Minority shareholdings in unlisted private investment companies must be valued by considering all circumstances including comparable listed companies, lack of negotiability, restrictive articles, and growth potential, rather than by mechanically deriving the capitalisation rate from the average yield of the underlying investments.
Later decisions that cite Gregory v Federal Commissioner of Taxation
Decisions cited by Gregory v Federal Commissioner of Taxation
GREGORY v. FEDERAL COMMISSIONER OF TAXATION [1971] HCA 2; (1971) 123 CLR 547
Estate Duty (Cth)
High Court of Australia
Gibbs J.(1)
CATCHWORDS
Estate Duty (Cth) - Shares in unlisted companies - Valuation - Majority and minority interests - Restrictions on transfer - Estate Duty Assessment Act 1914-1957 (Cth), s. 16A*.
HEARING
Melbourne, 1970, October 26-28;DECISION
1971, February 8.2. Stonnington was incorporated in Victoria in 1957, apparently for the purpose of acquiring from the deceased shares which he held in Myer Investment. The memorandum of association provided that the share capital of the company was 100,000 pounds divided into 100,000 shares of 1 pound each with power to divide the shares into several classes to which different rights might be attached (cl. 4). The articles provided for the shares to be grouped as A, B, C and D shares (art. 3 (b)) and gave the directors power, with the sanction of a general meeting, to declare and pay dividends to the holders of any group of shares to the exclusion of the holders of any other group or in amounts varying among the groups (art. 112). The articles contained provisions restricting the transfer of shares (art. 36), which it is not material to mention in detail. At the date of death the paid-up capital in Stonnington comprised 35,165 A shares, 2,000 B shares and 2,000 C shares. The deceased held 35,160 A shares, 600 B shares and 1,000 C shares, and 5 A shares where held in the names of Alfred B. Elvish and Harry L. Richardson as nominees for the deceased. The remaining issued shares were held by the widow of the deceased (1,400 B shares) and by his daughter (1,000 C shares). The directors of the company were the deceased, Elvish and Richardson. It is apparent that the deceased completely controlled the company. In the circumstances the parties were content to treat A, B and C shares as of equal value. At the date of death the main asset of Stonnington comprised 13,055 shares in Myer Investment. In addition there were current assets of 4,514 pounds. Current liabilities amounted to 557 pounds. (at p550)
3. Myer Investment and Barclay were incorporated in Victoria as private
companies in April 1925. It appeared that they were formed
as holding
companies for the purposes of Sidney Baevski Myer and members of his family.
Sidney Baevski Myer had established in Victoria
a business which proved to be
very successful and which in 1925 was taken over by a public company formed
for that purpose, The Myer
Emporium Limited ("Myer Emporium"). He died in
1934. By his will he expressed the desire that the business known as "Myer's"
and
all enlargements and extensions thereof and all companies and undertakings
promoted or established in relation thereto and his share
and other interests
therein should be continued and carried on either in their present form or in
an altered form "so long as my
trustees in their discretion think prudent to
the end that the said business and enlargements and extensions companies and
undertakings
may continue as an abiding and visible memorial of my efforts in
establishing and developing the same". He further expressed the
desire that
certain named persons should, after his decease, act as managing directors of
the business and he empowered his trustees
when necessary to procure or
arrange to appoint persons to act as their successors in the office of
managing director and also in
the office of trustee. His will went on:
"I WISH my trustees and executors in furtherance of theseThe dispositions which he made of his estate are elaborate but it is enough to say that the corpus will not finally be distributed until after the death of his widow and children, all of whom are still alive. (at p551)
my desires expressed above to use employ and exercise the
voting power of my estate in respect of shares in any of the
Myer companies including The Myer Emporium Limited or
in any company controlling the same or related thereto or
subsidiary to or associated with the Myer business or undertakings
I FURTHER DESIRE that it shall be in the discretion of
such managing directors (after conferring with their colleagues
therein) to decide and determine what proportion of the net
profits of the said company or companies and undertaking or
undertakings ought to be divided among members thereof
and what proportion should be held in reserve or remain
undivided or be set aside or used or employed for developmental
or contingency or equalization amortization or superannuation
or other purposes or for otherwise increasing the
financial strength of such company or companies undertaking
or undertakings and that the voting power in respect of the
shares held or controlled by my estate or by my trustees shall
be used exercised and employed so as to support and uphold
such determination."
4. The articles of association of Myer Investment were put in their present form in 1937. The nominal capital in that company consisted of 1,500,000 shares of 1 pound each. The articles contain certain restrictions on the transfer of shares. No transfer shall be registered unless approved by the directors, who may refuse to give their approval without assigning any reason therefor, provided that such approval may not (with certain exceptions) be refused in the case of a transfer to an existing director or member of the company or to the legal personal representatives of any deceased member or of a transfer by a member or his legal personal representatives to a child or other relative of the kinds specified of the member or deceased member (art. 26). By art. 28 (a) it is provided that no share shall be transferred (except in the case of a transfer within the proviso to art. 26 or a transfer to a new trustee on a change of trusteeship) until the rights of pre-emption set out in art. 28 have been exhausted. Put briefly, the intending vendor notifies the directors of the price at which he intends to sell, and the directors then notify all members of the company and any other persons they think proper inviting them to purchase at that price. If there are willing buyers, the directors allocate the shares to or amongst them. If all the shares are not sold, the directors are given a further opportunity to find approved persons to buy them. If the directors are unable to sell the shares, the vendor himself may find a buyer, subject to art. 26. The directors are appointed by name (art. 62) but provision is made for the office of director to be vacated if (inter alia) the director is removed by a resolution of the company in general meeting (art. 72 (c)) ; if a vacancy does occur in the board the company in general meeting may fill it (art. 65). By art. 86 the directors may declare dividends out of the company's profits "provided always that the exercise of this power shall be subject to the control of the company in general meeting and any declaration of dividend by the directors may be overridden and nullified by a resolution of the company in general meeting passed at any time before actual payment of the dividend so declared". By art. 50 (b) it is provided: "During such time as Margery Merlyn Baillieu Myer" (Dame Merlyn Myer is the widow of Sidney Baevski Myer) "or any person appointed by her (together with her co-trustees) to be her successor as a trustee of the estate of the late Sidney Baevski Myer shall hold office as a trustee of such estate no resolution shall be capable of being carried or passed by the company in general meeting unless members entitled to vote in respect of not less than one-half of the issued shares of the company vote either in person or by proxy in favour of such resolution". (at p552)
5. At the date of death of the deceased there were 898,440 issued shares in Myer Investment. All were fully paid. Stonnington's holding therefore amounted to 1.45% of the issued capital in Myer Investment. Of the remaining shares 603,419 were held by the estate of Sidney Baevski Myer deceased. Since this amounted to considerably more than one-half of the issued shares, the effect of the rather special provisions of the articles was that a resolution could not be passed at a general meeting of Myer Investment unless the trustees of the estate voted in favour of it. The directors of Myer Investment at the date of death of the deceased included the trustees of the estate of Sidney Baevski Myer and other persons concerned with the conduct of the business of Myer Emporium. (at p552)
6. There were 1,013,941 issued shares in Barclay and of these 1,013,835 were held by Myer Investment. It was clearly right to treat Barclay as, in effect, a wholly-owned subsidiary of Myer Investment and it was the practice of the two companies to produce each year a consolidated balance-sheet and consolidated profit and loss account. Barclay was the holder of 7,947,960 5s. 0d. stock units in Myer Emporium, which represented 43.99% of that company's total issued capital. Although this was less than a majority interest it gave Myer Investment effective control of Myer Emporium and the power to defeat any attempt at a take-over. Having regard to the wishes of the testator as expressed in his will, to which it appears the trustees have endeavoured to give effect, it is unlikely that the trustees, as holders of the majority of the shares in Myer Investment, and directors of that company, would permit that company to dispose of the shares in Myer Emporium which it held through Barclay except for some real necessity. The evidence shows that it has in fact been the settled policy of the directors of Myer Investment to continue to hold the shares in Myer Emporium. Viewing the situation as at the date of death, the probability was that notwithstanding any fluctuations in the market Myer Investment would continue to retain the shareholding in Myer Emporium as a permanent asset. (at p553)
7. The market value at the date of death of the shares in Myer Emporium held by Barclay was over 9,000,000 pounds. Barclay also held shares in about eighty listed companies of a total value of over 300,000 pounds. It owned two properties, whose total value was shown in the books as 281,789 pounds, which had been bought in case they might be needed by Myer Emporium as sites for regional shopping centres, and neither of which was income-producing. In addition Barclay had cash on deposit with Myer Emporium (442,298 pounds) and with a subsidiary of that company (28,850 pounds) and cash in the bank (2,040 pounds). Myer Investment directly owned some shares in the Broken Hill Pty. Co. Ltd. whose market value exceeded 177,000 pounds. The only current liability shown in the balance-sheet was the amount of a dividend (292,442 pounds). There exists room for some small difference of opinion as to the total net value of the assets of Myer Investment (including Barclay) but the figure reached by Mr. Adamson, who gave evidence for the respondent, was 10,473,673 pounds which gives an asset backing of 11 pounds 13s. 2d. per share. (at p553)
8. The appellants, in support of their case, called three witnesses to give
their opinions as to the value of the shares. The first
witness was a
chartered accountant, Mr. Hancock. The valuation which he produced has been
prepared in 1961 by his father but he had
assisted in its preparation and said
that it represented his opinion. He considered that Myer Investment and
Barclay were in reality
a family private investment group. The assets held by
that group were, in his opinion, not well balanced since so large a proportion
of them comprised shares in Myer Emporium. Indeed, he said that the funds
invested in or for Myer Emporium (including the properties
and moneys
deposited) represented about 84% of the total investments of the group at book
values and a higher proportion of that
total at market values. Mr. Hancock
considered that since Stonnington had only a small proportion of the
shareholding in Myer Investment
and had no power to control it or to bring
about a winding up, the dividend yield was a matter of paramount importance in
assessing
the value of the shares. An analysis of the dividends paid by Myer
Investment for ten years before the date of death showed that
the average rate
of dividend was 18.7% over the ten-year period, 26.2% over the last five years
and 30.7% over the last three years.
These figures show a progressive increase
in the dividend rate, and because of this Mr. Hancock selected the last three
years as
providing a basis for the consideration of the question what return a
prospective purchaser in the company might expect to receive.
Although the
profits of Myer Emporium had been increasing and economic conditions were
booming there were some danger signals in
the economy and on the whole Mr.
Hancock thought that a prudent buyer of shares in Myer Investment would expect
that company to maintain
a dividend representing about the same as that
averaged over the last three years and would therefore expect a shareholding
of 13,055
shares in that company to provide him with an income of 4,000 pounds
per annum. He then compared this expected return with the return
provided by
seven public investment companies listed on the stock market - these showed
returns ranging from 5.1% to 7.2% and an
average of 5.6%. Mr. Hancock
considered that an investor would be able to obtain 5 1/2% from investing in
public investment companies
at the date of death. He admitted that none of the
seven public investment companies which he considered had a growth possibility
comparable with Myer Investment but nevertheless was of opinion that an
investor in a company such as Myer Investment would require
a return of at
least 10% made up as follows:
1. A basic dividend at the rate of at least 6%He capitalized the estimated maintainable dividend of 4,000 pounds at 10% and concluded that a purchaser would be prepared to pay 40,000 pounds for the investment in 13,055 shares - that is, 3 pounds 1s. 3d. per share. Mr. Hancock then turned to value Stonnington. He considered that although a purchaser of the deceased's holding in Stonnington would have power to put that company into liquidation he would have no assurance of becoming listed as a shareholder in Myer Investment, because of the restrictive provisions in the articles, and would be inclined to continue to hold shares in Stonnington. He would therefore expect to receive an income of 4,000 pounds per annum from the shares in Myer Investment. Mr. Hancock again capitalized at 10%, and thus concluded that the value of each of the shares would be 1 pound 0s. 5d. However there were the accumulated profits of 4,000 pounds and this meant, in effect, that a purchaser would be buying with a dividend of 2s. 0d. per share. This made the total value of each share in Stonnington 1 pound 2s. 5d. (at p555)
2. An addition for lack of negotiability of
at least 3%
3. A further addition in respect of the
disabilities
of a minority holder in a family
- at least 1%
---.
Total : 10%
---.
9. The second expert witness called for the appellants, Mr. Baker, who is also an accountant, had Mr. Hancock's valuation before him when he commenced to consider the matter and took it as his starting point. His approach is very similar to that of Mr. Hancock, but he used a different capitalization rate. He considered that the combined effect of the restrictive provisions of the articles and of the precatory provisions of the will was that there was no practical possibility that Myer Investment would be liquidated and its assets realized so that the shares in that company ought to be viewed as a "locked in" investment for which there would be a very limited market. He considered that a prudent purchaser, seeing that his capital would be well secured by tangible assets, would look mainly to the dividends he could reasonably expect to receive on the shares. Mr. Baker adopted 9% as the rate of return which an investor in these shares would be likely to require. He arrived at this figure by adopting a basic dividend requirement of 6% (which he chose after considering the rate ruling in respect of first mortgages at that time) and added about 4% to 5% for lack of negotiability and 2% for the disadvantages of a minority shareholder and then made an allowance of from 3% to 5% for the strong growth factor attributable to the company. All these figures represented opinions based on experience rather than on the result of any statistical process. Mr. Baker said that if the difficulties of obtaining registration in the company (due to the restrictive provisions of the articles and the provisions in the will) were removed he would probably reduce the total rate by 1%. He accepted the figure of 4,000 pounds as the maintainable dividend and capitalizing this figure at 9% arrived at a value of the shares in Myer Investment of 3 pounds 8s. 1d. He considered that if the trustees of the estate of Sidney Baevski Myer were not in control of Myer Investment and that company were listed on the stock exchange its shares would be worth a great deal more - at least twice as much. He valued the shares in Stonnington by deducting from the estimated maintainable income of 4,000 pounds an amount of 100 pounds as the estimated cost of administering the company and by capitalizing the balance of 3,900 pounds at 9%, which resulted in a value for the 39,165 shares of 43,333 pounds or 1 pound 2s. 1d. for each share. He omitted to add anything to this amount to represent the value of the accumulated profits in hand. (at p556)
10. The third witness on behalf of the appellants was Mr. Traxton, a member of the firm of J. B. Were and Son, stockbrokers. The valuation which Mr. Traxton produced had been prepared in 1961 by Mr. Clayton who was then a member of J. B. Were and Son but who had since retired. Mr. Traxton said that he agreed with Mr. Clayton's basis of valuation, although as will be seen the two were not completely in agreement. The valuation commenced with a statement that a holding of shares in Stonnington, Myer Investment or Barclay is fundamentally an investment of shares in Myer Emporium, which was described as one of the premier stocks in the Australian market. However, a shareholder in Stonnington would not be able to obtain possession of the underlying shares in Myer Emporium and would have suffered the disability of the lack of an open market. The income benefit from the shares would therefore be the paramount consideration, although the great attraction of Myer Emporium shares, and the increasing benefits those shares might be expected to confer, could not be overlooked. Mr. Clayton, in his valuation, said that the shares of such a private company lack the attraction of an equity investment in a market stock which holds prospects of capital gain and are more directly comparable to a fixed interest-bearing security. The ruling rate of interest for fixed interest-bearing securities was at the material time from 7% to 8%. Mr. Clayton thought that it was a fair assumption that the shares might be attractive to a purchaser if they yielded 8%. Mr. Traxton in his oral evidence admitted that in his opinion one could not compare fixed interest-bearing securities (which were always in danger of suffering an erosion of capital) with the shares in Myer Investment and would have preferred to take as his starting point the return to be expected from shares in publicly listed investment companies. However, he reached the same rate as Mr. Clayton ; he considered that shares in investment companies would realize 5 3/4% but that he should add 3% for lack of negotiability and he rounded the result off at 8%. On this basis the value of shares in Stonnington would be 1 pound 7s. 7d. each. This represented a capitalization of the estimated income of 4,000 pounds at 8% and the addition of 2s. 0d. per share in respect of the accumulated profits. Mr. Clayton's valuation dealt with the shares in Myer Investment on two bases. First he valued the shares on the assumption that they might be transferred without restriction but even on this assumption he considered that a shareholding in the company ought to be regarded as an investment for income with little hope of realized capital appreciation, although the value of the underlying security is not static and it would be reasonable to expect further appreciation in its value. He assumed that the current rate of dividend, namely 31.7%, would be maintained and that the actual income from a holding of 13,280 shares would have been 4,219 pounds 15s. 0d. The shareholding of Stonnington in Myer Investment was 13,055 not 13,280 but the error is not important. He capitalized this at 8% and thus reached a value of 3 pounds 19s. 5d. per share. His second basis was on the assumption that the restriction on transfer imposed by the articles of Myer Investment was fully operative and on this assumption he considered that a return of 10% would be required. Capitalizing at this rate he reached a valuation of 3 pounds 3s. 7d. per share. (at p557)
11. Mr. Traxton made an analysis of the figures relating to the public investment companies which he had considered in arriving at his expected yield, and found that the market price of the shares in the investment companies was consistently less than the net tangible asset backing per share based on the market value of the investments. On the average, the price of the shares in the investment companies was 74.7% of the net tangible asset backing. (at p557)
12. The two expert witnesses called by the respondent, Mr. Mirams and Mr.
Adamson, both accountants, adopted a method of valuation
which they believed
is required by the decision in Abrahams v. Federal Commissioner of Taxation
(1), which, they considered, lays
down a principle that must be observed in
determining the rate of capitalization to be applied in valuing shares in an
investment
company. This so-called principle is stated as follows by Mr.
Adamson in his work on the Valuation of Company Shares and Businesses,
4th ed.
(1966), at p. 188:
"We may therefore accept the general principle that theMr. Mirams considered that the deceased was in a position to wind up Stonnington and take for himself an appropriate proportion of its shares in Myer Investment, namely 12,255 shares, and that, therefore, s. 16A (1) (c) of the Act ought to be applied in the valuation of the shareholding in Stonnington. However, he considered that s. 16A (1) (c) should not apply to the valuation of the shares in Myer Investment since that company was a going concern and the deceased had only a minority interest in it and was not in a position to cause it to be wound up. In valuing the shares in Myer Investment he adopted what he called the earning capacity basis of valuation, as applied to an investment company in the light of his understanding of Abrahams v. Federal Commissioner of Taxation [1944] HCA 32; (1944) 70 CLR 23 This required him to estimate the future gross annual income likely to be derived from the assets held by Myer Investment at the relevant date, to express that income as a percentage of the market value as at that date of the company's assets and to use that percentage to capitalize the estimated future net annual income of the company after deducting from the gross annual income the expected annual outgoings, such as administrative expenses and income tax. Since the shares being valued represented only a minority interest in a private company, he then made allowance for the fact that the shares were not listed on the stock exchange and had only a limited market. He justified this method by saying that the demand for shares in an investment company holding shares in Myer Emporium would, if the investment company were listed and its shares could easily be disposed of, be just as strong as the demand for the shares in Myer Emporium itself, and that the value of the shares in an investment company is almost a direct reflection of the value of its underlying assets. He admitted that the value of shares in publicly listed investment companies does not in fact bear an exact arithmetical relation to the value of the underlying assets but is usually less than the value of those assets but said that this is partly due to the fact that usually such investment companies are smaller than the companies in which they hold shares. In applying his method he first proceeded to value the shares in Barclay. He calculated that the ratio which the estimated gross annual income derived by Barclay bears to the market value of its net assets was 3.3892% and when this was applied to the estimated net annual income of Barclay (364,660 pounds) the result was to give a total valuation of 9,369,421 pounds to the shares held by Myer Investment in Barclay. Then he calculated that the ratio of the estimated gross annual income of Myer Investment (343,439 pounds) to its assets, including shares in Barclay (9,513,403 pounds), was 3.61%. The estimated net income of Myer Investment was 340,233 pounds, which, capitalized at 3.61%, gave a capital value of 9,424,757 pounds which equals 10 pounds 9s. 10d.0 per share. He allowed a discount of 15% for the fact that the shares were not quoted on a stock exchange and this produced a share value of 8 pounds 18s. 4d. To this he added an amount of 3s. 2d. per share representing the present value at the date of death of that part of the dividend payable out of the profits of the year ended 30th June 1958 which had accrued at the date of death (292,170 pounds). This produced a total value for each share in Myer Investment of 9 pounds 1s. 6d. He then valued the deceased's shareholding in Stonnington on the basis that the company would be wound up and that the deceased would receive 12,255 shares in Myer Investment together with a proportion of the other assets in the company. This gave a value of 3 pounds 2s. 6d. per share in Stonnington. (at p559)
appropriate rate of capitalization is the average applicable to
the investments held. Where the investments are shares in
other companies which yield various rates, this would be the
percentage which the total dividends received by the investment
company bear to the total market value of the investments."
13. Mr. Adamson valued separately the shares in Stonnington (which he wrongly
described as "Stonningham") and Myer Investment and
it is convenient first to
refer to his valuation in respect of the latter company. For the purpose of
that valuation he used the
consolidated accounts of Myer Investment and
Barclay. As I have said, he calculated that the total value of the combined
net tangible
assets amounted to 10,473,673 pounds. He observed that the
dividends out of each year's consolidated profits were not paid to the
shareholders in Myer Investment until 21 or 22 months after the end of each
financial year since there was a delay in distribution,
first on the part of
Barclay and then on the part of Myer Investment. Although he gave attention to
the profits earned and dividends
paid in respect of the years ended 30th June
1957 and 30th June 1958, he regarded the later year as affording the best
guide to current
maintainable profits. In that year the gross income from
investments was 389,721 pounds and net profit after expenses and income
tax
was 377,332 pounds. He allowed a retention for reserves of about 10% of the
net profits which left the sum of 340,000 pounds
available for dividend. He
then capitalized the expected maintainable dividend at a rate which he
described as "relevant to the type
of investments held by the company" but
which was, in truth, derived arithmetically from the earnings of the company's
investments.
This method was based on his understanding of the decision in
Abrahams v. Federal Commissioner of Taxation [1944] HCA 32; (1944)
70 CLR 23 but it
agreed
with his own view for he said:
"If I have an investment directly which returns a certainAn annual gross income of 389,721 pounds derived from investments valued at 10,473,673 pounds represents an overall yield of 3.72%. He added 0.48% to take account of the disabilities of a minority holder and the lack of negotiability of shares not listed on the stock exchange and concluded that the rate of yield to be expected by a minority shareholder from dividends on his shares in Myer Investment was 4.2%. He said there were very few investment companies which were comparable to Myer Investment, which was a family holding company, whose main asset comprised a large block of shares in one company, whereas the public investment companies were composed of several hundred shareholders and had widespread holdings through the market. He did refer to the case of Hardie Holdings Ltd. which had a large shareholding in James Hardie Asbestos Ltd.; the dividend yields as at 3rd June 1958 in Hardie Holdings Ltd. were 3.86% and in James Hardie ASBestos Ltd. 4.16%. In cross examination Mr. Adamson was asked whether shares in Myer Investment would be an attractive proposition at a yield of 4.2%. He replied:
yield, but if I hold that investment through some other interposed
companies it is still worth the same provided I allow
for the disabilities of the interposition of the companies."
"I should think they would to the people who wanted them.He went on to say that he considered that there would be buyers to whom the shares would be attractive at 4.2%. When asked to suggest what sort of buyers would be interested at that yield he was in some difficulty, but finally suggested that possibly other members of the Myer family or those associated with the company or the group would be interested and added that there could be others who would be glad of an opportunity to fit into the picture if they could do so with the blessing of the other shareholders. He therefore adopted his rate of 4.2% and capitalized the expected maintainable dividend of 340,000 pounds, thus arriving at a value of 9 pounds per share. Turning to Stonnington, he considered that s. 16A (1) (a) of the Act should be applied, and ignored the restrictive provisions of the articles, but he did not regard it as appropriate to apply s. 16A (1) (c), because, although the deceased held sufficient shares to control and wind up that company, there was no evidence of any intention to wind it up. In this case also he valued the shares on the basis of capitalized earnings. He took the value of Stonnington's holding in Myer Investment, calculated at 9 pounds per share, as 117,495 pounds. The dividends received by Stonnington from Myer Investment amounted to 4,138 pounds, which represents a yield of 3.52%. The net income of Stonnington in the year in question was 4,089 pounds and this sum capitalized at 3.52% produces a capital value of 116,165 pounds. He added 2,045 pounds (cash available for distribution as a dividend less income tax) and thus arrived at 118,210 pounds as the total value of 39,165 issued shares. This gave 3 pounds 0s. 4d. per share which he rounded off to give a valuation of 3 pounds per share. (at p561)
One has to assume a buyer willing but not an anxious buyer.
I think he would be interested in having them."
14. In determining, for the purpose of his calculations, the market value of the assets of Myer Investment, Mr. Adamson did not make a reduction to take account of the very large size of the holding by that company of shares in Myer Emporium. Mr. Cox, a sharebroker called on behalf of the appellants, gave evidence that if the holder of about 8,000,000 shares in Myer Emporium wished to realize them on the market he could not hope to do so without allowing a substantial discount because of the size of the parcel. In his opinion the discount would not be less than 20% although under cross examination he said that 15% might be the very lowest discount that would have to be allowed. Mr. Adamson said that ordinarily he would be inclined to discount the value attributed to the very large holding of shares in Myer Emporium and that in his opinion the stock exchange quotation merely shows the price at which buyers and sellers of comparatively small quantities of shares have completed their bargains and is not an adequate guide in the case of a holding of nearly 8,000,000 shares. If he had been free to do so he would have considered that the holding of Myer Investment in Myer Emporium ought to be valued at 21s. 0d. per share, rather than at the market price of 23s. 3d.; in other words he would allow a discount of about 10% for what he described as "blockage". He said that he based this opinion upon normal market happenings in relation to large parcels of shares. However he took the view that he was precluded from allowing any discount of this kind by the decision of Williams J. in Kent v. Federal Commissioner of Taxation (Martin's Case). Unreported, 22nd October, 1945. (at p561)
15. Besides the opinion evidence as to the value of the shares there was
evidence of the actual sales that were effected of shares
in Myer Investment
from January 1957 to June 1964. Most of these sales were from shareholders to
private companies which the shareholders
had set up for their own purposes and
which they or their families controlled and in such cases the consideration
affords no guide
to the true value of the shares. There were, however, some
sales in which the parties were apparently at arm's length. On 30th October
1958 Mr. Beresford J. Myer sold 2,000 shares to Warrender Estates (Aust.) Pty.
Ltd. for 3 pounds 5s. 0d. per share and on 5th November
1958 he sold 1,934
shares to Maleela Pty. Ltd. at the same price. It appears that these two sales
disposed of his entire shareholding.
Warrender Estates (Aust.) Pty. Ltd. was a
company in which Mrs. Simon Warrender, a sister of Mr. Beresford J. Myer, was
interested
and that sale may perhaps be put aside. Maleela Pty. Ltd. was,
however, a company set up and controlled by Mr. Tolley who although
a director
and shareholder in Myer Investment was in no way related to Mr. Beresford J.
Myer and it is difficult to conceive of any
reason that would have led Mr.
Beresford J. Myer to sell his shares to Maleela Pty. Ltd. at any price below
the highest then obtainable.
The evidence showed that on 14th August 1958 a
communication was sent on behalf of Mr. Beresford J. Myer to Mr. Gregory, the
secretary
of Myer Investment, offering to sell 2,000 shares at 80s. 0d. per
share. The letter concluded by saying, "Please place this before
your Board
and advise me the result. Perhaps a counter-offer could be made if the price
is considered too high". Mr. Gregory said
that he told the agent of Mr.
Beresford J. Myer that the last transfer that had taken place was at a value
of 3 pounds (either Mr.
Gregory's evidence or his statement to the agent was
inaccurate, for the consideration for the last sale had been 3 pounds 5s. 0d.)
and thereafter the agent sent another letter dated 25th August offering the
shares for sale at 65s. 0d. A circular was sent to shareholders
offering the
shares at this price. Authorities in this Court establish that in determining
the value of land or shares evidence of
a price offered for the property in
question, in the course of negotiations which do not result in a concluded
contract, is not admissible:
McDonald v. Deputy Federal Commissioner of Land
Tax (N.S.W.) [1915] HCA 54; (1915) 20 CLR 231; James Patrick and Co. Pty. Ltd. v.
Minister of
State
for the Navy (1944) 50 ALR 254; (1945) 51 ALR (CN) 501 The
evidence in
the present case is admissible because the
offer was followed
by a concluded
contract and the fact that it was made throws
some light on the extent to
which the price finally
arrived at may be
regarded as an indication of the
real value of the shares.
All the sales of the shares in Myer Investment
effected
in 1957 were at
a consideration of 3 pounds and all those effected in
1958
and a number in 1959 were at a consideration of 3 pounds
5s. 0d. and
although
Mr. Gregory would not admit it, it is difficult to
escape the
conclusion that at the time of the sales by Mr.
Beresford J. Myer the
directors were not prepared to approve of a transfer
at a price exceeding 3
pounds 5s. 0d. per share. On 25th
May 1962, Warrender
Estates (Aust.) Pty.
Ltd. sold a parcel of shares to
Culdares Investments Pty. Ltd. for a
consideration of 5
pounds per share, after
first writing to the secretary of
Myer Investment
offering to sell at 6 pounds per share. Culdares Investments
Pty. Ltd. was a company
controlled by Mr. Shaw, a solicitor who had
no special
relationship to the members of the Warrender family,
and in this case also
the
sellers were not likely to have been actuated
by a desire to make a gift to
Culdares Investments Pty. Ltd.
when they fixed the
price for the shares. It
may be noted that in 1961
there had been a bonus issue of shares in Myer
Emporium and
this may explain the
rise in price of shares in Myer Investment
that
occurred after that date. Mr. Adamson referred to the sale by
Mr.
Beresford J. Myer
to Maleela Pty. Ltd. but said that he considered
that it did
not furnish any guide to the real value of the
shares. He gave a number
of
reasons for this conclusion. He said that
the fact that Mr. Tolley was already
a shareholder of Myer
Investment was a reason for
disregarding the evidence of
the sale. I find
it impossible to see why that should be so, when there
is no
evidence that Mr. Beresford
J. Myer intended that his shares should
be sold
below their real value. He then said that the fact
that the sale took place
shortly
after the death of the deceased would
make him suspicious of it. In my
opinion there is not the
least ground for suspicion that the
sale was anything
but a genuine sale.
Thirdly, he said that the sale was at a consideration so
remarkably different from the valuation
at which he had arrived that he
felt
that he could not consider it. He might with equal logic
have said that his
valuation was so
remarkably different from the sale
price that the latter cast
doubt on the former. Mr. Mirams
also disregarded the evidence afforded
by
these sales. He said:
"The transactions in question are in respect of shares in aI shall later discuss the provisions of the Act which he had in mind, those of s. 16A (1) (a), but I may say immediately that they do not require the Court to assume that the articles of the company in question satisfy the requirements of the stock exchange if that assumption would not lead to a fair valuation. Mr. Mirams gave the further reason that he did not know the circumstances of the sale and, in particular, whether it was a forced sale. It is true that no direct evidence was given on the question whether either the sale by Mr. Beresford J. Myer or that by Warrender Estates (Aust.) Pty. Ltd. was in any way forced or involuntary. However, once the evidence had been given that these sales were effected it was open to the respondent to call evidence on this issue and, if necessary, to call the vendors themselves to give evidence. There were some vague hearsay statements by Mr. Gregory as to the financial position of the vendors which I completely disregard. In the absence of any admissible evidence that the sales were forced or involuntary I propose to treat them as normal sales by owners of shares who for one reason or another wished to convert their shareholdings into cash. In my opinion an actual sale of unlisted shares, not shown to have been a forced realization, although not of the same value as a sale of listed securities on a stock exchange, provides some evidence of the value of the shares. At the very least it is evidence of the minimum value at the date of the sale but it seems to me that this is not its only evidential use and that the price actually obtained for shares sold at or near the material date provides some indication of the value of the shares in question at that date and may be used as a check on the valuations obtained by other methods. The fact that the sales were made after the date of death does not render them inadmissible: cf. McCathie v. Federal Commissioner of Taxation [1944] HCA 9; (1944) 69 CLR 1, at p16 The sale by Mr. Beresford J. Myer was made about four months after the date of death of the deceased and it has not been shown that the shares in Myer Investment were likely to have materially changed in value during that period. The sale by Warrender Estates (Aust.) Pty. Ltd. was effected about four years after the date of death and is less useful as a guide to the value of the shares at the material date, although it does serve to indicate the potential for growth in value which the shares had at that date. (at p564)
proprietary company, whereas the Act requires you to assume
in this particular case that the proprietary provisions in the
articles do not apply and, therefore, you do not really have a
comparable company."
16. The principles to be applied in determining the value of shares forming
part of an estate whose value must be assessed for the
purpose of death duties
have been discussed in this Court in a number of cases. What has to be
determined is the real value of the
shares at the date of death (McCathie v.
Federal Commissioner of Taxation (1944) 69 CLR, at p 6) In Commissioner of
Succession Duties
(S.A.) v. Executor Trustee and Agency Co. of South Australia
Ltd. [1947] HCA 10; (1947) 74 CLR 358, Latham C.J. and Rich and Williams
JJ. said (1947)
74
CLR, at pp 361-362 that, broadly speaking, the courts have
applied, although
with caution, the same test as that
applied in determining
what would be the
proper amount of compensation to be
paid for the compulsory acquisition of
property, where,
as in the case of shares
not listed on the stock exchange,
there is no market
for the property, and that this test may be expressed
in
its most practical
form by saying that "the vendor is entitled to that which
a
prudent purchaser would have been willing to give
for the shares sooner
than
fail to obtain them". However, Dixon J., as he then
was, in a judgment with
which with all respect I completely
agree, added
an important qualification.
He said (1947) 74 CLR, at pp
373-374:
"I should like, however, to add for myself that there is someThe matters to be considered in estimating the value of shares were discussed by Latham C.J. and Rich and Williams JJ. (1947) 74 CLR, at p 362 in the following passage :
difference of purpose in valuing property for revenue cases and
in compensation cases. In the second the purpose is to ensure
that the person to be compensated is given a full money
equivalent of his loss, while in the first it is to ascertain what
money value is plainly contained in the asset so as to afford a
proper measure of liability to tax. While this difference
cannot change the test of value, it is not without effect upon
a court's attitude in the application of the test. In a case of
compensation doubts are resolved in favour of a more liberal
estimate, in a revenue case, of a more conservative estimate."
"The main items to be taken into account in estimating the
value of shares are the earning power of the company and the
value of the capital assets in which the shareholder's money is
invested. But a prudent purchaser does not buy shares in a
company which is a going concern with a view to winding it
up, so that the more important item is the determination of
the probable profit which the company may be reasonably
expected to make in the future, because dividends can only be
paid out of profits and a prudent purchaser would be interested
mainly in the future dividends which he could reasonably
expect to receive on his investment. Further, a prudent
purchaser would reasonably expect to receive dividends which
would be commensurate with the risk, so that the more
speculative the class of business in which the company is
engaged the greater the rate of dividend he would reasonably
require. In order to estimate the probable future profits of a
company it is necessary to examine its past history, particularly
the accounts of those years which are most likely to
afford a guide for this purpose. In order to estimate the
rate of dividend that a prudent purchaser could reasonably
require on his investment it is necessary to examine the nature
of the business and the risks involved and to seek the evidence
of business men, particularly members of the stock exchange
and experienced accountants, who can testify to the appropriate
rate from the prices paid for shares in companies carrying on a
similar business listed on the stock exchange or from private
sales of shares in such companies or from their general business
experience." (at p566)
In Abrahams v. Federal Commissioner of Taxation [1944] HCA 32; (1944) 70 CLR 23 Williams J.
dealt with the valuation of shares
in an investment
company. Counsel for the
respondent produced a
copy of the original judgment delivered by Williams J.
and pointed
out that the judgment
as reported (1944) 70 CLR, at p 35 omits
one
sentence which was contained in the judgment as originally delivered.
The
sentence is
quoted by Mr. Adamson in Valuation of Company
Shares and
Businesses, at p. 61. I would prefer to regard the judgment
as reported
as
expressing the reasons of Williams J. in the
form which after revision he
considered properly expressed his views,
but in any
case the sentence omitted
does not, in my opinion
affect the sense of what appears in the report.
Williams J. said (1944)
70 CLR,
at pp 35-36:
"Whether assets are owned by a company or an individual,Williams J. then turned to the case before him in which the deceased and his executor, who was his brother, held equal interests in the whole of the issued capital of the companies whose shares had to be valued. After discussing the yields produced by the shares held by the companies in question he concluded (1944) 70 CLR, at p 39 :
they cannot be expected to produce a higher income than is
appropriate to the nature of the particular assets; and, speaking
generally, it can be said that the greater the risk that an asset
will not produce the anticipated income or that the capital
embarked in an asset may be lost, the higher the income yield an
investor, whether a company or an individual, will expect from that
asset. Although a company and not its shareholders is the legal and
equitable owner of its assets, the value of its assets must
necessarily be reflected in the value of its shares. I have already
stated in Murdoch's Case (Perpetual Trustee Co. (Ltd.) v. Federal
Commissioner of Taxation) (1942) 65 CLR 672 and McCathie v. Federal
Commissioner of Taxation [1944] HCA 9; (1944) 69 CLR 1, and indeed it is beyond
dispute, that a prudent investor, while taking care to see that his
purchase money is well secured by tangible assets, would look
mainly to the dividends which he could reasonably expect to receive
on the shares ; but it is, to my mind, also beyond dispute that
such a purchaser could only reasonably expect to receive such
dividends as were appropriate to the nature of the business in
which the company was engaged (Smyth v. Revenue Commissioners
(1931) Ir R 643, at p 656; Crossman's Case (1934) 152 LT 98, at
p102). In the case of companies engaged in various kinds of trade,
it may be relatively simple to ascertain an appropriate rate of
profit or dividend yield which a prudent investor could reasonably
require on the price he paid for the shares, but in the case of
companies engaged in investment businesses the profit and therefore
the dividend yield must necessarily vary considerably according to
the nature of the assets in which the shareholders' funds have been
invested."
"I am unable to see how an investor could possibly expectLater in his judgment he said (1944) 70 CLR, at p 42:
a greater gross profit yield from these companies, assuming,
that they were public companies, than the percentages already
mentioned," (that is the percentages actually yielded by the
companies whose shares were held) "or a greater dividend
yield than this amount less the amounts required to meet the
reasonable expenses of running the companies, taxation, and
such sums as the directors should consider necessary to allocate
to reserves. I am also unable to see how an investor could
expect to purchase such shares on the stock exchange for
below par. Certainly he could not expect to obtain them at
a price which would show a net profit yield of these amounts."
"The final assessment of the value of the shares must be
made principally on the basis of the income yield (including
the strong probability of the distribution of accumulated
profits in at least three of the companies) but where, owing to
exceptional circumstances, the valuation on this basis presents
'enormous difficulties' it is legitimate . . . to rely more than
usual on the assets value." (at p567)
18. No one could quarrel with the general statement of principle made by
Williams J. (1944) 70 CLR, at pp 35-36 However, in my opinion
it is not right
to regard him in that statement as laying down an inflexible rule that in the
case of an investment company the appropriate
rate of capitalization is the
average applicable to the investments held. The value of the shares in a
holding company or an investment
company must certainly be influenced by the
value of the shares which it holds. Whether that influence on the value is
overwhelming
or not depends on all the circumstances. If the shareholding to
be valued is a majority holding the value of the underlying assets
may assume
great importance. Where, however, one is required to make a valuation of a
minority shareholding in a company (Company
A) which holds a very substantial
parcel of shares in a public company (Company B), and when Company A is so
controlled that it appears
probable, if not certain, that it will,
notwithstanding the fluctuations of the market, retain its shares in Company
B, it would
be quite unreal to say that a prudent purchaser of shares in
Company A would necessarily expect to pay a price which would give a
yield no
greater than that produced by Company B, because on becoming a shareholder in
Company A, he would not enjoy all the advantages
available to a shareholder in
Company B, and in particular would not be able to obtain the capital gain that
would result from a
favourable realization of the shares in the latter
company. So to hold would be to substitute an artificial and arbitrary
criterion
for a test designed to establish a real value. However, in my
opinion Williams J. did not intend to lay down any such rule. In the
second
passage which I have quoted from his judgment (1944) 70 CLR, at p 39, which is
expressed more categorically than the earlier
passage (1944) 70 CLR, at pp
35-36, he is dealing, not with general principles, but with the facts of the
case before him. In my
opinion, Messrs. Mirams and Adamson were wrong in
regarding the decision in Abrahams v. Federal Commissioner of Taxation [1944] HCA
32; (1944)
70
CLR 23 as requiring them slavishly to adopt a rate of capitalization
derived arithmetically from the average yield
of
the investments
held. The
appropriate rate of capitalization cannot be fixed automatically, but requires
a consideration of all
the
circumstances.
I accept the evidence that a prudent
buyer of shares in Myer Investment would be likely to expect a greater yield
than that produced
by the shares held by that company. (at p568)
19. The next question of law to be considered is whether any of the provisions of s. 16A of the Act should be applied in the valuation. As Williams J. pointed out in Federal Commissioner of Taxation v. Sagar [1946] HCA 6; (1946) 71 CLR 421, at p 425, the section does not operate automatically. In the first instance the Commissioner must be of the opinion that it is necessary to apply its provisions before it has any effect. However, sub-s. (2) provides that the Court may substitute its own opinion for any opinion of the Commissioner, and the Court would not allow the Commissioner's application of the provisions of the section to stand if it considered that a satisfactory value would not be reached by applying the section (see Commissioner of Taxes (Tas.) v. Perpetual Trustees Executors and Agency Co. of Tasmania Ltd. [1969] HCA 9; (1969) 118 CLR 325, at pp 328-329) In the present case the Commissioner in his assessment said: "The provisions of s. 16A (1) (a) of the Estate Duty Assessment Act have been applied to the valuation shares (sic) in Stonnington Investment Pty. Ltd." Before me it is contended on the behalf of the respondent that s. 16A (1) (a) should be applied in the case of all the shares being valued. Whether or not the Commissioner has formally applied the provisions of s. 16A (1) (a) I should not apply those provisions unless I consider that to do so is to adopt the method most calculated to place a fair value on the shares at the date of death (Federal Commissioner of Taxation v. Sagar (1946) 71 CLR, at p 428) I do consider that if s. 16A (1) (c) were not applied in the valuation of the shares in Stonnington, it would be appropriate to apply s. 16A (1) (a), since the deceased completely controlled that company and a purchaser of the deceased's shareholding would have been in a position to bring about such alteration of the articles of that company as was necessary to satisfy the requirements of the stock exchange. It seems to me, however, that the application of s. 16A (1) (a) would not be calculated to give a fair valuation of the shares in Myer Investment. The shares in that company held by the deceased, and in which the deceased had an interest, were proportionately small in number. A purchaser of those shares would have acquired them with such disadvantages as the provisions of the articles entailed. It is true that the power given by the articles to the directors was a fiduciary power to be exercised bona fide for the benefit of the company (Abrahams v. Federal Commissioner of Taxation (1944) 70 CLR, at p43) but that does not mean that the presence of restrictive articles has no effect on the value of a minority holding. From a practical point of view, the possibility of obtaining redress in the courts against a wrongful exercise of a power given by the articles is not a substitute for articles under which the power is not conferred. In the present case it seems to me clear that a prospective purchaser would have been influenced to some extent by the provisions of the articles, and I can see no reason in justice to ignore this fact in making a valuation. It is true that the depreciatory effect of articles placing restrictions on the transfer of shares and giving a right of preemption may be exaggerated. They are not wholly detrimental to minority shareholders, who may derive the benefit of being able to purchase more shares in the company when the directors exercise their power of offering shares for sale to existing shareholders. Nevertheless there is no necessity to ignore their existence in the present case. I hold that it has not been shown that it is necessary, for the purpose of placing a fair value on the shares in Myer Investment, to apply the provisions of s. 16A (1) (a). It is perhaps unnecessary to add that if that provision were applied it would not require the valuation to be made on the assumption that the company was listed on the stock exchange - Federal Commissioner of Taxation v. Sagar (1946) 71 CLR, at p 425 (at p570)
20. The Commissioner did not formally determine that s. 16A (1) (c) should be applied in the valuation of any of the shares in question but, notwithstanding that fact, I have power to apply the paragraph if it seems to me necessary to do so to bring about a fair valuation of the shares (see Federal Commissioner of Taxation v. Sagar (1946) 71 CLR, at p427) No one contends that par. (c) has any application to the valuation of the shares in Myer Investment, but Mr. Mirams applied it in his valuation of the shares in Stonnington. That company was formed, and the deceased's shares in Myer Investment were transferred to it, less than eighteen months before the deceased died. Stonnington was simply a means by which the deceased held shares in Myer Investment. He had complete control of Stonnington and was able to put that company into liquidation and restore to himself the direct ownership of the shares in Myer Investment if he had wished to do so. A purchaser of his shares in Stonnington would not be deterred by the restrictive provisions in the articles of Myer Investment if he wished to realize the full value of his shares in Stonnington by putting that company into liquidation. It seems to me that to determine the real value of the shares in Stonnington, it is necessary to apply s. 16A (1) (c) and adopt as the value of the shares such sum as the holder would have received if that company were being voluntarily wound up on the date of death. (at p570)
21. A final question of law remains for consideration which, although
important to the method of valuation adopted by Mr. Mirams
and Mr. Adamson, is
only peripheral if that method be rejected. That is whether in arriving at the
value of the shareholding of Myer
Investment in Myer Emporium it is proper to
allow a discount from the ordinary market price because of the size of the
parcel of
shares held. In Myer v. Commissioner of Taxes [1937] VicLawRp 22; (1937) VLR 106 Martin
J., who was called on to value for duty purposes the shares held
in Myer
Investment by Sidney Baevski Myer,
made a valuation by reference to the assets
of Myer Investment and for that purpose found
it necessary to value the
holding by that
company of its shares in Myer Emporium. (Of course, the
present case is, in that respect,
distinguishable from that case, because
Sidney Baevski Myer held the majority of the shares in Myer Investment.) In
his valuation
of the shares in Myer Emporium Martin J.
allowed a reduction
(from 26s. 0d. to 23s. 6d.) to take into account the depressing effect
of a
large parcel of shares being placed
on the market. However, Mr. Adamson in his
valuation relied upon the remarks made by Williams
J. in Kent v. Federal
Commissioner
of Taxation (Martin's Case) Unreported, 22nd October 1945 where
that learned judge was required
to value a large holding of shares
in which
the deceased had an interest. Williams J. there said:
"Evidence was also given that it would be difficult to sellWith the greatest respect to Williams J., whose experience in this branch of the law is well recognized, I am unable to agree with some of these remarks. No doubt the Court assumes the existence of a hypothetical purchaser who is ready and willing to purchase the whole parcel of shares, at their real value. The question to be determined however is whether the real value of the holding is reduced by its size. This seems to me to be a question of fact and not of law. In some cases the size of the holding may increase the value, as where the parcel of shares is sufficient to carry a special resolution: Perpetual Trustee Co. (Ltd.) v. Federal Commissioner of Taxation [1942] HCA 4; (1942) 65 CLR 572, at p 578 If, however, in fact the size of a parcel depreciates its real value, there is no principle of law that requires a fictitious and excessive value to be attributed to it for purposes of estate duty. The fears of Williams J. that a different view might enable a resuming authority to obtain an undue benefit would, I think, prove unfounded, for in the case of a valuation for compensation purposes any doubt would be resolved in favour of a more liberal estimate, as Dixon J. said in Commissioner of Succession Duties (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd. [1947] HCA 10; (1947) 74 CLR 358 In the present case, the evidence supports the view that in valuing the assets of Myer Investment a reduction should be made to allow for the size of the holding in Myer Emporium. If this is done, the asset backing per share of Myer Investment is reduced by about one shilling. Since I reject the method adopted by Messrs. Mirams and Adamson, and regard the asset backing only in a general way the reduction is not of great significance. (at p572)
such a large parcel of shares, and several of the expert
witnesses contended that their value as a whole should be
reduced on this account. But the object of estimating the
price that would be agreed upon between a reasonably willing
vendor and a reasonably willing purchaser is to ascertain the
full value of the property to the owner, and the Court therefore
assumes a hypothetical purchaser or purchasers who will
be ready and willing to purchase the whole parcel. Even if
there is only one purchaser, he must still pay this full value.
There is in fact no passing of the property in the shares at
the date of death as there is in the case of a resumption. Even
if the shares had to be sold, they could be gradually disposed
of over a considerable period, and in the meantime the vendor
(in the present case the trustee of the settlement) would be
receiving the dividends from the unsold shares. If the
contention were sound, it would mean that, on a resumption
under a statute which provided for the payment of compensation,
the resuming authority could acquire the undertaking
of a company more cheaply by acquiring all the shares
than by acquiring its assets."
22. I now turn to the crucial question in the present case, namely, what yield would a prudent purchaser of shares in Myer Investment at the date of death have expected from his investment. That question is a very open one because there were no listed shares truly comparable with those in Myer Investment. However, I am unable to accept the opinions of Mr. Mirams and Mr. Adamson on this point and consider that the yields they suggested were much lower than a prudent purchaser would have required. In forming their opinions they were influenced by a view of Abrahams v. Federal Commissioner of Taxation (!944) [1944] HCA 32; 70 CLR 23 which I hold to be erroneous. The attempts made by Mr. Adamson in cross examination to suggest the kind of buyer to whom the shares would have been attractive at 4.2% was, I thought, completely unsuccessful and this fact detracts from the weight of his opinion on this matter. Moreover, when the values at which Messrs. Mirams and Adamson arrived are tested by comparing them with the prices actually obtained by Mr. Beresford J. Myer when he sold his shares in 1958 and by Warrender Estates (Aust.) Pty. Ltd. four year later they are seen to be far too high. Turning then to the evidence called for the appellants, I cannot agree with Mr. Baker, or with the written opinion of Mr. Clayton, that the rate obtained at the material date from investment on first mortgage, or in fixed interest securities, affords any useful comparison, but I do agree with Messrs. Hancock and Traxton that the yield obtainable from publicly listed investment companies provides some guide to that which a prudent purchaser of shares in Myer Investment would have sought. Taking that yield as a starting point, one must make allowance, on the one hand, for the fact that the shares would have been relatively difficult to market because the company was unlisted and because of the restrictive provisions in the articles and, on the other hand, for the strength of the asset backing. A prudent purchaser would have expected that the underlying assets would grow in value and that in consequence the shares in Myer Investment would produce a greater income and would themselves appreciate in value. However, such a purchaser would have recognized that it was likely that for many years to come Myer Investment would retain its shares in Myer Emporium in good times and in bad and would not in relation to those shares pursue the policy that one would expect of an ordinary investment company of keeping a close watch on its investments and realizing them when it was propitious to do so. In all the circumstances in my judgment a prudent purchaser of shares in Myer Investment would have expected a yield of about 8% - the figure suggested by Mr. Traxton. I would then accept Mr. Adamson's view that after allowance for reserves Myer Investment could have been expected to have 340,000 pounds available for dividend. Capitalizing this sum at 8%, the value of each of the 898,440 issued shares was about 4 pounds 14s. 7d. Although this figure is low when compared with the asset backing per share it is supported by the evidence of the actual sales. I find that at the material date the value of each share in Myer Investment was 4 pounds 14s. 7d. (at p573)
23. I would then value the shares in Stonnington on the basis that the company was put into liquidation. The net assets comprised 13,055 shares in Myer Investment each of which I value at 4 pounds 14s. 7d., together with a net cash balance of 3,957 pounds. There are 39,165 issued shares so that the value of each share was 1 pound 13s. 7d. (at p573)
24. I hold that for the purpose of the assessment of estate duty in the estate of the deceased each share in Myer Investment should be valued at 4 pounds 14s. 7d. and each share in Stonnington at 1 pounds 13s. 7d. (at p573)
25. I allow the appeal and refer the matter back to the Commissioner with a direction to amend his assessment in accordance with my judgment. I order that the respondent pay to the appellants their costs to be taxed. (at p573)
ORDER
Appeal allowed. Refer the matter back to the Commissioner with a direction to amend his assessment in accordance with reasons for judgment. Order that the respondent pay to the appellants their costs to be taxed.