Case: Spencer v The Commonwealth [1907] HCA 82 ; (1907) 5 CLR 418
Outcome: applied
It was common ground that the term "market value" as it appears in s 120(1)(b) is to be construed consistently with the valuation principles stated in Spencer v The Commonwealth [1907] HCA 82 ; (1907) 5 CLR 418 at 432, 436-437, 440 et seq. As the High Court said in Deputy Federal Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) 51 CLR 509 at 515: The supposition must be made that a sale is not forced, and that the owner is willing to sell on reasonable terms, and negotiates with a person willing to buy, that the one is not so anxious to sell and the other to buy, as to disregard the effect of any business consideration, and that each is equipped with knowledge of the existing relevant circumstances. 23 It is central to the respondents' case that there was in fact no prospective purchaser for Mr Weeden's shares (apart from Mrs Weeden, a circumstance to which I shall return). The relevance of that fact, if it be a fact, needs to be considered in the light of a passage from the judgment of Griffith CJ in Spencer , a case which concerned compensation for the compulsory acquisition of land. 24 Griffith CJ dealt with the very situation where actual buyers of the property in question are likely to be hard, or impossible, to find. His Honour at 5 CLR 431 noted that, in the case of chattels which are the subject of frequent sale or purchase, the value of the articles is taken to be the current price. Someone wishing to sell such articles can readily find a purchaser at a price which is fairly certain and, conversely, a would-be buyer can find a seller at about the same price. In many cases the same considerations apply to land, where the price per acre is "as definitely fixed as the price of wheat or sugar". His Honour continued (at 431-2): But in the case of a new port, in a new State, where the area of land is limited, and each piece differs in many of its characteristics from the rest, it is impossible to apply any such rule. Bearing in mind that value implies the existence of a willing buyer as well as of a willing seller, some modification of the rule must be made in order to make it applicable to the case of a piece of land which has any unique value. It may be that the land is fit for many purposes, and will in all probability be soon required for some of them, but there may be no one actually willing at the moment to buy it at any price. Still it does not follow that the land has no value. In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, ie, whether there was in fact on that day a willing buyer, but by inquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?" It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together. 25 Mr Lipson pointed out some unattractive features (for a purchaser) of the shares in question: they were a small minority, they were subject to pre-emptive rights in the Articles of Association and a directors' discretion to refuse registration, there was a long-subsisting policy of not declaring dividends, etc. However, these are matters going to the quantum of market value. They do not deny the existence of market value. Indeed, Mr Lipson implicitly recognised this. In his report of 24 September 2008 he said that he did not believe there was a "deep and identifiable market" for the shares in the Weeden Companies. It follows that, in his opinion, there was a market, albeit one which did not have the desirable attributes mentioned. In re-examination he was asked: Q. And (senior counsel for the applicants) suggested that this often happens; that a minority shareholder in a closely held family company often seeks to sell the shares to outsiders on the would you say that happens that does happen often? A. It rarely happens in private companies within family groups. It rarely, rarely happens. I can it is not something that would be in the normal in the normal course of events. ... It is very rare that in a closely held family context that a minority shareholder will seek to dispose of their interest to an outsider or stranger. So whether or not such sales happen often, the fact remains that they can, and do, happen. 26 In this context, at least in the circumstances of the present case, we are not concerned with the definition of a market in the competition law sense. It is rather a question whether the transfer impugned under s 120 was a transfer of property which has value because it can be bought and sold. Minority shares in proprietary companies in Australia by their nature can be, and are in fact, bought and sold. 41 I doubt whether the circumstance of Mr Weeden's dire personal financial situation is a factor which legitimately can affect the assessment of market value of the shares. In Spencer , 5 CLR at 436-7, Barton J said that a claimant for compensation for resumption of land is entitled to have for his land what it is worth to a man of ordinary prudence and foresight, sight, not holding his land for merely speculative purposes, nor, on the other hand, anxious to sell for any compelling or private reason, but willing to sell as a business man would be to another such person, both of them alike uninfluenced by any consideration of sentiment or need. 42 However, the existence of restrictive provisions in a company's Articles of Association does not indicate that a minority holding has no market value; rather it is a factor which may call for an appropriate discount.