Salmon and Salmon & Ors (No 2)
[2019] FamCA 910
•24 October 2019
FAMILY COURT OF AUSTRALIA
| SALMON & SALMON AND ORS (NO. 2) | [2019] FamCA 910 |
| FAMILY LAW – EVIDENCE – Expert evidence – Interim Hearing – Where a single expert witness has previously been appointed by the court – Where the husband now seeks permission pursuant to rule 15.49 of the Family Law Rules 2004 (Cth) to rely upon another expert report in relation to the same issue – Where the husband is joined in his application by the second and third respondents – Where the application is opposed by the wife’s estate – Where the husband has not established that there is a special reason for the appointment of another expert witness – Where the application is dismissed – Where the parties are granted an extension of time in which to attend a conference with the single expert or to submit a list of questions to the single expert. |
| Family Law Rules 2004 (Cth), r 15.49, r 15.64B, r 15.65 |
| Bass & Bass (2008) FLC 93-366 Royce & Donavan [2012] FamCA 168 Simonsen & Simonsen [2009] FamCA 698 |
| APPLICANT: | Ms Salmon by way of her Personal Legal Representatives Mr Simpson and Ms Simpson |
| 1st RESPONDENT: | Mr Salmon |
| 2nd RESPONDENT: | B Pty Ltd ACN … |
| 3rd RESPONDENT: | Mr C Salmon and Ms D Salmon and Mr E Salmon as trustees of the B Pty Ltd Superannuation Fund |
| FILE NUMBER: | BRC | 10433 | of | 2015 |
| DATE DELIVERED: | 24 October 2019 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Carew J |
| HEARING DATE: | 14 October 2019 |
REPRESENTATION
| SOLICITOR FOR THE APPLICANT: | Mr Hartley, Hartley Healy |
| COUNSEL FOR THE 1ST RESPONDENT: | Mr Page QC |
| SOLICITOR FOR THE 1ST RESPONDENT: | Williamson & Associates |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr Galloway |
| SOLICITOR FOR THE 2ND RESPONDENT: | Williamson & Associates |
| COUNSEL FOR THE 3RD RESPONDENT: | Mr Galloway |
| SOLICITOR FOR THE 3RD RESPONDENT: | Williamson & Associates |
Orders
Pursuant to r 15.64B of the Family Law Rules 2004 (Cth) (“the Rules”), the time for agreement about conferring with the single expert witness for the purpose of clarifying the report dated 18 July 2019 be extended to within 21 days of the date of this order.
The time for a party seeking to clarify the report dated 18 July 2019 by asking questions pursuant to r 15.65 of the Rules be extended to within 7 days after the conference held pursuant r 15.64B or, if no conference is held, within 21 days of the date of this order.
The Application in a Case filed 18 September 2019 be dismissed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Salmon & Salmon and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
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 r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 10433 of 2015
| Ms Salmon by way of her Personal Legal Representatives Mr Simpson and Ms Simpson |
Applicant
And
| Mr Salmon |
First Respondent
And
| B Pty Ltd ACN |
Second Respondent
And
| Mr C Salmon and Ms D Salmon and Mr E Salmon as trustees of the B Pty Ltd Superannuation Fund |
Third Respondent
REASONS FOR JUDGMENT
Proceedings for a property settlement were commenced by Ms Salmon against her estranged husband, Mr Salmon on 28 October 2015. Sadly, Ms Salmon passed away in 2015 and her parents, Mr and Ms Simpson, have carried on the litigation in her stead[1] (“the wife’s estate”).
[1] Pursuant to an order made 6 April 2016.
The matter returns to Court over a dispute about whether or not the husband and the other respondents should be granted permission to rely upon another expert report in relation to the value of the husband and/or wife’s interests in certain entities and in relation to the superannuation entitlements of the wife.
Brief background
Ms and Mr Salmon were married in 1998 and separated in March 2015. They have two children, G aged 19 and H aged 17. G and H are the sole beneficiaries of their mother’s estate and will ultimately be the beneficiaries of any property settlement order made in their deceased mother’s favour. The executors/trustees of Ms Salmon’s estate are her parents. Unfortunately, the children are currently estranged from the maternal grandparents.
As noted above, there are two further respondents to the litigation who are related entities. B Pty Ltd (“the company”) operates a retail business and the husband manages the daily operations of the business. The husband’s parents are the only directors of the company and of the two issued ordinary shares, the husband holds a 20% joint interest with his father and his sister in one share, and a 40% joint interest with his father, mother and brother in the other share. The husband is also the sole owner of 30 E class shares, which have no voting rights. The third respondent is a private superannuation fund (“the super fund”), the trustees and members of which are the husband, his parents and his brother. It is common ground that the husband’s interest in the super fund is worth $827,495.
The husband contends that in order to acquire his shareholdings, he borrowed money over the period 1999 to 2007 from V Bank and, as at 2007, his liability under a commercial bank bill was $1,300,000. The current balance remains ($1,300,000). The loan is secured on properties owned by the husband’s parents. There is a dispute between the husband and wife’s estate as to whether the husband will be called on to repay the loan. The interest payments on the borrowings are debited from the company bank account, which generates a debit entry against the husband’s loan account with the company.
In 2005, the husband and wife acquired a vacant block of land at Suburb J and constructed a home thereon. The land was offered as security to V Bank for the borrowings needed to build a home. Hence, the husband contends that he had no property upon which to secure his acquisition of shares in the company and had to rely upon his parents to provide that security.
As at 30 June 2019, the husband had a debt to the company of $833,201, which he says has accumulated over five years. He contends that his weekly wage and annual dividend service this loan. He further contends that the loan has arisen in order to service the loan repayments on the Suburb J property of $576,518; to pay private school fees of $160,506; to pay off an American Express debt in the wife’s name in 2015 of $74,173; to pay to the wife’s estate $65,000 and to pay for joint valuation fees of $41,529.25.
The V Bank loan secured against the Suburb J property presently has a debit balance of $1,599,533.70 and is fully drawn.
The parties have been unsuccessful in settling their dispute despite their attendance at mediation in 2016. Later in 2016, a final hearing of their dispute in the Federal Circuit Court was adjourned by consent and transferred to this Court. A further final hearing was listed for three days commencing on 19 August 2019. Again the trial was adjourned by consent.
Mr F was appointed the single expert in this matter on 14 December 2015. He has prepared three reports variously dated 2 September 2016, 6 October 2017 and 18 July 2019. Mr W has prepared a report at the request of the husband and it is dated 22 August 2019.
On 18 September 2019 the husband filed an Application in a Case in which he seeks the following relief:
1.That pursuant to the provisions of Rule 15.49 of the Family Law Rules, the first, second and third applicants [husband and other respondents in substantive proceedings] be permitted to tender a report and adduce evidence from Mr W of X Accountants on the basis that there exists in such report and (sic) evidence a substantial body of opinion contrary to the opinion given by the single expert witness and that the contrary opinion is necessary for determining several issues relevant to this matter.
The husband is joined in his application by the other two respondents (in the substantive proceedings).
The application is opposed by the wife’s estate (the applicant in the substantive proceedings).
Why is the Court’s permission necessary?
The Family Law Rules 2004 (Cth) (“the Rules”) require a single expert to be used in most circumstances. If, as here, a single expert has already been appointed, the Court must be satisfied that there is a ‘special’[2] reason to permit a party to rely upon another expert on the same issue.
[2] For example see Bass & Bass (2008) FLC 93-366; Simonsen & Simonsen [2009] FamCA 698; Royce & Donavan [2012] FamCA 168.
Rule 15.49(2) of the Rules provides that 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.
It is important to note the purpose of the single expert rules which are set out in r 15.42 as follows:
a)to ensure that parties obtain expert evidence only in relation to a significant issue in dispute;
b)to restrict expert evidence to that which is necessary to resolve or determine a case;
c)to ensure that, if practicable and without compromising the interests of justice, expert evidence is given on an issue by a single expert witness;
d)to avoid unnecessary costs arising from the appointment of more than one expert witness; and
e)to enable a party to apply for permission to tender a report or adduce evidence from an expert witness appointed by that party, if necessary in the interests of justice.
Division 15.5.6 of Part 15.5 of the Rules provides for ways of clarifying a report prepared by a single expert. Firstly, by the parties agreeing to attend a joint conference with the single expert (r 15.64B) and secondly, by the provision of a list of questions to the single expert (r 15.65). Neither has occurred in this case, contrary to the submissions made on behalf of the husband.
While the rules place restrictions on the use of another expert’s report in proceedings, a party is not precluded from obtaining a report from another expert per se and in order to better inform themselves in the conduct of their litigation. As Murphy J in Simonsen & Simonsen[3] observed:
12.The general thrust of the Rules has been referred to by the Full Court in Bass & Bass [2008] FamCAFC 67; (2008) FLC 93-366. As the court in that case made clear, the adducing of evidence from an additional expert, is not something which ought occur in the usual course, or simply by application made by a party. In simple terms, the word “special” as used in rule 15.49 has real meaning.
13.It is important to understand that Part 15.5 of the Rules does not preclude a party from obtaining on their own behalf expert evidence, nor does it preclude a party from obtaining such expert evidence, (including from more than one expert, should they so choose), in respect of all matters relevant to the proceedings before a court, and all matters relevant to a report and/or evidence produced by a single expert.
14.Thus, expert evidence obtained by a party on their own account can be used, for example, to significantly inform the cross-examination of a single expert witness at a trial. The restriction inherent in the rules is a restriction related to the adducing of evidence from the expert or experts retained by a party.
[3] [2009] FamCA 698.
The appointment of a single expert places restrictions on all parties in the manner in which they can communicate and inform the single expert. While the interests of justice must ultimately be the overarching consideration, if one party is permitted to rely upon another expert it necessarily leaves open the very real prospect of yet a third expert being involved; all of which defeats the purpose of the single expert rules. As Kent J in Royce & Donovan,[4] observed:
82.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.
[4] [2012] FamCA 168.
the single expert’s reports
There have been three reports prepared by the single expert, Mr. F. As noted, Mr F was appointed pursuant to an order of the Federal Circuit Court on 14 December 2015 to prepare a report in relation to the following matters:
a)an identification of the nature and value of the husband and/or wife’s shares in the company as at the current date;
b)an identification of the nature and value of any units held by the husband and the wife or any entity in which the husband or wife have an interest, in the Salmon Property Unit Trust (“the property trust”) including but not limited to any units owned by the super fund;
c)market value of the super fund and any member benefit balances of the husband and wife in such fund at the current date;
d)value (if applicable) of any interest the husband and/or wife may have (or any entity that they have an interest in may have) in the Salmon Family Discretionary Trust (“the family trust”) including but not limited to any beneficiary loan accounts and any other legal and/or equitable interest; and
e)in relation to any book debit, credit or loan account the husband or wife (or any entity in which they have an interest) may have in relation to the company, the super fund or the family trust, an historical analysis of such loan accounts including an analysis of any significant movements in the respective loan ledgers over the last three years.
Mr F’s first report is dated 2 September 2016.
A further report by Mr F was produced on 6 October 2017 in relation to the following matters: [5]
a)the superannuation entitlements the wife was entitled to be paid during her employment with the company based on her gross salary or wages as evidenced in her income tax returns;
b)the leave entitlements the wife was entitled to be paid during her employment with the company;
c)the death benefit that the estate of the wife would have received had the wife held a superannuation account into which superannuation was to be paid by the company; and
d)any interest that would have accrued on these monies from when they were payable.
[5] The parties had consented to an order to this effect on 28 July 2017.
On 18 July 2019, Mr F produced an update to his 2 September 2016 report. A summary of his results conclude that, in his opinion, the husband alone has an interest in the company valued at $1,221,000 and the husband alone has an interest in the super fund valued at $827,495. Mr F noted that the value of the super fund is predominantly its share of the property trust (75%) therefore the value of the property trust is in effect inclusive of the value of the super fund. Mr F also noted that he had not been provided with any updated valuations of property or plant and equipment and his analysis therefore relies upon the 2016 valuations. In relation to the family trust, no value was attributed to either party. Mr F notes the husband’s instructions that neither he nor the wife had or have any involvement with the family trust and also that the trust deed indicates that control of the family trust lies with the husband’s parents. Mr F nevertheless correctly notes that whether any value in the family trust is to be attributed to a party is a matter for the Court.
In relation to the company loan accounts, Mr F correctly notes that in closely held entities it is a matter for the Court to determine the extent to which the loan balances are expected to be repaid. Mr F also notes that as the valuations are inclusive of loan accounts of the husband, it may be necessary to record the loans separately in the ‘property pool’ (which will include all relevant assets and liabilities of the husband and wife’s estate). Annexed to Mr F’s report is a detailed summary of the loan account from the company to the husband for the period 3 July 2012 to 30 June 2019. No doubt the parties will make submissions about the appropriate treatment of the loan account in the ‘property pool’ in the event agreement cannot be reached.
On 5 June 2019, a letter was sent from the husband to Mr F in relation to his 2016 and 2017 reports. The letter was not sent in accordance with the provisions of r 15.65 of the Rules and does not deal with Mr F’s most recent report. In that letter, the husband requests the categorisation of expenditure from company loan accounts to identify those properly attributed to the husband, the wife, the children and for joint expenditure. (As already noted, Mr F’s most recent report sets out particulars of the expenditure in accordance with the husband’s instructions and, as already noted, if the parties do not agree on the categorisation that is a matter for the trial judge). The husband’s letter takes issue with a number of Mr F’s opinions contained in his 2016 reports, in particular:
e)His opinion that “a discount for minority interest is not required…”;
f)His failure to deduct the cost to the company of in-house tradespeople who carry out repairs to goods sold when assessing future maintainable earnings;
g)The inclusion of ‘the return that would have accrued to a superannuation account in the name of [the wife] had it existed with the Z superannuation fund’ in circumstances where no opinion on that issue was authorised;
h)Certain assumptions made by Mr F in relation to the calculation of the wife’s leave entitlements allegedly without regard to the employment records of the company;
i)His inclusion of a death benefit for the wife by reference to a particular superannuation fund, the name of which was not included in the order or appointment, and in circumstances where many funds do not offer a death benefit;
j)His reliance upon one named superannuation fund in the provision of his opinion when the material upon which he relied was not annexed to his report and his assessment of the named fund as ‘mid-range’ is not accepted upon analysis of the report to which reliance was apparently placed by Mr F.
Is there some special reason for appointing another expert witness?
The husband submits there are two reasons that support his application. Firstly, that 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’ (r 15.49(2)(a)). Secondly, there is ‘another special reason for adducing evidence from another expert witness’ (r 15.49(2)(c)).
While it is certainly apparent the Mr W disagrees with Mr F on a number of issues, that is not a sufficient basis to support the appointment of another expert.
I do not accept the submission, in relation to the table appearing at paragraph 3.1.1 of Mr W’s report, that the difference in the opinions of the experts reflects a disparity between them of $2,855,577. In reality, Mr F’s report values the interests of the parties in the identified entities and does not purport to set out the value of the parties interests in the broader ‘property pool’. By contrast, Mr W sets out the net worth of the parties in the broader ‘property pool’ by including as a liability the husband’s loan account and an external loan account (the V Bank commercial bill) unrelated to the value of the parties’ interest in the entities. The real difference in their opinions relates to the husband’s interest in the company, which Mr F values at $1,221,000 and Mr W values at $498,624.
The reasons for that difference are threefold. Firstly, Mr W adopts a different rate of commercial remuneration for the husband than Mr F. Secondly, Mr W adopts a different capitalisation rate. Thirdly, Mr F applies a discount to the husband’s interest in the company of 30% because of his minority interest.
In relation to the rate of commercial remuneration, neither expert has expertise in the assessment of a commercial remuneration for the husband, as they both concede. Evidence will have to come from an expert in that field.
While Mr W adopts a different capitalisation rate (or multiple) to Mr F he concedes the discretionary nature of the rate or multiplier adopted i.e. it is not a matter of there being a substantial body of opinion contrary to Mr F.
Mr F quite properly notes that whether or not a discount is applied is a matter for the trial judge, although he then proceeds to express his opinion that a discount should not be applied in the circumstances. Mr W disagrees and opines that an appropriate discount is 30%. This issue can be the subject of clarification pursuant to r 15.65 e.g. a question might be posed to Mr F along the following lines - if the Court finds that a minority interest discount is appropriate (perhaps for the reasons identified by Mr W) does Mr F agree that a discount of 30% is appropriate.
Mr W also identifies a number of possible errors in Mr F’s report which can also be the subject of clarification pursuant to r 15.65. For example:
a)Mr W suggests that Mr F’s report is unclear about the basis of his valuation i.e. is it ‘current fair value’ or ‘special value’ or ‘value to owner’ or ‘market value’ or ‘point value’ (a term said to be undefined in Mr F’s report);
b)He suggests that Mr F may have double counted the net assets of $1,347,903;
c)He suggests that a bank overdraft of ($152,183) of the company may have been overlooked.
Mr W raises a number of issues about Mr F’s approach to the task undertaken in his report dated 6 October 2017. Firstly, he contends that Mr F has exceeded his ‘brief’ by expressing an opinion on the death and total permanent disability insurance and income protection insurance payout. He also suggests that Mr F has not explained why he selected a particular superannuation fund or why that particular fund was appropriate for the wife based on her circumstances at the relevant time. Further, he is critical of the report for failing to set out what enquiries he made or investigations were undertaken to determine whether the wife would have been eligible for the insurance payout given her pre-existing condition. Finally, he suggests that the matter about which Mr F expressed an opinion, i.e. the wife’s eligibility for personal insurance, was not within Mr F’s expertise. While Mr W may or may not be correct about that last point, the parties consented to an order appointing Mr F to prepare a report in relation to those matters. If Mr F has exceeded his ‘brief’ that is a matter about which submissions can be made at an appropriate time. The remaining issues can be the subject of clarification.
Conclusion
Nothing raised by the husband or other parties have persuaded me that there is a special reason for the appointment of another expert witness and I propose to dismiss the application.
Nevertheless, I do propose to extend the time limits contained in r 15.65 of the Rules so that the parties can agree to attend a conference with Mr F or to enable the husband to submit a list of questions to Mr F.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carew delivered on 24 October 2019.
Associate:
Date: 24 October 2019
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