Phillips and Phillips (No 2)

[2010] FamCA 645

FAMILY COURT OF AUSTRALIA

PHILLIPS & PHILLIPS (NO. 2) [2010] FamCA 645

FAMILY LAW – PROPERTY SETTLEMENT – Where the value of the husband’s shares were to be determined – Where the wife’s legal representatives had insufficient time to consider the husband’s filed material – Determination of the value of the shares cannot be heard as a separate issue – Totality of the surrounding circumstances at the time must be considered – Application for adjournment granted

APPLICANT: Ms Phillips

RESPONDENT: Mr Phillips

FILE NUMBER: BRC 10818 of 2007

DATE DELIVERED: 12 July 2010

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Barry J

HEARING DATE: 12 July 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Page of Senior Counsel appearing for the Applicant Wife

SOLICITORS FOR THE APPLICANT: Andrew Wiltshire Family Lawyers

COUNSEL FOR THE RESPONDENT: Mr Kirk of Senior Counsel

SOLICITORS FOR THE RESPONDENT: Hirst & Company

Orders

IT IS ORDERED THAT:

1. The application for an adjournment of the hearing set down on today’s date is granted.

2. The proceedings be listed for trial for three days commencing 10.00 am on
   14 February 2011 at the Brisbane Registry of the Family Court.

3. The parties to agree on trial directions; such trial directions to be filed with the Court no later than 4.00 pm on 27 August 2010.

4. If trial directions are not agreed to the matter is to be listed before a Registrar on a date to be fixed.

5. In the event that a daily hearing fee is payable, the Applicant is to pay the daily hearing fee thirty (30) days prior to the date of trial, unless the Applicant obtains a waiver of the fee.

6. Costs reserved.  

IT IS NOTED that publication of this judgment under the pseudonym Phillips & Phillips is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 10818 of 2007

MS PHILLIPS

Applicant

And

MR PHILLIPS

Respondent

REASONS FOR JUDGMENT

1. On 10 May this year I made orders in the following terms: 

   (1)The proceedings are adjourned until 10.00 am on 12 July 2010 for the determination of the threshold question as to the value which should have been ascribed to the husband’s shareholding in VW Pty Ltd as at 31 January 2002. 

   (2)The wife is to file and serve all material upon which she intends to rely on the threshold question, including written submissions on the legal aspects of her claim, by 4.00 pm on 2 July 2010. 

   (3)The husband is to file and serve all material upon which he intends to rely on the threshold question, including written submissions on the legal aspects of his claim, by 4.00 pm on 9 July 2010. 

   (4)Costs reserved.

2. At paragraph 64 of my reasons, I note:

   “Subject to further submissions from counsel, I propose to conduct a discreet hearing on the threshold issue of the proper value to be applied to the [VW] shares.”

3. As I recall, the proposal for a determination on the threshold question arose from either the written or the oral submissions of senior counsel for the husband.  Senior counsel for the husband did not appear when the reasons were delivered on 11 May.  Senior counsel for the wife did appear and did not object to orders being made in terms as outlined above, namely that the hearing on today’s date be limited to the threshold question of the value of VW.

4. With the benefit of hindsight, two obvious factors emerge:  (a) the time for the wife’s legal representatives to consider the husband’s material, if it was to prove lengthy or complex, was woefully inadequate, being one working day.  In accordance with the directions made, the wife filed a valuation report of a Mr B on 1 July this year.  A CV for Mr B is annexed.  He is a director of the litigation and forensic consulting division of a large firm of chartered accountants of Brisbane.  Mr B has provided reports and given evidence as to the substance of those reports on many occasions in this jurisdiction.

5. For the purposes of the consent orders and the binding financial agreement, the parties had agreed that the VW shares were valued at 25 cents.  At paragraph 1.8 of Mr B’s report, under the executive summary subject to key findings – 1.8:

   In my opinion, [VW’s] share trading price as at 31 January 2002 of .576 per share reflected the fair market value of a share in [VW] at that date.

   1.9:

   The issue that has been raised by [S Brokers] is how the husband would have been able to realise this value for his shares given the significant size of his holding.

   1.10:

   The husband was not a distressed seller and therefore in my opinion would not have sold his shares unless he could achieve a fair value for the shares.

   He notes that in September 2001 the husband had acquired 8 million shares at 50 cents, and at that time, an independent expert had valued the shares at 73.9 cents.

6. The husband’s fresh material in response to Mr B’s valuation was delivered late Thursday.  The Wife’s Senior Counsel did not get to see it until Friday.

7. The fresh material consists of two affidavits from a stockbroker Mr H.  They were filed on 18 May and 8 July respectively.  It was Mr H’s letter that had recommended the valuation price back in 2001.

8. There is also an affidavit of Mr AN of 8 July 2010.  Mr AN’s CV’s summary form reveals he has had 40 years’ experience in corporate and finance valuations.  He has prepared a lengthy, detailed report critical of Mr B’s assessment. He then proceeds to give his own valuation based on his methodology.  At paragraph 19 he says:

   From a theoretical, technical perspective, the value of the husband’s shares would, in my view, be no more than 41 cents with a capital gains liability of some two to three cents per share for 15.5 million of the shares held (that is an actual net value of no more than 38 cents to 39 cents per share.)  Given Mr [H’s] and his firm’s actual practical experience in trying unsuccessfully to actually sell such a small – much smaller parcel of shares than [the husband’s], I consider the appropriate net value of the shares lies in the range of 30 cents to 39 cents.

   Paragraph 20:

   Whilst a discount applied by Mr [H] is high, the practical reality of the value of the husband’s shareholding is illustrated by the inability to sell a 9.5 million (9.2 per cent) parcel of shares on market.  The sale of just 1.5 million shares from this parcel on market caused a significant downward price movement.  The sale of the remaining 8 million parcel (some 7.8 per cent) occurred at a discount of 19.4 per cent.  Given that [the husband’s] interest was some 26.86 per cent and he was the CEO of [VW], it is likely that the discounts incurred in selling his shares would be much more significant.

9. Senior counsel for the wife noted that, for the purposes of the husband’s shareholding back in January 2002, the overall value had been 6.9 million.  He notes that at 30 cents the value of the husband’s shareholding would have been 8.29 million, and at 39 cents, 10.78 million.

10. On additional affidavit relied on was that of Mr RT who was the chief financial officer of VW at the relevant time.  He critiques Mr B’s report.  There is further affidavit material from the husband himself in which, for present purposes, I accept fresh material is raised.

11. I accept the submission by senior counsel for the wife that he has not had time to properly take instructions in relation to the lengthy and complex material filed on Thursday.  For the purposes of the present hearing, there is no point in attempting to attribute blame for that.  As the judge, I made orders and should have been cognisant of the fact that to order the delivery of documents so late in the week and to put the matter down for hearing on the following Monday is normally not an appropriate move.

12. The application for the adjournment has been strenuously opposed.  Senior counsel for the husband did not need to be too eloquent to make me accept and fully appreciate the force of the submissions as to the delays which have occurred in this matter.

13. However the second reason why I am minded to grant the adjournment – very reluctantly – is that I am now more of a mind - having read the new material and heard the submissions today – that the issue of valuing the shares in isolation just cannot be done.  It needs to be considered in the light of all the evidence.  I was doing it with the best intentions to try and save the parties costs of further experts, costs of a lengthy hearing.  But it is artificial to try and do that, particularly in light of the other allegations that the wife makes in her affidavit material which I note are strenuously denied by the husband.

14. Exhibit 1, for the purposes of today’s hearing, consists of correspondence passing between the respective solicitors in the last week, so from 1 July to

    
    

    9 July.  The husband’s solicitors were adamant the issue for today was the determination of the true value of the shares as at January 2002.  And, of course, it was being contended that the true value was 25 cents.  But the husband’s senior counsel was submitting it’s not really necessary to determine at all the value of the shares as such by considering Mr AN’s evidence or anyone else’s because the parties had full knowledge at the time, had legal representation, and had agreed on a value of 25 cents.

15. Reference was made to correspondence dating back to that time which certainly supports such a submission.  The wife’s solicitor asserted that the issue for today was to establish whether the wife had produced valuation evidence which may be accepted by the Court – not must. 

16. The legal advisors were on totally different wavelengths and it was, unfortunately, not clearly spelt out.  There is an artificiality in focusing simply on the one aspect of the value of VW as at that date.

17. I note at paragraph 30 of the wife’s affidavit, filed back in November 2007, she said:

    I’m also of the view that [the husband’s] conduct leading up to the execution of the binding financial agreement and consent orders was such that I felt as though I had no alternative but to consent to the property settlement on the terms proposed by [the husband].

18. The wife’s legal representatives also submitted that they needed to be able to inspect a file of P & P, which is apparently a property settlement heard in this Court in the late nineties.  I’m not fully appraised of the relevance of such evidence if it ever does get produced.  I’d not be minded to grant an adjournment on this basis alone.

19. The wife has had adequate opportunity to make such inquiries and, seemingly, has failed to do so.  I’ve come to the conclusion that I’ll hear the evidence in relation to the wife’s 79A claim as a discrete matter, and that gets us back to the original application filed by the wife which was opposed by the husband by way of the form 2 application that I’ve been dealing with for a long period of time, but I don’t propose to make orders either for a summary dismissal or for the requirement of any further particulars.

20. So where we tried to take a shortcut to go straight to the value of the shares we’ll go straight to the 79A application.  It is artificial to hear and determine the value of the shares issue as a separate issue without looking at the totality of the surrounding circumstances in late 2001/early 2002.

21. I am satisfied justice would not be done if the wife’s senior counsel was not given the opportunity to take full instructions from Mr B as to the material filed. 

22. What I’m proposing to do is either stand it down now or adjourn it over for a mention so that there can be some communication as to how long it’s going to take and have draft directions made.  I think this is better done some time next week or the week after.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Barry

Associate: 

Date:  12 July 2010