VW & EW
[2006] FamCA 269
•11 April 2006
[2006] FamCA 269
FAMILY LAW ACT 1975
FAMILY COURT OF AUSTRALIA
AT MELBOURNE NO. MLF 1903 of 2002
IN THE MATTER OF:
VW (Husband)
and
EW (Wife)
and
A PTY LTD (Third party)
and
VB (First Intervenor)
and
JW (Second Intervenor)
and
EF (Third Intervenor)
and
TW (Fourth Intervenor)
JUDGMENT DELIVERED BY
THE HONOURABLE JUSTICE GUEST
Date of Hearing: 9 March 2006
Date of Written Submissions: 16 & 17 March 2006
Date of Judgment: 11 April 2006
Appearances:
Mr Kirkham QC with Mr Sweeney of counsel, instructed by Lander & Rogers, Solicitors, DX 370 MELBOURNE, on behalf of the Applicant (wife)
Mr Geddes QC with Mr Crofts of counsel, instructed by Glezer Lanteri & Associates, DX 30790 COLLINS STREET, on behalf of the Respondent (husband)
Ms Vorwerg, solicitor, instructed by BJT Legal, Solicitors, DX 35403 BALLARAT, on behalf of the Third Party
Mr Furletti, solicitor, instructed by GSM Lawyers, DX 96603 FITZROY, on behalf of the 2nd Intervener
Mr Fookes of counsel, instructed by Clancy & Triado, Solicitors, DX 12403 CAMBERWELL, on behalf of the 3rd and 4th Interveners
VW and EW & Ors
Family Court’s citation: [2006] FamCA 269
Family Court of Australia, Melbourne
Judgment delivered 11 April 2006
PROCEDURE – interim hearing concerning admissibility of an offer to purchase a hotel complex prior to an expert witness report. Should the fact of that “offer” be made available to the expert for consideration prior to the release of the report?
This was an application brought by EW, the wife, seeking orders permitting her solicitors to provide particulars of all offers to purchase the E Hotel to the expert valuer for the purpose of valuing the property. The husband’s solicitors objected to the release of this information to the appointed valuer.
In late March 2005, the parties entered into consent orders, in which they agreed to value the hotel at $9m. In December 2005, the wife’s solicitors received advice from a hotel broker of an offer of $12.5m for the business and freehold of the hotel. The proposed purchaser refused to disclose their identity until such time as the hotel was ‘genuinely for sale’.
Later, in December 2005, consent orders were made by Guest J, to which was annexed a proposed letter of instruction to Ms F, the appointed valuer. The letter did not mention the $12.5m offer but did, however, instruct Ms F to form an independent view of value, irrespective of any offer to purchase the Hotel.
Counsel for the wife submitted that the orders sought would avoid a ‘divided assessment’ – in which Ms F would give her initial valuation and then, invariably, be asked to undertake a second valuation in light of the $12.5m offer, as a relevant factor to be taken into account and not as an indication of the value of the hotel. Counsel for the husband submitted that the wife’s solicitors had failed to make full and frank disclosure to the husband regarding the offer and that, from the husband’s point of view, the hotel was not on the market for sale, as he wished to retain it as an operating entity.
Held: Application dismissed.
- It is fundamental that offers to buy and sell land, as distinct from concluded sales, are not evidence which can be applied in determining the value of the land under consideration. Until an offer reaches the stage of a concluded contract, it is impossible to clearly establish the facts and circumstances of a sale: McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231, Smith v Smith (1991) FLC ¶92-261.
- It would be anomalous and unjust to rely upon a ‘blanket rule’ excluding offer evidence. There may be circumstances where an offer alone may, in a limited or general way be of assistance in the determination of value, but not as direct evidence of value. Such a situation would require both cautious and guarded scrutiny before any reliance could be placed upon it: Goold v Commonwealth of Australia; Rootsey v Commonwealth of Australia & Anor. (1993) 114 ALR 135 per Wilcox J, Adelaide Brighton Cement Ltd v South Australia (2001) SASC 381 per Debelle J, Henderson v Amadio(1995) 140 ALR 391 per Heerey J and Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd (2004) FCAFC 48.
- The offer is so vague, conditional and obtained in circumstances undisclosed to the husband or his advisors such as to reave it of probative value.
- The offer made is one utterly incapable of acceptance, made by an undisclosed purchaser in circumstances where the information provided to generate the offer remains the provenance of the wife and her advisors to the exclusion of the husband and his professional representatives. This throws up considerable barriers to the testing of the genuineness of the offer.
- Expert witnesses should form their own independent opinion in respect of the task requested of them and, if challenged, be tested in court.
Before: Guest J
Full text of judgment below
I have before me a Form 2 Application in a Case filed on 7 March 2006 by EW (“the wife”) in which she seeks the following orders:
“1.That pursuant to Division 15.5.2 generally and Rule 15.46 in particular of the Family Law Rules:-
(a)The Wife’s solicitors be permitted to forthwith provide written particular of any and all prior and/or current offers of which the wife and/or her advisers may be aware to purchase the business and/or freehold of E Hotel (“the Hotel”) to the single expert appointed to value the Hotel pursuant to the interim orders I these proceedings made 9 December 2006 (“the Orders”), namely Ms F of KF [Valuers] in accordance with the letter annexed hereto and marked “A”;
(b)That Ms F be at liberty to contact Mr B of B & Sons Pty Ltd and/or make such further or other enquiries as she may deem appropriate in respect of the said offer(s) and/or any further or other offer(s) of which she is or may become aware for the purposes of completing the valuation of the Hotel pursuant to the Orders.
2.That the Husband pay the Wife’s solicitor and own client indemnity costs of and incidental to this Application.
3.Such further or other interim and/or interlocutory order as this Honourable Court deems appropriate in all the circumstances.
The Application is supported by an affidavit sworn by [Mr] H, the wife’s solicitor and a partner of the firm acting on her behalf. In his affidavit, Mr H deposed that on 1 December 2005 he received a letter from Mr B of B & Sons Pty Ltd (“the letter of offer”) advising that Mr B had a proposed purchaser prepared to offer $12.5M for the business and freehold of E Hotel. A copy of that letter was forwarded by him to all parties in the proceedings, including the four children of the marriage. He further deposed that since receipt of that letter, he has received “at least three phone calls” from Mr B requesting information as to whether there had been any consideration of the offer by the proposed purchaser who retained an active interest in acquiring the hotel.
Mr H deposed that since the receipt by him of the letter of offer he sought agreement from the husband’s solicitors to communicate the offer to Ms F, the single expert jointly appointed by the parties to value the Hotel. He annexed to his affidavit copies of correspondence passing between his firm, the husband’s solicitors and Ms F in respect of the issue. I have regard to that correspondence in coming to my determination. He deposed, in summary, that despite communication with the husband’s solicitors he has not been informed of any reason underpinning the husband’s continuing objection to communication of the offer to Ms F.
In particular, in his letter of 2 March 2006 to Ms L [the husband’s solicitor], the following was asserted:
“…
We note that we had previously advised your Ms L of our Mr H’s view (and our client’s view) that Ms F must be aware of the offer prior to completion of her report. To the extent that your client asserts that the offer is not genuine or bona fide, Ms F should be given an opportunity to also consider and investigate such matters prior to completing her report.
…
Indeed, Mr Sweeney has referred us to Rule 15.54(2)(e) of the Family Law Rules which requires (and imposes an obligation upon parties instructing an expert witness) to provide a full and frank disclosure of information and documents that will help the expert witness to perform the expert witness’s function.
The existence of the offer, the preparedness (if any) on the part of the proposed purchaser to increase the offer and/or any terms or conditions attaching to the offer are clearly relevant to the ‘function’ to be undertaken by Ms F.
It is in our client’s counsel’s view, it is (sic) appropriate and necessary for notification to be given prior to the completion of the report. It is not appropriate in their view for this issue to be addressed by way of questions to a single expert after delivery of the report pursuant to Division 15.5.6 of the Family Law Rules. The necessary investigation and inquiry associated with the offer should occur prior to the conclusion of the report, not in circumstances in which the valuer may be embarrassed by the necessity to form an alternative view after delivery of the report by reason of the late delivery of notification of the offer. Indeed, Mr Kirkham QC has pointed out the ultimate futility of delaying notification of the offer until the delivery of questions as, one way or the other, Ms F will be advised of the offer and asked to investigate it.
…
We suggest that in order to avoid any suggestion of inappropriate communication regarding the particulars of the offer, Ms F be instructed to liaise directly with Mr B of B & Sons, by whom the offer was previously communicated.
In the event we fail to receive confirmation as requested, we are instructed to make application returnable on 9 March 2006 before His Honour Justice Guest for Orders that Ms F be provided with joint instructions in the manner outlined in this letter,.
… “
The letter of offer from B & Sons Pty Ltd annexed to the wife’s application is addressed to Mr H and stylised with an informal introduction, “Dear C”. The contents of the letter is as follows:
“Thank you for meeting with me yesterday.
As stated the core business of B & Sons Pty. Ltd. is as brokers in the sale and purchase of hotels.
We have received instructions from a proposed purchaser to offer $12.5 million for the hotel. This offer is based on the information provided to us by MW Chartered Forensic Accountants for the purpose of the 15th November 2005 letter of appraisal. The proposed purchaser is not prepared to be identified as yet as there is no present commitment to sell on the part of the stakeholders in the hotel but is prepared to enter negotiations once that commitment is given. Should your client require further advice from us we would be delighted to oblige but feel this advice should be delivered at a meeting with all stakeholders.
C, I understand how delicate this situation is but we are in a position to sign a buyer up at $12.5 million with one condition, being the transfer of gaming machines. Surely all stakeholders would give such an offer close consideration and bring to an end this chapter of their breakup without any further fuss or stress.
B & Sons Pty. Ltd. propose to act as agents in the sale if instructed to do so. We are unable to take the purchase proposal any further without an authority signed by all the stakeholders and for this purpose enclose a Real Estate Institute of Victoria Exclusive Sale Authority detailing our firm’s brokerage terms and conditions.
Taking this new information into consideration we find it unnecessary to reply further to your letter of 23rd November 2005.
We believe a prompt response would be appropriate.
If you require any information concerning any aspect of this letter and the further request contained in it, do not hesitate to contact me.”
I note that the letter from Mr H to Mr B dated 23 November 2005 is not produced in support of the wife’s Application and further, I was informed during the course of the hearing that the firm of MW, Chartered Forensic Accountants have been engaged to act on behalf of the wife.
As part of pre-trial orders, this matter came before me on 9 December 2005. Both the husband and wife were represented by counsel. Clearly, the issue of the offer put forward by Mr B was very much in issue and topical at that stage. However, the relevant orders made by consent that day are as follows:
“1.That Ms F of KF Valuations … be appointed as a single expert pursuant to Rule 15.45 of the Family Law Rules 2004.
2.That Ms F be instructed to prepare a report as to the value of the business and freehold of E Hotel (“the Hotel”) upon the joint instructions of the parties in accordance with the letter annexed hereto marked ‘EM1’ (“the Report”).
3.That until further order the Husband and the Wife each do all things, sign all documents and give all necessary and proper instructions as may be required to:
(a) Facilitate the preparation of the Report; and
(b)Cause [another hotel owned by the parties] to pay the costs of the Report.
…
19.Without any admission by the Wife as to the need for such an Order until further order the Wife, her servants and agents be and are hereby restrained from representing to the staff, customers or any other person that the Hotel is for sale or showing any person through the Hotel to promote any sale.
…”
Annexed to the consent orders of 9 December 2005 was the proposed letter of instruction to be forwarded to Ms F which clearly was one to which both parties addressed their attention and reached consensus as to its contents. There was no mention at all of the proposed offer of $12.5 million for the hotel forwarded by Mr B on 1 December 2005. The only other matter of relevance in the letter touching upon the application before me concerned the following:
“3. Position of Offers
Irrespective of any offer to purchase the Hotel of which you may become aware, you are instructed to form an independent view of value.”
The husband opposed the application and relied upon an affidavit sworn by Ms L, his solicitor. That affidavit was filed by leave on 9 March 2006.
Ms L deposed that insofar as the hotel valuation is concerned the background to the matter was set out in her affidavit filed on 2 November 2005. She referred to an affidavit of the wife sworn 21 December 2005 and highlighted that:
·The wife had agreed earlier to consent orders made 24 March 2005 which contained a notation to the effect that both she and the husband had agreed to value the hotel which formed “a significant item in dispute in this matter at $9million”.
·Subsequent to that, the wife became concerned that comparative hotels were selling at higher prices.
·The wife, without consulting the husband, approached B & Sons Pty. Ltd., provided them with information about the hotel which had not and has never been disclosed to the husband and further, following information provided by that firm resiled from the earlier agreement and made application for the appointment of a single expert to value the hotel complex.
·The firm of B & Sons had advised her they had located a potential purchaser for the hotel. However, the potential purchaser could not be named or consulted unless the agent was advised that the hotel “was genuinely for sale”.
Ms L deposed that it is not and has never been part of the wife’s Application that the hotel be sold. It is the husband’s case that he retain the parties’ interest in the hotel. Further, that she has been informed by the solicitor for the children, [EF and TW, the third and fourth intervenors], that they too do not wish to sell their interest in the hotel.
Ms L then addressed the consent orders made by me on 9 December 2005 and deposed that, notwithstanding the orders,
·The wife’s solicitors did not sign and forward the agreed letter of engagement to Ms F until 18 January 2006;
·By letters dated 7 and 13 February 2006, Ms F sought the assistance of the parties regarding certain matters and despite enquiries made of the wife’s solicitors by Ms L on 8 February 2006 it was not until 2 March 2006 that she received a response. Her complaint appears to be one of unnecessary delay on the part of the wife’s solicitors;
·In a telephone call on 1 March 2006, Mr H informed Ms L that notwithstanding the consent orders of 9 December 2005 he was instructed to seek the husband’s consent that Ms F be advised of the letter of offer. Ms L told him that such consent would be unlikely to be forthcoming as she had earlier made the husband’s position clear to Mr H, which included his concerns as to the bona fides of the B [and Sons] offer and her own understanding that evidence of an offer did not amount to evidence of value;
·On 2 March 2006 she received a letter from Mr H advising that he had written to Ms F advising her not to finalise her valuation until after 9 March 2006 and again sought the husband’s consent that Ms F be advised of the letter of offer.
THE SUBMISSIONS
I have been advantaged by oral submissions from Mr Kirkham QC, with Mr Sweeney on behalf of the wife and Mr Geddes QC with Mr Crofts on behalf of the husband.
In his oral submissions, Mr Kirkham acknowledged there was a dispute before me on 9 December 2005 concerning the B [and Sons] offer which was compromised as between the parties by including paragraph 3 to the letter of engagement of Ms F as counsel then acting for the wife was not prepared to agree to an order that the valuer not be told of the offer.
It seems to me that paragraph 3 reads as an anticipatory caution concerning Ms F’s independent task in the event that an order was later made in favour of the wife for disclosure of the offer. That is, the dispute between the parties concerning this issue as at 9 December 2005 was not resolved and remained on foot until satisfied. I can only assume that the order as made was to facilitate Ms F’s early attention to her task given the fact that both of the parties were requesting that a date be fixed for trial as a matter of priority.
Mr Kirkham relied upon Rule 15.54(2)(e) of the Family Law Rules 2004 which provides:
“RULE 15.54 INSTRUCTIONS TO EXPERT WITNESS
15.54(1) …
…
15.54(2)All instructions to an expert witness must be in writing and must include:
(a)…
(b) …
(c) …
(d) …
(e)full and frank disclosure of information and documents that will help the expert witness to perform the expert witness’s function.”
He submitted that “sooner or later” Ms F was going to be asked to revisit her valuation (if she had not already) taking into account the offer made by B [and Sons] and that it would be unsatisfactory that she be obliged to undertake two assessments in valuing the one entity. Mr Kirkham forcefully submitted it was “inconceivable” that Ms F could undertake her task in isolation of any offer made to purchase the hotel complex.
Mr Kirkham’s submissions proceeded on the basis that if the wife’s current Application was refused, he would be permitted to cross examine the valuer on the fact that an “offer” to purchase the hotel complex had been made and further, to call evidence in respect of that offer. However, there is a difficulty as to that, given that the proposed purchaser is not prepared to be identified unless the hotel was genuinely for sale which, on the husband’s case, it is not as he seeks an order that would result in him retaining the hotel as an operating entity.
The essential thrust of Mr Kirkham’s submissions was to avoid “a divided assessment’ as he termed it, necessitating the hotel to be valued, and then re-valued. Its purpose was to avoid the wasting of time and resources.
Mr Kirkham, in support of his submissions referred to and relied upon ASIC Practice Note 42.14 dealing with the independence of expert reports which is as follows:
“The client should not presume to determine what data or information is required for the preparation for the preparation of the report. That is for the expert to do. The client, which is often the best source of information for the expert, should give the expert all the information it is aware of which may relate to the subject of the expert’s report, in sufficient detail to enable the expert to determine its relevance.”
Mr Kirkham further submitted that Ms F should be free to speak to Mr B and to the prospective purchaser in order to establish the bona fides of the offer. He posed the following rhetorical question:
“… This person is an expert, and again I ask rhetorically, what is going to be achieved by stopping her looking at a prospective purchaser’s offer now and determining whether it has relevance and, if it has relevance, factoring it in, and doing it later? It’s going to be done sooner or later.” (Transcript p 8)
Mr Geddes relied upon the decision of the High Court in McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231 namely, that in ascertaining the value of land for the purpose of, in that case, the Land Tax Assessment Act 1910, the price paid for the land in question, or for similar land “on a concluded contact” was admissible as evidence of value, but that the price offered for the land in question or the price which the owner had offered to accept “not followed by a concluded contact” was not admissible. In particular, Mr Geddes referred to the judgment of the court at p 239-40 where the court comprising Isaacs, Powers and Rich JJ had this to say:
“But if the negotiations do not end in a concluded bargain, the field is at once open to a multitude of other considerations before the same point of opinion is reached. Excursions into the realm of collateral circumstances would be endless. They would so add to the cost, delay and uncertainty of litigation as on the whole to render a great disservice to the cause of justice. The court might have to inquire whether the owner or the other party really terminated the negotiations, and, if so, for what reason. Had either of the parties discovered the true worth of the property or been misinformed by some means as to its real value? Did the owner mistrust the ability of the purchaser, or did the latter find an adverse claimant to the property, or did his circumstances change, or was there a personal quarrel? Or did he learn of a still better bargain? Or, again, was the offer a sham on either side, or both sides? Such inquires would render litigation intolerable, and defeat the purpose for which they were permitted”.
Mr Geddes further relied upon what the Full Court of the Family Court had to say on this issue in Smith v Smith (1991) FLC 92-261. He submitted that any attempt to elicit evidence in court of this “offer” would be properly ruled out as inadmissible. He relied upon par 19 of the orders made by consent on 9 December 2005 and to Ms L’s affidavit which provided background understanding why the order was made and couched in those terms.
Mr Geddes then addressed Annexure A to the Form 2 Application filed on behalf of the wife on 7 March 2006, being a letter proposed to be forwarded to Ms F concerning the “offer”. He emphasised the fact that the letter of offer was a fact that occurred prior to the injunction being ordered by consent as was the joint draft letter on which the expert was to form her independent view.
Mr Geddes referred to the fact that the wife’s solicitors asserted their belief that the offer was bona fide and that the proposed purchaser retained an interest in acquiring the hotel. In the course of his letter, Mr H wrote:
“We have spoken with Mr B who is prepared to discuss with you any and all matters you believe are relevant to the information which has been hereby communicated to you.”
Mr Geddes pointed out that the firm of B & Sons Pty Ltd were originally to be engaged jointly by the parties as the expert valuers, but that Mr H and the wife (with other persons) apparently took Mr B to see the hotel complex and excluded the husband from that process. He submitted that such conduct “polluted” Mr B and excluded him from being jointly engaged as the single expert.
Mr Geddes was highly critical of the manner in which the wife’s solicitors had handled the matter, of their unilateral discussions with Mr B to the exclusion of the husband and the fact that the offer was based, as Mr B said in his letter of offer, upon information provided by the wife’s privately engaged forensic accountants. He complained that neither the husband nor his professional advisors were informed of the information that passed between the firm of MW [Chartered Forensic Accountants] and Mr B, and that Mr B would not disclose the identity of the proposed purchaser in any event. He made much of the fact that the husband and his advisors had been “excluded from any negotiations” between Mr B and the wife, her solicitors, the wife’s brother and any other advisors, including those at the firm of MW. He submitted that the wife’s solicitors had failed to make full and frank disclosure in that they had failed and or refused to provide any of the information sought by the husband. Mr Geddes further relied upon the fact, that from the husband’s view point, the hotel was not on the market for sale. He also submitted that it was not for Ms F to make a determination as to the relevance of the offer.
In reply, whilst acknowledging the central thrust of McDonald (supra) and Smith v Smith (supra), Mr Kirkham emphasised the fact that the relevant family law rule itself made it perfectly plain that it was a factor that should be taken into account by an expert valuer in arriving at a valuation and that not to do so, would be to provide a “value in a vacuum” (transcript p 22). He made it clear that it was not submitted that the “offer” was in fact the value of the hotel, but was “a factor” to be taken into account and given weight by Ms F in reaching her opinion as to its value.
Following submissions on 9 March 2005 the solicitors for the wife wrote to my Associate and brought to my attention the decision of Wilcox J in the Federal Court of Australia in Goold v Commonwealth of Australia; Rootsey v Commonwealth of Australia & Anor. (1993) 114 ALR 135. I forwarded their communication to the husband’s solicitors by letter dated 10 March 2006, and directed a timetable for any further submissions arising by reason of that authority. The wife’s solicitors forwarded further detailed submissions dated 15 March 2006 to which the husband’s professional advisors responded on 17 March 2006.
In the further written submissions filed on behalf the wife, counsel at first summarised, in short form, the background and submitted that in relation to par 3 of the letter of instruction to Ms F dated 18 January 2006, there was “clearly no prohibition” upon her being made aware of an offer, but rather that she was instructed not to treat any offer as binding, her obligation being to form an independent view. As I understand it however, it has never been submitted by counsel otherwise engaged in these proceedings that Ms F is aware of the “offer”.
When dealing with the wife’s contention that par 3 in the letter of instruction presupposed that Ms F was aware of the offer, it was submitted on behalf of the husband that this was not so and that neither of the parties could pre-empt the information she had or, in the course of her investigation, may learn. It was submitted that par 3 was a “specific warning” to her against reliance upon any information comprised by offers to purchase should such a situation arise.
Without expressing any final view on this aspect, I doubt the interpretation placed by counsel for the wife upon par 3 of the joint letter of instruction having regard overall to the oral submissions made and the material relied upon. It appears to me to be an anticipatory warning only.
Following a detailed analysis of McDonald’s case, it was submitted on behalf of the wife that the reasoning of the High Court was somewhat “confusing”, but that, whatever defects there may be, it nonetheless remained binding authority that evidence may not be led of an earlier offer to sell or purchase the land which was no longer in existence for the purpose of establishing the value of land. It was submitted that the “offer” made by B & Sons Pty Ltd was nonetheless circumstantial evidence “of a very powerful kind” and was direct evidence of what a specific purchaser was, at the relevant time, prepared to pay.
Following a consideration of the judgment of Isaacs J in McDonald’s case (pages 238-240) directed to the admissibility of the act or opinion of a third party on some former occasion concerning the value of the land in question, it was submitted on behalf of the husband that his Honour made it clear that if the arrangement had reached the stage of a “concluded contract” then it was possible to clearly establish the facts and circumstances of the sale and accordingly determine whether it assisted in determining value. However, if the arrangement was a mere “offer” then:
“… it is so open to investigation of other issues (were the negotiations genuinely terminated, had either party been misinformed etc.) that the costs and uncertainty of such inquiries render any benefit of admitting the evidence outweighed by the costs and risks of doing so.” (par 23(f))
Accordingly, although the logical relevance may be the same, only evidence of a concluded contract or arrangement should be admitted.
In the course of submissions, counsel for the wife considered a number of decisions of the High Court post McDonald’s case, namely James Patrick & Co. Pty. Ltd. v The Minister for the Navy (1944) ALR 254 (per Williams J); Gregory v Federal Commissioner of Taxation (1991) 123 CLR 547 (per Gibbs J) and Nelungaloo Pty Ltd v The Commonwealth (1947) 75 CLR 495 at 507 (per Williams J). It remains clear however that an offer to purchase not resulting in a concluded contact is not admissible as evidence of the value of land and that, as properly submitted by the husband, any doubts Williams J may have expressed in Nelungaloo Pty Ltd v The Commonwealth (supra) as to the effect of McDonald’s case, they were not pursued by his Honour in any event.
In his submissions, counsel for the wife considered Goold (supra) and in particular where Wilcox J, having considered McDonald and subsequent cases, concluded (p 143):
“… it would be anomalous and unjust for the courts to adopt a blanket rule excluding offer evidence. Such a rule might exclude cogent evidence of the interest of a particular purchaser in the land being valued, a person who is willing to pay more than ordinary market price.”
In the course of his judgment, Wilcox J pointed out that in at least three Australian cases evidence of an offer to purchase the subject land had been admitted, referring to Blefari v Minister (1962) 8 LGRA 1 at 5, Hustlers Pty Ltd v Valuer-General (1967) 14 LGRA 269 at 277 (decisions of Else-Mitchell J) and Phillipou v Housing Commission of Victoria (1969) 18 LGRA 254 (esp at p 259) per Barber J.
For the husband however, it was submitted that the conclusion of Wilcox J should properly be seen in the context of the discussion where his Honour went on to say:
“Of course, before placing reliance upon a mere offer, a court must consider carefully the question of its genuineness. The offer might be a sham, designed to prop up an inflated compensation claim or to reduce rates and taxes; in either case without any cost to the offeror. It might be an attempt to manipulate the market for some other ulterior purpose, perhaps a purpose extraneous to the litigation. If the offer was genuine when made, it might not have led to a concluded contract, even if resumption had not intervened. The offer might have been withdrawn. The purchaser might have failed to complete the transaction. Because of matters such as these, even a genuine offer cannot be regarded as direct evidence of value. But it seems to me that, once the court is satisfied about genuineness, an offer by an arms length party to purchase the land under valuation is something that the judicial offer ought to take into account in considering the possibility of a sale at a price different from that indicated by conventional evidence, such as an analysis of comparable sales, or of a hypothetical development, or a calculation of the capitalised value of the rental return. How much weight should be given to such an offer is the question to be determined by reference to the facts of the particular case. In some cases, the appropriate weight may be minimal; in others considerable.” (my emphasis) (at p 144)
Subsequently, having considered the particular facts confronting him, his Honour said:
“I summarise my opinion about the offer evidence in four propositions:
(i)Even if I was satisfied that the offers contained in the letters were genuine and would not have been subject to any unusual conditions, it would be contrary to legal principle to use them as direct evidence that each parcel was worth $500,000 (which was the amount of the offer).
…” (at p 148)
As submitted on behalf of the husband, it should be borne in mind that in Goold’s case the dispute concerned a valuation where, in circumstances of a dearth of directly comparable actual sales evidence, the valuer disagreed about the applicability of less comparable sales.
In his written submissions, counsel for the wife further referred to the decision of Heerey J in Henderson v Amadio (1995) 140 ALR 391 (at 501-503) who “respectfully agreed” with the comments of Wilcox J, observing that a careful analysis is required “of the purpose” for which any offer it sought to be used.
Counsel for the wife also helpfully referred to each of Blethari (supra), Hustlers (supra) and Phillipou (supra), all of which were considered by Wilcox J in Goold’s case. Counsel also considered a decision of the English Court of Appeal relied upon by Barber J in Phillipou, namely Inland Revenue Commissioners v Clay (1914) 3 KB 466 and a decision of the Judicial Committee of the Privy Council, Raja Vyricherla Narayana Gajapatiraju v The Revenue Divisional Officer, Vizagapatam (1939) AC 302. I have regard to the submissions and those in reply on behalf of the husband.
In Blethari’s case, Else-Mitchell J was “conscious” (at p 5) that evidence of an offer may not be admissible in determining the value of land, and in the particular proceedings before him, his Honour did not take the matter any further as the offer in question, being “conditional”, had little probative value. In Hustlers Pty Ltd, Else-Mitchell J admitted evidence of earlier offers, not as to value, but in support of a contention that later sales were not forced sales. The decision was specific to the facts before his Honour. In Phillipou, Barber J held that the Land Valuation Board of Review had correctly taken into account offers made by an adjoining land owner to acquire the land which was the subject of compensation proceedings. His Honour, having considered the decisions of the English Court of Appeal and the Judicial Committee of the Privy Council held that “offers” made by an owner of the adjoining property were not proof of value, but could be taken into account in valuing the land in question, adding “… but just how much additional value should be allowed for this factor was a question of fact for the Board”. From such a proposition there can be no dissent.
It was submitted on behalf of the husband that the English authorities referred to by Barber J in Phillipou (supra) and discussed in the written submissions demonstrated that what concerned the courts at the time was that a valuer should be aware of the “types” of persons who may reasonably be expected to purchase properties, including “special interest” groups. Each of those cases dealt with the specific circumstances before the court, and, in the case of Inland Revenue Commissioners v Clay, concerned specific legislation under consideration.
It was further submitted on behalf of the wife that the offer made under cover of letter dated 1 December 2005 was a matter proper for an expert valuer to take into account, being direct evidence relating to the value of the business and freehold of the E Hotel complex. It was asserted that the offer was “genuine” and could, if necessary, be tested by cross examination. That submission ignores, in my view, a number of salient matters surrounding the offer as made and which I regard as significant in coming to my determination. The bona fides or otherwise of this offer has been starkly put in issue by the husband.
It was submitted for the wife that “at common law” an expert witness should be permitted to examine all relevant facts, referring to what Megarry J had to say in English Exporters (London) Ltd v Edonwall (1973) Ch 415 at 420 (cited with approval by McGarvie J in PQ v Australian Red Cross Society (1992) 1 VR 19 at 35). It was submitted by counsel:
“37.An expert witness in reaching (as in this case) a determination as to the value of land, is not bound by the rules of evidence. An expert may clearly rely on matters of hearsay. When an expert relies on comparable sales, the expert is almost inevitably relying on evidence which is presented to him in a way which does not satisfy the rules of evidence. His knowledge of comparable sales is derived from information published in newspapers and professional journals and from information which is common knowledge in the profession. In reach his opinion he can rely on matters which are not admissible in evidence. The reasoning in McDonald, even if it were otherwise applicable, does not control the matters to which he can make reference.
38.To refuse to permit the expert to have regard to an extant offer as a matter relevant to the determination of the value of the land is to refuse the expert access to a matter directly relevant to his determination. Any determination made without knowledge of all relevant facts will necessarily be flawed.”
The wife relied upon the precise wording of Rule 15.54(2) of the Family Law Rules 2004 and emphasised that the parties “are required to disclose” to an expert witness any information which will assist with the performance of the expert’s function. It was submitted that such an obligation was “re-enforced” by the ASIC Practice Note 42.14, to which I have earlier referred.
On this issue, it was submitted on behalf of the husband that the question of relevance was a matter for the Court to determine and which should not be abrogated to an expert witness “with no training in evidentiary issues”. It seems to me that the rule, that any offer to purchase not resulting in a concluded contract is not admissible as evidence of the value of land, is fundamental to such a proposition. The joint letter of instruction to Ms F was a very detailed one and she was invited to write to the parties seeking any additional information, if required. Nothing was forthcoming. In any event, the genuineness of the offer is very much under challenge by the husband.
Counsel for the husband emphasised the fact that an analysis of the offer and the circumstances relating to its background leads to a proper conclusion that it is so vague and conditional, and obtained in such circumstances as to have no probative value. Accordingly, it was irrelevant. In seeking to rely on Rule 15.54(2) of the Rules, it was submitted that the wife had not disclosed the information provided by her or her advisors to elicit the offer in any event, and that there was no evidence, save for the wife’s view, that the disclosure of the offer made by B & Sons Pty Ltd would assist Ms F in the performance of her function as an expert witness.
On the issue of relevance and admissibility, reliance was placed by the husband’s counsel upon what Heydon JA had to say in Makita (Australia) Pty Ltd v Sprowles (2000) NSW CA 305 (par. 60) ((2001) 52 NSWLR 705 esp. at 731-732) namely:
“… The basal principle is that what an expert gives is an opinion based on facts. Because of that, the expert must either prove by admissible means the facts on which the opinion is based, or state explicitly the assumptions as to fact on which the opinion is based. If other admissible evidence establishes that the matters assumed are ‘sufficiently like’ the matters established ‘to render the opinion of the expert of any value’, even though they may not correspond ‘with complete precision’, the opinion will be admissible and material”.
Although not referred to in the submissions of counsel, Haydon JA did go on to say in the course of the quotation cited:
“One of the reasons why the facts proved must correlate to some degree with those assumed is that the experts conclusions must have some rational relationship with the facts proved.”
It was accordingly submitted on behalf of the husband that if Ms F was advised of the offer, and relied upon it in forming her opinion in circumstances where the offer was not admissible before me, her opinion would not be admissible, or at least would have to be given less weight. It was further submitted that the proper course in the particular circumstances of these proceedings was for Ms F to form her professional and expert opinion of the value of the E hotel complex independent of the offer put forward by B & Sons Pty Ltd. It was submitted that if that offer was subsequently admitted into evidence after proper consideration, either Ms F could be asked to review her opinion or the trial Judge make appropriate allowance in making a determination.
CONCLUSION
I have given this matter my earnest consideration and in the result, having regard to the matters discussed earlier in this judgment and the helpful submissions of counsel, I propose to dismiss the wife’s Application filed on 7 March 2006.
It is fundamental that offers to buy and sell land, as distinct from concluded sales is not evidence which can be applied in determining the value of land under consideration. That is nowhere better shown than in McDonald’s case and a whole raft of authorities thereafter, earlier discussed and particularly Gibbs J, (as he then was) in Gregory v Federal Commissioner of Taxation (supra) (at p 562). In that case, an offer was held to be admissible as it was followed by a concluded contract, and the fact that it was made threw “some light on the extent to which the price finally arrived at may be regarded as an indication of the real value”, in that case, of shares; (at p 562-563). This fundamental rule has been applied by the Family Court of Australia, for example Smith v Smith (supra).
The observations of Gibbs J (at p 562) in Gregory’s case were, for example, applied by the Full Court of the Supreme Court of Western Australia in Pownall v Conlan Management Pty Ltd (1995) 16 ASCR 227 at 235, where the valuation report under consideration was based upon previous offers to purchase part of a project, “which were not proved by admissible evidence”.
As I have earlier noted in Goold’s case, Wilcox J reasoned, following analysis of a number of authorities that “… it would be anomalous and unjust for the courts to adopt a blanket rule excluding offer evidence. Such a rule might exclude cogent evidence of the interests of a particular purchaser in the land being valued, a person who is willing to pay more than ordinary market price” (at p 143). Notwithstanding however, it was his Honour’s clear view that if the arrangement had reached the stage of a concluded contract, then it was possible to clearly establish the facts and circumstances of a sale. It was then open to determine whether or not it assisted in determining value (for example, was it comparable?). It is clear from the judgment of Wilcox J (and with which Heerey J agreed in Henderson v Amadio (supra) (at p 502) that it was quite unsafe to unqualifiedly assert that evidence of an offer is inadmissible without careful analysis. So much so was made clear by his Honour (at p 144) in determining that, before placing reliance upon a “… mere offer, a court must consider the question of its genuineness”, advancing a number of issues for such a consideration in the course of his judgment.
In Montague Mining Pty Ltd v Gore (1999) FCA 1528 (5 November 1999), Wilcox J had occasion to refer to his earlier decision in Goold (supra) when dealing with the exercise of an option, and had this to say:
“50.… I do not accept the submission of counsel for Clayton Utz that it is never permissible for a valuer to have regard to a transaction that falls short of being a binding commitment; see my discussion of the point in Goold v Commonwealth of Australia (1993) …. However, it is essential to bear in mind the difference between such a transaction and a contract. A contract commits both parties to a sale at the agreed price; an offer (if it is genuine) is merely evidence of the offeror’s interest in a sale at that price. Even a genuine offer may subsequently be withdrawn. An option differs from an offer in that it binds one party. The importance of that difference depends upon the circumstances of the case. If the critical question concerns the price at which the owner would have let the property go, evidence that the owner gave an option binding itself to sell at a particular price may be of considerable, even decisive, importance. But if the critical question is the amount a purchaser would have been prepared to offer, it will be less significant. Although the option may furnish some guidance as to the parameters of the market, it does not prove there was a purchaser at the option price; the option might not have been exercised.” (my emphasis)
Subsequently, the Full Court of the Federal Court of Australia in Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd (2004) FCAFC 48 considered both Goold (supra) and Henderson v Amadio, in circumstances where the trial Judge said:
“I also take into account, to a lesser extent, the various offers that were made for the Property which I have described above. I place their significance at the lower end of the scale of weight because they did not result in sales.”
In the course of their joint judgment, Black CJ, French and Tamberlin JJ had this to say:
“(128)It seems clear to us the decision of the High Court in McDonald, as applied by single justices of the High Court in James Patrick & Co Pty Ltd v Minister of State for the Navy … and Gregory v Commissioner of Taxation (Cth) … is determinative as to whether it is an error to take into account evidence of offers. Whatever weight may be properly given to evidence of offers for limited or general purposes, it is clear that such evidence is not permissible as direct evidence of value.
(129)Insofar as the trial Judge used the evidence in that way he was, we consider, in error in doing so. To the extent that such evidence may be admissible in a general way, as to which see Wilcox J in Goold v Commonwealth … and Heerey J in Henderson v Amadio (No. 1) …, it provided an insufficient additional basis upon which a conclusion as to value might have been arrived at. Moreover, even if such evidence is used in a general way, it would only be used if it were accompanied by an assessment of relevant factors such as the genuineness of the offer and whether it was made at arms length (see Goold at 60). In this case, his Honour’s findings do not disclose a consideration of that nature and we must conclude that the evidence of offers was wrongly taken into account and did not provide support for the judge’s conclusion.” (my emphasis)
I agree with what Wilcox J had to say in Goold’s case that it would be “anomalous and unjust” to rely upon what he referred to as a “blanket rule” excluding offer evidence. It is plain that an offer followed by a concluded contract may be admissible as evidence of value as would, for example, a signed option given by an owner to sell at a particular price. However, there may be circumstances where an offer alone may, in a limited or general way be of assistance in the determination of value, but not as direct evidence of value. Such a situation would however require both cautious and guarded scrutiny before any reliance could be placed upon it. (See Adelaide Brighton Cement Ltd v South Australia (2001) SASC 381 per Debelle J who agreed with the observations of Wilcox J in Goold, adding that the use to which evidence of an offer can be made should be very carefully examined, including the genuineness of the offer; Heerey J in Henderson v Amadio (supra) and the Full Court of the Federal Court in Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd (supra)). In my view these principles are just as applicable to the provision of the details relating to the offer being put to Ms F, despite the arguments advanced by counsel concerning Rule 15.54(2) of the Rules. The information sought to be provided has been put very much in issue by the husband and without more affords little, if any, probative value.
In my view, the offer as it stood at 1 December 2005, and remains this day is so vague, conditional and obtained in circumstances undisclosed to the husband or his advisors such as to reave it of probative value. Furthermore, it was specifically omitted from the joint letter of instructions to Ms F following the consent orders of 9 December 2005 as its inclusion, by reason of its nature, was very much in issue between the parties. For the reasons earlier set out, I do not accept the wife’s submissions that par 3 (page 3 of the joint letter of instructions to Ms F) presupposed that she was aware of the offer.
The offer as it presently stands has little, if any probative value, and the criticisms advanced on behalf of the husband are well made out. The offer is based upon information passed on by the wife’s solicitor to B & Sons Pty Ltd and by the wife’s investigating accountants, the contents of which has never been revealed. It was alleged by Ms L (par 6(c)) in her affidavit filed 9 March 2006 that it was the wife who, without consulting the husband approached B & Sons Pty Ltd and provided them with information. What passed between them is not known. Furthermore, the offer was made by an undisclosed purchaser whose identity will remain undisclosed until such time as the hotel is “genuinely for sale”. This is significant, as it places considerable barriers for the husband’s professional representatives to test the genuineness of the offer, and for obvious reasons.
The offer furthermore is subject to the transfer of gaming machines and, as submitted on behalf of the husband, albeit that the letter of offer implies a transfer of all the gaming machines, the number of such machines represented to be held by the E Hotel is not apparent. Significantly, there can be no further negotiation until a commitment is given to sell by all “stakeholders in the hotel”, being the husband, the wife and the four children of their union, all of whom have shares in the relevant holding entity. As Else-Mitchell J said in Blefari v The Minister (supra; p 5), the probative value of an offer must depend upon its being in the nature of an open offer by a potential purchaser, and where it is, for example, subject to a condition, “… its weight would be slight, if not negligible”.
As matters presently stand, the offer as such is not capable of acceptance for it is part of the husband’s Application before the court in the property proceedings that he retain the parties’ interest in the hotel. Furthermore, according to Ms L (and to which no response was forthcoming) two of the children have indicated that they do not wish to sell their interest in the hotel. It has never been part of the wife’s Application in any event that the hotel complex be sold. Accordingly, the offer as made is one utterly incapable of acceptance, made by an undisclosed purchaser in circumstances where the information provided to generate the offer remains the provenance of the wife and her advisors to the exclusion of the husband and his professional representatives. Put simply, its condition precedent can never be met.
In any event, given the terms of the offer, one is left to speculate whether or not all relevant considerations have or have not been accounted for in its formulation such as those set out in the joint letter of instructions to Ms F of 18 January 2006. That may well be a matter requiring investigation with further evidence.
The task of Ms F is to provide a valuation as an expert witness having regard to valuation principles. Her function is well known. For example, see Commissioner of Highways v Tynan (1982) 53 LGRA 1 per Wells J, particularly at p 9 and Makita (Australia) Pty Ltd v Sprowles (supra), (2001 52 NSWLR at p 731-732). Her task has been well defined.
As matters presently stand, I am of the view that despite the wife’s assertion the offer is genuine, that is a matter which is yet to be, if necessary, tested and is currently the subject of trenchant criticism by the husband. It is not sourced information from text books, journals, reports of options or other information obtained from professional brethren which may be information upon which an expert witness may rely. It is an offer, the efficacy, genuineness and propriety of which is very much in issue. Even if the reasoning in McDonald (supra) was such that it did not control the matters to which Ms F can make reference, it is my view that it would be wholly inappropriate for her to receive this information as defined by the limits set out in the letter of offer.
All relevant information ordained by the professional advisors of the parties has been assessed and provided to Ms F under cover of the joint letter of instruction dated 18 January 2006. It would, having regard to my findings taint her professional task to now receive the information contained in the letter dated 1 December 2005. Her professional opinion is to be based on facts, not vague and conditional material which, as I have said, as matters presently stand, offers little, if any probative value to her valuation exercise. The release of such information may, in my view, blemish her opinion and arguably tarnish its effect in terms of admissibility or weight.
As an expert witness, Ms F should form her own independent opinion in respect of the task requested of her and, if challenged, be tested in court. In the circumstances, the wife’s Form 2 Application in a Case will be dismissed.
I certify that the preceding 64 numbered
paragraphs are a true copy of the
reasons for judgment herein of
the Honourable Justice Guest.
Associate to Guest J
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