Gould and Gould

FAMILY COURT OF AUSTRALIA

GOULD & GOULD

[2007] FamCA 1516

FAMILY LAW – PROPERTY – Value of Property – Expert evidence

Family Law Act 1975 (Cth)

APPLICANT:

Ms Gould

RESPONDENT:

Mr Gould

FILE NUMBER:

MLF

2646

2006

DATE DELIVERED:

20 December 2007

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

Justice Cronin

HEARING DATE:

20 December 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Puckey

SOLICITOR FOR THE APPLICANT:

Auditore Pty Ltd

COUNSEL FOR THE RESPONDENT:

Mr Wood

SOLICITOR FOR THE RESPONDENT:

Macpherson & Kelley

Orders

That pursuant to Chapter 15 of the Family Law Rules, the wife have leave to file an affidavit with a report from Mr L in respect of the business in which the husband has an interest and to call that evidence if the wife is so advised.
That the application in a case filed by the wife on 20 December 2007 is otherwise dismissed.
Leave is otherwise given to approach the Associate to Justice Cronin for the purposes of arranging another mention concerning the listing of all matters after the completion of the report by Mr P.
The costs of both parties and the Independent Children’s Lawyer of the day are reserved.

IT IS CERTIFIED

That pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of counsel.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 2646 of 2006

MS GOULD

Applicant

And

MR GOULD

Respondent

REASONS FOR JUDGMENT

On 20 December 2007 I heard argument in relation to a number of matters but primarily about whether the wife should have leave to be able to adduce evidence from an adversarial witness in a property case.
The parties were married in December 1998 and separated in December 2005 and have one child under the age of 18 years. Ms Mitchell who is the Independent Children’s Lawyer attended the hearing but was obviously not involved in the financial issues.
In respect of the issues concerning the child of the marriage, the parties are attending Mr P in January and all hope that some resolution can arise out of the dispute which is otherwise festering.
The main dispute relates to the valuation of the husband’s interest in the business which trades under the name of A Company. The parties have told me that in the event that the valuation is resolved, whilst there are still arguments about contribution, the issue will be substantially easier to resolve. I have indicated an interest in separating the valuation issue out from the other matters having regard to the nature of the dispute.
On 15 November 2006, D Accountants were appointed as the single expert witness to value the business interest. The expert provided a report dated 8 March 2007.
The view of the single expert witness was disputed by the husband or more particularly, by the accountants for the business. I made an order on 19 September 2007 as a result of material filed permitting the husband to have leave to file an affidavit from a Mr M of KPMG in respect of the interest of the husband. There was some debate at that time about whether that would then activate the wife taking a similar course and I have leave to all parties to approach my associate in respect of issues including: “Any application by the wife for the appointment of her adversarial witness”.
Prior to 20 December 2007, an arrangement was made with my associate for the matter to be relisted because the issue was still contentious. On 20 December 2007, counsel for the wife sought and was given leave to file an application in a case and a supporting affidavit by his instructing solicitor seeking three orders. Those were:
1.For documents to be provided to her shadow expert;
2.Leave to adduce evidence from an adversarial witness, a Mr L relating to:
(a)evidence that was being put before the Court by the single expert witness; and
(b)the value of the husband’s interest in the business.
3.A complaint about the payment of an instalment of school fees.
Items 1 and 3 were not really the focus of the attention of the parties. There appears to be some general agreement between the parties about cooperation in respect of the documentation and I propose not to make any orders in respect of discovery on the basis that the husband knows what obligations he has. However, there is a dispute about sensitive commercial material involving this business and in particular its projected commercial targets and I have indicated that those problems can be overcome by commercial confidentiality agreements. If that matter cannot be sorted out between the parties, the matter will have to be relisted for a determination.
Accordingly, the issue is really about the leave to adduce evidence from an adversarial witness.
The only evidence before me comes from the affidavit of the wife’s solicitor. In that affidavit, Mr F said that in the report of the single expert witness on 8 March 2007, he valued the husband’s interest as at 30 June 2006 at $1,207,500 on the basis that the whole business value was $6.9 million.
After the report, there was correspondence between the single expert witness and the business auditors of the business about that valuation. In particular, the single expert witness rejected the suggestion that there should be a discount for the fact that the husband had a minority shareholding. To some extent, things seem to have been side-tracked because in a letter dated 15 June 2007 from the business auditor to the single expert witness, a request was made that the single expert witness re-consider what he had done and then a rather presumptuous statement was made that:
The current valuation is not benefiting either party and is preventing our client from being able to make a meaningful offer to settle this matter.
As a result of that letter, the single expert witness replied:
However, it is not my intention to prevent the parties from negotiating an appropriate settlement. Therefore, I am prepared to adjust my EBIT multiples down to the range of between 6.0 to 6.5 times.
The statement by the business auditors and the single expert witness reply was set out in the affidavit of Mr F. However, in fairness to the single expert witness, he wrote on 25 July 2007 and I quote:
In forming this conclusion I have ignored the last paragraph of the letter from [P] Partners dated 15 June 2007.
Clearly, the single expert witness was indicating that he was fulfilling his duties of objectivity.
The correspondence which was tendered also indicated that the single expert witness rejected the suggestion that there should be a discount for the fact that the husband has a minority shareholding. What the wife now wants to do is to have her own adversarial witness and as a consequence, she consulted Mr L. It was suggested by counsel for the husband that the wife’s application was without foundation because at best, the affidavit of the solicitor for the wife relied on hearsay. There is no difficulty with that issue in this case.
The solicitor went on to detail the issues as apparently told to him by Mr L. It might perhaps have been better had Mr L been on affidavit personally.
What was more instructive was the fact that the correspondence between the experts including a joint statement of both the single expert witness and the adversarial witness of the husband clarified a number of issues relating to the dispute. These two experts said:
(a)if the standard of value is fair market value, whether it is appropriate to deduct a discount for lack of control and a lack of marketability from a marketable controlling interest to provide a non-marketable minority interest.
(b)if the standard of value is value to a party, whether it is appropriate to deduct discount for a lack of control and a lack of marketability from a marketable controlling interest to provide a non-marketable minority interest.
(c)the range of EBIT multiples.
In respect of these three issues identified by those two experts, I turn back to the letter written by the business auditors on 15 June 2007 wherein they pointed out:
There is no question that our client is a minority shareholder, nor is there any question that his brother is the majority shareholder, but the purpose of the valuation is to determine that market value of our client’s shareholding. Any prospective purchaser would become a minority shareholder in place of our client, without the benefit of being closely related to the major shareholder.
The single expert witness replied on 18 June 2007 that the husband and his brother controlled over 87 per cent of the shares and as a consequence, in combination, they were able to control a sufficient number of shares to pass any special resolutions. The single expert witness therefore considered that a discount for minority shareholding was not appropriate.
This issue therefore relates to two matters:
(a)the facts about control but particularly whether there will be some cooperation between the husband and his brother (noting that the brother is not a party to the proceedings); and
(b)what approach a court will take about the value to be added to the pool; that is, is it market value or value to the party?
Even with a resolution of that issue, the experts still disagree about the application of the multiple. The adversarial witness for the husband said on 15 June 2007 that the single expert witness had not produced any evidence to justify the EBIT multiple. However, the single expert witness in reply said:
I consider the EBIT multiplies (sic) used in your spreadsheet to be too low because the conclusion ascribes little or no value to the business which is achieving growing profits after interest and depreciation and which is also below that which was offered in November 2005 by a third party.
In respect of the multiple therefore, the significant dispute is about the factual basis that could give rise to a multiple.
Mr Puckey of counsel for the wife said that there were also factual issues such as:
(a)the offer to buy the business has been used as an indicator of value; and
(b)the figures used are not a true indicator of the profitability of the business because of the impact of the purchase of two competitors just prior to the period over which the averaging of the profitability was being considered.
This is a case where the experts cannot agree on the factual assumptions to which a multiplier can be applied and in those circumstances, the factual evidence takes on a very great significance.
Mr Wood of counsel for the husband said that the material was inadequate but I can draw conclusions from the correspondence tendered which a basis of the assertions set out in the affidavit of the solicitor for the wife.
Mr Wood was also critical that this was another expert’s view but in this case, it had not been put to the single expert witness to ask his views. That had happened in the case of the husband’s expert. Whilst I agree with Mr Wood, the material is sufficient in my view to form a conclusion that to do justice, the Court needs access to the whole evidentiary picture.
The determination of this matter is largely, but not entirely, governed by Chapter 15 of the Family Law Rules 2004.
Rule 15.42 sets out the purpose of this part and the Rules provide those purposes as:
(a)to ensure that parties obtain expert evidence only in relation to a significant issue in dispute;
(b)to restrict expert evidence to that which is necessary to resolve or determine a case;
(c)to ensure that, if practicable and without compromising the interests of justice, expert evidence is given on an issue by a single expert witness;
(d)to avoid unnecessary costs arising from the appointment of more than one expert witness; and
(e)to enable a party to apply for permission to tender a report or adduce evidence from an expert witness appointed by that party, if necessary in the interests of justice.
The over-arching principle behind the Family Law Rules is set out in Rule 1.04:
The main purpose of these Rules is to ensure that each case is resolved in a just and timely manner at a cost to the parties and the court that is reasonable in the circumstances of the case.
Rule 15.49 says:
(1)If a single expert witness has been appointed to prepare a report or give evidence in relation to an issue, a party must not tender a report or adduce evidence from another expert witness on the same issue without the court’s permission.
(2)The court may allow a party to tender a report or adduce evidence from another expert witness on the same issue if it is satisfied that:
(a)there is a substantial body of opinion contrary to any opinion given by the single expert witness and that the contrary opinion is or may be necessary for determining the issue;
(b)another expert 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.
Rule 15.52(3) sets out:
(3)When considering whether to permit a party to tender a report or adduce evidence from an expert witness, the court may take into account:
(a)the purpose of this Part (see rule 15.42);
(b)the impact of the appointment of an expert witness on the costs of the case;
(c)the likelihood of the appointment expediting or delaying the case;
(d)the complexity of the issues in the case;
(e)whether the evidence should be given by a single expert witness rather than an expert witness appointed by one party only; and
(f)whether the expert witness has specialised knowledge, based on the person’s training, study or experience:
(i)relevant to the issue on which evidence is to be given; and
(ii)appropriate to the value, complexity and importance of the case.
Rule 15.52(2) sets out the details in affidavit form required to support an application for an appointment of an adversarial witness.
I am satisfied that Rule 15.49(2) has been satisfied.
The first of the considerations is that I need to be satisfied that there is a substantial body of opinion contrary to any opinion given by the single expert witness and that that contrary opinion is or may be necessary for determining the issue. On what I have earlier said, that must be the case here. The Rule goes on to say that evidence of the contrary opinion is or may be necessary for determining the issue. Subjecting the single expert witness and the husband’s adversarial witness may not necessarily resolve the issue of value in a simple way. I see no reason why a third opinion will add any great extra layer of complexity to the hearing. On the contrary, it may give the trial judge a better grasp of the issue.
From a case management point of view, the Rules are designed to ensure that hearings are smoothly run and expedited where possible but care has to be taken to ensure that that is not at the expense of justice. In State ofQueensland v J.L. Holdings Pty Ltd [1997] 189 CLR 146, Dawson, Gaudron and McHugh JJ said:
Justice is the paramount consideration in determining an application such as the present one ... Case management involving as it does the efficiency of the procedures of the Court, was in this case a relevant consideration but it should not have been allowed to prevail over the injustice of shutting the applicant out from raising an arguable defence, thus precluding determination of an issue between the parties.
Ultimately, the decision is a discretionary one predominantly determined by the interests of justice. The guiding principles about whether to exercise that discretion are:
a.whether the evidence is necessary to resolve or determine an issue in the case;
b.whether unnecessary costs will arise from the appointment and, if so, whether the interests of justice outweigh those costs;
c.whether any delay occasioned by allowing the wife to have an expert outweighs the interests of justice.
I find that this evidence is likely to be necessary to determine the most important factual issue in this case.
I do not see that the cost burden will be substantial and having regard to the likelihood that the wife would use the proposed expert as a “shadow” expert anyway, it may be more cost-efficient and assist in the determination of the matter if the evidence is simply called. In any event, any such costs would not outweigh the interests of justice.
In respect of delay, apart from the fact that the matter is not yet ready for a final hearing, the wife has already engaged her expert and investigation seems advanced. In those circumstances, delay is not a serious issue. In any event, with the current listings in this registry, the matter would not be allocated a final hearing for some months.
In all of the circumstances, I am satisfied that a contrary opinion may be necessary to assist in the determination of the issue of the value but in addition, that having regard to the fact that the business is the substantial asset of the parties, for a just and equitable outcome to be achieved for both parties, all of the evidence needs to be considered.
Accordingly, in the exercise of my discretion, I propose to make an order allowing the wife to adduce evidence from a single expert witness.

I certify that the preceding Forty (40) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate

Date: 20 December 2007

[2007] FamCA 1516

20 December 2007

Key Legal Topics

Areas of Law

Family Law

Civil Procedure

Legal Concepts

Appeal

Costs

Procedural Fairness