On and On (No. 4)

[2007] FamCA 992

FAMILY COURT OF AUSTRALIA

ON & ON (NO. 4) [2007] FamCA 992

FAMILY LAW - PRACTICE AND PROCEDURE – In the course of the trial counsel for the wife sought leave to adduce further expert evidence arising from the methodology used by the single expert in the valuation of a substantial pharmacy business conducted by the husband.  In the unusual circumstances of the methodology used, and in the exercise of discretion, leave granted.

Rule 15.49; 15.51(1) Family Law Rules 2004

APPLICANT: Mr ON

RESPONDENT: Mrs ON

FILE NUMBER: MLF 7114 of 2001

DATE DELIVERED: 23 February 2007

PLACE DELIVERED: Melbourne

JUDGMENT OF: Guest J

HEARING DATE: 23 February 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT: In person

SOLICITOR FOR THE APPLICANT:

COUNSEL FOR THE RESPONDENT: Mr Sweeney

SOLICITOR FOR THE RESPONDENT: Kennedy Wisewoulds

Orders

1. That leave be granted to the wife to file and serve the affidavit of Mr [F]

IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Guest delivered this day will for all publication and reporting purposes be referred to as ON & ON

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 7114  of 2001

Mr ON

Applicant

And

Mrs ON

Respondent

REASONS FOR JUDGMENT

1. An issue has arisen concerning the report of the single expert valuer, Mr I, which is annexed to his affidavit filed on 22 February 2007.  Application has been made on behalf of the wife to rely upon a report prepared by Mr F by way of commentary on Mr I’s report and the methodology applied by him in valuing the husband’s business conduced at the CBD retail centre.

2. Mr Sweeney informed me that both the husband and the wife had engaged Mr I to value the business conducted at the CBD retail centre.  A report was provided on 7 February 2007.

3. On 8 February 2007, the solicitors for the wife received a confidential facsimile transmission from Mr I as follows:

   “We wish to advise you that subsequent to our provision of a valuation report, 7 February 2007, [Mr B] of [B Company] Pty Ltd notified us via phone, 8 February 2007, that the figures used for the valuation contained questionable information.  Please investigate these issues with [Mr B] and advise us as to an appropriate course of action.  In the event that amendments to the figures are required, please ensure that we receive written confirmation of the commentary required to correct the financial figures.”

   That facsimile transmission has been received in evidence and marked Exhibit "W6".

4. I was informed by Mr Sweeney that apparently Mr I went overseas and did not return until 19 February 2007.  In the meantime the wife's solicitors forwarded a series of questions to Mr I for response.  I am informed that a supplementary report was received on 19 February 2007, which was considered by the wife's solicitors.  As a result of the methodology applied by Mr I, they conferred with Mr F, an accountant and expert from the firm of … (Vic) Pty Ltd.

5. The purpose of the conference was to analyse the report.  In the result, Mr F has provided a report which is annexed to an affidavit filed this day, a copy of which has been made available to the husband.  The husband is, in my view, not disadvantaged in the sense that, albeit he is appearing in person, he can obtain the assistance of Mr B, his long‑term associate and accountant for the CBD business.

6. Following discussion with Mr Sweeney and the husband and given the reality of the matter, it was agreed that Mr I and Mr F give their evidence, one following the other with each of those witnesses being present in court so as to comment upon any evidence given by the other, and otherwise assist the husband.  Mr Kirkham, responsibly in my view, also agreed that Mr B be permitted to be present in court to assist the husband during the course of the evidence of both Mr I and Mr F.  In my view, that is a matter of absolute fairness and quite appropriate in the circumstances.

7. The problem that has arisen in relation to the report of Mr I and his valuation of the CBD businesses at $1.13 million.  He arrived at that valuation by taking the mean of a “current business economic value”, which he assessed at a negative $862,563, based upon the information provided to him, together with recent trends and an estimation of the future maintainable earnings.  (A table is provided to that effect on page 10 of his report.)  He also valued the businesses on an underlying business outlook, or “discounted cash flow” methodology.  On that basis, he valued the businesses at $3,115,638.  Mr I then took what he described as "reasonable estimate (mid‑point) $1.126,537 million". 

8. Speaking for myself, and merely by way of comment at this stage, I have not come across such methodology in the past and it is an issue upon which I would be greatly assisted by expert evidence.

9. The methodology applied by Mr I is one that is seriously in contest and I do not see that it is unfair nor unreasonable in the circumstances that further evidence be admitted dealing with the explanations and methodology used by Mr F.  It is not the quantum that is challenged.  In his report, Mr Ferrier asserts that the method adopted to value a business should be the one that “best matches the circumstances for the business”.  In his opinion, it was not appropriate to assess the value of the CBD business on more than one basis and then to estimate its value as an average of those valuations.  That is a difficult point and is an important fact in issue for my determination. 

10. I have been helpfully referred to Rule 15.49 and rule 15.51(1) of the Family Law Rules 2004 (as amended). It appears to me from a reading of those two rules that there is a broad discretion vested in me to permit a party to tender a report or adduce evidence at a trial from an expert witness upon application made by one or other of the parties. Such an application was made by Mr Sweeney, on behalf of the wife. The issue raised is, as I said, a significant one, as the value of the CBD business can either be, on the one hand at $1,126,537 alternatively, if the discounted cash flow methodology alone is the correct approach to value the husband’s business, it would result in a valuation of $3,115,638. This is an issue upon which I will need assistance and is, in my view, a special reason to permit the evidence of Mr F to be adduced.

11. In permitting the report of Mr F to be received as part of the material to be relied upon by the wife, I must also consider fairness to the husband.  As I have made clear earlier in this short judgment, I do not see the husband being disadvantaged by the procedure proposed by Mr Kirkham.  In particular, he will have the benefit of Mr F’s report for several days, including the weekend, for consideration with Mr B, who is the accountant for the CBD business. 

12. Mr B is clearly intimately connected with the business and its conduct, having given evidence at the last hearing in this court before Bell J in August and September 2004.  Mr B can also assist the husband in the course of the evidence given by Mr I and Mr F by being present in court.  That is a matter for him, but it appears to me to be applicable in the circumstances.  If necessary, it will always be open for the husband to apply to call Mr B, should he deem it appropriate to do so.  Accordingly, I do not see that the husband suffers any prejudice by admitting the affidavit of Mr F.  In the exercise of my discretion, I propose to permit the wife to file that affidavit.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Guest.

Associate: 

Date:  24 August 2007.