Commonwealth Bank of Australia v Rafidi

[2016] NSWSC 1239

Supreme Court

New South Wales

Medium Neutral Citation:	Commonwealth Bank of Australia v Rafidi [2016] NSWSC 1239
Hearing dates:	12 August 2016
Date of orders:	12 August 2016
Decision date:	12 August 2016
Jurisdiction:	Equity - Commercial List
Before:	McDougall J
Decision:	Grant leave to applicants to rely on reports. Reserve all questions of admissibility to trial judge.
Catchwords:	PRACTICE AND PROCEDURE – notice of motion – whether applicants are able to rely on existing valuations – whether applicants are able to rely on prior expert reports – no question of principle
Legislation Cited:	Uniform Civil Procedure Rules 2005 (NSW)
Category:	Procedural and other rulings
Parties:	Commonwealth Bank of Australia (Plaintiff / Cross-defendant) Iyad Rafidi (Defendant / Second Cross-claimant) Brick & Block Company Pty Ltd (in liquidation) (First Cross-claimant)
Representation:	Counsel: A Leopold SC / E Holmes (Plaintiff / Cross-defendant) J Sexton SC / R White (Defendant / Cross-claimants)   Solicitors: Gadens Lawyers (Plaintiff / Cross-defendant) Merchant Marriott Commercial Lawyers (Defendant / Cross-claimants)
File Number(s):	2011/251728

Judgment   (ex tempore – revised 5 september 2016)

1. HIS HONOUR:   The cross-claimants seek leave to rely on a number of expert reports. That application is made in the context that on 8 July 2016 I made orders by consent which, among other things – very many other things – gave those applicants leave to rely on a number of affidavits and reports, and contained a guillotine order otherwise.

2. Mr Sexton of Senior Counsel, who appears today with Mr White of Counsel for the applicants, says candidly that, he having come into the matter late for reasons that need not be recounted because everyone understands them, did not realise on 8 July that the reports to which I have referred should have been among those for which his client sought the requisite leave.

3. The first category of reports comprises some seven valuation reports prepared at various dates between February 2008 and July 2009. The applicants wish to rely on those reports to prove the value of the parcels of real estate to which they relate as at April 2009 or more generally in 2009.

4. The background is that the first cross-claimant, Brick & Block Company (BBC) was a customer of BankWest – which of course is now part of the Commonwealth Bank of Australia (CBA). Mr Rafidi guaranteed BBC's liabilities to the bank. Part of his cross-claim in these proceedings asserts in effect that CBA, in the way it dealt with the assets of BBC, was guilty of numerous breaches of duty, and effectively destroyed the company's value.

5. As part of the applicants’ case – as cross-claimants – they wish to assert an "enterprise value" for BBC. Part of that requires ascribing value to the parcels of real estate that are the subject of the valuations in question. Each of those valuations, bar two, was commissioned by BankWest for mortgage security purposes. Presumably, at the time they were commissioned BankWest thought that each of those six reports was sufficiently reliable to form a basis for its lending decision. Of the other two reports, one was commissioned by BBC itself for mortgage security purposes, and may have been provided to BankWest. The other was commissioned by a company called CNH Capital for mortgage security purposes. I have no idea who CNH is or whether that report was provided to BankWest.

6. It may be assumed quite safely that none of the reports subscribes to the Expert Witness Code of Conduct. It would follow, in respect of each report, that UCPR r 31.23 is engaged. Specifically, the report may not be admitted, nor may oral evidence in accordance with what it says be adduced, unless the Court otherwise orders.

7. I have taken the approach today that I am concerned simply with the granting of leave, as contemplated by the guillotine order made on 8 July 2016. The real question seems to me to be whether there is such prejudice that I should refuse that leave.

8. However, Mr Leopold of Senior Counsel, who appeared with Ms Holmes of Counsel for the bank, submitted that leave should be refused in any event because it was highly unlikely that the separate question of leave arising under r 31.23(3) would be resolved in the applicants’ favour. With the greatest of respect to Mr Leopold, I do not agree, at least in respect of the six reports commissioned by BankWest itself.

9. As to those six reports, it seems to me that the question of leave under r 31.23 would require assessment on the basis of what is said in those reports, how it is reasoned out, and the extent to which BankWest is seriously prejudiced by the absence of the requisite expert witness statement. In consequence, it seems to me, there is for those six reports at least a very significant likelihood that the integrity of the evidence – a matter to which many of the decided cases on the application of r 31.23(3) refer – is unlikely to be threatened. I say that because it is likely that BankWest was able to place reliance on the reports, as I have said, for mortgage purposes and thus that it is unlikely that they could be regarded as significantly – if at all – overstating the value of the properties to which they refer.

10. Although different considerations may apply in respect of the other two reports – the ones commissioned by BBC and CNH Capital respectively – my present view is that they can be dealt with by the trial judge if it appears that a real question of difficulties is likely to arise.

11. Mr Leopold also submitted that there might be a problem with the reports because they were prepared in the early phases of the Global Financial Crisis – in one case, before the GFC really manifested itself – and thus that they might not be accurate indicators of value at the various dates in 2009 to which the applicants refer. That too, it seems to me, is a matter that can be dealt with by the trial judge.

12. Mr Leopold submitted that it will be necessary for his client to obtain its own valuation evidence. I have some difficulty in seeing why that would be so, at least in respect of the six reports that were commissioned by BankWest itself – treating, as will be obvious, BankWest and CBA as being interchangeable. In any event, if there is real prejudice, the order that I propose to make will not affect it.

13. In those circumstances, it seems to me that the simplest way to deal with the matter is to grant leave to the cross-claimants to rely on the reports described in the first schedule of its notice of motion filed 4 August 2016, but to do so on the basis that any objection to those reports – including any objection based on UCPR r 31.23 – is not foreclosed by the order and is reserved to the trial judge.

14. I turn to the second schedule reports. Two of those are IBISWorld Industry Reports (the first and fourth reports referred to in the schedule), of a kind frequently referred to, in effect as background literature, by experts for the purposes of giving opinion evidence in this Court. I see no reason why such reports should not be available to the applicants. Mr Leopold submitted that there were unusual statements in them, including projections as to market movements in the future. Again, it seems to me, that is a matter that can be dealt with by the trial judge.

15. The third of the second schedule reports that is pressed (the second report referred to in the schedule) is a fire testing report of BBC's concrete masonry wall products. That is apparently to be relied upon to show that their fire resistance qualities were so good as to give them a competitive edge in the relevant market or markets. As I understand it, the testing authority is a NATA-authenticated authority and as such, one would think, its reports are again of a kind ordinarily taken as background expert literature by experts who are preparing damages reports.

16. Mr Leopold said that his client might wish to look at the reports – the fire-testing report in particular – to form its own assessment. The order that I propose to make will not prevent him from doing that. Nor will it prevent him from taking any proper objection to any of the three reports.

17. For those reasons, I propose to give the relief sought in respect of the first, second and fourth reports referred to in the second schedule of motion, but again to do so on the basis that r 31.23 and any objection based on it are not thereby foreclosed, and that all proper objections are reserved to the trial judge.

18. The parties should bring in by 5pm Monday at the latest a form of order to give effect to what I have just said.

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Decision last updated: 05 September 2016