ABSALON & ABSALON

[2020] FCCA 1592

FEDERAL CIRCUIT COURT OF AUSTRALIA

ABSALON & ABSALON [2020] FCCA 1592

Catchwords:
FAMILY LAW – Property – application to adduce further expert evidence after a direction that Family Law Rules r.15.49 ought to apply – where single expert valuer has made a report – where respondent seeks leave to tender a report of a second valuer – where methodological divergences in approach taken in producing expert reports – where significant divergence in the valuations in expert reports – satisfied there is a special reason for adducing further expert evidence.

Legislation:

Family Law Act 1975 (Cth)

Family Law Rules 2004 (Cth), r.15.49

Cases cited:

Wender & Wender [2017] FamCAFC 48

Applicant: MR ABSALON

Respondent: MS ABSALON

File Number: ADC 165 of 2018

Judgment of: Judge Young

Hearing date: 20 May 2020

Date of Last Submission: 20 May 2020

Delivered at: Darwin

Delivered on: 20 May 2020

REPRESENTATION

Counsel for the Applicant: Mr R. Richards

Solicitors for the Applicant: David Burrell & Co.

Counsel for the Respondent: Mr J. Dillon

Solicitors for the Respondent: Kyrimis Lawyers

ORDERS

1. Leave is granted for the respondent to rely on the expert report of MR B filed 15 May 2020.

2. This matter be adjourned part-heard to 21 May at 10:00am (ACST).

IT IS NOTED that publication of this judgment under the pseudonym Absalon & Absalon is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT DARWIN

ADC 165 of 2018

MR ABSALON

Applicant

And

MS ABSALON

Respondent

REASONS FOR JUDGMENT

Ex Tempore

1. These reasons for judgment were delivered orally. They have been corrected from the transcript. Grammatical errors have been corrected and an attempt has been made to render the orally delivered reasons amenable to being read.

2. This is an application to adduce further expert evidence after a direction was made that rule 15.49 of the Family Law Rules is to apply. In other words there was an order for a single expert made last year, a Mr C, to value a business owned by the parties in regional areas of South Australia. The respondent wife seeks leave to tender a report of a second valuer.

3. The submission made was that in the first report Mr C adopted a value-to-owner methodology, at least in part.  Mr C said that he adopted that methodology because a method using future maintainable earnings and capitalisation rate produced a value below the net tangible business assets so he considered that that was an inappropriate methodology, or rather using future maintainable earnings and a cap rate was an inappropriate methodology.  He used a net tangible assets approach. 

4. Mr Dillon pointed out that the Full Court of the Family Court have expressed caution about the use of value-to-owner as an approach in valuations.  In the case of Wender & Wender [2017] FamCAFC the Full Court expressed caution but the particular circumstances of that case were the value-to-owner figure adopted as the value of the business was, in fact, below a market rate and the Full Court said that the use of value-to-owner was an inappropriate and incorrect methodology to use when there was a higher market rate or market value.

5. That is not the case in this case it would appear because on Mr C’s approach he says that the market value, using those factors, produces a figure below net business tangible assets, so I do not consider that that is exactly on point. 

6. The Full Court also made observations that value-to-owner is rarely used and gave examples of when it might be most appropriately used, such as where there is a minority shareholding or a minority partnership interest which was not readily saleable.  It is unclear to me whether Mr C has really used a value-to-owner approach.

7. As I read his report he seemed ultimately to adopt a net tangible business asset approach but if indeed he did use the value-to-business approach it seems to me that that would be at least open to criticism on the basis of the Full Court’s decision in Wender.  Whether he has in fact wrongly used the value-to-business approach is unclear to me.  In any event, I am not satisfied that the authority represented by the Full Court decision in Wender is a substantial body of opinion contrary to an opinion by the expert.  In my view that just mischaracterises what it is.

8. In regard to rule 15.49(2); (a) there is no evidence of a substantial body of expert opinion contrary to Mr C’s report. So I am not satisfied that is appropriate.

9. Mr Dillon also relied on part (b) which provides another criterion for adducing evidence from a second expert.  That is where another expert witness knows of matters not known to the single expert witness that may be necessary for determining the issue. 

10. Mr Dillon said that Mr B relied on comparable sales information.  That was apparently information restricted to Mr B’s knowledge and was unknown to Mr C.  Of course the significance of that was that the comparable sales were used by Mr B to arrive at a capitalisation rate that he considered appropriate for this business of 24 per cent, compared to the capitalisation rate adopted by Mr C of 27 per cent.  How Mr C arrived at that figure was not explained but that in my view is very much within the realm of expert knowledge and there may be a degree of subjectivity involved in that.  I am not sure that fact alone would justify the admission of the Mr B report. 

11. The other criterion relied on by Mr Dillon is (c), that there is another special reason for adducing evidence from another expert witness.  While I dismissed the proposition that the decision of Wender constitutes a substantial body of contrary opinion it is a legal authority that is binding on this Court. 

12. I consider that decision is relevant and throws some potentially adverse light on the approach used by Mr C.  I do not make any particular finding about that because, as I have said, while Mr C mentioned that he used a value-to-owner approach it seems that the reality of his valuation seemed to essentially rely on identifying a net tangible business asset value based on the valuation of the plant and equipment used in the business, primarily the tools. 

13. Ultimately, that reliance on net tangible business assets as the basis for value of the D Business was to be contrasted to the technique used by Mr B, who in fact did use the future maintainable earnings and a capitalisation rate to calculate a gross value of the business. 

14. The two approaches have given markedly different values for the value of what has been called the D Group, which is a collection of entities, companies and trusts that are the vehicles for the business operated by the parties.  In the case of Mr C, the figure he arrived at for the value of the business, leaving aside the question of loan accounts, was approximately $411,000. 

15. In the case of Mr B, the figure he arrived at for the value of the business using the technique he adopted or the approach he adopted was $1.046 million, a difference of approximately $600,000.  Using the net value of the business a very wide divergence in valuations resulted.  Even using the gross value of the business each arrived at a very significant divergence in value.  It is apparent that some of the differences between Mr B and Mr C depends on their view on what should be included or excluded in the assessment of future maintainable earnings. 

16. There are, as Mr Richards pointed out, some relatively arbitrary exclusions adopted by Mr B in arriving at his higher figure for future maintainable earnings some $997,000 a year compared to $880,000 a year for Mr C.  Whether or not those exclusions are justified or arbitrary or merited, I have no idea.  It appears that that would be very much a matter for evidence and there is no real evidence about it at the moment. 

17. Another significant difference between the parties is that Mr C’s calculation appears to deduct from the net tangible business asset value, that is the plant and equipment, a figure of $363,062, which is included in Mr C’s calculation as a deduction from the net asset value.  That was a figure that was used to purchase the interest of a previous shareholder or partner in the business – in other words, to buy that person out.  Mr B says that that figure should not be included.  In any event it is a significant figure in the order of approximately $363,000. 

18. Even so, if that figure was not deducted from the net asset value, the net asset value adopted by Mr C would be $729,244, compared to the value that Mr B adopted of $1.046 million, a still very significant divergence between the valuations.  I am satisfied that there ultimately is a very great divergence in the valuations offered by these experts.  I am also satisfied that there are possibly significant methodological divergences between them, though, as I have said, I am not so sure that there is a great theoretical divergence between them but in applying their expert knowledge they have arrived, at ways which they each explain, at quite different figures. 

19. I consider that the divergences are significant as they are of real monetary value.  Some $600,000 is the difference and I think that the justice of the matter really requires that the wife, who is advocating for the higher figure, ought to be assured that this dispute, and I am satisfied it is a real dispute, is properly resolved by the Court. 

20. I consider that there is therefore a special reason for adducing evidence from Mr B on the value of the business.  There will be leave granted to rely on that report bearing in mind that is not the same as saying that I consider every paragraph of that report to be admissible.

I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Judge Young

Associate: 

Date: 16 June 2020