Harty and Harty and Ors

[2017] FamCA 1167

FAMILY COURT OF AUSTRALIA

HARTY & HARTY AND ORS [2017] FamCA 1167

FAMILY LAW – PROPERTY – Appointment of non-single expert – partial property distribution – discharge of orders restricting access to documents

Family Law Act 1975 (Cth) s 79

APPLICANT: Ms Harty

RESPONDENT:

Ms Harty

SECOND RESPONDENT:

THIRD RESPONDENT:

FOURTH RESPONDENT:

E Pty Ltd

F Pty Ltd

G Pty Ltd

FILE NUMBER: MLC 11676 of 2015

DATE DELIVERED: 20 November 2017

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Gill J

HEARING DATE: 20 November 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Sweeney

SOLICITOR FOR THE APPLICANT: Kenna Teasdale Lawyers

COUNSEL FOR THE RESPONDENT: Ms Jenkins

SOLICITOR FOR THE FIRST & THIRD RESPONDENT: Andrew Croxford & Associates Pty Ltd

COUNSEL FOR THE SECOND & FOURTH RESPONDENT: Mr Weil

Orders

1. Pursuant to Rule 15.49 of the Family Law Rules 2004 (Cth), the wife have leave to adduce evidence from Mr G in relation to the value of E Pty Ltd (EPL) and F Pty Ltd (FPL).

2. The husband and/or Third Respondent pay or cause to be paid to the wife the sum of $105,000, as a part property settlement pursuant to s 79 of the Family Law Act to be paid in instalments of $26,500 per month with the first payment on 1 December 2017;

3. Within 28 days, the husband and/or the Second to Fourth Respondents provide copies of the following documents:

   (a)readable Business Activity Statement for FPL for the quarter 1 April 2017 to 30 June 2017, and all Business Activity Statements for the period 1 July 2017 to date;

   (b)Business Activity Statement for EPL for the period 1 July 2017 to date;

   (c)FPL’s Profit and Loss Statement and Balance Sheet as at 31 March 2017, 30 June 2017 and Management Accounts to 30 September 2017;

   (d)EPL’s Balance Sheet as at 30 June 2017 and Management Accounts to 30 September 2017;

   (e)copies of the Australian Tax Office Integrated Client Account Portal Report for each of the husband, EPL and FPL for the period 1 July 2014 to date;

   (f)bank statements and credit card statements for the following accounts:

   (g)a Redbook or similar appraisal for the prestige motor vehicle registered in the name of FPL;

   (h)copies of eBay and Gumtree sales histories for the husband, EPL and FPL for the period 1 July 2015 to date (if any);

   (i)a list of all current customers/clients of EPL who have purchased equipment under finance from the T Bank and which includes:

   T Bank

   T Bank

   T Bank

   T Bank

   (j)an inventory of all second hand equipment owned by EPL, including those leased to EPL’s clients as at 30 June 2016 and as at the current date;

   (k)details and all source documents evidencing:

   (l)all source documents evidencing the following expenses claimed by FPL in the 2016 and 2017 financial years:

   (m)the payroll activity report for EPL for the 2016 financial year and from 1 July 2016 to date;

   (n)a list of the clients with whom EPL has a current service agreement in place, including clients leasing second equipment, together with information concerning the current service rates for those customers;

   (o)copies of all MTL invoices issued to EPL for the period 1 July 2016 to date;

   (p)the client files for each of the 625 customers identifiable in the documents produced under subpoena by the equipment manufacturer, including payout information (noting that the USB stick Mr B provided to Mr G in 2016 contained client files for only 141 clients, and did not include payout information);

   (q)the client files for any new customers, including payout information, secured by EPL after the production of the documents under subpoena by the equipment manufacturer in June 2016; and

   (r)documents evidencing the buy rate at which EPL purchases service from the equipment manufacturer.

4. Order 7 of the Orders made by Consent in the Federal Circuit Court on 10 August 2016 be discharged upon the wife providing an oral undertaking to the Court that any documents produced by the husband or Mr K or E Pty Ltd, F Pty Ltd and G Pty Ltd shall not be used for any purpose other than in these proceedings.

IT IS NOTED BY THE COURT

A.The husband and the 2^nd to 4^th Respondents assert that they are unable to produce any documents under paragraph 3(h) hereof as no sales have ever been made on EBay or Gumtree and those sites are not sites used by them.

B.The parties consent to the release of documents produced pursuant to the subpoena to the Commonwealth Bank of Australia filed 4 November 2017.

IT IS FURTHER ORDERED THAT

1. The matter be transferred to the Registrar’s list for a date to be allocated for trial.

IN CHAMBERS

1. It is noted that the undertaking was given before the Court on 20 November 2017.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Harty & Harty and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 11676 of 2015

Ms Harty

Applicant

And

Ms Harty

Respondent

And

E Pty Ltd

Second Respondent

And

F Pty Ltd

Third Respondent

And

G Pty Ltd

Fourth Respondent

REASONS FOR JUDGMENT

1. Three applications have been made by the wife. The first is for the appointment of a non-single expert pursuant to Rule 15.49. The result of that application would be that the present trial would be vacated. As to the special reason identified in respect of the appointment of the non-single expert, the wife points to the method chosen by the single expert, being the capitalisation of future maintainable earnings, in light of the acceptance by the single expert that the discounted cash flow method, that has been adopted by the expert she seeks to retain, would be a more accurate means of valuing the principal asset of the parties, being the husband’s business interests if the appropriate information was able to be obtained. Further, the non-single expert points to significant matters that he says have not been taken into account by the single expert, matters being raised with the single expert prior to his production of the report, although not dealt with by him in the report, and then raised with him again in questioning post the production of the report. The wife’s position is that this leaves the single expert’s report as inadequate and that the special reason for the appointment of a single expert and the vacation of this trial would be that it is in the interests of justice to do so.

2. The second application made by the wife is for a partial distribution of property pursuant s 79 of the Family Law Act 1975 in order to fund her litigation in the proceedings.  It is opposed on two fronts firstly, on whether it would be able to be adequately taken into account in the final distribution of property and as to whether or not the husband has a capacity to make a payment at this stage.

3. The third aspect of the wife’s application is that she seeks a discharge of an order that was previously made in 2016 in the Federal Circuit Court that limits her access to documents produced out of the business of the husband being documents produced pursuant to his discovery obligations and specifically pursuant to various court orders that have been made.  The opposition to the discharge of this order made by the husband is that he alleges that the wife may commence her own business in breach of her Harman obligations in respect to the use of such material.

4. Turning then to the first of the applications.  This matter turns primarily on a critique of the single expert and relies on disclosure issues. 

5. The history of the application before the Court now is that the report was prepared by the single expert on 10 August 2017.  The wife administered questions on 1 September 2017 and the expert promptly provided answers on 11 September 2017.  The wife subsequently filed an application on 24 October 2017 which was listed on 9 November 2017 and adjourned to be heard at the commencement of this trial today. 

6. Before this particular sequence the wife had engaged with the single expert partly through the use of her proposed expert in order to advise the single expert of matters that she said were required to be dealt with and also to administer questions to the single expert.  There is nothing disqualifying in this particular sequence in relation to the present application. 

7. It was suggested that the wife ought to have done something earlier than file the application that she has filed.  It is difficult to envisage what could have been done before the release of the single expert’s report.  If it is suggested that she could have done something more before the release of the report it is certainly not clear that she was able to do so. 

8. Before the release of the report she took steps to advise the single expert of the matters that she said were important to be addressed. That would seem to be the primary matters that she could deal with, and she did so.  The wife relies on three issues as demonstrative of inadequacy on the part of the single expert, that is, how he deals with the embedded profit issue, secondly how he dealt with the second-hand equipment issue and thirdly the consequences of failures in financial disclosure.

9. Dealing firstly with the second-hand equipment issue two matters were raised.  The first is as to the sale of the second-hand equipment returned to the business and secondly, the production of income from equipment returned to the business.  Part of the business model which has been identified for the husband’s business anticipates a stock of second-hand equipment becoming available to the business.  No evidence has been produced regarding the sale of the second-hand equipment, no evidence has been produced disclosing them as being recorded as an asset of the business, some evidence has been produced and is reflected in the single expert’s report regarding income from these equipment.  That reference indicates that there is a stock of equipment held by the company, at least for the purpose of leasing out to other persons.  That may constitute an adequate accounting for these assets in relation to the income but does represent a significant failure regarding disclosure that means that the asset of the second-hand equipment appears to be off the books and undermines the veracity of the valuation.  In particular, the single expert determined that any second-hand equipment would not be construed to be surplus assets because of the use of equipment as hired out.  He makes reference to this in question six and question 47 of the additional answers that he gave.  Absent a determination of the stock of second-hand equipment it is difficult to understand how the single expert would be able to come to a conclusion that none of them constituted surplus assets which would have been able to be disposed of.

10. Dealing with the first issue, being the embedded profit, the embedded profit issue comes from the refinancing of older equipment to allow those persons using the older equipment to finance into new equipment.  That is, when they finance into an upgraded model part of the finance deals with the financing out of the old.  For each of these transactions it is said that there is an additional profit margin worked into it.  The single expert treated this as part of the overall revenue of the business.  He did so in the context of decreasing sales revenue on the part of the business.  He, however, made no analysis as to the remaining availability of embedded profits by assessing under contracts that were outstanding and those for which further imbedded profits might be expected. 

11. The proposed expert points to significant deficiencies in the single expert’s report regarding this being one of the potentially most significant parts of the most significant item of the properties of the parties.  In particular, the single expert points to a significant disparity between the number of clients recorded by the single expert and the number indicated by material obtained on subpoena from the T Bank.  The T Bank is the financier for each of the equipment financing arrangements.  The number of persons who have received financing through the T Bank appeared to significantly outweigh the number of persons recorded as customers of the business.  In defending the methodology the single expert pointed to (at answer 26 of the additional questions) the efficacy of the methodology that he had used where it could be anticipated that the income of the business would grow more or less uniformly.  However, he did this after reporting a 20 per cent decline in sales from 2015 to 2017 at question 24.

12. Dealing with the third of the matters the wife at [33] of her affidavit sets out failures in disclosure on the part of the husband particularly at [33.16].  These values on disclosure include matters which are necessary for the proposed expert to deal with.  If there was not this deficiency in respect of disclosure it would have been very difficult for the wife to claim that there should now be an adjournment of the trial.  However, there are a number of matters which have not been disclosed which appear to be significant to a proper valuation of the most significant asset of the parties.  In short, in this case, as in all cases, the primary driver for how the Court deals with such an application is as to what is in the interests of justice. 

13. One of those interests calls very much for a timely hearing of the dispute between the parties, which is a matter that weighs heavily against the wife’s current application, as her application will result in an adjournment of a matter that is listed for final trial commencing today.  However, the interests of justice even more importantly call for a proper hearing of the issues.  The wife has done what she was able to do within the Rules to deal with the issue in respect of the single expert.  She identifies an arguable significant deficit in the single expert’s report.  There is a real issue to be tried such that it justifies the adjournment of the trial to allow evidence from a further expert.  Permission will be granted to call evidence from the expert and the trial will be adjourned.

14. The second issue raised by the wife relates to litigation funding. This is an application made by her pursuant to s 79 of the Act. There needs to be good reason to allow the fragmentation of what ideally is a single exercise of the power pursuant to s 79. There is good reason in this instance and that good reason is to enable the wife to properly conduct her litigation.

15. The key objections that have been raised by the husband are firstly that what the wife seeks is outside her potential ultimate award and secondly, that he lacks the capacity to make the payment.  So far the wife has received $20,000 in March 2016, $100,000 in April 2016 and $55,000 in August 2016, adding up to $175,000 which has gone, it seems, towards her legal costs.  She seeks a further $120,000 based upon the affidavit of Mr L, solicitor.  In that affidavit he asserts that the further fees will be in the sum of $120,000.  That assertion however does not rise beyond a mere assertion.  While he identifies the types of expenses that might be necessary he then jumps to a global figure without showing how it might be reckoned.  That global figure is between $100,000 and $120,000. 

16. As against this the husband’s claim on the property of the parties would see the wife receiving 25 per cent of the balance of the Suburb M property after the liability that is attached to that property would be taken into account.  The equity in that property is about $940,000.  He says the wife should receive 25 per cent which equates to $235,000.  He, by his response, says the wife should receive 5 per cent of the business which is reckoned at about $45,000 on the value put of the single expert.  In total that is a sum of $280,000.  She has already received $175,000 which leaves a balance of $105,000.  That is, on the husband’s best case there remains $105,000 available to the wife from the property without trespassing on the claim that he makes on the property. 

17. The wife has shown reason to deal with the property matter in advance of the trial but not reason to deal with the property such in a manner as might prejudice the husband’s current claim.  That is not demonstrated when one looks at the nature of the legal fees that she says that she might accrue.  The maximum that could be fairly said that she could receive at this point then is the $105,000. 

18. Turning then to the question of capacity given the manner in which the husband has used the FPL business for his own expenses (see the wife’s affidavit [20]) it could not seriously be questioned that he does not have the capacity to currently source the payment if he is required to do so. 

19. Accordingly, an order pursuant to s 79 will be made as it is appropriate to do so to fragment the proceedings in order to fund the litigation. It is appropriate to do so, given the size of the asset pool, as at the minimum as set out by the husband the pool is approximately $1.7m, and given that on the husband’s case it would be just and equitable for the wife to receive a further $105,000.

20. I will make orders that will permit her to do that now.

21. Turning then to the orders made by the Federal Circuit Court in 2016, orders were made by consent which restricts the wife from having access to redacted material produced by the husband pursuant to court order or pursuant to his disclosure obligations.  It seems that instruction should be able to be taken by the wife in respect of this material.  The husband however has expressed a concern that the wife might use that material to undermine his business.  The wife is subject to an implied undertaking not to use the material otherwise than for the purposes of litigation.  In the event that the wife chooses to give me now an undertaking that sets out that she will comply with her harm and obligations then I will discharge the order.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Gill delivered on 20 November 2017.

Associate:

Date:  20 November 2017.