Gare & Farlow  FedCFamC1A 98
A single Judge appeal of Gare & Farlow  FedCFamC1A 98 has some interesting points.
It is a case dealing with an unsuccessful appeal and costs fixed for the Appellant to pay the Respondent’s costs.
The wife appealed the trial decision that provided her with 66% of the parties’ net assets in which she retained her own superannuation.
The wife had a business. She complained in the appeal that the Primary Judge erred by overvaluing the business and as a result, the amount she had to pay the husband was greater than she considered it should have been.
The eventual trial took four days and judgment was reserved and delivered a year later.
There had never been an order made compelling the parties to appoint a single expert to express an opinion about the value of the wife’s business. They each engaged adversarial experts and the trial became a combat between the two experts expressing different opinions.
The Trial Judge had accepted the adversarial expert opinion evidence adduced by the husband.
The wife argued that the husband’s expert’s evidence was inadmissible pursuant to the application of Section 76 and 79 of the Evidence Act. The Appeal Court noted that whilst s.76 renders opinion evidence inadmissible, s.79 allows for the exception in an area of specialised knowledge if based on relevant training study or experience.
At trial, both parties had taken objection to the admissibility of the other’s expert evidence, but all the expert evidence was admitted and thereafter evaluated by the Primary Judge in light of the cross-examination of each expert witness.
The wife complained the husband’s expert did not satisfy the exception of s.79 and that his opinion evidence had been late.
The appeal deals only with the alleged inadmissibility of the husband’s expert evidence by reference to the provisions of the Evidence Act.
There had been a voir dire on the discrete issue of the husband’s expert’s qualification and experience in the field of business valuation.
The Primary Judge had overruled the wife’s objection after the voir dire.
The wife, really, in her appeal, reissues the challenge to the expertise she made in the trial.
The court said:
“The evidence given by the husband’s expert in the voir dire verified his training and experience as the foundation for his specialised knowledge, thereby making his expert opinion evidence admissible under the Evidence Act as an exception to the opinion rule.”
The weight of the husband’s expert’s evidence was available to the wife to challenge, but not the admissibility.
This case, again, acknowledges the concept of the value to owner.
“The essential point of difference between the two experts in respect of the “value to owner” methodology was the treatment of the business proprietor’s annual wage paid from the business. The husband’s expert added back to the business revenue the entirety of the wage paid to the business proprietor, whereas the wife’s expert would only add back the proportion of the proprietor’s wage which exceeded a reasonable wage for the time expended by the proprietor working in the business.”
The wife’s expert had properly admitted in cross-examination “that there was a distinction to be drawn between owner-operated and managed businesses, with the former type, like the business under consideration, often valued as the husband’s expert had done”.
The wife’s expert would apply a multiplier of 2.5 to the added back portion of the business proprietor’s annual wage from the business which was not much different from the multiplier of 2.75 used by the husband’s expert.
In the years before the trial, the wife had paid her sister $75,000 to acquire the other 50% shareholding in the corporation which owned the business. That would suggest the wife had believed it to be worth $150,000.
A discussion of the value to owner approach to valuation provided as follows:
“It is intended to capture the reality of the situation by bringing to account any special or additional economic benefit which is conferred upon the business owner by his or her control of the shareholding. It is intended to include within the value any commercial, financial or other advantage which accrues to the owner which might not necessarily be available to any hypothetical third party purchaser.”
The court discussed fair market value as the risk is considered from the hypothetical willing but not anxious buyer. It reflects the value of each asset and liability on a going concern basis and the profitability, market position and attractiveness of the business. The value to owner approach, on the other hand, considers risk from the perspective of the existing owner and assumes that the party wishing to hold onto the asset will do so in good faith and seek to maximise the value that could be obtained in a hypothetical sale.
The court considered the value to owner concept further.
The Appeal Court determined that the value to owner approach to valuation was appropriate:
- There was no market for the wife’s interest in the business because there was no written commercial lease. As such, the business was not saleable as a going concern to a third-party purchaser and cannot be valued on that basis;
- There was evidence the business was successful and profitable;
- The unique benefit to the owner of the ongoing business is the security of its tenancy on favourable terms notwithstanding the absence of a written lease;
- The business was inferred to have significant value having regard to what the wife was prepared to pay out her partner in 2002;
- The evidence established that the wishes to retain the business; and
- A further significant benefit to the wife is the likelihood that her landlord father would act in her best interest should she ever decide to sell the business.
This is interesting because it again refines the use of the value to owner concept with family lawyers being provided with further insight into the court’s approach.
The ground of appeal which is of interest is that there was a notional addback to the assets of $106,681.87 which the wife had paid her father in August 2018 supposedly in repayment of loans extending back some 20 years about 6 months before the parties separated. The Primary Judge discussed the evidence and concluded the sum should be added back to the asset pool.
Having determined to add back the wife’s savings, the Trial Judge failed to take the monies advanced by the wife’s father to the wife and the parties into account as a contribution by or on behalf of the wife and failed to consider the accrual of savings as a further contribution by the wife.
This ground of appeal failed. The court said:
“The wife impermissibly seeks credit for contribution of the $106,682 in two ways: first, as monies advanced to her by her father; and secondly, as a “further” contribution by her accrual of the savings. But the wife’s contribution could only be properly taken into account in one way, given the finding that the money was not advanced by the wife’s father as a loan. Either the money was a gift received from the wife’s father, for which the wife obtains credit as a contribution, or alternatively, she accumulated the money from revenue generated by the business, in which case she would derive credit for the contribution of the earnings.
The wife admitted putting aside the sum of $106,682 from revenue generated by her business and the primary judge expressly acknowledged her contribution by bringing in the business, running it, and generating income. The primary judge said this in that regard:
“˜In addition to her financial contribution to the matrimonial home, at the commencement of the relationship the wife was the sole director and shareholder of [the business], a business which had been successfully operating for about 10 years under her ownership. This business must also be taken into account as part of the wife’s initial contribution to the parties’ assets.’.”
The wife contended in another ground of appeal that having adopted “a methodology with respect to the wife’s [business] which capitalised the income of the wife as notional property, the learned trial judge erred in then “˜double counting’ the wife’s income when considering s 75(2)(b) of the Family Law Act 1975″.
The Judge had in fact found an adjustment in favour of the wife at 1%.
The court said:
“The findings reflected the reality that the wife controlled a valuable business, generating her annual income, which could be sold to a willing purchaser (with a lease). Whilst ever she retained the business, she had an income.”
This is an interesting case in that there is clearly a particular perspective in mind in relation to the argument about the addback once added back requiring the recognition of a contribution.