#15 What is 'Value to the Owner'?

Clause 5.2 (h) of APES 225 –Valuation Services requires that an expert, when undertaking a business valuation, explicitly states the Standard of Value (SOV) they have applied.

However, in family law matters there is an overarching objective placed upon valuers referred to as ‘Value to the Owner’ (VTO). Some refer to VTO as a Standard of Value, but it is more appropriately referred to as an objective of the valuation opinion in family law context having regard to Australian case law.  

VTO arose due to unique circumstances whereby valuers in family law matters were asked to provide a valuation opinion using an existing SOV, say ‘fair market value’ or ‘market value’, which require a hypothetical market to exist, in which there was no apparent market.  

In this circumstance, valuers were ascribing a value of $nil (or similar) on the basis that no such market existed. This approach was used in valuing minority interests in privately held companies in which governing documents restricted the ability of the shareholder(s) to transfer shares, access capital and/or receive dividends.

The ‘establishment’ of VTO culminated in Ramsay v Ramsay (1997) FLC 92-742 but was most concisely (in my opinion) explained by Warnick J in AJW v JMW (2002) FLC 93-103.

Warnick J held, inter alia:

"There could be no doubt that the objective of the valuations should [be] to assess the value of the shares to the ... (owner) ... whether there were "special benefits" or not, though if there were special benefits, they must be valued in achieving the objective. However, the use of the term "value to the owner" in Family Law property cases, should not be dependent on the existence of special benefits, but rather, be descriptive of the objective of the valuation exercise [emphasis added]'' (Finding 2):

"Where there is a market for shares, market value may well be the same as "value to the owner". Ramsay v Ramsay [1997] FLC 92-742. But where there is no market, it is something of a "non-sequitur" to seek to ascertain "market value'' as the objective of the valuation" (Finding 4);

"The mischoice of "fair market value'' as the objective of the valuation may lead the valuer to adopt a methodology which may suit the situation where there actually is a market, but which may not wholly suit a circumstance where there is no market. So, for example, there may be an impetus to deduct realisation costs, as if shares were going to be sold, when in fact, because there is no market, they are not, and cannot be sold. Alternatively, a valuer who has misstated the objective to be the ascertainment of "fair market value'', may claim that the value is nil, because there is no market. This mistake would be avoided if "the value to the owner' was always the objective." (Finding 5).

"Valuations which take a set of possibilities or even probabilities and assert a valuation based upon them as if they were certainties and therefore the only proper basis of valuation, exacerbate litigation. Ramsay v Ramsay [1997] FLC 92-742 referred to." (Finding 7).

"Parties and the court would be better assisted by the recognition of a range of possibilities in the future, and a range of valuations, to match, leaving it to the court, on the facts established before it to apply the relevant value, or if the facts lead to no certainty, merely to accept the parameters in the exercise of its discretion." (Finding 8).

VTO is not defined by the International Valuation Standards Council (IVSC) much like ‘fair value’, ‘fair market value’ or ‘market value’ as its terminology and application has arisen from Australian case law. However, the IVSC does define ‘investment value’ or ‘investment worth’ which has the most closely related definition to the objective set in judgements such as Ramsay v Ramsay and AJW v JMW.

• Investment Value/Worth – The value of an asset to a particular owner or prospective owner for individual investment or operational objectives. (IVS 104 p22 60.1)

In summary, the objective sought by VTO is something that all valuers should have consideration to when conducting valuations in a family law context, but it is (in my opinion) not a Standard of Value upon which any valuation can be based.  

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