Antonescu & Antonescu
[2024] FedCFamC1F 468
•15 July 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Antonescu & Antonescu [2024] FedCFamC1F 468
File number: SYC 1697 of 2023 Judgment of: CAMPTON J Date of judgment: 15 July 2024 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Where the husband seeks leave to adduce expert evidence other than by a single expert evidence pursuant to ch 7 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) – Where each of the three r 7.08 factors relied upon by the husband are considered individually and by aggregate in the exercise of discretion – Weighing the failure of the husband to engage with the processes prescribed by the Rules to address concerns as to an updated opinion – Where there are flaws in the opinion sought to be adduced with leave which reduce the value and cogency of that opinion – Consideration of prejudice in the shadow of the trial – Where it is acknowledged that the Rules are to be applied flexibly to meet the interests of justice – Where refusal of the husband’s application will not foreclose the single expert opinion from effective challenge – Application in a Proceeding dismissed – Costs reserved. Legislation: Family Law Act 1975 (Cth) s 79
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 67
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) ch 7, Pt 7.1, rr 7.02, 7.08, 7.25, 7.26
Cases cited: Artinos & Artinos (No 6) [2023] FedCFamC1F 652
Bass & Bass (2008) FLC 93-366; [2008] FamCAFC 67
Byrd & Byrd (No 2) [2011] FamCA 804
Caughey & Peckham (No 4) [2024] FedCFamC1F 197
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21
Dimmick & Harrison [2023] FedCFamC1A 30
Moretto & Cosola [2022] FedCFamC1F 433
Neales & Neales (2022) FLC 94-079; [2022] FedCFamC1A 41
Salmon and Ors & Salmon [2020] FamCAFC 134
Simonsen & Simonsen [2009] FamCA 698
Division: Division 1 First Instance Number of paragraphs: 51 Date of hearing: 11 July 2024 Place: Sydney Counsel for the Applicant: Ms Dart Solicitor for the Applicant: King Cain Solicitors Counsel for the Respondent: Mr Weightman Solicitor for the Respondent: Long Saad Woodbridge Lawyers ORDERS
SYC 1697 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR ANTONESCU
Applicant
AND: MS ANTONESCU
Respondent
ORDER MADE BY:
CAMPTON J
DATE OF ORDER:
15 JULY 2024
THE COURT ORDERS THAT:
1.The Application in a Proceeding filed 25 June 2024, save as to that determined by the orders made 11 July 2024, is dismissed.
2.The costs of the Application in a Proceeding filed 25 June 2024 and of the Response to the Application in a Proceeding filed 8 July 2024 are reserved to the 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).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Antonescu & Antonescu has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
CAMPTON J:
By way of an Initiating Application filed 13 March 2023, Ms Antonescu (“the wife”) commenced proceedings for the adjustment of property pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”) in the Federal Circuit and Family Court of Australia (Division 2). By way of a Response to an Initiating Application filed 16 June 2023, Mr Antonescu (“the husband”) sought different orders as to the adjustment of property. The proceeding was transferred to this Court and placed on the Major Complex Financial Proceedings list on 7 December 2023.
On 20 February 2024, extensive trial directions were made listing the proceeding for hearing over four days to commence on 26 August 2024. The latest version of the collaborative joint working balance sheet was filed on 19 June 2024 (Exhibit 3). The wife contends that the net value of the property and superannuation interests of the parties is in the range of $29,151,400. The husband contends it to be in the range of $23,501,275. The property of the parties includes corporate structures holding multiple real properties, and three businesses. It also includes personally held real properties, publicly listed share portfolios, and their self-managed superannuation interests, in turn holding a further number of real properties.
Pursuant to orders made 10 May 2023 and 26 July 2023, the following single experts have been appointed by the parties pursuant to ch 7 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) to opine as to the value of their interest in property:
(a)Mr C, a real property valuer, as to multiple real properties including B Street, Town D, NSW (“the B Street property”). The parties have agreed as to the value of the remaining real properties as opined by the single expert for the purposes of the trial. Mr C valued the B Street property at $3,400,000; and
(b)Mr E, forensic accountant, as to their interests in:
(i)F Pty Ltd;
(ii)G Investments Pty Ltd; and
(iii)H Pty Ltd.
F Pty Ltd is wholly owned and controlled by the husband. In addition to holding a number of real property assets and substantial funds, it conducts a trading enterprise in New South Wales operating from B Street, Town D. The husband is the dealer principal of the trading enterprise. The corporation has secured liabilities and other trade, financing, taxation, and employee unsecured liabilities.
G Investments Pty Ltd conducts a trading enterprise, Q Business. H Pty Ltd conducts a trading enterprise, J Business.
The single forensic accounting expert has completed two valuation reports. The first is dated 27 October 2023. It values the interests of the parties in the three corporations as at 30 June 2022. The second is dated 18 June 2024, valuing the same interests as at 30 June 2023.
The parties agree for the purposes of the trial as to the value of their interests in both G Investments Pty Ltd and H Pty Ltd, as opined by the single expert.
The single expert opined that the value of the husband’s interest in F Pty Ltd was more than $11,379,000 less a liability of approximately $101,300 as at 30 June 2022, and was more than $12,526,000 less a liability of approximately $216,000 as at 30 June 2023. The husband puts into issue Mr E’s opinion as to the value of his interest in F Pty Ltd for the purposes of the trial.
On 25 June 2024, the husband filed an Application in a Proceeding (sealed on 26 June 2024) seeking:
1.That leave be granted to the Respondent Husband to rely upon and have admitted into evidence Affidavits and annexed Expert Reports of the following persons:
a.[Mr L] of [M Valuations] (Business Valuer) filed 3 May 2024) (re: Valuation of business conducted by [F Pty Ltd])
b.[Mr K] of [N Pty Ltd] filed 3 May 2024 (re: Capital Gains Tax calculations).
c.[Mr O], Certified Practising Property Valuer filed 6 May 2024 (re: Valuation of [B Street, Town D, NSW])
2. That the wife pay the husband’s costs of and incidental to this Application.
The wife filed a Response to an Application in a Proceeding on 8 July 2024 seeking for the husband’s Application in a Proceeding filed 25 June 2024 to be dismissed, for the parties to instruct a ch 7 single expert accountant to provide an estimate as to the capital gains tax liabilities in the event of the sale of real property, and for the husband to pay her costs.
During the hearing on 11 July 2024 the parties compromised the interlocutory dispute, save as to paragraph 1(a) of the Application in a proceeding, by way of the following consent orders:
1.That for the purpose of trial in the week commencing 26 August 2024, the husband’s interest in [B Street, Town D] be included in the Balance Sheet at $1,475,000.
2.That within 14 days, the parties are to exchange market appraisals with respect to [Property P], USA (“the USA property”).
3.In the event that the parties are unable to agree a value of that property within 21 days of these orders, they are to jointly instruct a single expert valuer and for this purpose:
a.The husband to nominate the names of at least 2 valuers and provide to the wife their CV as well as details of cost and availability;
b. The wife to select one of those nominated by the husband; and
c. The cost to be shared equally between the parties.
4.That the parties are, by 15 July 2024 to jointly request [Mr K], Accountant to provide CGT calculations by no later than 5 August 2024 for all real properties owned by the parties or their entities save and except those held jointly with a third party and in providing this advice, [Mr K] be requested to set out all his workings relied upon in reaching his calculations, and provide all source documents requested by the parties to them as soon as is practicable.
These reasons determine the relief as sought in paragraph 1(a) of the Application in a Proceeding and the Response thereto. For the reasons that follow, the Application in a Proceeding filed 25 June 2024, as not compromised by the orders made 11 July 2024, and save as to costs, is dismissed.
THE LAW
Rule 7.02 of the Rules specifies the purpose of Pt 7.1. One purpose is to ensure that, if practical, and without compromising the interests of justice, expert evidence is given on an issue by one single expert witness (r 7.02(c)). Rule 7.02(e) records that another purpose of the Part is to enable a party to apply for permission to tender a report, or adduce evidence from, an expert witness appointed by that party if it is in the interests of justice to do so.
Rule 7.08(1) of the Rules provides that if a single expert witness has been appointed to prepare report or give evidence in relation to an issue, a party must not tender a report or adduce evidence from another expert witness on the same issue without the court’s permission. Rule 7.08(2) provides that the court may allow a party to tender a report or adduce evidence from another expert witness on the same issue as the single expert witness if it is satisfied as to any of the matters set out in r 7.08(2) have application. They are that:
(a)there is a substantial body of opinion contrary to any opinion given by the single expert witness and the contrary opinion is or may be necessary for determining the issue; or
(b)another expert witness knows of matters, not known to the single expert witness, that may be necessary for determining the issue; or
(c)there is another special reason for adducing evidence from another expert witness.
In Simonsen & Simonsen [2009] FamCA 698, Murphy J referred to the decision of the Full Court in Bass & Bass (2008) FLC 93-366 (“Bass”) identifying the predecessor of the current rule, and said:
12The general thrust of the Rules has been referred to by the Full Court in Bass & Bass (2008) FLC 93-366. As the court in that case made clear, the adducing of evidence from an additional expert, is not something which ought occur in the usual course, or simply by application made by a party. It simple terms, the word “special” as used in rule 15.49 has real meaning.
(Emphasis added)
That said, the Full Court has consistently not read down the circumstances where there are genuine issues in the proceedings that warrant the adducing of probative expert evidence. As such, the view often taken is that the permission rule must not be applied in a way that results in what may be a significant issue in the proceedings being foreclosed from effective challenge, or in a way that would compromise the interests of justice in preventing potentially relevant evidence being placed before the court.
Chapter 7 of the Rules provides for two preliminary avenues to address concerns that a party may have about the contents of a single expert’s report. The first is a conference with the expert (r 7.25) and the second is by way of questions to the expert in writing (r 7.26). The Full Court in Bass identified that, notwithstanding those procedures may only be of limited assistance, they ought to have been attempted before the application was made to adduce expert evidence from another expert witness on the same issue as opined by a single expert. Only then, and, if necessary, should it be contemplated to apply for the appointment of another expert.
Subsequent to the publication of the single expert’s first report on 27 October 2023 as to the value of the husband’s interests in F Pty Ltd as at 30 June 2022, the husband on 13 December 2023 posed questions to the single expert pursuant to r 7.26. The content of the questions focused on the value of the trading enterprise. The expert’s answers are dated 8 January 2024. The expert did not alter his opinion.
By way of letter from the husband’s solicitors dated 8 March 2024, Mr L was instructed to value the trading enterprise as at 30 June 2023. He was instructed the real property of the corporation would be valued separately. He was directed to have regard to contended relevant considerations as asserted by the husband for the purposes of the valuation of the trading enterprise, and to critique the single experts 27 October 2023 opinion.
Mr L produced his report on 15 March 2024. That was after the matter had been listed for trial. The husband knew, or ought to have known, that the single expert was to prepare his updated opinion as to the value of F Pty Ltd as at 30 June 2023 for the purposes of the trial. Notwithstanding same, he filed Mr L’s affidavit on 6 May 2024, well before the updated single expert opinion dated 18 June 2024 was released.
The material and submissions in support of the husband’s application for leave to adduce and rely on Mr L’s opinion is silent as to why he failed or neglected to engage with the single expert by way of r 7.25 and/or r 7.26 as to the 18 June 2024 opinion.
Mr L records that the purpose of his report is to “provide an expert opinion on the fair market value of the business conducted by [F Pty Ltd].” His definition of value for the purposes of his report is “what a hypothetical purchaser would pay for in the […] business conducted by [F Pty Ltd]”.
The single expert records that the purpose of his report, by way of joint instructions, was to opine as to value the shares in F Pty Ltd.
The husband relies on each of the three grounds in r 7.08(2).
Rule 7.08(2)(a)
The husband submits that Mr L adopts a different methodology to Mr E as to “how to approach the impact of the COVID anomaly on the trading performance of the [enterprise]”.
The business is a profitable trading enterprise.
For his first report, the single expert was instructed with, and he considered, four years of trading results from 2019 until 2022. He was not instructed with contentions of fact as made by either party. The husband put some contentions of fact to him by way of his questions posed pursuant to r 7.26.
For his updated report, the single expert was instructed with, and he considered, the last 12 years of trading results, being the same period and results considered by Mr L. For the purposes of the updated opinion, the single expert was instructed with, and considered, differing contentions of fact as made by each of the husband and the wife.
Each expert adopted a future maintainable earnings methodology to determine the value of the trading enterprise.
The single expert opined as to the value of the goodwill of the trading enterprise conducted by F Pty Ltd to be $3,900,000.
Mr L opined:
3.5In a typical buy/sell transaction, the elements are goodwill, plant and equipment, and parts and service inventory. New […] inventory is transferred between respective floorplan and financers. Used […] inventory is usually run down prior to the transaction to avoid valuation disputes. Any remaining inventory at settlement is wholesaled. Industry practice is to transfer employee entitlements to the purchaser as an offset to the purchase price at an amount reduced by the company tax rate. The transaction value is equivalent therefore to the value of the […] business. For [F Pty Ltd] this was calculated to be $2,712,317 as at 30 June 2023. This is the value of the […] business conducted by [F Pty Ltd].
(Emphasis added)
Mr L thereafter opined the value of the goodwill of the trading enterprise to be approximately $2,671,000.
The difference between the respective capitalisation rates of each expert, being a matter of professional subjective discretion (Salmon and Ors & Salmon [2020] FamCAFC 134 (“Salmon”) at [43] – [44]), are modest, being 3.5, as applied by Mr E in his updated valuation report, and 2.76, as applied by Mr L.
The differences in the opinions as to the value of the trading enterprise is a product of differing inputs and exclusions by each expert.
The single expert’s opinion is based upon the trading entity continuing to be operated by the corporation with no intention to sell or to wind it up. That is the case of both parties at trial.
Mr L’s value is a product of “the amount of net investment required on acquisition of a […] business”. This included him considering “equity in used […] inventory… being at 30% of expected inventory calculated at three months inventory based on the average […] retail cost of sale in 2023. New […] inventory is financed at 100% of acquisition value. Commencing operating cash was calculated at one twelfth of cash expenses in 2023”. He determined that the corporation had “excess working capital” of more than $2,000,000.
The husband’s submission that the differing integers applied in calculating earnings “underpins an approach to methodology” is not accepted. The husband has not established that Mr L gives a substantial body of opinion contrary to that given by the single expert for the purposes of r 7.08(2)(a) or that same may be necessary for determining the issue as to the value of the trading enterprise.
Rule 7.08(2)(b)
The husband submits that Mr L has knowledge of matters that are not known, or are unavailable, to the single expert. This submission is anchored from Mr L’s “significant expertise and experience in the valuation of […] businesses… [and] knowledge of the market and methodology particular to this type of business”, which it is said that the single expert does not possess. The submission then identifies that this knowledge will ground the evidentiary foundation to prefer what is contended to be the alternate methodology applied by Mr L. It is further submitted that absent this “evidentiary foundation”, the husband “may be deprived of the opportunity to effectively challenge the single expert”. The contentions are not accepted.
The sources of knowledge identified in Mr L’s report include:
(a)His recording and adoption of the opinion of others as a component of his opinion as to the sustainability of industry profitability (Byrd & Byrd (No 2) [2011] FamCA 804); and
(b)His “direct experience in over 50 buy/sell transactions over 50 years” grounding his assessment “calculating the required operating investment which is also adopted by franchisors when assessing a trading enterprise viability”. None of the 50 transactions are identified or particularised in the report; and
(c)The content of “recent reports I have issued”, implicitly being an assessment and review of comparable unidentified trading enterprises at unidentified locations at unknown dates.
The intertwined construction of Mr L’s report makes the separation of what may be inadmissible evidence and admissible evidence problematic. It was conceded that it was unlikely that these primary sources informing Mr L’s opinion would be adduced into evidence at the trial, undermining the admissibility of Mr L’s opinion or the weight to be afforded to it (Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588). The rectification of these deficits, if possible, are likely to produce a large volume of additional material for forensic analysis in the shadow of the trial, contrary to the intent of ch 7 of the Rules, generating a sense of absence of proportionality, failing to minimise cost to litigants, and creating unnecessary usage of the Court’s resources.
Rule 7.08(2)(c)
The husband submitted that there are two “special reasons” by way of the rule in this case. The first, was that the impact of COVID-19 was an “unusual phenomenon, which is distinct and largely peculiar to this particular industry, of which [Mr L] has expertise and knowledge”. This is considered earlier in these reasons. The second is that this case falls within the special reason identified by Riethmuller J in Moretto & Cosola [2022] FedCFamC1F 433 (“Moretto & Cosola”):
15In cases where the valuation is based upon the comparable sales method this distinction can be a fine one, however it must be recalled that the expertise of the valuer (which goes beyond a non-expert or real estate agent providing an appraisal) is in making a nuanced assessment of which sales are truly comparable and then forming a view as to a valuation after weighing the different comparable sale prices. Where the values for which each of the parties contend fall within the ambit of a broad range that the single expert identifies, cross-examination would ordinarily be a sufficient tool to avoid injustice. Where the value contended by the party challenging the single expert is outside of the range identified by the single expert (after making use of the right to send questions to the expert and a conference between experts) the interests of justice would tend to weigh in favour of allowing evidence from the other expert, provided that such evidence is not obviously flawed and the difference involved is not out of proportion to the likely additional costs of permitting the evidence to be adduced.
(Emphasis added)
The husband submitted that the difference in opinion between the experts in this matter as to the value of the trading enterprise was outside the reasonable range of disagreement between expert valuers.
The wife identified the dicta of Strum J in Artinos & Artinos (No 6) [2023] FedCFamC1F 652, disagreeing with Riethmuller J, determining that where there is such a disparity in values, the interests of justice may (as opposed to would) weigh in favour of allowing evidence from the adversarial expert.
The mere fact that two qualified valuation experts have reached diverging conclusions as to the value of a property does not amount to a special reason (Caughey & Peckham (No 4) [2024] FedCFamC1F 197).
Irrespective of the differing views emanating from each first instance determination:
(a)The failure of the husband to engage with the process prescribed by the Rules to clarify the updated 2023 single expert opinion by way of questions or a conference, takes the matter outside that as identified in Moretto & Cosola, militating against the husband establishing a special reason pursuant to the rule. This failure, as identified by the Full Court in Bass, attracts weight; and
(b)There are flaws in the opinion of Mr L in that the approach he has taken to determining the value is based upon a sale or disposal of the business. This is not the case of either party. It generates the differing adjustments and capitalisation rates. This casts further away from establishing a special reason by way of a disparity in value pursuant to the rule; and
(c)In his conclusion, notwithstanding an absence of instructions, Mr L opines as to the value of “[t]ransaction [disposal] costs” to be $510,000 and “gap [income] tax” to be more than $2,828,000, before then opining as to the value of “shareholders net distribution”. The possibility of Mr L assuming the role as an advocate for the husband is counterintuitive as part of a special reason pursuant to the rule.
Other matters relevant to the exercise of discretion
The Rules are a guide to sound forensic practice, not a judicial straight-jacket. They are meant to be applied flexibly to meet the ends of justice (Dimmick & Harrison [2023] FedCFamC1A 30). Section 67(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) mandates the quick, inexpensive, and efficient conduct of proceedings. Weighing these factors and in considering all of the matters contended by the husband in aggregate (Neales & Neales (2022) FLC 94-079 (“Neales”)), it is also important to keep in mind that:
(a)The value as to the goodwill of the trading enterprise is broadly 5 per cent of the total value of the property of the parties as asserted by the husband; and
(b)The permission to adduce evidence from Mr L in the shadow of the trial presents, as submitted by the wife, prejudice to her that cannot be easily mitigated. This would include, should the husband elect to disclose the volume of documents and information as identified earlier in these reasons to sure up the admissibility of and weight to be afforded to Mr L’s opinion, consideration of that material by way of her own expert. It cannot be assumed that absent the agreement of the single expert, the wife could adopt that expert as her own witness in the proceeding. The cost of the proceeding would be greatly increased, and the trial dates put in jeopardy, with further dates not being available until mid-2025.
CONCLUSION
Single expert evidence is one part of the determination of the value of the property of the parties. Ultimately, the Court determines the value of an item of the property after all the evidence has concluded. The Court will make findings of fact on the evidence to ground a finding as to value, coming to its own conclusions by applications of established valuation principles (Salmon at [41] – [42]; Neales at [58] – [59]).
The husband’s failure to avail himself of the pathways in the Rules to address his concerns about the contents of the updated 2023 single expert’s report, coupled with his filing of Mr L’s affidavit prior to the single experts’ updated opinion, demonstrates that he was fixed on a course of seeking to adduce Mr L’s opinion, irrespective of the contents of the updated single expert opinion. As identified earlier in these reasons, the instructions for the updated second single expert 2023 report were markedly expanded from that grounding the first 2022 report.
Each expert at all times adopted the same methodology to value the trading enterprise. There are deficiencies in the valuation objectives underscoring Mr L’s opinion and in its current evidentiary basis, reducing its value and cogency. There is real potential for prejudice to be generated if permission was achieved for it to be adduced as filed.
The husband’s concern as to the capacity to test the single expert’s reasoning that he contends was not adequately explained, and to challenge his concluding opinion, are not established. I am not satisfied that the single expert opinion is foreclosed from effective challenge. The husband and the wife will have that opportunity to test the opinion at trial. There is no reason to conclude that the single expert will not consider revising his opinion, if and when, effectively tested at trial.
The interests of justice will be compromised if leave were granted to the husband to rely upon Mr L’s report. For all the reasons as set out, the Application in a Proceeding of the husband filed on 25 June 2024 and sealed on 26 June 2024, save as to costs and that compromised by way of orders 11 July 2024, will be dismissed.
I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Campton. Associate:
Dated: 15 July 2024
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