STRAHAN & STRAHAN (INSTRUCTION TO VALUER AND SUBPOENA)

[2010] FamCA 792

FAMILY COURT OF AUSTRALIA

STRAHAN & STRAHAN (INSTRUCTION TO VALUER AND SUBPOENA) [2010] FamCA 792

FAMILY LAW – PRACTICE AND PROCEDURE – where the parties agree updated valuation reports required – where the parties are in dispute over the instructions to the single expert – consideration of instructions to valuer

FAMILY LAW – PRACTICE AND PROCEDURE – application seeking leave to issue subpoenas – factors relevant to issue of subpoena discussed – satisfied that the subpoenas are related to relevant matters – leave granted

Family Law Rules 2004 r 1.02, 1.04

APPLICANT: Ms Strahan

RESPONDENT: Mr Strahan

FILE NUMBER: (P)ADF 228 of 2005

DATE DELIVERED: 7 September 2010

PLACE DELIVERED: Newcastle

PLACE HEARD: Sydney

JUDGMENT OF: The Hon. Justice Ryan

HEARING DATE: 3 September 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Pyke QC

SOLICITOR FOR THE APPLICANT: Pederick Lawyers

COUNSEL FOR THE RESPONDENT: Mr D Berman

SOLICITOR FOR THE RESPONDENT: Robinson & Mason

Orders

1. The parties shall jointly instruct Ms E to update the valuation reports attached to her affidavits sworn 28 November 2008 and 16 December 2008.

2. For the purpose of her updated reports, Ms E shall proceed on the basis of applying the “mid-level procedures” as defined in the letter to the parties from TT Accountants dated 20 November 2007.

3. In the event that Ms E seeks to apply a higher level of investigation than the “mid-level procedures” to any aspect of her investigations and the agreement of both parties is not forthcoming to the same, each party and Ms E has liberty to relist the proceedings in relation to that issue.

4. In relation to the entities to be valued these shall comprise a compilation of those identified in clauses 1 of each of the parties’ draft letters of instruction, and:

   ·       EN Company;

   ·       AW Company;

   ·       SE Holdings & Investments Inc;

   ·       K Limited;

   ·       BA Limited;  and

   ·       LM Pty Limited.

5. The documents which shall be given to Ms E are those identified in the husband’s draft letter dated 22 July 2010, more recent documents of the same type and the documents identified at paragraphs 27, 28, 29.39 and 29.40 of the wife’s draft letter of instruction.

6. The wife has leave to issue subpoena for the production of documents as annexed to the written submission filed on her behalf on 31 August 2010, to the following entities:

   […]

7. The subpoena issued pursuant to the above directions shall be made returnable before the Docket Registrar in the usual course.

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

FAMILY COURT OF AUSTRALIA AT ADELAIDE BY VIDEOLINK

FILE NUMBER: (P)ADF228 of 2005

MS STRAHAN

Applicant

And

MR STRHAN

Respondent

REASONS FOR JUDGMENT

1. On 31 May 2010 Dawe J listed Mr and Mrs Strahan’s parenting and property settlement proceedings for final hearing.  The hearing is scheduled to commence on 8 November 2010 for four weeks.  Since then a series of procedural orders have been made in relation the final hearing.  However, a number of issues remain outstanding, two of which were listed for hearing before me.  These relate to the letter of instruction for an updated valuation and leave to issue subpoena. 

2. The parties have been involved in Family Court proceedings concerning property settlement and parenting matters for years. During the course of submissions, it became clear each has spent an alarming amount on legal fees. It was not immediately apparent that the amounts which the parties have been prepared to spend on this litigation has been proportionate to the matters in dispute. Nonetheless, merely because parties are willing to expend an alarming sum on litigation, or conduct litigation in an extravagant matter, the Court does not disregard r 1.04. This rule sets out the main purpose of the Family Law Rules 2004 which is: “… to ensure that each case is resolved in a just and timely manner at a cost to the parties and the Court that is reasonable in the circumstances of the case”.

3. Turning to the letter of instruction.  It is agreed Ms E, who is a Chartered Accountant and a partner in the forensic practice of TT Accountants, will, as a single expert, update two reports previously prepared by her.  Her first report, which is dated 28 November 2008, relates to a series of entities valued as at 30 June 2007.  Her second report is dated 16 December 2008 and relates to the husband’s interests in gambling.  Central to these gambling interests are his interests in what Ms E called the “Australian gaming entities” and the “Hong Kong entities”.  Together, these are described as “The CX Company.”  On 4 August 2010, counsel for the wife advised the Court that Ms E anticipated she would require between six and nine months to prepare an updated report.  Although this is a surprisingly lengthy period, it needs to be understood Ms E required something in the vicinity of a year or so to complete her first reports.  In addition, that the valuation exercise is not without complexity is revealed by the cost of the first reports which was in the vicinity of $1,000,000.  Although neither counsel made application to adjourn the final hearing, both acknowledged that irrespective of which variation of the proposed letters of instruction is used, it is not possible for her to update her valuations in time for the November 2010 hearing.  Properly, counsel agreed whether or not the final hearing dates would be vacated, was a matter to be considered by the trial judge. 

4. Attached to the first reports are the letters of instruction and appendices which identify the sources of information relied upon by Ms E.  The letters of instruction adopted a conventional approach in that they set out the entities to be valued and a variety of documents designed to provide a starting point for her assignment.  As the annexures to her reports demonstrated, Ms E sought and received substantial additional information and documentation.  The instructions also identified the level of inquiry Ms E was to employ.  This matter had been resolved by agreement reflected in an order made by consent on 1 February 2008 by Strickland J.  That order provided:

   12.By consent that subject to paragraph 13 of the orders herein for the purpose of completion of the report by Ms [E] pursuant to the orders of the Family Court of Australia at Adelaide on 1 May 2007, Ms [E] shall proceed on the basis of applying the “mid-level procedures” as defined in the letter from [TT Accountants] dated 20 November 2007.

   13.By consent that in the event that Ms [E] seeks to apply a higher level of investigation than the “mid-level procedures” to any aspect of her investigation and the agreement of both parties is not forthcoming to the same, each party and Ms [E] shall have liberty to re-list the proceedings in relation to such issue.

5. Reference to the level of inquiry is to the degree to which Ms E was asked to investigate the truth of the material provided to her.  The “mid-level procedures” referred to in the above orders were defined in a letter from Ms E dated 20 November 2007 and, as is apparent, is the level of enquiry she used for her first valuations.  Before me, the parties ultimately agreed Ms E should adopt the same level of enquiry for the updated valuations as she undertook for the first valuations.  It was agreed, the purpose of the updated valuations was not to reconsider opinions previously expressed by her, nor to conduct an audit of the gambling activities.  The point of contention about the level of enquiry is reflected in the wife’s contention, that there should be included in the letter of instruction[1] the following:

   Higher level of enquiry

   Pursuant to the Family Court order made by Justice Strickland of 1 February 2008 we would respectfully ask that you consider with regard to the husband’s gambling interests applying higher than the “medium level procedure” utilized in your first report.

   [1] Draft letter dated 31 August 2010 

6. Those words it was submitted, would do no more than bring to Ms E’s attention the possibility, if she considered it appropriate, she might adopt a more extensive than mid-level procedure.  Essentially, this more extensive procedure would see Ms E write to the other principals in the gambling interests and obtain confirmation of the process and amounts distributed to the husband and perhaps, also to them.  When the parties agreed in 2008 that, for her first reports, Ms E would apply mid-level procedures they did so following advice from Ms E as to the appropriate methodology and level of inquiry to be applied.  Although she was aware she could apply, in the absence of the parties’ consent, for a direction which would have enabled her to complete her valuations using a higher level of investigation, she did not consider this necessary. 

7. The nature of the husband’s gambling interests has not changed.  With respect to the submissions advanced on behalf of the wife, nothing to which the Court’s attention was directed suggested it would be productive of a more efficacious result to guide Ms E to consideration of a higher level of investigation.  I agree with the approach sought by the husband, which in essence, is to maintain the initial methodology.  To put the issue beyond doubt, I propose to make orders that replicate those made by Strickland J on 1 February 2008.

8. Thus, if during the course of her further investigations, Ms E, in her professional opinion, considers it appropriate to apply a higher level of investigation, there will be a process which she can activate to address the issue.

9. The next issue relates to entities to be considered.  It is the wife’s contention the husband has interests in K Limited, BA Limited and LM Pty Limited.  In addition, that the “intellectual property” associated with The CX Company or any other gambling enterprise should be valued.  The husband opposes both.  In relation to the corporate entities, he says he does not have an interest in any and thus the valuation exercise would be a waste of time and money.  In relation to “intellectual property”, because this issue was considered in the first reports and the expert concluded his interest in the “intellectual property” to be found in the value of the distributions made to him from the gambling enterprises that too would be wasteful. 

10. At sub-clauses 27 and 28 of the wife’s proposed letter of instruction, she identified documents, which she said indicated the husband has an association and possibly an interest in the disputed corporate entities.  As I understood the submission, the documents identified on page 15 at paragraphs 29.39 and 29.40 related to this issue qua LM Pty Limited.  Thus, notwithstanding the husband’s denial, there exists a proper basis for Ms E consider this matter.  If, ultimately, Ms E’s opinion is consistent with the information provided by the husband, any costs incurred unnecessarily could be considered at trial.

11. Ms E has already considered the possibility and ramifications of a sale of the intellectual property of The CX Company to a third party.  I use the term intellectual property loosely and it is intended to convey reference to the modelling software which enables the gambling interests to calculate the odds.  As she did for her first report, it is my expectation Ms E would consider this issue in the light of any changes she identifies that have subsequently taken place. 

12. The next issue relates to the documents which should be incorporated into the letter of instruction to Ms E.  The husband said key financial documents[2] [3]only should be referred to in the letter of instruction.  His point being Ms E is familiar with the entities and interests and it should be left to her to determine the nature of the documents which she considered were necessary for the valuation process.  The wife identified a considerably larger volume of documents which she said should be given to Ms E.  These included financial statements relevant to the period after the valuation date for the first valuations, profit and loss statements, correspondence, bank documents, emails and other sundry documents.  A not insignificant volume of documents pre-dated the first valuations and did not appear to be relevant to updated valuations.

    [2] Draft letter  - Exhibit ‘3’ dated 4 August 2010

13. The approach which the wife would seek to adopt is different to that applied for the first valuations.  However, it would appear the approach adopted by Ms E for the first reports produced a thorough and, at first blush, efficacious result.  In my opinion, it is appropriate to maintain a similar approach for the updated valuations.  During submissions, the argument made in support of the alternate approach proposed by the wife was replete with terms which suggested it was little more than speculation that the provision of many of the additional documents would enhance the valuation process.  In coming to this view, I have not overlooked the assertion that when the husband’s accounts were cross referenced to emails which have passed between him and other principal members of CX Company, it was not clear that he had accounted for all of the distributions referred to in the emails.  The schedules attached to the first reports documented distributions made from the gambling enterprises to the husband.  Thus, it would appear that in the conduct of her valuation, Ms E had access to details of distributions received by the husband.  Thus, rather than potentially adopt an approach which may have the result that Ms E receives duplicated distribution information, it is preferable to first give her an opportunity to obtain the information from the sources she considers appropriate.  If there is a deficiency, this can be dealt with before her report is finalised or by the administration of questions.  This should be cost effective.  I observe the admissibility of a number of the documents sought to be provided to Ms E was questionable.

14. Thus consistent with the approach adopted for the initial letters of instruction, excluding the contentious entities, copies of the documents attached to the husband’s draft letter shall be provided.  Where documents of the same type, but for subsequent taxation or financial years exist, these too should be included.  There are a number of these more current documents referred to in the wife’s draft letter.  In relation to the contentious entities, that is those additional entities in which the husband denied he has an interest, the documents identified by the wife which she says establish that he probably does have an interest may be given to Ms E.  These are the documents identified at paragraphs 27, 28, 29.39 and 29.40 of the wife’s draft letter of instruction.

15. The next issue relates to the wife’s application for leave to issue further subpoenas.   On 17 December 2007, Strickland J made an order the effect of which was that neither party was to issue subpoenas without the Court’s leave.  Dawe J on 31 May 2010, made the following orders:

    10.Within 14 days the wife’s solicitors to provide to the husband’s solicitors (and where appropriate the Independent Children’s Lawyer) with subpoena as to documents which she seeks leave to issue and the reason for the subpoena being issued and the husband’s solicitors to reply within a further 14 days. 

    11.Any need to consider an application for leave to issue subpoenas can be made returnable before me on 7 July 2010.

16. As I understood the submissions, the wife’s application for leave to issue subpoena could not be reached and in effect, it was accepted her application for leave would be made orally.  The wife seeks to issue 17 subpoenas to a variety of persons and companies.  The husband objected to the wife being given permission to issue further subpoena.  He was concerned about delay in the issue of subpoenas, the broadness of the subpoenas and the delay of proceedings which may arise if the subpoena issued.  The wife accepted that the issue of further subpoenas might delay the final hearing.  As to this matter, as I have earlier indicated, the parties are agreed the updated valuations will not be completed by November 2010.  It follows, irrespective of my rulings in relation to subpoena, the Court would not at this point be unduly concerned that subpoena issues may jeopardise a November 2010 final hearing. 

17. Written submissions were received from both parties.  Counsel for the wife submitted the husband lacked standing with regard to her application to issue subpoena.  As a general proposition I agree. 

18. The Family Law Rules 2004 are silent as to the principles to be applied on the grant or refusal of leave to issue subpoena. Thus it is appropriate to consider the main purpose of the Rules and how the main purpose may be achieved. Relevantly, these include consideration of whether the likely benefits of taking a step justify the cost of the step and if the litigation is conducted in a manner which is proportionate to the issue in a case and their complexity. In addition, the types of consideration which are appropriate to granting leave are similar to the types of matters which may be relied upon to set a subpoena aside. For example, an applicant for leave would need to demonstrate potentially the documents sought are relevant. Relevance, at this stage, is a wide concept and to be approached generously. The materials sought need not be admissible and it would be sufficient, if a genuine forensic interest were demonstrated, or that the documents would be likely to aid the preparation of the case or its overall investigation. A subpoena which is offensive or incapable of being understood would not issue. Nor, if it was clear from the outset, would a subpoena which is an abuse of the Court’s process.

19. During the hearing I expressed the view the subpoena appeared likely to involve considerable work from the person named and sought documents of such volume and antiquity they might be amenable to an application to set them aside by the addressee or a person having sufficient interest in the subpoena.  I inquired of counsel whether the wife had sufficient funds to provide appropriate conduct money and meet the reasonable costs likely to be incurred by those to whom the subpoena were addressed.  As to the latter, the Court was informed the wife was within funds. 

20. Senior counsel for the wife was able to demonstrate that the subpoena related to arguably relevant matters and there was a proper basis for permission to issue the nominated 17 subpoena to be given.  So that it is clear, merely because the Court has been satisfied leave should be given, this does not purport to predetermine any application for the subpoena to be set aside. 

21. For these reasons I make the orders identified at the start of this judgment.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Ryan delivered on 7 September 2010.

Associate:  

Date:  7 September 2010