Computer Accounting & Tax Pty Ltd v Professional Services of Australia Pty Ltd & Anor

[2010] HCATrans 139

[2010] HCATrans 139

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P47 of 2009

B e t w e e n -

COMPUTER ACCOUNTING & TAX PTY LTD

Applicant

and

PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD

First Respondent

DONALD CAMPBELL-SMITH AS EXECUTOR OF THE ESTATE OF THE LATE MARTIN PAUL BANNING

Second Respondent

Application for special leave to appeal

HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 28 MAY 2010, AT 2.17 PM

Copyright in the High Court of Australia

MR P. MENDELOW:   May it please your Honours, I appear for the applicant.  (instructed by Lavan Legal)

MR A.P. HERSHOWITZ:   May it please the Court, I appear for the respondents.  (instructed by Holborn Lenhoff Massey)

HEYDON J:   Yes, Mr Mendelow.

MR MENDELOW:   Your Honours, this application raises two important questions of principle.  The first is, over what period of time do you value a lost investment opportunity?  The second is, what are the circumstances in which an expert such as a valuer may have regard to hearsay evidence falling within the category known as non‑specific hearsay and should those traditional limits be expanded to accommodate modern notions of case management?  Your Honours, if I can commence by taking you to what, in my respectful submission, is the first error, that is, in relation to the period of assessment?  If I can take your Honours first of all to the application book at page 149 reasons of Court of Appeal at 117 where the Court of Appeal said:

On the evidence that was adduced, the respondent was aware of the true position in relation to the property within a few months of settlement in 2003.  There was no evidence led to establish any reason why, after taking the prudent step of reletting the property, the respondent could not have liquidated its investment in the service station and reinvested the funds thereby acquired in some alternative, while at the same time pursuing a claim for damages for the loss on acquisition.

The respondent neither pleaded nor placed in issue at trial that this was a step which the applicant was required to take so as not to compound its losses.  The Court of Appeal in that statement I have just read to your Honours acknowledged that it was prudent to first relet the property.  In fact, if I can take your Honours to paragraph 14 of the Court of Appeal reasons, application book page 117.  What may there be seen is that the workshop was, in fact, vacant until it was leased to Mr Palumbo in June 2006.  Now, if it was prudent to not sell the property until a suitable tenant was found, there is no reason why that period could not have commenced in June 2006 or within a period of 12 months thereafter, as found by the Court of Appeal and, indeed, that would take us to the point which is close on the trial.

Now, there would be obviously two practical difficulties, your Honours, if one was to liquidate ones investment in the service station at that time.  First of all, it was then only worth $410,000, notwithstanding that the applicant paid $665,000 for it; that is excluding stamp duty.  That is a difference of $255,000.  Once you pay your stamp duty and selling costs and buying costs of another transaction, we are coming close to a loss of approximately half of the capital.  The funds were borrowed by use of security of the home of the Friggers.  There was no evidence that they could have borrowed an additional sum. 

Your Honours, there are two important errors of principle in paragraph 117.  The first is that the Court of Appeal says that after learning of the misleading conduct the applicant should have sold the property within 12 months, and I emphasise “after learning of the true position”.  The test is that if they were required to liquidate their investment, that would surely be not after becoming aware of the misleading conduct, but after becoming aware of the fact that by not selling they are unreasonably compounding their losses.  There was no evidence led at trial to the effect that they knew or ought to have been aware that they were compounding their losses by not selling the service station and purchasing another investment property. 

They were misled into investing in the wrong investment vehicle.  There was no evidence led at trial that they ought to have known that other properties were increasing at a much greater rate than this property.  It was only in the fullness of time that this became apparent and for those reasons, there was no error in the trial judge adopting at time of trial at the time of assessment for the lost opportunity.  More fundamentally, your Honours, is that it was for the respondents, whose contravening conduct contributed to the loss or damage, to establish what components of that loss or damage was referrable to some act or event beyond the respondent’s contravening conduct. 

In that regard I direct your Honours attention to the dicta in Henville v Walker of Justice Gaudron.  If I can take your Honours to the application book in that regard.  If I can take you to tab 9, page 170, paragraph 70, where her Honour said:

It follows that, under s 82(1) of the Act, it is for the person whose contravening conduct materially contributed to the loss or damage to establish what component of that loss or damage is referable to some act or event other than his or her contravening conduct and not for the person who suffers loss or damage to establish the precise component or components referable to that conduct.  The Full Court erred in holding otherwise.

If I can further take you to page 190 of that authorities book where your Honours will see at paragraph 135 his Honour Justice McHugh stated that it is the police of the Trade Practices Act:

that consumers recover the actual losses they have suffered as the result of contraventions of the Act.  Where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage, an award of damages that compensates for the actual losses incurred in embarking on that course of conduct best serves the purposes of the Act –

In other words, your Honours, it is my respectful submission that the applicant was entitled to recover its actual losses in the absence of the respondents showing what component thereof was not attributable to the misleading conduct.  Your Honours, these are errors, in my respectful submission, of widespread significance in lost opportunity claims and the question that arises is, how do you apply these principles in Henville v Walker when it comes to lost investment opportunity claims? 

Your Honours, the second error that it is submitted that was made by the Court of Appeal is that it is the position that the Court of Appeal held that there was no admissible evidence to assess the value of the lost investment opportunity.  The applicant, in fact, however, proved on a balance of probabilities that but for the misleading conduct it would in fact have purchased an alternative investment property and the Court of Appeal did not disturb that finding.  In fact, the Court of Appeal held that there was no admissible evidence to value that lost investment opportunity and that is notwithstanding the fact that there were rates of increase of real estate in Perth disclosed by four different sources or databases to which valuers commonly have regard. 

The applicant, through its directors, visited a number of investment properties but unlike the situation, say, in Sellers where there was a specific opportunity that was lost, they were unable to identify one specific one that they would otherwise have purchased.  As found by the Court of Appeal, the Landgate data could probably be relied upon by the valuer to inform a general view as to trends in the Perth residential market over the relevant period.  In that regard, if I can take your Honours to the application book at page 139 where the Court of Appeal said:

So, the accumulated Landgate data could properly be relied upon by Mr Liggins to inform a general view as to trends in the Perth residential market over the relevant period, which could then provide the context for his analysis of particular transactions.

But what we had, your Honours, was that the Landgate data in fact showed trends of increasing Perth real estate ranging between 18 per cent and 25 per cent over the four‑year period.  Now, based on the analysis of those materials, those four different databases, it was clearly open to the valuer to confirm that those increases that he had regard to accorded with his three years of experience as a valuer and that is in fact what the valuer said in his evidence.  Now, unlike the situation in Sellers, because this was not a loss of opportunity case relating to a specific alternative investment, it was not a prerequisite to proof of loss that regard be had to comparable transactions.

The error, in my respectful submission, of the Court of Appeal was to regard this as a valuation exercise, in other words, as a land valuation exercise requiring proof of directly comparable transactions.  The transactions relied upon by the valuer were used to show trends of increase in the market.  In fact, if I can take your Honours to the application book at page 140 where one can demonstrate how the error has occurred.  At paragraph 87 the Court of Appeal says:

This approach reveals a misapprehension of the principles enunciated in the line of cases to which the trial judge referred.  First, it is clear from those cases that where specific transactions are relied upon as the basis for the expression of an opinion, they must be established to the court by admissible evidence, if the opinion is to be admissible. 

Now, Pownall v Conlan was one of the cases that was there referred to.  If I can take your Honours to Pownall v Conlan, that is tab 2, and, in particular can I take your Honours to pages 13 and 14 where the principles are there set out, where first of all his Honour Justice Ipp talks about, at the bottom of the page at approximately 55:

Hearsay information of this kind may be used by a valuer, for example, to give a general exposition of the subject, to assess market trends, or to determine whether a particular transaction is aberrant or consistent with overall market conditions.

Those words, incidentally, your Honours, “to assess market trends” do not mean that the valuer is to be so confined and, in my respectful submission, it was open to the valuer to have regard to those databases to assess that there was an approximate average of 20 per cent increases in the Perth property market over the four‑year period and that constituted a basis upon which the opportunity could be valued that was lost.  He then goes on to say:

Hearsay evidence of this character (termed “non‑specific hearsay” by Pattenden is to be contrasted with hearsay evidence of particular comparable transactions that are used to infer the value of the property that is directly in issue (termed “specific hearsay” by Pattenden).

Can I just pause there for a second, your Honours, where it says “contrasted with hearsay evidence of particular comparable transactions”.  Now, that is not what we were trying to show in this case.  The applicant was not trying to demonstrate that there were any comparable transactions.  The applicant was simply attempting to value a lost investment opportunity of a general nature and so was not required, as set out in paragraph 87 of the reasons of decision of the Court of Appeal, to prove the underlying transactions which supported the transactions relied upon set out in the database of REIWA or in the database of Landgate.  It could simply have regard, your Honours, to that database in making assessments of trends of increase in the Perth property market. 

Now, your Honours, in relation to commercial real estate, it was clearly the position that one of the criticisms of the trial of the Court of Appeal is, on what basis were these properties selected by the valuer, Mr Liggins?  It is a very simple answer to that, your Honour.  Your Honours, three of the commercial properties that the applicant looked at were in Malaga, and I can take you to the reasons of the Court of Appeal at paragraph 4.  You do not need to look at it there, your Honours, but you can see that that is the position.  The valuer then had regard to the Landgate data, which was sales and resales of a number of particular properties in Malaga, and resales that were representative of increases in the price in Malaga. 

In fact, if you look at the reasons of the Court of Appeal at application book page 141, your Honours can clearly see that at 90 to 93.  There were four properties selected and the rates have increased, most of them, over the relevant period and they disclosed, your Honours, an average.  If you go to the reasons of the primary judge at 391, application book 99, what your Honours can there see is that at 391 his Honour Justice Simmonds, the trial judge, says:

From the 12 properties to which he refers, he eliminated eight on various bases, before settling on four which showed annual increases in value of 17.6%, 22.3%, 28.85% and 33.8% respectively.  He then averaged these increases to produce the 25% -

respectively.  Then at paragraph 392 his ‑ ‑ ‑

KIEFEL J:   That is not exactly determining a trend, is it?  It is looking for a comparable transaction and striking a median?

MR MENDELOW:   No, it was in relation to determining increases in commercial real estate over the relevant period, your Honour, and that is where his Honour at paragraph 392 says:

I consider that the commercial property data shows a wide variety of rates of appreciation indeed.  There is no question here of applying the method of comparing transactions –

so there is no comparison –

but rather one of finding, if not the average of rates of increase, an indicative range.  It is within that range that Mr Liggins locates his 25%, which he refers to as ‘realistic’.

It cannot then be the position, your Honours, that there was no evidence to value this lost investment opportunity led at trial.  Now, the type of database to which Mr Liggins had regard was the type of database which a valuer can have regard to in making that sort of an assessment.  In particular, if I can take you to the extract from Wigmore at the authorities book which is at tab 6 at page 127.  What one can there see, your Honours, is it talks about standard price lists and market reports and:

A printed list of prices at which a class of goods is for sale to any purchaser, or a printed report of the prices obtained at actual sale in an open market, may become trustworthy so far as it is intended to be consulted by all persons who care to know the prices, and has been exposed to a test of accuracy by dealings with such persons on the faith of it, and has further been in their experience found generally reliable.

Then if I can take you to the bottom of that extract:

Such standard price lists and market reports, indorsed by trade experience, ought to be admissible on the principle of the present exception –

We know that Landgate is a government database of Western Australia, and one can see that from the Court of Appeal at the reasons at 28.  Then, importantly, in terms of demonstrating that this was a trusted database to which regard could be had, if I can take your Honours to reasons of the trial judge, application book 87, paragraph 348:

Mr Spencer’s testimony was that valuers ‘typically’ use the Landgate information in the ‘marketplace … as an authoritative source of sale evidence’ . . . Indeed this evidence was confirmed by the testimony of the valuer Mr Liggins, who also testified that, while errors were not unknown, they were on transactions with ‑ ‑ ‑

KIEFEL J:   Did the Court of Appeal say that there was something wrong with the database material?

MR MENDELOW:   The Court of Appeal implicitly criticised the database material by referring ‑ ‑ ‑

KIEFEL J:   I thought the main criticism was that Mr Liggins used:

a very small number of transactions implicitly suggested to be comparable to a hypothetical transaction undertaken by the respondent in 2003, so as to produce the conclusion –

that it reached.  That is at paragraph 89.

MR MENDELOW:   Yes, your Honour, but that was not what the purpose of it ‑ ‑ ‑

KIEFEL J:   What the Chief Justice is saying there is that he was undertaking a specifically comparable transaction on the basis of very small data and he was not doing the wider extrapolation of trends which might be permitted under the approach you have referred to in Pownall v Conlan Management. 

MR MENDELOW:   In my respectful submission, your Honour, he was permitted to use it to determine an indicative range of realistic returns in the Perth property market at that time.  There was no evidence in rebuttal and, therefore, having regard to the purpose for which it was used, it could be used to assess trends of increase over that period of time, the time over which you value the generally lost investment opportunity.  So, in my respectful submission, the error disclosed is that it was not the position that there was no admissible evidence on which you could value this lost investment opportunity.

Now, as to the Australian Bureau of Statistics, that also demonstrated very clearly that there were increases in the Perth real estate market over the relevant period of ranging close to 20 per cent or so and it is not correct to say that the trial judge rejected reliance on the Australian Bureau of Statistics.  In fact, at 403 of the trial judge’s reasons, application book at page 102, the primary judge simply elected to use the Landgate data.  It was not necessary, in my respectful submission, to do a cross‑appeal.  It was not warranted because in any event under rule 25 of the Court of Appeal Rules an appeal to the Court of Appeal will be by way of a rehearing and the Court of Appeal should have had regard to the Australian Bureau of Statistics.

Now, your Honours, the reasons why this issue of the extent to which valuers can rely upon hearsay is right for consideration is with the advent of case management principles and the saving of costs and, indeed,

as is referred to in Cross On Evidence in the extract I have referred to in my submissions, the question is raised that the time is now right to relax the exception to the hearsay rule in relation to hearsay of this sort.  In particular, if I can take you to tab 7 wherein it is stated at [29160]:

There is much to be said for a relaxation of the rule against hearsay generally in its application of the giving of opinion evidence.  In valuation of land cases, specialist courts commonly require that parties provide each other with lists of comparable sales on which they intend to rely.  For the most part, these are based on readily available data compiled by independent and reputable sources.

Having regard to the advent of case management principles as set out in Clambake v Tipperary, his Honour Justice Heenan clearly expounded upon this at authorities book at page 73 where his Honour said at paragraph 45 and just at the bottom of the page:

Many of the reasons for disputing facts, in the tables already described, go no further than making objections to reliance upon secondary evidence, such as catalogues, sales transactions and reports of the source and valuations of various items, which experts qualified in those particular fields may quite legitimately consult and rely upon –

Then in paragraph 49 he talks about the decisions which talk about, “The courts are a scarce and expensive public resource” and the time has now come to relax the rule against the use of hearsay when it comes to expert evidence, unless it is a matter which is truly in issue in the dispute.  Unless I can be of any further assistance, those are my submissions.

HEYDON J:   We need not trouble you, Mr Hershowitz.

We are of opinion that there are insufficient prospects of the orders of the Court of Appeal being disturbed in the event that special leave were granted.  Accordingly, the application is dismissed with costs.

Please adjourn the Court to 2.15 on Tuesday, 15 June 2010 in Canberra.

AT 2.40 PM THE MATTER WAS CONCLUDED