Carolan & Lawler
[2021] FedCFamC1F 239
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Carolan & Lawler [2021] FedCFamC1F 239
File number(s): NCC 781 of 2021 Judgment of: CLEARY J Date of judgment: 29 November 2021 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – property – expert evidence – where a single expert is appointed by the parties to value a property, being a residence and buildings associated with a “retreat” business presently run by a company of which the wife is a director – Where the husband did not accept the valuation provided and engaged another valuer as an adversarial expert witness – Where there is a significant difference in the two valuations - Where the husband pursuant to r 7.08 seeks leave to adduce evidence by that valuer as an expert witness in the proceedings – Where the wife does not accept the valuation obtained by the husband and does not accept the premise of the valuation and is opposed to its reliance - Ordered pursuant to r 7.31 a conference to take place between the two valuers. Legislation: Family Law Act 1795 (Cth)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021
Cases cited: Gemmell & Gemmell [2009] FamCA 29
Spencer v The Commonwealth (1907) 5CLR 418
Daniels v Walker (2001) WLF1328Division: Division 1 First Instance Number of paragraphs: 29 Date of hearing: 25 November 2021 Place: Newcastle Counsel for the Applicant: Mr Rugendyke Solicitor for the Applicant: Joplin Lawyers Counsel for the Respondent: Mr Batey Solicitor for the Respondent: Fazzini Lawyers & Consultants ORDERS
NCC 781 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR CAROLAN
Applicant
AND: MS LAWLER
Respondent
ORDER MADE BY:
CLEARY J
DATE OF ORDER:
29 NOVEMBER 2021
THE COURT ORDERS THAT:
1.Pursuant to Rule 7.31 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 the parties shall arrange for the expert witnesses:
·Mr B (D Valuers); and
·Mr C (E Valuers);
to confer with each other within 28 days from the date of these orders (unless an extension of time is agreed between the parties).
2.The expert witnesses must discuss the issues of:
2.1Comparable sales contained within the respective reports;
2.2The methodology of:
2.2.1Mr B in valuing the property as “vacant possession” such that any purchaser could use the land and improvements for any purpose;
2.2.2Mr C in valuing the property “excluding any value attributable to the goodwill of the business being conducted on the site” but considering “goodwill as a going concern (but excluding stock) as at date of valuation”;[1]
[1] Valuation of Mr C, Purpose of Valuation, page 7.
2.3The basis of the valuation:
2.3.1Mr B “inference from past transactions”;[2]
[2] Valuation of Mr B, page 40.
2.3.2Mr C “direct comparison”;[3]
[3] Valuation of Mr C, page 3.
2.4Any other issue which in the view of one or both experts bears on the difference in values attributed:
·Mr B $3,000,000;
·Mr C $3,980,000.
3.Leave is granted to D Valuers to include the CV, full qualifications and experience of Mr B Valuer in his valuation report amended for that purpose.
4.Otherwise, the Application in a Case filed 12 October 2021 and the Response to Application in a Case filed 4 November 2021 are dismissed with no order as to costs.
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 under the pseudonym Lawler & Carolan has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
CLEARY J:
This is an Application in a Case[4] for permission pursuant to r 7.08 of the Federal Circuit and Family Court (Family Law) Rules 2001 to tender a report and rely on the evidence of another expert in addition to an appointed joint expert.
[4] Filed 12/10/2021.
The application is made by Mr Carolan, the applicant de facto husband (“the husband”).
The application is opposed by Ms Lawler, the respondent de facto wife (“the wife”).
HISTORY
The proceedings commenced on 17 March 2021 when the husband filed an Initiating Application in this Court. Relevantly to this application, he proposed the sale of a property owned by the parties in F Town. The improvements on the property included a residence and buildings associated with a “retreat” business presently run by a company of which the wife is a director.
On 10 May 2021 the wife filed a Response relevantly proposing that she buy out the husband’s interest in the F Town property.
On 19 May 2021 a registrar made orders by consent for a “joint” valuation of 3 properties including the F Town property.
On 19 May 2021 a registrar made orders by consent for the F Town property to be valued with the mechanism for choosing a valuer as a single expert. An order was made for a joint valuer to be appointed.
The valuer ultimately chosen in a letter dated 18 June 2021[5] asked for clarification “… can you kindly advise as to whether this valuation is to be valued as a vacant possession or as a going concern”. Undoubtedly on the evidence of the parties, the intention was not to have the property valued as a “going concern”, that is, a valuation of the property which included a business valuation of the retreat.
[5] Affidavit of the wife filed 28/10/2021, Annexure B.
Clarification was given with respect to vacant possession.
It was to be as if the lease on the business premises (to a company run by the wife) was extinguished such that any buyer could walk in and use the property as they chose. Solicitors for the wife objected to any reference to “the business running on the property at present by the wife”. This was consistent with the business itself not being valued but did not address the value of the buildings structures and equipment on site.
On 2 July 2021 Mr B Valuer [D Valuers] conducted an inspection of the F Town property. A valuation as at 5 July 2021 was produced with the result “A fair current market value is $3,000,000. My valuation has proceeded on the basis of vacant possession.” Ref valuation page 40 of 65.
The husband did not accept the valuation provided. On 17 August 2021 solicitors for the husband sent a letter of instruction to E Valuers. The letter described the engagement of the valuer as an “adversarial expert witness”. The report was to value to the F Town property, “We note that this property is currently used as a retreat in which the parties operate a business from (sic). If you require any further information in this regard please do not hesitate to advise”. The valuation of the joint valuer Mr B was provided.
On 25 August 2021 orders were made by consent for the valuer engaged by the husband to have access to the F Town property.
On 2 September 2021 a valuation was undertaken by E Valuers. Expressed in the valuation were the following:
Purpose of Valuation
To determine the current market value (exclusive of GST) of the subject property … F Town, including the land and improvements, the plant furniture fixtures and fittings and the goodwill as a going concern (but excluding stock) as at 2September 2021… .[6]
Valuation Premise
In accordance with my instructions, I have valued the real estate of the property and have excluded any value attributable to the goodwill of the business being conducted on the site.
Nevertheless in arriving at a valuation of the real estate I have acknowledged the specialised nature of the improvements which include a tourist accommodation facility (ten guest rooms), a health centre, three bedroom residence and associated facilities.
Normally a property of this type is sold on a ‘walk in-walk out’ basis, inclusive of plant, furniture furnishings fixtures and fittings associated with the tourist accommodation and health centre. Normally personal furniture and furnishings situated in the owner’s residence is excluded.
This has been the approach adopted in my valuation. That is, all fixed floor coverings bedding, furniture, light fittings, wall art, fridges, plant and equipment etc associated with the health centre have been included in this assessment.
Paragraph re minor repairs OMITTED
In summary this valuation excludes any goodwill of the current business, however the valuation does include the land and improvements, together with the in situ value of the plant and equipment, furnishings etc (but excluding stock)”.[7]
[6] Affidavit of the husband filed 18/10/2021. Annexure F, Page 1.
[7] Affidavit of the husband filed 18/10/2021. Annexure F, Page 8.
Valuation
$3,980,000.[8]
[8] Affidavit of the husband filed 18/10/2021. Annexure F, Page 29.
The wife does not accept the valuation and by inference does not accept the premise of the valuation and is opposed to reliance on the valuation report.
However, this is not a matter where a date for trial has been allocated. Quite properly the parties wished to negotiate a settlement of their financial dispute if they can. The valuations of all properties were obtained to that end.
The obtaining of a valuation created a disagreement over the value of the F Town property. The wife accepted it, the husband did not.
That disagreement is likely to be an obstacle to resolution.
Solicitors for the husband, by obtaining a further valuation, have attempted to find a way of addressing the disagreement.
THE APPLICATION IN A CASE
The application of the wife was that permission to rely on the second report should be refused. The basis for her position was that there had been an agreement between all parties that the property would be valued on the basis of “vacant possession with no consideration of ‘goodwill and going concern’”.
Although it was contended in submissions that there had been no lack of clarity around the meaning of “valuation on the basis of vacant possession” it seems to me that instructions may have been ambiguous.
That is to say the joint valuer was not to take into account the fact of the physical presence of structures and equipment on site for a business currently operating. Their existence may represent added value for a purchaser who wished to run such a business or may be an impost for a purchaser who wanted the property but had no interest in running such a business.
Permission to rely on another expert
I was referred to the decision of Gemmell & Gemmell (Ref [2009] FamCA 29) which is very much on point. The trial judge referred to the High Court decision of Spencer v The Commonwealth (Ref (1907) 5CLR 418) and the internal quote from Lord Woolf M.R. in Daniels v Walker (Ref (2001) WLF1328) in a helpful analysis of a dispute such as this.
a)“In a case where there is a substantial sum involved, one starts, … from the position that, wherever possible, a joint report is obtained”.
i.In this matter a substantial sum is involved and there is a differential value of $980,000. A joint valuation was obtained which provided the first value of $3million.
b)“If there is a disagreement on that report, then there would be an issue as to whether to ask questions or whether to get your own expert’s report”.
i.The husband did ask questions about four substantial items that had not been mentioned in the valuation including a vineyard area but was assured that although those items had not been mentioned they had been taken into account.[9]
ii.Solicitors for the husband wrote again to the joint valuer with more questions in detail in relation to the valuer not having consulted local real estate agents and referring to the major real estate agent in the area.[10] If there was a response to that letter it was not annexed to an affidavit.
c)“If questions do not resolve the question and a party, or both parties, obtain their own expert’s report, then that will result in a decision having to be reached as to what evidence should be called. That decision should not be taken until there has been a meeting between the experts involved”.
i.It is that perspective, that ultimately parties should not be put to the costs of having competing experts giving evidence in a trial unless all efforts have been made to resolve differences between experts.
d)“It is only as a last resort that you accept that it is necessary for oral evidence to be given before the experts before the Court. The cross examination of expert witnesses at the hearing, even in a substantial case, can be very expensive”.
i.It is inevitable that this matter would proceed to trial unless a meeting between the experts takes place and the points of difference are discussed with reference to the disparity in value.
[9] Affidavit of the husband filed 18/10/2021. Annexures B & C.
[10] Affidavit of the husband filed 18/10/2021. Annexure D.
The value conducted by the joint expert Mr B was done on the land, the house and outbuildings with vacant possession. The value resulting that, which would be paid whether or not a purchaser intended or not to run the business presently running there.
It appears, although it may not be so, that the approach of the applicant’s valuer is to nominate comparable properties and to take into account the value to a purchaser of a property set up for the running of the type of business that currently runs there. It may well be that purchaser has no interest in running a business of the type that has been run there but it appears to be this benefit that the applicant’s valuer has considered as one of the elements.
For that reason, the appropriate course is for the two valuers to meet and discuss all issues in dispute.
The joint valuer Mr B should provide his CV, full qualifications and experience, which were omitted from his valuation and the valuers should report back to the parties.
Orders are made accordingly and the Application in a Case and Response to Application in a Case are dismissed with no orders as to costs.
The parties conceded that if the matter cannot be resolved by negotiation or mediation or settlement otherwise, fresh valuation is likely to be undertaken closer to the date of a trial. The exercise of the two valuers involved to date and their report to the parties, if it does nothing else, may make it easier to agree on the terms for a single expert, whoever it is, to be relied on at trial.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cleary. Associate:
Dated: 29 November 2021
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