Owens and Owens
[2014] FamCA 933
•31 October 2014
FAMILY COURT OF AUSTRALIA
| OWENS & OWENS | [2014] FamCA 933 |
| FAMILY LAW – PROPERTY – Value of Property – Expert Evidence – single expert appointed to value former matrimonial home – husband obtained a second valuation – significant difference between two valuations - where husband sought leave to rely on separate adversarial evidence – whether substantial body of contrary opinion – administration of justice – orders made for the parties to jointly instruct a third expert. |
| Family Law Rules 2004 (Cth) r 15.49, 15.45 |
| Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 |
| APPLICANT: | Mr Owens |
| RESPONDENT: | Ms Owens |
| FILE NUMBER: | ADC | 3402 | of | 2011 |
| DATE DELIVERED: | 31 October 2014 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Adelaide |
| JUDGMENT OF: | Berman J |
| HEARING DATE: | 28 October 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Richards |
| SOLICITOR FOR THE APPLICANT: | Barnes Brinsley Shaw Lawyers |
| COUNSEL FOR THE RESPONDENT: | Ms Dickson |
| SOLICITOR FOR THE RESPONDENT: | Belchamber Legal |
Orders
That at their joint and equal expense the parties use their best endeavours to nominate and jointly instruct an agreed single expert valuer to undertake a valuation of the property situate at V Street, Suburb P on or before 4pm on Wednesday 5 November 2014, but in any event no later than 4pm on Friday 7 November 2014.
That the nominated single expert be provided with the following documents at the joint and separate election of the parties:-
(a) A joint letter of instruction;
(b) Affidavit of Janet Belchamber filed 10 October 2014;
(c) Affidavit of Mr C filed 16 October 2014;
(d) Copy of correspondence comprising Exhibit 8.
That if requested by the appointed single expert, the mother will at the earliest possible opportunity facilitate the inspection of the P property without hindrance.
The interim proceedings are dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Owens & Owens has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: ADC 3402 of 2011
| Mr Owens |
Applicant
And
| Ms Owens |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
The parties are currently part-heard in a trial in respect of property issues due to recommence on 10 November 2014.
There is a significant dispute between the parties as to the value of assets and liabilities that represent the interests of each of the parties in property. It is not controversial that the value of the jointly owned former matrimonial home situate at V Street, Suburb P is easily the most valuable asset of the parties. Whilst there remains a dispute between the parties as to the value of the husband’s interest in a company known as E Pty Ltd, the balance of the property of the parties is modest.
The wife (and adult children) currently resides in the P property and subject to the orders that I may make, the wife would intend to retain the P property as part of her final settlement.
It does not appear that the husband argues against the wife’s desire to retain the property, but there now remains a significant dispute as to the value that should be attributed to the property for the purposes of the proceedings.
By valuation report dated 22 September 2014, the jointly instructed single expert namely Mr R of N Valuers considered that in his professional opinion the unencumbered fee simple interest is assessed at $850,000. That report appears as Annexure B to the affidavit of Janet Belchamber filed 10 October 2014.
The husband was demonstrably dissatisfied with the valuation of the single expert and by letter dated 9 October 2014, Mr C, valuer and property consultant was instructed to provide a valuation of the P property. That report was published on 15 October 2014 and in the opinion of Mr C he considers that the fair current market value of the P property to be $1,125,000. The difference is $275,000. Not surprisingly, the husband would seek to adopt the value of Mr C.
Notwithstanding that the trial had commenced, the husband by Application in a Case filed 16 October 2014 seeks the following order:-
That the husband be granted leave to call adversarial evidence in relation to the valuation of the property situate at [V Street], [Suburb P] in the State of South Australia.
By Response filed 27 October 2014, the wife seeks that the Application in a Case filed by the husband be dismissed.
Accordingly, the husband seeks leave to rely upon separate adversarial evidence as to the value properly to be attributed to the P property.
EXPERT REPORTS
Mr R was jointly appointed by the solicitors representing each of the parties by letter dated 11 September 2014.
On 1 August 2012, Mr M, valuer of N Valuers, provided a valuation report in respect of the P property at $950,000.
It is reasonable to speculate that the parties, but in particular the husband, did not expect that the update valuation would result in a significantly lower valuation being attributed to the said property. That proposition is readily apparent from the following that appears in the joint letter of instruction:-
Your company has previously undertaken a valuation of the property, but our client has asked us to point out the following:-
1.The home has four bedrooms not three;
2.The workshop is fully lined and insulated and fitted with power and telephone; and
3.The large shed is set up with a games room and is fitted with sewer and mains water plus shower and telephone.
In his report, Mr R describes the property as:-
A fully developed residential allotment in a well-established and regarded near city location.
The major improvement is a single level dwelling constructed in about 1915 with a living area of approximately 159 square metres and a land area of 1,367 square metres.
His assessment is at the time of inspection the house was presented in fair to poor overall condition.
The method of valuation is described as follows:-
The appropriate methodology that has been adopted is the direct comparison approach whereby the property is directly compared to relevant sales of similar properties within the area. Appropriate adjustments are then made for differences in the property itself and such factors as movement in the market and the circumstances of each sale.
Mr R brought to account various valuation considerations and in particular referred to five “comparable sales” within the Suburb P area during the period of March to June 2014. Whilst it is difficult to review and assess the market evidence, criticism by the husband directly reflects upon the land area of the subject property as compared to the comparable sales. In short, it is noted that each of the five properties involve a land area significantly smaller than the subject property.
Soon after the publication of the report, certain aspects of the report were the subject of query as contained in a letter dated 8 October 2014 being Annexure D to the affidavit of Janet Belchamber filed 10 October 2014. The husband’s solicitors raised with the valuer a concern that the report assessed a value for the property $100,000 less than the valuation presented on 1 August 2012.
Importantly for the current consideration, the husband raises directly the rate per square metre that applies to the subject property. The correspondence highlights that the Owens property has an underlying land value of $1,045 per square metre whereas it is asserted that recent sales appear to average $1,451 per square metre with the lowest sale representing $948 per square metre. The husband seeks to challenge the single expert by alleging that he has fallen into error if a consideration of comparable sales defers to an assessment of the underlying land value.
Mr R responds to the questions put by the husband on 14 October 2014 and suggests that the report of Mr M may well be unreliable and that the difference in value could be explained by a “cooling of values in the area”. In answer to the question of underlying land value, the following answer is given:-
As to point 2
(5)These can be summarised in the simple economic principles of:-
(a)Scale of diminishing returns, and
(b) Economies of scale.
(3)Firstly, the rate referred to is “improved land” rate, which considers and includes the existing improvements. They are the means of establishing parameters around appropriate rates, and indeed whether they are robust/reliable enough to rely on at all. It is intended as an “on balance” direct comparison overview.
Diminishing returns is defined as:-
A point beyond which the application of additional resources yields less than proportional increase in output.
Economies of scale is defined as:-
Reduction in cost per unit resulting from increased production, realised through operational efficiencies. Economies of scale can be accomplished because as production increases, the cost of producing each additional unit falls.
It is difficult to discern the direct application of those economic principles to the valuation issues raised, but it seems to suggest that it may not be as simple as assuming that a larger land area will inevitably result in a greater value. That may or may not explain the rate per square metre.
Promptly upon the receipt of the Mr R valuation and before answers to the questions asked had been received, the husband through his solicitors instructed Mr C to prepare a valuation of the P property. Mr C generally agrees with the description of the property, but it must be noted that he was not given access to the property and accordingly relies upon the observations of Mr R in his report. It is not suggested in any event that the condition of the property is controversial.
The gravamen of the approach adopted by Mr C is to value the property by the application of the summation approach:-
That is the addition of the component parts of value, namely land and improvements. Rates to be applied for both land and improvements are arrived at after analysis of the comparable sales and analysis of the specific vacant land sales that have occurred in recent months.
Mr C then checks the valuation outcome by using the direct comparison approach. As discussed, he assesses a value per square metre of $1,010 and by multiplying the land area being 1,045 square metres, the land is valued at $1,055,652, with improvements of $53,400 and sundries of $14,000 producing a value of $1,123,052. Three properties were considered by Mr C as part of the direct comparison or comparable sales methodology, one of which was common to the report of Mr R.
By considerations of comparable sales, Mr C considers that the estimate of value (taking into account demolition costs) is $1,059,116, but he considers that a hypothetical purchaser may pay a slight premium for a development sight and accordingly, he considers the fair current market value to be $1,125,000.
Mr C then embarks upon an alternate valuation consideration in respect of land value, but at pages 8 and 9 of his report attempts to critique the methodology adopted by Mr R and in particular is critical of the method and manner by which he brings to account the five properties used for direct comparison.
He then embarks upon a consideration of comparable sales with a view to providing an analysis of the dollar value per square metre for a variety of properties, but ultimately his criticism of the Mr R report is that the single expert did not consider the vacant land value of the subject property and that a prudent valuer would apply both methods namely, summation and direct comparison. This is particularly so in circumstances where he considers “there is much evidence in the [Suburb P] market place of vacant land sales”.
Ultimately, the valuers met on 20 December 2013 but by reference to a short letter of report dated 21 October 2014, it would seem apparent that the valuers were not able to reach any agreement and Mr R makes the point that Mr C’s report is “silent as to the content of your letter of instruction to him”. He assumes that as no letter of instruction was provided, the instructions to each valuer were similar.
Annexure B to the affidavit of Mr C filed 16 October 2014 provides the letter of instruction which simply requests a valuation report with the only information being that as contained in the previous valuation reports of Mr M (2012) and Mr R (2014).
SUBMISSIONS MADE BY EACH OF THE PARTIES
Each counsel has provided helpful submission documents.
The husband argues that in the opinion of Mr C the adoption of the direct comparison method is flawed in that Mr R should have considered the vacant land value of the subject property. It is further argued that there is significant evidence by way of comparable sales that the value per square metre could easily be $1,261.
The adoption by Mr R of only the direct comparison approach as distinct from the methodology adopted by Mr C namely, to use both summation and direct comparison, is asserted to be a fundamental error. It is argued that there is a substantial body of opinion which promotes the view that where possible both methods should be used. In the absence of an explanation by Mr R, Mr C considers that he has fallen into error.
In terms of matters not known to Mr R, Mr C argues that there is recent evidence of sales from vacant land and that these have not been considered and brought to account.
Finally, the difference between the two valuations being $275,000 and representing a 31 per cent increase on the Mr R valuation is difficult to reconcile and it is therefore in the interests of justice for the Court to determine the value of the subject property by hearing evidence from both valuers.
The wife argues that Mr R has provided a report precisely in keeping with his letter of instruction namely, that the property should be valued “as is” and not for the demolition and land value only.
Notwithstanding the Mr C valuation, it is submitted on behalf of the wife that in the questions put to Mr R by the husband’s solicitors in their letter of 8 October 2014, he was not asked to comment on his reason for adopting a direct comparison approach rather than a consideration of both summation and comparable sales. In summary, the single expert can hardly be criticised for undertaking a valuation, which according to the wife, is entirely consistent with his instructions.
Mr R should be asked to clarify these matters before Mr C is engaged as an adversarial expert.
In any event, even were there to be considered some merit in the husband’s application, the Court should decline to exercise its discretion pursuant to Rule 15.49 (2) of the Family Law Rules 2004 (Cth) (“The Rules”) given that the application comes late in the day and in circumstances where the husband has failed to properly put all relevant questions to Mr R. Unless and until that process is undertaken, it is argued that it is not necessarily the case that the valuers disagree. It is suggested that Mr R should have an opportunity to consider at the very least a criticism of his procedure and methodology and provide an answer in respect of same.
To some extent however, the broad issue was answered by Mr R in his initial correspondence of 9 October 2014.
It may also be the case that whilst it may well be initially attractive to allow Mr R to further consider the matter, the practicalities of the part-heard proceedings would seem to dictate that the issue needs to be resolved if for no other reason than there needs to be clarity as to whether both valuers will need to give evidence but also, if ultimately the husband is permitted to rely upon the evidence of Mr C, the wife may well consider whether she is content to rely upon the evidence of the single expert or seek further advice.
RELEVANT LAW
Both valuers accept what might be considered as the universally accepted definition of fair market value as being the price that a willing but not anxious buyer properly informed would be prepared to pay to a similarly informed but not anxious seller of the asset involved, see Spencer v The Commonwealth of Australia (1907) 5 CLR 418.
It is of course a hypothetical exercise. There may be certain aspects or attributes in respect of the asset, or indeed any aspects that might be considered unique which would be of particular attraction to an individual purchaser.
The aim of the Court must be to determine the “true value of the property”. Ordinarily, with real estate this presents few problems. A market is generally able to be easily identified and unless the subject property has an extraordinary quality about it, the valuation exercise is usually straight forward.
In Lenehan & Lenehan (1987) FLC 91-815 the Full Court said at page 76,142:-
A trial judge, as part of his ultimate responsibility under section 79 or otherwise, is normally required to determine a number of issues. Some of those issues may properly attract the evidence of expert witnesses. In appropriate circumstances, their opinions are admissible to assist in the determination of such an issue. It is the responsibility of the trial judge to take into account the opinions of such witnesses; however, the ultimate duty of the judge is to determine the issue on the whole of the material before him, including such opinions. The expert evidence is called to enable the judge to form his own independent judgment of the matter by application of the appropriate principles.
Accordingly, the proper approach to be applied to a valuation dispute is assisted by the deliberations of the High Court in Commonwealth v Milledge (1953) 90 CLR 153:-
By a common sense endeavour, after consideration of all of the material before the Court to fix a sum satisfactory to the mind of the Court as representing the value contained in the land.
Caution must also be exercised to ensure that the valuation methodology is correct and not a flawed approach. See Elsey v Elsey (1997) FLC 92-727.
The rules dealing with expert evidence are to be found in Part 15.5 and in particular Rule 15.41 to 15.70. This part has as its core purpose to ensure that the parties obtain expert evidence only in relation to a significant issue in dispute, to restrict expert evidence to that which is necessary to resolve or determine a case and to ensure that if practicable and without compromising the interests of justice, expert evidence is given on an issue by a single expert witness and to thereby avoid unnecessary costs arising from the appointment of more than one expert.
Accordingly, Rule 15.49 requires the expert witness to be independent and have a duty to the Court that goes beyond any duty to a party.
As in this case, parties may agree to jointly appoint a single expert witness to prepare a report in relation to a substantial matter in dispute (Rule 15.44 (1)).
The instructions to an expert witness must be in writing and must include the matters as set out in Rule 15.54 (2).
Rule 15.54 (3) provides that:-
The parties must give the expert an agreed statement of fact on which to base the report.
Amendment number 15 of 2011 (Rule 15.54) provides:-
However, if the parties do not agree on a statement of facts:-
(a)Unless the Court directs otherwise, each of the parties must give to the expert a statement of facts on which to base the report; and
(b)The Court may give directions about the form and content of the statement of facts to be given to the expert.
The area of most contention arises from the inability of a party to tender a report or adduce evidence from another expert witness if a single expert has been appointed whether jointly by the parties or by order of the Court. Rule 15.49 (2) provides three exceptions to the tendering of further evidence from another expert witness on an issue already addressed by a single expert witness:-
·If 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.
·If another expert witness knows of matters not known to the single expert, that may be necessary for determining the issue.
·If there is another special reason for adducing evidence from another expert witness.
It is always difficult to determine how “the substantial body of contrary opinion” is to be established before the Court. It cannot be that the evidence of the second expert satisfies the test merely by the filing of the application seeking leave to adduce the evidence. A substantial body of opinion cannot be information and belief of the view of the second expert but must include more than the view of that person and/or must have multiple support.
Rule 15.49 provides the procedures for the application for evidence to be adduced from an expert witness and requires an application in a case with an affidavit setting out the history of the use of the experts by the parties, the background of the expert whose appointment is sought and some assessment of the complexity, value and importance of the case and the expertise of the expert.
It is not suggested that at this stage there is any argument in respect of the application of Rule 15.43 namely, whether Mr C should be considered “an expert” as defined by the rule namely:-
Is defined to be an independent person who has relevant specialised knowledge, based upon the persons training, study or expertise.
See Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 per Hayden JA.
As I read the reports of the two valuers, it would appear that the primary methodology adopted by each of them was by reference to comparable sales. Whilst Mr C is clearly critical of Mr R for not adopting what he says is normal and prudent valuation practice and protocol namely, where possible to cross check the valuation outcome by a consideration of the summation method, that argument really only goes to the outcome and not necessarily supportive of a finding that there is “a substantial body of opinion contrary to any opinion given by the single expert”.
As was the finding of Dawe J in the unreported decision of Turnley & Turnley [2005] FamCA 584. Her Honour found that:-
There is nothing in the affidavit material before me nor in the submissions before me that could possibly fall within sub rules (a) or (b) of Rule 15.49 (2).
It is further argued that Mr C was aware of matters not known to the single expert namely, more recent sales which if they had been considered by the single expert may well have caused him to reassess his valuation outcome.
It is also obvious that Mr C considered a wide range of potentially comparable sales in respect of both the direct comparison and summation methodology.
Whilst it is difficult to understand the rationale of the response of Mr R to the questions put to him, it would appear that he considers the valuation process not to be an arithmetical exercise that would see the valuation of a subject property increase proportionately simply because one property may have a larger land area than another. Each property must be considered on its merits to determine how critical land size might be to the valuation outcome.
That of course is not a matter for consideration at this stage, but rather may be a valid area of cross examination and challenge to any expert called to give valuation evidence.
Accordingly, it may well be that the existence of sales evidence pertaining to other properties which were not considered by the single expert to be an important matter. To some extent, this argument was accepted by counsel for the wife and she argues that if that is the case, then rather than allow the proceedings to be made more complicated by the introduction of further adversarial evidence, the single expert should be given an opportunity to comment as is provided for in the rules.
Finally, it is argued that there is another special reason for adducing the evidence and that can be easily established by reference to the significant disparity in valuation outcomes by two credible and properly qualified valuers.
The issue was considered in Knight & Knight [2007] FamCA 263 where Bryant CJ took into account that the parties had spent a large amount on legal fees and accounting fees and considered that permission should be granted to the wife to call separate adversarial evidence on the basis that the cost of the expert witness for the wife would initially be borne by her and the husband was not at risk in costs unless the wife’s evidence materially affected the valuation by the single expert. It was further noted that the wife’s proposed expert had already undertaken a substantial quantity of work as a shadow expert and that there would not be great delay in the wife obtaining a report from him given that the case had not been reached and would not be heard in the next few weeks.
Her Honour considered that there would be a “miscarriage of justice” if the wife was not given a proper opportunity to explore those issues.
It must not be forgotten that what is at the heart of the rules is the proper administration of justice by having close regard to case management.
In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 French CJ said at [30]:-
It might be thought a truism that “case management principles” should not supplant the objective of doing justice between the parties according to law. Accepting that proposition, J L Holdings cannot be taken as authority for the view that waste of public resources and undue delay, with the concomitant strain and uncertainty imposed on litigants, should not be taken into account in the exercise of interlocutory discretions of the kind conferred by Rule 5.02. Also to be considered is the potential for loss of public confidence in the legal system which arises where a Court is seen to accede to applications made without adequate explanation or justification, whether they be for adjournments, for amendments giving rise to adjournments, or for vacation of fixed trial dates resulting in the resetting of interlocutory processes.
His Honour’s consideration does not challenge the underlying observation that justice is the paramount consideration.
EXERCISE OF DISCRETION
It is argued that even if I find that one or more of the aspects of Rule 15.49 (2) have been satisfied, I should decline to exercise my discretion to admit separate adversarial evidence.
The submission is that the application comes in the middle of part-heard proceedings and that the proper approach is to give the single expert an opportunity to answer questions that are targeted to the alleged criticism of methodology and outcome adopted by him.
The difficulty that I have is that the proceedings are listed to resume before me shortly. There are two days allowed and at this stage the reports have been prepared. At least as far as the husband is concerned, it is not anticipated that he would seek further investigation or valuation assessment by Mr C. There may of course be further considerations given by the wife as to whether her confidence in the single expert remains. That remains a matter for her but if such an application were made, it would have to be favourably considered given the submission made on behalf of the husband that there is a fundamental flaw in methodology adopted by Mr R and the proper application of valuation procedure. There can be no criticism of the wife given the status of Mr R as the single expert.
A further option would be to require both parties to instruct a different single expert given that the parties are now properly appraised of the relevant issues, can formulate a comprehensive joint letter of instruction and can address the attributes that should now able to be drawn from the collective wisdom of the current valuations.
Rule 15.45 provides the ability for the Court either on application or on its own initiative to order that expert evidence be given by a single expert subject to the following:-
15.45 (2)
When considering to make an order under sub rule 1, the Court may take into account factors relevant to making the order, including:-
(a) the main purpose of these rules (see Rule 1.04) and the purpose of this part (See Rule 15.42);
(b)whether expert evidence on a particular issue is necessary;
(c)the nature of the issues in dispute;
(d)whether the issues fall within a substantially established area of knowledge; and
(e)whether it is necessary for the Court to have a range of opinion.
Whilst I appreciate there may be difficulty in the joint instruction of a single expert at this late stage, equally the same issue may well arise if the wife elects to seek her own separate adversarial evidence.
The advantage of a further single expert properly instructed and bringing to account the issues that are now more clearly identified and enunciated is that the alleged flaw in methodology adopted by Mr R can be remedied.
There exists a reasonable likelihood that a properly instructed single expert will undertake the task of valuing the P property to the satisfaction of the parties.
A resolution of this valuation issue would significantly shorten the proceedings and satisfy the main purpose of the Rules namely, to promote the efficient management and conduct of litigation.
CONCLUSION
In all the circumstances, I consider that this is not an example of two valuers adopting the same methodology but reaching a different outcome and opinion. There are differences in the approach adopted and there may well be matters namely, more recent comparable sales which the other valuer may not either be aware of and/or not bring to account.
In the circumstances of this case however, the answer is not to expand the conflict by hearing evidence from two valuers but rather, to achieve a determination as to value that satisfies the concerns of each of the parties. It should not be forgotten that the process is not complex in circumstances where the subject asset is land with improvements in an established suburb of Adelaide. It should be a straight forward exercise.
Of course it is always open to a trial judge to hear the evidence and if still left unassisted at the conclusion of cross examination then further evidence can be sought. That should only be considered if in the interests of justice such a way forward is required.
I make orders as set out at the commencement of these reasons.
I certify that the preceding eighty four (84) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 31 October 2014.
Associate:
Date: 31 October 2014
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