Goodwill, Compensation, Professional Practice & Liability – Weeks 7-13

Flashcards cover core concepts from Weeks 7-13: goodwill valuation, compensation law, tax implications, API practice standards, expert witness duties, NSW Land & Environment Court procedures, ADR types, court conduct, hearsay, statutory valuations, strata entitlements, GST rules, APIV scheme, PI insurance, professional negligence and damage principles.

What does the AASB define goodwill as?

Future economic benefits arising from assets that are not capable of being individually identified and separately recognised.

In compulsory acquisition, when is loss of business goodwill compensable?

Only when the business must relocate and thereby loses local goodwill attached to the land.

Name the two categories of goodwill described in Whiteman Smith Motor Co v Chaplain (1924).

Local goodwill and personal goodwill.

Which analogy in Whiteman Smith represents local goodwill?

The cat that prefers the old home (customers stay with the location).

Which analogy in Whiteman Smith represents personal goodwill?

The faithful dog that follows the owner (customers follow the proprietor).

Case that defines goodwill as the ‘attractive force that brings in customers’.

IRC v Muller Ltd (1901).

Formula for goodwill using the residual value approach.

Goodwill = Equity value of business – Value of identifiable net assets.

Average Profits Method of valuing goodwill.

Goodwill = Average profits × Years’ Purchase.

Super Profits Method of valuing goodwill.

Goodwill = Super profits × Years’ Purchase (super profits = excess over normal profit).

Court case establishing compensation for total business extinguishment when relocation impossible.

Director of Buildings & Lands v Shun Fung Ltd (1995).

Does relocation cost automatically disqualify a highest and best use claim?

Yes – relocation cost is not allowed if highest and best use land value is already claimed.

Income-tax treatment for compensation that includes lost profit (Melbourne Saw case).

No deduction for income tax is made in the compensation assessment.

Date before which assets are exempt from Capital Gains Tax (CGT).

20 September 1985.

ATO ‘main residence’ CGT exemption land size limit.

Two hectares or less.

What is CGT rollover relief in compulsory acquisition?

Defers capital gains if the compensation is reinvested in a replacement asset.

Professional roles recognised in API Practice Standard during acquisition.

Advocate and independent expert valuer.

Primary duty of an expert witness to the court.

To assist the Court impartially; duty overrides obligations to the retaining party.

One mandatory element that must appear at the start of any expert report.

An acknowledgement that the expert has read, understood and complied with the Court’s Practice Note.

High Court case illustrating inadmissibility of unsupported expert opinion evidence.

Dasreef Pty Ltd v Hawchar (2011).

Within how many days must an owner lodge an objection to compensation in NSW before it is deemed accepted (s45 LAJTC Act)?

90 days from the date the compensation notice is given.

Which court class hears compulsory acquisition compensation in NSW LEC?

Class 3.

Define a Directions Hearing in the LEC.

A short procedural hearing to organise the timetable and dispute-resolution pathway before final hearing.

ADR acronym meaning.

Alternative (or Assisted/Appropriate) Dispute Resolution.

Key difference between arbitration and mediation.

Arbitrator imposes a binding decision; mediator facilitates parties to reach their own agreement without deciding.

Does a conciliator provide expert advice or legal information?

Yes – a conciliator may suggest options and give expert advice, unlike a neutral mediator.

Typical settlement rate of ADR processes mentioned in the notes.

Approximately 85 %.

Order of questioning under Evidence Act s28.

Examination-in-chief, cross-examination, re-examination.

Are leading questions permitted in examination-in-chief?

No, except on introductory or undisputed matters.

General rule for hearsay evidence (s59 Evidence Act).

Previous representations are inadmissible to prove asserted facts unless an exception applies.

Why can valuers rely on Valuer-General sales data despite hearsay?

Courts accept it as information generally relied upon by the profession (Smith v Walsh 1995).

Statutory basis for NSW rating and taxing valuations.

Land Value (unimproved) under Valuation of Land Act 1916.

Reference date each year for NSW mass land valuations.

1 July.

Define Mass Appraisal.

Valuing groups of properties on a given date using standardised models and statistical testing.

What are ‘land improvements’ under VLA 1916?

Certain works like clearing, excavation or drainage that may be allowed in the unimproved value.

How is Strata Unit Entitlement determined?

Based on each unit’s market value relative to total scheme value, not floor area.

First step in calculating unit entitlement.

Determine the market value of every strata lot.

Threshold turnover requiring GST registration for enterprises.

$75,000 per annum.

GST Margin Scheme basis.

GST payable on the margin (sale price minus value at 1 July 2000) rather than full price.

GST treatment of existing residential premises sales.

Input-taxed; no GST payable and no GST credits claimable.

When do new residential premises cease being ‘new’ for GST?

After being continuously rented for five years (unless actively marketed during that period).

Define a ‘going concern’ GST-free sale.

Sale of a business (including property) that is operating; GST-free if criteria met.

Purpose of the APIV Professional Standards Scheme.

Caps members’ civil liability above PI insurance and enhances consumer protection.

Who must join the APIV Scheme?

API members certified as CPV, CPV (Plant & Machinery) or RPV who perform valuations, unless exempt.

Minimum requirement APIV members must maintain besides PI insurance.

Compliance with disclosure wording limiting liability under professional standards legislation.

Distinction between PI insurance and APIV cap.

PI insurance funds payment up to a limit; the Scheme limits (caps) total liability exposure.

Key obligation under API Code of Professional Conduct regarding independence.

Members must not accept assignments contingent on predetermined results and must remain impartial.

Common negligence cause: valuing outside what area?

Outside the valuer’s expertise or geographic locality.

Essential contract elements for a valuation engagement.

Offer, acceptance, consideration, and intention to create legal relations (in writing for real estate).

Standard of care owed when advice is given gratis (Kenney v Hall, Pain & Foster).

Same professional standard as paid advice.

Does an arbitrator enjoy judicial immunity from negligence suits?

Yes; experts acting non-judicially do not have this immunity.

Two elements from Donoghue v Stevenson establishing duty of care.

Proximity (neighbour principle) and foreseeability.

Primary rule on damages from Hadley v Baxendale (1854).

Recover losses arising naturally or those within parties’ contemplation at contract formation.

Contributory negligence statutory provision allowing up to 100 % reduction of damages (NSW).

Section 5S Civil Liability Act 2002.

Astley v Austrust (1999) significance for contributory negligence in contract.

High Court held contributory negligence does not reduce damages for pure breach of contract (since modified by statute for concurrent tort claims).

What is ‘run-off’ cover in PI insurance?

Insurance maintained after ceasing practice to cover claims arising from past work.

List two key exposures PI insurance for valuers covers.

Errors in valuation methodology and failure to adequately inspect property.

Meaning of ‘mass valuation component’.

Group of similar properties within which a representative sample is individually valued to set adjustment factors.

Royal Sydney Golf Club case principle for statutory valuations.

Planning restrictions must be considered when valuing unimproved land.

Tooheys case principle for NSW land value.

Assume land is vacant when assessing statutory unimproved value.

What happens at a LEC ‘call-over’?

Court reviews upcoming cases to decide pathway such as mediation or listing for hearing.

Main advantage of mass appraisal over individual valuations for rating.

Lower cost per parcel and ability to test statistically for uniformity.

Define ‘neutral evaluation’.

An impartial expert assesses merits and gives a non-binding opinion to help settle the dispute.

When is a valuer’s hearsay-based opinion generally admissible?

If founded on information commonly relied upon by the profession (Borowski v Quayle 1966).

Key court etiquette when addressing a judge.

Stand, speak to the bench, address as ‘Your Honour’, and maintain professionalism.

Evidence Act rule about refreshing memory with documents (s32).

Witness needs court leave to use a document to revive memory while giving evidence.

One improper questioning type prohibited in court.

Unduly harassing or repetitive questions.

Explain ‘specific performance’ as a contract remedy.

Court order compelling a party to carry out their contractual obligation rather than pay damages.

Is an expert allowed to revise opinions after issuing a report?

Yes, any change of opinion must be promptly disclosed to all parties and the Court.

Purpose of disclosure statement under professional standards legislation.

Notifies clients and third parties that liability is limited under a professional standards scheme.

Define ‘monetary compensation’ in contract breach context.

Damages awarded to place the injured party in the position they would have been but for the breach.