HOTEL CECIL CASE

Dominion, Volume 37, Issue 61, 7 December 1943, Page 6

HOTEL CECIL CASE

Effect Of War Situation On Value CROWN PROPOSITION

, The proposition was put by the Solici-tor-General, Mr. 11. H. Cornish, K.C., in the Court of Compensation, Wellington, yesterday that in assessing compensation to the owner and the licensee of the Hotel Cecil, regard must be taken of the effect of the war situation on buyers and sellers of property in New Zealand at the time the Government took over the hotel. He said that during the first half of 1942 every title in New Zealand was iynsecure and the Dominion’s situation was extremes critical. The point was an important, one, which was going to occur in another compensation case, and should b; given judicial consideration. The Chief Justice (Sir Michael Myeis) presided. With him as(assessors « ere Mr. Will Appleton and Mr.. J. L. Gtiflin. Mr. D. R. Hoggard, with him Mr.A. M. Cousins, represented Ihe . cla -Jl n! h: t n ’ th,' Gwvneth Alberta Ldmouds, lias in B s, the owner of the property, and Hole Cec , Limited, the tenants. Ihe feoiicitoi-Gen-eral, with him Mr. J. M. Prendeville, appeared for the Crown, The maim is for £129 914. representing- £4 2,836 lor me land, -buildings, and other improvements, £47.164 for the loss of the licence an 1 goodwill, £lOOO for Hie loss on the forced sale of furniture. £750 loss on the forced sale of liquor, £769 as interest, calculated from the dale of the taking over of the hotel till reinvestment, and minor amounts. From this paid by the Government and £uo,ooo cash paid to claimants is to be deducted, mailing the net claim approximately £lO,OOO. J. D Brosnan, principal land purchase officer. Public Works Department said that £3700 was paid for the vacant land, on the north side of Sydney felreet with a 44ft. frontage and depth of 132 ft, ana purchased from the E.F.C.A. This price took account of extra expenses involved in avoiding litigation because of a prior contract to purchase. lor tbeHotel Avon site on Lambton Quay £34,000 was paid (£B4OO for the improvements and £25.600 for the land). . if S. Hills, accommodation officer. Public Works Department, said that when he saw the licensee of the Cecil, KT. >M. Edmonds, and his solicitor, they were opposed to leasing the hotel on a month-to-month basis. He was lulormed that Mrs. Edmonds would sell at a certain figure which he could not give the Court as it was mentioned “without prejudice.” Other Hotels’ Profils.

I. F. Renaud, Stamp Duties Department, Auckland, said lie had had experience of examining hotel accounts and had searched .public documents relating to certain hotels in Wellington. Barretts showed a net annual return to the owner of £2792, a low return on the capital valuation. The Gresham was better, £4448, representing 8 per cent, on £55,600, which was considerably more than the Government valuation or £39 325. The Occidental return was £3590, equivalent to 8 per cent, on a cuinulo value of £44,875. The net profit of the Grand would represent 8 per cent, on £44,512. What was" actually paid for that hotel was equivalent to £06,000 by the present owner taking over all shares in Grand Hotel Limited at 17/- a share. The price paid to the Public Trustee as vendor' was £65,535. ’• He had also prepared figures respecting one more hotel, the New Commercial, but as some of the information was confidential he ■ could not furnish it to the Court. To the Chief Justice he said the net ■profit from .Barretts included the shop rents, and income tax and social and national security taxes had to be paid on lt- The Chief Justice remarked that there would be mighty little of the net profit left. He did not question the figures but it seemed extraordinary. Mr. Appleton said it was on a par with many properties today. Solicitor-General’s Submissions.

The Solicitor-General submitted that in assessing compensation the Court ought to take into consideration certain notorious facts —he used the word notorious in the art sense —contemporaneous with the taking of the hotel, estimate the effect of such facts on a willing buyer and seller, and the constructive bargain resulting. The Hotel Cecil was entered on June 19, 1942, and it was notorious that at the time the country was in a state of great insecurity. That must have been reflected in the price. The national situation then was grave and extremely critical; it was before the battle of Midway and of the Coral Sea and the taking ot Guadalcanal. Something less than actual invasion could have occurred at the time; aerial bombardment, then much feared. This could in a few minutes have reduced the Cecil, close as it was to the wharves and railway station (military objectives), to a heap of rubble. To say that a person with £60,000 or £<o,ooo to spend would not take account of These facts would be to convict him of levity and irresponsibility; a buyer at this time would want something for the risk taken. In 1941 the hotel had been placed in a broker’s hands at £85,000, and the owner might have allowed a good discount for cash. The issue, therefore, was at what point between the £85,000 and the 000 the Government had already paid, compensation should be fixed. He submitted that the Crown had already paid enough. Unless it could be proved that between 1941 and June, 1942 something had happened to give Wellington hotels a great increase in onk™ feet, was what a claim for £l-9,009 su Bested—then the claim should be treated as one for £85.000. . The furniture, entered on the books at £2OOO. had been sold for £6OOO, and there was no evidence of it being sold under cost. The same applied to the forced sale of stock. Edmonds admitting that there was no loss on the bottled beer or spirits. Claimants' View. Mr Hoggard submitted that the arrival of U.S. troops in New Zealand had made a vast difference to the Pacific situation, and weeks before the hotel was taken, possibly months before, the public view was that New Zealand had no longer to worry as much as had been the case. Every business man must have known that there was going to be a boom in the hotel business. . . The Chief Justice:, The plaintiff is not entitled to make a profit out of the country's misfortunes. Your claim -based on June, 1942, is £120,000, but_in 1941 you were prepared to sell at £Bi>.ooo or-less, for all 1 know. Mr. Hoggard continued that the 19,jS profit was higher than any at the hotel during the war. Then the hotel was conducted during the two bad years of the war. The licensee was deprived of it as soon as the corner appeared turned and good years were in prospect. It could not -be gainsaid that if the hotel had been retained during the last 18 months the profit would at least have been equal to 1938. Even if his clients received the full amount claimed which, net, was £96,000 over and above the mortgages involved, and this was invested at 4 psr cent., the return would be £3840 annually, which income, social and national security taxes would reduce to £l6Ol, of which £3OO would have to be paid in life insurance premiums. All they would have to live on after what they had been accustomed to would be £l3Ol a year, with the responsibility also of a delicate sou. Relatively. if they got the full amount they would be poor compared with the affluent position they enjoyed while in the hotel. The Chief Justice: And relatively they would be poorer still if they had sold at £85,0’00. Decision was reserved.