Smyth & Smyth (No 2)
[2022] FedCFamC1F 551
Federal Circuit and Family Court of Australia
(DIVISION 1)
Smyth & Smyth (No 2) [2022] FedCFamC1F 551
File number(s): MLC 1937 of 2020 Judgment of: STRUM J Date of judgment: 1 August 2022 Catchwords: FAMILY LAW – PROPERTY – Valuation – single expert witness – application for adversarial expert witness – no substantial body of opinion contrary to any opinion given by single expert witness – no matters known to proposed adversarial expert witness not known to single expert witness – no special reason for adducing evidence from another expert witness. Legislation: Federal Circuit and Family Court of Australia Act 2021 (Cth), s 67
Federal Circuit and Family court of Australia (Family Law) Rules 2021(Cth), rr 7.08, 7.02
Cases cited: Bass & Bass (2008) FLC 93-366; [2008] FamCAFC 67
Lambard & Lambard (No. 4) [2021] FamCA 47
Macvean & Manton [2022] FedCFamC1F 376
Neales & Neales [2022] FedCFamC1A 41
Salmon and Ors &Salmon [2020] FamCAFC 134
Simonsen & Simonsen [2009] FamCA 698
Division: Division 1 First Instance Number of paragraphs: 41 Date of hearing: 11 July 2022 Place: Melbourne Counsel for the Applicant: Mr A. Robinson Solicitor for the Applicant Pearsons Lawyers Counsel for the Respondent: Mr T. Puckey QC Solicitor for the Respondent Suke & Associates ORDERS
MLC 1937 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS SMYTH
ApplicantAND: MR SMYTH
Respondent
order made by:
STRUM J
DATE OF ORDER:
11 JULY 2022
THE COURT ORDERS THAT:
1.Paragraphs 1, 2 ,3 of the wife’s Application in a Proceeding filed 29 June 2022 be dismissed.
2.That any corrected report by the single expert valuer, Mr F, be filed by not later than 4:00 pm on 28 July 2022.
3.The husband pay the costs of both L Solicitors and G Group in complying with the requests for production of documents (pursuant to the authorities granted by the husband) made by the wife in the first instance with the question of ultimate liability therefor to be determined after the delivery of judgment in the substantive proceedings.
4.The wife’s Application be otherwise dismissed.
5.All questions of costs of and incidental to the wife’s Application be reserved.
6.Pursuant to rule 12.28 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth), the Court certifies that it was reasonable to engage counsel, including Queen’s Counsel, to attend on behalf of each of the parties.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Smyth & Smyth has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
STRUM J:
This is an Application in a Proceeding, lodged by the wife for filing on 29 June 2022, in which she seeks leave pursuant to rule 7.08 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the Rules”) to adduce evidence from an adversarial expert witness on the same issue as the single witness jointly appointed by the parties previously. I propose to dismiss that application. These are my ex tempore reasons. My decision has been greatly assisted by the written and oral submissions of counsel.
The single expert in this case is Mr F of H Company. His first report, under cover of an affidavit, was filed on 11 December 2020. Due to the passage of time and the impending trial, Mr F prepared a second report, under cover of an affidavit, filed on 28 April 2022.
The matter was listed for trial before me commencing on Wednesday, 11 May 2022. Because of the late receipt of the second report of the single expert, the property proceedings were adjourned until 1 August this year. However, the parenting applications proceeded and they concluded on Friday of that week. I delivered judgment on Monday 16 May 2022.
In support of her application, the wife relies upon an affidavit of her solicitor, Deborah Sim, which annexes a copy of the report of the proposed adversarial expert, Mr J of O Company. There is no challenge to his expertise.
Rule 7.08(1) of the Rules provides that:
If a single expert witness has been appointed to prepare a report or give evidence in relation to an issue, a party must not tender a report or adduce evidence from another expert witness on the same issue without the courts permission.
That gives rise to the wife’s Application in a Proceeding before me today. Sub-rule (2) 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 the contrary opinion is or may be necessary for determining the issue; or
(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.
Whilst the provisions of rule 7.11(2)-(3) may also be relevant in applications of this nature, they are not so for the purposes of my decision.
The wife submits that the three bases specified in rule 7.08(2) pertain in this case. The husband, through Senior Counsel, sensibly concedes that the Rules are the servant, not the master, and that they must be construed in the light of the need to do justice between the parties. I am also conscious of the need to avoid the so-called – and possibly pejoratively called “tick-and-flick” approach that was criticised by the Full Court in Neales & Neales [2022] FedCFamC1A 41 (“Neales”). In some cases, when taken severally, the criteria in rule 7.08(2)(a), (b) or (c) may not be met, however, when taken jointly, they may be met.
Upon careful consideration, I am satisfied that this is not such a case and that the requirements of sub-rule (2) are not met, either severally or jointly.
In relation to the first limb of rule 7.08(2)(a), namely, whether there is a substantial body of opinion contrary to any opinion given by the single expert witness, Mr F, the wife, at [13] of her written submissions, submits that:
[Mr J] adopts an orderly realisation of assets approach (paras 1.3.4 and 5.4) in contrast to [Mr F] utilising net tangible assets as a going concern (paras 2.4 and 23.11) for the reasons set out in the above paragraphs.
Superficially, that appears to be the case; however, that is not borne out upon closer scrutiny. In any event, there is no evidence of a “substantial body of opinion” contrary to that of Mr F.
Mr J, at [5.4.1] of his report, states that he has calculated the value of the entities on an orderly realisation basis. At [5.4.2], he sets out two basic premises of the value, being “going concern” and “liquidation or orderly realisation”. He sets out the assumptions underlying each of those premises. It is not clear to me, from his explanation at Table 7 of his report, that the two basic premises of the value are necessarily different in any substantive way. The single expert, Mr F, opines as follows at [2.4]:
…Given that assessment of intangibles as an operating group, each individual entity has been assessed on the basis of its net tangible assets as a going concern.
That meets one of the two premises of value identified by Mr J. However, at [23.11], Mr F relevantly states, based upon paragraph [23.9] and Appendix 31, that he has determined, on an orderly realisation basis, the net assets of M Pty Ltd (being the primary focus of the valuation), albeit as a going concern, to be valued at $2,718,374, as at 30 June 2022. Therefore, within the body of [23.11], Mr F seems to employ both of the concepts referred to by Mr J, namely, an orderly realisation basis, as well as a going concern basis. It is not clear to me how this can be so. Senior Counsel for the husband submits that it may be two sides of the same coin. Mr J does not explain the difference between the two in his report and it may well be that there is none. At most, it may be a difference within the one approach or even a distinction without a difference.
The second limb of rule 7.08(2)(a) is that the contrary opinion is or may be necessary for determining the issue in question. Even if I am wrong, and there is a substantial body of opinion contrary to the single expert, counsel for the wife, despite his valiant approach, was unable to demonstrate how it is or may be necessary for determining the issue. Given that Mr F seems to say they are one in the same approach and Mr J does not explain how those two approaches differ in result, it cannot, in my view, be said that any contrary opinion is or may be necessary for determining the issue. I refer in that regard to the decision of Berman J in Macvean & Manton [2022] FedCFamC1F 376 at [24], where his Honour said:
A difficulty arises in respect of how “the substantial body of contrary opinion” (r 7.08(2)(a) of the Rules) is established before the Court. It cannot be the evidence of the second expert (which is what the application is seeking leave to adduce) and so requires more than information and belief such as a pool of other experts or other foundation research intended to establish the bona fides of the contrary opinion.
There is no such evidence in this case.
The next issue, turning to rule 7.08(b), is whether Mr J knows of any matters not known to the single expert, Mr F, that may be necessary for determining the issue. In this regard, I refer to [18] - [21] of the written submissions on behalf of the wife. Reference is made there to certain paragraphs of Mr J’s report which, it is submitted, are based on information that apparently was not available to Mr F or which Mr F failed to take into account.
In fact, upon scrutinising the report of the wife’s proposed adversarial expert, Mr J, and comparing it with the report of the single expert, Mr F, it appears to me that it is Mr F who knows or may know of matters not known to Mr J. But one example of that appears at [2.3.24] - [2.3.28] of Mr J’s report. There, in relation to sales and marketing costs, Mr J at [2.3.25], notes:
… I do not have sufficient information to assess how the remaining […] lots were sold.
At [2.3.26], Mr J states:
I have been provided further documents in relation to [N Real Estate] however I have not been able to assess how many lots were sold by this agency.
(Footnotes omitted)
At [2.3.28], Mr J opines that Mr F’s calculation “appears to be inaccurate because based on the note prepared by [K Company], [K Company] only sold […] lots”.
It appears to me from these matters that, in fact, it is Mr J who does not know of matters apparently known to Mr F and which can be clarified with Mr F in cross-examination.
At [2.1.1] of Mr J’s report, he sets out a helpful summary of the differences between the single expert and himself. Whilst, at first blush, the difference between them of approximately $1.717 million appears to be very substantial, because Mr F has a valuation of $2.718 million and Mr J has a valuation of $4.435 million, as Senior Counsel for the husband demonstrated, the differences are more apparent than real.
The bulk of that difference is explicable by the differences between the experts in relation to development costs and provision for income taxation. When those two figures are taken into account, namely, development costs of $2.248 million and provision for income taxation of $457,000, they amount to a net figure of $1.79 million, which Senior Counsel for the husband demonstrated is not substantially different to the difference between the valuations of the two experts.
In relation to development costs, at [2.3] of his report, in table 3, Mr J sets out where he and the single expert, Mr F, are apart. Some of those matters are de minimis but, nevertheless, are demonstrative of the issue before me. For example, at [2.3.5], Mr J states that whilst Mr F’s report adopts a figure of $42,537, he has been unable to reconcile the remaining amount of $4358 to an invoice. Again, insofar as there is a lack of knowledge, it seems to be on the part of Mr J, rather than Mr F.
Similarly, at [2.3.8] - [2.3.9], in relation to interest on investor moneys, Mr J opines that Mr F’s calculation is inaccurate and unreliable because “it is not supported by signed loan source documents”. That is a matter of fact that can be explored in cross-examination, if it is not resolved beforehand.
A further example appears at [2.3.15(b)], in relation to interest on borrowings for the period from April to September 2022. Yet again, Mr J complains that this is not supported by source documents. It is unclear whether or not those source documents were made available to Mr F, but I note that he makes no complaint in relation thereto.
Again, at [2.3.18], in relation to further development costs, Mr J opines:
In my view, based on the documents provided, there does not appear to be further development costs likely to be incurred until the end of the development separate to those already incurred …
(emphasis added)
This is in contrast to Mr F’s report, which has adopted a value of $100,000 for further development costs.
Implicit within each of these examples is a lack of knowledge on the part of the proposed adversarial expert, Mr J, and not a lack of knowledge on the part of the single expert, Mr F.
That point was reinforced by Senior Counsel for the husband who took me to [2.3.24] - [2.3.28] of Mr J’s report, in relation to sales and marketing costs. At [2.3.25], having expressed a view as to what is an appropriate value to adopt, Mr J continues:
I note that I do not have sufficient information to assess how the remaining […] lots were sold.
Mr J continues at [2.3.26]:
I have been provided further documents in relation to [N Real Estate] however, I have not been able to assess how many lots were sold by this agency.
He concludes that topic at [2.3.28], where he opines:
This calculation appears to be inaccurate because based on the notes prepared by [K Company], [K Company] only sold […] lots.
There are further examples, of a similar nature, at [2.3.38] and [2.3.49] - [2.3.50].
In my view, if there are matters known to Mr J and not to Mr F, and I have not been referred to any, they are factual matters, not methodological ones, which can be put to Mr F in cross‑examination. In this regard, the husband’s submissions at [14] refer to the single expert’s report at [1.21] where Mr F explains, quite appropriately, that if the information upon which he has proceeded is proven to be inaccurate, his conclusions must be qualified. In other words, Mr F does not bring a closed mind to the exercise and stands to be corrected, if there are grounds for doing so. However, as I have endeavoured to explain, it appears that, in fact, it may well be the other way around. In my view, rule 7.08(2)(b) is not engaged.
I turn then to rule 7.08(2)(c) and pose the question: is there a special reason for adducing evidence from Mr J? In Simonsen &Simonsen [2009] FamCA 698 at [12], Murphy J referred to the decision of the Full Court in Bass & Bass (2008) FLC 93-366 and said:
The general thrust of the Rules has been referred to by the Full Court in Bass & Bass (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.
That issue was further considered by McClelland DCJ in Lambard & Lambard (No.4) [2021] FamCA 47 at [14]. Having set out the equivalent provisions in the former Family Law Rules 2004, his Honour said:
It is necessary to pay attention to the actual words used in 15.49(2)(c) being that “there is another special reason”. I have not been referred to any definition of “special reason”, however, I construe the word “special” as requiring a reason which is more than “the ordinary”: see Gyselman and Gyselman (1992) FLC 92-279 at 79,064.
In my view, there is no special reason for adducing evidence from Mr J. Counsel for the wife points out that in the first Mr F report, filed in 2020, M Pty Ltd was valued at $9.155 million and that in the second Mr F report, filed in 2022, that entity was valued at $2.713 million. I can well understand why this might cause disquiet and, indeed, disappointment to the wife; however, in my view, it is not relevant for present purposes because Mr J critiques only the second Mr F report. Therefore, the differential is not between Mr F’s first report and his second report, but between Mr F’s second report and Mr J’s report. That differential of approximately $1.7 million appears to be largely explicable by matters of fact, not matters of opinion as between the experts. Accordingly, I find that there is no special reason for adducing the evidence of Mr J and thus rule 7.08(2(c) is not engaged.
Having considered each of the grounds in rule 7.08(2), both severally and jointly, I am not satisfied, as I must be, that the matters in paragraphs (a), (b) and/or (c) are made out. In coming to my decision, I have also had regard to section 67 of the Federal Circuit and Family Court of Australia Act 2021 and rule 1.04, which specify that the overarching purpose of the family law practice and procedure provisions of that Act and of the Rules, is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Whilst I initially expressed some concern, which was properly conceded by Senior Counsel for the husband, about the Rules being the servant and not the master, for the reasons above, I am satisfied that the dismissal of the wife’s Application in a Proceeding is also consistent with that overarching purpose.
I have also had regard to rule 7.02, which sets out the purpose of Part 7.1 of the Rules is as follows:
The purpose of this Part is 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 proceeding;
(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;
(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 that is necessary in the interests of justice.
In my view, whilst at first blush there is a not insignificant gap between the single expert and the wife’s proposed adversarial expert, it is not, for the reasons above, a significant issue in dispute. Expert evidence will be restricted to that which, in my view, is necessary to resolve or determine the proceeding. The dismissal of the wife’s Application in a Proceeding will ensure that, without compromising the interests of justice, expert evidence will be given on the valuation issue by the single expert. This will also avoid unnecessary costs arising from the appointment of more than one expert witness.
I also take into account core principle 8(d) in paragraph [3.13] of the Family Law Case Management Central Practice Direction, namely, that issues in a case are to be narrowed to those genuinely in dispute and, in particular, that when appropriate a single expert should be engaged (as has been the case here) to assist the parties and the Court to resolve disputes. That will not be in any way furthered by the appointment of an adversarial expert, in addition to the single expert.
I am also cognisant of what the Full Court said in Salmon and Ors & Salmon [2020] FamCAFC 134 at [41], namely:
… the submissions assume that a trial judge is bound to accept expert evidence of valuation, or expert evidence upon the identified issues, and that in the event that the trial judge does not accept the single expert’s evidence in some respect, there will be “no evidence” to enable those issues to be justly determined.
At [42], the Full Court continued:
This contention ignores well settled principles as to the means by which a trial judge determines questions of valuation, as expressed by the High Court in Commonwealth v Milledge (“Milledge”) as “a common-sense endeavour, after consideration of all the material before the court, to fix a sum satisfactory to the mind of the court as representing the value”. Milledge has often been applied by the Full Court of this Court in emphasis of the principle that a court must arrive at its own conclusion as to value by application of established principles of valuation.
(Footnotes omitted)
Notwithstanding what Mr F may opine in his second report, ultimately I am the one who needs to come to a finding as to value at trial. Prima facie, Mr F’s report will be of great assistance in doing that, but if he is said to have made factual errors, they can be explored with him in cross-examination. If he concedes he has made errors, they can be corrected by him in the course of his evidence. If he does not, that will be a matter for me.
I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the ex tempore Reasons for Judgment of the Honourable Justice Strum. Associate:
Dated: 1 August 2022
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