Rosshaven Marine Pty Ltd v Knight

[1993] HCATrans 11

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B38 of 1992

B e t w e e n -

ROSSHAVEN MARINE PTY LTD

Applicant

and

MICHAEL BERNARD KNIGHT and

SUZANNE KNIGHT

Respondent

Application for special leave

to appeal

MASON CJ

TOOHEY J

GAUDRON J

Ros shaven 1 5/2/93

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 5 FEBRUARY 1993, AT 2.52 PM

Copyright in the High Court of Australia

MR M.E. POPE:  If it please the Court, I appear for the

applicant. (instructed by Connolly Suthers)

MR K.F. BOULTON: If it please the Court, I appear for the

respondent. (instructed by Nehmer Davenport Dean

McKee)

MASON CJ: Yes, Mr Pope.

MR POPE:  The Court of Appeal in this matter approached the

valuation of the travel lift in a novel manner in

that it attributed proprietorial interest in it

when, in fact, on the evidence there was none.

That decision is wrong and has far-reaching consequences. Further, as I endeavoured to show,

there was no evidence upon which that decision

could have been reached.	May I take the Court to
the joint judgment - - -

MASON CJ: But it is the usual result in cases of this kind,

is it not, when you have a leasing agreement?

MR POPE:	Not necessarily so, Your Honour.
MASON CJ:	I said "the usual result".
MR POPE:	The usual result - yes, Your Honour, in most

cases, particularly in motor car cases.	I think we
would all be familiar with that.	We are dealing

here, however, with a travel lift, a piece of

equipment that is in no way in the same class as a

motor car, and probably number less than 20
throughout Australia.

I take the Court to page 52 where is set out the evidence upon which the court placed great

store. Your Honours will be familiar with how the

particular passage came into existence. The

accountant who originally valued the trust was

asked to comment upon two reports by their experts.	Those other experts had included leased assets in	their reports without taking the liabilities, and
the passage - travel, the liability of $106,571
appeared.

At about point 5 Mr Justice Pincus says:

The accountant's letter, Exhibit 12, was

tendered without objection -

which was so -

and appears to us to imply -

a proper view of -

Ros shaven 2 5/2/93

accounting treatment of the travel lift.

The court there first falls into error by

substituting an accounting practice for what really

is a valuation question. It is not to the point

what is the proper accounting practice. Natwest

own the property, not the trustee.

Then on to page 8 at about point 1, the court takes some comfort by saying that this position

must be correct because of:

the accountant's knowledge of the facts.

Now, there was no evidence of the accountant's

knowledge of the facts save for that particular

line in a letter and that is open to a number of

interpretations. The first is that the accountant

in his office worked out what he thought would be

the payout figure~ the second is he may well have

rung Natwest and said, "What is the net amount

owing under the lease?" The third is he may have

rung Natwest and asked for a payout figure, and the

fourth is he may have rung Natwest, asked for a

payout figure and asked whether or not Natwest

would be prepared to sell the asset.

It is only the fourth item that is sufficient.

No member of Natwest was called at trial. That was

a matter on which the respondent here carried the

onus, and the attitude of Natwest to this

particular piece of equipment is unknown.

Then on page 9 in the joint judgment at about

point 3, the court again appears to fall into

error, or assist itself to fall into error, where

it says:

There is evidence here, although in an

unsatisfactory form, that the respondent

regarded itself at the relevant time as having

a choice as to what should happen when the

travel lift lease expired in September 1990 -

That is to pose the wrong question. It is not to the point, what the trustee thought could happen.

The point is: what in fact was Natwest going to

allow? One can simply pose the proposition: if

the business was sold prior to the expiry of the

lease, there was no obligation on Natwest at all to

assign to the incoming purchaser. That purchaser

may well have previously been in default with

Natwest.

On page 10 the joint judgment deals with the

question of notoriety as raised by Your Honour the

Chief Justice, but I have dealt with that. We are

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not dealing here with a normal piece of equipment

such as a motor car. The court really should not

have relied upon that. Then at page 11 at about

point 7, the court says this:

It might seem odd that a beneficiary should

have his or her interest adversely affected by

the circumstance that chattels used by the
trustee in the trust's business have been

acquired by one financing method rather than

another. The anomaly would be particularly

acute in a case where, as might easily occur,
the business has nothing of any consequence

but leased chattels in which it has, however,

built up a substantial "equity".

There is really no anomaly in that at all. The

method of valuation that the accountant who first

valued the trust undertook was a valuation of

maintainable profits, and that of course takes into

account any asset that is not owned which produces

profit.

The method of valuation that attracted the

travel lift, takes into account leased assets, because there is a valuation of the super profit which is turned into goodwill. In

learned trial judge and which was altered by the valuation of the

arriving at the super profit, the experts first

adduced the net asset of the business to arrive at the - in fact the method is set out fairly clearly

in His Honour Judge Wylie's judgment at page 31 of

the record. So that when you add in a new asset,

you in fact reduce the profit and therefore reduce

the goodwill.

In this particular case - and I do not place

any store on this - in fact the Court of Appeal

having changed the valuation of the assets, that is

by adding in the travel lift, should have in fact
then gone on to change the goodwill figure.	It in

fact reduces the amount the Court of Appeal found

that the respondent was entitled to; so that, in

fact, the asset is valued.

MASON CJ: Mr Pope, I must say, for my part, I am concerned

to think that this litigation has taken place over,

what appears to be, a sum of about $2900. That

amount must be far outweighed by the costs that
have been incurred in the proceedings to date, outweighed, indeed, by the costs of this very

application, and apart from the costs of any appeal

that might flow from this application.

MR POPE:  One should be well concerned about that and at

appeal, in front of the Court of Appeal, Mr Boulton

Ros shaven 4 POPE 5/2/93

quite frankly conceded to the Court that their

appeal was cost driven. This appeal is, to some

extent, cost driven, obviously, but it is driven
because, in the view of the applicant, the Court of

Appeal is clearly wrong, and the approach that has been taken now has quite significant stamp duties

implications in the material.

Prior to this case, the Commissioner of Stamp

Duties in Queensland did not charge ad valorem duty

on, at least, assets when business was sold. It

would appear now, in the state of the current law,

that the Commissioner can call for the valuations

of the leases and charge the duty. Indeed, the

note of this case has already appeared in the

Australian Law Journal. So that, whilst there is a

very small amount of money involved - indeed in the

Balmain Ferry case there is a very small amount of

money involved - at this stage, there is a very

important principle involved.

TOOHEY J:  We do not know what the Commissioner of Stamp

Duties proposes to do, and if we did know, would it

affect this case, which is a piece of litigation

between two individuals?

MR POPE:  It would not affect this case, Your Honour, but

from the - - -

TOOHEY J: What are you asking us? To grant special leave so

that a question of stamp duties, which does not

affect, apparently, the parties to this litigation,

might be resolved for the general edification of

people?

MR POPE:  The general point of public importance of that.

If need be, I fall back on administration of

justice in this case, because the decision of the

Court of Appeal - their approach is quite clearly

wrong. Your Honours will have seen from the

judgment that the valuation of the trust was

$750,000 and at trial I held that, I think, by $46
and it was overturned on appeal by a small sum.	A
small sum of money is involved, but the principle
needs to be upheld.	The approach was quite wrong.

One party has to lose, notwithstanding the actual

judgment money involved.

TOOHEY J: That is true, and often small amounts of money

may be involved but a very important question of

principle, but the only question of principle that

you seem to be pointing to is some possible

implications, not for the parties, but for other

persons if the Commissioner of Stamp Duties takes a

particular approach to this.

MR POPE:  The other important point of principle - - -

Ros shaven POPE 5/2/93

TOOHEY J:  I mean, if that is the principle involved, then

surely the Court should wait until the Commissioner
of Stamp Duties acts in a particular way, his
actions are challenged and those parties are before

the Court.

MR POPE:  I take Your Honour's point. The other important

point, though, is, in fact, the approach of the

evaluation where the Court of Appeal has simply

proceeded along the basis that a piece of property

in which my client only had a right of use, as long

it paid the payments on time, was owned by them.

TOOHEY J:  Is that right to say that the Court of Appeal

proceeded on the basis that your client - as if

your client owned the property, or rather that the

arrangement your client had and recognized

commercial practice pointed to the possibility that

your client might be able to acquire, and was

likely to acquire, the chattel and therefore some

value should be attributed to it?

GAUDRON J:  And, indeed, had acquired the chattel by the

time the case came on for hearing.

MR POPE:  No, Your Honour, that, in fact, is quite

incorrect. My client had not acquired the chattel.

The evidence only went so far as the chattel had

been re-leased, the terms of that lease were not before the Court. The lease had expired and had
been re-leased and that was the extent of the

evidence.

MASON CJ: But was it released to your client?

MR POPE:  It was released to my client, yes, Your Honour.

Whether it was released at the residual value or a

value higher was not before the court. The other

thing that was wrong with the approach to the court

was, assuming they were entitled to value an

expectation, one, there had to be some evidence of

that and there was none and, two, if you did you

would have to, at the very least, discount the

figure.

TOOHEY J:  Once you get to that point you have really moved

into the area of quantification and that is hardly

likely to be a special leave point.

MR POPE:  The approach is not quantification. The net

result of the approach would be the quantification.

Unless I can assist Your Honours with anything else

those are my submissions.

MASON CJ: Yes, thank you, Mr Pope. The Court need not

trouble you, Mr Boulton. The point sought to be

raised in the proposed appeal is not of sufficient

Ros shaven 6 5/2/93

importance to justify the grant of special leave to

appeal. The application is therefore refused.

MR BOULTON:	I ask for costs, Your Honours.
MASON CJ:	You do not oppose costs, Mr Pope?
MR POPE:	No, Your Honour.
MASON CJ:	The application is refused with costs.

AT 3.05 PM THE MATTER WAS ADJOURNED SINE DIE

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