FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Gare & Farlow [2023] FedCFamC1A 98
Appeal from: Gare & Farlow [2023] FedCFamC2F 109 Appeal number: NAA 61 of 2023 File number: MLC 10265 of 2019 Judgment of: AUSTIN J Date of judgment: 23 June 2023 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Appeal from property settlement orders – Where the appellant wife complained the primary judge over-valued her business and so the cash sum she was required to pay the husband was greater than it should have been – Whether the primary judge erred by admitting the evidence of the husband’s expert witness about the value of the business – Where the evidence of the husband’s expert was admissible under the Evidence Act 1995 (Cth) as an exception to the opinion rule – Where the primary judge concluded a sum of money paid by the wife to her father six months prior to separation should be added back to the asset pool – Where the wife’s complaint that the primary judge ought to have considered the add-back a contribution by her to the parties’ asset pool is rejected – Appeal dismissed – Where the appeal was wholly unsuccessful – Appellant ordered to pay the respondent’s party/party costs of and incidental to the appeal in a fixed amount. Legislation: Evidence Act 1995 (Cth) Pt 3.3, ss 76, 79
Family Law Act 1975 (Cth) Pt VIII, ss 75, 79
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) Pt 7.1, r 12.17
Cases cited: Carr v Baker (1936) 36 SR (NSW) 301
Preston & Preston (2022) FLC 94-108; [2022] FedCFamC1A 157
Samper & Samper (2021) FLC 94-041; [2021] FamCAFC 140
Seltsam Pty Ltd v McGuiness & Anor (2000) 49 NSWLR 262; [2000] NSWCA 29
The Commonwealth v Milledge (1953) 90 CLR 157; [1953] ALR 199
Number of paragraphs: 78 Date of hearing: 8 June 2023 Place: Melbourne Counsel for the Appellant: Dr Smith Solicitor for the Appellant: Garland Hawthorn Brahe Lawyers Counsel for the Respondent: Mr Wilson Solicitor for the Respondent: Cohrssen Partners Lawyers ORDERS
NAA 61 of 2023
MLC 10265 of 2019FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS GARE
Appellant
AND: MR FARLOW
Respondent
order made by:
AUSTIN J
DATE OF ORDER:
23 june 2023
THE COURT ORDERS THAT:
1.The appeal is dismissed.
2.The appellant shall pay the respondent’s party/party costs of and incidental to the appeal, fixed in the sum of $18,000.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
IT IS NOTED that publication of this judgment by…
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- [2023] FedCFamC1A 98
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CaseChat Overview and Summary
The appeal in this case concerns a dispute between Gare and Farlow regarding the valuation of a business and other related matters following their separation. The case was heard in the Family Court of Australia and the appeal was subsequently brought before the Family Court Appeals Division. The primary issue before the appellate court was the value attributed to the business by the primary judge, which was based on the expert opinion evidence presented by the husband. Other grounds of appeal related to findings made about contributions and the application of a specific section of the Family Law Act.
The court was required to determine whether the primary judge erred in admitting the husband's expert evidence about the business's value. The wife argued that the husband's expert lacked the necessary qualifications and that the late submission of some opinion evidence rendered it inadmissible. The court had to consider whether the husband's expert opinion evidence complied with the requirements of the Evidence Act, particularly in light of the objections raised by both parties at trial.
In dismissing the appeal, the appellate court found that the primary judge did not err in admitting the husband's expert opinion evidence. The court accepted that the husband's expert had the requisite skill, training, and experience to provide the opinion evidence, despite the wife's objections. The court also rejected the argument that the late submission of some opinion evidence rendered it inadmissible. The appellate court concluded that the primary judge's assessment of the expert evidence, including the cross-examination of each expert, was thorough and appropriate. Consequently, the primary judge's valuation of the business based on the husband's expert evidence was upheld.
The appeal is dismissed, and the orders made by the primary judge are affirmed.
The court was required to determine whether the primary judge erred in admitting the husband's expert evidence about the business's value. The wife argued that the husband's expert lacked the necessary qualifications and that the late submission of some opinion evidence rendered it inadmissible. The court had to consider whether the husband's expert opinion evidence complied with the requirements of the Evidence Act, particularly in light of the objections raised by both parties at trial.
In dismissing the appeal, the appellate court found that the primary judge did not err in admitting the husband's expert opinion evidence. The court accepted that the husband's expert had the requisite skill, training, and experience to provide the opinion evidence, despite the wife's objections. The court also rejected the argument that the late submission of some opinion evidence rendered it inadmissible. The appellate court concluded that the primary judge's assessment of the expert evidence, including the cross-examination of each expert, was thorough and appropriate. Consequently, the primary judge's valuation of the business based on the husband's expert evidence was upheld.
The appeal is dismissed, and the orders made by the primary judge are affirmed.
Orders
Orders of the court
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Background
Background to the litigation
For the reasons which follow, the appeal is dismissed.Background The parties commenced cohabitation in 2009 and married shortly afterwards. They separated in February 2019, but continued to live in the same house with the children until January 2020, when the husband vacated it. The wife commenced the proceedings in September 2019. The trial spanned four days in February 2022, after which judgment was reserved and delivered a year later in February 2023. At the time of trial, the parties were aged in their mid-forties. Both were in reasonable health and were found to have comparable income-earning potential (at [339]). They have two adolescent children, who live predominantly with the wife. Even though the value of the business was an issue of considerable friction, regrettably, no orders were ever made compelling the parties to appoint a single expert under Pt 7.1 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) (or the predecessor rules) to express an opinion about the value of the business. Instead, they were permitted to engage adversarial experts and the dispute over the value of the business devolved to trial by combat between the two experts, who expressed remarkably different opinions.The appeal The amended grounds of appeal are contained within the Amended Notice of Appeal, filed on 29 May 2023 contemporaneously with the wife’s Summary of Argument. The principal issue in the appeal, to which several grounds of appeal are directed, is the value attributed by the primary judge to the business, which finding was predicated upon acceptance of the adversarial expert opinion evidence adduced by the husband. Other grounds complain of findings made about contributions and the application of s 75(2) of the Act. Grounds 4 and 5 were abandoned as the appeal hearing began.Ground 1 This ground pleads the primary judge erred by admitting the evidence of the husband’s expert witness about the value of the business, as it was allegedly inadmissible pursuant to application of s 76 and s 79 of the Evidence Act 1995 (Cth) (“the Evidence Act”). The opinion rule imposed by s 76 of the Evidence Act renders opinion evidence inadmissible, though s 79 of the Evidence Act allows for the exception of expert opinion evidence in an area of specialised knowledge if based on relevant training, study or experience. At trial, each party objected to the admissibility of the other’s expert evidence, but all of the expert evidence was admitted and thereafter evaluated by the primary judge in light of the cross-examination of each expert witness. On the anterior question of the admissibility of the husband’s expert opinion evidence, the wife submitted to the primary judge that it was inadmissible for two reasons: first, the husband’s expert lacked the requisite skill, training or experience to give the expert opinion evidence; and secondly, the lateness of some of the opinion evidence given by the husband’s expert, as his last report was not served until the last business day before the trial started (at [121]).
Evidence
Evidence Before The Court
The wife’s expert’s cross-examination ended this way:[COUNSEL FOR THE HUSBAND]: … And a [business] which is earning for the owner, say, $120,000 a year plus, is far more attractive than a [business] that’s earning $50,000 for the owner of that business. Is that correct?[THE WIFE’S EXPERT]: Yes.[COUNSEL FOR THE HUSBAND]: Yes. But what you say is that despite those adjustments, a purchaser would come in, go to you, you would produce the EBITDA figures in relation to this business that has been running for 22 years at a considerable profit to the owner, and you will say, “This business is worth nothing.” Is that what your evidence is?[THE WIFE’S EXPERT]: Yes. (Transcript 16 February 2022, p.178 lines 8–15) (Emphasis added) The essential point of difference between the two experts in respect of the “value to owner” methodology was the treatment of the business proprietor’s annual wage paid from the business. The husband’s expert added back to the business revenue the entirety of the wage paid to the business proprietor, whereas the wife’s expert would only add back the proportion of the proprietor’s wage which exceeded a reasonable wage for the time expended by the proprietor working in the business. The wife’s expert admitted in cross-examination that there was a distinction to be drawn between owner-operated and managed businesses, with the former type, like the business under consideration, often valued as the husband’s expert had done. He could not have credibly denied it because five of the 11 comparable sales relied upon by the husband’s expert were valued in the same way. The wife’s expert also conceded that, when valuing the business, he would apply a multiplier of 2.5 to the added-back portion of the business proprietor’s annual wage from the business, which was not much different from the multiplier of 2.75 used by the husband’s expert. As the primary judge correctly recognised (at [188]), the experts’ opinion evidence was given in the context of indisputable facts. Nearly 20 years before, the wife paid her sister $75,000 to acquire the other 50 per cent shareholding in the corporation which owned the business, suggesting the wife believed the business was then worth $150,000. No one had any reason to believe the business was worth less at the time of trial because it was no less profitable. The business operates from commercial premises owned by the wife’s father, albeit without the security of a formal lease. Nevertheless, not long before trial, the wife used $105,000 of business revenue to renovate the premises, suggesting she believes the business has security of tenure in the premises (at [295]). In the reasons for judgment, the primary judge discussed the evidence led by both parties (at [131]–[162]), the submissions made by each in respect of such expert evidence (at [163]–[174]), and set out the findings made (at [175]–[189] and [299]). Most relevantly, the primary judge said this:180.The “value to owner” approach to valuation is intended to capture the reality of the situation by bringing to account any special or additional economic benefit which is conferred upon the business owner by his or her control of the shareholding. It is intended to include within the value any commercial, financial or other advantage which accrues to the owner which might not necessarily be available to any hypothetical third party purchaser. Such benefits might include the right to receive profits or dividends, the flexibility and autonomy of self-employment, control and ownership of business assets, the use of a company car, use of the company for contribution to household expenses and bills, the use of a loan account, the ability to tax plan and so on. There may be other benefits such as security of tenancy due to a special relationship with a landlord or the ability to expend funds in a way which benefits other family members. A valuation which assumes a negligible or only net asset value because the business is “unsaleable” is artificial because it ignores the reality of benefits which accrue to the owner. 181. In a fair market value valuation, risk is considered from the hypothetical willing but not anxious buyer. It reflects the value of each asset and liability on a going concern basis and the profitability, market position and attractiveness of the business. The value to owner approach on the other hand considers risk from the perspective of the existing owner and assumes that the party wishing to hold on to the asset will do so in good faith and seek to maximise the value that could be obtained in a hypothetical sale. Value to owner might reasonably assume a notional sale of the business to the existing owner at its highest realistic value. 182.An instructive working definition of value to owner was posited by Vella as: “what a reasonable, prudent businessperson, in the position of the holder [husband or wife], willing but not anxious to exchange the asset for cash, and reasonably informed of the relevant facts, would see as the cash equivalent of the relevant asset to him/her”183.This definition begs what I consider to be highly relevant inquiries. If a business is said to be worth nothing or only its net asset value, why would a proprietor want to hold it and have no intention of selling it? What realistically would the proprietor have to be paid to relinquish the business and the benefits derived from it? 184.It was submitted on behalf of the wife that the value to owner approach to valuation is normally used to value a minority shareholding, usually in a family business, which is not realisable because there is no available market. It is true that the approach is often used in such cases, although it has also been adopted in respect of partnership interests in medical practices, legal practices and similar businesses. 185.The criterion which engages the value to owner approach is not whether a party is a minority shareholder. Rather the critical criteria are the absence of a market for the party’s interest in a business (for whatever reason) and evidence of circumstances which satisfy the Court that even in the absence of a market the party is likely to retain the interest because he or she derives real value and benefits from it, of the type described in Harrison. …187.Here the expert evidence is that the business is unsaleable in its current state because of the absence of a lease. If there was a lease in place or if the landlord was prepared to offer one to a willing purchaser, there is no question that there is a market for [businesses] and no question that the wife’s business could be sold as a going concern at a fair market value. However, notwithstanding the unsaleability of the business and the minimal value attributed to it by [the mother’s expert], the wife clearly wants to keep it, has no intention of walking away from it and her father/landlord has no intention of pulling the rug from under her. Justice and equity demands that the Court look to the reality of the situation and value the owner’s interest accordingly. 188.Having regard to the evidence, including the expert opinions, I am satisfied that in the circumstances of this case the “value to owner” approach to valuation is appropriate for the following reasons: (1)there is no market for the wife’s interest in the business. In the absence of a written commercial lease, the business is not saleable as a going concern to a third-party purchaser and cannot be valued on that basis; (2)the evidence demonstrates that the business is successful and profitable and has been so for the entire time it has been owned by the wife. The business has in the past and continues to deliver significant financial and other benefits to the wife in terms of steady and reliable profits, a salary, flexibility of self-employment and autonomy, access to and control of business funds, the ability to tax-plan among other things; (3)a unique benefit to the owner of the ongoing business is the security of its tenancy on favourable terms notwithstanding the absence of a written lease. While the wife’s father says that he could re-purpose the premises and derive a greater commercial return from it, he has not done so and I consider there to be no likelihood of him doing so while the wife operates the business. Moreover, the wife has been prepared to invest considerable funds from the business into renovations and improvements to her father’s property, suggesting that she has no concerns about the security of her tenancy; (4)I infer that the business has significant value to the owner having regard to what the wife was prepared to pay to buy out her partner [the wife’s business partner] in 2002. This was a payment made in circumstances where the business had no written lease. The Court can infer that the enterprise value of the business to the wife at that time was considered to be in the order of $150,000; (5)the evidence clearly establishes that the wife wishes to retain the business, intends to operate it on an indefinite basis and that she has no intention to sell the business, let alone close it. The evidence of the wife’s father corroborates that his daughter has no intention of selling the business and that he would only re-purpose the building if she were to close it;(6)a further significant benefit to the wife is the very real likelihood that her landlord father would act in his daughter’s best interests should she ever decide to sell the business. There is evidence that there is a market for [businesses] and if a standard industry lease were in place, the wife could expect to realise in excess of $400,000. 189.Despite the wife’s attack on his credentials and [the wife’s expert] strident criticism of his methodology, I accept the evidence of [the husband’s expert] that for the purpose of determining the asset pool the [business] should be valued at $429,500 on a value to owner basis. On the question of valuation I found his evidence to be the most cohesive, consistent and persuasive. (Footnotes omitted) (Emphasis added)
Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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