KNIGHTS & KNIGHTS
[2015] FCCA 1745
•25 March 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KNIGHTS & KNIGHTS | [2015] FCCA 1745 |
| Catchwords: FAMILY LAW – Property – valuation issues – parties’ competing applications for settlement of property fixed for final hearing on basis valuation issues agreed – parties previously appointed single experts to value business and various real properties – wife seeks to lead additional expert valuation evidence – matters to be considered – application dismissed. |
| Legislation: Federal Circuit Court Rules 2000, rr.15.09, 15.12, 15.2 |
| Pitt & Pitt (2009) FamCA 620 Moss & Moss (2012) FamCA 538 Aon Risk Services Australia Limited & the Australian National University (2009) HCA 27 |
| Applicant: | MS KNIGHTS |
| Respondent: | MR KNIGHTS |
| File Number: | ADC 2475 of 2014 |
| Judgment of: | Judge Brown |
| Hearing date: | 25 March 2015 |
| Date of Last Submission: | 25 March 2015 |
| Delivered at: | Adelaide |
| Delivered on: | 25 March 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Jordan |
| Solicitors for the Applicant: | Norman Waterhouse Lawyers |
| Counsel for the Respondent: | Ms Pyke QC |
| Solicitors for the Respondent: | Barnes Brinsley Shaw Lawyers |
ORDERS
The application filed 6 March 2015 is dismissed.
Each party pay their own costs.
IT IS NOTED that publication of this judgment under the pseudonym Knights & Knights is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT AT ADELAIDE |
ADC 2475 of 2014
| MS KNIGHTS |
Applicant
And
| MR KNIGHTS |
Respondent
REASONS FOR JUDGMENT
These orally delivered reasons for judgment relate to an application in a case brought by Ms Knights, the wife, on 6 March 2015. The respondent to the application is Mr Knights, the husband. For the sake of convenience I will refer to the parties as “the wife” and “the husband”.
The principal proceedings relate to the division of matrimonial property. They are listed for final hearing, for two days, on 1 and 2 April 2015.
The application in a case centres on controversial valuation issues, particularly relating to what is the appropriate value for the court to ascribe to a (omitted business) and some items of real property.
By way of background, both parties are in early middle age. They began to live together in 1997, married in (omitted) of that year, and finally separated in mid-2013. They have three children, aged 16, 14 and 11 years respectively.
The husband is a (occupation omitted) by profession. The wife has been a (occupation omitted) and worked at a (business omitted) operated by the husband but has not been formally employed for some years. The major items of property, which are the subject of these proceedings are two (businesses omitted) located at (omitted) and (omitted).
Those (businesses omitted) are carried on by an entity known as the Knights Family Trust. In addition, relevant to the proceedings, are items of real property located at Property F, which is the former matrimonial home and properties at Property M and Property P.
The wife commenced the property proceedings on 15 July 2014. At the time, the parties were living on the same premises but separated under the one roof of their former family home at Property F. This situation was emotionally fraught.
Following unsuccessful attempts to resolve property issues, through a process of conciliation, things came to a head concerning the parties continuing to live in the same premises. Both parties, but particularly the wife, asserted that it was untenable for them to continue to share the former family home.
The wife’s position was that she could not afford to move out and, therefore, required spousal maintenance and an order settling on her a sum of money by way of interim or partial property settlement to cover both accommodation and living expenses and also her prospective legal costs, which were anticipated to be significant.
Against that background, sole occupancy proceedings and spousal maintenance proceedings were commenced. These proceedings were consensually resolved on 13 January 2015.
Essentially, the husband agreed to pay $6800 to the wife by way of a rental bond and a sum of $85,000 for her costs and $30,000 in a lump sum partial property settlement. He also agreed to pay spousal maintenance, at the rate of $600 per week, and maintain a car for the wife.
At the time, it was the husband’s position that these were stopgap orders and should stand only until the trial which, from his perspective, needed to occur sooner rather than later. Both parties throughout the proceedings have been represented by competent solicitors who have instructed very experienced counsel to appear on behalf of their respective clients.
It was my impression that issues relating to the satisfactory valuation of the (omitted business), various pieces of real property and some idiosyncratic items of personal property, chiefly musical instruments and specialised motor vehicles, were being competently and appropriately attended to.
In particular, that Mr C, a chartered accountant, had been retained to value the family trust. Whilst Mr W, of (omitted), had been appointed to value the former matrimonial home at Property F and other properties at Property M and Property P.
Against this background, on 13 January 2015, I was in a position to offer the parties a comparatively expeditious hearing date. I did so on the basis that there was apparently scant controversy regarding the valuation of the major items of matrimonial property and where issues of controversy would arise, related to how the parties’ various contributions during their comparatively long marriage should be assessed and particularly how issues arising pursuant to section 75(2) of the Family Law Act, which are often categorised by lawyers as being related to future needs, should be characterised.
The real property valuations had been obtained in July 2014, well in advance of the spousal maintenance hearing on 13 January 2015. Mr C’s report was dated 4 November 2014. Again, as is axiomatic, that report was obtained about two months prior to the interim hearing related to spousal maintenance.
In round terms, Mr W valued the various real properties at a total of $2.14 million. Mr C valued the trust at a figure of around $1.5 million.
This was the context in which the proceedings were fixed for final hearing on 1 and 2 April, as a consequence of orders made on 3 January 2015, which bear the following significant notation:
Upon further noting the valuation of the (omitted business), motor vehicle collection and the various items of real property currently filed in these proceedings were jointly obtained, each party is restrained from obtaining any further valuation without leave of the court.
This notation was made without demur from either parties’ counsel on 13 January 2015. As I indicated, each party was represented by experienced counsel. In the wife’s case by Mr Jordan, in the husband’s case by Ms Pyke of senior counsel.
This brings me to the wife’s application in a case which, as I say, was filed on 6 March 2015. Due to the imminence of the trial, the application was given the earliest hearing date which could be accommodated, it being the case that last week I was not sitting in Adelaide.
Amongst other orders, the wife seeks the following orders:
(1) That the wife have leave to adduce the expert evidence of Mr P of (omitted) as to the value of the (businesses omitted) carried on by Knights Family Trust.
(2) That the wife have leave to adduce the expert evidence of Mr F of (omitted) as to the value of the following properties: Property F, Property M, and Property P.
As a corollary of the first order, the wife wishes an order to be made to compel the husband to attend upon Mr P on one occasion to brief him as to matters pertaining to the operation of the two (businesses omitted) in question so that Mr P may be properly informed as to valuation issues.
In his response, which was provided to me yesterday, the husband seeks the dismissal of the application and costs. The basis of the wife’s case is set out in her affidavit of 6 March 2015. In that affidavit, she discloses that she has sought what is commonly called a shadow appraisal of Mr C’s report.
She deposes as follows:
I have sought expert advice from Mr P at (omitted) in relation to Mr C’s valuation of the two (omitted business)es. Mr P is a director at (omitted). He has extensive experience in the valuation of (businesses omitted). I have requested a copy of Mr P's CV, however, I am yet to receive it. I will provide a copy to the court as soon as it is available. Mr P has conducted a “high level review” of Mr C’s valuation. A copy of Mr P’s high level review is attached. He has confirmed there is a market for (businesses omitted), particularly the more affordable (businesses omitted) valued in the 1 million to 1.5 million dollar price range. On the basis of his high level review, Mr P suggests that the value of the two Knights (businesses omitted) exceeds the value of $1,570,449 adopted by Mr C by at least $400,000.
Mr P has some criticism of Mr C’s methodology. The main one appearing to be that the (businesses omitted) have not been valued as separate entities.
In respect of the real properties concerned, in November 2014, the wife’s solicitors requested (omitted) Proprietary Limited to undertake what is known as a “desktop review” of Mr W’s valuation. Again, these revealed some criticisms of Mr W’s methodology, in respect of the Property M and Property P valuations.
If what (omitted) asserts is correct, the assertions could potentially add $100,000 to the value of the two properties concerned. The wife’s case is simple. $400,000 is a significant sum of money. So, too, is the sum of $100,000.
As such, she argues that it would be grossly unfair to her not to allow Mr P to give evidence in these proceedings. She takes the same view in respect of Mr F of (omitted).
Mr Jordan, counsel for the wife, submits that the shortly scheduled trial need not be vacated and so any potential prejudice to the husband is likely to be limited.
Mr Jordan does, however, concede that the trial is almost certainly likely to be prolonged and may have to proceed part heard. However, fundamentally underpinning his submission is that it would be in the overall interests of justice to disallow his client’s application.
I have been provided with a copy of a letter, which is dated 17 February 2015, from Mr P. It is annexed to the wife’s affidavit of 6 March 2015. Mr P’s letter is in response to a letter which the wife’s solicitor wrote on 19 January 2015, that is, some six days or so after I had been assured by the parties’ respective counsel regarding issues relating to valuation.
In his letter Mr P describes his review as “limited”. He writes as follows:
It is recommended that a more comprehensive valuation is undertaken to provide a more accurate second valuation opinion.
In this context, he proposes that he will need more information. Attached is a checklist of some five pages, which will have to be filled in by a person, presumably Mr Knights, who knows about the workings of his (business omitted). In addition, as previously indicated, the wife seeks an order that Mr Knights make himself available to be interviewed by Mr P and answer any questions which Mr P may have.
In addition, it is common ground that a number of formal questions, arising as a consequence of what Mr P has indicated to the wife, have been put to Mr C, by the wife’s solicitors. A similar approach has been taken in respect of information provided by (omitted). Questions have also been put to Mr W of (omitted). Those questions have apparently been answered.
The husband vigorously opposes the application on a number of bases which could be summarised as follows. Firstly, the parties jointly instruct Mr C and Mr W, with the court’s imprimatur, to conduct the valuations concerned. It is implicit that both experts had the confidence of both the husband and the wife and those who were advising them, when each was retained.
In those circumstances it is submitted that it should only be in exceptional circumstances that the court should allow expert witnesses, with analogous qualifications and experience and particularly methods of valuing items of property, to compete in an adversarial setting.
Secondly, the evidence should not be allowed because, if competing expert evidence is allowed, it only has the potential to lengthen and complicate the proceedings which will inevitably add significantly to costs and delay the proceedings.
Thirdly, the husband submits that the wife did not raise objections to the report of Mr C and Mr W until very recently. She did not demur to the notation, which the orders of 13 January 2015 bear.
Fourthly, the husband argues that the wife will not be unduly prejudiced anyway. She will be able to cross-examine both Mr C and Mr W and put to them issues of methodology raised by, particularly, Mr P.
It is the submission of Ms Pyke that that is what routinely occurs in cases such as this, where the litigants concerned are comparatively well resourced. It is a commonplace thing that so-called shadow experts are retained to throw up any issues arising from methodology, so that they can be tested against the evidence of the principal expert concerned.
In this context Ms Pyke points to the fact that Mr C, on the one hand, and Mr P, on the other, are similarly qualified experts. As is the case with Mr W and Mr F. The experts do not come from separate fields of expertise, rather what they are doing is using the same body of expertise and the same body of training to critique, in effect, one another.
Fifthly, and finally, the husband points to the fact that both so-called shadow reports are nebulous and inchoate. Mr P obviously has much more work to do to reach any concluded valuation. Accordingly, it is said that it is a matter of speculation whether or not the figure of $400,000 is correct.
It is not said that Mr P will embark upon an entirely different process to value the (businesses omitted) concerned. His involvement with the businesses, as he acknowledges himself, is far from complete. The same is true of the (omitted) desktop appraisals. On these various bases Ms Pyke seeks the dismissal of the application.
I now turn to the legal framework which I must apply. The court’s rules, and in this regard I point out that the proceedings are in the Federal Circuit Court and therefore its rules apply, at least at first instance, are comparatively simple.
The relevant rule is found at Division 15.2 of the Federal Circuit Court Rules. Expert in relation to a question is defined to mean:
…a person…who has specialised knowledge about matters relevant to the question based on that’s person’s training, study or experience.
Pursuant to rules 15.09 and 15.12:
The Court may, at the request of a party or of its own motion appoint an expert as court expert to inquire into and report on a question arising in the proceeding… 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.
As I say the court’s rules are simple, as befits a court such as this, which is a busy court of first instance, which is intended to deal with less complicated matters, in both family law and general federal law areas.
The Federal Circuit Court Rules recognise that in some circumstances it will be necessary to apply the more complicated rules of the Federal Court or the Family Law Rules.
Pursuant to rule 1.05(2), if it is deemed that the Federal Circuit Court Rules are insufficient or inappropriate, the court may apply the Family Law Rules.
The Family Law Rules, in part 15.5, provide a definitive code for how the court is to approach expert evidence, in particular, in rule 15.42 the purpose of the division is set out.
“15.42 The purpose of this Part is:
(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.”
Accordingly, the rules envisage that expert evidence should be confined and wherever possible restricted to one particular purpose. The rules create a situation where leave is required for there to be more than one expert evidence.
This arises as a consequence of rule 15.49. Pursuant to subrule (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.
Accordingly, firstly the rules envisage a situation in which there are areas of professional controversy, regarding a particular issue about which experts may have different views about that area of professional controversy. In those circumstances it may be necessary to have competing experts, so that the court may be properly informed.
Secondly, in situations where there may be some issue or some area of knowledge that the single expert does not know or is not aware of, it may be necessary to call another expert witness to, in effect, augment the evidence of the first witness. Finally, the rules envisage that there may be situations, where there is a special reason for adducing evidence from another expert.
I take it that by the use of the word “special”, the legislature envisaged that that means a situation that is out of the ordinary or out of the run of ordinary cases. That is the interpretation that has been taken of the expression “special reason” in child support departure applications.
In rule 15.52(3), the Rules delineate matters which the Court is required to consider in determining whether there should be additional expert evidence.
The Court is required to take into account the purposes of the part of the Rules dealing with expert evidence, the impact of the appointment of an expert witness on the costs in the case, the likelihood of the appointment expediting or delaying the case, the complexity of the issues arising in the case; and particularly, the specialised knowledge, which the respective expert witness may bring to the case.
I have been referred to a number of cases where these rules have been considered. Mr Jordan particularly relies on what was said by Rose J in the case of Pitt & Pitt.[1] His Honour said this:
I have considered the provisions of Rules 1.04; 15.42 and 15.52(3). Whilst I accept the implied submission that the effect of these Rules is that the trial may be lengthened with consequent increased legal costs, I have formed the view that those rules do not mean that the interests of justice are sacrificed for expediency and to save costs. Indeed, in view of the significant differences as between the reports of the single expert and Ms N, which have been previously described and summarised by me, a dismissal of the Wife’s Application may lead to compromising the interests of justice.
[1] See Pitt & Pitt (2009) FamCA 620
Mr Jordan places particular emphasis on what his Honour said about the differences in value ascribed potentially between Mr C and Mr P. As I said, that is the essence of Mr Jordan’s position.
In a number of other cases, particularly Moss & Moss[2], a decision of Austin J – his Honour said as follows:
Admission of adversarial expert evidence in conflict with single expert evidence should be the exception rather than the rule. The Court’s permission for a party to adduce adversarial expert evidence in the face of existing single expert evidence is guided by considerations stipulated by the Rules.
[2] See Moss & Moss (2012) FamCA 538
His Honour went on to say in this particular case that:
There was no special reason why the adversarial expert’s evidence ought have been received. It could not be persuasively contended that a different ultimate conclusion – in this case as to value – of itself is necessarily a special reason why an adversarial expert’s evidence should be permitted, for otherwise whenever a party disagrees with the ultimate opinion of the single expert there would be grounds to seek permission to rely upon an adversarial expert.
So accordingly, Austin J took a different view. His view was that a special reason was not necessarily that valuers disagreed about a valuer. Otherwise, human nature being what it was, there would always be adversarial evidence about valuations because there is always scope for disagreement and differences of view in all areas of human endeavour.
As with all discretions, this must be exercised judicially. In particular, I am mindful that the wife must persuade me that there is some special reason for adducing the evidence in question.
It seems to me to be inevitable that if there are competing valuation experts, that this two-day trial, which was fixed on the basis that it would concentrate on issues of contribution and prospected need, will take far longer than two days.
Mr Jordan, I think, candidly concedes that. Such a situation inevitably will add to more expense to each of the parties.
In my view, the issues arising in this case are not of matters of the utmost complexity. I am dealing with pieces of generic real property which are in suburban Adelaide, a city of about one million people where real estate regularly changes hands.
In addition, I am dealing with accountancy principles relating to a relatively small business, which employs a handful of people and which has a relatively easily determined turnover. These are not issues where there is likely to be a substantial body of opinion contrary to the opinion expressed by both Mr C and Mr W. To the contrary, the experts to whom the wife has, at this stage, on only a provisional basis, sought advice are in the same area of expertise, and they were asked to critique other experts.
Inevitably, such a process will lead to differences of opinion between the experts concerned. If there is to be one additional expert evidence, why not two? Why not three? Why not four? The import of the Rules is clear: it is only in special or out of the run cases that there should be more than one expert.
The Rules envisage that those exceptional cases should deal with areas of arcane expertise. That is not the case here. Both this Court and the Family Court routinely deal with issues regard the valuations of businesses. Indeed, Mr C is generally regarded as being one of two or three experts, who are at the forefront of that area of expertise in the city of Adelaide.
The wife seeks me to exercise a discretion in her favour. In exercising that discretion, I must consider the reasons why she has left it until the week prior to the trial to bring her application. The real estate valuations have been out in the open since the middle of last year. Mr C’s report has been available for some months.
The wife did not demur to the fixing of the matter and did not oppose the order which I made, which was to underline to the parties that, from my perspective, I accepted their assurances that the valuation issues were done.
In addition, I must look at the nature of the evidence which the wife wishes to seek. In my view, it remains amorphous and uncertain. There is the prospect that she may be clutching at straws: I do not know.
Finally, there are public policy considerations which must relate to this issue. Those public policy considerations have been considered by the High Court in Aon Risk Services Australia Limited & the Australian National University.[3]
[3] See Aon Risk Services Australia Limited & the Australian National University (2009) HCA 27
The case concerned an application which was brought to amend a statement of claim at a late stage in proceedings. The High Court had to consider whether the amendment should be allowed, which would inevitably have resulted in the adjournment of the case concerned and further costs.
In the Full Court of the Federal Court it was considered that the prejudice arising could be met by an order for costs. The High Court did not necessarily accept that that was the case. The plurality said as follows:
A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.
In the past it has been left largely to the parties to prepare for trial and to seek the court's assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.
In my view, those comments are apposite to the present matter. I canvassed with each of the parties whether or not this litigation was not more appropriately carried out in the Family Court. The litigants did not seek a transfer and I did not impose one upon them.
The basis of that was largely that the valuation issues had been resolved. It is at a late stage that the wife seeks to significantly recast the litigation in the case. That has implications not only for the husband but other users of the Court.
It is not, in my view, in the interests of the community generally that the Court, particularly a court such as this one, should allow adversarial experts to compete in matters which are not areas of special knowledge. For those reasons, the wife’s application is dismissed.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of Judge Brown
Associate:
Date: 9 July 2015
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