SUPREME COURT

Otago Daily Times, Issue 22354, 30 August 1934, Page 2

SUPREME COURT

QUESTION OF DEATH DUTIES APPEAL AGAINST COMMISSIONER’S ASSESSMENT His Honor Air Justice Kennedy was engaged yesterday in hearing an appeal by the trustees of the estate of Hyam Edward Hart against the assessment of the value of shares held by the deceased in the firm of Messrs Hallenstein Bros, by the commissioner of stamp duties. The appeal was made against the commissioner’s assessment of the value of 45,495 ordinary shares held by the deceased, Hyam Hart, in the firm of Messrs Hallenstein .Bros, Ltd. The executors, for the purpose of the Death Duties Act of '3921, valued the shares at 12s 6d per share, and the commissioner valued them at IGs a sham The executors had thereupon delivered notice in writing to the commissioner requiring him to state a case for the opinion of the Supreme Court in determining the value of the shares. Mr J. B. Callan, K.C., and Air A. N. Haggitt appeared for Gordon Samuel KeCsing, Orwell Phillips and Hyam Brasch, and Air F. B. Adams for the commissioner of stamp duties. Air Callan said that one matter would obviously occur from time to time during the hearing of the case. The shares were not listed shares —it was a family affair —and they had had to ask the directors of the company to produce balance sheets and facts and figures which had been hitherto amongst their private property. He knew that the general nature of the litigation must be reported, but he suggested that the actual trading circumstances of the company were of no general interest, and might be sought after by persons otherwise interested. Air Haggitt said that the appeal was under, section 62 of the Death Duties Act, 1921, by the trustees of the late Air Hart, who had died in Sydney on Alay 6, 1931. There were three trustees mentioned in the case. Two of them resided in Sydney and the local trustee was Air Brasch. The case raised two questions. One was primarily one of fact and the other a pure question of law, this latter involving the interpretation of certain sections of the Act. At the time of his death Air Hart had 45,495 fully paid up £1 shares in the capital of Alessrs Hallenstein Bros., Ltd., carrying on business in various places throughout New Zealand. What they had to find was the true value of the shares at the time of Air Hart’s death. The other question involved consideration of certain life insurance policies, under which a total of £10,590 became payable to the estate. The question was whether, in the assessment of the estate, certain deductions should be made In respect of these insurance policies. The company had several properties, said counsel, and the question arose as to the value of these properties. What they were valuing were not profits. What they were asking was what was th® value of the shares in the estate. The value of the properties could be obtained only by taking a mass of evidence regarding the value of the properties at the tim® of Air Hart’s death —an almost impossible task. Counsel said that, subject to his Honor’s approval, an agreement had been reached between himself and Air Adams to overcome this difficulty. It would be shown beyond doubt that the affairs of the company at the time of Air Hart's death were extremely bad and that the prospects of the ordinary shareholders in the company were distinctly bleak. He thought it would be agreed that the years 1931-32 were the worst years of the economic depression and that the prices of all shares were at their lowest. There would be ample evidence to prove that. Counsel dealt at length with the trading operations of Alessrs Hallenstein Bros., and said that the firm had experienced severe trading losses and reduced turnover. The main consideration was the true value of the shares —not were they worth 12s 6d or 16s. They submitted that in 1925 to 1931, for the reasons mentioned by him, the true value of the ordinary shares would be found to be something in the neighbourhood of 8s to 9e. He would say that the figure stated by the auditor, Air AlTnnes, of 12s 6d was never acceptable to the trustees at any stage. The trustees were, however, prepared to go that far had the commissioner been prepared to accept. He held that the trustees were now at-liberty to press for the true value, which they said was 8s to 9s per share. Percy Lewis Halsted, a director of Alessrs Hallenstein Bros, said that Air Hart had been a director of the firm ever since it bad been „ formed into a company in 1906. There were 27 shareholders, ordinary and preference, in the firm. The actual controllers of the firm at the time of Air Hart’s death were Alessrs Willi Fels, Alfred Fels, E. E. Nicolson, Frank Halsted and witness himself.

Mr Callan said he would put in the half-yearly balance sheets of the company from June, 1925, to June 30, 1033. Witness said that the issued capital of the company was £335,000. This consisted of 21,000 preference shares of £3 each, and 230,000 ordinary shares of £1 each. Mr Hart held 1800 preference shares and 45,495 ordinary shares. Mr Hart had no controlling interest in the company.

Mr Ilalsted was cross-examined by Mr Adams at length regarding the business of Messrs Halienstein Bros. Willi Fels. chairman of directors of Halienstein Bros., said he would not like to express an opinion on the value of the £1 shares at the time of Mr Hart’s death in 1931, in view of the difficulties which he knew the company had to face. The report issued for the half year ended June, 1931, was read by the witness. His company owned about 36 properties throughout New Zealand. They had had to close their place in Eltham three years ago, and they had received no offer for the property whatever. It would take some considerable time for the company to regain its former prosperity. Cross-examined by Mr Adams the witness said be would not now sell his shares for 8s a share. He might sell them for 12s 6d. He was not a seller. If he were not in Halienstein Bros, he would accept that figure with pleasure, Mr Adams: In 1929—y0u were not very pessimistic—you bought a big property in Wellington for £40,000 —land and building.

Mr Fols: And we spent more than £IO,OOO on it, and we could not get an offer of £25,000, John Stuart MMunes, auditor for the company, said he was also a sharebroker of experience. Tie had valued the ordinary shares at 12s 6d. Witness explained the method he had adopted in arriving at this value. The asset value of the company he considered was 21s (Id, and then he proceeded to arrive at what lie termed the return value. That was for three years—lo2o, 1030, 1031. lie basml the return value on the dividend payable over the three years. He added the asset value of 21s 6d and the returu value of 4s 6d together, and divided by two, and that gave him 13s. He had made the figure 12s 6d to be on .he safe side. As a commercial proposition he would not recommend a prospective purchaser to buy shares in the Jinn ns an investment. It would be exceedingly difficult to liquidate the stock of the company. He did not think any concern in recent years had returned on liquida-

tion move than 10s in the £ after all expenses bad been paid. Cross-examined, witness said be bad been trained as an accountant, Tbo turnover of tbe company was falling consistently some three years before MiHart’s death. He considered that by the system he had adopted 12s 6d was the correct value of the shares. He did not think anyone could swear definitely to a value. Mr Adams. said-he would like to know the authority on which Mr M’limes made this calculation. The court adjourned at o-30 p.m. till 10 o’clock this morning.