McIllroy and McIllroy

[2010] FamCA 1274

FAMILY COURT OF AUSTRALIA

MCILLROY & MCILLROY [2010] FamCA 1274

FAMILY LAW – PROPERTY – leave to adduce evidence from an adversarial expert

Family Law Act 1975(Cth)

APPLICANT: Ms McIllroy

RESPONDENT: Mr McIllroy

FILE NUMBER: SYC 8317 of 2007

DATE DELIVERED: 16 September 2010

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Le Poer Trench J

HEARING DATE: 16 September 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Watkins

COUNSEL FOR THE RESPONDENT: Mr Daoud

Orders

1.   I make orders pursuant to the orders sought by the wife in her Short Case Summary on Behalf of the Wife filed in Court on 30 April 2010 and as set out hereunder:

1.That the wife have leave pursuant to Rule 15.49 to adduce evidence from an adversarial expert and that the Single Expert and the wife’s Adversarial Expert confer within 28 days from the completion of the wife’s adversarial expert report and the Single Expert and the wife’s Adversarial Expert prepare a Report for the court setting out:

i.The matters in respect of which they are in agreement and;

ii.The matters in respect to which they are not in agreement and their respective reasons for adopting the position they each do in relation to each matter the subject of disagreement.

2.That for the purposes of the wife properly instructing her Adversarial Expert the husband do all things necessary to provide to and authorise the provision  of to the wife’s adversarial expert such documents and information as in the opinion of  the wife’s expert reasonably required for the preparation of the adversarial expert’s report and facilitate the wife’s expert having access to the business premises of the subject entities and therein be at liberty to inspect such documents and records as may in the opinion of the Adversarial Expert be reasonably required for the preparation of the adversarial expert’s report.

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

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 8317 of 2007

Ms McIllroy

Applicant

And

Mr McIllroy

Respondent

REASONS FOR JUDGMENT

1. Before the Court is an application by the wife, seeking the following orders:

   a) That the wife have leave pursuant to Rule 15.49 to adduce evidence from an adversarial expert and that the Single Expert and the wife’s Adversarial Expert confer within 28 days from the completion of the wife’s adversarial expert report and the Single Expert and the wife’s Adversarial Expert prepare a Report for the court setting out:

   i)        The matters in respect of which they are in agreement and;

   ii)       The matters in respect to which they are not in agreement and their respective reasons for adopting the position they each do in relation to each matter the subject of disagreement.

   b)  That for the purposes of the wife properly instructing her Adversarial Expert the husband do all things necessary to provide to and authorise the provision  of to the wife’s adversarial expert such documents and information as in the opinion of  the wife’s expert reasonably required for the preparation of the adversarial expert’s report and facilitate the wife’s expert having access to the business premises of the subject entities and therein be at liberty to inspect such documents and records as may in the opinion of the Adversarial Expert be reasonably required for the preparation of the adversarial expert’s report.

2. Although they are as I have just recited, the orders sought do not identify what is to be valued by the wife’s adversarial expert, if appointed. The answer to that dilemma was supplied during argument and also appeared in the formal application, filed by the wife on 14 December 2009. The entity sought to be further valued is Business 1 or, more properly, the husband’s interest therein. 

3. On 18 May 2009, an affidavit of Mr T was filed in Court.  Mr T is the single expert appointed by the parties to value Scar Top Joinery Pty Ltd. On 29 March 2010 a further affidavit of Mr T was filed.  It annexed an update to his earlier valuation. Between the date of the original valuation and the date of the update, Mr T had answered specific questions administered by the wife. On 23 March 2010, the wife asked further questions of Mr T. Those questions were answered with a request for further instructions and payment.

4. Rule 15.49 provides for the appointment of another expert witness (usually referred to as an adversarial expert) and is set out hereunder:

FAMILY LAW RULES 2004 - RULE 15.49

Appointing another expert witness

(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.

1. In support of her application, the wife filed two affidavits by Ms D, sworn 7 December 2009 and 27 April 2010. Ms D is the adversarial expert who the wife proposes to use, should she be granted leave to do so. In the first affidavit, Ms D stated that she made an appointment with Mr T to discuss aspects of his valuation. That appointment was cancelled by the husband’s solicitor. Ms D therefore, without the benefit of explanation from Mr T, proceeded to outline anomalies with the valuation. Some of the matters addressed attacked the fundamentals of valuing principles. That is, how future maintainable earnings are determined. In the second affidavit, Ms D stated that the updated report of Mr T does not address the issues raised by her in her first affidavit. Further, she raises other criticisms of the report. Again, the criticism, in part, attacks basic valuation approaches. 

2. The updated valuation of Mr T values the company, as a whole, at slightly over $1 million. It is submitted by the wife that, at about the date of separation, the parties obtained a valuation for the same company which was $500,000 more than the most recent update by Mr T. That has, no doubt, set the wife’s concerns as to whether Mr T has valued the entity correctly.

3. The wife says that, notwithstanding the update report and the earlier answers provided by the expert to the wife’s questions, this is a case where special circumstances warrant the Court allowing the wife an adversarial expert. The wife submits the subject asset is of great significance to the parties’ balance sheet. The draft balance sheet shows assets of $3 million, with the company at $1 million. 

4. The wife asserts the company to have a value of between $1.5 million and $2 million.  Thus, it is submitted, the value of the company is very significant.  It is pointed out that the husband’s interest in the company is 50 per cent and so the value of the asset, in the current draft balance sheet, should be about $500,000.  The wife asserts an additional $250,000 could be added, based upon acceptance of her expert valuer. 

5. The wife submits the valuer has not considered the close interrelationship between the valued company and two interrelated entities. She further submits that the value of the husband’s interest in the subject company, and closely related entities, will take up the bulk of any hearing set for determining the property division, pursuant to section 79 of the Act. Part of the criticism of the single expert’s valuation is that the company has been valued on an asset-backing basis, rather than a future maintainable earnings basis.

6. The wife asserts there is no explanation or workings in the valuation to show why the future maintainable earnings method is not the best method of valuation. Counsel for the husband submits that without being explicit, it is clear in the report that a calculation of future maintainable earnings has taken place and that it is implicit that calculation showed the best method of valuation was an asset-backing basis.

7. In the course of argument some portions of the valuation were addressed. Those discussions did raise for me, in the absence of any further explanation, concerns about the approach taken to the valuation by Mr T. One matter of concern is that Mr T has proceeded with his valuation, misunderstanding his instructions as to whether the parties accepted commercial transactions between the company and related companies were at arms length.

CONCLUSION

1. This is a matter where I am satisfied there are a number of matters raised about the report of the single expert which have merit. Without further evidence from Mr T, it may ultimately be that the Court could not have confidence in the report. That would inevitably lead to an adjournment and the appointment of a further expert at that time. The adversarial witness of the wife will prepare her evidence, at the cost of the wife, in the first place. Any additional time taken in the hearing, which might ultimately prove fruitless, can be the subject of further cost orders. The balance of prejudice to the parties falls in favour of the wife, should she be correct in asserting that the Court will accept the evidence of her valuer and that the pool of assets will be substantially higher. For those reasons, I propose to make the orders sought by the wife. 

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench delivered on 16 September 2010.

Associate:  C.Langham

Date:  22 October 2010