Harris v Kaarimba Pty Ltd
[2018] VSC 724
•23 November 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2016 001226
IN THE MATTER of KAARIMBA PTY LTD (ACN 164 173 942)
BETWEEN:
| SANDRA GERALDINE HARRIS (in her capacity as trustee of the Wendouree Nominees Trust) | Plaintiff |
| and | |
| KAARIMBA PTY LTD (ACN 164 173 942) | First Defendant |
| GERARD PAUL ALAMPI | Second Defendant |
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JUDGE: | Sifris J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 November 2018 |
DATE OF JUDGMENT: | 23 November 2018 |
CASE MAY BE CITED AS: | Harris v Kaarimba Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2018] VSC 724 |
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PRACTICE AND PROCEDURE – Terms of settlement provide for the appointment of a special referee pursuant to Order 50 of the Supreme Court (General Civil Procedure) Rules 2015 to assess the value of certain land, profits of a business and the value of units in unit trust – Separate experts appointed in relation to the land and the business.
PRACTICE AND PROCEDURE – Whether reports of special referees should be adopted in whole or in part – Proper approach – Reports adopted subject to minor variations – Wenco Industrial Pty Ltd v WW Industries Pty Ltd (2009) 25 VR 119 followed and applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | M Clarke QC with S Cipriano | Tasiopoulos Lambros & Co |
| For the Defendant | FD O’Loughlin with R Chan | Sofra Solicitors Pty Ltd |
HIS HONOUR:
Introduction
This is a family dispute. The plaintiff, Sandra Geraldine Harris (Harris) and the second defendant, Gerard Paul Alampi (Alampi), are brother and sister. They are equal beneficiaries of the Wendouree Nominees Trust. Sandra is Trustee and Appointor of the Trust.
The first defendant, Kaarimba Pty Ltd (Kaarimba) is trustee of the Kaarimba Unit Trust. Kaarimba in its capacity as trustee of the Kaarimba Unit Trust owns the Kaarimba Orchard. Wendouree Nominees Trust effectively holds 500 units, being one-half of the units in the Kaarimba Unit Trust. Kaarimba in its capacity as trustee of the Kaarimba Trust owns the Kaarimba Orchard. The remaining 50 per cent interest in Kaarimba and the Kaarimba Unit Trust is held by interests associated with the Baquiri family.
In addition to its interest in the Kaarimba Orchard, Wendouree Nominees Trust holds interests in the Prima Group, comprising Prima Fresh Packers Pty Ltd, Prima Freshcorp Pty Ltd, and Prima Fresh Orchards and Coolstores Pty Ltd.
The original dispute between Harris and Alampi was resolved by Terms of Settlement entered into on 26 September 2017 (the Settlement Agreement).[1]
[1]The original dispute related to aspects of the Wendouree Nominees Trust and its assets.
This dispute, heard on 5 November 2018, relates to the Settlement Agreement and in particular whether the reports of two special referees should be adopted by the court, whether in whole or in part.
The Settlement Agreement
The Settlement Agreement includes the following terms:
1.Pursuant to Order 50 of the Supreme Court (General Civil Procedure) Rules 2015, an independent land valuer be appointed (by the Court in default of the parties’ agreement within seven (7) days) to assess the value of Kaarimba Orchard as at 25 September 2017.
2.Pursuant to Order 50 of the Supreme Court (General Civil Procedure) Rules 2015, an independent forensic accountant be appointed (by the Court in default of the parties’ agreement within seven (7) days) to assess:
(1)the true profit of Kaarimba Pty Ltd since 1 July 2013; and
(2)(a) the value of the business and assets of Kaarimba Pty Ltd;
(b)the amount, if any, of the debt owed by:
(i)either Wendouree Nominees Trust or Kaarimba Pty Ltd to Prima Fresh Orchards and Coolstores Pty Ltd; and
(ii)Kaarimba Pty Ltd to Nabi Baqiri or Baqiri Investment Trust;
in respect of initial contributions made and used for the purchase of Kaarimba Orchard;
(c)the value of the units in the Kaarimba Unit Trust;
as at 25 September 2017 (which assessment must take into account fruit not yet picked and fruit stored) and the sworn land valuation.
…
5.The parties shall be entitled to make submissions to the appointed independent land valuer and forensic accountant in the manner prescribed by either of them.
…
7.Upon delivery of the forensic accountant of his assessment, Sandra Harris be paid by the defendants one half of:
(a)the value of the units in the Kaarimba Unit Trust held on trust for the Wendouree Nominees Trust;
(b)the share of true profits to which the Wendouree Nominee Trust is entitled (whether or not profits have been retained by Kaarimba Pty Ltd);
PROVIDED ALWAYS that the total sum to be paid to Sandra Harris by the defendants is not less than 25% of the net value of the Kaarimba Orchard as assessed by the land valuer appointed based on the assumption that the mortgage does not exceed $850,000 as at the date of valuation, and taking into account the amounts (if any) found by the appointed forensic accountant to be owed as contemplated by clause 2(2)(b) of these terms.
…
9.Upon payment to Sandra Harris by the defendants, she shall relinquish her interest in the Wendouree Nominees Trust as beneficiary and trustee and appoint Gerard Alampi as the appointor in her place.
…
11.The parties consent to the orders made by the Court on 26 September 2017 that:
(1)these proceedings be adjourned to Friday 10 November 2017 for directions;
(2)Pursuant to Order 50 of the Supreme Court (General Civil Procedure) Rules 2015, an independent land valuer be appointed (by the Court in default of agreement within seven (7) days) to assess the value of Kaarimba Orchard as at 25 September 2017;
(3)Pursuant to Order 50 of the Supreme Court (General Civil Procedure) Rules 2015, an independent forensic accountant be appointed (by the Court in default of agreement within seven (7) days) to assess:
(a)the true profit of Kaarimba Pty Ltd since 1 July 2013; and
(b)the value of the business and assets of Kaarimba Pty Ltd;
(c)the amount, if any, of the debt owed by:
(i)either Wendouree Nominees Pty Ltd or Kaarimba Pty Ltd to Prima Fresh Orchards and Coolstores Pty Ltd;
(ii)Kaarimba Pty Ltd to Nabi Baqiri or Baqiri Investment Trust;
in respect of initial contributions made and used for the purchase of Kaarimba Orchard;
(d)the value of the units of the Kaarimba Unit Trust;
as at 25 September 2017 (which assessment must take into account fruit not yet picked and fruit stored) and the sworn land valuation.
(4)There be no order as to costs.
(5)Liberty to apply.
On 26 September 2017, and pursuant to clause 11 of the Settlement Agreement, I ordered that pursuant to Order 50 of the Supreme Court Rules (General Civil Procedure) Rules 2015 (Vic) (the Rules) an independent land valuer and independent forensic accountant be appointed.
Wes Ridd (Ridd) was appointed the land valuer and Peter Bruce Wilkinson (Wilkinson) the forensic accountant. In accordance with the Settlement Agreement Ridd provided a Land Valuation and Wilkinson provided a Forensic Accountant's Report.
Ridd expressed the view in the Land Valuation that the value of the Kaarimba Orchard as at 25 September 2017 was $5,575,000.00. There is no evidence disputing this figure.
Wilkinson expressed the following opinion in the Forensic Accountant's Report:
The profit and loss statements summarised as in FY2014 to FY2016 and YTD 30 September 2017 detail the true profit (loss) being:
Year Profit (Loss) FY2014 1,613,014 FY2015 (346,643) FY2016 (122,970) FY2017 (436,001) YTD Sep-17 (683,038) The value of the:
(i) business and assets of Kaarimba Pty Ltd; and
(ii) units in the Kaarimba Unit Trust as at 25 September 2017 (which assessment must take into account fruit not yet picked and fruit stored) and the sworn land valuation;
(iii) Kaarimba Pty Ltd is solely a trustee of the Kaarimba Unit Trust therefore its value is limited to the issued capital of $2.00 as at 25 September 2017;
(iv) the value of Kaarimba Unit Trust as at 25 September 2017 is $1,813,090.00.
The amount, if any, of the debt owed by:
(i) either Wendouree Nominees Trust of Kaarimba Pty Ltd to Prima Fresh Orchards and Coolstores Pty Ltd; and
(ii) Kaarimba Pty Ltd either Mohammad Nabi Baqiri or Baqiri Investment Trust;
in respect of initial contributions made and used for the purchase of the Kaarimba Orchard.
As at 25 September 2017, the amounts owed by Kaarimba Unit Trust in respect of initial contributions made and used for the purchase of Kaarimba Orchard, are as follows:
(i) Prima Fresh $225,000.00 Loan;
(ii) Nabi or Baqiri Investment Trust $1,387,789.00 Loan.
In summary, Wilkinson found:
·Total Business Value $1,813,090.00
·True Profit FYE 30 June 2014 $1,613,014.00
·Total Value $3,426,104.00
If the reports are adopted by the court, then according to the letter dated 8 March 2018 from Alampi’s solicitors to Harris’s solicitors, Alampi ought to pay Harris the sum of $778,052.75 being 25 per cent of the ‘net value’ of the Land pursuant to clause 7 of the Settlement Agreement.
The 8 March 2018 letter is, relevantly, in the following terms:
On our interpretation of the Report and calculations, the amount to be paid to your client by ours pursuant to clause 7 of the Terms of Settlement is either:
(a) Applying the Valuation of the Kaarimba Unit Trust
50% of the Value of Kaarimba Unit Trust on trust for Wendouree Nominees Trust
Kaarimba Unit Trust Value - $1,813,090.00
Value of Wendouree Unit Trust Share - $906,545.00
50% of the Value of Kaarimba Unit Trust on trust for Wendouree Nominees Trust - $453,272.50
50 % of the Net Profit due to Wendouree Nominees Trust
Year Profit (Loss) FY2014 $1,613,014.00 FY2015 ($346,643.00) FY2016 ($122,970.00) FY2017 ($436,001.00) YTD Sep-17 ($683,038.00) Total $24,362.00
Value of Wendouree Unit Trust Share - $12,181.00
50% of the Net Profit due to Wendouree Nominees Trust - $6,090.50
Therefore, total amount due to Sandra Harris - $459,363.00
OR
(b) Applying the Valuation of the Land
Valuation of the Land $5,575,000.00
LESS Mortgage (Interest Only) ($850,000.00)
LESS Amount due to Prima Fresh ($225,000.00)
LESS Amount due to Baqiri Investment Trust ($1,387,789.00)Total $3,112,211.00
Therefore, 25% of Net Value of property - $778,052.75
The Applications
Harris, by her summons filed 12 June 2018 seeks orders pursuant to Order 50.04 of the Rules that:
(a) the report of Mr Wes Ridd dated 3 November 2017 (the Land Valuation); and
(b) the report of Mr Peter Bruce Wilkinson dated 20 February 2018 (the Forensic Accountant’s Report);
not be adopted in respect of paragraphs 2 and 3, respectively, of the Orders made on 26 September 2018.
Further, pursuant to Order 50.03(2)(b)(ii) of the Rules, Harris seeks orders remitting the whole of the report to:
(a) Ridd for further consideration by him and that he:
(i) consider Harris’s submissions that had been made to him and that he refused to consider; and
(ii) investigate the veracity of the bin summaries for 2017.
(b) Wilkinson for further consideration by him and that he take into consideration:
(i) the Prima Fresh Clearing Account as referred to at page 10 of Keith Jones's report dated 8 June 2018 (the Jones Report);
(ii) working capital advance as referred to at page 11 of the Jones Report;
(iii) excessive management fees as referred to at page 12 of the Jones Report;
(iv) land and tree valuation as referred to at page 13 of the Jones Report;
(v) intangible assets as referred to at page 14 of the Jones Report;
(vi) trade debtors as referred to at page 14 of the Jones Report;
(vii) biological assets as referred to at page 15 of the Jones Report;
(viii) unpaid entitlements as referred to at page 16 of the Jones Report;
(ix) undeclared income as referred to at page 17 of the Jones Report; and
(x) bin yields as referred to at page 20 of the Jones Report.
In the alternative Harris seeks orders that pursuant to Order 50.03(2)(b)(ii) of the Rules:
(a) the report of Wilkinson be varied as follows:
(iii) Total Business Value $4,209,395.00
(iv)True Profit for year ended 30/6/14 $2,022,105.00
(v) Total Value $6,231,499.00
(b) a new special referee be appointed to answer the questions in paragraph 3 of the Order made on 26 September 2017.
By summons filed 4 May 2018 Alampi seeks orders, that:
(a) Harris execute all documents necessary to give effect to the Settlement Agreement;
(b) in the event that Harris refuses or neglects to comply with any provision of these orders:
(vi)a Registrar or the Prothonotary of the Court be hereby appointed attorney for Harris, to execute all documents necessary to give effect to the Settlement Agreement; and
(vii) Harris pays all reasonable costs incurred by the defendant for the purpose of exercising this order.
(c) for the purpose of the orders sought, an affidavit setting out Harris’s failure to comply with these Orders shall be sufficient evidence of neglect and default.
The Evidence
In support of her application Harris relies on the following affidavits and expert reports:
(a) Affidavit of Nicholas Lambros sworn 14 December 2017;
(b) Affidavit of Nicholas Lambros sworn 29 June 2018;
(c) Affidavit of Sandra Geraldine Harris sworn 22 September 2016;
(d) Affidavit of Sandra Geraldine Harris sworn 6 June 2017;
(e) Affidavit of Sandra Geraldine Harris sworn 28 June 2018; and
(f) Expert Report of Keith Jones (forensic accountant) dated 8 June 2018.
In support of his application Alampi relies on the following affidavits and expert reports:
(a) Affidavit of Jessica Daisy Regina Eagles sworn 15 December 2017;
(b) Affidavit of Kristine Sue Medson sworn 4 May 2018;
(c) Affidavit of Gerard Paul Alampi sworn 17 September 2018; and
(d) Expert Report of Paul Lom (forensic accountant) dated 13 September 2018.
Legal Principles
Relevant Legislation
Order 50.03 of the Rules provides that:
(1) The special referee may in the referee's report -
(a) submit any question arising on the reference for the decision of the Court; or
(b) make a statement of facts found by the referee from which the Court may draw such inferences as it thinks fit.
(2) On the receipt of the special referee's report, the Court –
(a) shall give notice thereof to the parties; and
(b) may by order –
(i) require the special referee to provide a further report explaining any matter mentioned or not mentioned in the report;
(ii) remit the whole or any part of the question originally referred to the special referee for further consideration by that referee or any other special referee;
(iii) vary the report.
(3) An application by a party for an order under paragraph (2)(b) shall be made on not less than three days’ notice to the other party or parties.
Order 50.04 of the Rules provides that:
The Court may as the interests of justice require adopt the report of a special referee or decline to adopt the report in whole or in part, and make such order or give such judgement as it thinks fit.
Case Law
The applicable legal principles were not in dispute and emerge from the cases. A very brief review is set out hereunder.
A referee's report has no effect unless and until it is adopted by the Court in whole or in part in accordance with Order 50.04 of the Rules. It is the order of the Court adopting, varying or rejecting a referee's report that has legal consequence.[2]
[2]Astor Properties Pty Ltd v L’Union des Assurance de Paris (1989) 17 NSWLR 483 [490], per Cole J).
The power of the court to adopt the report of a special referee or to decline to adopt the report in whole or in part is to be exercised ‘as the interests of justice’ require. Rule 50.04 gives to the court a wide and flexible discretionary jurisdiction the exercise of which is fixed by what is in the interest of justice in all the circumstances.[3]
[3]Nicholls v Stamer [1980] VR 479 at 495; Integer Computing Pty Ltd v Facom Australia Ltd (VSC, Marks J, No 8992/87, 10 April 1987, unreported, BC8701728), referred to in Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; Super Pty Ltd v SIP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Plumley v Adgauge Pty Ltd (1998) 29 ACSR 315; [1998] VSCA 70; BC9805545; Kilpatrick Green Pty Ltd v Leading Synthetics Pty Ltd (VSC, Gillard J, No 4990/96, 5 June 1998, unreported, BC9802331).
An order that a special referee make a further report may be appropriate where the original report contains significant inconsistencies, or its meaning is uncertain, or it appears to proceed on a misconception.[4]
[4]See Integer Computing Pty Ltd v Facom Australia Ltd (VSC, Marks J, No 8992/87, 10 April 1987, unreported, BC8701728), referred to in Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60.
The principles that guide the Court’s discretion in considering whether to adopt a special referee’s report under r 50.04 were stated by the Court of Appeal in Wenco Industrial Pty Ltd v W W Industries Pty Ltd (Wenco).[5] Those principles include:
(a)… where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and facility of referring complex technical issues to independent experts for inquiry and report;
(b) … if the referee’s report reveals some error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact-finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”;
(c) … generally, the referee’s findings of fact should not be re-agitated in the court. The court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. The court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence;
(d) … the purpose of r 50.01 and 50.04 would be frustrated if the court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was sufficient material on which the conclusions could be reached.[6]
[5][2009] VSCA 191; (2009) 25 VR 119.
[6]Ibid at [17].
Land Valuation
Harris’s Submissions
Harris contends that the Land Valuation should not be adopted for the following reasons:
(a) It would be unfair to Harris as it is based on misinformation;
(b) It would result in an injustice to Harris as she was not afforded natural justice, as:
(viii) her submissions were not considered; and
(ix) oral submissions were made to Ridd at the inspection of the Kaarimba Orchard, in the absence of Harris.
Accordingly, the interests of justice require, it was submitted, that the Court exercise its discretion and not adopt the Land Valuation and that the whole of the Land Valuation be remitted to Ridd so that consideration can be given to Harris’s land submissions and the veracity of the 2017 Bin Summary can be further investigated.
Alampi’s Submissions
Alampi submitted that much of Harris’s evidence in relation to the ‘Bin Summaries’ was in the nature of opinions, submission or speculation. Further, it was submitted that regard should be had to the cogent uncontradicted evidence of Alampi.
It was submitted further that Harris’s complaint regarding the failure to take into account her land submissions should be rejected because:
(a) by clause 5 of the Settlement Agreement, parties were entitled to make submissions to the independent land valuer and forensic accountant in the manner prescribed by them;
(b) the parties were afforded an opportunity to provide submissions within the agreed timeframe of two weeks;
(c) it was not a case where Harris had provided her submissions within the agreed timeframe but Ridd refused to take that into account;
(d) rather, it was a case where Harris had sought to make submissions late;
(e) in these circumstances, how the matter should proceed was within the province of the discretion that may be exercised by Ridd. It was submitted that he exercised his discretion by adhering to the terms of his engagement, which set out the framework in which he was to undertake his valuation.
Finally, it was submitted that Ridd was the expert and had manifestly clearly brought his expertise to bear in preparing his valuation.
Consideration
I am in substantial agreement with the submissions made by Alampi. I propose to adopt the Ridd Valuation.
Although I consider that Ridd was entitled to proceed without considering Harris’s late submissions, ultimately it does not matter. The proposed submissions do not assist Harris. Although Ridd refers to Bin Summaries, it was not explained – despite such reference – how this feeds into or affects the valuation. Its precise relevance to the valuation is not explained. In any event, the evidence is what it is. It has not been challenged, other than by assertion.
It cannot be accepted in the light of Alampi’s evidence.
Alampi’s evidence is of a system that does not discriminate between Kaarimba and other growers, that tracks fruit from picking to sale and accounts for all fruits picked, sold and wasted.
The integrity and precision of the documentary trail and electronic system of recordkeeping left no room for any under-reporting of ‘Bin Summaries’ from the Kaarimba Orchard as alleged. Accordingly, Harris’s assertions that the ‘Bin Summaries’ from Kaarimba Orchard were understated and any and all implications that flow from that assertion must be rejected.
Harris has also contended that Ridd accepted additional oral submissions from Kaarimba on 3 November 2017 at the time of inspection without having given her an opportunity to comment. The contention is based on the management’s advice that:
there are further blocks remaining in the mature orchard that are being removed in the next 6 months due to poor performance.
The inspection was conducted on 3 November 2017. The valuation date was 25 September 2017. Accordingly, if any advice was given by management, it only pertained to future matters and, as was submitted by Alampi, could have no bearing on the valuation date of 25 September 2017.
The balance of the Ridd Valuation makes clear that the valuation exercise was unaffected by any such advice. The report described the state of the property on the date of inspection as follows:
In summary the subject property has pre 2013 mature plantings comprising 103.30 hectares plus 2014 and 2015 plantings totalling 6.16 hectares, 2016 plantings of 6.90 hectares and 2017 plantings of 10.80 hectares. In addition there have been a total of 6.75 hectares of trees cut off and reworked to new varieties over the two year period of 2016-2017 and there are currently 6.02 hectares of vacant plantable blocks, which are irrigation serviced and currently vacant ready for replanting.
The report then proceeded to value the property on a manifestly informed basis that discriminated between the maturity of trees planted on the respective portions of the orchard.
It is apparent that in calculating the value of the property, the land size that was used corresponded with the land size for each year of planting. It tells against Ridd having taken into account what management intended to do on the blocks with the mature orchard in the future. Accordingly, it is clear that Ridd properly carried out his valuation of the property as at 25 September 2017, and the advice of management had limited, if any, bearing on the valuation that was arrived at ultimately.
It is convenient to note at this point that both Wilkinson and Jones agree that the sum of $891,843.75 is the correct figure in respect of the proviso in paragraph 7.
Having conceded the amounts used by Wilkinson in relation to the initial contributions made for the purchase of the Kaarimba Orchard as required by and pursuant to clause 2.2(b) of the Settlement Agreement are incorrect, and that the correct amounts are $576,142 (Wendouree) and $581,281 (Baqiri), the minimum value calculation shall be accepted as the sum of $891,843.75. Both Wilkinson and Jones agree with this amount and Lom concludes that the figure is $891,894.25. The difference of $51 is immaterial and I propose to accept the figure of $891,843.75. In any event, as is apparent, the minimum value is not relevant given the True Profit and the value of the units.[7]
[7]Harris’s share of the True Profit and the value of the Units (25% for each) exceeds the minimum value calculation.
For these reasons I propose to adopt the Ridd Valuation. It follows that it is not necessary to deal with the waiver point.
Wilkinson Expert Report
The key and critical differences between the parties relates to two items: True Profit and Total Business Value. The position of the parties is as follows:
Wilkinson Lom Jones True Profit for Y/E 30/6/2014 $1,613,014 $2,001,697 $2,022,105 Total Business Value $1,813,090 $2,002,697 $4,209,395
In relation to the True Profit for the year ended 30 June 2014, Alampi accepts that the profit recorded by Wilkinson ($1,613,014) should be increased in order to take account of management fees which had been incorrectly recorded as an expense with the effect of reducing such profit. According to Lom, the figure is $2,001,697. The difference between Wilkinson ($1,613,014) and Lom ($2,001,697) is the sum of $388,683. The increased profit as opined by Lom is calculated by excluding management fees in the sum of $409,091.[8] According to Lom it ‘cannot be said [the management fee] is a normal operating expense of the trust’ (para 5.25). As stated by Lom, the management fee was only charged in the 2014 financial year and there is no resolution of the trustee authorising such an expense. I accept Lom’s analysis and opinion. Accordingly, I propose to accept the figure of $2,001,697 in relation to the True Profit. I note that the amount is $20,408 lower than the figure calculated by Jones. Again, the difference appears from Appendix C to Lom’s report. However, noting that the difference is de minimis (particularly when regard is had to the need to divide it by 4) I prefer to accept Lom’s calculation.
[8]The reason why Lom has increased the amount stated by Wilkinson by $388,683 and not $409,091 is that after other minor adjustments are made by Lom to other items, as appears from Appendix C to Lom’s report, the correct amount is $388,683. The difference of $20,408 is in any event de minimis in the circumstances.
I also prefer Lom’s calculation in relation to Unit Value. It is $189,607 higher than Wilkinson. The reasons appear from Appendix C to Lom’s report.[9]
[9]Lom regards the Wilkinson figures ($1,813,090) as too low. He has added back $189,607, essentially on account of management fees; although there are other minor differences.
In relation to the Total Business Value, the critical and relevant differences is between Lom ($2,002,697) and Jones ($4,209,395). The difference in value is $2,206,698.
For the most part, two items account for the difference of $2,206,698 between Lom and Jones in the value of the Units in the Kaarimba Unit Trust. First, Jones has included ‘stock-biological asset’ as a current asset in the sum of $635,739. Secondly, Jones has underestimated and understated the current liabilities to unitholders. These amounts have been recorded by the experts as follows:
Unpaid Present Entitlement Jones Lom (and Wilkinson) Difference Baqiri Investment Trust – UPP $356,482 $1,387,789 $1,031,307 Wendouree Nominees Trust – UPP $576,143 $1,382,630 $806,507
By excluding or not taking into account current liabilities of $1,031,307 plus $806,507 (see table above) (total $1,837,814) and by including the biological asset in the sum of $635,793, Jones has increased the value of the units by $2,473,607.[10]
[10]The excess amount of $266,909 appears from Appendix C to Lom’s report.
In relation to the first item, the biological asset, Lom agrees with Wilkinson that no adjustment is required for the purposes of the valuation of the units.
According to Jones, the amount represents, what is in effect, work in progress or stock in trade.
Consideration
In relation to ‘stock – biological assets’, Lom gives his opinion as follows:
5.19No such asset appears in Kaarimba’s accounting records and Wilkinson has not included a value for such an asset. The asset is however recognised by Jones and his explanation is provided in paragraph 4.22 of his report. Essentially Jones has capitalised all costs directly associated with operating the orchard for the period 1 July 2017 to 30 September 2017 as these will contribute to the production of next season’s fruit. The adjustment is justified by reference to accounting standard AASB141. I believe that there are two fundamental issues with this adjustment. I discuss these below.
5.20As already stated in paragraph 4.4, there are no mandatory accounting standards applicable to the trust and the trust does not have to apply AASB 141. Whilst the statement of significant accounting policies states that the financial report was prepared on an accrual basis, I do not believe that this extends to capitalising costs incurred up to the point of a harvest.
5.21More importantly, in the context of determining the value of the net assets of the trust and ultimately the value of the units, I do not believe that any such separate valuable asset exists. My reason for this opinion is that the value should be incorporated in the value of the orchard. Kaarimba on acquisition of the orchard did not reimburse the vendor for costs incurred to date and this explains why Kaarimba generated a significant profit in FY14. Similarly, the valuation prepared by Goulburn Valley Property Services expresses an opinion of the value of the Orchard in its present condition as at the valuation date. If the orchard were to be sold for the appraised value at the valuation date, Kaarimba would not recover the book value of the biological asset over and above the value of the orchard. Put another way, if such an asset was recorded, part of the proceeds of sale would need to be allocated to this asset, leaving a lower residual value for land as the total value that would be received is only $5,575,000.
5.22For the reasons set out in paragraphs 5.20 and 5.21 I have not made the adjustment proposed by Jones and on this matter I agree with Wilkinson.
I agree with Lom’s analysis and opinion. Wilkinson is of the same opinion and there is no basis to disturb or vary his opinion in this regard.
In relation to the second item, the unpaid distributions, I consider that they are to be properly considered as current liabilities as opined by Lom and submitted by Alampi, with the effect of reducing the value of the assets and the units accordingly. They represent a liability and not an asset or capital.
As submitted by Alampi, it is tolerably clear from the terms of the Unit Trust Deed and the Unitholders Agreement that unpaid profits to unitholders are not part of the trust estate or the capital of the Trust (clause 10 of that Deed), but instead form a separate trust. Further, the amounts that are not distributed comprise, in effect, a loan back to the Trust (clause 2 of the Unitholders Agreement). The simple fact is that the full amount or liability as recorded, that is $1,387,789 (to Baqiri) and $1,382,630 remains owing and payable to the respective unitholders and is a necessary integer in determining the unit value.
Again, I consider that Lom is correct in his analysis, which accords substantially in this respect with Wilkinson, save for Wilkinson’s incorrect inclusion (as an expense) of management fees. They should be reversed and Wilkinson’s report should be varied accordingly.
Conclusion and disposition
I do not propose to vary the Land Valuation. Accordingly, I propose to adopt the Ridd Valuation. The Ridd Valuation does indeed evidence ‘a thorough, analytical and scientific approach to the assessment of the subject matter of the reference’ (Wenco at 126). Neither the failure to consider the late submissions, or the suggested failure to verify the ‘Bin Summaries’ constituted any sufficient reason to vary the report or send it back to Ridd. There is no ‘error of principle’, ‘misapprehension of the evidence’ or ‘manifest unreasonableness in fact finding’ (Wenco at 126). In fact the contrary is the position. The Ridd Valuation is entirely reasonable and it is in the interests of justice that it be adopted for the reasons of principle articulated in Wenco as referred to above.
However, I do propose to vary the Forensic Accountant’s Report to the extent and for the reasons suggested by Lom and referred to above. For the most part the variations are based on concessions made by Alampi, namely that Wilkinson dealt with certain aspects of the management fees incorrectly. Accordingly Wilkinson’s figures for the True Profit and the Unit Value should be varied to accord with the figures for these items, that Lom gives.
Accordingly, Harris is entitled to the sum of $1,001,098.50 being the aggregate of 25 per cent of the True Profit ($2,001,697) and 25 per cent of the Unit Value ($2,002,697) in accordance with the Lom revised figures.
I will hear from the parties as to the appropriate form of order and costs.
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