Forsburg and Stubbs

[2019] FCCA 1884

FEDERAL CIRCUIT COURT OF AUSTRALIA

FORSBURG & STUBBS [2019] FCCA 1884

Catchwords:
FAMILY LAW – Property settlement – expert valuation evidence – single expert valuation report ordered – wife is now applying to call adversarial expert valuer – wife has previously commissioned her proposed adversarial expert as a shadow expert in her case – wife’s instructions to proposed adversarial expert are controversial and tainted – questions of procedural fairness – wife’s application refused.

Legislation:

Federal Circuit Court Rules 2001 (Cth), s.15.2

Family Law Rules ss.15.49, 15.49(2)(a), 15.49(2)(b), 15.49.(2)(c)

Cases cited:

Dasreef Pty Ltd v Hawchar [2011] HCA 21

Makita v Sprowles (2001) 52 NSWLR 705

Applicant: MS FORSBURG

Respondent: MR STUBBS

File Number: NCC 3046 of 2018

Judgment of: Judge Betts

Hearing date: 3 June 2019

Date of Last Submission: 3 June 2019

Delivered at: Newcastle

Delivered on: 12 June 2019

REPRESENTATION

Counsel for the Applicant: Ms Flintoff

Solicitors for the Applicant: Bourne Lawyers

Counsel for the Respondent: Mr Bithrey

Solicitors for the Respondent: Tonkin Drysdale Partners

ORDERS

1. The Wife’s application in a case filed 16 May 2019 is dismissed.

2. The Husband’s costs of and incidental to the Wife’s application in a case are reserved.

3. The conciliation conference date of 26 June 2019 is vacated.

4. The matter is adjourned to conciliation conference before Registrar Clarke at 9:00am on 23 August 2019.

IT IS NOTED that publication of this judgment under the pseudonym Forsburg & Stubbs is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT NEWCASTLE

NCC 3046 of 2018

MS FORSBURG

Applicant

And

MR STUBBS

Respondent

REASONS FOR JUDGMENT

1. These reasons for judgment were delivered orally.  They have been corrected from the transcript so as to make them easier to read.

Background:

1. The court is asked to rule on an Application in a Case filed by the applicant wife in these de facto property settlement proceedings on 16 May 2019.  Her application is opposed by the respondent husband as set out in his Response filed 30 May 2019. 

2. What the applicant wife seeks is that:

   1.       The Applicant be granted leave to rely on the valuation report of Valuer D in relation to the property situate at Street B, Town C (the former matrimonial home) dated 9^th April 2019 (the Valuer D report).

   2.     The Applicant be granted leave to provide the Valuer D report to the single expert Valuer A (Valuer A).

   3.    Within 14 days the parties liaise to arrange a conference of experts, namely Valuer D and Valuer A to address the difference in their opinion about the valuation of the former matrimonial home.

   4.     The Respondent pay the applicant’s costs of and incidental to this application in a case.

3. The respondent simply seeks that the Application in a Case be dismissed with costs, either to be assessed on an indemnity basis or such other basis as the court considers appropriate. 

4. The matter was recently argued before me on a duty day.  Ms Flintoff of counsel appeared for the applicant wife and Mr Bithrey of counsel appeared for the respondent husband.  I had reserved my decision on the matter and I thank each of the parties for being able to attend court, in the respondent’s case by telephone, at fairly short notice today so that reasons could be delivered.

The essence of the dispute:

1. These are de facto settlement property proceedings involving a relatively modest amount of property. 

2. The major asset would seem to be the real property at Town C. 

3. In the course of the proceedings, the parties consented to orders for the appointment of a single expert valuer - Valuer A (“Valuer A”).  That single expert valuation report has since come in at a figure of $265,000. 

4. The applicant wife challenges that figure and suggests that it is an under-value for a number of reasons.  The respondent husband is content with the single expert valuation.  In this regard I note that it is his intention to retain that property as part of any overall settlement, as he keeps various plant and equipment and machinery items there relating to a business that he operates.

5. It is understandable why the wife would be disappointed, given that she has since obtained her own valuation of the Town C property from Valuer D (“Valuer D”) which comes in at $430,000 - being $165,000 higher than the single expert valuation.  It is understandable that the wife seeks to put the Valuer D valuation to the single expert and otherwise seek to introduce it into evidence in these proceedings.  On the single expert valuation, the net tangible assets are $114,000 whereas on the Valuer D valuation they come to $279,000.

Material relied upon:

1. For the purposes of this proceeding I have considered the affidavit material that has been filed by each party:

   ·    in the wife’s case, her affidavit filed 15 May 2019 with annexures;

   ·    in the husband’s case, his affidavit filed 30 May 2019 with annexures. 

2. I have also looked at the competing expert reports of Valuer A and Valuer D so as to understand the issues in dispute between them.

Wife’s complaints about the Valuer A report:

1. The wife’s complaints about the Valuer A are set out in paragraph 3 of her affidavit. 

2. In particular, she complains that:

   ·the Valuer A valuation came in at less than what the husband had originally paid for the property, less than the Valuer-General’s valuation, and less than the current mortgage balance secured over the property.  Further, the husband had previously listed the property for sale at a price of $1.2M and he had earlier suggested in the proceedings that the property was worth $550,000. 

   All of these matters are in fact true, but they are not relevant for present purposes.

3. Of arguably more relevance, the wife complains that the Valuer A erroneously suggests there are only three (3) dams on the property when in fact there are actually eight (8) dams.  Moreover, the Valuer A makes no mention of internal paddocks or creeks.  Ultimately however the wife’s counsel conceded that “nothing turns on” those complaints either.

4. This leaves just three (3) complaints about the Valuer A which are of potential significance:

   ·That although there was mention of the property having no services there was in fact an underground phone line to the house;[1] 

   ·There was a reference to no power being connected, however there are domestic power lines running through the middle of the property;[2] 

   ·There was an issue in relation to public use of Crown or “paper roads”.  This section of the property has been fenced as is permitted and a loading ramp built with 2 other driveways coming off this road.  As such it is not something I consider should ever affect the value of the property.[3]

   [1] Wife’s affidavit, paragraph 3(viii)

   [2] Wife’s affidavit, paragraph 3(ix)

   [3] Wife’s affidavit, paragraph 3(x)

5. To understand these complaints it is necessary that I turn to the Valuer A dated 22 January 2019.

6. The Valuer A allocates a current market value of $425,000.  It values the land which has various fairly modest improvements, if you can call them those, consisting of an older style caravan over which there are several enclosed structures.  There is a non-approved septic system.  There is an older-style veranda or patio structure and there are some concrete tanks.  Those improvements are regarded as having nominal or no value.

7. The Valuer A then makes deductions in respect of the following matters: 

   (a) costs associated with upgrading vehicular access off Town C Road to council specifications - say $50,000; 

   (b) professional studies re bushfire flora and fauna, etcetera - say $22,500; 

   (c) less risk associated with obtaining consent for the subject site to be utilised as a single home site – say 25% or $88,125;

   (d)which brings the overall valuation figure from $425,000 down to $264,375 – which the valuer then rounds up to $265,000.

8. Unhappy with that valuation, the wife did not challenge Valuer A’s assumed deductions.  She did not instruct her legal representatives to write to Valuer A to put questions to them.  Rather, she engaged Valuer D to conduct a shadow valuation for litigation purposes.

9. The instructions that were given by the wife to Valuer D were controversial.  They contained a number of factual assertions that were not agreed and are in dispute.  The instructions were prepared solely by the wife’s solicitors, unlike the single expert’s instructions.  The instructions to the shadow expert, Valuer D, were partisan and entirely one-sided.  For instance, in the instructions to Valuer D, the wife asserted that she had significant difficulty in accepting the single expert valuation, listing, amongst other reasons, that the valuation was less than the Valuer-General’s valuation; less than the original purchase price; less than the current mortgage balance; that the husband had said it that the property was worth $550,000 “which we viewed as an understatement for the purposes of Family Law proceedings”; and that the husband had previously listed the property for sale for $1.2 million. 

10. So in a sense the husband’s credibility was attacked in the letter of instructions as well as the letter containing numerous, in my view, irrelevant matters.

11. Issue was taken as to the internal paddocks, the number of dams on the property and in relation to the property having no services.  It was pointed out to Valuer D that there was an underground phone line connected to the house.  It was also pointed out that although there was no power connected, there were domestic power lines running through the middle of the property.  It was suggested in the letter that one of the creeks never seems to totally dry up, which is also a matter in dispute.  It was pointed out that the property did have services but it ran on its own water tanks and septic systems. 

12. Notably, the husband having been excluded from any instruction process, the letter went on to say:

    Would you kindly avoid discussing the matter or valuation with the husband and our preference is that you not communicate with the husband at all unless it is absolutely necessary to do so, ie. inquiries about boundaries, whereabouts of dams, etcetera.  If you consider any of the husband’s actions inappropriate whilst you’re attending the property, would you kindly report to us immediately.

    The letter went on to say:

    Finally, if you consider there are any demonstrable errors in the report of Valuer A, would you kindly advise.

13. The instructions were classic partisan instructions provided to a shadow expert. 

14. In good faith, the husband permitted the shadow expert access to the property for the valuation.  At no time was the husband aware, nor was he notified, that the wife might intend to rely upon the Valuer D in a substantive way in the proceedings as distinct from being commissioned purely as a shadow report.  The husband permitted Valuer D access to the property on the express basis that Valuer D was being engaged by the wife as a shadow expert only.

15. I pause here to note that if the wife was proposing to use Valuer D as a shadow expert then no real criticism could be advanced of any of the instructions she had given to Valuer D, including some of the complaints or criticisms levelled by her solicitors against the husband.  But the difficulty here is that the husband allowed Valuer D access on what now appears to be a false basis because the wife, rather merely relying upon Valuer D as a shadow expert, now wishes to introduce the report prepared by Valuer D into evidence.  This raises serious concerns about prejudice and about the nature of the whole process that was engaged in.

What are the key points of difference between the reports?

1. Turning then to the Valuer D report, what interests me about it is that it is not in fact radically different to the report prepared by Valuer A.  It comes in at a gross value of $430,000, albeit that there is an allowance of some $30,000 or so for the improvements.  So the “gross” valuation is $425,000 (Valuer A) –v- $430,000 (Valuer D).  In that sense the difference in terms of the respective gross figures is just $5,000 which, if anything, tends to establish that the Valuer A figure is correct. 

2. The valuers use some common comparative sales – at least two (2) of the comparative sales are the same between each valuation report. 

3. Where the difference arises between the two valuations is in the three deductions that Valuer A allow for which have been referred to earlier.  Namely, the $50,000 to improve the vehicle access, this being the Crown road argument; a sum of $22,500 for professional studies in order to obtain a proper council approval; and a further 25% discount to allow for the risk of not obtaining consent.

4. What interests me is why the wife chose to challenge the gross figure arrived at by Valuer A – rather than challenging or put any questions to Valuer A in relation to those three (3) deductions.  Those deductions are the critical points of difference here between the two valuation reports. 

5. In my view, the “big ticket items” are the three deductions.  I cannot understand at this point why the wife would not either have asked questions of the single expert directed to those three deductions which, to be fair, strike me as somewhat arbitrary.  I do not suggest that the numbers are “plucked out of the air”.  However, there is very little in the evidence before me to actually sustain any of the deductions that the single expert has made. 

The Respondent’s position:

1. Mr Bithrey in his submissions on behalf of the husband took me to various authorities in relation to expert evidence, in particular Makita v Sprowles, the decision of the New South Wales Court of Appeal with particular reference to the decision of Heydon JA as his Honour then was.[4]  Mr Bithrey also took me to the High Court decision of Dasreef Pty Ltd v Hawchar.[5] 

   [4] (2001) 52 NSWLR 705

   [5] [2011] HCA 21

2. Mr Bithrey submitted that it was unclear how the wife’s valuer, Valuer D, had arrived at the figures contained in their valuation report based upon their own expertise.  It was also unclear to what extent Valuer D had taken into consideration contentious factual matters.  Mr Bithrey submitted that, as expert evidence, the Valuer D is a bridge between data in the form of primary evidence and a conclusion which cannot be reached without the application of expertise.[6]   He submits that the Valuer D report was an inadequate bridge; thus the opinions expressed by Valuer D failed the relevant standard for the admissibility of expert evidence.[7] 

   [6] Specifically referring to paragraph 90 of the judgment of Heydon J in Dasreef (supra).

   [7] Mr Bithrey also referred to paragraph 42 of the plurality judgment in Dasreef (supra).

3. To be fair however, it seems to me that the same criticisms can be levelled against the Valuer A in respect of the three (3) key deductions.  It is far from clear to me how those deductions were arrived at and much the same criticisms of Valuer D’s report can in turn be advanced against the original single expert report of Valuer A.

4. Ultimately I do not uphold Mr Bithrey’s argument on the basis he contends for - but on a different basis as set out below. 

The relevant rules & the court’s concern about the process adopted by the wife here:

1. My real concern here is that the whole process by which the wife has engaged in obtaining the shadow report has been flawed from the outset and completely devoid of procedural fairness. 

2. Pursuant to rule 15.12 of the Federal Circuit Court Rules, if a court expert has made a report on a question, a party may adduce evidence of another expert on the question with the leave of the court.  This is a very broad rule and it clearly gives the court wide powers that must be exercised in the interests of justice and bearing in mind that the Federal Circuit Court of Australia is mandated to operate in as efficient and cost-effective manner as possible.

3. The Family Law Rules relating to single expert witnesses are much more extensive.  In that court, a party may apply for permission to call an adversarial expert.  Pursuant to rule 15.49 of the Family Law Rules, the Family Court may allow a party to tender a report or adduce evidence from another expert witness on the same issue if satisfied that:

   (a) there is a substantial body of opinion contrary to any opinion given by the single expert and that the contrary opinion is or may be necessary for determining the issue; 

   (b) another witness knows of matters not known to the single expert witness that may be necessary for determining the issue; or

   (c) there is another special reason for adducing evidence from another expert witness. 

4. Although those Family Law Rules do not expressly apply in the Federal Circuit Court, they do provide assistance to this court in the exercise of its discretion pursuant to rule 15.12.

5. With reference to rule 15.49 of the Family Law Rules it could not be said, nor was it argued, that rule 15.49(2)(a) could possibly be engaged by the wife in this case. 

6. In relation to rule 15.49(2)(b), I do not consider that that sub-rule properly applies either.  For instance, in relation to the electricity the single expert valuer took a photograph of the electricity lines running through the property - just the same as Valuer D did. 

7. In relation to rule 15.49(2)(c), I accept Ms Flintoff’s point that the property in dispute in this case is of limited value and I can understand, as I indicated at the outset of these reasons, why the wife would want to adduce further evidence.  But what concerns me is that the wife has conducted the proceedings much as though the single expert rules do not exist.  She has gone about things in what might be called the “old-fashioned way” - taking the litigation back to the colloquial “bad old days” where parties simply commissioned their own expert reports and the court was then presented with a range of competing similarly qualified experts who are briefed in a partisan way where there is not agreement as to the background facts as to what the experts were being asked to consider.  The court should discourage litigation in this manner. 

Conclusion & orders:

1. In my view, the husband’s legal representatives were entirely correct and acted entirely appropriately in challenging what the wife was proposing to do and in challenging her proposed adversarial report from Valuer D. 

2. What the wife should have done was pose specific questions to the single expert before bringing an application to call adversarial evidence. 

3. The wife could have engaged Valuer D to undertake the shadow report as they did do and questions could then have been put to Valuer A based on what Valuer D had said.  But that is not what the wife wants to do.  She wants, with respect, to have her cake and eat it too.  She wants to engage an expert in a partisan way as a shadow expert and then call them as an adversarial expert.  But a shadow expert and an adversarial expert are two very different experts.  Real questions of natural justice and procedural fairness arise when adversarial evidence is contemplated.

4. In my view, the appropriate course, if the wife wishes to challenge the single expert, is to put to the single expert specific questions which go to the key issues (based on the Valuer D report if she wishes). 

5. I do not think that the $5,000 difference between the “gross” value in the Valuer A[8] and the “gross” value in the Valuer D[9] makes any real difference to the outcome of this case. 

   [8] $425,000

   [9] $430,000

6. However, the three (3) deductions in the Valuer A in relation to the road, the professional studies and the risks associated with obtaining consent all warrant further questioning.  No doubt the wife would be cross-examining the single expert on those matters at trial. 

1. It seems to me the court would greatly benefit from having much more information from the single expert in relation to those specific deductions, and no doubt this is a matter that will be explored at the trial. 

2. As I have indicated, it is an irony in this case that Valuer D’s valuation in fact comes in so close to Valuer A’s valuation in “gross” terms.  Valuer D do not express any particular opinions in relation to those deductions.  They simply don’t allow for them.  Obviously, there is a basis upon which questions could be put to the single expert in this respect.  The court’s view would be that the wife ought to have liberty to ask questions of the single expert within a reasonable timeframe but it would not be appropriate to provide the Valuer D shadow valuation to the single expert as the wife seeks. 

3. I agree with the content of the email sent by the husband’s legal representatives to the wife’s legal representatives on 6 May 2019 wherein they state:

   It is open to your client to ask questions that have been informed by the shadow expert.  However, it is inappropriate to give the shadow report to the single expert.  It is not a function of the single expert to comment on adversarial expert evidence your client has obtained.  The single expert is impartial and to issue the shadow report would have the effect of turning the single expert into an advocate in the case.

4. I also agree with what was stated in the later email of 11 May 2019 from the husband’s solicitor to the wife’s solicitor:

   Our client opposes adversarial evidence on the issues dealt with by the single expert.  Even if the court were to allow adversarial evidence on the issue, your letter of instructions to the proposed adversarial expert has rendered the report that flows as unsuitable for admission as adversarial evidence on the issue and it will accordingly be objected to on that basis as well.

5. With respect, there is force in everything that the husband’s solicitors have said in those letters and, in my view, their conduct of the matter in directing the wife’s attention to the proper course was entirely appropriate and one that the wife should have heeded. 

6. In short, I do not consider it appropriate that the single expert be provided with a copy of the Valuer D report.  What I consider ought to happen is that if the wife wishes to challenge the Valuer A by using information provided to her by Valuer D, then they should pose specific questions to Valuer A.

7. In the event the wife wished to call Valuer D as an adversarial expert, I consider that the instructions they have already provided are so tainted as to render such a report of lesser - if not of no - weight. 

8. In giving these reasons, I presume that the husband will appropriately and sensibly give the wife a reasonable opportunity to put specific questions to Valuer A. 

9. I also again draw attention to the fact that the big valuation issue in this case seems to be the three (3) deductions referred to in the Valuer A which are not, in my view, in any real way even addressed in the Valuer D report – nor is their omission from the Valuer D in any way explained.  It seems to me that the real gravamen of the debate in a monetary sense in fact relates to those deductions about which I have already indicated that the evidence is, with all due respect to the single expert, somewhat thin.

10. Accordingly, the wife’s Application in a Case filed on 16 May 2019 will be dismissed.  The court would propose to reserve the husband’s costs of and incidental to that application in a case. 

11. For these reasons, the court makes the orders set out at the commencement of these reasons for judgment.

I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of Judge Betts

Date: 18 July 2019