Sampsell and Garard

[2020] FCCA 2276

FEDERAL CIRCUIT COURT OF AUSTRALIA

SAMPSELL & GARARD [2020] FCCA 2276

Catchwords:
FAMILY LAW – Property – where two letters of instruction are in dispute – where there is a dispute in relation to business valuation and leasehold interest – where concern about timing of business valuation because of COVID-19. 

Legislation:

Family Law Act 1975 (Cth)

Applicant: MR SAMPSELL

Respondent: MS GARARD

File Number: DNC 319 of 2019

Judgment of: Judge Young

Hearing date: 23 July 2020

Date of Last Submission: 23 July 2020

Delivered at: Darwin

Delivered on: 23 July 2020

REPRESENTATION

Counsel for the Applicant: Ms Farmer

Solicitors for the Applicant: Withnalls Lawyers

Counsel for the Respondent: Mr Roberts

Solicitors for the Respondent: Broun Abrahams Burreket

ORDERS

THE COURT ORDERS BY CONSENT:

1. That the letter of instruction to Mr B of C Valuation Services, being Annexure ‘A’ provided to the Court 23 July 2020 is settled as to the paragraphs marked in red therein as follows:

   (a)Page 2 under the heading ‘Engagement’, the following words are to be included:

   “you are instructed to prepare a report assessing the value of the following businesses as at the closest date to production of your report as you are able. The parties do, however, have the option of providing you with more up to date financial statements once they become available”.

   (b)Page 2 under the heading ‘Instruction’, paragraph 2 remains in the letter of instruction.

   (c)Page 2 under the heading ‘Instruction’, Scenario B is to state as follows:

   “Assume D Pty Ltd is successful in negotiating a new lease on the same or similar terms to the existing lease.”

   (d)Page 3 under the heading ‘As to the Suburb E property’, paragraph 2 is to state as follows:

   “D Pty Ltd also invested approximately $300,000 in the construction of an underground cellar which is exclusive to the lease held by D Pty Ltd over the rented premises, although there is a factual dispute as to whether this was in addition to the $4,650,000 referred to above.”

   (e)Page 4 under the heading ‘Formal matters’, paragraph f) is to have the following words removed from the paragraph:

   “Withnalls Lawyers will send the draft affidavit to you.”

2. That the letter of instruction to F Real Estate Agents Darwin, being Annexure ‘B’ provided to the Court 23 July 2020 is settled by way of the paragraphs marked in red therein as follows:

   (a)Page 2 under the heading ‘The Suburb G property’, the following is to be included:

   “As to the Suburb G property you are requested to address in your report the prospect of the subject property being rezoned and in particular:

   Whether the property is identified within the Region H Subregional Land Use Plan and the Suburb E / Town J Rural Activity Area Plan;

   The highest and best use for the Suburb G property pursuant to the Region H Land Use Plan and the Suburb E / Town J Rural Activity Area Plan; and

   What impact, if any, will a rezoning of the Suburb G property have to its value if it were rezoned from Rural Living zone to Rural Residential zone pursuant to either the Region H Subregional Land Use Plan and/or Suburb E / Town J Rural Activity Area Plan?”

   (b)Page 3 under the heading ‘Formal matters’, paragraph f) is to have the following words removed from the paragraph:

   “Withnalls Lawyers will send the draft affidavit to you.”

3. That the matter be adjourned to 29 January at 9:30am in the trial call over list.

4. That there be liberty to apply within fourteen (14) days in relation to the appointment of a mediator.

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

Annexure A

Our Ref:          ...

4 August 2020

VIA EMAIL: ...

Mr B

C Valuation Services

Dear Sir,

RE:     MR SAMPSELL & MS GARARD

We enclose the following documents:

1. Division 15.2 of the Federal Circuit Court Rules 2001 (Cth) (the Rules);

1. Federal Court of Australia Expert Evidence Practice Note GPN-EXPT;

1. Financial Statements for the Financial Years ended 30 June 2017 to 30 June 2019 (inclusive);

1. Lease Agreement between K Pty Ltd and D Pty Ltd; and

1. Lease Agreement between Mr L and D Pty Ltd.

Further to previous communication as between Withnalls Lawyers and Broun Abrahams Burreket, we confirm Withnalls Lawyers acts on behalf of the Husband, Mr Sampsell, and Broun Abrahams Burreket acts on behalf of the Wife, Ms Garard, in relation to proceedings currently before the Federal Circuit Court of Australia (Darwin registry) for an alteration of property interests (the Proceedings).

The respective contact deta1ils for each party’s legal representatives are as follows:

Wife

Husband

Broun Abrahams Burreket

Withnalls Lawyers

Email: bablaw.com.au   E-mail: withnalls.com

Telephone:  Telephone:

Page 2

Engagement

Pursuant to Consent Orders made in the proceedings, you have been jointly appointed as a Court Expert to prepare a report assessing the value of the following businesses:

1. The Suburb G property, operating from leasehold premises situated at M Street, Suburb G NT; and

2. The Suburb E Business, operating from leasehold premises situated at N Street, Suburb E NT.

You are instructed to prepare a report assessing the not value of these businesses as at the closest date to production of your report as you are able. The parties do, however, have the option of providing you with more up to date financial statements once they become available.

Both businesses are operated by a private company known as D Pty Ltd (D Pty Ltd) of which Mr Sampsell is the sole Director, sole Secretary and sole shareholder.

With respect to inspection of the businesses, you should contact Mr Sampsell directly on ....

Instruction

As to the Suburb G business:

1. D Pty Ltd first entered into a Lease to operate the Suburb G business in about 2008. The lessor is Mr L. The lease has been renewed every 4 years, and is in its final term, which will conclude in 2022.

2. Although there are no further rights of renewal after 2022, the Wife contends it is open to D Pty Ltd to negotiate a new lease with Mr L for the Suburb G Business to continue to trade at this location. The Husband has indicated he has no intention to cause D Pty Ltd to renegotiate the terms of the lease.

On this basis you are instructed to value the Suburb G Business on the following bases:

Scenario AAssume that upon the lease expiring in 2022, D Pty Ltd will cease to operate the Suburb G Business.

Scenario BAssume D Pty Ltd is successful in negotiating a new lease on the same or similar terms to the existing lease.

As to the Suburb E Business:

1.D Pty Ltd first entered into a Lease to operate the Suburb E Business on 18 June 2018. The lease has an initial term of 15 years, with options to renew to a maximum of 45 years.

2 Approximately $4,650,000 has been spent on the start-up costs for the Suburb E Business. This includes the fit out costs, the purchase of furniture, hoists and drinks systems, appliances and consultancy fees.

1. D Pty Ltd also invested approximately $300,000 to the construction of an underground cellar which is exclusive to the lease held by D Pty Ltd over the rented premises, although there is a factual dispute as to whether this was in addition to the

   $4,650,000 referred to above.

   Withnall Cavanagh & Co Pty Ltd trading as Withnalls Lawyers ABN 20 009 644 973

   Page 3

2. The lease for the Suburb E Business also permits D Pty Ltd to construct an extension . Concept drawings have been prepared by the architect who designed the fit-out for the Business.

You are kindly asked to provide a draft version of your report for confirmation of factual accuracy before finalisation.

Fees

You are being engaged by the parties' directly and not by either of their legal representatives. The parties and not their legal representatives are liable to pay for your fees for preparing your report.

We refer to your email dated 20 December 2019 and 16 July 2020 and note you have provided an estimate of fees totalling $14,000 (excluding GST), and that an additional

$1,000 (excluding GST) is payable in relation to the Scenario B valuation for the Suburb G Property.

We confirm the parties will share equally in respect to the costs associated with the valuation report but that Ms Garard will be responsible for the incremental increase in your fees for the work referrable to the Scenario B valuation.

Your tax invoice to Mr Sampsell should be addressed to Mr Sampsell, but may be forwarded to him via Withnalls Lawyers using the details provided above.

Your tax invoice to Ms Garard should be addressed to Ms Garard, but may be forwarded to her via Broun Abrahams Burreket using the details provided above.

Upon your review of the material contained in this letter the parties seek confirmation whether the estimate of fees provided on 20 December 2019 is likely to change.

Formal matters

We otherwise confirm:

a)    All communications in relation to this report between you and the parties' legal representatives should be in writing and copied to each of the legal representatives for transparency.

b)    Neither party is permitted to directly provide you with any instructions in relation to or for the purpose of your report;

c)    Any documentation or information requested or provided should similarly be copied to the legal representatives.

Your report may be used in the proceedings. Accordingly, your report:

Withnall Cavanagh & Co Pty Ltd trading as Withnalls Lawyers ABN 20 009 644 973

Page 4

a)  must have attached to it your curriculum vitae or provide a summary of your qualifications;

b)  must have attached to it this letter and any further instructions you receive and a list of documents relied on in preparing the report;

c)  must be in writing;

d)  must be addressed to the Federal Circuit Court of Australia and each of the parties;   ·

e)  should be prepared in triplicate with two versions sent to Withnalls Lawyers and the remaining version to Broun Abrahams Burreket ; and

f)   may, in due course, need to be annexed to an affidavit by you and filed in the proceedings.

g)  The affidavit verifying the report must state the following:

"I have made all inquiries that I believe are desirable and appropriate and that no matters of significance that I regard as relevant have, to my knowledge, been withheld from the Court.

I believe that the facts within my knowledge that have been stated in this report are true.

I have read and understand Federal Court of Australia Expert Evidence Practice Note (GPN-EXPT) and Division 15.2 of the Federal Circuit Court Rules 2001 and have used my best endeavours to comply with them.

I have complied with the requirements of the Professional Code of Conduct or Protocol for my industry being [insert name of Code or Protocol, if relevant].

I understand my duty to the Court and I have complied with it and will continue to do so.

The opinions I have expressed are independent and impartial."

We look forward to hearing from you with your letter of engagement and confirmation of any further information and documents you require for the purpose of your report.

Withnall Cavanagh & Co Pty Ltd trading as Withnalls Lawyers ABN 20 009 644 973

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT DARWIN

DNC 319 of 2019

MR SAMPSELL

Applicant

And

MS GARARD

Respondent

REASONS FOR JUDGMENT

Ex-Tempore

1. These reasons for judgment were delivered orally. They have been corrected from the transcript. Grammatical errors have been corrected and an attempt has been made to render the orally delivered reasons amenable to being read.

2. This is an application for interim hearing in relation to a particular issue, the inability of the parties to agree on the two letters of instruction that are in dispute, one letter relates to a business valuer who is being asked to value two leasehold properties, two Businesses, operating in the Darwin rural area operated by a company owned by the husband.  The second letter of instruction that is in dispute is to a real estate valuer in respect of two pieces of real estate.  I think both properties are residential real estate, also in the Darwin rural area.

3. The dispute in relation to the business valuation of the two Business, or of the leasehold interest in the Business, relates first of all to the timing of the valuation and secondly, whether an assumption ought to be taken into account by the valuer of whether or not a new lease is negotiated for one of the Business.  Thirdly, the other issue, which has largely been resolved in argument, is about the wording of the expense in building an underground cellar.  I think it has been agreed that a neutral form of words will satisfy everybody along the lines of the orders proposed by the parties.  It will read:

   D Pty Ltd also invested approximately $300,000 in the construction of an underground cellar which is exclusive to the lease held by D Pty Ltd over the rented premises  

   Although the parties dispute whether or not this expenditure was included in or additional to the $4.65 million spent on redevelopment. 

4. Coming back to the timing issue, the wife is understandably concerned about the effect of the COVID-19 pandemic and the restrictions on licensed premises that have been imposed in the Northern Territory over the past few months.  She says, and it is not in dispute, that because of those restrictions the trading of these Businesses has either stopped altogether or has been very substantially restricted.  It goes without saying that there would have been a very significant effect on the turnover of these Businesses in recent times, which might be expected to be a factor that would need to be taken into account in any valuation.

5. Her position is that the way that the court should deal with that question is by making an order that the valuation is to be based on the period to 31 December 2020, on the assumption that COVID-19 restrictions will be eased or removed and the trading performance of the businesses will be more normal.  I accept all of that is a valid concern.

6. However, my problem more generally with that is this.  As the events in Victoria have shown, this is a period of enormous uncertainty for individuals and businesses all across Australia.  There is no guarantee of when there will be a more predictable or stable situation for businesses, particularly businesses such as the Businesses operated by the husband.  I am concerned that if I simply make an order that the valuation be done at some future time that it may well be as we approach the future time, there is some other degree of instability which would merit a further delay of the time of the assessment.

7. It appears to me that part of the job of a valuer is to take into account vicissitudes and contingencies, perhaps not quite like this one, because it is a first, in reaching a valuation.  For example, in determining future maintainable earnings a valuer would have to take into account that any downturn in business over the past few months is an exception or maybe abnormal and have to factor in to valuation the prospect of recovery to something more like normality.  That goes without saying, I think, in the valuation process.  The other way that that would be dealt with is if there is a trial in this matter sometime next year. 

8. It would be expected that more up-to-date figures or the most recent trading figures would be given to the valuer and the valuer would have to factor that into account.  The valuer would be familiar with these figures and would be expected to be able to factor in those new figures without too much additional trouble or expense.  The main task identifying the components to be included and excluded in determining future maintainable earnings, would have been established already.

9. The other factor that might be taken into account is a capitalisation rate.  This is a factor in my view not likely to be so much affected by the timing of the figures.  The capitalisation rate, as is well-known, would be determined by comparison with other similar businesses or other such factors.

10. For those reasons I am not satisfied that there is any particular disadvantage to the wife in making an order that the valuation be undertaken as soon as the valuer can be found to do it.  I am unwilling to specify a date as she seeks for when the particular date the valuation report is to be undertaken.  It seems to me that the valuation must be at the date the valuer signs off on the valuation report. 

11. I propose to adopt the husband’s position, which will be to prepare a report assessing the value of the following businesses at the closest date to the production of the report as able.  I propose to add the parties will however have the option of providing more up-to-date financial statements if they become available.

12. The second dispute to consider relates to whether or not the husband would negotiate a new lease once the lease on Suburb G Business expires in 2022.  The husband’s position is that he will not seek to obtain a new lease on the Business.  The wife objects that does she know that is going to be the case as the husband may well change his mind once 2022 comes around. 

13. I think there is substance in that objection and in my view it is perfectly reasonable for the wife to seek that the valuer considers a scenario B, on the assumption that D Pty Ltd negotiates a new lease on the Suburb G Business on the same or similar terms to those at present. 

14. Another area of dispute concerned the residential properties where there is evidence that there is a rezoning being considered for one of the residential properties.  It appears that the husband opposes the valuer taking that into account.  It seems to me that is a matter that ordinarily would be taken into account by a valuer.  If there is a real prospect or a significant prospect of a rezoning that is clearly something that has to be taken into account in my view.

15. I think the order proposed should vary slightly so that it reads:

    As to the Suburb G Property, you are requested to address in your report the prospect of the subject property being rezoned, and in particular...

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Judge Young

Associate: 

Date: 18 August 2020