In Caratti v FCT (No 2) [2018] FCA 568, Mr Caratti (Taxpayer) failed to receive orders from the Federal Court for interim injunctions restraining the ATO from taking recovery action against him for outstanding tax debts of approximately $11 million. The ATO agreed to refrain from undertaking recovery action in exchange for securities and guarantees given by the Taxpayer and his guarantors, under a Deed of Agreement (Deed), however, there was a dispute as to the value of the assets under the Deed which led to the matter being heard in the Federal Court.

Securities provided under the Deed were mortgages over lands (Property) owned by the Taxpayer. According to the Deed the Taxpayer was to provide the ATO with a valuation report of the Property and the ATO had the option to procure a property valuation at its own expense. The Taxpayer provided the ATO with valuations of the Property of $14.5 million, produced by a registered property valuer. The ATO then decided to engage its own valuation of the Property, which produced a valuation of $2.8 million – a significantly lower valuation than that provided by the Taxpayer. The ATO then requested that the Taxpayer provides with a mortgage over additional property, which the Taxpayer did, albeit again at inflated values to the values obtained from the ATO’s valuer.

On the valuation issue, the Court stated that whether the valuation is binding upon the parties depends on the terms of the contract, both express or implied. In this case, the parties did not agree that the valuation report provided by the Taxpayer was to be “final and binding upon the parties” and therefore, it came down to the terms of the Deed as to whether this should be implied. The Court held that in the absence of an indication in the contract to the contrary, it can be implied that parties have agreed to accept the valuer’s decision as final and binding, provided he or she acted honestly, impartially and in accordance with the terms of the contract. However, based on the evidence presented, it was held that the valuation was based on a series of contingencies and assumption occurring in the future.