Minke & Minke (No 3)
[2024] FedCFamC1F 860
•11 December 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Minke & Minke (No 3) [2024] FedCFamC1F 860
File number SYC 9122 of 2022 Judgment of WILSON J Date of judgment 11 December 2024 Catchwords FAMILY LAW – PRACTICE AND PROCEDURE –experts’ evidence – experts’ reports – application for leave to rely on adversarial expert witness report – application allowed. Legislation Federal Circuit and Family Court of Australia (Family Law) Rules 2021 r 7.08(2)
Evidence Act 1995 s 55
Cases cited Minke & Minke (No 2) [2024] FedCFamC1F 157
Verdon v Verdon (2020) 62 Fam LR 573
Keevers & Keevers [2021] FedCFamC1F 338
Neales & Neales (2022) 64 Fam LR 592
Toma & Doyle [2022] FedCFamC1F 215
Woodcock v Woodcock (No 5) [2023] FedCFamC1F 894
Stanford v Stanford (2012) 247 CLR 108
Division Division 1 First Instance Number of paragraphs 20 Date of hearing 9 December 2024 Place Melbourne Counsel for the applicant Mr G. Richardson SC Solicitor for the applicant Barkus Doolan Winning Counsel for the respondent Mr S. Williams KC Solicitor for the respondent Walter & Elliott Family Lawyers Pty Ltd ORDERS
SYC 9122 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN MS MINKE
Applicant
AND MR MINKE
Respondent
ORDER MADE BY
WILSON J
DATE OF ORDER
11 DECEMBER 2024
THE COURT ORDERS THAT –
1.The applicant wife has leave to adduce evidence from Mr S in accordance with the affidavit of Mr S filed.
2.On or before Monday, 13 January 2025 Ms F, Ms D and Mr S must confer in relation to any issue arising from their respective valuation reports dated 25 January 2024 and 11 March 2024, the joint statement dated 31 May 2024 and Mr S’s valuation report dated 11 November 2024 and produce a further joint Statement by 7 February 2025 which –
(a)identifies the issues that are agreed and not agreed in respect of the value of J Pty Ltd as at 30 June 2011;
(b)if practicable seeks to narrow or otherwise reach agreement on any outstanding issue in respect of the value of J Pty Ltd as at 30 June 2011;
(c)identifies the reasons for disagreement on any issue in respect of the value of J Pty Ltd as at 30 June 2011 and records the contentions of each as to why his/her view should be preferred; and
(d)identifies what action (if any) may be taken or further information provided to resolve the outstanding issues.
3.The costs of all parties are reserved.
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).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of 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 a pseudonym Minke & Minke has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
WILSON J
INTRODUCTION
By amended application in a proceeding filed 21 November 2024 the wife applied for leave to adduce evidence from Mr S in the form exhibited to his affidavit made 18 November 2024. If leave were granted the wife sought orders for various expert witnesses to confer by a particular date and to prepare a further joint experts’ statement by 7 February 2025 that addressed the discreet matters canvassed below.
In support of the application made by the wife to rely on Mr S's report the wife relied on her own affidavit made 18 November as well as on Mr S's affidavit of the same date.
The husband opposed the wife's application. He relied on his own affidavit made 5 December 2024.
Two experts have already filed expert reports ahead of the trial of this proceeding fixed for early 2025, namely Ms F and Ms D.
The wife contends that the reports of Ms F and Ms D do not address critical issues which the report of Mr S does and that for the purposes of r 7.08(2)(c) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the rules”) special reason exists for permitting the wife to rely on the report of Mr S.
OUTCOME
For the reasons set out below I take the view that special reason exists for the purposes of r 7.08(2)(c) for leave to be granted to the wife to rely on the report of Mr S in his report dated 11 November 2024 and I grant the wife the leave she seeks in paragraph two of her amended application in a proceeding dated 21 November 2024.
THE ISSUE IN CONTEXT
Expert evidence has already been adduced in this proceeding on aspects of the valuation of the spouse parties' interests in the business described as the Minke Group. Two valuation dates have been used, one on 30 June 2011 and the other on 30 June 2023. The entities that make up the Minke Group are companies and trustees of trusts.
Leave was granted by me on 14 March 2024 for the husband to rely on the adversarial evidence of Ms D.[1] The single expert in the case is Ms F.
[1] Minke & Minke (No 2) [2024] FedCFamC1F 157
The wife deposed (although one wonders how she has the requisite expertise to do so) that further evidence is required in this case because Ms F and Ms D differ materially on key aspects of valuation evidence. The wife's counsel submitted that in accordance with various authorities in this court very substantial divergences in amounts attributed to the experts amount to "special reason" for permitting another expert to provide expert evidence on a particular matter. Those authorities include Verdon v Verdon,[2] Keevers & Keevers,[3] Neales & Neales,[4] Toma & Doyle,[5] and Woodcock v Woodcock (No 5).[6]
[2] (2020) 62 Fam LR 573.
[3] [2021] FedCFamC1F 338.
[4] (2022) 64 Fam LR 592.
[5] [2022] FedCFamC1F 215.
[6] [2023] FedCFamC1F 894.
In her affidavit made 18 November 2024 the wife deposed to the expert evidence of three experts (Ms F, Ms D and Mr S) on the date 30 June 2011. The different values are as follows in respect of the value of H Investment Trust's interest in J Pty Ltd –
(a)Ms F – $18,650,000 (as appears in her initial valuation report) or $25,790,000 (as appears in her joint statement);
(b)Ms D – $48,956,000 (as appears in her initial valuation report) or $33,360,000 (as appears in her joint statement); and
(c)Mr S – $17,400,000 (being the midpoint figure).
Mr S's proposed report (that is to say his report made 11 November 2024 on which the wife wishes to rely) addresses 12 discrete reasons why the opinions of Ms F and Ms D differ from his. Those are as follows –
(a)as to the first of 12 issues in his paragraph 1.14, Mr S does not rely on the growth model on which Ms D relied and in response respect of which Ms F considered some assumptions underpinning the growth model were unrealistic resulting in Mr S attributing an amount for future maintainable earnings of $13,400,000 rather than between $15m and $15.5m as attributed by Ms F and between $15.75m and $16.25m as attributed by Ms D;
(b)as to the second of 12 issues in his paragraph 1.14, Mr S did not include potential returns from uncertain initiatives in future maintainable earnings was double counting as they were included in the multiple contrary to what Ms F did by uplifting her estimate from $3.5m to $4m and Ms D used the growth model as the primary source but deducted from the forecast EBITDA the sum of $2.9m by reason of the growth model not recording costs;
(c)as to the third of 12 issues in his paragraph 1.14, Mr S did not include potential returns from uncertain initiatives for the same reason he gave in respect to the second of 12 issues whereas Ms F did not downgrade risks in the growth model nor did Ms D;
(d)as to the fourth of 12 issues in his paragraph 1.14, Mr S adopted an EBITDA multiple of between five and five a half times because he said he considers there is a substantial body of opinion that smaller companies trade at lower multiples as compared with larger companies. On the same issue Ms F adopted the same multiplier for the same reason as did Mr S whereas Ms D adopted a multiplier between 5.5 times and 6.5 times although Ms D ascribed no comment to the question whether small companies trade at lower multiples as compared with larger companies;
(e)as to the fifth of 12 issues in his paragraph 1.14, Mr S stated he considered a substantial body of opinion exists to support his view that a controlled premium should not be added to marketable listed equity prices whereas Ms F did not add a controlled premium to multiples for marketable securities and Ms D considered that a controlled premium was relevant for putting into context estimated controlling interest multiples implied by shared trading in the identified comparable companies;
(f)as to the sixth of 12 issues in his paragraph 1.14, Mr S said that he included $1.5m for fixed asset additions to ensure the fixed asset base was not eroded during the terminal cash flow period whereas Ms F did not calculate an implied WACC and Ms D included, a forecast capital expenditure of $0.5m per annum in her discounted cash flow valuation used to calculate an implied WACC;
(g)as to the seventh of 12 issues in his paragraph 1.14, Mr S said that he considered the December 2010 transaction was a relevant valuation reference point because the transaction involved three competitive entities (T Company, U Company, and V Company), the T Company offer was made prior to the order being made by the Court of Country W and the price of $21.7m was consistent with Y Accountants’ midpoint valuation of $21.3m whereas Ms F did not consider the December 2010 transaction to be relevant and Ms D said she did not disagree with Ms F's comments on point;
(h)as to the eighth of 12 issues in his paragraph 1.14, Mr S did not consider this transaction to be suitable for use as a valuation cross-check because it occurred at a substantial time after the valuation date whereas Ms F did not consider the transaction relevant and Ms D stated that she did not rely on it yet she considered it as a high-level cross-check;
(i)as to the ninth of 12 issues in his paragraph 1.14, Mr S used the amount of $33.8m from the June 2011 board report because it provided net debt amounts as at the valuation date whereas Ms F and Ms D used the amount of $33.6m taken from the financial statements of J Pty Ltd as at 25 December 2011;
(j)as to the tenth of 12 issues in his paragraph 1.14, Mr S used the amount of $3.6m by using 13.1% being the WACC implied by his market-based valuation whereas Ms F and Ms D used the amount of $7.9m being future benefits discounted at 7.5% yet neither provided any explanation for the use of a discounted rate of 7.5% so as to value the deferred taxed assets;
(k)as to the eleventh of 12 issues in his paragraph 1.14, Mr S said there may be uncertainty about the recoverability of the deferred taxed assets following a transaction in which circumstance a potential purchaser is likely to apply a substantial discount to the value of the contingent tax benefit and so a further adjustment of 50% should reasonably be applied whereas both Ms F and Ms D both said there should be no additional discount for non-recovery risk; and
(l)as to the twelfth of the 12 issues in paragraph 1.14, Mr S assessed 11% as the discount for lack of control and marketability on the basis that a substantial body of opinion exists that unlisted company shares are less liquid than are listed company shares whereas both Ms F and Ms D use 5% for the risk of deadlock in the management of a company in which the shares are equally held.
Mr S’s analysis of the areas of dispute among the three experts was succinct and very useful, it seemed to me. Mr Williams KC submitted that all propositions addressed by Mr S in his paragraph 12 issues in paragraph 1.14 can be the subject of cross-examination by Mr Richardson SC without the need for Mr S's affidavit and his 11 November 2024 report going into evidence. It is true that counsel for the wife will need to cross-examine Ms F and Ms D using the 12 propositions in Mr S's paragraph 1.14. However, if Ms F or Ms D disagree with the puttage advanced no contrary evidence would be before the court and so the denials by Ms F and Ms D would lie where they fell whereas the contrary position would be available (hence, contrary evidence would be before the court) were Mr S's 11 November 2024 report to be admitted into evidence.
Rule 7.08(2) is disjunctive in all its subparagraphs each being connected by the word "or" rendering a circumstance proved by the satisfaction of any one of the three alternative subparagraphs. In that regard the concept of there being a substantial body of opinion contrary to the opinion given by the single expert is but one of the matters in the three subsections in r 7.08(2). The standalone circumstance set out in r 7.08(2)(c) is not dependent on the invocation of the circumstances in r 7.08(2)(a) or r 7.08(2)(b). In other words on its plain reading r 7.08(2)(c) is enlivened permitting an expert witness other than a single witness to adduce evidence if a special reason exists for adducing evidence from that other expert.
The size of the discrepancies and the amounts the subject of expert evidence is one issue pointing to the existence of a "special reason". I identified that in Verdon v Verdon,[7] Minke & Minke (No 2),[8] in Keevers & Keevers,[9] Woodcock v Woodcock(No 5)[10] as well as in Toma & Doyle.[11] The discrepancies in monetary amounts in the evidence given by Ms F and by Ms D are enormous. Unless I have the totality of the very substantial monetary variables in evidence in this case a real risk exists that the decision made if founded on the evidence of Ms F and on the evidence of Ms D could very well lead to a determination that is not just and equitable.
[7] (2020) 62 Fam LR 573.
[8] [2024] FedCFamC1F 157 (at [26] et seq).
[9] [2021] FedCFamC1F 338.
[10] [2023] FedCFamC1F 894.
[11] [2022] FedCFamC1F 215.
It must not be overlooked that in respect of some of the 12 issues on which Mr S offered his expert evidence he said there is a substantial body of opinion contrary to any opinion given by the single expert. In and of itself on those several matters addressed under the 12 issues in paragraph 1.14 Mr S identified evidentiary matters that properly and regularly enlivened the application of r 7.08(2)(a) of the rules.
Further I take the view that Mr S's report made 11 November 2024 is relevant under s 55 of the Evidence Act as it could rationally affect whether directly or indirectly the assessment of the probability of the existence of a fact in issue in the proceeding. In this s 79 application the facts in issue are those relevant to the justice and equity of the making of orders under s 79(2) having regard to the matters in s 79(4) and to the pronouncement in Stanford v Stanford.[12] I was not persuaded that any relevant statutory basis existed for the rejection of the admissibility of Mr S's 11 November 2024 report.
[12] (2012) 247 CLR 108.
Mr Williams KC submitted that no explanation had been given for the reliance upon Mr S's report having regard to the lapse of nine months since Ms F's report. He also submitted that the receipt of the Mr S report will mean that three experts now bear upon matters to be determined. He submitted that no heed had been given to the principles of good case management and of the expeditious conduct of cases in the Major Complex Financial Proceedings List. I do not agree. If anything, without Mr S's report I am at a real risk of being denied the totality of available evidence to be used when making orders that are just and equitable in this s 79 application. To my way of thinking the rejection of the proposal for leave to rely on the Mr S evidence will almost certainly produce a result that the expert evidence in this case is incomplete and does not present a full account of accountancy and arithmetical issues. Such a state of affairs could lead to orders being made that are not just equitable.
I make orders in terms of paragraphs one to four of the wife’s amended application in a proceeding.
Costs of all parties are reserved.
Paragraphs three, four and five of the wife's application in a proceeding address all three experts conferring with a view to preparing a joint statement. The timing of their conference is tight as it precedes the start date of the trial by several weeks only. That said the timing is perfectly achievable. Expert witnesses retained to give evidence in cases in the Major Complex Financial Proceedings List must be ready, willing and able to balance their own professional commitments to accommodate the demands of orders for the performance of tasks in this list. The ongoing success of the Major Complex Financial Proceedings List in this court is underpinned in large measure by the cooperation of the parties, their legal representatives and their experts on whose evidence the parties rely. Those experts may be called upon to rearrange their own affairs at short notice as is the case in this case on this most recent application.
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the extempore reasons for judgment of the Honourable Justice Wilson. Associate:
Dated: 11 December 2024
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