Know Your Value: competing valuation methodologies for buy-outs in oppression cases

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By Stuart Walter, Partner, Phoebe Pitt, Senior Associate and Miranda Clark, Graduate

A recent case of the Supreme Court of Victoria has shed light on the inherent difficulties faced by competing parties in reaching an agreed valuation for buy-outs by joint venture parties where the relationship has irretrievably broken down. Expert valuers (including special referees appointed by the Court) have a number of tools and methodologies at their disposal. This case serves as a reminder that the appropriate and proper methodology in any particular case is highly dependent upon the interests being valued, the underlying assets and the circumstances of the case. 


The Supreme Court of Victoria has dismissed a claim seeking that the Court decline to adopt a report of a Special Referee (Report), appointed to assist the Court in determining competing methodologies for valuation of a property and its underlying interests, following the breakdown of the relationship between the relevant parties. The Special Referee was asked to, amongst other things, consider whether a property should be valued using the direct comparison approach, discounted cash flow approach, or some other approach (and, if so, which one).


The parties were shareholders in 280 Queen Pty Ltd (Company), the registered proprietor of a property in Queen Street, Melbourne (Property). The Company was the trustee of the 280 Queen Unit Trust (Unit Trust), which was established to develop the Property into a mixed-use, 67-level building, by way of a joint venture between interests ultimately held by two directors of the Company, Mr Brady and Mr Wu (Development).

The plaintiff, Brady Queen Pty Ltd (Brady Queen) held two-thirds of the shares in the Company and two-thirds of the units in the Unit Trust, with the balance in each held by the Second Defendant, Austhome Developments Pty Ltd (Austhome).

The relationship between the parties broke down and the court observed that the Development was yet to be completed; indeed, it had “been at a standstill for some time” and had “hardly got off the ground”.[1]

Brady Queen alleged that Austhome and Mr Wu engaged in oppressive, unfairly prejudicial or unfairly discriminatory conduct and/or conduct that was contrary to the interests of members as a whole under section 232 of the Corporations Act 2001 (Cth) (the Act) by, amongst other things:

  1. failing to negotiate a joint venture agreement;
  2. failing to pay necessary expenses or sign cheques relating to the Development;
  3. attempting to exclude Brady Queen from management of the Development; and
  4. failing to provide books and records.

Brady Queen sought orders under section 233 of the Act that it purchase Austhome’s shares and units, or in the alternative, that the Company and Unit Trust be wound up.

Austhome disputed the allegations and counterclaimed alleging Brady Queen had itself engaged in oppressive, unfairly prejudicial or unfairly discriminatory conduct. The relief it sought on its counterclaim mirrored the primary relief sought by Brady Queen on its claim.

The parties agreed that the Court should order pursuant to section 233 of the Act that Brady Queen purchase Austhome’s shares in the Company and units in the Unit Trust (collectively, Interests) and the Honourable Justice Sifris made orders for those purchases to occur, at a price to be determined by the Court. In doing so, the Court acknowledged the inherent importance of determining the valuation methodology for the Property to which the Interests related.

Valuation Methodology

Both parties tendered expert reports opining as to the appropriate methodology of the Property and the Interests.

The report filed on behalf of Brady Queen applied a direct comparison methodology (Direct Comparison Approach) to the Property. This methodology involves a determination of the current fair market value, by reference to actual sales of comparable properties in respect of a number of relevant criteria.

Austhome filed a number of reports, which opined that the Interests should be valued on an income basis, using a Discounted Cash Flow methodology (DCF Approach). The employment of this methodology involves calculating the investment value of the Property upon completion, before applying an appropriate discount factor to reflect risks associated with the forecast cash flows and the time value of money involved.

Given the divergence of views expressed in the reports, His Honour appointed the special referee pursuant to rule 50.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules) to assist the Court in determining the value at which the Interests should be purchased.

The Court asked the special referee five questions, commencing with: “What is the most appropriate valuation methodology to determine the market value of [the Property]”,[2] followed by a consideration of the appropriate valuation to attribute to the Interests in accordance with the relevant valuation methodology.

The Report rejected the DCF Approach to valuation of the Interests (pursuant to which the gross realisation value of the planned project was calculated at $492,822,600) as inappropriate and “totally impractical”,[3] on the basis that the Development had no endorsed plans and no pre-sales, so all future cash flow predictions (based upon assumptions) were by their very nature highly speculative. In favouring the Direct Comparison Approach, the Report noted that:

“In the current property market which is experiencing substantial disruption in the metropolitan apartment market and significant cost increases for concrete and steel, I am of the opinion that the subject property as a planned 415 apartment residential tower building over 67 levels is far too embryonic in its project development to date to be able to accurately model the future cash flow with any degree of accuracy.”[4]

In opposition to the Report, Austhome submitted that there were six broad areas of error demonstrated in the Report, established by authority as reasons for a Court not to adopt a special referee’s report,[5] being:

  1. a serious breach of procedural fairness as the special referee unilaterally and without notice to Austhome, changed the mutually-agreed valuation date of the Property to have regard to post-trial comparative sales evidence;
  2. an excess of jurisdiction represented by an abdication of the special referee’s decision making by engaging an accountant to advise him on accounting issues;
  3. an error of law or principle by the special referee as in rejecting the DCF approach, he fatally misunderstood three of the five questions asked by the Court and provided inadequate, “superficial and erroneous reasons”; and
  4. the following fundamental errors by the special referee:
    1. by requiring Austhome’s expert and lay witnesses to provide evidence or be cross-examined at the evidentiary hearing conducted by the special referee, and failing undertake “a reasoned and transparent analysis” of the evidence provided by Brady Queen’s land valuer at the evidentiary hearing;
    2. rejecting Austhome’s “unchallenged” expert evidence and uncritically accepting the report of Brady Queen’s expert witness despite concessions on the limits in scope of instructions including the omission of Austhome’s expert witness’ later reports; and
    3. giving no weight to and not engaging with Austhome’s other unchallenged evidence as to the DCF methodology and assumptions relied upon in valuing the Interests,

and that, for those reasons, the Court ought not adopt the Report under the Rules.

The Decision

Ultimately, the Court adopted the Report, which had effect as and from that date, in accordance with Order 54.04 of the Rules.  In doing so, the Court noted that the principles which guide the Court’s discretion in considering whether to adopt a special referee’s report under the Rules were set out by the Court of Appeal in Wenco, and included:

  1. a Court would have a disposition towards accepting a special referee’s report where it shows a “thorough, analytical and scientific approach” in considering the subject matter;[6]
  2. a Court would have reason for rejecting a special referee’s report where there is:
    1. an error of principle;
    2. absence or excess of jurisdiction;
    3. patent misapprehension of the evidence through a lack of understanding as compared to according different weight to evidence; and
    4. perversity or manifest unreasonableness by reaching a conclusion that no reasonable tribunal of fact could have reached;
  3. a Court will not generally re-agitate findings of fact of an expert that are based upon their technical expertise and open to the special referee on the factual material before them, particularly where their findings are based upon a choice between conflicting evidence; and
  4. a Court will not reconsider disputed questions of fact where a special referee had sufficient material on which to reach a conclusion as to do so would negate the purpose of Rules 50.01 and 50.04.

The Court found that the Special Referee had engaged in a “thorough, analytical and scientific approach”[7]  in finding that:

“Market Value is defined as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, and where the parties had each acted knowledgeably, prudently and without compulsion. 

My reason for determining that the Direct Comparison approach being the correct valuation methodology is based on traditional and industry accepted valuation practices. 

Discounted Cash Flow can be used to analyse Market Value but is only appropriate in circumstances where the Project is sufficiently advanced to be able to include an accurate project timeline, endorsed plans, construction permits, final construction contracts and the required volume of qualified pre-sales. I consider the current status of the proposed development to be too embryonic to enable any accurate portray of land value as a function of the overall feasibility.”[8]

Put simply, the Court noted that, “Austhome does not like it, but it is simply not open to challenge”.[9]

Take-away points

This case serves as a reminder of the broad discretion of the Court under section 233 of the Act and the ancillary powers of the Court in the event of buy-out orders.

In an ever-changing property market with a proliferation of large, multi-storey buildings across Melbourne and other capital cities and metropolitan areas, we are seeing an increasing number of disputes between joint venture partners to property developments. In those circumstances, a buy-out may be a suitable remedy to bring the dispute to an end. The applicable purchase price is, patently, a crucial element in a obtaining a valuation which enables that to occur.

The appropriate valuation methodology will be heavily contingent upon the relevant circumstances, perhaps most importantly the stage of any development and the value of the relevant underlying land, with embryonic developments considered in a very different light to those which are nearing completion. As a general observation, however, in the context of property developments, a valuer may be well-advised to limit their consideration of the DCF methodology to those projects which are at or fast nearing practical completion.


[1] Brady Queen Pty Ltd v 280 Queen Street Pty Ltd & Anor (No 3) [2019] VSC 307, [9].

[2] Brady Queen Pty Ltd v 280 Queen Street Pty Ltd & Anor (No 3) [2019] VSC 307, [17].

[3] Brady Queen Pty Ltd v 280 Queen Street Pty Ltd & Anor (No 3) [2019] VSC 307, [27].

[4] Brady Queen Pty Ltd v 280 Queen Street Pty Ltd & Anor (No 3) [2019] VSC 307, [27].

[5] Wenco Industrial Pty Ltd v WW Industries Pty Ltd (2009) 25 VR 199.

[6] Wenco Industrial Pty Ltd v WW Industries Pty Ltd (2009) 25 VR 199, [17(d)].

[7] Wenco Industrial Pty Ltd v WW Industries Pty Ltd (2009) 25 VR 199, [17(d)].

[8] Brady Queen Pty Ltd v 280 Queen Street Pty Ltd & Anor (No 3) [2019] VSC 307, [44].

[9] Brady Queen Pty Ltd v 280 Queen Street Pty Ltd & Anor (No 3) [2019] VSC 307, [50].

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