True value?
There is no definition of ‘true value’ within the valuation profession. Even with perfect information, reliable professional advice and a proper transaction process, valuation remains inherently subjective. Perceptions of risk and opportunity differ between different prospective buyers and what an asset may be worth to one party may not make economic sense to another. Valuation is not a ‘truth’. Instead, valuation professionals generally look at ‘market value’ or ‘fair value’ as a basis of establishing what something is (or was) worth. The former is an IVSC (International Valuation Standards Council) concept whilst the latter derives from IFRS (International Financial Reporting Standards). They are essentially intended to mean the same thing: the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion * . The role of a valuation expert witness in the context of a commercial dispute is typically to assess the market (or fair) value of a subject asset or investment at a particular point in time. The task is usually framed somewhat more precisely – the context being intricately detailed and perhaps a defined set of available information being established.
In many cases, there is another element – the counterfactual component. This becomes central to the question of value if it is alleged that value has been destroyed, diminished or otherwise altered by an action that prevented a certain set of events from occurring. A sliding doors moment. It may be that a series or combination of actions (as opposed to a single act) is alleged to have taken value down the wrong path: either way, the set of events that a claimant believes would have occurred in the absence of the alleged acts becomes the counterfactual basis of valuation. The expert’s task: to assess the value of what would have been. In basic terms the valuer must: go back in time to the relevant date; paint a picture of an alternative world in which the counterfactual scenario actually unfolded; then assess the value of the subject asset in a commercially reasonable manner. Detailed consideration must be given to:
1. The Counter Facts 2. Chronology 3. Commerciality
* Market Value per IVSC
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