Keevers & Keevers
[2021] FedCFamC1F 338
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Keevers & Keevers [2021] FedCFamC1F 338
File number(s): MLC 9192 of 2021 Judgment of: WILSON J Date of judgment: 22 December 2021 Catchwords: FAMILY LAW – EVIDENCE – husband’s application for orders under Part 7.1 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 for the appointment of an adversarial witness to value a company said to be valued at in excess of $50 million – whether Rule 7.08 properly invoked – held, no – application refused.
FAMILY LAW – PRACTICE AND PROCEDURE – application for the appointment of an adversarial witness in circumstances where a single expert has already provided a valuation of the business – whether “substantial body of contrary opinion” – elements of rule 7.08(2) considered – held, no evidence of the existence of a substantial body of contrary opinion – rule 7.08(2) not properly invoked – application refused – Verdon & Verdon (2020) 62 Fam LR 573 – distinguished.
Legislation: Federal Circuit and Family Court of Australia (Family Law) Rules 2021 rules 1.05, 7.02, 7.08, 7.09, 7.1, 7.10, 7.11 and 7.32
Family Law Rules rule 15.49
Cases cited: Daniels & Walker [2000] 1 WLR 1385
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588
Honeysett v The Queen (2014) 253 CLR 122
1 In the Marriage of Chick (1987) 12 Fam LR 64
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Neales & Neales [2021] FamCA 525
2 Padnall & Padnall (No 3) [2014] FamCA 904
3 Salmon and Salmon [2020] FamCAFC 134
4 Salt & Salt [2019] FamCA 625
Tsoutsouvas & Tsoutsouvas and Ors [2012] FamCA 521
Verdon & Verdon (2020) 62 Fam LR 573
Division: Division 1 First Instance Number of paragraphs: 44 Date of hearing: 6 December 2021 Place: Melbourne Counsel for the Applicant: Mr C. Nehmy Counsel for the Applicant: Sayer Jones Counsel for the Respondent: Mr L. Glick QC Solicitor for the Respondent: Suke & Associates ORDERS
MLC 9192 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR KEEVERS
Applicant
AND: MS KEEVERS
Respondent
ORDER MADE BY:
WILSON J
DATE OF ORDER:
22 DECEMBER 2021
THE COURT ORDERS THAT:
1.The further hearing of this proceeding is listed for directions on 1 February 2022 at 10:00am.
2.On or before noon on 24 December 2021 the parties must email a minute of the orders to be made by me, such orders to include the dismissal of the husband’s application for leave to rely on the affidavit of Mr B filed 22 November 2021.
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).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Keevers & Keevers has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
WILSON J
This proceeding, now in the Major Complex Financial Proceedings List and fixed for trial commencing on 2 May 2022, has raised an issue in relation to expert evidence and in particular, whether the criteria for the appointment of an adversarial witness has been properly invoked.
On behalf of the wife, Mr Glick One of Her Majesty’s Counsel, opposed the appointment of the proposed adversarial witness. On behalf of the husband, Mr Nehmy of counsel, contended that the proposed adversarial witness, who has already provided his report should be permitted to adduce evidence contrary to that given by the agreed single expert Mr C. The wife opposes that proposal. On behalf of the husband it was asserted that the provisions of rule 7.08 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the FCFCOA (FL) Rules”) were enlivened warranting the grant of leave to allow Mr B to adduce evidence.
These reasons explain why the husband’s application for Mr B to give evidence as an adversarial expert is refused.
As these reasons explain, I am of the view that the facts of this case are not on all four with those in Verdon & Verdon[1] in which I allowed an adversarial expert to provide evidence despite the existence of a single expert. To my mind, in this case, the necessary prerequisites to permitting an adversarial expert to give evidence have not been established.
[1] (2020) 62 Fam LR 573.
RELEVANT FACTUAL BACKGROUND
The parties in this proceeding seek orders altering property interest under s 79 of the Family Law Act 1975.
As part of the evidence to be adduced at the trial, Mr C, the single expert, made an affidavit on 22 November 2021 to which he exhibited his report dated 27 August 2021. In that report Mr C valued the Keevers Family Trust at $50,890,853 by application of the fair market value standard of value.[2]
[2] Paragraph 14 of Mr C’s report is one source of that evidence. There are others.
Following correspondence from the parties’ solicitors, Mr C amended his valuation by increasing it from $50,890,853 to $52,968,602.
Mr B, a chartered accountant and registered liquidator and who is not a single expert in this litigation, was instructed by the husband’s solicitors to prepare his own report, which he did. The letter of instructions to Mr B provided that he was to –
(a)act as a shadow expert to conduct a forensic review of Mr C’s valuation and the documentation on which Mr C relied;
(b)prepare his own valuation; and
(c)prepare requisitions addressed to Mr C.
By report dated 16 September 2021 Mr B provided his own opinion of the value of the business and of the equity value in it. He provided a low, mid and high value. The business value expressed by Mr B in it were as follows –
(a)low – $37,390,853;
(b)mid – $41,890,853; and
(c)high – $46,390,853.
The husband sought leave to rely on the report of Mr B. The application was brought pursuant to rule 7.11 of the FCFCOA (FL) Rules. The wife opposed the husband’s application.
Rule 7.08(2) of the FCFCOA (FL) Rules permits a party to adduce evidence from another expert witness if the court is satisfied of one of the three criteria specified in that rule. It is utile to set out rule 7.08(2), in terms, as follows –
(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 the contrary opinion is or may be necessary for determining the issue; or
(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.
A significant debate emerged before me about whether the elements of subparagraph (a), (b) or (c) of rule 7.08(2) had been engaged. Mr Glick QC for the wife submitted that none of the provisions of rule 7.08(2) had been engaged. He submitted that the foundation for the receipt of Mr B’ s report under the FCFCOA (FL) Rules had not been established with the consequence that I should not permit the husband to adduce evidence from Mr B. The detail of those submissions is canvassed below.
PART 7.1 OF THE FCFCOA (FL) RULES
Debate emerged before me about the application of aspects of my decision in Verdon. At once it must be pointed out that the relevant court rules in issue in that case were the Family Law Rules and not the FCFCOA (FL) Rules. This application is governed by the latter and not the former rules. They are not identical yet each addresses the interaction between evidence being given by a single expert on the one hand and by an adversarial expert on the other. No immutable position applies to the effect that only the evidence of a single expert will be received at the trial of a proceeding. Adversarial expert evidence may be adduced so long as the provisions of Division 7.1.2 of the FCFCOA (FL) Rules are met in the circumstances of a particular case.
In the FCFCOA (FL) Rules, Part 7.1 is devoted to the subject of experts. Rule 7.02 is headed “Purpose of Part 7.1”. Part 7.1 is made up on rules 7.02 to rule 7.32 inclusive to separate rules relating to experts from rules relating to assessors, the latter being covered by Part 7.2.
Part 7.1 of the FCFCOA (FL) Rules is a comprehensive statement of the procedure referred to in the Federal Circuit and Family Court of Australia in relation to adducing expert evidence. When referring to evidence from an “expert”, rule 1.05 defines the term “expert” to mean “an independent person who has relevant specialised knowledge based on the person’s training, study, or expertise. That definition is consistent with observations in Makita (Australia) Pty Ltd v Sprowles,[3] Dasreef Pty Ltd v Hawchar[4] and Honeysett v The Queen.[5] The purpose of Part 7.1 is explained in rule 7.02. That rule is in the following terms –
[3] (2001) 52 NSWLR 705.
[4] (2011) 243 CLR 588.
[5] (2014) 253 CLR 122.
Purpose of Part 7.1
The purpose of this Part is as follows:
(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 proceeding;
(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;
(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 that is necessary in the interests of justice.
Several important matters arise from rule 7.02. Among them is the following –
(a)Part 7.1 ensures that expert evidence is only obtained in relation to a “significant issue in dispute”, inferentially, not an inconsequential or minor issue or a point not in dispute;[6]
(b)expert evidence is restricted to that which is necessary to determine a proceeding;[7]
(c)where practicable, so long as the interests of justice permit, expert evidence is to be given by a single expert;[8]
(d)unnecessary costs are avoided by the appointment of no more than one expert; and
(e)a party is entitled to apply for permission to adduce evidence from an expert witness appointed by that party if that is necessary in the interests of justice.
[6] Rule 7.02(a) of the FCFCOA (FL) Rules.
[7] Rule 7.02(b) of the FCFCOA (FL) Rules.
[8] Rule 7.02(c) of the FCFCOA (FL) Rules.
The phrase “interest of justice” is used twice in rule 7.02. The first is in rule 7.02(c) in reference to the imperative of not compromising the interests of justice by restricting, if practicable, expert evidence or an issue to the evidence of a single expert. The second is the permissive provision in rule 7.02(e) to enabling a party to seek the court’s permission to adduce evidence from an expert other than a single expert if that is necessary in the interest of justice. In other words, by no means is it to be taken as granted that a witness who is not a single expert will be permitted to adduce expert evidence. Application must first be made for that witness to do so. The grant of permission is predicated on the evidence of the proposed witness who is not a single expert being “necessary in the interests of justice”.
In this case Mr B is not a single expert. He is proposed to give evidence in accordance with rule 7.08, according to the husband.
ADVERSARIAL EVIDENCE GENERALLY OR ON A SPECIFIC ISSUE
The FCFCOA (FL) Rules recognise evidence being given by a witness who is not a single witness (colloquially known as an “adversarial witness”) in general opposition to the single expert’s evidence. That is the nature and effect of the combined operation of rules 7.10 and 7.11. Part 7.1 of the FCFCOA (FL) Rules also recognises that an expert witness, who is not a single expert, may give evidence on a discrete issue that is contrary to the evidence given by the single expert on the same issue. That is the nature and effect of rule 7.08. In this application, counsel for the husband relied on multiple rules in Part 7.1. In other words, the husband purported to rely on rule 7.11 in his application in a case filed on 22 November 2021 yet the husband concurrently relied on rule s 7.08 in other aspects of his submissions. That was important because rule 7.08 addresses the more limited issue of an attempt to adduce evidence from another expert on the “same issue”, as the rule expressly provides. Conversely, rules 7.10 ad 7.11 are not expressed to be limited to an expert, not being a single expert, whose evidence is limited to a discrete issue in the way rule 7.08 is so limited.
On behalf of the husband, Mr Nehmy of counsel submitted[9] that rule 7.08(2) of the FCFCOA (FL) Rules applied. He contended that “the issue” to which rule 7.08 speaks in relation to “the same issue” as addressed by the single expert is “the business’s value”.[10] Mr Nehmy contended that according to Mr B, the value of the business is $41,890,853, being $11,000,000 less than Mr C’s valuation.
[9] Paragraph 11 of the husband’s written submissions dated 5 December 2021.
[10] Ibid.
One of the questions for determination on this application was whether the overall valuation about which Mr C opined was “the same issue” as the overall valuation about which Mr B opined. The differences were significant in terms of dollar amounts.
Alternatively, a question arose as to whether “the same issue” with which rule 7.08 was concerned took the form of one or more components that aggregated the overall valuation in amounts differently given by Mr C and Mr B.
On behalf of the wife, Mr Glick QC contended[11] that the capitalisation rate applied by each of them to the adjusted (earnings before interest, taxes, depreciation and amortisation) was the only substantial difference of opinion between Mr C and Mr B. On that basis, that issue may (repeat, may) represent “the same issue” on which the expert who is not a single expert might give evidence. But if that were the proper characterisation of the difference, Mr B’s evidence on that issue would not account for the overall difference in valuation of the business, taking into account, as it does, a litany of other issues where Mr B ascribes a different, lesser, overall valuation for the business.
[11] Paragraph 36 of the written submissions prepared for the wife dated 3 December 2021.
Mr Nehmy submitted that Mr Glick’s characterisation of the only substantial difference of opinion between Mr C and Mr B was an oversimplification. Mr Nehmy then identified four issues on which the experts were in disagreement, namely –
(a)an alleged inappropriate comparison of trading multiples;
(b)an alleged failure to consider relevant offers to purchase the business;
(c)an alleged failure to consider the effect of D Limited ACN … being appointed to Westpac’s National Building and Restoration Panel; and
(d)an alleged failure of a liquidity or marketability discount.
Expressed in different words, that served to amount to a submission that Mr C’s valuation may have been several millions of dollars less than it was had the four matters identified immediately above been taken into account by Mr C.
Proceeding on the assumption that the four matters identified immediately above represented the husband’s conception of “the same issue”,[12] rule 7.08 provided that the Court may allow Mr B’s evidence to be adduced if satisfied of any one of the three matters in rule 7.08(2)(a) or (b) or (c).
[12] Of relevance is the expression in rule 7.08 “the same issue” in the singular, not in the plural. In other words, rule 7.08 does not speak of “the same issues”.
Rule 7.08(2)(a) addressed the existence of two things. The first was a substantial body of opinion contrary to any opinion given by the single expert. The second was that the contrary opinion is or may be necessary for the determination of the issue. In his written submissions, counsel for the husband did not articulate by reference to the facts of this case precisely what was “the same issue” in respect of which a substantial body of contrary evidence existed. Nor did the husband’s counsel articulate the matters pertinent to the second element of rule 7.08(2)(a), namely, that the contrary evidence (that is to say, Mr B’s evidence) “is or may be necessary for determining the issue”.
Rule 7.08(2)(a) also called for the identification of the evidence of a “substantial body of opinion contrary to any opinion given by the single expert witness”. On this issue, the parties were in disagreement. For the husband, it was argued that pursuant to paragraph 31 of the husband’s affidavit, Mr C and Mr B differed in their opinions on a number of issues. Even accepting that to be true, a significant difference of opinion is not the same thing as the requirement of rule 7.08(2)(a), namely that a substantial body of opinion exists contrary to the opinion of the single expert and that the contrary opinion is or may be necessary for determining the issue.
Pared to its most basic elements, the husband needed to identify several matters before he could successfully enliven rule 7.08(2)(a). They were –
(a)the identification of an issue in the single expert’s evidence;
(b)on the same issue (and not some broader generic issue), that the additional proposed expert gives a contrary opinion;
(c)on that precise issue, that a substantial body of opinion exists that is contrary to the opinion expressed on the same issue by the single expert; and
(d)the contrary opinion is or may be necessary for the determination of the precise issue.
In my view, the four matters set out in above in paragraph 24 are vastly broader and are insufficiently precise to constitute “the same issue” about which a substantial body of opinion contrary to the opinion given by the single expert could form part. Equally, one wonders how an alleged failure to consider the effect of D Limited being appointed to Westpac’s National Building and Restoration Panel could be “expert evidence” as defined under the rules, let alone could there exist a substantial body of opinion contrary to any opinion given by the single expert on that matter.
It seems to me that taken in aggregate, Mr B’s report may be well construed as the expression of his opinion on the business’s valuation and that in arriving at that conclusion he differs to Mr C on several issues.
It seems to me to be relevant that Mr C and Mr B agree on certain key issues. Those were identified in Mr Glick’s submissions as follows –
(a)the adoption of the going concern premise of value;
(b)fair market value standard;
(c)the nature of the industry;
(d)the non-application of the DCF method approach;
(e)the adoption of a future maintainable earnings methodology; and
(f)the assessment by the single expert of future maintainable earnings of $9 million.
So far as the concept of a substantial contrary body of opinion was concerned, Gill J in Neales & Neales[13] addressed it. There, his Honour held as follows –
A number of observations should be made about this ground. The first is that it is not met by a mere contrary opinion as to outcome. The reference to a body of opinion points to something of the nature of an alternate school of thought in the area of expertise, or alternate methodologies or approaches, or alternate theoretical bases for the offering of an opinion. The second is that it is necessary to establish that it is a substantial body of such. That indicates that it is insufficient to merely show that another expert holds an alternate approach is appropriate, but rather that the approach or body has credence (although not necessarily universal acceptance) in the field. That is, it is substantial in the sense that it has support within the field of expertise. The third is that the difference is such that it is necessary to have regard to the alternate evidence in order to resolve the dispute before the court.
[13] [2021] FamCA 525 (at [48]).
For all practical purposes rule 7.08(2)(a) is in the same form as was rule 15.49 of the Family Law Rules. Various observations have been made in the authorities in relation to rule 15.49 especially about the potential for imbalance that inures when parties agree on the appointment of a single expert then one party, despite the appointment of the single expert, later attempts to adduce evidence contrary to that given by the single expert. In Tsoutsouvas & Tsoutsouvas and Ors[14] the following was said of that situation –
A number of cases highlight the need to address questions to a single expert or to take the steps provided for in the Rules (such as a conference) to clarify a single expert report before embarking upon an application to be allowed to adduce evidence from another expert witness.
[14] [2012] FamCA 521 (at [26]).
Gill J adopted a similar approach in Neales & Neales.[15]
[15] [2021] FamCA 525.
It must not be overlooked that one of the purposes of Part 7.1 of the FCFCOA (FL) Rules, as reposed in rule 7.02(c), is to ensure that if practicable and without compromising the interests of justice, expert evidence is given on an issue by a single expert. That is not to say that multiple single experts may emerge in a case involving several entirely discrete and diverse evidentiary disciples. Such a case will be rare indeed, however. Accordingly, having an agreed single expert on an issue then having an adversarial witness on the same issue creates an imbalance, undermining the original purpose of appointing a single expert, as was observed in Tsoutsouvas. Of course, despite that apparent imbalance an adversarial witness may be permitted to adduce evidence on the same issue as does the single expert give evidence, yet the circumstances in which that will be permitted are highly circumscribed by the criteria in rule 7.08(2).
The phrase “substantial body of opinion” that appears in rule 7.08(2)(a) has been the subject of consideration at intermediate appellate level in Salmon and Salmon.[16] Applying the reasoning in earlier decisions in In the Marriage of Chick,[17] Padnall & Padnall (No 3),[18] and Salt & Salt,[19] in Salmon and Salmon the following was held –
In my opinion, viewed in the context of s 97(3) of the Act, r 1.04 and the purpose of Part 15.5 expressed in r 15.42, the words “substantial body of opinion” in r 15.49(2) are to be given real meaning, as was the approach taken by the primary judge. The approach that the words have meaning of substance has been adopted, correctly in my view, in other decisions at first instance in this Court. The mere expression of an opinion as to value by another expert, no matter how substantially contrary it is to that of the single expert, does not in and of itself constitute “a substantial body of opinion” within the meaning of the rule. If such a contrary opinion is founded upon identified and accepted methodology recognised within the field, or some identified and recognised field of expertise different to that founding the single expert opinion, then the requirement of “a substantial body of opinion” will be fulfilled. As the Full Court observed in Chick and Chick an expert witness may refer to textbooks and other published material to support his or her material without being forced to call the author for cross-examination. It is to be considered as one of the bases upon which the expert has formed his or her opinion.
[16] [2020] FamCAFC 134.
[17] (1987) 12 Fam LR 64.
[18] [2014] FamCA 904.
[19] [2019] FamCA 625.
In paragraph 15 of the husband’s written submissions Mr Nehmy wrote the following –
It is plain from the matters raised by Mr B that there is a substantial body of opinion contrary to Mr C’s opinion that that opinion may be necessary for determining the issue of the Business’ value.
I disagree. The existence of a substantial body of opinion contrary to Mr C’s opinion is not, in and of itself, demonstrated merely by Mr B’s report. Such a contention is unduly imprecise. In order for there to be evidence demonstrative of a substantial body of opinion contrary to the opinion expressed by the single expert, the precise issue in respect of which contrary opinion exists must be identified. Then evidence must be before the Court that a particular school of thought (as Gill J termed it) exists indicating that on a specific issue properly the subject of expert evidence (as defined) a substantial body of opinion exists that is contrary to the opinion held by the single expert. I was not persuaded that Mr B’s report or other evidence before me is to that effect. For that matter I am none the wiser about the identity of “the same issue” which Mr B’s evidence is said to represent, nor how it is contrary to the opinion held by Mr C, nor why it is in the interests of justice that Mr B’s evidence should be permitted to be adduced in circumstances where Mr C is the agreed single expert witness and also in circumstances where the single expert evidence regime prescribed by Part 7.1 of the FCFCOA (FL) Rules should be given effect.
Turning then to rule 7.11(2) and the matters I am entitled to take into account in my consideration of this application, counsel for the wife emphasised that the husband offered no evidence of the impact of the appointment of an additional expert on the costs of the proceeding. Mr Glick QC argued that the trial of this proceeding is likely to be enlarged if Mr B is permitted to give adversarial evidence. In view of the extent already foreshadowed about disagreement between Mr C and Mr B, it seems likely that by permitting the proposed adversarial expert to give evidence, the parameters of the case will expand as to both duration and costs. In his viva voce submissions before me Mr Glick QC submitted that even if leave were refused to allow Mr B’s evidence to be adduced, the contents of his report could be the subject of cross-examination of Mr C in accordance with rule 7.09. That is true, although the question of cross-examination of an expert in analogous circumstances was the subject of judicial attention in the Court of Appeal of England and Wales in Daniels & Walker.[20] There, the Master of the Rolls held as follows –
If there is disagreement on that report, then there would be an issue as to whether to ask questions or whether to get your own expert’s report. If questions do not resolve the matter and a party, or both parties, obtain their own expert’s reports, then that will result in a decision having to be reached as to what evidence should be called. That decision should not be taken until there has been a meeting between the experts involved. It may be that agreement could then be reached; it may be that agreement is reached as a result of asking the appropriate questions. It is only as a last resort that you accept that it is necessary for oral evidence to be given by the experts before the court. The cross-examination of expert witnesses at the hearing, even in a substantial case, can be very expensive.
[20] [2000] 1 WLR 1385 (at p1387).
Less it be thought necessary to point this out, cross-examining experts can be, and usually is, a highly technical and expensive exercise. While permitted by the rules, 14 days’ notice must be given to the single expert prior to the date fixed for the trial and the court is entitled to limit the nature and length of any such cross-examination.[21]
[21] Rule 7.08(2) of the FCFCOA (FL) Rules. .
The husband has foreshadowed his intention to challenge Mr C’s evidence. Subject to the provisions of rule 7.09, that proposal can be accommodated and ameliorates any contention that irremediable prejudice might be caused to the husband by not allowing the husband leave to permit Mr B to adduce evidence.
GOING FORWARD
The parties should have an opportunity to consider these reasons before formulating directions to get this case to trial. I shall fix the further hearing of this proceeding for directions on 1 February 2022 at 10:00am.
The precise form of the orders to be made on this application will require formulation. I direct the parties to email a minute of the orders to be made by me by noon on 24 December 2021. The orders should include a formal order dismissing the husband’s application for leave to rely on the affidavit of Mr B as an adversarial witness.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wilson. Associate:
Dated: 22 December 2021
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