Neales & Neales
[2021] FamCA 525
•21 July 2021
FAMILY COURT OF AUSTRALIA
Neales & Neales [2021] FamCA 525
File number(s): CAC 959 of 2019 Judgment of: GILL J Date of judgment: 21 July 2021 Catchwords: FAMILY LAW – EVIDENCE – Expert evidence – Application to discharge single expert – Whether expert departed from terms of engagement – Whether expert report admissible opinion evidence – Whether expert of closed mind – Application to appoint adversarial expert – Whether difference in valuation methodology between single expert and proposed adversarial expert constitutes substantial body of contrary opinion – Whether a “special reason” justifies appointment of adversarial expert – Application dismissed. Legislation: Evidence Act 1995 (Cth) s 79
Family Law Rules 2004 (Cth) rr 1.04, 15.42, 15.49, 15.52, 15.65
Cases cited: Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588
Padnall & Padnall [2014] FamCA 904
Tsoutsouvas & Tsoutsouvas and Ors [2012] FamCA 521
Number of paragraphs: 55 Date of hearing: 24 June 2021 Place: Canberra Counsel for the Applicant: Mr Campton Solicitor for the Applicant: Macphillamy’s Counsel for the Respondent: Ms Eldershaw Solicitor for the Respondent: Farrar Gesini Dunn ORDERS
CAC 959 of 2019 BETWEEN: MR NEALES
Applicant
AND: MS NEALES
Respondent
ORDER MADE BY:
GILL J
DATE OF ORDER:
21 JULY 2021
THE COURT ORDERS THAT:
1.The husband’s application in a case filed 31 March 2021 is dismissed.
2.Either party is at liberty to apply to the Registrar within 7 days of the delivery of this judgment for the relisting of this matter to deal with any issue arising as to costs.
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 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Neales & Neales has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
GILL J
These proceedings involve consideration of the adjustment of the property of the parties subsequent to the breakdown of their relationship. In determining a property adjustment the parties were of the common view that a central issue is the value to be ascribed to 13 commercial properties that the parties are associated with.
In order to deal with this issue the parties jointly appointed a single expert, Mr B of C Real Estate. Mr B was tasked with valuing the 13 commercial properties which, depending on the method of valuation used, in his estimation had a combined value of either $33,835,000 or $34,190,000.
Mr B's terms of engagement are recorded at page 44 and following of exhibit H1. Mr B’s report is contained at exhibit H3. His responses to questions that were asked of him by way of clarification on 1 October 2020 and 13 November 2020 appear at pages 72–80 and 106–122 of exhibit H1 respectively.
Mr B’s valuation is now the subject of controversy. The issue before the Court at present is whether, at the behest of the husband, Mr B should be removed as the single expert in the proceedings, whether his report should be rejected, or whether another expert, in particular, a Mr D, should be engaged either as a further single expert, or as an adversarial expert.
Mr D has received instructions from the husband and has prepared a report as to the value of the various items of real estate, assessing them to be cumulatively worth $22,465,000. Mr D’s report appears at exhibit H2. He has also provided a critique of Mr B’s valuation methodology, which is included in exhibit H1 at pages 134–156.
The wife opposes any of the courses of action pursued by the husband.
The husband raised a number of bases that he asserted supported the various forms of relief that he pursues. Firstly the husband asserts that Mr B did not comply with the terms of reference in a significant manner. Specifically he alleged that Mr B had departed from the basis of valuation set out in the terms of reference as being:
Market Value (As Is) presuming a sale of the 100% Crown Leasehold interest/s subject to the existing lease agreements, or with vacant possession, as applicable.[1]
[1] Exhibit H1, page 44.
The husband asserts that rather than valuing the properties as subject to their leasehold interests (it may be accepted that almost all of the properties were the subject of leasehold agreements) Mr B valued them on the basis of the market value rent. This alleged approach was asserted to be in breach of the above stipulated basis of valuation.
Secondly, the husband alleged that Mr B had failed to adequately disclose his reasoning in arriving at his expert opinions, in a manner so deficient as to cause them to be excluded either under the Family Law Rules 2004 (Cth) (“the Rules”) or pursuant to the opinion rule as set out in the Evidence Act 1995 (Cth).
The husband thirdly alleged that Mr B failed to take into account material matters relating to the leases in respect of the properties, or more specifically subleases related to the properties.
Fourthly, the husband applies to have Mr B removed as an expert because he asserts that Mr B comes with a closed mind inconsistent with the duties of an expert. He asserts that this closed mind is evidenced in Mr B’s answers to further questions posed to him by the husband pursuant to the process for clarifying matters within a single expert witness’s report under r 15.65.
As noted above, the husband also sought the appointment of a Mr D who he has engaged to, and who has provided a report in relation to the value of the various properties. He sought his appointment either as a single expert or as an adversarial expert.
The husband advanced additional grounds for such an appointment. Firstly, he identifies the divergence between Mr B's view as to the value to be assigned to the properties and Mr D's view. It is apparent that there is a difference in excess of $11 million between the valuations assigned by Mr D and those assigned by Mr B.
Secondly, he relies upon Mr D’s critique in relation to the reports prepared by Mr B where he adopts a different basis for the valuation of the various properties in terms of the taking into account of the effects of the leases to which a number of those properties are subject. Further, Mr B has purportedly also taken into account matters not taken into account by Mr B and potentially not known by Mr B in relation to the subleases in respect of the properties.
By virtue of these matters it is asserted that a discretion should be exercised to permit the husband to rely upon the report of Mr D on the basis of r 15.49(2)(a), (b) and (c). The husband asserts that the use of a different methodology by Mr D reflects a substantial body of opinion contrary to the opinion given by the single expert (r 15.49(2)(a)), that he knew of matters not known by Mr B (r 15.49(2)(b)) and that the importance of the value of the properties to the proceedings and the magnitude of difference between the opinions expressed by Mr D and Mr B constitute a special reason for adducing evidence from him in addition to Mr B (r 15.49(2)(c)).
THE APPLICATION TO DISCHARGE THE SINGLE EXPERT OR TO EXCLUDE HIS REPORT
Issue one: non-compliance with instructions
This matter hinged around the basis of valuation set out at page 44 of exhibit H1, being that the basis of the valuation was to be “market value (as is) presuming a sale of the 100% Crown Leasehold interest/s subject to the existing lease agreements, or with vacant possession, as applicable”. It was asserted that Mr B ignored all of the leases to which the properties were subject, and the remuneration of those leases, and instead imposed a market value.
This mischaracterises what was done by Mr B.
It may be seen that Mr B did not ignore the leases, or the income derived from the leases, in valuing each of the properties. This is seen in his response to supplementary questions contained in the first paragraph of page 88 of exhibit H1. There, and also at pages 86, 90, 109, 110 and following, and contained within the valuations for each of the properties provided by him (exhibit H3), Mr B has identified that at no point did he disregard the rents attributable to the leases to which the properties were subject.
At page 109 of exhibit H1 Mr B identified in relation to the leases to which the properties were subject that:
It is important to note that the passing rental has not been disregarded. If this were the case the properties would be valued subject to vacant possession, and the calculations would include allowances for downtime, incentives for new tenants and agent fees (and no rental reversion). The capitalisation approach capitalises an income stream in perpetuity (or the remaining Crown Lease term), typically the market rent as opposed to the passing rent as this is theoretically a sustainable rental level. The reversion is then an adjustment to allow for rental variances.
Where there was a lease in place, it was taken into account, but considered in the context of market rent, with appropriate adjustments being made as between the market rent and the leased rent in order to arrive at a value for the commercial property. It cannot be said that he departed from his instructions in this respect, and so this ground falls away.
Issue two: application of expertise
Allied to the first ground is the complaint that in whatever method Mr B used he has failed to disclose adequately the application of expertise to the subject matter, and accordingly has failed to bring his evidence within the exception to the opinion rule, set out at s 79 of the Evidence Act 1995 as explained in Dasreef Pty Ltd v Hawchar (“Dasreef”).[2]
[2] (2011) 243 CLR 588 (“Dasreef”).
There the majority of the High Court explained the operation of the specialised knowledge exception to the opinion rule as follows:
To be admissible under s 79(1) the evidence that is tendered must satisfy two criteria. The first is that the witness who gives the evidence “has specialised knowledge based upon the person’s training, study or experience”; the second is that the opinion expressed in evidence by the witness “is wholly or substantially based on that knowledge”.[3]
[3] Ibid 602–3 [32] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).
Further, the majority explained:
The admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. Accepting that to be so, it remains useful to record that it is ordinarily the case, as Heydon JA said in Makita, that “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”. The way in which s 79(1) is drafted necessarily makes the description of these requirements very long. But that is not to say that the requirements cannot be met in many, perhaps most, cases very quickly and easily. That a specialist medical practitioner expressing a diagnostic opinion in his or her relevant field of specialisation is applying “specialised knowledge” based on his or her “training, study or experience”, being an opinion “wholly or substantially based” on that “specialised knowledge”, will require little explicit articulation or amplification once the witness has described his or her qualifications and experience, and has identified the subject matter about which the opinion is proffered.[4]
[4] Ibid 604 [37] (citations omitted).
The test posed by the majority at [41]–[42] is that admissibility is determined on whether there is connection between the opinion and the specialised knowledge of the witness.
The issue identified by the husband relates to the setting out of methodology of valuation by Mr B. In particular, the husband complained that in setting out his methodology in answer to questions administered pursuant to the rules, Mr B’s responses were deficient in that he failed to adequately explain the calculation of the Net Present Value of Rental Reversion by the provision of the underlying formula.
Given that there are also complaints made about the impartiality of the expert drawn from his responses to the questions asked, it is convenient at this point to go to those questions.
The first iteration of the questions regarding the Net Present Value of Rental Reversions were administered on 9 October 2020. None of the questions administered specifically required the provision of a formula, and the expert appeared (at face value) to answer what was asked of him.
The second iteration of the questions were administered on 13 November 2020. The relevant question and response is replicated below.
The question administered was in the following terms:
Question 1
With regard to the below listed properties the actual passing rental as per the lease has been disregarded in favour of a ‘market rental’ which has been assessed and applied within your valuation calculations.
As part of the reconciliation of this approach, a figure for ‘Net Present Value of Rental Reversions’ has been calculated.
(a) Please define all of the exact inputs within this calculation and the steps worked through to reach the single stated figure.
(b) Please detail how the discount or interest percentage rate is calculated and supported, with particular reference to the current record low interest rate environment.[5]
[5] Exhibit H1, page 108.
A list of properties the question is relevant to was then provided.
In response, at page 109 of exhibit H1, Mr B said the following:
The net present value of rental reversions is a mathematical adjustment to reflect any variance between the passing rent and market rent. The amount of the reversion (positive or negative) is influenced by the discount rate, rental variance and time until the market rent can theoretically be realised.
The formula involves a present value calculation using the following inputs:
•Discount rate (adopted capitalisation rate)
•Number of payments (the term of reversion – generally the remaining lease term)
•Payment amount (this is the rental variance between the passing rent and market rent)
This calculation is undertaken to each tenancy, the sum of which is expressed as the net present value of rental reversions for that property.
By way of a simple example, the value of a building which is considerably over rented with an expiry or market rent deferred for say 10 years will be ‘enhanced’ by a significant profit rent or positive reversion. As the lease expiry draws closer, the value of this profit rent diminishes.
It is important to note that the passing rental has not been disregarded. If this were the case the properties would be valued subject to vacant possession, and the calculations would include allowances for downtime, incentives for new tenants and agent fees (and no rental reversion). The capitalisation approach capitalises an income stream in perpetuity (or the remaining Crown Lease term), typically the market rent as opposed to the passing rent as this is theoretically a sustainable rental level. The reversion is then an adjustment to allow for rental variances.
As mentioned, the adopted discount rate is the capitalisation rate, which is derived from our analysis of comparable sales evidence.
It may be observed that Mr B explained and provided definitions of the inputs sought.
Complaint is made that although the factors are identified there is no explanation of how they mathematically bear upon the opinion that is offered by him. For example, while particular factors are said to be mathematically taken into account, Mr B has not included in that explanation the equation of how it is that they are to be taken into account. However, while it may be the case that the underlying formula is what was sought in the questions, again it was not specifically stated and again, at least at face value, Mr B appears to have answered what was asked of him.
It may be accepted that Mr B’s explanation of the precise methodology he applied to reach the Net Present Value of Rental Reversions figure omits the mathematical formula. However, that does not equate to a failure, in this instance, on Mr B’s part to relevantly connect the application of expertise to the opinion offered. Mr B has explained the manner in which the expertise was applied. Whether the failure to identify the particular formula applied is a matter that detracts from the weight to be given to his evidence is a matter for trial and assessment of the evidence, not a matter going to its admissibility.
Issue three: whether the expert is of a closed mind
The husband also sought the exclusion of Mr B’s evidence on the basis that he has demonstrated a closed mind by virtue of his answers to the questions that he has been asked. Firstly, such a closed mind is not apparent, given his at face value responsiveness to that which he was asked. Secondly, if reliance is placed upon a failure to amend an opinion, such does not of itself indicate a closed mind. Such may simply result from the correctness of the opinion proffered in the first place.
Conclusion
It has not been established that Mr B should be discharged as a witness, nor that his evidence should be excluded.
APPOINTING ANOTHER EXPERT WITNESS
The second aspect was as to whether, even if Mr B is not discharged, permission should be given for expert evidence to be taken from Mr D, a step that would involve evidence being taken from multiple experts to cover the same ground.
Principles
The application of the rules in relation to expert evidence is to be informed by the purpose of Part 15.4 as elaborated in r 15.42. In short, expert evidence must relate only to a significant issue in dispute, be restricted to evidence necessary to resolve or determine a case, be given by a single expert witness where practicable and without compromising the interests of justice and be directed to avoid unnecessary costs arising from the appointment of more than one expert.[6] These considerations, which are generally directed to ensuring that expert evidence is appropriately limited in scope and is given only by a single expert, are further tempered by r 15.42(e) which allows evidence from a further expert to be admitted “if necessary in the interests of justice”.
[6] Family Law Rules 2004 (Cth) rr 15.42(a)–(d).
Part 15.4 operates in the context of the overarching purpose of the Rules, which is to
ensure that each case is resolved in a just and timely manner at a cost to the parties and the court that is reasonable in the circumstances of the case.[7]
[7] Ibid r 1.04.
In Tsoutsouvas & Tsoutsouvas and Ors [2012] FamCA 521 (“Tsoutsouvas”) Kent J observed that:
It is readily apparent from those rules that there is recognition that the demands of justice and the management of cases are not limited to the particular case before the Court. There is recognition that disproportionate time spent on one case might cause delay and consequent injustice for other cases.[8]
[8] Tsoutsouvas & Tsoutsouvas and Ors [2012] FamCA 521, [18] (“Tsoutsouvas”).
In Tsoutsouvas, Kent J observed that where the application involves additional expert evidence to a single expert, the applicable rule is r 15.49.[9] Given that the application for the discharge of the single expert has not been acceded to, the application is for the appointing of another expert witness under r 15.49, rather than pursuant to r 15.52.
[9] Ibid [15].
Rule 15.49 is in the following terms:
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.
Justice Kent further observed that the rule indicates that what is required is that a special reason be shown for the additional evidence, either specifically as set out in r 15.49(2)(a) or (b), or more generally per r 15.49(2)(c).[10] It may be observed that the content of the Rule implies that such special reason relates to the interests of justice.
[10] Ibid [16].
Justice Kent further observed a potentially deleterious effect of departing from a single expert approach:
In any case where a single expert has been appointed, allowing another party to tender evidence from another expert on the same issues creates an imbalance. That is, only one party may have what may be described as an adversarial expert, whilst the other party has only the evidence of the single expert who has acted within the constraints, in terms of instructions, as provided for in the Rules. The further possibility is the other party seeking to have their own expert to redress that perceived imbalance, undermining the original purpose of appointing a single expert; that is, to avoid a “battle of the experts”.[11]
[11] Ibid [26].
It should also be recognised that the rules provide mechanisms for the clarification and testing of expert evidence. Justice Kent noted that
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.[12]
[12] Ibid [17], citing Bass & Bass (2008) FLC 93-336; Simonsen & Simonsen [2009] FamCA 698.
Here, although such mechanisms were used, the husband still seeks the appointment of a further expert.
The key issue then is the justification put forward to meet r 15.49. It was submitted for the husband that each of the three potential grounds are met in this application.
The first of those grounds relates to a substantial contrary body of opinion, recourse to which is necessary to resolve the dispute. 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.
Here what is presented is an alternate opinion, by a person holding a relevant expertise, Mr D. In relation to the controversial area, being the significance of the leases to which the properties are subject, Mr D opines that the approach to those matters offered by him is preferable.
While Mr D may be correct in his opinion, the evidence from him does not go so far as to establish that the alternate methodology constitutes a substantial body of opinion. Perhaps it is. Perhaps in his expertise this is a matter that Mr D could identify. However, he did not. What he proffered was an alternate approach that he opined was superior. That is insufficient to meet the requirement of r 15.49(2)(a). What has been offered is a merely contrary opinion. Under that circumstance, despite the significantly different outcome reached by the experts, the rule does not authorise the reception of the additional expert evidence.
The second of the grounds relates to matters not known by the single expert. The information was not particularised, nor was this matter stressed in submissions. However, it appears that there are matters relating to the lease status of some of the underlying properties the subject of the valuation. This was a matter, it appears, peculiarly in the knowledge of the husband, and within his ability to correct. While the additional information may technically bring the application within the rule, it is also a matter that can be dealt with by means of an application for directions pursuant to r 15.67A. Further, where such information is of a mere change to the underlying facts that the single expert was advised of, such a matter may be readily remedied by advising the single expert of such changes. As a matter of discretion, such a change in the factual substratum should not, in this case, result in the calling of an additional expert.
The third of the grounds relates to “another special reason”. Here that reason is advanced as flowing from the difference in the valuations provided by Mr B and Mr D. The difference may be accepted as significant, and as relating to a central aspect of the case. However, it may be thought to be a rare case that the fact that another opinion is divergent is sufficient to justify a departure from the single expert regime.
In Padnall & Padnall [2014] FamCA 904 at [37], Berman J dealt with a similar question:
The question remains whether there is any “another special reason” for adducing evidence from another expert witness. It is often the case that a party does not like the valuation of the single expert and has obtained a valuation which is different in its outcome. If that alone establishes a special reason then it would make the actual provisions of Rule 15.49 meaningless in relation to real estate and other valuations.
Respectfully, I agree with Berman J. Allowing further expert evidence merely because of a divergent conclusion is inconsistent with the purpose of the provisions, and reverts back to the approach available to parties prior to the introduction of the single expert regime. In this case, despite the large divergence, it has not been established that this constitutes a special reason such as to justify the appointment of a further expert.
Conclusion
The husband has not established that the interests of justice in the case, however described, form special reasons such as to justify the appointment of a further expert. This disposes of the husband’s application insofar as it proposed the appointment of an unidentified expert (a matter not argued specifically) or the appointment of Mr D (the particular focus of the application and argument). This also disposes of any necessity for there to be a conference between Mr B and Mr D. The husband retains the benefit of the advice received by Mr D in considering how to test the evidence of Mr B. He is not, however, permitted to rely upon the further opinion at trial.
I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gill. Associate:
Dated: 21 July 2021
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