Watson and Watson (No 2) - [2012] FamCA 694

FAMILY COURT OF AUSTRALIA

WATSON & WATSON (NO. 2)

[2012] FamCA 694

FAMILY LAW – PRACTICE AND PROCEDURE – WITNESSES

Family Law Rules 2004 (Cth)
Family Law Act 1975 (Cth)

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588
Land Enviro Corp Pty Limited and Ors v HTT Huntley Heritage Pty Limited and rs [2012] NSWSC 177

APPLICANT:

Ms Watson

RESPONDENT:

Mr Watson

FILE NUMBER:

MLC

5375

2009

DATE DELIVERED:

10 August 2012

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

Dessau J

HEARING DATE:

3 August 2012 & 8 August 2012

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr North SC

SOLICITOR FOR THE APPLICANT:

Lander & Rogers

COUNSEL FOR THE RESPONDENT:

Mr Geddes QC with Mr Crofts

SOLICITOR FOR THE RESPONDENT:

Aitken Partners

Orders

That the wife have leave to adduce the evidence of Mr N contained in his Report dated 25 July 2012 as the evidence of an adversarial expert[1]
i)[1] This order arises from Her Honour’s judgment of 10 August and was opposed by the husband
That by not later than 17 August 2012 the wife provide to the husband’s solicitors copies of communications between her and Mr N of Business B and the wife’s solicitors and Mr N as relied upon by him in relation to his engagement to prepare his report referred to in paragraph 1 hereof.
That on provision of relevant reports to the solicitors for the wife the husband have leave to file and serve reports from Ms D and any expert (including the husband’s accountant) on which she relies as the evidence of adversarial experts, by 31 August 2012;
That a conference of experts comprising Ms D, Mr N and Mr M occur as soon as mutually convenient following the provision of Ms D’s Report pursuant to Paragraph 3 hereof and that such experts file a joint statement setting out each fact, assumption or opinion on which they disagree and the basis of their disagreement
That the husband have leave to file by 31 August 2012:
Affidavits of his accountant and banker or any expert financier as to his ability to borrow on the goodwill as assessed by Mr N and matters arising there from or incidental thereto; and
Affidavit as to the taxation consequences on the disposal of any assets which form part of the husband and wife’s asset pool in these proceedings.
Cost of and incidental to this application be reserved.
Certify for counsel including senior counsel.
That the wife’s application filed 1 August 2012 shall be otherwise dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Watson & Watson has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 5375 of 2009

Ms Watson

Applicant

And

Mr Watson

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

The trial in this case, involving final parenting and property issues, is due to start before me on 3 September 2012.
On 1 August 2012, the wife filed an Application in a Case seeking to rely upon an adversarial expert, Mr N, as to the valuation of the Watson Group of … businesses. The husband works in health care.
The application is made pursuant to Rule 15.51(1) of the Family Law Rules 2004.In fact, as a single expert has already been appointed and has prepared a report, the application is more properly brought under Rule 15.49 of the Family Law Rules. No point was taken in that regard, and the reference to the wrong rule is not in itself fatal to this application.
The wife’s application was supported by the affidavit of her solicitor, Mark Parker, also filed on 1 August 2012, to which Mr N’s proposed report was attached.
The case came before me on 3 August 2012. I gave a preliminary indication of the inclination to allow the wife’s adversarial witness. Mr Geddes SC for the husband responded that if it were permitted, the husband would need to call his own shadow witness. The discussion that day then centred upon timing issues, as to whether or not each side could have shadow reports, and the requisite conference of experts, before the due trial date. I adjourned the application to a mention before me on 8 August 2012.
At the 8 August mention, Mr Geddes asked to be heard in opposition to the application for the wife’s adversarial expert. Although that was unexpected, I had certainly made no ruling, and it was entirely appropriate that the matter proceed in that way. Fortunately my list permitted the case to proceed in that form that day.
On 1 June 2010 the parties had agreed to engage Mr M as the joint expert to value their corporate interests. On 9 December 2011, there was a consent order for an updated report.
In a report dated 23 March 2012, Mr M valued the parties’ corporate interests at just under $6 million. His view was that there was no goodwill attributable to the businesses, and his valuation proceeded on a net asset basis.
In his report dated 25 July 2012, Mr N disagrees with Mr M’s valuation, and attributes $2.307 million by way of goodwill, in addition to the almost $6 million net asset basis business valuation.
Part 15.5 of the Family Law Rules deals with expert evidence.
Rule 15.42 sets out the purpose of the Part, which includes that if practicable, “and without compromising the interests of justice”, expert evidence is to be given on an issue by a single expert witness, and that unnecessary costs of the appointment of more than one expert witness should be avoided. The Part though is also to ensure that a party is enabled to apply for permission to tender a report from an expert appointed by them “if necessary in the interests of justice.”
Rule 15.49 provides for the appointment of another expert following a single expert’s appointment. A party must not tender a report or adduce evidence from another expert without the Court’s permission first obtained. In this case, a report has already been obtained for the wife. The reason for it being brought into existence will be discussed below. In any event, although attached to Mr Parker’s affidavit, I do not take it that the report has been tendered or adduced as evidence as such at this point. That is the reason for this hearing.
Rule 15.49(2) provides that the Court may allow a party to tender such a report or adduce such evidence if satisfied that:
(a)there is a substantial body of opinion contrary to any opinion given by the single expert witness and that the contrary opinion is or may be necessary for determining the issue;
(b)another expert witness knows of matters, not known to the single expert witness, that may be necessary for determining the issue; or
(c)there is another special reason for adducing evidence from another expert witness.
In this case, the parties entered a consent order on 9 December 2011 (at para 8) providing that if the wife sought an order for leave to engage an adversarial expert, she would make an application no later than 21 days from the receipt of Mr M’s report. Although in her trial affidavit of 23 April 2012, the wife indicated she would pursue that right, and despite correspondence between solicitors in between times, she has clearly pursued the application later than anticipated in the December 2011 orders. Again, I was not asked to find that fatal to her application, but it may well be relevant in relation to costs and other arguments later.
Mr Geddes made a number of objections to the wife now being permitted to rely on an adversarial witness.
First, a number related to what, for ease, I shall refer to as technical issues, including that:
·Mr N is not an “expert” within the definition of Rule 15.43.
·It is not clear that the wife’s solicitors gave Mr N a copy of Division 15 of the Rules, as required under Rule 15.44.
·All instructions to an expert witness must be in writing but it appears that, contrary to Rule 15.54(2), the wife and wife’s solicitors have also given oral instructions to Mr N.
·Although both parties must give an agreed statement of facts to an expert, that had not occurred in this case. Contrary to Rule 15.54(3), there had been no contact with the husband.
·Mr N had not fulfilled his duty of an objective and unbiased opinion, as required by Rule 15.59(3).
I am not satisfied that any of these provisions preclude the order sought on behalf of the wife.
On the material as it presently stands, I am satisfied that Mr N has the expertise to make assessments as to business valuation methodology, and to value goodwill, just as the single expert in this case is able to do.
In paragraph 3 of Part A of his report, Mr N refers to Part 15.5 of the Family Law Rules, stating that his report has been prepared in accordance with it. I can infer that he has received the relevant provisions.
It is true that, contrary to Rule 15.54(3), the husband has had no input into Mr N’s report.
It is also true that Mr N obtained some oral instructions. That is contrary to the course prescribed in Rule 15.54(2).
I also note that at a number of places within the report, Mr N stated that the report was prepared for the purposes of assisting the wife’s negotiations with the husband, and was not to be used for other purposes without his prior consent. I can infer that such consent was obtained before the report was attached to Mr Parker’s affidavit, in support of this application. That is, although originally prepared for other purposes, the writer is evidently prepared to stand by it as his expert opinion in court.
The expert evidence rules are clearly constructed to ensure the highest ethical standards and objectivity when it comes to expert evidence.
The fact of instructions from only one party, of some oral instructions, and that the original purpose of the report was for a purpose other than the purpose of giving evidence, all transparent on the face of the report, are natural areas for rigorous probing in cross-examination. Such probing may undermine the reliance that can be placed on the expressed expert opinion. They are matters that in my view should be dealt with in that way, rather than by rejecting the wife’s application to rely on the report.
The Family Law Rules make it clear that a practical approach should be taken, to minimise expense and delay. If the wife’s reliance on this report were precluded on the bases described this far, there is in my view a very high probability that she would simply apply to rely on a different expert, without any preliminary disqualifiers, as the issue addressed in this report is a very substantial and important one in the determination of a fair outcome to the property proceedings.
Finally, so far as compliance with the Rules is concerned, Mr Geddes submitted that Rule 15.59(3) had not been complied with in that the expert has not complied with his duty to give an objective an unbiased opinion that is independent and impartial. In this instance, that submission begs the question that may need to be determined at trial. With the transparency of the shortcomings as to how the report was prepared, I am not prepared to make a definitive finding at this stage that the expert has transgressed in that way. That is a finding of course that may be open to me when I have heard all the evidence.
Next, Mr Geddes submitted that the N report is in any event inadmissible as it is based on assumptions not backed by primary evidence, contrary to the “assumption rule” dealt with by Heydon J in the High Court decision of Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588.
Heydon J stated (at para 64) that expert evidence is inadmissible unless the facts on which the opinion is based are stated by the expert, either by way of proof if the expert can admissibly prove them, or as assumptions to be proven in other ways. His Honour held that there was no doubt that the proof of assumption rule exists at common law, and was imported into s 79(1) of the Evidence Act 1995 (NSW) – which I note is in the same terms as s 79(1) of the Evidence Act 1995 (Cth) – in relation to opinion evidence.
Mr Geddes referred me to the single judge decision in Land Enviro Corp Pty Limited and Ors v HTT Huntley Heritage Pty Limited and Ors [2012] NSWSC 177, in which Stevenson J said (at para 43) that the plurality in Dasreef’s case, although deciding the case on a different basis from Heydon J, had expressed “no disagreement” with his Honour.
As Mr North SC for the wife in this case submitted, with respect to Stevenson J, that does not appear to be an accurate summary of the plurality’s position in Dasreef.
It is important to note here that the decision in Dasreef in fact related to whether or not a particular witness had the specialised knowledge, based on “training, study or experience”, as required by s 79(1), to give evidence as to the numerical level of respirable silica dust in the plaintiff’s breathing zone, in proceedings before the Dust Diseases Tribunal.
At paragraph 41, the plurality made it clear that “what has been called ‘the basis rule’”, and whether it formed part of the common law, did not need to be examined in the case before them. It noted though (at para 41) that:
…It may be accepted that the Law Reform Commission’s interim report on evidence denied the existence of such a common law rule and expressed the intention to refrain from including a basis rule in the legislation the Commission proposed and which was later enacted as the Evidence Act1995 (Cth) and the Evidence Act 1995 (NSW). [Citations omitted]
The plurality then emphasised that what has been called the basis rule is a rule directed to the facts of the particular case about which an expert is asked to proffer an opinion, and the facts upon which the expert relies to form the opinion. However, the point for their Honours was as to the connection between the opinion expressed by a witness, and the witness’ specialised knowledge based on training, study or experience.
In those circumstances, I am not satisfied that there was, as submitted by Mr Geddes, a clear statement of the existence of a rule at common law, imported into the Evidence Act, that renders the Mr N’s report inadmissible.
In any event, Mr North SC referred me to paragraph 19 of the plurality’s decision in Dasreef. Their Honours referred there to a party’s opportunity to “mend its hand”, that is, for example, to introduce the evidence of matters that could form the basis upon which an expert opinion is formed. Although that comment was made in the course of their Honours’ observations on the desirability of questions of admissibility of evidence being ruled upon sooner than later, it underpinned Mr North’s submission that some of the assumptions referred to by Mr N in his report, for which there was no independent evidentiary basis, were effectively matters that could still be mended. They were matters within the domain of the wife, who had worked in the business. Her trial affidavit had been sworn before the report was obtained, and subject to the leave of the Court, she could file further material.
Otherwise, Mr Geddes referred to Mr N’s lack of expertise in assessing the proper commercial remuneration for an ophthalmologist in the husband’s position, a question very much at the heart of the adversarial expert’s report as to the value to be attributed to the commercial goodwill of the businesses in this case.
In several places in his report, Mr N acknowledges that he is not an expert on such remuneration. He refers to his “research”, or what he refers to in other places as his “limited research”, or “limited industry research”. He notes that the husband’s role, responsibilities and work load had not been “independently benchmarked by an industrial remuneration expert” (see para 30, Appendix M). He does though set out all the various enquiries conducted by him in reaching his opinion as to the notional commercial remuneration for the husband’s role.
I agree with counsel for the wife that there are many instances in which a properly qualified business valuer will need to make adjustments, including adjustments in relation to the adequacy of wages for the proprietor of a particular business. In the course of such adjustments, valuers will often need to make enquiries of others, and form professional views, the bases of which can be questioned in the course of cross-examination.
In this case, it is absolutely clear that the single expert has similarly gone to external sources of research and information, in reaching his own professional conclusions as to a commercial salary for the husband. The basis of his opinion can also be examined in the course of cross-examination at trial.
I am satisfied that the question as to whether or not commercial goodwill attaches to the various businesses – the businesses at the heart of the asset pool in this case – is one that, depending on the approach, could substantially alter the business valuation. Accordingly, in order to arrive at a just and equitable property settlement between the parties, the question must be carefully and fully considered.
I am satisfied that there are substantial contrary opinions as to how to handle goodwill in the businesses run in this case. The stakes are sufficiently high, and the issue important enough, particularly in the context of what Mr N describes as an “esoteric” business – and that is not a description about which Mr Geddes took issue – that there are special reasons for permitting the wife to adduce the evidence of an adversarial expert. It is necessary in the interests of justice.
Mr Geddes made it clear that if I were to permit the wife to rely on her own witness, he will seek to do the same. That may or may not result in some delay in this case. I will hear submissions about that. I have already indicated that I will at the very least hear the important and outstanding parenting issues when this trial is booked for hearing to start on 3 September 2012. Those issues, which can be excised from the property proceedings, must, for the children’s best interests, be heard without further delay.
I am conscious of the expense of these additional experts. In this case, the parties can afford such expense, and I can determine in due course if one rather than the other should pay all or any portion of the experts’ fees and associated legal costs. In that regard, amongst other things, I will no doubt be asked to consider the merits of the case run by each party, and the conduct of proceedings in terms of the timing of this application, and/or any delays occasioned by the wife in bringing it before the Court.

I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Dessau delivered on 10 August 2012

Associate:

Date: 10 August 2012