Macvean & Manton
[2022] FedCFamC1F 376
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Macvean & Manton [2022] FedCFamC1F 376
File number(s): MLC 13788 of 2019 Judgment of: BERMAN J Date of judgment: 26 May 2022 Catchwords: FAMILY LAW – EVIDENCE – Expert evidence – Where the respondent seeks leave to rely upon separate adversarial evidence – Where the respondent sought a report from a separate expert a few days before the trial commenced – Consideration of when separate adversarial evidence can be called – Where the jointly appointed single expert is qualified to give evidence – Where the issues put to the separate expert have not been put to the single expert – Where the Court rules provide an opportunity for questions to be put to a single expert – Where the separate expert does not present an opinion based upon a substantial body of opinion contrary to that given by the single expert – Application dismissed. Legislation: Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rr 1.05, 7.08, 7.18, 7.26 Cases cited: Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Division: Division 1 First Instance Number of paragraphs: 36 Date of hearing: 26 April 2022 Place: Melbourne Counsel for the Applicant: Mr Werner Solicitor for the Applicant: Johnston Family Lawyers Counsel for the Respondent: Mr Mellas Solicitor for the Respondent: Nicholes Family Lawyers ORDERS
MLC 13788 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR MACVEAN
Applicant
AND: MS MANTON
Respondent
ORDER MADE BY:
BERMAN J
DATE OF ORDER:
27 APRIL 2022
THE COURT ORDERS THAT:
1.The Application in a Proceeding filed 26 April 2022 is dismissed.
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 Macvean & Manton is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BERMAN J
INTRODUCTION
Mr Macvean (“the applicant”) and Ms Manton (“the respondent”) remain unable to reach agreement in respect of property settlement and division. By a consideration of the Amended Initiating Application of the applicant filed 24 November 2021 and the Response to Application for Final Orders of the respondent filed 7 December 2021, it is apparent that the significant area of disagreement is as to the assets and liabilities of the parties.
At the commencement of the trial on 26 April 2022, counsel for the applicant provided an aide memoire which set out the assets and liabilities of the parties.
Whilst the balance sheet is not agreed, the areas of contention are likely to be the subject of either agreement or ready determination by the Court except for the value to be attributed to the husband’s business interests which constitutes the single largest asset in the pool. As will be further discussed, the applicant adopts the value of $2,930,764 being the value as determined by Mr M, the single expert appointed by the parties to value the business interests of the applicant as at 30 June 2021. Mr M’s report dated 23 December 2021 (“the M report”) is annexure “M-1” to his affidavit filed on 14 April 2022.
The respondent does not accept the value attributed by the single expert and by Application in a Proceeding filed on 26 April 2022, sought an order for leave to rely upon the affidavit of Mr N, an expert in corporate valuations. Mr N has been assisting the respondent in his capacity as a “ghost” valuation expert. In anticipation of the proceedings commencing on 26 April 2022, the respondent’s solicitors instructed Mr N that the respondent sought to engage him as an expert to prepare a limited scope adversarial report in respect of the following matters:
1.Does the research and development relating to [P1 Service] have any value as at the valuation date, and if so, should the value of the [P Pty Ltd Group] in the valuation report be adjusted to reflect that value;
2.Has the value of the additional tax benefits associated with the research and development costs been included in the valuation report; and
3.Has the gross profit of [Q Pty Ltd] been properly accounted for in the valuation report, if not, what impact does the inclusion of the gross profit of [Q Pty Ltd] have on the value of the [P Pty Ltd Group]?[1]
[1] Affidavit of Mr N filed 21 April 2022, annexure “MN-2”, page 14.
The intention of the respondent, via her solicitors, was not to seek assistance from Mr N for the purposes of cross-examination of the single expert but rather that he give evidence as a separate adversarial expert. Mr N’s report dated 21 April 2022 (“the N report”) is annexure “N-3” to his affidavit filed on the same date.
BACKGROUND
The parties commenced cohabitation in 2007. At the time, the applicant was the registered proprietor of the property at B Street, Suburb C. The equity in the property was relatively modest.
In addition, the applicant held a one third interest in the P Pty Ltd business. In 2008, the applicant purchased a further one third interest in the business and then the final remaining one third interest in 2015.
Whilst the P Pty Ltd Group is comprised of a number of entities the principal focus of the single expert was the valuation of P Pty Ltd (“P Pty Ltd”).
It is uncontroversial that P Pty Ltd was established on 3 May 2001 and for the purposes of the proceedings, the applicant is to be considered as the chief executive officer and founder of P Pty Ltd.
The applicant concedes that P Pty Ltd is promoted by him as a significant and highly regarded private business service provider. By reference to the P Pty Ltd Linkedin profile as appears in the M report at page 13, paragraph 45, P Pty Ltd is described as follows:
[P Pty Ltd] is one of Australia’s leading product developer and service providers
…
(Emphasis in original)
As part of research and development, P Pty Ltd developed a product known as P1 Service. The product is intended to enable a partnership with R Company to enhance and interface with S product and will then be distributed on a worldwide basis.
There is already contention between the parties as to the likely success of P1 Service. The applicant seeks to adopt a cautious approach and considers that P Pty Ltd is currently operating in a poor business environment and that the take up of P1 Service has been disappointing. The respondent does not accept the applicant’s pessimism and refers to evidence of a marketing strategy where sales could reach up to $30 million.
THE HOCKLEY REPORT
The single expert valued P Pty Ltd and P1 Service as one trading entity. The valuer accepted the content of a letter from the applicant’s solicitors dated 28 October 2021 which seeks to present the P Pty Ltd business as operating in a depressed market with P1 Service facing marketplace acceptance difficulties.
An important consideration in terms of the valuation approach adopted by the single expert is set out in the M report as follows:
156.I understand that [P1 Service] is facing difficulties with its acceptance in the marketplace, however, based on the extent of the R&D costs incurred in FY2021 compared to prior financial years I have assumed that the product is no longer in the core development phase of the product life cycle and as such should be considered as a revenue-generating component of the broader [P Pty Ltd] business.
157.It is generally accepted that the most technically accurate method to adopt for the valuation of a business is the discounted cash flow method; however a lack of appropriate forecast financial information means that it is rarely adopted. I have not been provided with forecast financial information for at least five years for the above entity and consequently, I have not been able to apply the discounted cash flow method.
158.The capitalisation of earnings method is generally adopted in the valuation of enterprises as a proxy for the discounted cash flow method, as it is forward looking but assumes that the assessment of future earnings will remain static or grow consistently in the future.
159.Given the lack of forecast financial information and lack of reliability, I have assessed the value of [P Pty Ltd] by the application of the capitalisation of earnings method.
THE LONERGAN REPORT
By reference to the executive summary as set out in paragraph 17 of his report, Mr N said:
Having considered the three issues that comprise this limited scope report, in my opinion, the value of [P Pty Ltd] is some $4.546 million. This assessment is some $1.615 million above that assessed by [Mr M] in the Valuation Report…
Mr N considered that the value of P1 Service should be brought to account at $1,092,478 being slightly more than the figure of $984,492 as determined by Mr M. He also opined that there were additional tax benefits from ongoing research and development and if so, the ongoing benefit should properly add $495,000 to the value of P Pty Ltd by reason of the additional tax benefit at the rate of 18.5 per cent over the general tax deductable expenditure at the company tax rate of 25 per cent. Whilst there is some uncertainty at this stage, the extent to which the tax incentive of 18.5 per cent for research and development may well depend upon whether the research and development can properly be described as “core” development or not.
SHOULD LEAVE BE GIVEN TO ADDUCE SEPARATE ADVERSARIAL EVIDENCE
The rules dealing with expert evidence have at their core purpose to ensure that the parties obtain expert evidence only in relation to a significant issue in dispute, to restrict expert evidence to that which is necessary to resolve or determine a case and to ensure that if practicable and without comprising the interest of justice, expert evidence is given on an issue by a single expert and to avoid unnecessary cost from the appointment of more than one witness.
Rule 1.05 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) sets out the relevant definitions. In particular, an expert is defined to be “an independent person who has relevant specialised knowledge, based on the person’s training, study or experience”.
Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 provided an analysis of the authorities in respect of expert evidence as follows:
85.In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of “specialised knowledge”; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be “wholly or substantially based on the witness’s expert knowledge”; so far as the opinion is based on facts “observed” by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on “assumed” or “accepted” facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert’s evidence must explain how the field of “specialised knowledge” in which the witness is expert by reason of “training, study or experience”, and on which the opinion is “wholly or substantially based”, applies to the facts assumed or observed so as to produce the opinion propounded. …
Rule 7.18(3) of the Rules requires that the expert witness be independent and r 7.18(2) provides that the duty of the proposed witness is a duty to the Court and goes beyond any duty to a party.
I am satisfied that to the extent there is any issue as to the appropriate level of qualification, experience or expertise of Mr M and Mr N, they are both qualified to give expert evidence.
The contentious area in respect of expert evidence arises from the inability of a party to tender a report or adduce evidence from another expert witness if a single expert witness has been appointed, whether jointly by the parties or by order of the Court.
Separate adversarial evidence can only be called with the Court’s permission subject to three exceptions to the tendering of further evidence from another expert witness on an issue already addressed by a single expert witness, namely:
·If 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.
·If another expert witness knows of matters not known to the single expert witness that may be necessary for determining the issue.
·If there is another special reason for adducing evidence from another expert witness.
A difficulty arises in respect of how “the substantial body of contrary opinion” (r 7.08(2)(a) of the Rules) is established before the Court. It cannot be the evidence of the second expert (which is what the application is seeking leave to adduce) and so requires more than information and belief such as a pool of other experts or other foundation research intended to establish the bona fides of the contrary opinion.
In the current proceedings, the proposed evidence of Mr N goes to an issue of narrow compass, namely the extent to which P1 Service is in a research and development phase and whether it would qualify for the research and development incentive of 18.5 per cent and the consequential increase in value as a result.
The issue has not been raised with Mr M.
Rule 7.26 of the Rules provides the opportunity for a party to seek that the single expert answer questions. Providing the exercise does not extend to what might be considered as an interrogatory, it is reasonable that a single expert be required to answer questions that are targeted to an issue arising from an expert report.
It is not suggested that Mr N has specialised skill or knowledge in respect of the area of research and development and the potential for the application of tax deductibility of expenses or the application of the further research and development tax incentive.
The Rules provide for questions to be put to a single expert in a timely fashion.
Mr M’s report is dated 23 December 2021. It is not controversial that it was distributed to each of the parties at the earliest opportunity. Even bringing to account that the solicitors for each of the parties may not have returned to work until a date in January 2022 would nonetheless still provide appropriate opportunity for each of the parties to consider any areas that would merit further input from the single expert.
It is readily apparent from the letter of instruction to Mr N that the request for his opinion and report was sought only a few days prior to the commencement of the proceedings.
Case management looms large in this case.
It is difficult to assess the extent of costs that each of the parties have incurred but the solicitors for the parties readily concede that they are enormous. It is likely that the costs will exceed $2.5 million.
I do not consider that Mr N seeks to present an opinion based upon a substantial body of opinion contrary to the opinion given by the single expert nor do I consider that the matters raised by Mr N are not known to the single expert witness. In addition, I do not consider that there is any special reason to adduce evidence from another expert witness in circumstances where the respondent has not sought to pose proper questions to the single expert and in any event, the exercise has been undertaken without notice nor opportunity for the single expert to consider the matter further.
CONCLUSION
In all the circumstances, I do not consider that the Court would be assisted by the evidence from both the single expert and the proposed adversarial expert.
I make the order as appears at the commencement of these reasons.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 26 May 2022
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