O’Cleary & Vukasin
[2025] FedCFamC1A 56
•3 April 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
O’Cleary & Vukasin [2025] FedCFamC1A 56
Appeal from: O’Cleary & Vukasin (No 2) [2024] FedCFamC1F 660 Appeal number: NAA 280 of 2024 File number: SYC 4005 of 2020 Judgment of: ALDRIDGE, HOWARD & CHRISTIE JJ Date of judgment: 3 April 2025 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Narrow ground of appeal regarding valuation of a business – Whether the primary judge erred in adopting the new valuation of the business – Where the appellant alleged it was incorrect to change one element of the valuation without changing others – Where it is common for experts to express opinions on assumptions put to them – Where the appropriate weight for an expert’s answer is a matter for the court – Where the appellant failed to challenge the new valuation at trial – Where there was no evidence to draw a Jones v Dunkel (1959) 101 CLR 298 inference from – Appeal dismissed – Appellant to pay the respondent’s costs. Legislation: Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 7.26 Cases cited: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305
Metwally v University of Wollongong (1985) 60 ALR 68; [1985] HCA 28
Mintech Resources Pty Ltd v Russell-Taylor (2012) 113 SASR 80; [2012] SASCFC 67
Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444; [2010] HCA 9
Number of paragraphs: 35 Date of hearing: 6 March 2025 Place: Sydney Counsel for the Appellant: Mr Cox SC with Mr Smith Solicitor for the Appellant: JC Legal Practice Counsel for the Respondent: Mr Puckey SC with Dr Smith Solicitor for the Respondent: JCL Legal ORDERS
NAA 280 of 2024
SYC 4005 of 2020FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS O’CLEARY
Appellant
AND: MR VUKASIN
Respondent
ORDER MADE BY:
ALDRIDGE, HOWARD & CHRISTIE JJ
DATE OF ORDER:
3 APRIL 2025
THE COURT ORDERS THAT:
1.The appeal is dismissed.
2.The appellant pay the respondent’s costs fixed in the sum of $40,000 within 28 days.
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 the pseudonym O’Cleary & Vukasin has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALDRIDGE, HOWARD & CHRISTIE JJ:
This appeal from property settlement orders made by a judge of the Federal Circuit and Family Court of Australia (Division 1) on 30 September 2024 has a narrow compass. The primary judge found that a business, which was a significant asset, was valued at $33,833,373 whereas the appellant had contended for a value of $39,433,373. The difference of approximately $5.6 million turned on whether a component of goodwill was included or not. This in turn was contingent upon the lease of the premises used by the business, which was due to expire in early 2025, being renewed at a higher rent. The primary judge found that it was more likely than not the business would enter a new lease on terms contained in a heads of agreement dated mid-2024, but there was no evidence that the increased rental cost would be recovered. This led to the finding that there was no goodwill to be taken into account.
BACKGROUND
The terms of the lease were put to the single expert valuer who said the following:
I have attached a revised calculation of the estimated future maintainable earnings, enterprise value and goodwill of the business as at 30 June 2023, adopting an ongoing base rent expense in respect of [AQ Street, Suburb U], of $2,670,312 exclusive of GST per annum, reduced by an annual incentive of $333,789 exclusive of GST over the initial three year lease term.
Under this assumption, the net business assets (as assessed per Appendix H/6 of approximately $9.79 million) exceed the enterprise value and there is $Nil goodwill associated with the business operations as at the valuation date – refer to the attached Appendices H/4 and H/6. The calculation does not take into consideration any increases in the price of goods charged, and gross margin achieved, to offset the increase in rent, or other costs savings that may be explored by the business, of which I have no knowledge.
The value of the company, adopting $Nil goodwill is $33,833,373 as at 30 June 2023 (value per my report of $39,433,373, per page 22, less goodwill per that report of $5,600,000), with the 70% interest of the [respondent] being $23,683,361.
(Emphasis in original)
(Exhibit 14, Annexure “B” to the affidavit of the single expert sworn 6 September 2024, p.5)
This led the primary judge to make these findings:
195[The appellant] submitted that there was no evidence that the increased rental charge from the new lease will not be taken up or passed on to customers by way of increasing prices or by other costs savings. She submitted the future cost of increased rent to the trading enterprise ought not to be taken into account in discounting the value of [the business]. Propositions as to these topics were not put to the [respondent] or to [the intervenor]. The submission of [the appellant] is absent sufficient evidentiary foundation. It is not accepted.
The appellant challenges the findings save for those found in the first sentence.
THE APPEAL
The starting point is, therefore, that there was no evidence as to whether the increased rent could be or would be passed on to customers or absorbed by costs savings. The appellant’s contention, as it emerged from the Summary of Argument, was that the onus lay on the respondent to adduce evidence to the effect that the increased rent could not be covered by such steps and, having failed to do so, the primary judge was then obliged to accept the original valuation which included the goodwill in the amount already noted.
It was also contended that, as the knowledge of any likely response to the increased rent (by way of increasing prices or reducing costs) was in the hands of the respondents, their failure to call that evidence should lead to the inference that it would not assist them, which would then have obliged the Court to disregard any deduction to the value of the business.
Should the new rent have been taken into account in the value of the business?
In oral argument, senior counsel for the appellant, who did not prepare the Summary of Argument, put what he described as a “more nuanced” submission. This was that the value of the business consisted of many different integers and you could not obtain a proper valuation merely by changing one of the integers. Thus, for the new rent properly to be taken into account, there ought to have been evidence of its impact on the prices charged and the costs incurred by the business – i.e. looking at all relevant integers. In the absence of such evidence the new value of the business should not have been adopted.
As was observed in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [85], an expert’s opinion “applies to the facts assumed or observed”. For the opinion expressed to be admissible, the facts assumed by the expert must be established by evidence or by agreement.
It is useful to start with the initial report prepared by the single expert which was dated 12 August 2024. It valued the business as at 30 June 2023.
In valuing the business, the expert relied upon the June 2023 figures, assuming them to be correct. That assumption was not in dispute and the “assumptions” contained in the accounts therefore became agreed facts and the opinion was admissible. It is, of course, perfectly proper to admit any expert’s report into evidence at any stage, subject to the assumed facts in dispute being proven at the same stage.
The respondent put a series of questions to the single expert pursuant to r 7.26 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth). The questions asked her to assume that a new lease would be executed in accordance with the heads of agreement and asked “what would be the revised value of [the business] in those circumstances” (Exhibit 14, Annexure “A” to the affidavit of the single expert sworn 6 September 2024, question 2(c)).
We have already set out the reply from the expert which was received on the first day of the hearing, or a day or two before. The respondent succeeded in establishing that it was likely that a new lease would be entered into in accordance with the heads of agreement (at [194]).
The issue arising from the above question and answer was raised early in the hearing, as follows:
HIS HONOUR: So your client wants to cross-examine [the single expert], as I understand it.
[SENIOR COUNSEL FOR THE RESPONDENT]: She has answered some questions over the weekend which - on a different basis to what is set out in our case outline, eliminate the goodwill component. So that will be a matter of discussion between us. And she may not be required.
HIS HONOUR: All right. I will leave it there.
[COUNSEL FOR THE SECOND RESPONDENT]: I may require her, your Honour.
HIS HONOUR: Sure. That’s all right. You can make your arrangements about that…
(Transcript 11 September 2024, p.12 line 44 to p.13 line 11)
The single expert gave some oral evidence but she was not asked about this aspect of the matter.
In final addresses, counsel for the appellant said:
[SENIOR COUNSEL FOR THE APPELLANT]: …So not understandably or – sorry, forgive – not exceptionally, there’s a future cost of the business which is to be brought home to book. The salient fact about this lease is, we – we know what its terms are as it applies in futuro. Otherwise, businesses’ costs will always increase. But it’s – it has a salience because it’s a piece of paper that’s now before the court, which quantifies a particular future expense. But there’s no evidence for cause, from [the respondent], that the cost of the business won’t be increased. The charges won’t be increased in futuro, to take into account the normal increase in the cost of doing business. Of which only one element is the increase in rent. So [the single expert] put, in bold type:
A qualification to the conclusion she reached by just crunching the numbers.
But it’s not a qualification your Honour should take into account. Absence of evidence from [the respondent] and [the intervenor], that the business isn’t able to, as it were, accommodate the cost by increasing the charges they can charge their clients. So with respect, we differ, in relation to the issue of goodwill. Can I then take your Honour to the second integer, which is the 30 per cent. And I regret to say this is where I have to spend most time - - -
(Bold emphasis added)
(Transcript 13 September 2024, p.99 line 44 to p.100 line 14)
This passage was where the issue of increased prices or reduced costs was raised for the first time.
It is true, as submitted by the appellant, that the question raising the increased rent concerned just one integer of the many used to derive the value. There is, however, nothing objectionable about that course. Experts are frequently questioned by asking them to express opinions on assumptions that are put to them, which may or may not be established by the evidence. That may easily include assumptions about just one element of a complex issue.
Whether or not such an answer carries weight is a different matter. For example, a possible response by a business to an increased cost might be to increase prices or reduce costs, but it is also true that neither may be feasible.
It is also a different matter what weight is to be given to a valuation where just one element (such as rent) is changed leaving other elements that might be consequently affected (prices and costs, for example) unchanged. The point is highlighted because here the valuation was as at 30 June 2023 and the rent was due to increase in early 2025. There is, of course, a degree of artificiality about valuations of businesses because they are, to a greater or lesser degree, based on historical data. That is the best that can be done.
Nonetheless, opinions can be sought from experts raising matters subsequent to the valuation, as happened here. Whether taking that matter into account leads to a valuation that carries weight is a matter for the court. Here, the expert, most appropriately, added a caveat to her opinion. That caveat was not further explored in cross-examination of her or with the respondents.
The “more nuanced” submission, properly understood, is that the Court would not accept the evidence of the effect of the new rent in isolation because to do so would not yield a reliable valuation. It is a challenge to the weight, if any, to be given to the updated valuation. The fatal difficulty for the appellant is that, whatever the merits of this submission, it was not run at the hearing (Metwally v University of Wollongong (1985) 60 ALR 68). At the least the single expert should have been questioned on it. She was not. It is entirely possible that she could have disagreed with the proposition.
Should an inference have been drawn from the respondent’s failure to call evidence of whether the increased rent would be absorbed?
The next step is to consider on whom the onus, if any, lay to call evidence as to the likelihood of increased prices or reduced costs as a result of the rent increase.
As we have said, the respondent legitimately questioned the single expert on the effect of a rent increase. He left the evidence there.
It was the appellant’s contention that the rent increase would be absorbed in some way. It is well established that he or she who alleges must prove (Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444 at [36]).
The respondent obtained an opinion on the value of the business with the new rent. That opinion could be challenged in a number of ways, some of which we have described. Some involve the appellant asserting further facts or opinions – such as the new value is not available or truly reflective of the value of the business or that the rent increase would be passed on. It was therefore for her to establish this was so.
We accept that this may have been difficult because the decision on how to deal with the rent increase lay with the respondent and his fellow directors. That difficulty does not, however, affect the onus of establishing the fact.
There is no doubt that an adverse inference may be drawn where a witness is not called (Jones v Dunkel (1959) 101 CLR 298 (“Jones v Dunkel”)) and where a witness who is called does not give evidence on particular subjects in chief (Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 (“Kuhl v Zurich”) at [63]).
The key is that not only must the absence of the witness or relevant evidence be unexplained, the evidence must be relevant to a matter in issue. As to that, the South Australian Court of Appeal said in Mintech Resources Pty Ltd v Russell-Taylor (2012) 113 SASR 80:
84In these circumstances, the drawing of inferences from an absence of evidence is, in my respectful opinion, unsound. As the author of Cross on Evidence has observed:
What a party is required to explain or contradict depends on the issues in the case as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts “requiring an answer”. If there is no issue between the parties on a matter, there is nothing to answer; and if there is an issue between them, but the party bearing the burden of proof has tendered no evidence of it, the opponent is not required to answer.
(Citations omitted; emphasis added.)
There is force in the respondent’s submission that the appellant did not raise her contentions as to the rent increase being absorbed until closing submissions. Any failure to give evidence on this topic is explained by the manner in which the hearing was run.
There is a further difficulty with this point. A Jones v Dunkel inference is limited. In that case, Kitto J explained the inference as follows (at 308):
…His Honour told the jury that the fact that Hegedus had not gone into the box left them in this position, that they could accept the facts given by the plaintiff as proved, and that the question for them then was whether they thought that from the proved facts an inference of negligence ought to be drawn. It was right enough to point out, in effect, that the evidence given might be the more readily accepted because it had been left uncontradicted, and that the omission to call Hegedus as a witness could not properly be treated as supplying any gap which the evidence adduced for the plaintiff left untouched. But what should have been added, and not being added was in the circumstances as good as denied, was that any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence. The jury should at least have been told that it would be proper for them to conclude that if Hegedus had gone into the witness-box his evidence would not have assisted the defendants by throwing doubt on the correctness of the inference which, as I have explained, I consider was open on the plaintiff’s evidence. In my opinion what his Honour said on the point amounted to a misdirection.
(Emphasis added)
Justice Menzies made it even clearer saying (at 312):
In my opinion a proper direction in the circumstances should have made three things clear: (i) that the absence of the defendant Hegedus as a witness cannot be used to make up any deficiency of evidence; (ii) that evidence which might have been contradicted by the defendant can be accepted the more readily if the defendant fails to give evidence; (iii) that where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.
In Kuhl v Zurich, the majority said:
63The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party’s case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn…
(Footnotes omitted)
Here there is no evidence at all on the topic. There is nothing from which an inference can be drawn and the principle cannot apply. To use it to find that prices would increase or costs decrease is in fact to create evidence, which cannot be done.
Disposition
It follows that the appeal will be dismissed.
COSTS
The appeal has been wholly unsuccessful. The appellant will pay the respondent’s costs fixed in the sum of $40,000, which excludes some costs that should not be borne by the respondent.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Aldridge, Howard & Christie. Associate:
Dated: 3 April 2025
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