Adcock & Sealy

Case [2023] FedCFamC1F 710

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 1)

Adcock & Sealy [2023] FedCFamC1F 710

File number(s): MLC 6991 of 2022
Judgment of: MCNAB J
Date of judgment: 22 August 2023
Catchwords: FAMILY LAW - PROPERTY – Practice & Procedure – Interlocutory Application -Where an application is made for the appointment of a valuer of the respondent’s business interests when the respondent estimates that he owns assets of about $70 million – Where the relationship is of a short duration – Whether division of assets under s 79(4) of the Act requires a determination based on a percentage of assets – Whether the cost of appointing a single expert valuer is proportionate – Case management – Overarching purpose.
Legislation:

Family Law Act 1975 (Cth)

Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)

Cases cited:

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175

Carmel-Fevia & Fevia (No 3) [2012] FamCA 631

Carmel-Fevia & Fevia [2010] FamCA 50

Commonwealth Bank of Australia v Susan Hannaford Pty Ltd (No 2) [2013] NSW 574

Hannaford v Commonwealth Bank of Australia [2014] NSWCA 297

Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143

Division: Division 1 First Instance
Number of paragraphs: 65
Date of last submission/s: 30 July 2023
Date of hearing: 20 July 2023
Counsel for the Applicant: Mr Berger
Solicitor for the Applicant: Farrar Gesini Dunn
Counsel for the Respondent: Mr Bartfield
Solicitor for the Respondent: Westminster Lawyers Pty Ltd

ORDERS

MLC 6991 of 2022

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN:

MS ADCOCK

Applicant
AND:

MR SEALY

Respondent

ORDER MADE BY:

MCNAB J

DATE OF ORDER:

22 AUGUST 2023

THE COURT ORDERS THAT:

1.Within 21 days the respondent file an affidavit listing the documents and accounts that have been referred to in order to formulate the estimated value of the respondent’s business interests as set out in the letter from the solicitors for the respondent dated 3 July 2023.    

2.Pursuant to Rule 4.11(3) the applicant make a genuine offer to settle this proceeding within 14 days and the respondent make a genuine offer to settle within 21 days. 

3.The costs of the Application in a Case filed 28 June 2022 be reserved to trial. 

Note:   The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).

Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.

IT IS NOTED that publication of this judgment by this Court…

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Adcock & Sealy [2023] FedCFamC1F 710
Case
[2023] FedCFamC1F 710
Decision Date

CaseChat Overview and Summary

The matter Adcock & Sealy was heard by the Family Court of Australia, with the applicant seeking to have the respondent's business interests valued. The applicant and respondent had a de facto relationship from either 2016 or 2019 to October 2021, with the applicant seeking a 50% interest in the respondent's assets, including a property in Suburb B. The respondent's assets were valued at $71.25 million, with significant holdings in the F Group Australia and F Group USA. The applicant alleged she contributed $2.8 million to the relationship and sought her contributions back, as well as her 50% interest in the Suburb B property. The court had to determine the cost of valuing the respondent's business interests and whether it was proportionate to the benefits of obtaining that valuation.

The court considered the substantial costs incurred by the parties and the potential for further costs in valuing the respondent's business interests. The court noted that the estimated cost of valuing the respondent's business interests was significantly higher than initially anticipated, with quotes from J Accountants and K Valuers suggesting a cost of $180,000 and over $200,000, respectively. The court also considered the decision in Carmel-Fevia & Fevia as relevant authority, which concerned an application for disclosure, the filing of a financial statement, and the appointment of a single expert. The court concluded that the costs of obtaining the valuation and the disruption caused by delay in hearing the proceedings were disproportionate to the benefits that may obtain to the applicant if the orders were made.

The court made an order that the respondent must, within 21 days, make, file, and serve an affidavit listing the documents and accounts that have been referred to in order to formulate the estimated value of the respondent's business interests as set out in the letter from the solicitors for the respondent dated 3 July 2023. This will enable the applicant and her legal and accounting advisors to assess whether the respondent's estimate of his wealth is within a reasonable parameter of what he has declared. Otherwise, the court ordered that the applicant and the respondent must each make a genuine offer to settle the proceeding within 14 and 21 days, respectively. The court dismissed the application and reserved the question of costs to trial.

The court's decision was based on the substantial costs incurred by the parties, the disproportionate costs of obtaining the valuation, and the importance of seeking to resolve the matter. The court also considered the case management principles and the overarching purpose under the Rules. The court noted that the statements made by counsel for the applicant on 30 November 2022 were not off the cuff or intended to be without consequence and effectively put that the applicant was approaching the matter of there being two pools of assets: one comprising the business assets of the respondent and the other the real estate assets.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

On 17 July 2023 the court received notification from the parties that they wished to have the matter mentioned pursuant to Notation C of the orders of 30 November 2022, which noted that if any issues arise in relation to the trial directions in preparation for trial generally, the parties may write to the associate of the Honourable Justice McNab for the purposes of having the matter listed for mention. The matter was listed for mention on 20 July 2023.BACKGROUND The applicant alleges that she and the respondent commenced co-habitation in a de facto relationship in 2016 and separated in October 2021. The applicant is 56 years of age and the respondent 67 years of age. The respondent contends that the relationship did not commence until 2019 and that from 2016 – 2019 the parties were in a relationship of boyfriend and girlfriend. Both parties agree that the relationship concluded in October 2021. In an affidavit sworn by the respondent filed 2 August 2022 he deposes that he has total assets in the sum of $104,120,000 and liabilities of $32,870,000 leaving net assets in the total sum of $71,250,000. Of those assets he attributes a value to his holdings in the interest comprising the F Group Australia at $31,0000,000 and his interest in the F Group USA at $22,000,000. By her financial statement filed on 28 June 2022 the applicant declares that she has no income, expenditure of $5,289 per week, funds in the bank in the sum of $16,198 and household contents in the sum of $50,000. Otherwise she states she has a 50% interest in a property in Suburb B jointly owned with the respondent, which interest she values at $6,600,000. When the application came before the court on 30 November 2022, counsel for each party asked the matter to be stood down for discussions. Prior to the matter being stood down, the question was asked by the court what the applicant would ultimately be seeking as an outcome in the proceeding. The question was asked, “What is the real case?” and the response from senior counsel for the applicant was in these terms:[MR H]:Look, my client tipped in about $2.8 million into the lifestyle of the parties while they were together, and she ought to get all of that back. The question is whether or not she is able to sustain the 50 per cent of the existing legal title to the property.[1] The [respondent’s] case is “Give it all back to me” she gets nothing, as I understand it. They’re the real parameters of it. It was a short relationship, your Honour. I won’t be looking for 30 and 40 per cent - those sorts of things.[1]The property in Suburb B.HIS HONOUR:Well, that’s what it says in the application, and it hasn’t been amended.[MR H]:I understand that, but your Honour has asked about, in the absence of the parties, what’s the real position. It’s not going to be as significant as that. HIS HONOUR:But what’s the evidence - I mean she has filed an affidavit. What’s the evidence of what has happened to the money she received from other settlements?[2][2]The applicant gives evidence by her affidavit that she received a settlement in the sum of $1,392,130 by way of property settlement with the father of the children which monies were paid by instalments in December 2016 in the sum of $700,000 and December 2017 in the sum of $692,130. She also deposes at [41] of her affidavit sealed on 3 August 2022 that she received a further $1,400,000 by way of a property settlement with a former partner which monies were paid in three instalments.[MR H]:There’s no controversy that she received it. It's a question of how she applied it, and it’s said, as I understand it, by the [respondent] that she blew it on excessive spending and lifestyle and those sorts of things. We say, no, that's not right. It was spent on the joint lifestyle that the parties enjoyed, which was an affluent lifestyle commensurate with the resources that the - and income that the [respondent] commands. The real gravamen of the case, your Honour, is what to do about the reality that the parties bought first one property jointly with the [respondent’s] money – they then developed it, sold for a significant profit and reinvested those moneys into the [Suburb B] place, again jointly, again with the [respondent’s] money and the proceeds of the sale of the first property. And so does your Honour take all that existing legal interest of my client away and return it all to the [respondent], or does my client receive her existing legal entitlement at least, if not something more, which would amount to 50 per cent of the property.HIS HONOUR:But that's a $14 million asset.[MR H]:It is. And it started out with an asset of a lesser value that they were able to capitalise on.HIS HONOUR:And her contribution to that asset? [MR H]:Well, it’s not asserted that we made direct financial contributions. We made our direct financial contributions to the lifestyle of the parties, and otherwise my client was involved in the renovations and planning and those sorts of things. And Your Honour, of course, is aware that we don't have to point to only contributions to particular pieces of property.HIS HONOUR:But it’s a short relationship. [MR H]:It is. It is your Honour. It has got some parallels to a recent decision of your Honour’s.[3][3]Transcript of Proceedings from Interim Defended Hearing on 30 November 2022 pages 2-3.

Evidence

Evidence Before The Court

The applicant relied on her affidavit in support filed 27 July 2023, which stated, inter alia, that she “is concerned that [the respondent’s] representations about the value of the business do not reflect their true value nor their value to him.”[4][4]Applicant’s affidavit in support filed 27 July 2023 at [8].Evidence About the Cost of Valuing the Business In the course of the hearing on 20 July 2023, the court inquired as to the estimated cost of valuing the respondent’s business interests. The court advised counsel for the applicant that an estimate of that cost was required in order to determine whether the costs of that exercise were proportionate to the benefits that might be obtained by engaging in that exercise. Initially it was suggested by counsel for the applicant that a costs estimate could be obtained in a matter of a few days. In relation to the cost of the exercise and its potential to be very expensive, counsel for the applicant submitted:Well, if the quotes come back, Your Honour, and that suggests its going to be the case, and hypothetically if the valuer was to say – each of the valuers was to say, ‘Well it’s going to cost us $100,000 to value this business’ or $250,000 or something, then Your Honour might reach one conclusion. If alternatively they were going to say, ‘It’s going to take $10,000 or $25,000’ Your Honour might reach a different conclusion. We don’t know Your Honour.[5][5]Transcript of Proceedings, 20 July 2023, page 25 of 29 at [15]. Rather than taking a matter of days, it took about two weeks to obtain indicative quotes. Rather than the estimated cost of the valuation being $10,000 - $25,000, an indicative quote from J Accountants to value the 14 entities that comprise the respondent’s interests in both Australia and the USA, as at 2016 (when the applicant asserts that the de facto relationship commenced), 2019 (being the date when the respondent asserts that the de facto relationship commenced), 10 October 2021 (being the date of separation) and 19 July 2021 was $130,000- $160,000, plus a 3% technology and administrative fee plus GST. Based on the higher of the figures, the estimated cost to the parties according to that firm was about $180,000. A cost estimation from K Valuers advised: “As the valuation involves investments in three groups of operations, all of which are considerable in size, at four different dates, the total costs are likely to be in excess of $200,000”.[6][6]Email dated 1August 2023 from Ms L, K Valuers to the parties. Following the hearing on 20 July 2023, the court drew the legal practitioners’ attention to Carmel-Fevia & Fevia [2010] FamCA 502 (“Carmel-Fevia”) (Cronin J) as an authority that was relevant. Supplementary written submissions were filed addressing the effect of that decision. Carmel-Fevia concerned an application by the wife for disclosure, the filing of a financial statement by the respondent and the appointment of a single expert to give evidence regarding the respondent’s wealth. The parties were parents of two young children who lived with the wife. The marriage was of approximately seven years’ duration and the respondent was wealthy at the commencement of the marriage. The husband estimated his wealth at $268 million. The wife had made a claim for payment of $35 million.

Decision

Reasons for decision

The parties have incurred very substantial costs in this matter to date. By a Costs Notice filed on 21 July 2023 the solicitors for the applicant estimated that the applicant’s legal fees for this property if the matter proceeds to judgment and fees for a single expert would be $457,778.75. That estimate put the estimated cost of 50% of the single expert’s fees to value the corporate/trust interests at $12,500 which significantly underestimated the costs involved. CONCLUSION As senior counsel for the applicant foreshadowed in oral submissions (as set out at [24] above), the approach that the court may take may depend on the anticipated cost of the exercise. Whether or not an adjustment is made using a percentage based on the respondent’s current estimated corporate/trust assets and the real estate interests, or by adopting a dollar amount (which course I have not presently determined), the respondent’s assets are more than sufficient to satisfy any claim that the applicant may make and the costs of obtaining that valuation and the disruption caused by delay in hearing the proceedings are disproportionate to the benefits that may obtain to the applicant if the orders were made. I will make an order that within 21 days the respondent make, file and serve an affidavit listing the documents and accounts that have been referred to in order to formulate the estimated value of the respondent’s business interests as set out in the letter from the solicitors for the respondent dated 3 July 2023 (referred to above at [19] – [20]). This will enable the applicant and her legal and accounting advisors to assess whether the respondent’s estimate of his wealth is within a reasonable parameter of what he has declared.[13][13]Carmel-Fevia at [89]. Otherwise, I will make orders that pursuant to Rule 4.11(3) the applicant make a genuine offer to settle this proceeding within 14 days and the respondent make a genuine offer to settle within 21 days. Given the very substantial costs incurred by each party, it is important that steps be taken to seek to resolve the matter. I will otherwise dismiss this application and reserve the question of costs to trial.

Ratio Decidendi

Legal Principle Established

The applicant submits that there are important distinguishing features between those in the present case and those considered in Carmel-Fevia these being:(a)there is considerable difference in the quantum of assets being $70 million (to $280 million in 2010);(b)the applicant has not expressed a claim in a fixed sum and that if the court was to presently express a view as to whether it will adopt a fixed sum approach or a percentage based approach it will have unfairly prejudged how the matter should be dealt with;(c)the applicant claims to have made significant financial contributions of around $2.8 million to the relationship as well as non-financial contributions;(d)the extent to which respondent’s wealth was in his hands and the value of the applicant’s contributions to that wealth by allowing the respondent to pursue the acquisition of wealth are not known and a valuer is sought to assist with that;(e)there is a lack of information to enable the applicant or the court to conclude with any certainty that the respondent’s financial position is “somewhere in the vicinity” of what he asserts or estimates in correspondence and in his financial statement.(f)Whilst the costs of valuation are significant they represent only approximately 0.2% of the overall property pool assuming a property pool in the sum of $75 million.[10][10]Applicant’s Supplementary Submission filed 3 August 2023 at page 3 of 4.CONSIDERATION The statements made to the court about how applicant put her claim and the basis of that claim made by the then counsel for the applicant at the hearing on 30 November 2022 were made in the course of an interlocutory application. Those comments do not have the effect of fixing the applicant’s claim which may be brought at final hearing. However, those statements were relied upon by the parties and were given effect to when orders were made by consent on 30 November 2022. It was agreed then that the parties would not at that time appoint a single expert to value the respondent’s business assets (as opposed to his real estate interests). That said, counsel’s statements in relation to how the applicant viewed her claim to entitlements and the basis of her claims in relation to contributions included statements of fact based on the affidavits that have been filed on behalf of the applicant. The statement was made that each of the pieces of real estate purchased in the course of the relationship were purchased solely with funds supplied by the respondent and that the applicant made no direct financial contribution to the purchase of those assets. In considering this application, I must take into consideration case management principles and the overarching purpose under the Rules. The orders sought by the applicant in this interlocutory application constitutes a substantial amendment to the position put on her behalf on 30 November 2022. I do not regard the submissions made by counsel for the applicant on that day to have been off the cuff or intended to be without consequence. He was effectively putting that the applicant was approaching the matter of there being two pools of assets: one comprising the business assets of the respondent and the other the real estate assets. By consent no orders were made for the valuation of the business assets.