Byrd and Byrd (Expert’s Report Inadmissible)
[2011] FamCA 803
•26 September 2011
FAMILY COURT OF AUSTRALIA
| BYRD & BYRD (EXPERT’S REPORT INADMISSIBLE) | [2011] FamCA 803 |
| FAMILY LAW - EVIDENCE – admissibility of expert’s evidence – where expert has possible financial interest in the outcome of the trial – where the expert bases his opinion on confidential information – procedural fairness – Where the expert was approached close to the date of the hearing – Where the wife did not make an application to introduce a second adversarial witness. |
| Family Law Rules (2004) (Cth) Evidence Act 1995 (Cth) |
| Davy v Lord Probost, Magistrates and Councillors of the City of Edinburgh |
| APPLICANT: | Ms Byrd |
| RESPONDENT: | Mr Byrd |
| FILE NUMBER: | SYC | 767 | of | 2009 |
| DATE DELIVERED: | 26 September 2011 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Le Poer Trench J |
| HEARING DATE: | 23 September 2011 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Rees |
| SOLICITOR FOR THE APPLICANT: | Watts McCray |
| COUNSEL FOR THE RESPONDENT: | Mr Richardson SC Mr Campton |
| SOLICITOR FOR THE RESPONDENT: | Gibsons Lawyers |
Orders
(1)The wife is not permitted to rely on the evidence of the expert, Mr K in the hearing in this matter listed to commence today.
IT IS NOTED that publication of this judgment under the pseudonym Byrd & Byrd (expert’s report inadmissible) is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 767 of 2009
| Ms Byrd |
Applicant
And
| Mr Byrd |
Respondent
REASONS FOR JUDGMENT
Before the Court is an application in a case filed by the wife on 16 September 2011. In that application, she seeks leave pursuant to rule 12.1(2) of the Family Law Rules 2004 (Cth) (“the Rules”) for her adversarial expert witness, Mr K, to give oral evidence, if required, during the four day hearing scheduled to commence today, by electronic videolink from Port Douglas, Queensland.
The husband opposes that application and makes an oral application for an order that the wife not be permitted to rely upon any evidence filed in the Court by Mr K in the hearing scheduled to commence today.
Background
The subject matter is listed for a four day trial which commences today. The Court had listed the matter for hearing at an earlier four day trial period, to commence on 20 May 2011. That hearing was allocated to the case during a Court event on 6 April 2011.
The matter was before me for the first time on 15 December 2010. Prior to that date, the docket registrar had noted, on 23 November 2010, that the parties had each filed their financial questionnaires. He noted the parties had prepared a balance sheet. He directed an updated chronology be filed by 3 December 2010. When the matter was before me on 15 December 2010, I was informed that the issues between the parties were confined to division of assets, that is, there were no children’s issues to be determined. I made directions on 15 December 2010 designed to prepare the matter for trial.
I noted the wife had engaged Ms D as an adversarial expert witness. Leave to do so was given by His Honour Justice Cohen on 5 August 2010. At the time, Mr P had been appointed as the single expert to provide evidence of value in relation to part of the parties’ assets, in particular, a series of corporations, businesses and trusts.
I note the following:
a)The order made by His Honour Justice Cohen on 5 August 2010 was contained in a Minute of Order which was made by consent. As pointed out by the wife’s counsel, it did not confine the wife to one adversarial witness, and it did not name the adversarial witness the wife was seeking to call. The order was as follows:
Leave is granted to the wife to rely, in future proceedings, upon adversarial expert evidence in relation to the value of the husband’s business interests.
b)When the matter was before the Court on 15 December 2010, there was no mention by the wife that she proposed to call more than one adversarial witness in relation to the value of the husband’s businesses, or in relation to any other matter.
c)When the matter was before the Court on or about 20 May 2011 (there was more than one mention of the matter at about that time, as the Court endeavoured to find a judge to hear the case) there was no mention by the wife that another expert was required by her. Having regard to all the words and actions by the wife’s legal representatives at that time, the Court and the husband had every reason to understand that, so far as the wife was concerned, the matter was ready to proceed to hearing at that time and that her only adversarial expert witness was Ms D.
On 15 December 2010, I ordered preparation of affidavit evidence which, in form, was to address specific topics. Those topics were selected with the assistance of the party’s legal representatives. Order 5 made on that day was as follows:
Should either party wish to add an additional heading, or headings, to the affidavits, application may be made to me by email addressed to my associate, with CC to the other party.
Neither party has sought to add any further headings to the affidavits to be filed. Orders were made permitting the wife to rely on affidavits from witnesses nominated by her. Those names did not include Mr K on 15 December 2010. I noted the matter would be listed again on 11 March 2011, and that would provide another opportunity for the parties to nominate any other witnesses. Each party was granted leave to re‑list the matter before me at any time prior to the final hearing, should that be necessary.
The matter was next before me on 6 April 2011. I set the matter down for hearing to commence a four‑day block on 20 May 2011 and, should the hearing not proceed due to the unavailability of a judge, I reserved four days to commence 26 September 2011.
The matter was before me again in relation to interim orders on 17 May 2011. Those applications were adjourned to 24 May 2011. On that day, some orders were made by consent, and the interim applications were adjourned to 27 May for hearing. The consent orders made on 24 May were as follows:
1. The husband and wife shall do all acts and things necessary to direct their respective adversarial experts, [F Company], to prepare updated reports valuing the parties’ interests in the entities and trust the subject of prior report, to value them as at 30 June 2011, such reports to be filed and served no later than 16 September 2011.
2. The husband do all acts and things necessary to direct the entities and trust accountants to prepare financial reports for the entities and trusts for the year ended 30 June 2011, by no later than 26 August 2011.
3.The husband provide to the said experts all documents required by the experts for the preparation of their reports within 14 days of any such request.
Again, having regard to those directions/orders, the Court and the husband were entitled to conclude that the only adversarial witness the wife was proposing to rely upon was Ms D from F Company.
On 27 May 2011, His Honour Justice Fowler heard an interim application in a case and delivered judgment on 1 June 2011. On 19 September 2011, I issued some directions from chambers relative to case outline documents and procedures for the trial to commence today.
For the purpose of determining the current applications, I am invited to read two affidavits sworn by Mr K on 14 and 21 September this year. The first affidavit of Mr K states, as a preliminary matter, that he has read part of the reports of Mr P dated 23 May 2011, and the report of Ms D dated 11 May 2011, together with a further letter of Ms D’s, dated 25 May 2011. He also recites that his report fulfils a request by Watts McCray in a letter dated 29 August 2011. A copy of that letter is not provided, although some notion of what was requested can be gleaned from the headings in the report.
In the report of Mr K he states his qualifications to express an opinion as to value of the subject business as follows:
a)He is a fellow of the Financial Planning Association;
b)He is a fellow of the Institute of Company Directors;
c)He is a founding Director of K Pty Ltd;
d)He is the Managing Director of K Partners established in May 2011;
e)He holds a diploma of Financial Planning; and
f)He is a certified Financial Planner.
As a result of those qualifications and that experience he is aware that K Pty LTD and now K Partners have acted for and negotiated over 130 financial services business transactions over eight and a half years. The opinion then expressed as to the value of the husband’s business, Mr Byrd trading as S Company, is based on evidence of specific sales which Mr K was either personally involved with or had access to all relevant detail.
The report, on its face, appears to be a critique of the evidence provided by the single expert, Mr P. The evidence which Mr K purports to give as to the value of S Company, appears to traverse the same task which Ms D was commissioned to perform with the leave of the Court. This, then, in essence, becomes a second adversarial expert’s report for the wife, in relation to the valuation of the husband’s interests in S Company and other associated entities.
I note, at this point, the wife’s submission is that there is no embargo against a party relying upon two expert valuations, which traverse the same subject matter and which value the same entity. I will return to this submission later in these reasons.
Part of the area sought to be reported upon by Mr K relates to the progress of federal legislation. Usually this would be established by the tender of relevant documents such as announcements, statements, and second reading speeches emanating from the government, together with copies of any bills tabled in the Australian parliament.
The report comments, further, on topics such as the number of staff which should be required to run the husband’s business and their remuneration, the “notional commercial remuneration” for the husband as proprietor/manager of the business, and the approach of the single expert to the summary at paragraphs 15.1 to 15.4 of the single expert’s report. These are areas which, the husband says, Mr K has not illustrated any appropriate qualification to express. Put bluntly, the husband says the barebones description which best describes Mr K’s qualification is that he is a salesman.
A second affidavit of Mr K was filed in the Court on 21 September 2011. That document sets out further details in relation to his qualifications. It corrects a mistake in his earlier affidavit. It annexes copies of letters dated 20 September 2011 from the husband’s solicitors, which sought information about the proposed evidence of Mr K.
The first letter puts the wife’s solicitors on notice that any evidence from Mr K will be objected to. It further seeks details of the comparable sales referred to on page 10 of Mr K’s report. Mr K responds to that request by saying the information is confidential to his clients, and he will not divulge specific information in relation to any such sale. He then addresses the possibility that his business might be engaged as an agent for the sale of S Company, that is, the husband’s business. Such sale would need to include a restraint of trade in relation to the husband.
The husband told the Court that corresponding with the service upon the husband of the evidence of Mr K was the service of a Minute of Order, which the wife proposes to seek at the trial commencing today. The husband says the wife, by that minute, amends the orders she had previously given notice she was seeking. She seeks an order for the sale of the business, S Company, to be sold by Mr K as trustee for sale. The wife seeks that such an order be made if the Court is unable to value the said business.
The husband submits that the potential evidence of Mr K is now tainted by his having a financial interest in the outcome of the issue of the value of the business. The husband says that, should the evidence be allowed, then Mr K’s cross‑examination would take approximately one day. Further, it appears that should Mr K be permitted to rely on comparable sales which were referred to as a basis for his evidence, then the husband will need access to the records of such sales and an opportunity to consider that evidence, which could cut into Court time allocated to the case.
The husband gave a clear warning/assessment that if the evidence of Mr K is permitted, then the case is most unlikely to be contained to the four hearing dates now allocated. That submission is predicated on an assumption that Mr K’s evidence is not disallowed on any other ground. There is no evidence before the Court – or indeed any explanation sought to be given – as to why:
a)No application to adduce evidence from a second adversarial witness was filed by the wife (it is the wife’s case that such an application was not necessary);
b)The evidence of Mr K was not sought immediately upon receiving the evidence of Ms D; and
c)The Court was not told of the necessity for this evidence when the matter was before the Court for hearing in May of this year.
In relation to my statement that there was no specific application by the wife to call adversarial evidence from Mr K, the wife submits no such application is necessary. In my view, in the specific circumstances of this case, such a submission must be seen as wrong, perhaps misguided, but nonetheless courageous.
All the evidence before the Court suggests the following facts are established.
a)At the time of the order made by His Honour Justice Cohen permitting the wife, by consent, to call adversarial evidence, the husband and the Court were entitled to conclude the wife was proposing one adversarial witness to address the value of the husband’s business entities.
b)At 20 May 2011, the date initially set for the trial to start, the husband and the Court were entitled to accept the wife was relying on one adversarial witness only and that was Ms D, whose affidavit was filed on 12 May 2011.
c)It is conceded that the husband was given the first notice of the wife’s intention to call Mr K by letter dated 5 September 2011 from the wife’s solicitor to the husband’s solicitors. Mr K’s report was first provided to the husband’s solicitors by fax on 14 September 2011.
d)Had the trial been able to proceed on 20 May 2011 or thereabouts, the wife was prepared to run on the evidence she then had.
The presentation of this evidence from Mr K at this time shows all the signs of a last minute attempt to shore up a perceived gap in the wife’s case. The wife says Mr K’s evidence was obtained as soon as the 2011 figures for the husband’s business were made available. However, there is no explanation as to why the 2010 figures could not have been relied upon at an earlier date and then updated if necessary, as in the case of Ms D. Further, the wife has never suggested there is any reason why Ms D could not provide a valuation upon which the Court could rely.
It is submitted by the husband that the catalyst for the contest on value of the husband’s business was the first report of Mr P, provided in September 2009. He valued the business at $2.9 million. The wife at the time considered the value of the business was in the order of $8 million. That difference of opinion led to the granting of leave to the wife to obtain an adversarial witness as to value of the business. The husband points to the order of the Court made by consent on 24 May 2011. It is submitted that the order clearly evidenced the wife’s intention only to rely upon the evidence of Ms D on the issue of the value of the husband’s businesses.
The husband submits that the wife needs leave to rely upon evidence filed only days before the trial and not pursuant to the directions/order of the Court (see rules 15.05, 15.51 and 11.02 of the Family Law Rules (2004) (Cth)). Apart from the rules specifically referred to, there is an aspect of procedural fairness which needs to be considered. The husband says the wife admits the earliest approach to Mr K was on 17 August 2011. This, it is submitted, shows an intention to obtain evidence from him only four to five weeks before the trial.
The husband submits further that even if there were no complaints to be made about lateness of the evidence and whether leave to adduce the evidence from Mr K is required, there is a fundamental flaw in the evidence of Mr K which would render it inadmissible. He draws the Court’s attention to paragraph 13 of the report, where he relies on specific transactions as a basis for the opinion. At paragraph 29, he talks of tracking fifty transactions. At page 14 of his report, he reviewed the last six businesses he had sold. I note in paragraph six of his affidavit filed 22 September 2011, he says “Six should be now read as three.” Those are the facts upon which his expertise rests. However, when the husband requested the documents/details relevant to those sales, that request was refused. The husband submits the report is not admissible. He submits it is fundamental to the Court accepting and giving weight to the evidence of an expert that the facts the expert relies upon must be proved or capable of being proved.
The husband refers the Court to the decision of His Honour Justice Hayden in the case of Makita (Australia) Proprietary Limited v Sprowles 52 NSWLR 705 at page 729, where His Honour said as follows:
If Professor Morton’s report were to be useful, it was necessary for it to comply with a prime duty of experts in giving opinion evidence: to furnish the trier of fact with criteria enabling evaluation of the validity of the expert’s conclusions.
His Honour Justice Hayden then referred to the decision in Davy v Lord Probost, Magistrates and Councillors of the City of Edinburgh 1953 SC where Lord President Cooper said at 40:
Their duty is to furnish the judge or jury with the necessary scientific criteria for testing the accuracy of their conclusions, so as to enable to judge or jury to form their own independent judgment by the application of these criteria to the facts proved in evidence. The scientific opinion evidence, if intelligible, convincing, and tested, becomes a factor – and often an important factor – for consideration along with the whole other evidence in the case, but the decision is for the judge or jury.
The husband submits the expert cannot run the “trust me” argument when his opinion is based on specific evidence which is capable of being placed for the Court. The evidence relative to remuneration level and employee level falls into the same category as Mr K’s evidence on the EBIT multiples. He must be able to show the evidence upon which he relies where that expertise is based upon his history of involvement in the sale of businesses of the nature of the husband’s. To this end, the exercise of his expertise seems no different to a real estate valuer. The Court would not expect to see a real estate valuation report, upon which reliance could be placed, which did not list specific comparable sales including all relevant details.
The husband submits that even if the report was admissible in its current form, the Court would reject the evidence or give it no weight by application of section 135 of the Evidence Act 1975 (Cth).
In this matter, I accept the submissions of the husband as outlined above. I cannot see how the evidence of Mr K could be admitted or if it was how it could be afforded any meaningful weight.
In my view, it must have been clear to those who represent the wife, that the husband and his solicitors only contemplated the wife would be relying on one adversarial expert – namely, Ms D. In such circumstances, before proceeding further to obtain evidence from Mr K, they should have sought the husband’s consent or further Court orders. Further, to rely on evidence of an expert who may have a pecuniary interest in the outcome of the case is, in my view, unusual, unwise and must be seen to detract from the weight the Court would give such evidence.
I now turn to consider the submissions that there is no rule which prevents a party relying upon two experts who value the same entity in the one proceeding.
The Family Law Rules 2004 (Cth) (“the Rules”) set out in Part 15.5 the rules relating to “Expert Evidence”. Rule 15.42 sets out the “Purpose of Part 15.5”as follows:
Purpose of Part 15.5
The purpose of this Part is:
(a) to ensure that parties obtain expert evidence only in relation to a significant issue in dispute;
(b) to restrict expert evidence to that which is necessary to resolve or determine a case;
(c) to ensure that, if practicable and without compromising the interests of justice, expert evidence is given on an issue by a single expert witness;
(d) to avoid unnecessary costs arising from the appointment of more than one expert witness; and
(e) to enable a party to apply for permission to tender a report or adduce evidence from an expert witness appointed by that party, if necessary in the interests of justice.
The Rules provide for the parties to agree upon and jointly appoint “a single expert witness.” Rules 15.44 to 15.48 inclusive relate to the appointment of a “single expert witness.” Rule 15.49 operates as an embargo against tender of or adducing evidence from another expert witness on the same issue where a single expert witness has been appointed by the parties or the Court. The Court’s leave is first required. Rule 15.49(2) sets out the matters the Court needs to be satisfied of in order to grant leave to rely upon another expert. This expert is colloquially referred to an “adversarial expert witness”.
Rule 15.51 provides for Court permission to be sought by a party seeking to rely upon evidence from an expert witness other than a “single expert witness”.
In my view the Rules above referred to very clearly prevent a party from relying on the evidence of two experts in relation to the same subject matter. Thus, without the leave of the Court the wife in this case cannot rely upon the expert evidence of both Ms D and Mr K without first obtaining the leave of the Court to do so.
To the extent that the wife sought to rely upon a consent order made by Justice Cohen on 5 August 2010 I consider, in the circumstances, that order could not be accepted as the Court authorizing the wife to file evidence by as many expert witnesses as she liked. The form of the order is as follows:
That leave is granted to the wife to rely in future proceedings upon adversarial expert evidence in relation to the value of the husband’s business interests.
In my view, in the absence of other evidence, the husband could not be seen to be consenting to more than one expert witness. Likewise, given the emphasis in the Rules on the importance of single experts, the Court could not be seen to be sanctioning more than one additional expert without further order.
For all those reasons, I would uphold the objection of the husband to the Court receiving evidence from Mr K as foreshadowed in his two affidavits referred to in the hearing listed to commence today.
____________________________________________________________________
I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench delivered on 26 September 2011.
Associate:
Date: 10 October 2011
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