June 1, 2023

Bound to the financial report: evidence of the value of a company

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By Christopher Ragozzino

A Justice of the appellate division of the Federal Circuit and Family Court of Australia recently dismissed an appeal made by a husband who challenged a trial judge’s decision to ascribe a value of $192,143 to his company.

The background

The appeal primarily related to property matters and the main issue was the value the trial Judge ascribed to the husband’s company. The asset pool in the matter was $564,000 with the company representing $192,143 of that sum.

The wife contended that the company had that value whilst the husband said it had nil value.

The decision at first instance

At trial, the Judge did not accept the husband’s evidence that the company had a nil value. Importantly, the Judge held that the husband’s company had a value of $192,143 because in a loan application made by the husband to a bank to secure a construction loan, the husband submitted a financial report that showed there was equity in the company of $192,143. The husband gave oral evidence that the financial report was false, and the company had no value.

The trial Judge considered the Elias principle. This is a “a rule of family law that when people make representations of fact to third parties and gain advantage from so doing, they cannot in subsequent proceedings under s 79 of the Family Law Act lead evidence which contradicts those representations”. This is not an inflexible principle, and a Court is not bound to apply it. The trial Judge did not consider it appropriate, however, to allow the husband to make assertions to the bank that led to a financial benefit to him, and then have the Court accept the financial report as being worthless.

The husband appealed that decision

The decision on appeal

The appeal Court, constituted by a single Justice of Division 1, Justice Tree, agreed with the trial Judge and dismissed the husband’s appeal.

As the husband failed to persuade the trial Judge that his evidence (that the financial report was false with made up figures) was truthful, the appeal Court did not accept the husband’s grounds of appeal. Importantly, the trial Judge found that the credit of the husband was impacted by his previous representation made to the bank. The appeal Court found that the trial Judge’s decision (to ascribe a value of $192,143 to the husband’s company) was reasonably open.

The husband was required to pay the wife’s costs of the appeal.

Take-away points

  • If presented with evidence of a previous representation about financial matters, the Court may well be open to holding a party to account. To avoid a similar situation, parties need to be careful when submitting documents to a bank or the ATO as these documents can be relied on by the other party at a later date.
  • If the Court considers that a party is being untruthful about his or her financial circumstances or affairs, the Court may make inferences or conclusions adverse to that party.
  • Issues about the value of an asset should be dealt with prior to a trial. In this case, the issue of the value of the company could have been avoided if the husband approached the wife to value the company, avoiding ambiguity experienced at trial.
  • Section 128 of the Evidence Act permits a party to apply for a certificate from the Court to give evidence that may otherwise prove that the party or the witness has committed an offence. In this case, the husband sought, and was granted, a certificate that allowed him to give evidence that the financial report was false.

Nan & Nan [2022] FedCFamC1A 180