Elgin & Elgin
[2015] FamCAFC 155
•7 August 2015
FAMILY COURT OF AUSTRALIA
| ELGIN & ELGIN | [2015] FamCAFC 155 |
| FAMILY LAW – APPEAL – APPLICATION FOR LEAVE TO APPEAL – Where primary judge refused application for adjournment – Where expert report was received one day prior to final hearing – Where the refusal to grant the adjournment was a decision within the discretion of the primary judge – No appellable error established – Application dismissed. FAMILY LAW – APPEAL – PROPERTY – Taxation – Primary judge determined that the parties’ property should be divided equally – Where husband ordered to pay wife a fixed amount – Where substantial assets in corporate and investment structures – Where no evidence about amount of tax payable – Where husband ordered to assume responsibility for all the taxation consequences associated with the implementation of the orders – Evidence admitted on the appeal that $4.7 million taxation liability accrued – Where primary judge could not be satisfied orders were just and equitable – Appellate intervention warranted – Whether the delay in determination of the proceedings caused the primary judge to err in the calculation of the net value of the property pool and the parties’ financial position at the time of determining the proceeding – No merit in this ground of appeal – per THACKRAY & RYAN JJ Appeal allowed in part – Re-exercise of discretion relating to taxation – Where taxation consequences should be borne in the same proportion as the assets are to be divided – Proposed orders circulated for further submissions – per MAY J IN DISSENT – Appeal should be allowed and matter remitted for re-hearing. FAMILY LAW – APPEAL – APPLICATIONS IN AN APPEAL – Where applications to adduce further evidence were made by both parties – Application of CDJ v VAJ (1998) 197 CLR 172 – Only one application allowed and remaining applications dismissed. FAMILY LAW – APPEAL – COSTS – Where the appeal was successful in part – Where parties at liberty to apply for costs – Orders made for filing of costs submissions. |
| Family Law Act 1975 (Cth) s 75(2), 93A(2), 94(2), 94AA(1) |
| Aon Risk Services Australia Ltd v ANU (2009) 239 CLR 175 |
| APPELLANT: | Mr Elgin |
| RESPONDENT: | Ms Elgin |
| FILE NUMBER: | BRC | 2909 | of | 2010 |
| FIRST APPEAL NUMBER: | NA | 6 | of | 2014 |
| SECOND APPEAL NUMBER: | NA | 24 | of | 2014 |
| DATE DELIVERED: | 7 August 2015 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | May, Thackray & Ryan JJ |
| HEARING DATE: | 7 & 8 August 2014 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 17 January 2014 18 July 2012 |
| LOWER COURT MNC: | [2014] FamCA 10 [2012] FamCA 1158 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Kirk QC with Mr Williams |
| SOLICITOR FOR THE APPELLANT: | Hartley & Healy |
| COUNSEL FOR THE RESPONDENT: | Mr North SC with Mr Sweeney |
| SOLICITOR FOR THE RESPONDENT: | Glezer Lanteri & Associates |
Orders
Appeal NA 6 of 2014 be allowed in part.
The application for leave to appeal in NA 24 of 2014 be dismissed.
The application of the wife filed 18 July 2014 to receive the affidavit of Ms CCC filed 18 July 2014 as further evidence in Appeal NA 6 of 2014 be allowed.
The application of the husband filed 27 May 2014 to receive the affidavit of the husband filed 27 May 2014 as further evidence in Appeal NA 6 of 2014 be dismissed.
The application of the husband filed 27 May 2014 to receive the affidavit of Mr ZY filed 27 May 2014 as further evidence in Appeal NA 6 of 2014 be dismissed.
The application of the husband filed 27 May 2014 to receive the affidavit of Mr HY filed 27 May 2014 as further evidence in Appeal NA 6 of 2014 be allowed insofar as the affidavit deals with taxation issues, but the application otherwise be dismissed.
The application of the husband filed 23 July 2014 to receive the affidavit of Mr HY filed 23 July 2014 as further evidence in Appeal NA 6 of 2014 be dismissed.
Each party be at liberty to make an application by way of written submissions in respect of costs incurred by him or her in relation to the appeal or in respect to costs certificates under the Federal Proceedings (Costs) Act 1981 (Cth) by filing such submissions and serving them on the other party within 28 days of the date hereof.
The other party have a further 14 days in which to make written submissions in answer thereto by filing and serving such submissions.
Either party be at liberty to reply to an answer by way of written submissions by filing such reply and serving it on the other party within a further 7 days.
Each party be at liberty to make written submissions in respect of the form of the proposed orders by filing such submissions and serving them on the other party within 28 days of the date hereof.
Any submissions in answer to those filed pursuant to Order 11 shall be made in writing and by filing and serving it on the other party within a further 21 days.
Each party endorse on the cover sheet the date on which a copy of any submission filed pursuant to these orders was served on the other party.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Elgin & Elgin has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 6 of 2014 & NA 24 of 2014
File Number: BRC 2909 of 2010
| Mr Elgin |
Appellant
And
| Ms Elgin |
Respondent
REASONS FOR JUDGMENT
May J
The Appeals
There are two appeals by the husband from orders made during, and at the conclusion, of a trial, in relation to applications by the parties for property settlement.
The first is an appeal filed 14 February 2014 from the final property orders made 17 January 2014 (“the substantive appeal”). The net worth as found by the trial judge was $44,319,922. The essence of the appeal (NA 6 of 2014) is that the judge:
·miscalculated the pool of assets and liabilities available to be divided between the parties by approximately $12 million; and
·failed to deduct taxation liabilities from the assets and give consideration to capital gains tax consequent on the orders being effected.
The finding of the trial judge, that after a marriage of almost 50 years the parties’ contributions were equal, albeit different in nature, is not challenged on appeal.
The second is an appeal filed 6 June 2014 (“the adjournment appeal”) from the refusal of the trial judge, Forrest J, on 18 July 2012 to allow an adjournment of the trial on the husband’s application (NA 24 of 2014). That was an interlocutory order and leave to appeal is necessary.
Each party filed applications to adduce further evidence on the appeal. They will be considered as they become relevant to the grounds of appeal.
Introduction
The husband and wife have amassed considerable wealth. The first commercial venture, the manufacture of EF Products, was very successful. The husband worked hard while the wife was equally occupied, the trial judge found, with the family, including three children.
In the 1990’s the EF Products business was gradually sold and the parties began property development at the Gold Coast. For this purpose, a number of companies to which reference will be made as the “Elgin Group”, were created, involving various structures in which the husband and wife and their children took part. The Elgin Group consists of 33 companies and other entities including trusts. It is depicted in the report of Ms CCC, the court appointed single expert (at p. of 128).
In about 2006 the husband, through a number of companies described as the U Joint Venture, commenced a development at Town IJ, a rural township outside Brisbane. The parties were also involved in a development at Town JK owned by P Pty Limited.
The parties separated in June 2009. The husband had commenced a relationship with a Ms KL in 2008. A number of properties at the Gold Coast were purchased by the husband and registered in Ms KL’s name. The husband and Ms KL married in 2011 and their child was born that year. In the circumstances described by the trial judge, it is not surprising that he concluded that the properties registered in the name of Ms KL should be treated as those of the husband.
It is convenient to repeat, those parts of the judge’s reasons which appear uncontroversial; at least for the purpose of the appeal:
177.There was no dispute that they started their married life together with very little and, that in the twilight of their lives, after 49 years of marriage to each other and a few years of separation, there is an extremely valuable pool of property to be divided between them. There is very little dispute between them about the course of their marriage, the roles undertaken by each of them within it and the quality each ascribes to the other’s efforts in carrying out those roles.
178. Like in so many Australian marriages of the early 1960’s, this couple married young, brought children into the world soon after their marriage and apportioned the necessary homemaking/parenting and “breadwinning” roles between them principally on the basis of gender. Whilst the Wife capably and almost single-handedly performed the homemaking/parenting role, the Husband devoted himself to working hard in the business that was created. The totality of their efforts produced “success”; that is, if nurturing three children to happy, healthy and productive adulthood and developing a business into a very valuable, national organisation equates to “success”. Whilst I acknowledge that “success” is a value laden concept, my own assessment of current community values is that achievement of these things just described, generally, are considered to be measures of success.
179.In the 1990’s, after their children had reached adulthood and moved into independence, their valuable business was sold and the capital it produced was used to begin property development. Property development, managed and ‘driven’ by the Husband who has continued to actively work in this field notwithstanding his age, has gone on for all the years since then. It has been conducted through an array of companies and trusts, in many of which both the Wife and the Husband have had shareholdings and directorships. It has been productive of substantial wealth for the parties, providing them with the means of enjoying a comfortable lifestyle and bestowing the same opportunity on their adult children. During those last 25 years of their marriage, whilst the wife continued to be a homemaker, she also did things often undertaken by people in this phase of their lives, recreational activities such as playing golf, tennis and enjoying social time with friends and extended family. However, along the way, about 10 years ago now, the Wife also received about $1.3 million from her late mother’s estate that went into the parties’ capital.
180.As to post-separation matters, whilst the wealth the parties had amassed by the time their marriage ended, and the income that wealth itself generates, has essentially supported them both since their separation, supplemented, of course, by the Husband’s continued active involvement in property development, the Husband’s new wife, her two daughters of her former marriage and the child of the Husband’s relationship with her have also been completely financially supported from that same source of funds. Also, as has already been recognised, a few hundred thousand dollars was lost to the parties by the Husband’s unilateral advance of money to the failing business of his new wife and her former husband. Those matters, too, are relevant facts to consider in the discretionary exercise.
Consolidated grounds of appeal
The original grounds of appeal have been consolidated (and amended) into one document as follows:
1.That His Honour erred in refusing to grant the Husband an adjournment of the trial in circumstances where:
(a)the Husband received a single expert report of 374 pages the day prior to the commencement of the trial;
(aa)his Honour was in error in making the findings at paragraph 26 of the Reasons of 18 July 2012 (AB1p76) that the Husband was "directly involved and responsible for'' the delay in the provision of that single expert report;
(aaa)the refusal to grant the adjournment constituted a denial of procedural fairness by:
(i)depriving the Husband of the ability or opportunity to obtain and/or adduce expert evidence;
(ii)depriving the Husband of the ability to challenge by expert evidence the premises and/or assumptions to the single expert report;
and where the denial of procedural fairness deprived the Husband of a fair trial;
(b)the Husband was prejudiced by the late receipt of such report aforesaid in that inter alia the report "overstates the value of the assets by some $12 million";
(c)his Honour erred in determining that the prejudice to the Husband by the refusal of the adjournment application could be addressed by cross-examination and giving leave to call (non-expert) evidence (Reasons. paras 27, 28 @ AB1p76);
[sic]
(e)the course adopted by His Honour precluded the Husband and the Court having available to it the tax consequences which in para 2.11 of the single expert report she said "must be considered prior to the finalisation of any orders";
(f)the refusal to grant the Husband's application for an adjournment was such that His Honour was unable to properly assess the relevant matters affecting the parties pursuant to section 79(4) of the Family Law Act 1975 (Cth).
2. Not Pressed.
3.Paragraph 2.11 of the unchallenged evidence of the single expert, Ms [CCC] provided:
"I have not considered the effect of future Capital Gains Tax (CGT) income tax or Goods and Services Tax (GST) on the realisation of the assets of the entities or the parties' interests in the entities, with the exception of notional income tax calculations for those entities that hold properties for sale, not investment purposes. Should assets be sold or transferred between the parties as a consequence of these proceedings, the tax consequences and any other realisation costs must be considered prior to the finalisation of any orders."
In the face of that unchallenged evidence, his Honour:
(a)erred by making the orders which he did on a final basis as in the absence of this evidence the Trial Judge could not determine if the orders were just and equitable; and
(b)erred by ordering in Order (7) that, inter alia, the "Husband indemnify the Wife in respect of all past, present and future liabilities arising as a result of the Orders herein ... including any and all taxation liabilities."
4. Not Pressed.
5.Given the inordinate delay in determination of the proceeding, his Honour erred:
(a)in the calculation of the net property pool and, in particular, [Elgin] Finance Pty Ltd, [R] Pty Ltd and [Elgin] Unit Trust;
(b)in that the Reasons are inadequate to enable an understanding of the calculation of the net property pool and, in particular, [Elgin] Finance Pty Ltd, [R] Pty Ltd and [Elgin] Unit Trust;
(c)by failing to give any or any proper regard to the parties' financial position at the time of determining the proceeding.
(original emphasis)
Adjournment Appeal
Although this document consolidates the grounds it is appropriate that the adjournment appeal is considered first and separately. It is also necessary to consider whether leave should be given for this appeal to be heard.
Background
A significant part of the dispute between the parties was the assessment of the value of their assets. In preparation for trial the parties agreed that a single expert, Ms CCC, be appointed.
Mr HN from GR Valuers was engaged to value the Town IJ development. Reference will also be made to a Mr WX, the accountant for the Elgin Group of companies.
As is apparent, the parties’ net worth was substantial. The valuation process to some extent was inevitably complicated.
The application for an adjournment was made on the first day of the trial because the report of the single expert, Ms CCC (“the CCC Report”) was provided to the lawyers for each party only the day before. The report dated 16 July 2012 is some 374 pages. Ms CCC valued the Elgin Group at $38,599,608 as at 30 June 2011. The husband’s counsel contended during the adjournment application that the Elgin Group was overvalued by $12 million. In support of that application, counsel relied upon a report prepared by Mr HY dated 18 July 2012, an accountant engaged by the husband, apparently after the release of the CCC Report. The report is Exhibit 2 in the trial proceedings (“First Report”).
In considering the adjournment application, the judge found that the husband was very much directly involved and at [26]:
…[R]esponsible for the lateness of the report being provided by Ms [CCC]. To the extent that he is not responsible for the lateness of the report of the real property valuer and the impact that that has had in the process, I am satisfied that he has at least been in a position for the last few weeks to take steps to remedy that.
It was the conclusion of the trial judge that to the extent that there would be any prejudice caused to the husband this could be (at [27]):
…[A]ddressed by his cross-examination of that real property valuer and by the considered consideration of his experienced counsel of the single expert, Ms [CCC’s] report. No doubt, his counsel now has the benefit of the assistance of the expert, Mr [HY], who has come into the matter and has already provided a three-page document of critique or assistance to the husband and his legal team.
In reaching that conclusion, the judge set out some of the litigation history, observing that the proceedings were commenced by the wife in March 2010, that is, more than two years before the adjournment application.
At the time of the commencement of the trial, there was no mention of the potential capital gains tax or other taxes likely to be incurred as a result of final orders made in this litigation. Thus, while in hindsight it may be seen that the better course was for the trial to have been adjourned, it is the evidence and surrounding circumstances before the judge at the time which should be the focus in the appeal. In addition, there is an application to adduce further evidence in this appeal.
The judge was correct to refer to the history of the litigation. It was a significant consideration as to whether the adjournment should be granted.
The essential facts in this respect are as follows:- the matter was set down for a final hearing on 3 February 2012 and the trial was to commence on the day the adjournment application was made, 18 July 2012. On an earlier occasion when the matter was set for hearing the parties certified that the matter was ready to proceed.
Prior to 3 February 2012, on 16 January 2012 a Registrar had made orders by consent. Those orders included:
Amended Application/Response/Reply
2.The Respondent HUSBAND file and serve by no later than 25 January 2012 the following:
(a)any affidavit setting out the evidence of any expert or lay witness that the party proposes to call at the trial
(b)an updated Financial Statement
(c)a Balance sheet which sets out the assets, liabilities and financial resources of the parties.
Valuations
3.Pursuant to rule 15.44 of the Family Law Rules 2004 by consent of the parties
a.The Firm of [NQ Valuers] (Real Estate Sworn Valuers) of […]be appointed as single experts to provide valuations in respect of the properties, being apartments [Apartment A] and [Apartment CD] in [C Street], Melbourne.
b.Ms [CCC] of [DM Accountants] be appointed as the single expert to value all of the business structures and entities in the name or control of the parties or either of them.
c.[GR] Valuers be appointed as single experts to value the real estate held by the parties (or either of them) or entities in the name or control of the parties (or either of them).
4.By no later than 20 January 2012 the Respondent HUSBAND through his legal representative provide to the Applicant WIFE through her legal representative, a draft letter of instruction addressed to [GR] valuers with such letter of instruction to be settled between the parties and forwarded to the agreed single expert by 4:00pm on 25 January 2012.
5.By no later than 20 January 2012 the Applicant WIFE through her legal representative provide to the Respondent HUSBAND through his legal representative, draft letters of instruction addressed to [NQ] Valuers and Ms [CCC] of [DM Accountants] with such letters of instruction to be settled between the parties and forwarded to the agreed single experts by 4:00pm on 25 January 2012.
(original emphasis)
The husband failed to comply with a number of those agreed directions. As is explained in the submissions of the wife in this appeal and relevant to the adjournment question, the circumstances are as follows:
23.A joint letter of instruction was sent to those valuers and accountants on 27 January 2012. That letter of instruction to the real estate valuer identified the real properties in general terms. On receipt of this letter Mr [HN] the appointed real estate valuer sought details of the "properties set out in the schedule". These were not forthcoming even as late as 10 April 2012. The evidence disclosed that the husband was deliberately delaying the valuation of real property by withholding information from the valuer. He personally informing [sic] the valuer's office that ''further particulars would be provided once the matter had progressed further."
24.Within days of signing the joint letter of instruction "the husband's accountant indicated to Ms [CCC] that he would have up to date financial documentation to her prior to the end of February” but on 6 February 2012 the husband further advised that he believed that the valuers should not undertake the valuations until "early or mid-June" 2012. The wife sought that these be completed "as soon as possible". From as early as February 2012 the husband adopted a strategy to delay the commencement of the valuation process until early to mid-June.
25.Despite the joint letter of instruction the husband continued to make enquiries of "other accountants in relation to the preparation of the report".
26.On 5 March 2012 the husband was advised by the solicitors for the wife that he was putting the July hearing date "in jeopardy" by adopting the attitude he was in respect to the appointment of valuers. The solicitor for the husband disagreed with this and advised that Mr [WX], the company accountant "will not be providing any further information to [DM Accountants]". [sic]
27.Ms [CCC] likewise was not receiving co-operation from the husband between early February 2012 and April 2012. On 26 March she foreshadowed applying to the Court under Rule 15.60 because she was "unable to proceed with my task as a single expert".
28.On 2 April 2012 the wife's solicitors sought information from Mr [HN] of [GR Valuers] "seeking an update of his valuations and when they would be available". Details of the real properties to be valued under the appointment were sought by [GR Valuers], of [the] solicitors on 17 April 2012. Despite Mr [HN] attempting to identify what was to be valued there was no letter of clarification or specific detail provided by the husband despite he [sic] possessing all of that knowledge.
29.The dispute about the husband's refusal to cooperate with the valuers came to a head in April 2012. The wife issued an application seeking that the husband, inter alia:-
a)Pay one half of the costs of the single expert forensic accountants;
b)Pay one half of the costs of the real estate valuers; and
c)Co-operate with valuers and provide financial information as requested.
30. In "Response" the husband sought the discharge of the single expert accountant on the basis that he thought her fees were excessive for "what appears to be, on the face of it, to be a fairly simple valuation exercise.”
31.Proceedings were issued by the wife returnable before Forrest J. on 18 April 2012. In submission to the Court on that day counsel representing the husband stated: "the valuation should be delayed simply because there is no point in valuing a property which is going to be sold".
32.The husband maintained at court that [GR Valuers] should not commence the valuation process until 18 June 2012, some 4 weeks before the trial. As was stated by Forest [sic] J. at the time "Everything points, […] to delay. Everything points to - everything in this, that I have read so far, points to your client not wanting this matter to be ready for trial in July."
(original emphasis, footnotes omitted)
Although the emphasis might be different, we were not taken to any evidence which would contradict these assertions about the husband’s conduct, prior to the time the trial was to commence.
Some three months prior to the trial date, on 18 April 2012 the trial judge heard the application by the wife seeking compliance with the direction orders. The husband asked for orders substantially varying the directions made by consent, including for the appointment of another single expert and preparation of real property valuations to be delayed. The husband did not ask for the adjournment of the trial. The trial judge refused the husband’s applications and expressed concern about the inactivity of the husband and his motivation. A number of orders were made including:
1.The husband or his solicitors shall forthwith sign the retainer agreement forwarded to the husband’s solicitors by [DM Accountants] on or about 21 February 2012.
2.The husband shall forthwith pay to [DM Accountants] the sum of $10,000 on account of the costs associated with the preparation of a report in this matter by Ms [CCC].
The husband was also ordered to pay the wife’s costs.
At the end of the order there appears a notation as follows:
Should the Trial Judge be satisfied that the husband has refused or neglected to cooperate with the single experts in respect of the preparation and provision of any of their reports, then the Trial Judge shall give consideration to hearing the wife’s application on an undefended basis.
Reference can again usefully be made to the submissions on behalf of the wife as to the following Chronology of the events prior to the trial:
34.On 2 May 2012 Miss [CCC] sought an extensive list of documents from the parties and directly from Mr [WX].
35.On 10 May 2012 the solicitors for the husband provided some limited information to Miss [CCC] but in response to the request dated 2 May the solicitor advised on behalf of the [husband] that Mr [WX] "will not be able to provide the information until the first week of June". Hence, notwithstanding the order of 18 April the husband's strategy for valuations not to be available until the eve of trial remained the likely outcome.
36.By letter dated 16 May 2012 the husband was advised that:
"We place your client on notice that should for any reason, Miss [CCC] be unable to complete her report 2 weeks prior to the hearing, we will rely upon the continued delays by your client and his agents, to seek that our client’s application proceed undefended.”
37.The husband's refusal and neglect to cooperate with requests for information from the single expert continued. As late as 8 June 2012 the requests of the husband were still being ignored. The husband was on notice by letter from Ms [CCC] dated 15 May 2012 that if all requested information was not provided "by the close of business on 8 June 2012" her report may not be available on 4 July 2012. The request for information by the accountants on 8 June was not addressed by the husband until 25 June 2012. The response was in effect that the documents are voluminous and do you really want them? Further requests were made of the husband for information and they were ignored.
(original emphasis, footnotes omitted)
No further applications were made. The first notice to the court of the adjournment application was on the morning of the trial, 18 July 2012. In his reasons for refusing the adjournment, the judge explained the basis for the application which can be summarised as follows:-
·The CCC Report was only recently finalised and first made available to the parties and their lawyers the day before the hearing;
·The CCC report includes incorrect assumptions and mistakes such that the husband wished to obtain another expert report. In support of that contention, the First Report prepared by Mr HY was listed as Exhibit 2;
·The real property valuer report obtained in relation to the Town IJ development contained deficiencies and was relied on in the CCC report.
It can be seen that his Honour was concerned with two issues – the recent receipt of the CCC report and issues associated with the valuation of the development in Town IJ.
It was submitted on behalf of the husband that an adjournment would not involve a lengthy delay – some 28 days to allow financial statements to be prepared in relation to the Town IJ development for the year ending 30 June 2012. However, as the trial judge said, the reality of any adjournment, bearing in mind the court lists, was that the matter could not proceed for at least another six months or possibly into the following year.
As will be later explained, the judge correctly referred to the consequential disruptions in the court list and the significant prejudice to the wife should the matter be adjourned.
In relation to the Town IJ valuation, it seems that for some weeks the real property valuation had been available. A teleconference involving the parties’ lawyers and Ms CCC took place on 12 July 2012 to discuss possible difficulties in this respect. The judge was given a transcript of that telephone conversation.
Ms CCC proceeded with the valuation report after agreed arrangements were made about the approach to the Town IJ valuation.
Ultimately and, as it now appears, with undue optimism, the judge concluded that if the husband was given leave to call further evidence and allowed to put further material to Ms CCC when she gave evidence, any prejudice to him, on balance, would be remedied. The application was refused.
The next day, 19 July 2012, another oral application was made, for a further valuation by Mr HN of the Town IJ property. This application was also dismissed. There is no appeal from that decision. In essence, the application asked that Mr HN who had already provided a valuation, revalue a number of lots so as to correlate that value with the same date of valuation as the report of Ms CCC. This was despite an agreement between the parties on 12 July 2012 that the value to be given to various lots would be represented by the prices at which those lots would be sold. It was submitted that Mr HN could do a further valuation within 24 hours.
In refusing the application, the judge first expressed uncertainty that the further valuation would be prepared within the time asserted and secondly, that these matters could have been attended to many months prior to the listing of the trial. Thirdly, it was never explained to the judge why Mr HN did not attend to the valuation in the manner agreed. Finally, Mr HN had provided a valuation on 22 June 2012, some four weeks before the commencement of the trial, and thus it seemed to be hardly a new problem.
In the final paragraph of his Honour’s reasons he again expressed optimism as to how the matter could be dealt with (at [9]):
Finally, I also consider there is merit in the submission lastly made by Mr North of Senior Counsel for the wife, that the course I have already proposed, namely the giving of leave to the husband for the calling of or the adducing of further evidence to deal with the matter at hand, is sufficient to enable him to address the matters of concern to him and his legal advisers now in a way that I have no doubt Ms [CCC] will, with all professionalism, take note of, modifying her opinions accordingly.
Submissions on behalf of the husband in support of the adjournment application
In the husband’s written submissions, counsel argued that the application for the adjournment was made on the following basis (at [1.2.3]):
…(a) late receipt of that report, (b) critically, that the Husband considered it overvalued the [Elgin] Group by around $12,000,000, (c) that it contained errors in its premises and assumptions, (d) because of the need for the Husband to adduce further evidence to address issues raised in the report and with respect to the asserted errors, and (e) the absence of any opportunity of the Husband to confer with Ms [CCC] to determine where the errors might lie.
The written submissions provide a summary of the submissions of the husband’s then counsel in relation to the application:
(a)“…we weren’t anticipating a report which, on my client’s case, overestimates the value of the assets by some $12 million” (Tp9 AB9p1521.5);
(b)that at the time of commencement of the trial, the Husband’s Counsel had “not been able to fully read the report. I have not been able to take instructions in any detail as to the accuracy of its factual bases or the many assumptions that Ms [CCC] makes. I have not had the opportunity for me to check assessments as to the figures arrived at, ……” (Tp2 AB9p1514.35 – 40);
(c)“Quite clearly we’ve had no opportunity to avail ourselves of any of the provisions of the rules relating to the expert witnesses…there has been no opportunity for us to confer with Ms [CCC] at a point in time when our expect is sufficiently across the report to be able to determine with some accuracy where the errors might lie” (Tp3 AB9p1515.40);
(d)“We will need to seek to lead further evidence in relation to – because, firstly, Mr [HN] clearly hasn’t performed what he was instructed to do, which was to value the land at [Town IJ] and you will see in Ms [CCC’s] report that she attributes a value to stages [A], [B], [C], [D], [F], [G] and [ZA] which nowhere appear in Mr [HN’s] valuation” (Tp5 AB9p1517.15);
(e)“…but the husband, irrespective of the reason for lateness, is in a position where, now he is going to have to determine, in respect of about three major issues, what further evidence needs to be lead. Until he saw the report, he could not properly have anticipated that these assessments of value, unsupported by any valuation evidence, would be made in the report” (Tp10 AB9p1522.5 – 10);
(f)“so when Your Honour says I can do it through cross examination, with the greatest respect to Your Honour, I can’t in justice to my client, when there is no contrary evidence before Your Honour which enables you to weigh the competing proposition […] because if Mrs [CCC] says “No I don’t accept that” where are we left? We are left in a position where my client has not been permitted to lead evidence, albeit late, albeit at a cost which Your Honour may at some stage consider to impose in respect of an adjournment that permits the Court to fulfil its primary function of properly determining the asset pool” (Tpp17,18 AB9pp1529.40-1530.5).
(original emphasis)
On appeal, the husband raises largely similar arguments. They can be summarised into three key issues:
a)The lateness of the CCC report was not the fault of the husband;
b)There was a denial of procedural fairness; and
c)Prejudice to the husband could not be remedied through cross-examination.
First, considering the issue of fault, the husband provides the following chronology to support his argument:
16 January 2012 [Ms CCC] was appointed (AB1p65)
…
3 February 2012 Callover – Murphy J was advised experts were preparing reports and should be available “well before hearing date” (AB2p240)
17 February 2012 [Ms CCC] estimates her fees at $64,900 (AB2p251)
2 March 2012 Husband’s solicitor objects to fee estimates and advised was making enquiries of other forensic accountants (AB2p267)
5 April 2012 Husband seeks to replace [Ms CCC] with [VX Accountants] (quote $23,000 +GST) (AB2pp283,288)
13 April 2012 Wife’s solicitors oppose this (AB2p287)
18 April 2012 Husband seeks order to have [Ms CCC] replaced by [VX Accountants] (AB1p113) but Trial Judge refuses (AB1p66)
10 May 2012 [Mr HN] advises that the property valuation ought to be finalised by 18 May 2012 (AB8p1442) i.e. within 7 days
…
9 July 2012[Ms CCC] informs the parties she needs “a minimum” of one week after she receives the property valuation to complete her report (AB8p1429)
10-11 July 2012 Valuation reports by [Mr HN] finally provided to [Ms CCC] (AB3p551)
16 July 2012 [Ms CCC] informed for the first time about the Wife’s company [H] Pty Ltd (AB3p524, 526)
(original emphasis)
The husband argues that the late receipt of the HN Reports caused Ms CCC to “adopt a process that was both arbitrary and rushed”. The husband asserts that this was not his fault, and the assessment took months because Mr HN subjected his findings to a peer review. Therefore, the husband argues:
...The fault lay with Mr [HN] and to a lesser extent with Ms [CCC] for not identifying at the outset that “the date of the property valuations needed to be consistent with the date of the latest financial statements” ([HY] Affidavit @ para 5).
(original emphasis)
Turning to the argument of procedural fairness, the husband submitted:
…the refusal to grant an adjournment prevented a trial according to law in that the Husband was deprived of the possibility of a successful outcome. Relevantly:
(a) the 374 page expert report was received the day prior to trial;
(b)even an experienced forensic accountant such as Mr [HY] was unable to be of much assistance during the hearing and the preparation of his report…took him in the order of 100 hours (and his staff in excess of 80 hours), yet the Trial Judge … showed no appreciation of its complexity when he said “If I gave you today you can take full instructions. You say you haven’t read the report through. I mean I’ve already read it except for all the annexures. I already read the report in half an hour.”;
(c)the late receipt of the report was not attributable to the Husband;
(d)by the commencement of the trial:
(i)the Husband’s Counsel had not fully read the report;
(ii)instructions had not been given on the report in any detail as to its accuracy;
(iii)the Trial Judge knew that the Husband considered the report overvalued the Group by $12M;
(iv)the need for the Husband to lead expert evidence was expressly foreshadowed, and such could not have been anticipated until receipt of the [CCC] report;
(e)the report expressly raised unquantified taxation liabilities consequential upon any transfer of property and which the Husband could not properly address without expert evidence;
(f)if the further evidence from Mr [HY] is allowed, it demonstrates that the Husband’s belief that the pool was overvalued by $12M was supportable with expert evidence had he been given the opportunity and consequently, he was deprived of the possibility of a successful outcome;
(g)even if the prejudice suffered by the Husband could have been ameliorated through cross-examination (and clearly that was not the case), that could not cure the prejudice.
(original emphasis)
Finally, counsel for the husband argued that any prejudice was not capable of remedy through cross-examination, and no reasons were advanced by Forrest J as to why it could be remedied in this way. The husband submits that had Mr HY been provided with more time, “he would in the preparation of any report have provided a schedule of the taxation consequences of extracting funds from the [Elgin] Group” (Mr HY’s affidavit filed 27 May 2014, [11]). That proposition can only be described as speculative.
Adjournment appeal – Application to adduce further evidence
It is appropriate before any further discussion of the adjournment appeal to consider these applications on the basis that should leave to appeal be given, the affidavits would be admitted as further evidence on appeal. There are two applications of the husband and one of the wife:
a)the husband’s Application in an Appeal filed 27 May 2014;
b)the wife’s Application in an Appeal filed 18 July 2014; and
c)the husband’s Application in an Appeal filed 23 July 2014.
As previously identified in these reasons, the husband provided the First Report of Mr HY on 18 July 2012, which was a three-page criticism of the CCC Report asserting Ms CCC had proceeded on erroneous facts and/or assumptions. This report was in aid of the adjournment application.
An Application in an Appeal was filed by the husband on 27 May 2014, seeking to rely on the following affidavits (also filed 27 May 2014) in order to adduce further evidence:
a)The husband;
b)Mr ZY, an accountant now employed by the Elgin Group; and
c)Mr HY.
The application is opposed by the wife.
Significantly, the affidavit of Mr HY attached a further (to the one filed on 18 July 2012) report containing his opinion on the value of the Elgin Group using the financial accounts as at 30 June 2011 (“the Second Report”). The Second Report is 251 pages in length (including annexures).
In addition to being in aid of the appeal from the refusal to grant the adjournment, it is contended by the husband that this evidence demonstrates why, if either appeal is allowed the matter should be remitted for a full re-hearing ([8] husband’s submissions).
The wife filed her Application in an Appeal on 18 July 2014, seeking to adduce further evidence being an affidavit of Ms CCC sworn 20 June 2014 in response to the husband’s application and also in the CDJ v VAJ (1998) 197 CLR 172 sense (“CDJ”), to bolster the decision of the trial judge.
A further Application in an Appeal was filed by the husband on 23 July 2014, seeking to file a second affidavit of Mr HY, filed the same date. This affidavit contains an opinion about the valuation methodology adopted by Ms CCC relating to the U Joint Venture, specifically, the Town IJ development. It is his opinion that Ms CCC failed to take into account costs of the operations up until sale. This proposition, which may be correct, was not put to Ms CCC when she was cross-examined.
It is significant to note that all applications and accompanying affidavits were filed in NA6 of 2014, being the substantive appeal. However, it was not entirely clear in the written and oral submissions if the parties intended to also rely upon these applications in relation to the adjournment appeal. It can be seen from the written submissions that the information in the affidavits was employed in both appeals.
It is convenient to consider such applications first in relation to the adjournment appeal, as they also raise significant issues in relation to the substantive appeal. Conclusions will be drawn pertaining to both appeals.
The decision in CDJ does not require reciting at length. However, the following passages from the decision of the majority are instructive. In dealing with the first question posed ( at [70]):
…[W]hether the power conferred on the Full Court by s 93A of the Family Law Act 1975 (Cth) (the Act) to receive further evidence on appeal is governed by the principles laid down in this Court in Wollongong Corporation v Cowan.
(footnote omitted)
At [103] their Honours then said:
The common law procedures were interlocutory in nature in the sense that they were directed to the issue whether there should be an order for a new trial. They involved the exercise of original jurisdiction. In contrast, the statutory appeal is directed to whether the orders made below should be set aside and, if so, what orders should be made in their place to determine the outcome of the litigation. An order for a retrial is one, but not the only, order that the appellate court may make. Moreover, such an order is an order of last resort. In that context, the admission of further evidence has to be seen from a different perspective from that which would be appropriate if the statute did no more than repeat the common law procedures. For example, in a statutory appeal it may be the respondent who seeks to introduce further evidence to buttress the favourable findings already made and to resist the substitution by the appellate court of its orders for those of the trial court.
At [106]:
Other features of the statutory regime laid down by Pt X also distinguish the power to admit evidence under s 93A(2) from that existing at common law. Unlike courts in banc hearing applications for new trials, the Full Court of the Family Court can evaluate the facts of the appeal for itself and in many cases is in a position to evaluate the further evidence and take it into account in considering the appeal without the necessity to have the proceedings re-heard.
In discussing the scope of s 93A(2) their Honours said:
104.In the exercise of the discretion conferred by a power such as s 93A(2), the critical factor is the subject matter of the proceedings with which the appeal is concerned. This is because the purpose of the power to admit further evidence is to ensure that the proceedings do not miscarry. Tests such as those stated in Wollongong Corporation based on the need for finality in litigation are therefore not necessarily applicable to cases in which the interests of third parties, such as children, are at stake, although factors such as finality, discoverability of the evidence and its likely effect on the orders made are usually relevant to the exercise of the discretion. In an application at common law to admit further evidence, the court applies principles, bordering on fixed rules. In an application under s 93A(2) and similar provisions, the Full Court or Court of Appeal weighs factors, although it may of course develop guidelines for weighing those factors and exercising the discretion.
…
109.One consideration in construing s 93A(2) is its remedial nature. Its principal purpose is to give to the Full Court a discretionary power to admit further evidence where that evidence, if accepted, would demonstrate that the order under appeal is erroneous. The power exists to facilitate the avoidance of errors which cannot be otherwise remedied by the application of the conventional appellate procedures. A further, but in practice subsidiary, purpose is to give the Full Court a discretion to admit further evidence to buttress the findings already made.
(original emphasis, footnote omitted)
After referring to the nature of appeals in the Family Court, that is, a re-hearing of the evidence before the trial judge, and that the Court’s jurisdiction is neither purely appellate nor purely original the plurality said (at [111]):
…Nevertheless, it is highly unlikely that Parliament in conferring jurisdiction on the Full Court to hear appeals intended that s 93A(2) should be construed in a way that would have the practical effect of obliterating the distinction between original and appellate jurisdiction. Nor can the availability of further evidence relevant to the issues in the appeal be treated as equivalent to a ground of appeal, proof of which prima facie entitles the appellant to a new trial. The power to admit the further evidence exists to serve the demands of justice. Ordinarily, where it is alleged that the admission of new evidence requires a new trial, justice will not be served unless the Full Court is satisfied that the further evidence would have produced a different result if it had been available at the trial. Without that condition being satisfied, it could seldom, if ever, be in the interests of justice to deprive the respondent of the benefit of the orders made by the trial judge and put that person to the expense, inconvenience and worry of a new trial.
Affidavit of the Husband filed 27 May 2014
The affidavit of the husband, filed 27 May 2014, argues that the refusal of the application for an adjournment caused him substantial injustice. This is because he relied on his accountant, Mr WX, to assist him to understand the findings contained in the CCC Report and neither of them had reasonable time nor capacity to do so before the trial on 18 July 2012. This is why, the husband argues, he provided instructions to Mr HY to act as “an independent and objective expert” and provide advice on the report. The husband notes that in the limited time to read the CCC Report, he did not read the relevant paragraph about the taxation consequences (Husband’s affidavit, 27 May 2014, [8]).
The other matters contained in the affidavit are an attempt to place before this court assertions that could have been made at trial. To that extent, the husband should not be permitted to do so. The affidavit does not fall within the well-known parameters of CDJ. Leave should not be given to allow this evidence on either appeal.
Affidavit of Mr ZY filed 27 May 2014
The husband sought to also rely on the affidavit filed 27 May 2014 of Mr ZY, who is an accountant and the principal of his own firm, as well as for the entities associated with the Mr Elgin Group.
In his affidavit, Mr ZY sets out his calculations to determine the net loss for the Town JK property development and also the Town IJ development. The evidence relates to events since the close of evidence in the trial.
Mr ZY, through comparing the units valued as part of the trial with the actual sale figures, concluded that the Town JK property development resulted in a net loss of $2,428,443 to the S Unit Trust (Affidavit [2]-[6]).
Further, in relation to the Town IJ development, Mr ZY found:
19.Based on my analysis, I say that there has been a substantial loss incurred by the [U] Joint Venture as a result of the real sales of the lots contained within the [Town IJ] Property Development. In particular, my analysis indicates that the losses would be apportioned pursuant to the Partnership Agreement as follows:
19.1 [R] Pty Ltd (22.23%) loss of $1,094,331.55;
19.2 [M] Pty Ltd (50%) loss of $2,461,384.50;
19.3[Elgin] Development Trust (11.10%) loss of $564,427.36; and
19.4 [V] Pty Ltd (16.67%) loss of $820,625.59.
20.Based on the ownership of the above entities, I believe that the total loss attributed to the entities in which [the husband] has an interest is a total loss of $3,281,763.00.
A decision in relation to this material can only be made in conjunction with the other affidavits.
Affidavits of Mr HY filed 27 May and 23 July 2014
There are two affidavits of Mr HY. The first affidavit was filed on 27 May 2014 and annexes the Second Report. This affidavit refers to Exhibit 2, being the First Report, dated the same date as the first day of trial, being 18 July 2012.
Mr HY prepared a report dated 26 February 2014 with his opinion of the value of the Elgin Group using the financial accounts as at 30 June 2011. Mr HY reached conclusions about values different from those of the trial judge, as explained in [10] of his affidavit.
There is no doubt that one difficulty concerned property valuations by Mr HN. They were dated May 2012, but a balance sheet was then based on 30 June 2011.
As to taxation consequences, it is Mr HY’s opinion that the transfer of Apartment G to the wife is likely to result in tax payable in the sum of at least $206,250.
In his opinion, the effect of the husband paying the wife the sum of $15,432,457 in the manner he understands will necessarily incur the amount of $3,637,651 in tax, possibly $4,495,097.
Finally, in the Second Report Mr HY contends that he would have concluded that the Elgin Group was valued at approximately $12 million less than the CCC Report.
The second affidavit of Mr HY, filed 23 July 2014, provides a critique of the valuation adopted by Ms CCC in her report dated 16 July 2012 for the Town IJ development. This includes a consideration of (1) the Town IJ development as a whole, (2) the unsold lots in stages A, B, C, D, E, F and G and (3) the value of the stage ZA subdivision.
Mr HY identifies the following issues with that methodology:
8.The issue that arises from the report of 16 July 2012 of Ms [CCC] is that, whilst she takes into account the expected future sales of the [Town IJ] subdivision (which will be achieved over a period of years) at the sales prices being achieved at the date of her report, she fails to take into account the costs (or at least a portion of them) that will be incurred up to the completion of construction and eventual sale of each lot, of each of the relevant entities.
9.By way of illustration at the time of preparation of Ms [CCC’s] report Stage [ZA] had only just reached a stage where lots were available for sale or for house and land packages to be constructed on them. Whilst Ms [CCC] and His Honour took into account the expected selling process of the developed lots including, where applicable, the cost to construct the dwelling, GST and selling costs but the overhead costs of operating the entities whilst sales were being achieved were not brought to account. Those overhead costs would include administration costs (such as rent and head office staff salaries) and funding costs (interest and borrowing costs).
Mr HY acknowledges that Ms CCC should have been provided with a valuation of the unsold portion of the Town IJ development as at 30 June 2011. However, she was not provided with this information. Instead, the valuation of Mr HN only captured other stages of the development as at 15 May 2012, which did not include the contentious stage ZA nor any lots sold between 1 July 2011 and 15 May 2012 (Affidavit at [11]-[12]).
Mr HY analysed Mr HN’s valuation of the Town IJ subdivision, which adopted two valuation methods. Mr HN concluded the Town IJ development had a value of $3,150,000 under the “Direct Comparison” method. Using the “Discounted Cash Flow” methodology, Mr HN found the project would be realised over a 76 month period, with a 35 month payback period, development margin of 31.73 per cent and a project internal rate of return of 28.55 per cent (Affidavit at [14]-[18]).
The value of the unsold lots in stages A, B, C, D, E, F, and G of the Town IJ development was then considered. In comparing the approach adopted by Ms CCC and Mr HN, Mr HY makes the following remarks:
22.However what neither the schedule at page 90 of the [CCC] Report or the values adopted in the Judgement accounted for was the risk of the development and the time taken to realise the cash flows, as Mr [HN] did in his discounted cash flow calculation where he concluded an appropriate internal rate of return was 28.55% and the cash flows would be realised over a 76 month period. Mr [HN’s] approach is supported by Mr Wayne Lonergan in his text The Valuation of Businesses, Shares and Other Equity (4th edition)…
…
23.Given Mr [HN’s] concluded appropriate internal rate of return of approximately 30% and the possible time taken to sell the lots in question (Mr [HN] noted that historically the [Town IJ] subdivision had achieved average sales of 3.09 lots per month) the risk adjusted present value of the unsold lots could be materially less than the value adopted in the Judgement.
24.I also note that Mr [HN’s] internal rate of return was for a land subdivision. The unsold lots had additional risk as the [Elgin] Group was constructing dwellings on many of them, thereby resulting in additional working capital requirements.
(original emphasis)
Finally, Mr HY considered the value accorded to stage ZA of the Town IJ development. In concluding that the valuation was incorrect, Mr HY argues in [27] of his affidavit that Ms CCC:
…
- Did not undertake a discounted cash flow per the hypothetical development methodology detailed above, and therefore did not take into account the risk of the development and the time it would take to realise (I note I am advised that there are currently unsold lots in Stage [ZA], approximately 2 years after Ms [CCC’s] report)
- Did not comment as to whether she had investigated the pre-sale of Stage [ZA] as noted by Mr [HN] and whether that was different to the call option terms she relied upon
- Did not comment as to whether the earth and civil works were complete and whether additional costs were to be incurred to have the lots available for sale (at page 27 of his report Mr [HN] commented that Stage [ZA] was “currently under construction”).
Mr HY therefore concluded:
28.I consider the methodology adopted by Ms [CCC] in the valuation of the [Town IJ] subdivision to be flawed and the value to be overstated as it did not account for the operating costs of the entities or the risk resulting from the time needed to realise the cash flows from the sale of the lots.
The evidence of the experts reveals a substantial dispute. It is submitted on behalf of the wife that the approach taken by Mr HY was in error and contrary to the evidence and unchallenged findings by the primary judge, so that it is unlikely it would have been accepted or altered the result. It is useful to set out the written submissions on behalf of the wife in this respect, where reference is made to the 27 May 2014 affidavit of Mr HY:
6.For instance at paragraph 10(a) of his affidavit Mr [HY] says that the judgment adopted a value of $1,010,168 greater than his for the [Mr Elgin] Family Trust and that was because he excluded that entity’s interest in [Elgin] Development Trust. His Honour expressly found that the [Mr Elgin] Family Trust held that interest. Mr [HY] ignores that finding and prefers the contrary instructions.
7.At paragraph 10(c) of his affidavit Mr [HY] identifies that for [Elgin] Finance Pty Ltd the judgment value is $3,464,997 greater than his. He attributes $600,053 of that to his writing off of the amount “not accepted in the judgment”. When one goes to the schedule to his report one sees that he has noted “advised non-recoverable, judgment does not agree”. Again he has not had proper regard to the findings in the preparation of his valuation.
8.Perhaps the most substantial difference in Mr [HY’s] valuation of this entity and his Honour’s is the value of the entity’s interest in [S] Unit Trust. Mr [HY] assesses this at $6,656,825 and attributes to the judgment an assessment of $9,043,061. When one goes to the schedule dealing with [S] Unit Trust ones [sic] sees that the major component of this difference is a difference in the assessment of the inventories – work in progress and the comment in that schedule shows that Mr [HY] has adopted the value in accordance with the [DM Accountants] [sic] report corrected to be net of GST.
9.Regrettably the correction made by Mr [HY] is contrary to the evidence. As Ms [CCC] points out at page 3 of her report paragraph 5 the market value prepared by the real property valuer was market value assessed “exclusive of GST”. The relevant real property valuation was before his Honour and the relevant notation quoted by Ms [CCC] may be found at AB Vol 4, p684.
10.The above mentioned examples demonstrate that in arriving at his valuation of entities, Mr [HY] has erroneously made assumption [sic] that are contrary to the findings or evidence and which reduced his assessment of value by $3,996,457 at least.
(original emphasis, footnotes omitted)
The wife is also seeking to adduce further evidence. Specifically, the wife seeks to rely on the affidavit of Ms CCC filed 18 July 2014.
Affidavit of Ms CCC filed 18 July 2014
It is apparent that Ms CCC read the judgment of Forrest J delivered on 17 January 2014 and reviewed the affidavit of Mr HY filed 27 May 2014. The findings of her review are set out in Annexure A to the affidavit.
As to the judgment, Ms CCC concludes that there were calculation errors in the judgment and calculates the overall discrepancy being $324,760. Ms CCC explains where in the judgment these errors can be found and provides amended calculations for each error.
As to Mr HY’s affidavit, Ms CCC strongly disagrees with his view, describing them as “material inaccuracies”. These are set out below:
[U] Joint Venture...
1)The calculation error in the value of the other 22 units (being the 4 complete and 18 undeveloped units) detailed at paragraph 139 of the Judgment in relation to the GST allowed of $311,636 has not been amended in Mr [HY’s] calculations, nor has the immaterial calculation error of $500 detailed at Note (4) above;
2)The value of the joint venture has not been attributed to the parties to the joint venture correctly. Mr [HY] simply divides the value of the venture, as calculated by him, between the parties on the basis of their interests in the joint venture. This does not account for the differential amounts owing to each partner, per their respective partner funds, as at 30 June 2011, as detailed in the 2011 financial statements…;
[T] Unit Trust…
3)The loan owing by D. [TT] of $5,000 has been excluded in the calculations of Mr [HY], although specifically included per paragraphs 125 and 126 of the Judgment;
[S] Unit Trust…
4)The loan owing by [GC] of $90,000 has been excluded in the calculations of Mr [HY], although this debt is not mentioned in the Judgment; and
5)Mr [HY] appears to adjust the market value of the property development owned by [S] Unit Trust for GST (as per his comment in the schedules “Adopted value per [DM Accountants] corrected to be net of GST”) although it is specifically stated in the [GR Valuers] valuation report dated 15 May 2012 that market value has been assessed exclusive of GST (refer Section 6.5 of that report).
Conclusion – Further Evidence
In view of the serious controversy to which only some reference has been made, it is impossible for an appeal court to reconcile the differences. To attempt to do otherwise would make the mistake cautioned against in [111] of CDJ, to obliterate the distinction between original and appellate jurisdiction. In addition, to the extent that Mr HY makes assertions and relies on facts contrary to findings of the trial judge, it is difficult to see how the evidence of Mr HY, now, would have altered the result that is, the orders made by the trial judge.
The affidavit of the husband does not assist in relation to a most important circumstance, that the taxation consequences were overlooked. As Mr North points out, the evidence was received on 20 July 2012, judgment was delivered on 17 January 2014. There was no application by the husband to re-open in relation to this issue. The application to admit the husband’s affidavit in both appeals as further evidence should be refused.
The further evidence of Mr ZY does not demonstrate that the trial judge was incorrect in his assessment of how the evidence of Ms CCC could be managed. The matters raised are in relation to the Town IJ valuations and could have been the subject of evidence before the trial judge. The other evidence relates to events since the trial. It does not assist the adjournment appeal but does demonstrate that should the substantive appeal be allowed there is sufficient controversy that these matters, in the interests of justice, should be re-litigated.
The application of the husband in relation to Mr ZY and Mr HY to adduce further evidence in relation to the adjournment appeal should be refused but permitted in relation to the substantive appeal to demonstrate that a further trial in relation to these issues is necessary to do justice between the parties.
The affidavit of Ms CCC should be admitted for the same reason.
Relevant Law – Appeals against refusal to grant an adjournment
A decision of a trial judge in granting an adjournment is generally regarding as falling within the category of ‘practice and procedure’. In Bloch v Bloch (1981) 180 CLR 390, Wilson J said at 395:
The decision whether to grant or refuse an adjournment lies in the discretion of the trial judge, and it is indeed seldom that an appellate court will feel justified in reviewing such a decision. …
In Sali v SPC Limited (1993) 67 ALJR 841 the High Court in the context of considering the proper approach to the refusal by an intermediate state court of appeal to allow an adjournment, discussed whether a judge is entitled to consider the effect of an adjournment on court resources and other litigants. Of this their Honours Brennan, Deane and McHugh JJ said at 843 after referring to an English Court of Appeal decision Maxwell v Keun [1928] 1 KB 645 at 650 for the general principle that:
…[A]lthough an appellate court will be slow to interfere with the discretion of a trial judge to refuse an adjournment, it will do so if the refusal will result in a denial of justice to the applicant and the adjournment will not result in any injustice to any other party. That proposition has since become firmly established and has been applied by appellate courts on many occasions.
Reference was then made to a further proposition contained in the English decision that “an adjournment which, if refused would result in a serious injustice to the applicant should only be refused if that is the only way that justice can be done to another party in the action”. Their Honours said of this:
…However, both propositions were formulated when court lists were not as congested as they are today and the concept of case management had not developed into the sophisticated art that it has now become.
In determining whether to grant an adjournment, the judge of a busy court is entitled to consider the effect of an adjournment on court resources and the competing claims by litigants in other cases awaiting hearing in the court as well as the interests of the parties. As Deane J pointed out in Squire v Rogers this “may require knowledge of the working of the listing system of the particular court or judge and the importance in the proper working of that system of adherence to dates fixed for hearing”. What might be perceived as an injustice to a party when considered only in the context of an action between parties may not be so when considered in a context which includes the claims of other litigants and the public interest in achieving the most efficient use of court resources.
(footnote omitted)
In the judgment of Toohey & Gaudron JJ it was said that (at 846):
A decision by a court to grant or refuse an adjournment of proceedings is a decision made in the exercise of a discretion vested in that court. It is therefore a decision which will not lightly be set aside on appeal.
(footnotes omitted)
To the extent to which it is necessary to add to this, reference was made by counsel for the wife to Aon Risk Services Australia Ltd v ANU (2009) 239 CLR 175 to emphasise the relevance and the occasions a court may consider the implications of case management in the context of any injustice which might be occasioned to either party. In dealing with the suggestion that principles of case management should only be employed in extreme circumstances their Honours at [94] made it entirely clear that this is not necessarily so:
…Where a party had had a sufficient opportunity to plead his or her case, it may be necessary for the court to make a decision which may produce a sense of injustice in that party, for the sake of doing justice to the opponent and to other litigants.
(footnote omitted)
In the submissions of counsel for the wife reference was also made to [102]- [103] and [112] of that decision. While Aon was concerned with an application for leave to make a late amendment to pleadings it is obvious that the contents of these passages apply also to a decision as discretionary as whether an adjournment of a trial should be allowed. It is unnecessary to refer any further to matters of general principle in this respect.
Forrest J was entirely correct in taking into account the unlikely possibility of the matter being heard within a short time frame and the effect on court resources should the trial be adjourned.
Conclusion
So, it can be seen that the matters taken into account by the trial judge were correct. It is then necessary to look at the particular issues raised in the grounds of appeal, the first being 1 (aa), the finding that the husband was:
…“[D]irectly involved and responsible for” the delay in the provision of that single expert report.
The chronology provided by each party is relevant to this issue. The submission on behalf of the wife that the evidence before his Honour established that the husband embarked upon a course of conduct which had the effect that valuations were not available to the parties until the eve of trial (submissions [17]) has some basis.
It can be seen from the chronology of the wife that his Honour was entitled to conclude that the husband made a considerable contribution to the lateness of the report. We are also asked, by counsel for the wife to note that the findings of his Honour in the adjournment judgment contained in [18]-[20] in relation to the valuation of the Town IJ development were not challenged on appeal. Thus there must be a limited basis for this part of the challenge said to underpin any difficulties with the CCC report and his Honour’s decision to refuse the adjournment.
The second aspect of this challenge is contained in Ground 1 (aaa) – that is, that there was procedural unfairness. It can only be said that the husband’s own conduct from at least February 2012 led to the difficulties about the valuation reports for Town IJ not being received until about 22 June 2012 and therefore contributing at least in part to the lateness of the CCC Report. It cannot be said that the husband was not given an opportunity to properly provide the information to the valuer. If anything, there was substantial unfairness to the wife in the manner in which the husband approached the matter, in particular the valuation of the Town IJ development. It is important to recall that the documents and information relevant to valuation of the Elgin Group were in the possession of the husband.
The third aspect of this matter, Ground 1(c), is that the judge was wrong in concluding that any prejudice to the husband could be remedied by cross-examination and the calling of evidence. As said earlier, it is easy to be critical in hindsight. The husband was able to quickly produce a report from Mr HY which, albeit briefly, set out the substance of the husband’s concerns.
It is of significance that the criticisms that are in the report prepared for the adjournment application included an assertion that Ms CCC had proceeded on erroneous facts or assumptions. The criticisms were not in relation to the methodology. For example, Mr HY considers the CCC Report“...significantly overstates the value of the [Town IJ] [development]…”. As the basis for this criticism, Mr HY notes:
- I am advised that the proceeds from sales during the period July 2011 and May 2012 have been reinvested in the project and used to pay further development costs. Therefore the value of the sale proceeds should be reflected in an increased value of the land on hand, including Lot [ZA]…
…
- The [CCC Report] adopts selling costs of 5% on the unsold lots. I am advised by Mr [WX] that the expected commission is approximately 20% for raw blocks of land and $72,500 per duplex house and land package.
It is understandable that his Honour thought that such issues could be dealt with through further evidence being called and cross-examination.
The other complaint is that the husband was unfairly treated in that he was not able to lead evidence of the taxation consequences of extracting funds from the Elgin Group to pay to the wife. As Mr North submits in [16] in relation to the substantive appeal NA 6 of 2014:
The valuation of particular entities does not vary as a consequence of taxation liabilities incurred in the event that assets held within an entity are sold. Notwithstanding the submissions of the [husband] it is noteworthy that neither Mr [HY] in his report on valuation nor Ms [CCC] in her report performed a taxation calculation such as that now performed by Mr [HY]. That is simply because the taxation consequences arising as a result of transactions entered into in order to comply with an order of the court are not matters affecting the value of the entities held by the parties. Paragraphs 2.5 and 2.6 of the [husband]’s submissions conflates issues of valuation and issues of taxation consequences of compliance with orders.
(footnotes omitted)
Then in [48] of his submissions in relation to the adjournment appeal Mr North submits:
…It assumes that a taxation liability occasioned to one or other of the parties or entities under their control arising, as a consequence of satisfying the judgment of the Court can only be brought into account if the calculation of the likely or possible tax consequences is performed and forms part of the evidence…
Unfortunately, neither of the parties asked the court to make orders with respect to any such taxation liabilities other than the order as sought by the wife in general terms contained in [7] of the orders.
It has not been demonstrated that the trial judge erred in his discretion to refuse the adjournment. It is apparent that the husband was not solely responsible for the delay and some fault lay with Mr HN. The husband’s inaction certainly contributed to the problems faced on the first day. The wife made no contribution to the difficulties.
There is no question that leave to appeal is required (s 94AA(1) of the Family Law Act 1975 (Cth) (“the Act”) and reg 15A(1) of the Family Law Regulations 1985 (Cth)). In this case, it cannot be said that a substantial injustice would result if leave were not granted nor that there is sufficient doubt about the correctness of the decision to warrant an appeal. There is little merit in the adjournment appeal, leave should not be granted.
Appeal from the final orders (the substantive appeal)
The appeal from the final orders involves three complaints contained in appeal Grounds 3 and 5. In Ground 3 it is correctly stated that despite the CCC report specifying in paragraph 2.11, in the Summary and Conclusions section located at the beginning of the report:
I have not considered the effect of future Capital Gains Tax (CGT), income tax or Goods and Services Tax (GST) on the realisation of the assets of the entities or the parties’ interests in the entities, with the exception of notional income tax calculations for those entities that hold properties for sale, not investment purposes. Should assets be sold or transferred between the parties as a consequence of these proceedings, the tax consequences and any other realisation costs must be considered prior to the finalisation of any orders.
No consideration was given by the judge to this important aspect.
The first complaint, Ground 3(a) is that as there was no consideration of such impact, the judge made final orders in the absence of evidence in this respect so that he could not have properly decided whether such orders were just and equitable as required by the Act. The second – Ground 3(b) – there was error in ordering that the husband indemnify the wife (Order 7) in relation to taxation liabilities.
Third, Ground 5 which is repeated here:
5.Given the inordinate delay in determination of the proceedings, his Honour erred:
(a)in the calculation of the net property pool and, in particular, [Elgin] Finance Pty Ltd, [R] Pty Ltd and [Elgin] Unit Trust;
(b)in that the Reasons are inadequate to enable an understanding of the calculation of the net property pool and, in particular, [Elgin] Finance Pty Ltd, [R] Pty Ltd and [Elgin] Unit Trust;
(c)by failing to give any or any proper regard to the parties’ financial position at the time of determining the proceeding.
In considering this aspect of the appeal, it should be acknowledged, first, that no one in the case asked for orders in relation to the impact of tax as flagged by Ms CCC in paragraph 2.11. Secondly, it is necessary to refer to the judge’s reasons as to how he considered the orders were just and equitable. Thirdly, it is necessary to refer to the judge’s findings in relation to the valuation of a number of different entities in particular Elgin Finance Pty Ltd, R Pty Ltd and Elgin Unit Trust.
Ground 5(c) can be disposed of immediately. While noting the delay between the close of evidence and the delivery of judgment it cannot be said that it is the responsibility of a trial judge to ask the parties if they would like to re-open the evidence. In this case the parties each had the benefit of sophisticated legal teams. That application was not made by the husband. It is too late in this appeal to make such a complaint.
The essence of the orders is as follows:
Within 45 days
(1)The husband pay the wife the sum of $15,432,457;
(2 & 3)The husband transfer to the wife, at her expense, three properties namely an apartment in Melbourne known as “C Street” and two apartments on the Gold Coast known as “Apartment D and Apartment G;
(4)The husband as director of Elgin Finance Pty Ltd transfer to the wife, at her expense a Gold Coast apartment known as “Apartment G”;
(5)The wife to indemnify the husband in respect of all outgoings past, present and future for those properties;
(6)Then, at the expense of the husband and upon full payment to the wife of $15,432,457 the wife:
(a)Transfer to the husband or his nominee, her shareholdings in the entities listed in the Schedule to the Orders;
(b)Sign all documents to transfer her right, title and interest in the entities and resign as an office holder;
(c)Transfer and/or assign to the husband any entitlement she has in respect of the entities or under any trust which the husband or any of the entities is trustee including loan account entitlements thereby renouncing entitlements to any loan account or beneficiary entitlement in any or those entities or trusts;
(7)The husband indemnify the wife in respect of all past, present and future liabilities arising as a result of the orders (save for any liabilities associated with C Street, Apartment D and Apartment G), or from her involvement in the entities or in any trust of which he or any of the entities is trustee including any and all taxation liabilities;
(8)The husband is restrained from attempting to recover any monies allegedly owed by the wife or H Pty Ltd and that he indemnify the wife and H Pty Ltd with respect to any liability;
(9)The husband to relinquish control of the J Elgin Family Trust in favour of his son or nominee.
(10)Otherwise the parties be entitled to ownership of all real property in their name together with any chattels.
On 2 May 2014 the trial judge granted a stay, subject to conditions as to disclosure. We were informed that the terms of the orders have been complied with in some respects, the husband making payments or transferring property to the wife said to be of a value of $11,727,504.
Reasons of the trial judge – Final Orders
As the trial judge explained, the dispute between the parties centred on the percentage that each should receive – the husband contended he should have 70 per cent, whereas the wife contended she should have 52.5 per cent. As mentioned earlier, there is no appeal from the decision that the parties’ property should be divided equally.
The second issue in the matter before the trial judge was a dispute in relation to the value of some of the assets as summarised in paragraph 11 of the reasons. This list included the following:
(xi)The values to be attributed to certain lots in a property development being undertaken at [Town IJ] in Queensland as at 15 May 2012 that were not valued by the single expert real property valuer to be used in determining the valuation of a number of the entities being considered in determining the appropriate property adjustment orders;
(xii)The value to be attributed to all of the lots in another particular stage (stage [ZA]) of that [Town IJ] property development as at 15 May 2012 that were also not valued by the single expert that is also to be used in determining the valuation of those entities;
(xiii)The amount to be attributed to commissions paid in respect of sales of lots in the [Town IJ] development between 1 July 2011 and 15 May 2012 in the process of determining the valuation of those entities;
Although the issues concerning valuation are integral to the adjournment appeal, the appeal ground in relation to the final orders concerning Town IJ was not relied on in the consolidated Grounds of Appeal.
There is a dispute in relation to the value of a number of entities. It is argued that the errors made in this respect are in the order of $12 million. There was some agreement in this respect.
It is of note that of the alleged errors identified by Mr HY, at least $324,760 of that amount is conceded by Ms CCC. This was acknowledged in her affidavit filed 18 July 2014 and also in the oral submissions of counsel for the wife (Transcript of appeal, p 141, l43).
It is appropriate to first deal with the issues arising from Ground 5(a) and (b) and then with the serious difficulty of taxation consequences not being taken into account.
Errors in calculation and values of entities – Ground 5(a) and (b)
The following entities are those relevant to the ground of appeal:
Elgin Finance Pty Ltd (“Elgin Finance”);
R Pty Ltd; and
Elgin Unit Trust (“Elgin Trust”).
The judge dealt with these issues discretely. It is convenient to recount separately those parts of the judgment of the trial judge relevant to each entity.
It is also worth noting that if judgment had been delivered in a timely fashion, the husband would have been left in the same position in which he now finds himself. It was his case that he should retain the property developments, rather than them being wound up and the proceeds divided in fixed proportions. He therefore would have shouldered the entire burden if the market dropped and would have reaped the entire benefit if it improved. As it turned out, what he achieved by the delay was much more time in which to find the funds to pay out the wife, who was in the meantime left without the benefit of the settlement to which she was clearly entitled.
For these reasons, we find no merit in this part of the complaint.
Ground 5(a) – Error in calculation of the net property pool
The argument advanced in support of this complaint in our view depends for its success upon the fate of the husband’s applications to introduce further evidence, since nothing put to us demonstrated any errors by the trial judge in “calculation of the net property pool” save for those conceded by the wife (and which will be discussed when we come to Ground 5(b)).
May J has referred to the husband’s application to rely upon evidence of his accountant, Mr ZY, which is said to establish that the development at Town JK resulted in a loss of $2.42 million and the development at Town IJ resulted in a loss of $3.28 million.
In opposing the application to rely upon Mr ZY’s affidavit, senior counsel for the wife:
· submitted that the application must be considered in light of the husband’s contention that receipt of the evidence would result in a re-hearing of the entire proceedings and not just a reassessment of the value of the assets;
· drew attention to the fact that many matters referred to by Mr ZY (i.e. sales and expenses incurred) occurred prior to the delivery of judgment in January 2014, but were not the subject of an application to reopen, even after the husband learned in November 2013 that judgment was imminent;
· submitted that it could not be assumed that the evidence was uncontentious, given that it “relates to matters peculiarly within the knowledge of the husband”, and given that the husband had previously “presented evidence to the court that did not withstand appropriate scrutiny”;
· referred to the prejudice the wife would suffer if required to embark upon an assessment of the accuracy of the further evidence, noting that “some of the expenses appear extraordinary and appear to lack commerciality”;
· submitted that the husband’s conduct leading up to the trial demonstrated “an approach to this litigation which is consistent with a desire to stave off a final resolution and a final satisfaction of the [wife’s] just entitlement”;
· cited well-established authority to the effect that a decision not to call evidence at first instance will ordinarily tell decisively against any application to rely upon further evidence on appeal;
· noted that notwithstanding the contribution assessment was not challenged on appeal, the husband wished to revisit that issue if successful in securing a re-trial, and that it was reasonable to infer he had made a tactical decision not to reopen in order to advance his prospects of obtaining a re-trial;
· observed that Mr ZY’s calculations overlooked the sale of one lot in the Town IJ development, which he had noted was “under contract”; and
· submitted that Mr ZY, as an accountant, lacked the required expertise to give evidence about the value of the unsold lots.
In his oral submissions, senior counsel for the wife also submitted that the husband had failed to provide us with the full picture about his property empire because he had provided updated evidence concerning the position of only some of the entities and not others. In particular, it was suggested that the husband might have diverted profit away from the entities owning the properties and toward L Pty Ltd, the entity developing them.
Senior counsel for the husband sought to counter this argument by tendering the accounts of L Pty Ltd for the two years ended 30 June 2012 and 30 June 2013. Senior counsel for the wife opposed the receipt of these accounts, arguing that they raised more questions than they answered. He also observed that the accounts for 2013/14 had not been produced in circumstances where many of the sales and expenses referred to in Mr ZY’s affidavit had occurred after 30 June 2013.
We received both sets of accounts of L Pty Ltd in order to allow us to rule on whether they should be received as further evidence. The accounts recorded negligible profit in each year. However, as senior counsel for the wife observed, one of the main items of expenditure in each year (about $3 million) was a payment to I Pty Ltd, which was another of the husband’s entities. Senior counsel for the wife also drew attention to the fact that the major variation between the two years was an increase in building costs from $1.75 million to $7.29 million, and it is unclear to whom that money was paid.
These facts all led senior counsel for the wife to submit that the husband was “cherry picking”, and to argue that we could not be satisfied that there was a change in the husband’s overall position as significant as might first appear from Mr ZY’s affidavit. He submitted that all that could be taken from the affidavit was that there was “a change for one entity in a very complex group”.
In our view, there is much merit in the submissions made by senior counsel for the wife, although we were not persuaded that we can infer that the husband’s conduct of matters after the trial was as strategic as was suggested.
Ultimately, as the High Court said in CDJv VAJ (1998) 197 CLR 172 at [104], in disposing of applications to admit further evidence, “the critical factor is the subject matter of the proceedings”, and that when exercising the discretion, the appellate court “weighs factors” rather than applies “fixed rules”. Importantly, the High Court went on to say at [111]:
The power to admit the further evidence exists to serve the demands of justice. Ordinarily, where it is alleged that the admission of new evidence requires a new trial, justice will not be served unless the Full Court is satisfied that the further evidence would have produced a different result if it had been available at the trial. Without that condition being satisfied, it could seldom, if ever, be in the interests of justice to deprive the respondent of the benefit of the orders made by the trial judge and put that person to the expense, inconvenience and worry of a new trial.
The subject matter of these proceedings was the division of the wealth of a couple who the trial judge described as being in the “twilight of their lives”. Now aged in their mid-70s, the parties separated over six years ago and have been litigating for five years. We have very little information concerning what has been happening in their lives since the trial more than three years ago, save for controversial evidence about the two developments already mentioned. Even on the husband’s calculations, he will be left with assets to a value of nearly $7 million if the judgment is left undisturbed. If the appeal is allowed in relation to the taxation issue, his position will improve by over $2 million.
Having sought to reopen on a relatively minor issue soon after the trial ended, the husband then elected not to apply to reopen after a much longer time had elapsed and in circumstances where he must have known about the alleged deterioration in the value of the developments. If he succeeded in having the further evidence introduced, and thereby secured a retrial, the parties would be condemned to what could be further years of litigation and expenditure of very large amounts on legal fees. In our view, the interests of justice do not require introduction of the further evidence and speak strongly against a retrial.
It is important also to recognise that in exercising the discretion conferred by s 79, the Court is obliged to achieve justice rather than precision. The complaints therefore stand to be considered in light of the fact that the Court is applying a broad brush, rather than undertaking an exercise in mathematics or accounting (Bolger & Headon (2014) FLC 93-575).
We therefore find no merit in this complaint.
Ground 5(b) – Inadequacy of reasons relating to calculation of the property pool
This ground relies upon further evidence in an affidavit of Mr HY, a forensic accountant, which the husband says “reveals an inability to reconcile the adjustments made to the [single expert’s] report by the Trial Judge and which, in turn, exposes the inadequacy in the assessment of the net property pool”.
Senior counsel for the husband sought to illustrate this assertion by reference to what were said to be two errors made by the trial judge.
The first of the alleged errors concerned the decision to bring to account certain lots at Town IJ at a value much less than had been assumed by the single expert. This, in turn, was said to impact on the value of [R] Pty Ltd, which in turn impacted on Elgin Finance Pty Ltd. The impact was said to relate to “taxation consequences” that were quantified at $186,000. In support of this proposition, reference was made to paragraph 10(11) of Mr HY’s affidavit. There is no such paragraph in the affidavit but, assuming the intended reference was to paragraph 10(d)(iii), the figure given by Mr HY was $171,000.
Senior counsel for the wife did not address this complaint, however, we were not taken to any submission, or any question put to the single expert, which would have alerted the trial judge to the claimed flow-on effect of reducing the value of the lots. In any event, the amount in issue is de minimis, as evidenced by the following answer given by the husband in cross-examination at trial:
... Whatever the balance may be, I have no cash – when I say “no cash”, I might have a few hundred – a couple of hundred thousand dollars which I pay weekly for the – for the expenditure of – for the development up in [Town IJ] and cleaning up [the Town JK property]... (Transcript 19 July 2012, p 60)
The second of the alleged errors concerned [119] of the judgment, where it was recorded that the amount of a debt, which was to be written off, was $5,000 when in fact it should have been $142,168. This was not an error of the expert, but rather a transcription error made by the trial judge.
The single expert referred to this error in her affidavit sworn 20 June 2014, on which the wife sought to rely as further evidence in the appeal. The affidavit annexed a report setting out the expert’s comments arising from a review of the judgment and from consideration of the first of the affidavits of Mr HY upon which the husband now seeks to rely. The single expert’s report drew attention to “calculation errors” in the judgment, not all of which had been mentioned by Mr HY. Her report then set out a table showing the effect of the errors, which had led to the overvaluation of the asset pool by $324,760.
The wife conceded that the trial judge had made the errors identified by the single expert, and gave a written undertaking that she would not seek to enforce her entitlements to the extent of one half of the amount of the errors. Senior counsel for the husband conceded that the mistakes were “slip rule” errors and he expressed his satisfaction with the written undertaking given by the wife.
There is accordingly no warrant for appellate intervention in relation to this part of the complaint, and there is therefore no merit in Ground 5.
Ground 1 – Failure to grant the adjournment
We agree with May J that leave should not be given to the husband to appeal the adjournment decision. We generally agree with her Honour’s reasons for so concluding, but wish to make some further comments.
Husband’s contribution to the late provision of the expert report
We accept the wife’s submission that refusal of the adjournment must be seen in the context not only of events occurring after the hearing on 18 April 2012, but also in light of the prior history of the litigation. Consideration of that history persuades us that it was open to the trial judge to find that the husband had contributed to the delay in the valuations, which in turn contributed to the single expert’s report being published so late.
Importantly, the husband’s earlier conduct was such that the trial judge had been moved to make the following notation in his orders of 18 April 2012:
Should the Trial Judge be satisfied that the husband has refused or neglected to cooperate with the single experts in respect of the preparation and provision of any of their reports, then the Trial Judge shall give consideration to hearing the wife’s application on an undefended basis.
We also accept that part of what the single expert described as the “nightmare” with which she was presented so close to the commencement of the trial arose from instructions given by the husband’s delegate.
Error in methodology relating to the Town IJ development
As we understand the complaint, if the adjournment had been allowed, the husband would have had more time to consider the single expert’s report, and would have realised that her treatment of the unsold Town IJ land was flawed because she failed to account for holding costs and the “risk resulting from the time needed to realise the cash flows from the sale of the lots”. However, we accept the wife’s argument that the husband was “part author” of the delay in publication of the report and that his delegate gave the advice that led to at least part of the difficulty associated with the treatment of the unsold lots.
We are also not persuaded that the husband would, in fact, have appreciated what he now submits is a flaw in the treatment of the Town IJ lots had he been given more time to consider the report. Senior counsel for the wife properly characterised this part of the complaint as “belated”. It was not raised in the grounds of appeal in February 2014, and no mention was made of it the Outline of Argument filed in May 2014. The issue emerged only in the second affidavit of Mr HY, filed on 23 July 2014, immediately prior to the deadline for filing of applications to rely on for further evidence.
Furthermore, apart from some references to information that could be gleaned from the accounts of the entities, we were not taken to any evidence on which the single expert, and hence the Court, could have relied in making some assessment of the holding costs and risks associated with the unsold lots. If this was as significant a matter as the husband now asserts, then it ought not to be assumed that it was the responsibility of the single expert to ferret out the information. Instead, it should have been volunteered by the party who sought to rely upon it, and who was uniquely well placed to provide evidence of the time it might take to dispose of the lots. Note, by contrast, the husband’s evidence about the speed with which he expected to be able to dispose of the lots in the Town JK development.
In our view, the time at which the husband should have presented information to assist the expert to make allowance for holding costs and risk was when she was given the list prices of the unsold lots. In proceeding, as she did, using the list prices, we consider the expert was entitled to assume she was applying an agreed methodology. Reference to the transcript of the teleconference convened by the expert just before the trial provides a sufficient basis for the answer she gave in cross-examination that there “can be no other implication as to why I wanted that information [i.e. the list prices of the unsold lots] and then what I was going to do with it”.
To the extent that it is now suggested that the accounts of the entities should have demonstrated to the expert that there were holding costs, those accounts were already in evidence and thus could have been put to the expert or used to found a submission to the trial judge to take account of the holding costs. Neither of those things occurred.
Finally, senior counsel for the wife ably demonstrated that the magnitude of the result of the alleged flawed methodology was not as significant as it was made out to be. He also drew attention to inconsistencies that emerged from the evidence of Mr ZY which suggested that there were nine more lots in the development than the single expert had understood there to be – which, if true, would more than compensate for failure to account for holding costs and risk.
Extent to which prejudice could be alleviated by cross-examination
We do not consider his Honour erred in opining that any prejudice to the husband as a result of late provision of the report could be addressed by cross-examination and by giving leave to the husband to call (non-expert) evidence.
Much of the argument advanced on behalf the husband assumed that the single expert would have improperly refused to accept propositions put to her in cross-examination concerning assumptions she had made or methodologies she had employed. We accept the submission of the wife that there was no reason to make such an assumption about a well-qualified and experienced single expert. Indeed, the transcript reveals that the expert was prepared to recast her views and to make new calculations “on the run” to take account of changed positions and assumptions. In some instances, matters on which the husband now seeks to appeal were simply not put to the single expert and hence there is no way of knowing whether she would, in fact, have changed her views.
The complaint also seemed to proceed on the basis of a premise that the husband would not have been permitted to give oral evidence if the expert had proceeded on an inaccurate understanding of factual matters. There is no basis for such a proposition, as the husband was permitted to give oral evidence which, in the case of the Town IJ development, resulted in a $2.79 million change to the assessment of the single expert. Furthermore, the husband’s accountant Mr WX was permitted to give evidence of costs associated with Stage ZA at Town IJ, and this evidence also led to adjustments to the figures originally proposed by the single expert. Similarly, Mr WX was permitted to give evidence dealing with commissions on sales at Town IJ and this too resulted in a significant adjustment to figures proposed by the single expert. (Reasons at [140], [157] and [165].)
Complexity of the matter
Senior counsel for the husband was at pains to emphasise the complexity of the matter as a reason for finding that the trial judge erred in forcing the matter on in the face of the late publication of the single expert’s report. However, the husband’s representatives were in a position, long before trial, to become familiar with the complexities. As was pointed out during argument, much of the documentary evidence relied upon by the expert had been provided to her by the husband. The husband had also had the valuation of the real estate since 22 June 2012. It was therefore not a case of the husband’s advisers having to start from “scratch” upon delivery of the expert’s report.
Even now, with the opportunity to advance further evidence, the husband has not pointed to any matters of real significance that would put in doubt the methodology or findings of the single expert. Thus, for example, while senior counsel for the husband emphasised the complexity for the cross-examiner arising from the fact that there were “proportional interests ... held in each of the respective companies” he conceded that the expert had not misunderstood the way in which the interests were held, and there was no suggestion that she made any error in her treatment of them in determining the value of each entity.
Inability to call Mr J Elgin as a witness
The husband originally had not sought to adduce evidence from the parties’ son, Mr J Elgin, but then sought to adduce two affidavits from him on the last day of the trial. Permission to rely upon the late affidavits was refused, and there was no ground of appeal directed to that decision.
In any event, senior counsel for the husband argued that if the trial had been adjourned, the husband would have had an opportunity to provide evidence from Mr J Elgin dealing with issues which the husband claimed emerged only after the publication of the single expert’s report.
Part of the husband’s complaint here is that the Mr Elgin Family Trust was overvalued because it took into account an interest in the Elgin Development Trust, which the husband said he held on trust for Mr J Elgin. For the reasons given by the trial judge at [87], there can be no doubt that the husband had ample opportunity to lead evidence from Mr J Elgin about this issue. The husband should have been on notice since not later than 18 April 2012 that the issue was controversial, yet he said nothing about it in his own affidavits, and did not seek to adduce evidence from Mr J Elgin until the last day of the trial. It should also be observed that the husband was permitted to give oral evidence on the topic at trial, but his evidence was not accepted.
Similarly, we do not accept that the husband was denied procedural fairness in not being able to adduce evidence from Mr J Elgin relating to [R] Pty Ltd (as to which see [72] to [82] of the reasons of the trial judge which have been recited by May J, and see also [110] of the trial judge’s reasons).
There was a third issue relating to Mr J Elgin which concerned the J Elgin Family Trust. Although the husband was the appointor, and although the single expert treated the assets of the trust as being under the control of the husband, the trial judge accepted the husband’s evidence about this entity. He did so notwithstanding the husband had initially failed to give any evidence at all on the topic, and was able to place his case before the court only after being given permission to adduce further evidence after his cross-examination had finished. (Reasons at [68].)
Conclusion on Ground 1
Ultimately, the decision to refuse an adjournment was a matter of practice and procedure and was made by the judicial officer who had close familiarity with the history of the litigation. An appellate court will always be loath to interfere with the exercise of discretion by the primary judge in such matters. Nothing advanced by the husband persuaded us that it would be appropriate to grant him leave to appeal in relation to the refusal of the adjournment.
The applications to introduce further evidence
We have already discussed the affidavit of the single expert on which the wife seeks to rely. It is appropriate for that affidavit to be received as it identifies what are conceded to be errors made by the trial judge, and it also demonstrates the controversy which would arise if the husband were to be given leave to rely on the further evidence on which he seeks to rely.
May J has discussed the husband’s applications to rely on four affidavits. As her Honour has noted, the applications and accompanying affidavits were filed in the substantive appeal, but were also sought to be used in the application for leave to appeal. As the husband did not need our leave to rely upon affidavits sworn in support of his application for leave to appeal, we have taken the contents of the affidavits into account in dealing with the adjournment issue.
We will now deal with each affidavit on which the husband seeks to rely in the substantive appeal.
Husband’s affidavit filed 27 May 2014
We agree with May J that the husband ought not to be permitted to rely upon his affidavit filed on 27 May 2014. The first part of the affidavit is concerned with the adjournment, and we have read that in dealing with the application for leave to appeal. The balance of the affidavit deals with the loss on the Town IJ and Town JK developments. Essentially, nothing the husband has said about those developments adds to the evidence of Mr ZY.
Mr ZY’s affidavit filed 27 May 2014
For reasons given earlier, Mr ZY’s affidavit should not be admitted.
Mr HY’s affidavit filed 23 July 2014
The second of Mr HY’s two affidavits related to the belated challenge to the methodology employed by the expert in relation to the Town IJ development. We have already dealt with this issue, and we consider the affidavit should not be received, since it does not demonstrate that the decision is erroneous.
Mr HY’s affidavit filed 27 May 2014
The first part of Mr HY’s first affidavit dealt with the adjournment and we have taken it into account in deciding that leave to appeal should not be granted. The affidavit also makes reference to the claimed losses on the two developments, but it adds nothing to the evidence of Mr ZY, which we have concluded should not be admitted.
Mr HY’s first affidavit also draws attention to differences between the values he ascribes to entities within the Elgin Group and the values as found by the trial judge. However, as senior counsel for the wife demonstrated, Mr HY has proceeded, quite impermissibly, on the basis of instructions received rather than on the basis of findings that are not the subject of appeal. For example, he has assumed the accuracy of his instructions regarding the husband’s $589,000 interest in the Elgin Development Trust, notwithstanding the finding made by the trial judge at [90]. Mr HY also preferred his instructions to the finding made at [108] concerning a loan of $600,053 to [R] Pty Ltd.
In other instances, for example relating to the recoverability of loans, Mr HY has proceeded on the basis of information that was either contrary to that given to the single expert or was information that could have been given to the single expert, but wasn’t. In this context, it is important to record that the trial judge did not simply accept all of the evidence given by the single expert, but was prepared to adjust the findings of the expert to take account of evidence that the husband gave at trial, for example concerning the recoverability of loans. It is also important to record that, in some instances, Mr HY’s affidavit proceeds on the basis of what is clearly hearsay evidence in circumstances where the husband himself could have given evidence of the relevant matters.
Other elements of Mr HY’s affidavit are at best controversial, or at worst incorrect – see for example his treatment of GST relating to the S Unit Trust and his alleged failure to take account of the significant ($2.6 million) adjustment made by the single expert that was recorded at [173] of the reasons.
Mr HY’s affidavit does, however, also deal with the taxation consequences associated with the transfer of Apartment G and the extraction of funds from the companies. In our view, paragraphs 11 to 16 of his affidavit should be received as further evidence to demonstrate the magnitude of the potential taxation consequences associated with implementation of the orders.
Re-exercise of the discretion relating to taxation
Having concluded that appellate intervention is warranted only to deal with the taxation issue, the question arises as to the form of intervention required.
Senior counsel for the wife submitted that it would be unnecessary for us to remit this issue, and proposed instead a form of order which he argued would bring about a just resolution based upon acceptance of the proposition that the tax should be borne in the same proportions as the assets are to be divided. That proposition has merit, since the husband should not have to pay more of the tax than the wife. Senior counsel for the husband conceded that it would be open to us to re-exercise if we found error only in the treatment of the tax issue.
In considering the form of order, it is important to note that Apartment G has already been transferred and the tax consequence has therefore crystallised. Furthermore, the husband has paid a substantial sum to the wife and the associated tax will also have crystallised. As the husband would presumably have arranged these transactions in the most tax-effective way, any dispute about how the tax is to be shared is likely to be confined to the way in which he elects to fund the balance owing to the wife.
It clearly would be desirable for us to make an order that would avoid any further proceedings dealing with allocation of responsibility for the tax. However, it is not feasible for us to quantify the obligations of the parties. The most we can achieve is to make a generic order, with liberty to the parties to apply at first instance to resolve any disputes that might arise about quantum.
Proposed orders
Having the benefit of the submissions of both senior counsel, the orders we propose are as follows:
· Order 7 of the orders made on 17 January 2014 be set aside and the following order made in lieu:
(7)That subject to Orders 12 and 13, the Husband indemnify the Wife in respect of all past, present and future liabilities arising as a result of the Orders herein (save for any liabilities associated with C Street, Apartment D and Apartment G), or from her involvement in the entities or in any trust of which he or any of the entities is trustee.
· The orders made on 17 January 2014 be amended by the addition of the following orders:
(12)That in the event either the Husband or the Wife incurs any taxation liability by reason of any of the transfers referred to in Orders 2, 3 or 4 hereof, the other party shall indemnify him or her to the extent of 50 percent of any such liability.
(13)That in the event the Husband incurs any taxation liability by reason of receiving dividends in order to comply with his obligations pursuant to these orders, the Wife shall indemnify him to the extent of 50 percent of any such liability (but only to the extent that the liability was reasonably incurred).
(14)In the event of dispute arising as to whether any taxation liability was reasonably incurred, the parties shall have liberty to apply to Forrest J (or another judge in the event his Honour is not reasonably available) for orders determining the extent of the wife’s obligation pursuant to Order 13.
By way of brief explanation of the form of proposed orders, we note:
·the orders will capture taxation liabilities that the husband has already incurred in complying with his obligations, since our orders will speak from the date of the original orders;
·the orders will also capture the additional taxation incurred by the husband in obtaining the extra funds needed to meet his half share of the tax payable as a consequence of the orders; and
·the orders do not contain provision for the wife to share in any responsibility the husband might incur in the event that he was to extract funds from the corporate entities for his personal use (as to which see paragraph 16 of Mr HY’s affidavit filed 27 May 2014), since senior counsel for the husband conceded that no evidence was led at trial of any desire to obtain such funds.
Although there was a measure of agreement about the core elements of the proposed orders dealing with the taxation issues, counsel should be given an opportunity to comment on the form of orders before they are formally made.
Other orders
In addition to the orders we have outlined relating to tax, the following orders will be made:
Appeal NA 6 of 2014 be allowed in part.
The application for leave to appeal in NA 24 of 2014 be dismissed.
The application of the wife filed 18 July 2014 to receive the affidavit of Ms CCC filed 18 July 2014 as further evidence in Appeal NA 6 of 2014 be allowed.
The application of the husband filed 27 May 2014 to receive the affidavit of the husband filed 27 May 2014 as further evidence in Appeal NA 6 of 2014 be dismissed.
The application of the husband filed 27 May 2014 to receive the affidavit of Mr ZY filed 27 May 2014 as further evidence in Appeal NA 6 of 2014 be dismissed.
The application of the husband filed 27 May 2014 to receive the affidavit of Mr HY filed 27 May 2014 as further evidence in Appeal NA 6 of 2014 be allowed insofar as the affidavit deals with taxation issues, but the application otherwise be dismissed.
The application of the husband filed 23 July 2014 to receive the affidavit of Mr HY filed 23 July 2014 as further evidence in Appeal NA 6 of 2014 be dismissed.
Each party be at liberty to make an application by way of written submissions in respect of costs incurred by him or her in relation to the appeal or in respect to costs certificates under the Federal Proceedings (Costs) Act 1981 (Cth) by filing such submissions and serving them on the other party within 28 days of the date hereof.
The other party have a further 14 days in which to make written submissions in answer thereto by filing and serving such submissions.
Either party be at liberty to reply to an answer by way of written submissions by filing such reply and serving it on the other party within a further 7 days.
Each party be at liberty to make written submissions in respect of the form of the proposed orders by filing such submissions and serving them on the other party within 28 days of the date hereof.
Any submissions in answer to those filed pursuant to Order 11 shall be made in writing and by filing and serving it on the other party within a further 21 days.
Each party endorse on the cover sheet the date on which a copy of any submission filed pursuant to these orders was served on the other party.
I certify that the preceding two hundred and eighty (280) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (May, Thackray & Ryan JJ) delivered on 7 August 2015.
Associate:
Date: 7 August 2015
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