When Experts Get It Wrong
When Experts Get It Wrong

How to correct a bad valuation of assets

The Federal Circuit and Family Court Rules, which govern the practices of the Federal Circuit and Family Court of Australia provide that there should only be one expert (jointly instructed by the parties) in relation to valuation of assets. Prior to these Rules there was often a “battle of experts’’ that led to far greater delay and cost.

However, any expert, no matter how good they are, can make mistakes. Their opinions are also based on very subjective decisions. Often the value of a particular piece of real estate or of a business can be the most important factor in a case. Percentages don’t matter as much if the valuation is right. 

The valuation can make hundreds of thousands of dollars of difference. 

In our last article we spoke of the important case of Cosola & Moretto and its surprising outcome. During the course of the case the Court also made a very important decision about valuations. 

The Rules provide that a party is only able to adduce the evidence of another valuer if: 

  1. There is a substantial body of opinion contrary to the first valuer, 
  2. If a different methodology is used, or 
  3. If there is another “special reason’’.

Anyone who has made such an application knows that it is very difficult to get a Judge to agree to second valuer. This depends on the Judge (from experience, some Judges are much less likely to grant such an Order). The bar is a high one. Usually there isn’t a different body of opinion and usually valuers use the same methodology. In the case of real estate valuers for example they almost always use the method of comparable sales. 

If a Judge doesn’t allow the evidence of the second valuer then the first valuer can be challenged at trial by cross-examination. This doesn’t always lead to a satisfactory result. 

In this case the difference between the two valuers was $750,000.

The Judge considered the evidence and the Rules and made the following points amongst others: 

  1. How experts compare sales in the area is a very nuanced exercise and does not rely on a mathematical approach.
  2. The Court ultimately can decide the value of a property if a valuer is discredited in the witness box. Hence it is not always possible for a Judge to come to the right value. The Judge should not be a third valuer. There may be a “vacuum” in the evidence therefore if the evidence of a second valuer was to be ignored.
  3. Although the size of the difference between the valuers is not necessarily a special reason, it is relevant to the question of proportionality. If the difference in value was small then that would be outweighed by the extra costs and time involved in allowing a second opinion.

After providing a necessarily complex judgement the Judge in this case allowed the evidence of the second valuer. 

Freeman Family Law has vast experience in relation to the issue of valuation evidence in family law. If a party believes that the valuer got it very wrong, then the following should occur: 

  1. Get a second expert to provide an opinion.
  2. With the help of the second expert formulate formal questions to the first expert to see whether they would change their opinion.
  3. Seek consent to a conference between the experts.
  4. If there is still dispute, an application should be made to allow the evidence of the second valuer. 

Freeman Family Law has been assisting clients for over 30 years on matters involving divorce or separation, complex financial and property issues, as well as advice on parenting and wills & estates. Book an appointment with an Accredited Family Law Specialist online or at one of our offices in Yarraville, South Melbourne, Caroline Springs, Essendon or Mornington.

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