instructed that the Designated Manager's remuneration is provided partly by operating a hire car (whereby he is in receipt of 40% of the takings, which is already allowed for in the Business Plan) and partly by fixed remuneration of $200 per week, plus $20 per hour for hours in excess of 10 per week. In this regard, I refer to the Employee Earnings History Report at Annexure J hereto, which shows that Mr Marendaz has been paid $200 per week, presumably because he has not exceeded 10 hours per week. I assume that the Business also pays SGC superannuation on behalf of Mr Marendaz,
64. I do not know how many hours of work Mr Marendaz will be required to work if the Business operates with 6 to 8 vehicles, I have assumed double the minimum of 10 hours per week (which, based on the Employee Earnings History Report, has not been exceeded in the months of April 2013 and May 2013 (up to 17 May 2013), and thus have allowed for an employment cost of $22,672 per annum, being $200 x 2 x 52 + 9% superannuation, This cost is not included in the Business Plan. In my opinion, it should be allowed for.
Owners' remuneration
65. I am instructed that the owners of Ceepee are not directly involved in the day to day management of the Business, and accordingly do not draw a salary from the Business. In my opinion, based on the Business Plan, and after allowing for the additional costs identified above, there would be sufficient profit available from the Business to provide the owners with adequate remuneration for their services to the Business (refer paragraph 68 below).
Additional information
66. The Gunton Memo states that "The information supplied, despite a request for further information, continues to lack important information to allow a proper assessment of financial capacity for the requested number of vehicles". This statement is contrary to information available to me. In particular, I have been provided with an email from Mr Gunton to Ms Jenny Gibbon (Chartered Accountant at Maree Garrett & Associates) dated 14 December 2012 (copy at Annexure K hereto), in response to Ms Gibbon's email of the same date, advising that no further information was required in respect of Ceepee's application for accreditation for 8 licences.
Gunton Memo overall conclusion
67. The Gunton Memo concludes that the Business is a "highly marginal operation in financial terms". The Gunton Memo calculates an adjusted annual profit of $852. I note that this is amount is a profit and not a loss. Of itself, returning a profit of only $852 does not indicate that a business is not viable. A profit indicates that income is greater than expenses. Further, if the depreciation expense, which is a non-cash amount, is added back to the profit, the annual cash surplus from the Business is in excess of $90,000,
Summary
68 Based on the above analysis, in my opinion, the annual profit of the Business operating with 8 licences is between $173,000 and $188,000, calculated as follows:
Item
Paragraph/ reference
Amount
Profit per Business Plan
Annexure D
217,051
Less Interest
48
(1,500) to (16,200)
Advertising & promotion
55
(2,500)
Rent
61
(2,400)
Designated Manager
64
(22,672)
Adjusted profit
$187,979 to $173,279
69. In my opinion, these adjusted profit amounts are significant and suggest a highly profitable and viable business. Such amounts provide a very strong buffer for any incidental costs which may not be specifically allowed for in the Business Plan,
70. Further, Ceepee's balance sheet as at 10 April 2013 indicates that it has net assets of around $95,000 (that is, the book value of Ceepee's assets exceed the amount of its liabilities by some $95,000). Some $32,000 of the net assets is represented by "cash at bank". In my opinion, this net asset position is consistent with a viable entity.
Ms Lindsay appeared at the hearing and was cross-examined. She conceded that some factors that Mr Gunton had raised should rightly be taken into account but also maintained her position that factors relevant to a start-up business are not applicable to a business acquired as a going concern. She also made some concessions in regard to the matters that she had not taken into account and her lack of access to other material that may have assisted her examination. Nevertheless, her evidence was not shaken in any material way.
The Applicant's submissions
Mr Doyle submitted that the Applicant has been conducting its private hire vehicle service without a single breach of its licence conditions being recorded. He confirmed that this continued to be the case when the matter came before me in August 2014. Mr Doyle also said that the Applicant has been audited by the Respondent, revealing no breaches. He submitted that there is also a well-documented history of the Applicant repeatedly offering to provide the Respondent with any information it wanted to see and to have its accountant meet Mr Gunton to resolve any issues of concern. The Applicant also offered to post security if seen to be necessary by the Respondent. The Respondent did not respond to the Applicant's offers.
While the Respondent has criticised the Applicant for not providing information that it required, Mr Doyle submitted that the Respondent did not ask the Applicant for the any further information. Further, the Respondent did not tender evidence to explain what information should have been provided or why it did not ask for the further information during the assessment of the application.
Mr Doyle submitted that it was incumbent upon the Respondent to identify the concerns it had about the Applicant's financial viability, meaningfully and with particularity. If the Respondent required further information, it was required to say what that information was in a way that would allow the Applicant a chance to provide it. Its failure to do so placed the Applicant at a disadvantage in the conduct of the proceedings.
He submitted that there is no reason at all for the Tribunal to be concerned in regard to the Applicant's ability to deliver the accredited service while maintaining appropriate standards of service and safety to the public. The business is sufficiently resourced. Its vehicles are competently maintained by qualified repairers and there is a car detailer engaged to maintain vehicle cleanliness. The operator's drivers are all licensed and copies of the bailment agreements have been provided. The business has the benefit of call centre and administrative services provided from the largest regional taxi and hire car provider in Regional N.S.W.
Mr Doyle submitted that the Respondent's criticism that Ms Lindsay relied upon the information that was provided to her is not a fair criticism. This is because Mr Gunton had indicated that he accepted that the projected revenue and running costs provided by the Applicant's accountant were a fair estimate for the start up phase of the Business. That was the basis for Mr Gunton's own assessment. Further, Mr Gunton advised the Applicant's accountant that he did not require further information in that regard. Ms Lindsay therefore concluded that a primary examination of the Business's costs was not necessary to complete her investigation. Mr Doyle submitted that this was an entirely appropriate way for her to proceed.
As set out above, Ms Lindsay considered the issues that Mr Gunton had raised. Despite the President's encouragement, Mr Gunton failed to confer with Ms Lindsay. Mr Doyle submitted that, given that failure to confer and the Respondent's repeated failure to respond to the Applicant's requests that it articulate its concerns, it is unfair for the Respondent to now criticise Ms Lindsay's approach.
Mr Doyle submitted that Ms Lindsay's report answers all the issues raised by the Respondent in regard to depreciation and interest. In regard to the criticism that she applied a 30 year depreciation period on instructions from the Applicant, Mr Doyle points to the fact that Ms Lindsay expressly took into account the possibility that her instructions might be wrong, and that projected repair costs are too low. She still concludes that "the Business would not be rendered unviable" from the resulting costs even if the Respondent's figures are used. She observed that if in some future time the cost of purchasing a new car could not be met from revenues, then the number of vehicles operated could be reduced.
Ms Lindsay also concluded that possible interest costs associated with the purchase of three additional cars would be manageable.
In regard to operating costs, Mr Doyle contends that there is no reason to suggest that the projected revenues, which Mr Gunton has accepted as reasonable, could not finance minor borrowings if necessary, noting that the shareholders and directors have equity in their home. In any event, if for any reason operating eight vehicles is proven to be unprofitable, there is nothing to stop the operator selling vehicles.
In regard to necessary allowances for advertising and promotion Mr Doyle submitted that the difference between Mr Gunton's figure of $5,000 and Ms Lindsay's figure of $2,500 is not of such substance that it is likely to significantly affect the viability of the Business. As Mr Gunton allowed for his assumption that the Business was a start-up, his allowances in that regard are not applicable. Further, he argues that if the overheads predicted by Mr Gunton are all allowed, it would be unlikely to substantially alter the profitability of the enterprise.
The Applicant accepts that Mr Gunton correctly noted that provision ought to be made for a manager's salary. Mr Doyle contends that Ms Lindsay's projections are reasonable. He says that the issue of economies of scale is important. The best way of defraying the costs of securing the services of a designated manager is to increase the number of cars on the road to introduce efficiencies. He further submits that the issue of the owners' salaries does not affect the ability of the Applicant to deliver an efficient service to the public safely in well maintained vehicles.
Mr Doyle contends that on the figures of Ms Lindsay there will be an annual profit of between $173,000 and $188,000 for the Business based on operating with eight licences. He submits that even allowing the worst case scenario on any of the issues raised by Mr Gunton, the Business would still be viable.
In addition to the submissions in relation to the Applicant's financial viability, Mr Doyle also addressed a number of issues that were raised by the Respondent in its submissions. He contends that the Respondent did not notify the Applicant that it intended to expand the scope of the issues in the proceedings in such a substantial way. The Applicant objected to the expansion of the scope of the proceedings in this manner on the basis that it had no notice of most of the allegations and therefore could not adduce evidence in relation to them.
Consideration
As I have noted above, I agree with the Applicant's objection to the expansion of the scope of the proceedings to include issues that were first raised by the Respondent in its submissions. These reasons address the question of the Applicant's financial viability. Nevertheless, I do not accept that the additional issues that the Respondent has raised would alter my conclusion.
I am satisfied that the Applicant acquired the Business as a going concern. It was not a start-up business.
It seems to me that the Applicant had provided the Respondent with ample information from which the conclusion should have been drawn that Bretabac had operated the Business prior to its acquisition by the Applicant. If Mr Gunton had any doubt about that issue, he had the opportunity to ask the Applicant's accountant to provide further information but he did not do so. By the time that matter came on for hearing the Respondent should have been left in no doubt about that issue.
It is clear that Ms Lindsay and Mr Gunton made their assessment of the Applicant's financial viability from different perspectives. Therefore, they did not compare like with like.
Mr Gunton conceded that he had not taken the fact that the Applicant acquired the Business as a going concern into account and that it would alter his assessment of the issue of viability.
In my opinion, Mr Gunton has overstated the likely operating expenses significantly. To some extent this is a consequence of his view that the Business was a start-up business. The start-up expenses would be far less than those allowed for by Mr Gunton.
I note that this issue was raised at the directions hearing on 26 April 2013. It is squarely raised in Ms Lindsay's report which was served on the Respondent on 21 May 2013. The matter came before Judicial Member Molony on 31 May 2013. The Respondent was therefore on notice of the issue prior to the hearing.
In my view, the Respondent should not have persisted with its position that the Business was a start-up business without seeking clarification on the issue.
However, I agree with the Respondent that Ms Lindsay accepted the information that was provided to her by the Applicant. The calculations presented by Ms Lindsay appear to take account of the instructions that she had been given regarding the circumstances in which the Business had been operating prior to its acquisition by the Applicant. I agree that there is no evidence to permit those instructions to be tested. Neither Mr Gunton nor Ms Lindsay had access to the actual circumstances in which Bretabac operated the Business.
However, as has been noted Mr Gunton had indicated that he did not require further information from the Applicant's accountant. Had the Respondent taken the opportunity to meet with Ms Lindsay, issues relating to the acquisition of the Business, the actual circumstances in which Bretabac operated the Business and any other concerns of the Respondent could have been discussed and the Applicant could have had the opportunity to provided further information to address those concerns.
In the circumstances, I agree with the Applicant that Ms Lindsay was entitled to rely on Mr Gunton's assessment that the projected revenue and running costs provided by the Applicant's accountant were a fair estimate.
To some extent Mr Gunton's overestimate is due to his failure to take account of the actual circumstances in which the Business is operating. As noted above, Ms Lindsay has provided a response to the issues raised by Mr Gunton.
On the evidence before me I do not agree with Mr Gunton's assessment that the Applicant's operation was 'highly marginal'. In my view Ms Lindsay has undertaken a thorough investigation, based on her acceptance of the projected revenue and running costs, and concluded that the Business would be financially viable to operate with three hire car licences. To the extent that Ms Lindsay disagreed with Mr Gunton's assessment, I accept that offered by Ms Lindsay. I accept that Mr Gunton's assessment of likely interest and depreciation is excessive.
When allowance is made for the differences in the two assessments, it is my view that Mr Gunton has significantly underestimated the likely profitability of the Business. Mr Gunton calculated an annual profit of $852. In contrast, Ms Lindsay estimated that the annual profit of the Business operating with 8 licences would be between $173,000 and $188,000. In my view it is likely that the profit could be expected to be considerably higher than Mr Gunton's estimate but somewhat less than Ms Lindsay's estimate. In any event, both estimated that the Applicant would achieve an operating profit. As Ms Lindsay has observed, a profit indicates that income is greater than expenses. I am satisfied that even allowing the worst case scenario on any of the issues raised by Mr Gunton, the Business would still be viable.
On that basis, I see no reason to restrict that Applicant to less than the eight hire cars that it seeks. In the circumstances I accept that the decision to restrict the Business to three hire car licences is not the correct and preferable decision.
Model litigant
At a directions hearing on16 April 2013 before the President of the ADT, Judge O'Connor, the Applicant expressed concern that the Respondent had not indicated the basis for its concerns regarding the Applicant's financial viability. Mr Doyle, Counsel for the Applicant submitted that the Section 58 material didn't clarify the matter at all. He indicated that if the Respondent advised what additional assets or security it required, the Applicant would satisfy that promptly. Mr Doyle stated that the Applicant stood ready to meet any reasonable requirement of the Respondent. As an example he stated that if the Respondent required the Applicant to deposit money into a bank account, the Applicant would do so.
The President expressed concern about the lack of reasoning provided by the Respondent to allow the Applicant to understand the basis of its decision. He indicated the need for a detailed statement of reasons for the decision, setting out the Respondent's reasoning process by reference to credible standards. He said that the decision maker needs to show how the accreditation standards have been applied.
The President directed that the Respondent provide a further statement of reasons addressing its concerns regarding non-satisfaction of the accreditation standards, explaining why it considered that the material supplied doesn't satisfy the accreditation standards and to do so by the 24th of April. The matter was then listed for further directions on 26 April. The President added:
"I'd encourage the parties to seek to confer in the meantime. It seems to me your [i.e. the Respondent's] people should be saying something like these are the levels of financial certainty we would be looking for and then they've got to be confident that the accountant just doesn't put in a pro forma letter saying oh that's the case. I mean the letter from the accountant is just a two paragraph job as I read it, but you've got to have something that actually appraises the business, a model in some way, I assume."
The Respondent provided a further report from Mr Gunton. However, that report does not fully explain its concerns regarding non-satisfaction of the accreditation standards. At the directions hearing on 26 April Mr Doyle repeated the Applicant's offer to meet any reasonable assets or security requirement of the Respondent.
The President also noted that it appeared that Mr Gunton had expressed his opinion on the basis that the Applicant was commencing a new start up business, cold calling Port Macquarie, rather than acquiring an existing business. He suggested that Mr Gunton turn his mind to that matter prior to the hearing. The President made directions for the filing of material and added:
I don't think I need to make a direction but I just encourage ... the financial advisors to the parties to meet, to hold a discussion between 27/5 and, between 27 May and 30 May, i.e. Mr Gunton ... and the forensic accountant for ... the Applicant, for review. Is that clear enough? ... I'm not making any directions but I, I'll just encourage you to do that.
In my view, it is readily apparent from the President's comments that he was encouraging a conclave of the parties' financial advisors in an effort to narrow the issues in dispute. This encouragement was offered in the context of lack of detail from the Respondent in regard to how it considered that the Applicant had not satisfied the accreditation standards and the Applicant's offer to meet any reasonable assets or security requirement of the Respondent. It was also in the context of Mr Gunton's apparent view that the Applicant was commencing a new start up business.
It is apparent that the Applicant was willing to engage in the process that the President had proposed. In a 24 April 2013 letter to the Respondent's solicitors the Applicant's solicitors wrote:
Our hope is that adopting his Honour's suggestion discussions between the parties can quickly resolve this appeal to avoid further litigation ...
In a 29 May2013 letter to the Respondent's solicitors the Applicant's solicitors wrote:
Conferral between Mr Gunton and Ms Lindsay
The President also made it clear when the pending appeal was listed for this Friday that Mr Gunton should confer with Ms Lindsay with a view to reaching agreement on the accounting matters relating to the viability of Ceepee's Port Macquarie business. The aim was to limit the time taken up with Friday's hearing. We have provided you with Ms Lindsay's contact details but she says no attempt to contact her has been made. Given the short time remaining before Friday's listed hearing, please ask Mr Gunton to call Lindsay as soon as possible.
No conclave of the financial advisors took place.
It is clear from the transcript of the proceedings that counsel for the Applicant raised these issues on several occasions. It is equally clear that the Respondent objected to counsel for the Applicant doing so. Rather than acknowledging the President's encouragement of a conclave of the parties' financial advisors and the fact that the Applicant had offered to participate in such a conclave, the Respondent criticised the Applicant's approach. This criticism is clear from the transcript of the hearing and from the Respondent's written submissions. For example, in her written submissions counsel for the Respondent wrote:
The consistent theme of the Applicant's submission is that if RMS has concerns about the financial viability then either RMS should have asked the Applicant for information or RMS officers should have met with the Applicant's accountant to 'resolve any issues of concern' ... First, RMS does not agree that there had been repeated invitations ... Secondly, in short, RMS says that it is the regulator. The onus is on the Applicant to demonstrate that it is financially viable to operate the private hire vehicle business. The Applicant should be up front and candid in its dealings with the RMS. It has the onus to disclose. There is no duty of inquiry on RMS to assist the Applicant. Further, the process of accreditation and, importantly, financial viability, is not a matter for ongoing negotiation.
There seems to be force in the Applicant's criticism of the Respondent's inaction in this regard. It is apparent that Mr Gunton and Ms Lindsay had each prepared their advice from different perspectives. Mr Gunton was apparently of the understanding that the Business was a start-up business and therefore was subject to additional risks that a business acquired as a going concern would not experience. In contrast, Ms Lindsay was clearly of the understanding that the Business was acquired as a going concern. As I have noted above, Ms Lindsay wrote in her report:
I concur that setting up a new business may involve some initial advertising and promotion expenditure. However, the Business is not a new business. Prior to its acquisition by Ceepee, the Business was owned by Bretabac, and had been in operation for some 18 months since September 2011. The Business was purchased by Ceepee as a going concern. It is not a start-up operation.
If the conclave had occurred, it is likely that the financial advisors could have adopted a common approach to the appropriate basis for assessment of the Applicant's viability.
It is apparent from the correspondence between Mr Gunton and the Applicant's accountant that Mr Gunton had advised that he did not require any further material from the Applicant in order to make his determination. Under cross-examination Mr Gunton conceded that was the case. Notwithstanding that assurance, the Respondent has criticised the Applicant for not providing material that it regarded as relevant to the determination.
I note that the Respondent is required to act as a model litigant. It is bound by the Model Litigant Policy for Civil Litigation. That policy states:
1.2 This Policy applies to civil claims and civil litigation (referred to in this Policy as litigation), involving the State or its agencies including litigation before courts, tribunals, inquiries and in arbitration and other alternative dispute resolution processes.
...
The obligation
2. The State and its agencies must act as a model litigant in the conduct of litigation.
Nature of the obligation
3.1 The obligation to act as a model litigant requires more than merely acting honestly and in accordance with the law and court rules. It also goes beyond the requirement for lawyers to act in accordance with their ethical obligations. Essentially it requires that the State and its agencies act with complete propriety, fairly and in accordance with the highest professional standards.
3.2 The obligation requires that the State and its agencies, act honestly and fairly in handling claims and litigation by:
a) dealing with claims promptly and not causing unnecessary delay in the handling of claims and litigation;
b) paying legitimate claims without litigation, including making partial settlements of claims or interim payments, where it is clear that liability is at least as much as the amount to be paid;
c) acting consistently in the handling of claims and litigation;
d) endeavouring to avoid litigation, wherever possible. In particular regard should be had to Premier's Memorandum 94-25 Use of Alternative Dispute Resolution Services By Government Agencies and Premier's Memorandum 97-26 Litigation Involving Government agencies;
e) where it is not possible to avoid litigation, keeping the costs of litigation to a minimum, including by:
i) not requiring the other party to prove a matter which the State or an agency knows to be true; and
ii) not contesting liability if the State or an agency knows that the dispute is really about quantum;
f) not taking advantage of a claimant who lacks the resources to litigate a legitimate claim;
g) not relying on technical defences unless the interests of the State or an agency would be prejudiced by the failure to comply with a particular requirement and there has been compliance with Premier's Memorandum 97-26;
h) not undertaking and pursuing appeals unless the State or an agency believes that it has reasonable prospects for success or the appeal is otherwise justified in the public interest. The commencement of an appeal may be justified in the public interest where it is necessary to avoid prejudice to the interest of the State or an agency pending the receipt or proper consideration of legal advice, provided that a decision whether to continue the appeal is made as soon as practicable; and
i) apologising where the State or an agency is aware that it or its lawyers have acted wrongfully or improperly.
3.3 The obligation does not require that the State or an agency be prevented from acting firmly and properly to protect its interests. It does not prevent all legitimate steps being taken in pursuing litigation, or from testing or defending claims made.
In light of the President's encouragement as set out above, it is difficult to understand how the Respondent's inaction regarding a conclave of the financial advisors could be said to be in accordance with the Model Litigant Policy. As a model litigant the Respondent has the obligation to endeavour to avoid litigation.
Similarly, it is apparent that the Applicant's offer to meet any reasonable assets or security requirement of the Respondent could have been the subject of discussions between the parties. In my view such discussions had the potential to narrow the issues and may have avoided many of the costs incurred in this matter.
I agree with the Applicant that it was incumbent upon the Respondent to identify the concerns it had about the Applicant's financial viability; if it required further information to advise the Applicant what that information was and allow the Applicant a chance to provide it. It was also incumbent upon the Respondent to identify any other concerns it had regarding the Applicant and allow the Applicant a chance to address those concerns. Its failure to do so placed the Applicant at a disadvantage in the conduct of the proceedings and does not meet the obligation placed a model litigant to act honestly and fairly in handling litigation.
In my view, the Respondent's conduct of these proceedings has not met the obligation imposed on it as a model litigant.
Conclusion
In my view the correct and preferable decision is that the determination to impose the condition limiting the Applicant's operator's accreditation to three vehicles should be set aside. In its place the decision should be made that the application for an operator's accreditation is granted with the condition that the accreditation be limited to eight cars.
Orders
(1) The decision under review is set aside.
(2) The decision is made that the application for an operator's accreditation is granted with the condition that the accreditation be limited to eight cars.
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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
Decision last updated: 12 November 2014
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