Idoport Pty Ltd v National Australia Bank Ltd - [2001] NSWSC 123

No judgment structure available for this case.

CITATION: Idoport Pty Ltd & Anor v National Australia Bank Ltd & 8 ors; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd [17] [2001] NSWSC 123

FILE NUMBER(S): SC 50113/98; 50026/00; 3991/00

HEARING DATE(S): 29/01/01, 30/01/01, 31/01/01, 1/02/01, 5/02/01, 6/02/01, 8/02/01, 12/02/01, 13/02/01, 15/02/01

JUDGMENT DATE:
21 March 2001

PARTIES :

Idoport Pty Ltd (Plaintiff)
Market Holdings Pty Ltd (Plaintiff)
National Australia Bank Ltd (Defendant)
Donald Robert Argus (Defendant)

JUDGMENT OF: Einstein J

COUNSEL : JJ Garnsey QC, RC Titterton (Plaintiffs)
JR Sackar QC, JA Halley (Defendants)

SOLICITORS:
Withnell Hetherington (Plaintiffs)
Freehills (Defendants)

CATCHWORDS: Evidence Act (1995) - Evidence-Admissibility - Opinion evidence - Expert opinion - Principles applicable at common law and by Evidence Act - Specialised knowledge - By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience section 79 requires that the opinion is presented in a form which makes it possible to answer that question - Experts who venture "opinions" outside their field of specialised knowledge may invest those opinions with a spurious appearance of authority and legitimate processes of fact finding may be subverted - There must be a field of specialised knowledge and witness must identify it - Witness must have expertise in an aspect of that field, and must identify it - Opinion proffered must be substantially based on expertise of witness and witness must identify it. - Any factual assumptions underlying witness' opinion must be clearly identified and articulated - Any factual observations made by witness which underlie witness’ opinion must be clearly identified and articulated and the observations must have been sufficiently detailed to form satisfactory basis for the opinion - If witness relies on combination of factual assumptions and factual observations, they must be identified Witness must explain how the knowledge on which the witness is an expert applies to the facts assumed or observations made so as to produce the opinion propounded - Opinions reliant on books, research and other data - Experiential capacity - A person put forward as an expert must by his or her study training or experience be shown to have become sufficiently acquainted with different views in field of suggested expertise as to permit he or she to be shown to be in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, literature which he or she has read - Appropriate and inappropriate use of secondary sources within opinion - Opinion on matters dealt with by other expert witnesses - Admissibility of opinions of other expert witnesses on the question of the section 79 expertise of a particular witness - Opinions grounded upon unique experience on novel matters - Court may not intrude into interior scope of the subject matter which the expert professes - Plaintiffs loss of opportunity cases - Examination of entitlement to express opinions given in relation to (i) the "functionality" of particular e-commerce financial services - (ii) the financial services markets in Australia, New Zealand, United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan - (iii) the valuation of performance bonus rights under the Consulting Agreement and the valuation of the Ausmaq Service and businesses such as the Ausmaq Service.

LEGISLATION CITED: Evidence Act 1995

CASES CITED: Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313
Bonython v R (1984) 38 SASR 45
Bugg v Day (1949) 79 CLR 442
Clark v Ryan (1960) 103 CLR 486
Davie v Edinburgh Magistrates 1953 SC 34
HG v R [1999] HCA 2
Hughes Aircraft Systems International v Airservices Australia (No. 3) (1997) 80 FCR 276
Jacara Pty Ltd v Autobake Pty Ltd [1999] FCA 417
Jeffrey v The Queen [1991] Tas.R. 336
Lipovac v Hamilton Holdings Pty Ltd (1997) 136 FLR 400
Milirrpum v Nabalco Pty Ltd (1971) FLR 141
Murphy v R (1989) 167 CLR 94
National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The 'Ikarian Reefer') [1993] 2 LloydsRep 68
NMFM Property Pty Ltd v Citibank Ltd (1999) 161 ALR 576
NRMA v Morgan unreported, Supreme Court of New South Wales, 1 September 1998
Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463
Osland v The Queen (1998) 159 ALR 170
Palmer v R (1998) 193 CLR 1
Papakosmas v R [1999] HCA 37
Paric v John Holland Constructions Pty Ltd [1984] 2 NSWLR 505
Quick v Stoland (1998) 87 FCR 371
Ramsay v Watson (1961) 108 CLR 642
R v Anderson (2000) 111 ACrimR 19
R v Fowler (1985) 39 SASR 440
R V G (1997) 42 NSWLR 451
R v Jenkins; ex parte Morrison [1949] VLR 277
R v Welsh (1996) 90 ACrimR 364
Shane Russell Sopher 74 ACrimR 21
Trade Practices Commission v Arnotts Ltd (No.5) (1990) 21 FCR 324
Trust Company of Australia Ltd v Perpetual Trustees WA Ltd Supreme Court of NSW, unreported, 18 September 1996
Wentworth v Wentworth (unreported Supreme Court of NSW, 17 April 1997)

DECISION: Mr Maconochie held to have demonstrated by his training, study or experience that he has acquired specialised knowledge on which to base, whether wholly or substantially, his opinions:; - as to the functionality of Ausmaq; - as to the functionality of the Bank Services in question; - as to the relevant comparison between the functionality of the Ausmaq Service and of the relevant Bank Services; - as to the Australian financial services markets generally and particularly in relation to Australian mutual funds industry; - by way of an assessment of the detailed prospects for success of the introduction of the Ausmaq Service into the United States markets [findings to extend to cover expressions of opinion as to the ascertainment of United States addressable markets and their extent, likely market penetration and prediction of market success]; - from a conceptual perspective, to the effect that Ausmaq Service had an actual or potential functionality such that with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could be successfully introduced into target financial markets around the world ; Mr Maconochie held not to have demonstrated by his training, study or experience that he has acquired specialised knowledge on which to base, whether wholly or substantially, his opinions:; - as to the ultimate question of valuation [he is however capable of expressing expert opinions in relation to matters such as anticipated cash flows and costs projections and market penetration and the viability of the Ausmaq System within particular markets in respect of which he has been shown to be in a position to express expert opinions as to viability]; - as to the anticipated revenue generated by financial transactions for products worldwide (i.e. outside of Australia and the United States - position as to New Zealand reserved) ; - as to anticipated revenue to be generated by the commercialisation of Ausmaq qua mutual funds in the Japanese/Taiwanese/Hong Kong Financial Services markets; - as to anticipated revenue to be generated by the commercialisation of Ausmaq qua mutual funds and life and pension products in the United Kingdom and European financial services markets.; Leave reserved to the parties in relation to a number of matters for further consideration following the handing down of these reasons

INDEX Page Paragraph

Judgment on challenge to expertise of Mr Maconochie 1 1

The Principles 2 5

The Approach taken by the parties in their submissions

The Templates 14 14

The Defendants’ Overview Submissions 16 19

Fitness/Experiential capacity 17 20

Broad categorisation of opinions 22 27

Finding as to broad categorisation of opinions 23 30

As to category (a) - bare expressions of opinion or failure

to identify factual basis for opinion 24 33

Section 135(a) 25 35

Section 135(b) 25 36

Section 135(c) 25 37

As to category(b) - Absence of a proper factual

foundation for the opinions expressed 26 38

As to category(c) - Failure to demonstrate the scientific or

intellectual basis for opinions, or the relevant reasoning process 27 44

As to category(d) - Inappropriate use of secondary sources 28 49

As to category(e) - Opinions on matters dealt with by other

expert witnesses for the plaintiffs 31 59

The plaintiffs’ submissions 32 64

Mr Maconochie’s relevant professional history and

Background 38 79

Unique Experience in Novel Areas 41 89

Training, study and experience - An overview 43 93

Opinions as to Functionality 75 115

Pre Ausmaq 78 124

Page Paragraph

Role in relation to the Ausmaq Service and its forerunners 80 127

Commercial and IT expertise 83 138

Methodology - identification and application 83 139

Breadth of training, study or experience 83 140

Depth of training, study and experience 84 143

Currency 86 151

Avoiding too narrow an approach to the route to or

categorisation of specialised knowledge 86 153

Holding - opinions as to functionality of Ausmaq 87 154

The real question of difficulty 89 158

Opinions as to functionality of Bank Services – Holding 91 165

Returning to the comparison issued 92 166

Holding - opinions as to the comparison between functionality

of the Ausmaq Service and of the Bank Services 94 172

Rulings in respect of where leave to supplement

Mr Maconochie's evidence sought to be given as to

functionality is to be granted and where sections of

Mr Maconochie’s statements are to be rejected without leave 95

Identification of assumptions 95 173

Nexus between specialised knowledge and opinions

wholly or substantially based upon such knowledge .95 174

The Tables 101 188

Financial Services Markets and Valuation 108 204

Specialised knowledge (general field on which Mr Maconochie

seeks to express opinion) and opinion expressed (table) 109 207

Opinions as to the United States Financial Services and

Markets 118 221

Valuation 132 245

Reasoning processes/Identification of

Assumptions/ Section 135 of the Act 138 252

Page Paragraph

Retail distribution fragmentation schematic (table) 140 252

Opinions as to structure, operation and size of worldwide

financial markets 143 255

Opinions as to the Japanese/Taiwanese/Hong Kong

financial services 144 257

Retail fund market place potential assessment (table) 147 263

Comparison of European Retail Mutual Fund Market Place

with the World – USD billions (table) 148 264

Retail Mutual Fund Marketplaces Worldwide (table) 148 265

Cost of retail distribution outside the US

Selected Countries - 1998 (table) 151 272

Opinions as to the United Kingdom and

European Financial Services 152 275

Opinions in relation to Australian markets/financial services 153 277

Opinions in relation to the Australian Mutual Funds Industry 154 278

Opinions in relation to the Australian Financial Services

Markets generally 154 280

Opinions in relation to New Zealand Financial Services

Markets 156 282

Miscellaneous matters 158

Breadth, Depth and Currency 158 288

Opinions on matters dealt with by other expert witnesses

for the plaintiffs 159 290

Application of the reasons to the statements the subject

of objection 160 293

Evidence taken into account on the hearing of the

issue going to Mr Maconochie's expertise 160 294

MFI P96 and P97 161 296

Further Submissions 161 297

Appendices Page Paragraph

Appendix “A” - Defendants’ templates MFI D44 - Functionality

MFI D38 - Damages (1) 16

MFI D46 - Damages (2) 16

Appendix “B” - A consolidated version of Mr Maconochie’s relevant statements and oral evidence 41 87

Appendix “C” - Rulings as to the Fifth Statement of John Malcolm Maconochie 143 254

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION - COMMERCIAL LIST

EINSTEIN J

21 March 2001

50113/98 IDOPORT PTY LIMITED & ANOR v NATIONAL AUSTRALIA BANK LIMITED & 8 ORS

50026/99 IDOPORT PTY LIMITED & ANOR v DONALD ROBERT ARGUS

3991/00 IDOPORT PTY LIMITED (“JMG”) v NATIONAL AUSTRALIA BANK

Judgment on challenge to expertise of Mr Maconochie

1 The plaintiffs seek to read in their respective cases, the numerous statements made by Mr John Maconochie. A large number of objections to the statements have been directed to be dealt with in accordance with the Directions on Admissibility given on 4 December last [2000 NSWSC 1250]. As made plain by paragraphs 51-56 of those Directions, the issue of challenges to the expertise of Mr Maconochie is being separately dealt with. This judgment deals with those challenges

2 The approach of the court envisaged by the directions may be summarised as follows:

(a) to first examine the training, study or experience of the witness;

(b) to next examine whether the witness has been shown to have specialised knowledge based upon that training, study or experience

(d) to the extent that the witness has expressed opinions on matters not satisfying the criteria set out in section 79 of the Evidence Act (1995) NSW (“The Act”) such opinions would not be admitted into evidence;

(e) to the extent that the witness has expressed opinions which are arguably "borderline" in satisfying the criteria set out in section 79, to determine whether it is appropriate to refuse to admit such opinions in the exercise of the Court's power under section 135 or section 136 of the Act;

(f) to the extent that the witness may have expressed opinions which are found to not satisfy the criteria set out in section 79 of the Act, to nevertheless determine whether, if such ruling be incorrect, the Court would have utilised its powers under section 135 or section 136 of the Act to refuse to admit such evidence.

3 The submissions addressed these issues and embraced a number of areas commonly raised in an attack on the admissibility of the evidence of a person held out as qualified to give expert evidence. Such areas included the requirements that:

· the factual basis for an opinion be identified;

· the facts described provide a proper, rational or logical foundation for the opinion and;

· the scientific or intellectual basis or the relevant reasoning process be demonstrated.

4 It is convenient to commence with an examination of the relevant principles.

The Principles

5 The current rules for the admissibility of expert evidence at least include:

(1) the evidence must be relevant (s 55) and have sufficient probative value (s135, and in criminal proceedings s137);

(2) the witness must have specialised knowledge based on training, study or experience (s 79);

(3) the opinion expressed by the witness must be based wholly or substantially on that knowledge (s 79).

6 At the most basic level section 79 points up that there is a critical nexus between:

(a) the requirement that the specialised knowledge be shown to be based on the training, study or experience of the witness, and

(b) the requirement that the opinion expressed by the witness be based wholly or substantially on the specialised knowledge.

7 If either nexus be broken section 79 is not satisfied.

8 These requirements bear close examination. That examination is considerably assisted by a recent extra curial commentary by Heydon JA of the New South Wales Court of Appeal on a paper delivered at a seminar dealing with aspects of the Act held by the Judicial Commission of New South Wales on 14 November 2000 [the Commentary and my own paper in respect of which the Commentary was delivered are now published on Lawlink NSW [ The parties’ submissions have referred to these materials extensively.

9 The Paper which was addressed by the Commentary included the following:

‘It is important to note that an expert witness should not be allowed to stray outside the witness' area of expertise. It is for this reason that the opinion expressed by the witness must be based wholly or substantially on the witness' specialised knowledge, which is in turn specialised knowledge based on training, study or experience.

At common law, the field of expertise prerequisite required a court in determining the admissibility of expert evidence, to assess the reliability of the knowledge and experience on which the opinion was based. An immediate question arose as to whether a similar exercise was required under the Act. The question appears to have been answered by Gaudron J in terms of the expression 'specialised knowledge' in a recent decision to which I shall refer.

I note that the Australian Law Reform Commission did not enter the difficult field of determining what were the criteria which were required to be shown before the field of expertise would be treated as a recognised or accepted field of expertise. The Commission recommended that there be no field of expertise test. The Commission's position was that:’

"There will be available the general discretion to exclude evidence when it might be more prejudicial than probative, or tend to mislead or confuse the tribunal of fact. This could be used to exclude evidence that has not sufficiently emerged from the experimental to the demonstrable."

Australian Law Reform Commission, Evidence, ALRC 26 (Interim) Vol.1 (AGPS, Canberra, 1985) at para 743.

‘This position one might have thought, is reflected in s 79 of the Act, which requires only that the expert have "specialised knowledge", with the exclusionary rules regarding irrelevant, prejudicial or misleading evidence presumably operating to exclude the opinions of specialists in unreliable and unacceptable fields of expertise.’

[See generally Peter Berman "Fundamentals of Expert Experience: part 2" (1996) 3 Criminal Law News 55-56.]

‘It is appropriate then that a trial judge examine evidentiary reliability under s 79, s 56 and/or s 135, and when doing so, exercise the court's appropriate discretion to ensure that the manner in which evidence is adduced by an expert does not have the quite often unforeseen consequence, which by dint of s 60 and/or s 77 of the Act would otherwise result, namely that evidence which neither party intended to be evidence of the fact, becomes evidence of the fact. That situation can very easily arise if the court is not astute to limit the precise purpose for which assumptions relied upon by experts in their reports or matters stated in those reports as facts, are admitted into evidence.'

In HG v R [1999] HCA 2, Gleeson CJ adverted to the significance of the need for an expert whose opinion is sought to be tendered, to differentiate between the assumed facts upon which the opinion is based and the opinion in question. In the view of the Chief Justice, the provisions of section 79 of the Act will often have the practical effect of emphasising the need for attention to

requirements of form

. His Honour said:

'By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience, the section requires

that the opinion is presented in a form which makes it possible to answer that question

.' [at para 39] [cf approach taken in Trust Company of Australia Ltd v Perpetual Trustees WA Ltd Supreme Court of NSW, unreported, 18 September 1996 per McLelland CJ in Eq]

Gleeson CJ pointed out that in trials before judges alone, as well as in trials by jury, it is important that the opinions of expert witnesses be confined, in accordance with section 79, to opinions which are wholly or substantially based on their specialised knowledge. As his Honour said at paragraph 44:

'Experts who venture "opinions", (sometimes merely their own inference of fact), outside their field of specialised knowledge, may invest those opinions with a spurious appearance of authority, and legitimate processes of fact finding may be subverted.'

In that case, Gaudron J saw the first question raised by the suggested expertise of the psychologist, as whether psychology or some relevant field of psychological study amounted to 'specialised knowledge'. Her Honour said at paragraph 58:

'The position at common law is that, if relevant, expert or opinion evidence is admissible with respect to matters about which ordinary persons are unable "to form a sound judgment . . . without the assistance of [those] possessing special knowledge or experience . . . which is sufficiently organized or recognized to be accepted as a reliable body of knowledge or experience.'

[Citing in support of that proposition Australian authorities running from Bonython v R (1984) 38 SASR 45 at 46-47, Clark v Ryan (1960) 103 CLR 486 at 491 through to Osland v The Queen (1998) 159 ALR 170 at 184].

Gaudron J then continued:

'There is no reason to think that the expression "specialised knowledge" gives rise to a test which is any respect narrower or more restrictive than the position at common law.'

Gleeson CJ held that it was not in dispute that psychology is a field of specialised knowledge and that a psychologist may be in a position to express an opinion based on his or her specialised knowledge as a psychologist. However, his Honour's holding was that the witness had to identify the expertise he or she could bring to bear and cited Clark v Ryan (1960) 103 CLR 486 in support of the proposition that the opinions of the expert had to be related to his or her expertise.

Here again, the emphasis is on a close examination of the assumptions upon which the opinion is based and upon the nexus between the opinion on the one hand and the suggested specialised knowledge on which the opinion is said to have been wholly or substantially based, on the other hand.

The view expressed by Gaudron J focuses, when one is examining questionable special knowledge or experience, upon the parameters of whether that specialised knowledge or experience is firstly sufficiently organised, or secondly sufficiently recognised, to be accepted as a reliable body of knowledge or experience.’

10 Heydon JA in the above Commentary conveniently identifies and elucidates the relevant requirements under the following 7 headings:

1. There must be a field of specialised knowledge and the witness must identify it.

2. The witness must have expertise in an aspect of that field, and must identify it.

3. The opinion proffered must be substantially based on the expertise of the witness and the witness must identify it.

5. Any factual observations made by the witness which underly the witness' opinion must be clearly identified and articulated, and the observations must have been sufficiently detailed to form a satisfactory basis for the opinion.

6. If the witness relies on a combination of factual assumptions and factual observations, they must be identified.

11 The first three heads identified by Heydon JA reflect the requirements of section 79 of the Act and encapsulate the first three steps identified in the above described summary of the approach to be taken as set out in the Admissibility Directions. Section 79 of the Act is not concerned with the factual basis of an expert opinion, but rather with the view, estimation or judgment inherent in the inference drawn by the expert from that factual basis: Quick v Stoland (1998) 8 7 FCR 371 at 375.

12 It is unnecessary for present purposes to set out the section of the Commentary dealing with the first head as this in substance repeats passages from the judgments of Gleeson CJ and Gaudron J in HG v R already referred to above. [The Commentary draws extensively from comments made by Gleeson CJ in HG v R] The proposition is that there must be a field of specialised knowledge which would involve matters about which ordinary persons are unable to form a sound judgment without the assistance of those possessing special knowledge or experience which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience. This was the common law test and the test under section 79 is not narrower nor more restrictive.

13 To my mind most of the balance of the Commentary dealing with the second to seventh heads expresses in such detail a number of points of principle germane to the present judgment and relied upon by the defendants as to warrant being set out. I have taken the liberty of enumerating sub-paragraphs for convenience of later references:

2. Expertise of Witness in Field of "Specialised Knowledge"

There must be an aspect of that field in which the witness is expert, by reason of training, study or experience, and which the witness identifies: see s 79 and Murphy v R (1989) 167 CLR 94 at 111. What must be evidenced is the training, the study or the experience, and how it has made the witness an expert in some aspect of the field of "specialised knowledge". The reasons for judgment of Mason P [R V G (1997) 42 NSWLR 451 at 459] said that witnesses must identify their expertise "

with precision

".

3. Opinion "Wholly or Substantially Based" on Expert Knowledge

The opinion proffered must be "wholly or substantially based on that knowledge": s 79. Gleeson CJ said of the witness in question "as Clark v Ryan (1960) 103 CLR 486 illustrates, his opinion had to be related to his expertise". It would seem incumbent on the witness also to identify how the opinion proffered relates to the field of specialised knowledge in which he is an expert. In HG v R in the Court of Criminal Appeal, Mason P doubted that the witness's general expertise and experience established that his opinion was based on "specialised knowledge" (R v G (1997) 42 NSWLR 451 at 459). That is, the opinion "lacked the

requisite scientific rigour

".

4. Factual Assumptions to be Identified

4.1 What the expert gives is an opinion based on facts. So far as they are facts observed by the expert and reported by him to the court, they must be identified (see Gleeson CJ's use of the word "observed" in para [39]). This type of expert evidence will be considered in paragraph 5 below.

So far as the facts on which the opinion is based are facts which the expert does not observe, but which are "assumed" or "accepted", they must be identified

. For this proposition Gleeson CJ cited two important pre-Evidence Act authorities, Ramsay v Watson (1961) 108 CLR 642 and Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 347-8.

4.2 Ramsay v Watson does not illustrate a practice of identifying "assumed" or "accepted" facts so much as permitting the narration by a doctor of the history obtained from a patient admissible as part of the foundation of the doctor's opinion on the patient's health, although the narration is not admissible to prove the facts of the history unless some exception to the hearsay rule is satisfied. In the type of case of which Ramsay v Watson is an example, the ultimate opinion of the doctor will usually be based in part on his personal observations of the patient and in part on what the patient tells the doctor. Ramsay v Watson also contains the opinion of Dixon CJ, McTiernan, Kitto, Taylor and Windeyer JJ that if the history is not supported by admissible evidence, then the opinion "may have little or no value, for part of the basis of it is gone". In the liberty which this dictum gives for some non-correspondence between assumed fact and proven fact, it has been repeatedly followed later. Thus in Paric v John Holland Constructions Pty Ltd [1984] 2 NSWLR 505 at 509-510 Samuels JA approved the language adopted in old American cases quoted in Wigmore, 3rd edition, para 680 note 2. One formulation turned on whether the facts established were:

"so proved as to resemble as near as may be the case under consideration; the jury can judge whether the case supposed is so far like the one they are considering as that the opinion of the expert on the supposed case is any guide to them."

Another was:

"From our analysis of the record it appears to us that there was some evidence to support every hypothetical question to which objection was made. Such evidence was not always complete, was sometimes hazy as to time, distance and other vital words, but in general, furnished a fair climate for the consideration of the views of the expert witnesses."

Samuels JA said:

"It is a question of whether the hypothetical material put to the expert witnesses represents a fair climate for the opinions they expressed. I do not think there is any requirement that the matter put is precisely consonant with the material provided ...".

4.3 In the High Court, Paric v John Holland Constructions Pty Ltd (1985) 59 ALJR 844 at 846 Mason CJ, Wilson, Brennan, Deane and Dawson JJ said that it was not necessary for the proven facts to correspond with the assumed facts "with complete precision". They said: "it is a question of fact whether the case supposed is sufficiently like the one under consideration to render the opinion of the expert of any value ...".

4.4 However, Ramsay v Watson shows that too extreme a disparity will make the opinion evidence not merely of "little or no value", but inadmissible. The plaintiff sued for damages based on an allegation that Bright's disease, from which he suffered, had been caused by lead poisoning incurred in his employment in the Government Printing Office. The defendant proved that 29 other employees had worked at the Government Printing Office, and a government medical officer testified that they did not have symptoms of lead poisoning. Counsel for the defendant attempted to elicit further evidence from the medical officer concerning what each employee told him of his past state of health. He made it clear that he did not intend to call the 29 men as witnesses. The questions were disallowed. The High Court held that the ruling was proper, "it having been apparent that the men would not be called". Underlying the High Court's conclusion must be the proposition that so massive a disconformity between the facts to be assumed on the basis of the 29 histories and the total failure to seek to prove them justified total rejection of the evidence. That may be an illustration of a principle identified by McHugh J in Palmer v R (1998) 193 CLR 1 at 24 in the following terms:

"In general, evidence of a relevant fact is excluded only when it infringes some policy of the law, one of which (even in civil cases) is that evidence of the relevant fact is not admissible if the probative value of that fact is so low that it cannot justify the time, convenience and cost of litigating its proof."

4.5 In a case decided under the Evidence Act, a different approach was taken. The exclusion of a bare opinion, i.e. one based on unproved assumptions, was said to be inadmissible because it was incapable of rationally affecting the assessment of the probability of a fact in issue within the meaning of s 55(1) and was therefore inadmissible, being irrelevant, pursuant to s 56(2): Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 374 per Branson J.

4.6 The other case to which Gleeson CJ referred was Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 347-8. There Lockhart, Wilcox and Gummow JJ supported the need "for identification of the facts assumed by the witness". They referred to R v Fowler (1985) 39 SASR 440 to support the proposition that it was impermissible to elicit an opinion based on the whole of the evidence given. Before asserting that proposition at 443, at 442 King CJ distinguished between the case of a medical witness who had examined a person and an expert who had not examined a person. In the former case, he said that the fact that the patient gave a particular history and the actual history given were as much part of the material on which the opinion was formed as the physical examination, and could be given by the medical witness. In the latter case, at least in trials by jury, the witness should give the opinion upon an assumed state of facts postulated to the witness for that purpose.

4.7 In the Arnotts case, Beaumont J at trial propounded a stricter approach, not limited to jury trials. The only exception to the rule he propounded was "in a straight-forward, uncomplicated case, where the facts are admitted and readily identified". Apart from those cases, he said the common law rule was:

"that the premises considered by the expert should be expressly stated rather than left to speculation.

It is preferable that these matters be clarified when the witness is examined in chief rather than leave room for argument later as to exactly what matters the expert had in his mind when expressing his conclusions" (at 348).

4.8 The Full Federal Court appeared to support Beaumont J's approach, for apart from rejecting the relevant ground of appeal, they spoke of "the importance of the principle that an expert witness

must identify the facts assumed in his or her opinion"

(at 349).

4.9 The Full Federal Court advanced several reasons why that principle was important.

4.10 One was that if it is ignored, the expert tends to drift into giving an opinion on the legal or general merits of the case.

4.11 A second was that if the witness deals with the evidence which, according to the witness's perception, has actually been given, as distinct from dealing with assumptions framed in conformity with the findings which it was hoped the court would make, the witness tends to drift into observations about the truth of the testimony of other witnesses.

4.12 A third reason why the principle under discussion was seen as important is that if the witness is asked for an opinion based on the whole or a large part of the evidence, it can be difficult to know which parts the witness thinks important and what weight particular parts play in the conclusion expressed.

4.13 Fourthly,

if the assumptions are not identified and articulated, the opinions of the expert may be based on undetectable unstated assumptions as to disputed facts or as to disputed propositions of law…. And if there are undetectable assumptions of fact, it is difficult to follow the reasoning of the expert and difficult for the court to apply it to the facts which the court in due course finds

.

4.14 Fifthly,

a failure to identify and articulate the factual assumptions from which the expert is working encourages the expert to exercise an illegitimate role as advocate

. The Full Federal Court quoted Sir Richard Eggleston's Evidence, Proof and Probability (2nd ed.) page 154 to the following effect:

"the expert has a legitimate role of advocacy in that, having expounded to the tribunal the rules applicable to the case ..., his evidence may then consist of argument as to the conclusions that should be drawn from the facts, interpreted by those rules. The difficulty arises because the expert often finds it difficult to distinguish between argument on the assumption that the 'facts' put forward by his side are the correct ones, and telling the judge or jury which facts they should accept as true. If he makes his assumptions clear, there is no objection to his arguing what the consequences of accepting those assumptions should be; but he is not to do the jury's fact-finding for it, where this depends on accepting one or the other set of contradictory witnesses."

(It may be that the legitimate role for expert advocacy has now been reduced since Sir Richard Eggleston's time. Practice Note 104 in the Supreme Court of New South Wales, para 2, provides:

"An expert witness's paramount duty is to assist the court impartially. That duty overrides the expert witness's obligation to the engaging party. An expert witness is not an advocate for a party."

4.15 A similar provision applies in the Guidelines set out in the relevant Federal Court Practice Direction. The source of these provisions is paragraph 2 of the statement of duties and responsibilities of experts enunciated by Cresswell J in National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The 'Ikarian Reefer') [1993] 2 LloydsRep 68 at 81-2. However, there is advocacy and advocacy. It is one thing to be partisan, in the way a barrister is. It is another thing to put to the court, as clearly and vividly as possible, what the expert's objective opinion, formed without reference to the interests of the party calling that expert, is. Truth is best uncovered by powerful statements on both sides of the question, and the modern expert codes do not inhibit a lucid and vigorous exposition of an expert's sincere and objective view.)

4.16 A sixth reason which justifies the principle that the factual assumptions on which an expert is working should be identified is that

a failure to identify and articulate those assumptions will cause the expert witness to move towards the role of filter in which, having heard or read all or much of the evidence, the expert expresses factual conclusions of his own

.

4.17 Gleeson CJ in HG v R at 428 summarised the point of these arguments in saying that the rule applied to that case "would have required identification of the facts [the witness] was assuming to be true, so that they could be measured against the evidence". The less the assumed facts are measurable against the evidence, the more the opinion based on them is open to criticism.

5. Facts Observed Must Form a Proper Foundation for the Opinion

It is not every case where an expert must link the opinion proffered to hypothetical assumptions. A doctor can state an opinion as to the cause of death by examining the deceased and without considering any other matter. A doctor may be able to give an opinion on whether a wound was self-inflicted or caused by another person (assuming that there is a relevant field of specialised knowledge, that the doctor is expert in it, and that the doctor's opinion is based on the expertise) merely by examination of the wound - but not if the doctor's actual examination of the wound was too brief or carried out for a purpose unconnected with the formation of the opinion (e.g. attending to the welfare of the wounded person), or is otherwise too ill-considered: R v Anderson (2000) 111 ACrimR 19 at 44-45 (Vic CCA). A handwriting expert may give an opinion on the similarity between a particular signature and a set of standard signatures: in general whether there is a sufficiently large number of standard signatures to form the basis of a sound opinion is a question of weight, not admissibility, but once the number of standard signatures falls below a certain level, the question may become one of admissibility: Bonython v R (1984) 38 SASR 45 at 48. Thus an opinion based on observation may be inadmissible if the observation affords inadequate foundation for it, or if the evidence does not establish that the observation affords adequate foundation for it.

6. Absence of Assumed Facts and Observed Facts Considered in Combination

A failure by a witness to make or identify sufficient factual assumptions to form a rational basis for the opinion given may render it inadmissible, or of so little weight that it should not be left for the consideration of the trier of fact. The same is true if a witness fails to make sufficient factual observations to support the opinion. And the same is also true of that class of case where the witness's opinion can only validly rest on a combination of observations and assumptions. An example is the witness in Bugg v Day (1949) 79 CLR 442 at 456-7 who was experienced in preparing damaged motor vehicles and after inspecting a motor cycle damaged in a collision with a taxi cab, opined that the latter must have been travelling at 40 miles per hour. Latham CJ said that the jury should have been warned that the opinion had little or no weight in view of the fact that the witness had known and assumed nothing about such matters as the weight of the taxi cab or the distances of the vehicles from the point of impact.

7. Demonstration of Scientific Basis of Conclusions

7.1 The opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain

how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If one cannot be sure of that, the evidence is not admissible.

And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v R, on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise of a psychologist" (at para [41]). The point is exemplified by Gleeson CJ's treatment of the expert in that case. The issue was whether the accused had interfered with the daughter of his de facto wife in 1992-3. Gleeson CJ said that the witness might have been able to say that the complainant's behaviour appeared to be inconsistent with her having been abused at that time. But the defence wished to call the evidence to say that the complainant had been abused - but in 1987 rather than in 1992-3, and by her natural father rather than the accused, 1987 being a time when she was in the custody of her natural father. Gleeson CJ said (at para [42]):

"Logically, there were a number of competing possibilities. The complainant may have been sexually abused by nobody; she may have been abused as she claimed, by the appellant; she may have been abused by her father; she may have been abused by both her father and the appellant; she may have been abused by some person or persons unknown. It was not demonstrated, and it is unlikely, that it is within the field of expertise of a psychologist to form and express an opinion as to which of those alternatives was to be preferred."

7.2

The process of making the reasoning explicit enables the court to see whether the evidence is admissible expert evidence, or whether it is instead nothing more than "putting from the witness box the inferences and hypotheses on which" the party calling the witness wishes to rely

(HG v R at para [43]). The vital importance of compliance with the requirement of s 79 that opinions of expert witnesses be confined to opinions based wholly or substantially on their specialised knowledge was stressed by Gleeson CJ for the following reason: "Experts who venture 'opinions' (sometimes merely their own inference of fact), outside their field of specialised knowledge may invest those opinions with a spurious appearance of authority, and legitimate processes of fact-finding may be subverted".

But the rendering explicit of what experts say not only aids the court in the determination of admissibility; it aids the court in fact finding at the end of the trial by making plain what the process of reasoning is. This is important, because it is not the role of the finder of fact merely to accept the opinions given to it, or select one opinion which seems more plausible than another

. According to Lord President Cooper in Davie v Edinburgh Magistrates 1953 SC 34 at 40,

experts must "furnish the Judge or jury with the necessary scientific criteria for testing the accuracy of their conclusions so as to enable the Judge or jury to form their own independent judgment by the application of these criteria to the facts proved in evidence". It follows that an expert witness must explain what Fullagar J called "the basis of theory or experience" on which the opinion of the witness has applied to the dispute in question rests

: R v Jenkins; ex parte Morrison [1949] VLR 277 at 303.

7.3 Returning to the subject discussed in paragraph 4 above, compliance with the formal requirement to state the witness's assumptions explicitly has a particular significance under the Evidence Act. If that course is not taken, and the factual material in the expert's evidence was not observed by the expert but rests on representations to the expert, the effect of s 60 is that the representations are admissible notwithstanding their hearsay character. Section 60 provides:

"The hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of the fact intended to be asserted by the representation."

See R v Welsh (1996) 90 ACrimR 364.

7.4 The effect of this is that it abolishes the distinction drawn in Ramsay v Watson between a history given by a patient to a doctor being admissible as a foundation for the doctor's opinion, but not as evidence of the facts asserted, and a history which is admissible because it falls within a hearsay exception (e.g. those relating to res gestae or omissions). Under s 60, the history is admissible whether or not it falls within s 63(1) (unavailable witnesses), s64(2) (available witnesses), s72 (contemporaneous statements about health) or s81 (admissions)…….”

[emphasis added]

The Approach taken by the parties in their submissions

The Templates

14 In order to assist the Court in the task of determining whether a sufficient nexus had been established between the opinions expressed by Mr Maconochie, any particular specialised knowledge he might possess, and in turn the extent to which that specialised knowledge may be seen to be based on any relevant training, study or experience of Mr Maconochie, the Court directed the plaintiffs to prepare a "template document". As produced in updated form that document ("the plaintiffs' template" - MFI P89) is a four column document dealing with each of the following matters in relation to Mr Maconochie’s opinion evidence:

(a) specialised knowledge;

(b) training, study or experience;

(c) description of opinions which may be expressed; and

(d) opinions expressed

15 The defendants have submitted that there are several deficiencies in the plaintiffs template as follows:

(a) The descriptions of specialised knowledge in the first column of the document are said to be inadequate in that the categories of specialised knowledge identified are said to be expressed at a level of generality or ambiguity that makes it difficult if not impossible to comprehend the scope and nature of the alleged specialised knowledge. The submission is that the plaintiffs have not sought to identify particular specialised knowledge relevant to the types of opinions that Mr Maconochie purports to express in his statements.

as a whole

(c) a further suggested deficiency in the training, study or experience column is said to be that on many occasions reference is merely made to paragraphs in Mr Maconochie's statements, rather than to a distillation of the relevant training, study or experience which is relied upon.

(d) the defendants submit that little or no attempt is made to link the description of opinions which it is asserted may be expressed to any particular specialised knowledge. Rather, these matters are said to largely be dealt with generically in a composite fashion.

(e) the defendants submit that little or no attempt is made to link the description of training, study or experience of Mr Maconochie to the opinions which it is alleged he may express by reason of his training, study or experience.

(f) the defendants submit that little or no attempt is made to identify any of the opinions that Mr Maconochie expresses with any specificity, and that typically the reader is merely confronted with a number of paragraphs references, and in the case of Mr Maconochie's reply to Mr Turner, the reader is simply referred to the statement with no identification of the opinions or paragraphs references.

16 The defendants then produced their own templates ("the defendants templates") in an attempt to assist the Court to establish whether the section 79 criteria were satisfied. Those templates which were marked for identification as MFI D38, D44 and D46 become an important tool in relation to this Judgment and for this reason are appended to the judgment as appendix “A”.

17 The defendants have sought to summarise the landscape or field of specialised knowledge in respect of which Mr Maconochie purports to express opinions on functionality in the left hand column of their functionality template MFI D44. This is also the approach taken by the defendants in the left hand column of their damages templates MFI D 38 and MFI D 46. The remaining headings are self explanatory.

18 In the result the defendants’ templates are of assistance to the Court in dealing with the first three of the seven requirements identified in Justice Heydon's Commentary. The remaining four requirements, where relevant, require to be determined in the context of an analysis of specific categories of objection and in some cases in the context of specific paragraphs of Mr Maconochie statements.

The Defendants’ Overview Submissions

19 The defendants generally embraced the propositions set out in Justice Heydon's Commentary and I do not understand them to reject any of the propositions identified in my own paper and set out above. The defendants do emphasise that the requirement that the opinion be based on specialised knowledge would normally be satisfied by the person who expresses the opinion demonstrating the reasoning process by which the opinion was reached. As the defendants submit, in such a case it would clearly be necessary for the report in which the opinion is recorded to expose the reasoning of its author in a way that would demonstrate that the opinion was based on particular specialised knowledge:

“The further requirement that an opinion be

based on

specialised knowledge would normally be satisfied by the person who expresses the opinion demonstrating the reasoning process by which the opinion was reached. Thus a report in which an opinion is recorded should expose the reasoning of its author in a way that would

demonstrate that the opinion is based on particular specialised knowledge

. Similarly, opinion evidence given orally should be shown, by exposure of the reasoning process, to be based on relevant specialised knowledge"

Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd

Fitness/Experiential capacity

20 A threshold submission of the defendants (pressed generally, but in my view perhaps more particularly relevant to the opinions sought to be expressed by Mr Maconochie in relation to the extent to which the Ausmaq service may have penetrated overseas markets and hence to the questions of the overseas financial services markets and valuation issues) relates to Mr Maconochie's extensive citation of two particular books to support and to provide a suggested sound basis for many of his opinions. The issue becomes one of examination of the circumstances in which a person claiming to be an expert may show that he or she has, by reading particular materials published in a relevant field, satisfied the criteria now stipulated for in section.

21 In this respect the defendants cited extensively from Wigmore 'Evidence in Trials at Common Law' 1979 volume 2. Wigmore uses the expression "experiential capacity" to express the necessary capacity. The defendants’ proposition is that a person put forward as an expert must by his or her training, study or experience be shown to have become sufficiently acquainted with different views in the field of suggested expertise so as to show that he or she is in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature which he or she has read. In short a highly intelligent paper gatherer who reads materials must show far more if he or she is to have the requisite specialised knowledge to satisfy section 79.

22 At paragraph 555 in chapter 23 Wigmore states as follows:

"That sort of capacity which involves, not the organic powers, moral and mental, requisite for all testimony, nor yet the emotional power of unbiased observation and statement, but the

skill to acquire accurate conceptions

, may be termed experiential capacity."

23 Wigmore continues:

" Since upon some matters accurate understanding can never be attained without special preparation or familiarity, the rules of evidence must recognise this, and must see to it that the testimonial statements offered as representing knowledge are not offered by persons who are not fitted to acquire knowledge on the subject in hand. Such fitness or skill to acquire accurate impressions comes from circumstances which may broadly be summed up in the term 'experience'. If, at the one extreme, be imagined the babe in arms, practically lacking in any such skill or fitness, and, at the other extreme, the trained professional student of a department of science, in whom the fitness exists in the highest degree, it is seen that this attribution of the source of the fitness to "experience" is sufficiently accurate for purposes of nomenclature.

In experience, then, are included all the processes - the continual use of the faculties, the habit and practice of an occupation, special study, professional training, and the rest-which contribute to produce

a fitness to acquire accurate knowledge upon a given subject

.

Two fundamental principles, involved in the very nature of the sort of capacity, are to be noted:

(1) The capacity

in every case is a relative one

, ie., relative

to the topic about which the person is asked to make his statement

. The object is to be sure that the question to the witness will be answered by a person who is fitted to answer it. His fitness, then, is a fitness to answer on that point. He may be fitted to answer about countless other matters, but that does not justify accepting his views on the matter in hand. Conversely, if he is skilled enough to acquire knowledge on the matters in hand, it is immaterial that he is not skilled upon any or every other matter…

(2) If by "expert" we mean one possessing experiential qualifications, then all witnesses must be "experts", but it is common and not unnatural to confine the term "expert" to witnesses

whose fitness

,

by reason of the subject matter, needs to be first shown

. But while there is (as will be seen), a practical distinction between the instances in which the fitness must be expressly shown and the instances in which it need not be, that is no reason for ignoring the fundamental principle that every witness whosesoever is and must be, by hypothesis,

fitted in the matter about which he is allowed to give his supposed knowledge

."

"Although (as just noted) the single and uniform principle is that every witness must be sufficiently experienced for the matter in hand, yet it is possible and necessary in practice to distinguish two broad groups of matters with reference to experiential capacity. Between these two the distinction constantly becomes a question of law, because of reasons of practical convenience.

First

, there is that class of matters as to which a sufficient experience is possessed by

every person of ordinary fortunes in life

-the kind of skill in the ordinary use of the senses which is developed necessarily, in the course of the daily dealings, for every mature member of society. To every one who is intelligent enough to take the witness stand at all is attributed a sufficient kind and degree of skill upon these matters…

Second

, there is that class of matters as to which it is only by means of some

special and that peculiar experience

, more than is the common possession, that a person becomes competent to acquire knowledge. Hence, the possession of this cannot be assumed, for an individual witness, but must be

expressly shown beforehand.

This special and that peculiar experience may have been attained, so far as legal rules go, in any way whatever; all the law requires is that it should have been attained. Yet it is possible here to group roughly two classes of experience which are usually, though not necessarily, found separately:

(a) There is, first, an occupational experience-the kind which is obtained casually and incidentally, yet steadily and adequately, in the course of some occupation or livelihood. From the advertising agent to the wood chopper there is a long list of occupations in any one of which, and perhaps in that alone, the fitness will be obtained to acquire knowledge on a particular topic.

(b) There is, second, a

systematic training

, directed deliberately to the acquisition of fitness and involving the study of a body of knowledge forming a branch of some science or art. This may be termed

scientific experience.

Now the line, if any can be drawn, between these two has no general legal significance. In truth no accurate line can be drawn. Each shades into the other imperceptibly. In some instances the witness will need both; in some instances he may have both, though he does not need both. Neither is generally favoured above the other by the courts. The question in each instance is whether the particular witness is

fitted as to the matter in hand

. On many points the nature of the subject is such that a scientific training is indispensable; but rulings requiring it make no general discrimination between the two sources of fitness; they simply apply the general principle and require the particular sort of experience which fits the witness to acquire knowledge on the particular matter."

24 In Shane Russell Sopher 74 AcrimR 21 a decision by Byrne J of the Supreme Court of Queensland, objection had been taken to the evidence proposed to be adduced from a forensic scientist on DNA profiling. The submission was that the doctor was not competent in the field and in any case was not a credible witness. Another objection was that the reliability of his conclusions was not established. The following passage appears in the judgment at paragraph 24:

"Dr Roberts is a forensic scientist who works at the Victorian governments State Forensic Science Laboratory. He has been a forensic scientist for 11 years. He has worked in DNA profiling, a relatively new field of knowledge, since September 1988. In taking his first university degree, Bachelor of Arts from York, Dr Roberts majored in biology. Chemistry was also a significant component in his undergraduate studies. In 1972 the University of Oxford awarded him the degree of Doctor of Philosophy for his work in biochemistry.

Dr Roberts’ knowledge of and experience in the area is relevant to his competence to give expert testimony on those aspects of statistical analysis and population genetics pertinent to this case derive from formal study at university, subsequently acquired knowledge and practical application of the concepts…

Dr Roberts has the knowledge of the concepts of population genetics requisite to the predictions of the frequencies of DNA profiles incurring in a population to give useful evidence in this call. He is, I should add,

well acquainted with the different views explored in the scientific literature. He appreciates the arguments and studies relating to such questions as the potential for population subgroups to affect the product rule. His own views on this and related matters have been formed after study of the rival Contentions and the published data on which they rely"

25 The Court accepted that the qualifications of Dr Roberts to give expert evidence in that case were impeccable and the criteria specified by s79 of the Act may permit persons of an entirely different training study or experience to have gained the specialised knowledge requisite to giving expert evidence. The significance of this quotation from Byrne J however. is to point up the importance of the court being satisfied that the claimed expert, through training, study or experience, is shown to have become capable of appreciating the validity (and sometimes the invalidity) and the substance (and sometimes the lack of substance) in statements made and points of view expressed in such extrinsic reading materials. Putting the matter in the terms adopted by Wigmore, the witness must be accepted by the Court as fitted in the matter about which he or she is allowed to give his or her supposed knowledge. An important parameter of an exercise in a particular case may be whether the witness is shown to have by training study or experience, sufficient specialised knowledge to be in a position to be aware of the trustworthy authorities and proper sources of information. As Wigmore says under the heading "Expert opinion founded on books and other data" in paragraph 665b3:

"The data of every science is enormous in scope and variety. No one professional man can know from personal observation more than a minute fraction of the data which he must everyday treat as working truths. Hence a reliance on the

reported data of fellow scientists

, learned by perusing in their reports in books and journals. The law must and does accept this kind of knowledge from scientific men. On the one hand, a mere layman, who comes to court and alleges a fact which he has learned only by reading a medical or a mathematical book, cannot be heard. But, on the other hand, to reject a professional physician or mathematician because the fact or some facts to which he testifies are known to him only upon the authority of others would be to ignore the accepted methods of professional work and to insist on finical and in possible in possible standards.

Yet it is not easy to express in useable form that element of professional competency which distinguishes the latter from the former. In general, the considerations which define the latter are (a) a professional experience, giving the witness a knowledge of the trustworthy authorities and the proper sources information, (b) an extent of personal observation in the general subject, enabling him to estimate the general plausibility, or probability of soundness, of the views expressed, (c) the impossibility of obtaining information on the particular technical detail except through reported data in part or entirely. The true solution must be to trust the discretion of the trial judge, exercised in the light of the nature of the subject and of the witness' equipments. The decision show in general a liberal attitude in receiving technical testimony based on professional reading."

Jeffrey v The Queen

"In my view the factual material relied upon Mr Ross was shown by the evidence to be part of the corpus of his field of science. He, himself, was shown to be a person with a knowledge of trustworthy authorities and proper sources of information and with the necessary expertise to evaluate the plausibility of the data relied upon and of the conclusion it sustained"

26 Of course none of this is to suggest for a moment that the Court at the threshold consideration of the fitness (within the parameters laid down by section 79 of the Act) of the suggested expert to give expert evidence, is concerned at all with whether the witness by his or her lights has come to a particular view on a particular matter or has come to an entirely different view.

Broad categorisation of opinions

27 The defendants seek to categorise the opinions expressed by Mr Maconochie said to be of an expert nature, as opinions given in relation to the following three broad areas:

(a) the "functionality" of electronic financial services;

(b) the financial services markets in Australia, New Zealand, the United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan; and

(c) the valuation of businesses.

28 The plaintiffs in their written submissions [MFI P93 paragraph 17.1] seek to categorise the classes of opinion in respect of which Mr Maconochie gives expert evidence as follows:

“(a) evidence that in his opinion, each of the NAB Services is a service with equivalent or similar functionality to the functionality of the Ausmaq Service;

(b) evidence of the value of JMG; and

(c) evidence as to JMG’s expected royalty streams in Australia, New Zealand, the United Kingdom and Europe, North America and Taiwan, Hong Kong and Japan.”

29 During submissions from the bar table [transcript 13 February 2001], Mr Garnsey QC for the plaintiffs indicated a general acceptance with the defendants’ categorisation subject to:

· the first category referring to the functionality of e-commerce financial services

[I note that in reply Mr Sackar QC submitted that if e-commerce is used to mean ‘electronic’ in the more general sense but more particularly here in relation to financial services then there was not very much difference, if any, of substance between the descriptions ‘e-commerce’ or ‘electronic’ financial services’]

· the third category referring to:

(i) the valuation of the performance bonus rights under the Consulting Agreement; and

(ii) the valuation of businesses such as the Ausmaq Service.

Finding as to broad categorisation of opinions

30 The parties’ respective categorisation analyses differ very slightly and I do not see that very much turns on the variance of expression. However, to my mind the opinions expressed by Mr Maconochie said to be of an expert nature would appropriately be described as opinions given in relation to the following three broad areas:

(b) the financial services markets in Australia, New Zealand, United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan; and

(i) of the performance bonus rights of JMG under the Consulting Agreement; and

(ii) of the Ausmaq Service and businesses such as the Ausmaq Service.

31 As the defendants’ templates make plain there are only very few areas in respect of which the defendants accept that Mr Maconochie has satisfied the criteria set out in section 79 of the Act and is capable of expressing expert opinions.

32 The defendants submit that, to the extent that any of Mr Maconochie's opinion evidence may be found by the court to have satisfied section 79 of the Act, a significant proportion, if not all, of that evidence falls within one or more of the following categories and should be excluded:

(a) bare expressions of opinion, or failure to identify any factual basis for an opinion;

(b) expressions of opinion for which the facts described do not provide a proper, rational or logical foundation;

(c) expressions of conclusions where there is a failure to demonstrate their scientific or intellectual basis, or the relevant reasoning process;

(d) expressions of opinion which make inappropriate use of secondary sources;

(e) expressions of opinion in relation to matters upon which other witnesses for the plaintiffs have also produced expert opinion evidence.

As to category (a)

- bare expressions of opinion or failure to identify factual basis for opinion

33 The defendants generally rely upon the fourth requirement for the admissibility of expert evidence identified by Justice Heydon. The defendants’ submission is that a number of the opinions expressed by Mr Maconochie in his statements constitute bare assertions or expressions of opinion for which no factual basis is set out.

34 The defendants’ submission is that such bare expressions of opinion should be excluded on one or both of the following bases:

(a) the failure to identify any factual basis for an opinion is said to prevent the Court from being able to determine whether the opinion even if accepted "could rationally affect (either directly or indirectly) the assessment of the probability of the existence of a fact in issue" in accordance with section 55 of the Act, with the suggested result that the opinion evidence requires to be excluded pursuant to section 56 of the Act;

(b) the failure to identify any factual basis for an opinion is said to reduce the probative value of the opinion and to cause any probative value to be substantially outweighed by the danger that the opinion might be unfairly prejudicial to a party, misleading or confusing, or cause or result in undue waste of time. To that extent the defendants submission is that such an opinion should be excluded by an exercise of the Court's discretion under section 135 of the Act.

Section 135(a)

35 The submission is that the bare expression of an opinion by an expert may be such that its probative value is substantially outweighed by the danger that the opinion might be unfairly prejudicial to the party against whom the evidence is sought to be adduced and that section 135(a) should be applied. The defendants point to a failure to properly identify the factual basis of an opinion as having been one of the problematic aspects of the expert evidence excluded under that section in NRMA v Morgan (unreported, Supreme Court of New South Wales, 1 September 1998, Giles J).

Section 135(b)

36 The further submission is that such opinion evidence may also be substantially more misleading or confusing than probative and therefore fail to survive section 135(b) of the Act. This is said to be particularly the case where the opinions expressed relate to hypothetical matters such as the likely behaviour of members of the NAB board and the likely reaction of players in the market to a hypothetical business proposition. The defendants refer to a similar exercise of the discretion under section 135(b) as having been undertaken by Finn J. in Hughes Aircraft Systems International v Airservices Australia (No. 3) (1997) 80 FCR 276 at 283.

Section 135(c)

37 Finally the defendants submit that the probative value of certain of Mr Maconochie's bare expressions of opinion is substantially outweighed by the danger that they may cause or result in undue waste of time, justifying an exclusion under section 135(c). The principles which apply to the exercise of this head of the section 135 discretion to which the defendants point are said to be accurately summarised by Sundberg J. in Jacara Pty Ltd v Autobake Pty Ltd [1999] FCA 417 at paragraph 19.

As to category(b)

- Absence of a proper factual foundation for the opinions expressed

38 The defendants cite the fifth requirement identified by Justice Heydon and in referring to the authorities cited in support of that proposition (mainly R v Anderson and Bonython v R), the defendants submit that although those cases dealt with observed facts rather than assumed facts, an analogy may be drawn with the opinion evidence of Mr Maconochie.

39 The central submission is that Mr Maconochie expresses a number of opinions for which he purports to set out the factual bases but that in many instances the facts do not constitute a proper, rational or logical foundation for the opinions expressed.

40 Examples of this category of opinion evidence are said to include assertions in relation to the following matters:

(a) the percentage of the Australian retirement asset market which could have been accessed by Ausmaq;

(b) the manner in which Ausmaq would have been capable of being organised and operated globally;

(c) the best target markets for the Ausmaq Service in Asia; and

(d) the reasonableness of the assumption that the Euromaq system would have satisfied the minimum operational requirements of its users, which was supplied to Mr Joslin.

41 The defendants submit that this principle applies to those of Mr Maconochie's opinions which are ostensibly founded upon asserted facts or documents not rationally or logically capable of supporting the opinion expressed.

42 As in the case of a bare expression of opinion, the defendants submit that evidence falling within this category may be excluded on the basis of section 56, or through an exercise of the section 135 discretion. The submission is that like a bare assertion, an opinion with no logical factual foundation, even if accepted, may not be capable of "rationally affecting (either directly or indirectly) the assessment of the probability of the existence of a fact in issue" in accordance with s55 of the Act.

43 The defendants repeat their earlier submissions as to the principles in relation to an exercise of the discretion under section 135 of the Act.

As to category(c)

- Failure to demonstrate the scientific or intellectual basis for opinions, or the relevant reasoning process

44 The defendants generally adopt the seventh requirement for admissibility identified by Justice Heydon and make the point that it has also been held that an expert's reasoning process must be clearly identified so as to enable a tribunal of fact to choose which of competing hypotheses is the more probable: Lipovac v Hamilton Holdings Pty Ltd (1997) 136 FLR 400 at 102.

45 The defendants submit that a significant proportion of Mr Maconochie's opinion evidence involves a failure to properly identify and distinguish between the factual bases for his opinions, the assumptions made (hypothetical or otherwise) and the opinions themselves. The submission is that as in fact occurred in HG v R, this results in a failure to disclose the relevant reasoning process, and a failure to demonstrate that the requirements of section 79 are satisfied.

46 Examples of this category of evidence are said to include the following passages in Mr Maconochie statements:

(b) the analogy drawn by Mr Maconochie between the Ausmaq service and a "game at a sports stadium";

(c) the matters set out by Mr Maconochie relating to whether it would have been "reasonable and practicable" to implement the 1997 Business Plan for Australia and New Zealand.

47 The defendants submit that this difficulty is also present in a number of the opinions which fall into the other categories identified in the defendants’ submissions. They make the point, as earlier stated, that rather than an application of section 56 or 135, it has been held that the appropriate ground for the exclusion of such evidence is that it is incapable of satisfying section 79 of the Act and should therefore be excluded as inadmissible opinion evidence under s76 of the Act..

48 The defendants with reference to the template documents submit that those paragraphs of Mr Maconochie's evidence which are expressed in a form which fails to express the relevant reasoning process or to identify and distinguish between facts, assumptions and opinions, are not capable of satisfying section 79 and should therefore be excluded as inadmissible opinion evidence under section 76 of the Act.

As to category(d)

- Inappropriate use of secondary sources

49 The defendants point out that a substantial amount of the opinion evidence of Mr Maconochie also relies extensively upon secondary sources. In his Second and Third Statements, Mr Maconochie relies upon a selection of documents created by the National Australia Bank for the purposes of undertaking the functionality comparison between the AUSMAQ Service and the Bank projects. In his Fifth Statement, Mr Maconochie relies heavily upon the book Net Worth and the Cerrulli Reports for the purposes of establishing the concept of a “market systems service” and of making assertions in relation to the US financial services markets.

50 The defendants then submit that the use made by Mr Maconochie of these secondary sources is generally inappropriate on one or more of the following suggested bases, and that the opinions ostensibly based upon these sources are therefore inadmissible:

(a) failure to identify the line of reasoning by which the source materials could have influenced the opinions expressed, or failure to identify which specific parts of those materials were relevant to the opinions expressed (see for example: Second Statement, paragraph 8.3 and Table 1: Vision and Strategy Comparison at page 78, Volume 2);

(b) failure to distinguish between the source material, other factual matter and the opinions expressed, including making additions to tables taken from secondary sources, without identifying the source of the additional information (see for example: Fifth Statement, Exhibit 5 at paragraph 9.15, Volume 12, cf CA2 Exhibit 23);

(d) failure to adduce evidence, or to evince an intention to call witnesses, which would enable the defendants to test the use made of the secondary sources.

51 The defendants cite NRMA Limited v Morgan & Ors (unreported, Supreme Court of NSW, 1 September 1998) where Giles J considered the admissibility of expert evidence which suffered from the defect described in subparagraph (a) above. It was held that this defect, in combination with others, rendered the evidence substantially more unfairly prejudicial than probative, justifying an exercise of the discretion under s135(a). Giles J described the expert evidence in the following way:

“a vast mass of material . . . with unclear specialised knowledge, and with an unexpressed line of reasoning or application of the knowledge from the five files and the assumptions to the opinions, and [the plaintiff] would have to either take the matter up in cross-examination and itself seek to find out what really lay behind the opinions or run the risk of the weight which the Court might attribute to the opinions.”

52 The defendants submit that where Mr Maconochie purports to use secondary sources in support of his opinion evidence, there is a failure to identify the relevant specialised knowledge and to explain the applicability of the source material to the opinions expressed which is analogous to the description of the evidence in NRMA v Morgan. A ruling under s135(a) would therefore be appropriate.

258 It is pertinent to note that under the column headed 'specialised knowledge' in the plaintiffs template MFI P89, the plaintiffs have included under the head "Damages Issues", the description 'the content and effect of market, financial and other relevant information in respect of the financial markets and products in Taiwan and Hong Kong and Japan'. This seems to reflect an acceptance, at least in part, that specialised knowledge in relation to this area would be requisite in order to satisfy section 79.

259 It is also pertinent to note that under the same column in the same template the plaintiffs have included under the same heading the following description: "Description, assessment, classification and analysis of financial services in terms of their target markets, target customer segments, purpose, business objectives, service facilities, features and products and their regulation, including description, assessment, classification and analysis in respect of… the financial markets and products in Taiwan and Hong Kong and Japan". There is simply nothing like sufficient evidence to establish the necessary training, study or experience gained by Mr Maconochie in acquiring any adjectival knowledge which could remotely qualify him to express expert opinions upon this type of subject matter.

260 At this relatively early point in the examination of the evidence sought to be given in relation to the markets/valuation issue it is useful to give an example of the type of problem thrown up by the form and content of Mr Maconochie's statements on this issue (and also on numerous other aspects of the markets/valuation issues).

261 In paragraph 5.3 of Mr Maconochie's fifth statement a copy of which is to be found in MFI D 40 (1) behind tab 3 one finds the following:

"In making this statement, where indicated, I have had regard to and relied upon, inter alia, information in Bulletins issued by the Reserve Bank of Australia; in reports of Cerulli Associates, Inc. of Boston, MA, USA ("CA") which JMG has purchased and which are confidential. (CA are a well-known Boston-based management consulting firm which provides research services on US and international markets, competitive analysis, strategic positioning, and development guidance to financial institutions); Mr Joslin's Statement that relates to European asset markets; Net Worth, by Hagel & Singer, McKinsey & Company, Harvard Business School Press, Boston MA 1999; and Mr Hume's Second and Third Statements"

262 In paragraphs 9.96 and 9.97 of the same Statement the following appears:

9.96 I refer to paragraph [9.72] and Exhibit 38 above. [there appears to be a typographical error here and the typed numeral 9.7 is seemingly incorrect]. The Asia Pacific market place for retail mutual funds will, in 2003, be about one seventh the size of North America’s (13%), about 30% of the European’s and about 2.5 times Australia’s contestable market place of USD 550 billion (I refer here to my Fourth Statement, paragraph 9.10.3).

9.97 I refer to CA2p174. “The retail environments overseas differ in two ways: the size of their addressable markets (as a proportion of their overall retail-fund marketplaces) and the fragmentation of their distribution channels”. For the AUSMAQ Service, the greater the fragmentation, the easier it is and would be to penetrate the marketplace. I refer to Exhibit 46 below.

263 Exhibit 46 set out on page 80 immediately below paragraph 9.97 is the following table:

EXHIBIT 46{CA2 Exhibit 93}

Retail Distribution Fragmentation

Potential Addrssable Market

160

264 When one goes to paragraph 9.72 one finds it in the following terms:

EXHIBIT 38 ( Ref: Exhibit 5)

Comparison of European Retail Mutual Fund Market Place

with the World – USD billions

% personal assets

1999E

2003E 1

North America
(US + Canada)

23

6432
(68%)

10120
(65%)

Europe

2228
(24%)

4057
(26%)

Asia Pacific

710
(8%)

1358
(9%)

Australia+ NZ

70+
<1%

100+
(<1%)

TOTAL

9440

15,635

265 The reference to Exhibit 5 is a reference to the following chart which appears on page 29 of the same Statement:

EXHIBIT 5 ( CA2 Exhibit 23)

Retail Mutual Fund Marketplaces Worldwide

(USD billions)

Region

% personal assets

1999E

2002E

2003E1

North America
(US + Canada)

23

6432
(68%)

9037

10120
(65%)

Europe

France

10

703

988

1106

Italy

10

529

961

1172

UK

6

339

477

534

Germany

9

288

498

612

Spain

20

273

415

477

Netherlands

-

96

138

156

2228
(24%)

4057
(26%)

Asia Pacific (excl.Australia + NZ)

Japan

4

451

780

936

S Korea

-

167

240

272

Hongkong

-

60+

86

98

Taiwan

-

17

25

28

Malaysia

-

11

16

18

Singapore

-

2+

3+

3+

Thailand

-

2+

3+

3+

710
(8%)

1358
(9%)

Australia+ NZ

70+
<1%

100

100+
(<1%)

9440

15,635
Note: 1 Extrapolated at growth rate shown in Exhibit 4

266 It is immediately apparent that Mr Maconochie in expressing the opinions in paragraphs 9.96 and 9.97 is basing his approach upon materials which he acknowledges have been extracted from the reports of Cerulli Associates. I have already outlined the shortcomings of Mr Maconochie's training, study or experience in relation to the Japanese/Taiwanese/and Hong Kong financial services and markets. This is one of the examples where Mr Maconochie seeks impermissibly to base his expression of opinions upon the Cerulli Reports.

267 In paragraph 9.98 of the same Statement Mr Maconochie says:

“9.98 By reason of the above potential assessment (moderate to high) shown in Exhibit 46, I conclude that Japan, Hongkong and Taiwan would offer the AUSMAQ Service the best prospects for success among the Asia Pacific countries, particularly Japan. These countries together have a projected size of retail market place of USD1062 billion in 2003 (USD 874 billion in 1999 dollars), which is 78% of the total for Asia Pacific ( I refer to Exhibit 5 above)."

268 Mr Maconochie appears now to be using for his own purposes, the expression "fragmentation" which was used by the Cerulli Reports. In order to follow even that notion it would be necessary for Mr Maconochie to deal with the notion and the Court could not be expected to itself study the Cerulli Reports in order to work out in what precise way those reports seek to use that expression. It would also be necessary for Mr Maconochie to himself either adopt or to adapt the expression and to indicate how he uses the expression.

269 And even in relation to these particular tables and figures taken from the Cerulli Reports it appears that Mr Maconochie may well have misread the Cerulli exhibit 93 [referred to by Mr Maconochie as his own Exhibit 46]. If, as Mr Maconochie appears to believe, it is the case that for the Ausmaq Service the greater the fragmentation, the easier it is and would be to penetrate the marketplace, then he appears to have misread the Retail Distribution Fragmentation column which in fact, against Japan, has the entry "Low". In short it is at least arguable that Mr Maconochie had in mind as the relevant Fragmentation column entry, the "High" entry which appears not in the Fragmentation column but rather in the Potential Addressable Market column. Whilst this is certainly not the time for the defendants to engage in point taking exercises which ought to occur in the cross-examination of a person who succeeds in being shown to have the necessary specialised knowledge on which wholly or substantially to base relevant opinions, the example points up the closeness with which attempts by an expert to extrapolate from tables in external reports must be examined, not only for accuracy, but more importantly to permit the Court to follow, through the eyes of the expert, precisely in what manner:

(a) the authors of external reports have used particular phrases or expressions and what views the expert has as to whether such use is correct or not,

(b) statistics and the like have been used in external reports and what view the expert has as to the validity/currency of such statistical analysis.

270 In paragraphs 9.99 and 9.100 of the same Statement, Mr Maconochie says:

9.99 "The expected market share for the AUSMAQ Service in the US is 17.75% of the retail market (Exhibit 53, paragraph 11.1.9-12, probably greater than that in Australia and New Zealand and 8% in Europe (Exhibit 41). By reason of what I understand to be different circumstances in each of these three countries

CA3

,, I have used the lower 8% market share for the purposes of this statement for the Asia Pacific region.”

9.100 “I refer also to Exhibit 39. In my opinion a portfolio of 0.30% pa of asset value would be reasonable and competitive, and I have adopted this amount as the fee charged by the AUSMAQ Service in Japan, Hongkong and Taiwan; and a cost to income ratio of less than 0.45 as in Australia, the US and Europe.”

271 The reference CA3 in paragraph 9.99 is a reference back to the following section of paragraph 9.11 of the same Statement:

" Global Asset-Gathering Strategies, Volume II: Country Profiles, 1999 – Cerulli Associates, Inc. (The Table of Contents and List of Exhibits of this report are annexed to statement as “CA3”) "

272 The reference in paragraph 9.100 to 'Exhibit 39' is a further reference to a Cerulli table which is to be found as part of paragraph 9.75 of the report in the following terms:

273 It seems clear from the 2nd sentence of paragraph 9.99 that Mr Maconochie has a form of understanding as to there being different circumstances in each of Japan, Hong Kong and Taiwan. But that understanding is not identified. The reader can only discern that the whole of the table of contents and list of exhibits to the relevant Cerulli report [on examination this appears to cover a table of contents dealing with some 427 pages of text and a list of the 265 exhibits referred to enact text], is to be regarded as a point of reference which is presumably to assist the reader in following where or how Mr Maconochie acquired that understanding.

274 As to Mr Maconochie's opinions [cf paragraph 9.100] that a portfolio of 0.30 percent per annum of asset value would be reasonable and competitive as appropriate to be adopted as the fee charged by the Ausmaq Service in Japan, Hong Kong and Taiwan and that a cost to income ratio of less than 0.45 is appropriate, how it may be asked, is he qualified to give evidence in relation to proposed portfolio fees or cost to income ratios in relation to markets in respect of which he has no specialised knowledge flowing from relevant training, study or experience?

Opinions as to the United Kingdom and European Financial Services

275 In relation to the United Kingdom and European Financial Services area identified in MFI D38 as "D2", to my mind the defendants have in column 5 reasonably accurately summarised generally the type of training, study or experience which would be requisite to be shown in order for it to be established that Mr Maconochie has acquired the specialised knowledge necessary to permit the expression of opinions relating to Mutual Funds [that is to say dealing with market statistics (market size, share, fees); distribution; evaluation of entry strategy; suitability of United Kingdom regulatory environment; Euromaq; Exchange opportunity]. I further accept the defendants description given in column six of MFI D38 as a reasonably accurate thumbnail sketch of Mr Maconochie's training, study or experience in fact proven by his evidence. It seems to me that there is close to no evidence of any specificity at all to suggest the necessary familiarity with the subject market. Here again the extent of Mr Maconochie's actual training study or experience disclosed on the evidence falls far short of what is required for specialised knowledge in the area. Here again there is a clear chasm between on the one hand, the necessary training, study or experience which he would have to have had in order to establish that he had the requisite specialised knowledge on the basis of which wholly or substantially to be in a position to express the subject opinions in relation to mutual funds and life and pension products in the United Kingdom and European financial services markets, and on the other hand the training study or experience which he has been shown on the evidence to have had, as to again clearly mandate the conclusion that he has not been shown to have acquired the necessary specialised knowledge to be in a position to express the subject opinions. Here again as pointed out above, this is not to say that he cannot express opinions from a conceptual perspective, the Ausmaq Service had an actual or potential functionality such that, with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could have been successfully introduced into particular target financial markets such as these. The weight of such evidence is another matter for ultimate adjudication..

276 I intend however to reserve for further argument a number of questions raised by paragraphs 9.2.1 (g)-(j), 9.2.2 (a) and 9.2.2 (d) [‘required functionality for Ausmaq’] of Mr Maconochie's sixth statement dated 14 July 1999

Opinions in relation to Australian markets/financial services

277 Mr Maconochie's extensive background, training, study and experience in relation to Australian markets and financial services generally clearly entitled him to be in a position to express expert class “d” opinions by way of an assessment of the prospects for success of the further commercialisation of the Ausmaq Service in Australia. Hence he has been shown to have necessary specialised knowledge on the basis of which to express opinions as to the ascertainment of Australian addressable markets and their extent, likely market penetration and predictions of market success-particularly bearing in mind his case that the business plans ought to have been followed. And here again in relation to the approach taken by Wigmore, Mr Maconochie has been shown to have acquired by his training, study or experience, the experiential capacity necessary to qualify him to express opinions on the market/valuation issues. He has by his study, training or experience been shown to have become sufficiently acquainted with different views in the field with which the markets/valuation issues concerned as to permit him to be in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account , the literature which he has read. Importantly he has demonstrated sufficient experiential capacity to permit him to draw on statistics and other forms of graph or tables or figures as may be located in relevant literature to provide him with a proper basis upon which to draw in expressing his own opinions.

Opinions in relation to the Australian Mutual Funds Industry

278 A measure of the specialised knowledge which Mr Maconochie's training study or experience has furnished him with in relation to the Australian Mutual Funds Industry may be gleaned from the extent of the concessions which the defendants make in this regard. I have already indicated the concessions covering areas in respect of which Mr Maconochie's attempts to express expert opinions are not challenged on the basis of lack of specialised knowledge. These include in relation to this industry, pricing of products, relative power of industry participants, description of investment process, revenue sources and categories of cost of fund managers, client access requirements of fund managers, fund managers strategy, difference between wholesale and retail markets and 'distribution general'.

279 In my view Mr Maconochie has been shown by his training study or experience to have not only acquired specialised knowledge on which wholly or substantially to base opinions of the above categories, but has also to have acquired specialised knowledge on which wholly or substantially to base opinions going to the analysis of market statistics for the purpose of drawing conclusions from statistics and giving projections; the operating complexity and regulatory structure of master funds; the revenue sources and categories of cost of advisers/dealers; the make up of a typical investor's portfolio and the failure of competing order routing services.

Opinions in relation to the Australian Financial Services Markets generally

280 Turning to the field of Australian financial services markets generally [described by the defendants in MFI D38 as field D20), in my view the evidence demonstrates that Mr Maconochie's training, study or experience has been such as to furnish him with specialised knowledge on which wholly or substantially to be in a position to base his expression of opinions on general market description and trends including definitions; key industry trends (including master trusts, wraps and the Internet/e-commerce; key industry statistics such as market size and growth, market shares of existing firms and fee levels; uniqueness of Ausmaq's regulatory structure; the planning and implementation of 'green fields' projects; susceptibility of financial services markets to reconfiguration; estimating the market penetration of a service designed to reconfigure financial services markets (including application of crowd behavioural finance models) and Internet distribution. As earlier stated the fact that he has the experiential capacity which equips him with the ability to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature, statistics, graphs tables or figures as may be located in relevant literature to provide him with a proper basis upon which to draw in expressing his own opinions, qualifies him to express opinions on certain of these matters where in the absence of the experiential capacity it may well have been debatable as to whether he was in a position to express certain of these opinions.

281 In my view, Mr Maconochie has also been shown by his training, study or experience to have acquired specialised knowledge on which wholly or substantially to be in a position to express opinions in relation to the Australian cash management market, the Australian equities market, the Australian superannuation market, the Australian foreign exchange market, the Australian bonds market, the Australian payments market, the Australian insurance market, the Australian electricity transaction market and the Australian land titles market. Here again the fact that he has the experiential capacity which equips him with the ability to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature, statistics, graphs tables or figures as may be located in relevant literature to provide him with a proper basis upon which to draw in expressing his own opinions, qualifies him to express opinions on certain of these matters where in the absence of the experiential capacity it may well have been debatable as to whether he was in a position to express certain of these opinions.

Opinions in relation to New Zealand Financial Services Markets

282 Both parties apparently see the New Zealand position as closely relevant to the Australian financial services markets position. The defendants in MFI D38 include as their category “D5” being "New Zealand Financial Services", the notation D5.1 which they refer to as "included as part of discussion of Australian financial services markets…". Likewise in relation to the defendants category D17 being "Australian equities market", the defendants include the notation D17.1 which they describe as "size and contestability of Australian and New Zealand equities markets."

283 I have already referred to the evidence given by Mr Maconochie to the effect that he researched the New Zealand debt securities market and had to acquaint himself with the New Zealand economy and New Zealand debt securities markets.

284 I have the clear impression that by reason of the extensive materials the subject of submissions by both parties on the expertise issue, both parties may have failed to fully or adequately treat with all parameters relevant to the issue of Mr Maconochie's expertise in relation to the New Zealand financial services markets. It was for example quite plain during the extensive openings that, as I understood it, both parties accepted that Mr Maconochie had spent a reasonable amount of time in New Zealand between the day when the Consulting and Restructuring Agreements were settled and say for example mid 1997. Neither party referred with any specificity to this fact which was apparently common ground during the openings. It seems curious if the position be that the parties seek for the issue to be determined on a basis otherwise. And following the taking of submissions in relation to the expertise issue, the defendants continued to open their case on a number of additional aspects. As I understood that address particularly relating to MFI D 51 (2), the defendants apparently concede that the primary stakeholders in the New Zealand investment industry and the roles which they play are similar to Australia [see also transcript page 6013.45]. It is likely however that this concession, if concession it be, is not to be taken into account on the evidentiary issue going to expertise which is presently under consideration.

285 I do not accept as of substance the defendants submission that in relation to the field of New Zealand financial services Mr Maconochie's evidence before the court discloses no breath, no depth and no currency. On the other hand I do think it is reasonable to give the plaintiffs a further opportunity to place before the court such evidence as the plaintiffs may seek to rely upon in terms of those sections of the existing statements, or further statements which may be relied upon, dealing with Mr Maconochie's particular New Zealand experiences. Most importantly in proceedings such as the present, I am concerned that the real issues be litigated. Given the approach taken by both parties to the opening addresses and the other matters referred to above it seems to me appropriate that both parties be given a further opportunity in the light of these general reasons, to further address the issue as to whether Mr. Maconochie may be shown to have acquired the requisite specialised knowledge from his experiences in relation to New Zealand, to equip him with the entitlement to express, wholly or substantially based upon that specialised knowledge, opinions in relation to the New Zealand Markets.

286 In the result I currently refrain from finally determining this issue. It certainly cannot be said that Mr Maconochie has had no involvement at all with New Zealand. My understanding from the openings was that neither party so submitted. As I say, he has given evidence up to this point that in researching the New Zealand debt securities market he had to acquaint himself with the New Zealand economy and with New Zealand debt securities market. In relation to the research which he carried out into the New Zealand debt securities market pertaining to the development of the First Australia Prime Income Fund, his evidence was that he acquainted himself with the debt securities markets in not only Australia, but also New Zealand, with how debt securities were rated and with how this compared with the United States situation. His evidence was that he had encountered some difficulties when attempting to locate official information in relation to New Zealand and that he conducted the research himself and provided it to the Reserve Bank of New Zealand who adopted it as their estimate of official statistics on the New Zealand debt securities markets. He also telephoned two leading New Zealand stockbrokers, the Reserve Bank of New Zealand and various Australian research houses explaining what information he required and worked with those entities to find out the necessary details. He received cooperation from them and was advised as to other places to which he could go where they did not have the relevant data. He obtained information regarding the debt securities and cash markets in New Zealand, the price of currencies in New Zealand going back a number of years, special considerations in relation to the markets and in relation tying in those markets to the investment objectives and policies of the fund. After obtaining the information in an unconsolidated form from a number of sources, he compiled a table with text descriptions and referenced to each of the sources of information. That was sent to New York and information was finally included in the prospectus. His evidence was that this research provided a background of experience for his later research into markets when he came to develop the Ausmaq Service. Also in relation to his experience it appears from his evidence that during the 1996 period development of the Ausmaq Service, he examined and researched globalisation of the securities business, requesting information from various fund managers regarding their products and how their businesses were organised to allow securities to be offered in a number of legal jurisdictions. One of the United States fund managers which he contacted provided him with a variety of materials including several prospectuses which they proposed to launch in New Zealand.

287 On the basis of this material it seems clearly arguable that Mr Maconochie has acquired sufficient specialised knowledge to be in a position to express opinions in relation to the relevant New Zealand markets. I wish to hear further from both parties as to whether they wish to address any additional submissions on the issue and as to whether the parties or either of them wish the court to take into account any further evidence on the issue.

Miscellaneous matters

Breadth, Depth and Currency

288 The above reasons take into account the defendants several submissions with respect to suggested shortcomings in relation to the breadth, depth or currency of Mr Maconochie's study training or experience. To the extent that the court has held that Mr Maconochie has been shown by his training, study or experience to have demonstrated that he has acquired the specialised knowledge on the basis of which wholly or substantially to be in a position to express opinions, the court has taken into account all the evidence which he has given and has come to the conclusion that there is no substance in the defendants submissions as to relevant lack of breadth, depth or currency. These parameters are always both relevant and relative to the particular form of specialised knowledge sought to be upheld. They are always both relevant and relative to the type of opinions sought to be expressed.

289 There remain a number of discrete matters which are required to be dealt with.

Opinions on matters dealt with by other expert witnesses for the plaintiffs

290 As a general rule the court would be inclined to disallow this type of evidence if for no reason otherwise than that it amounts to an unnecessary duplication of evidence and would therefore be likely to 'cause or result in undue waste of time' and be a candidate for exclusion under section 135 (c) of the Act. It may well be that in a number of instances the rulings which are earlier given in this judgment amount to Mr Maconochie in any event simply not having been shown to have the requisite specialised knowledge to be in a position to express expert opinions for example by way of supporting another expert's views as to valuation. In those circumstances it seems to me appropriate to reserve on most of the questions relating to Mr Maconochie's endeavours to express opinions on matters dealt with by other plaintiffs expert witnesses, for further decision following the parties having had an opportunity to read the above reasons.

291 I am however of the view that a person who is put forward as an expert is entitled to, as a matter of form, rely upon assumptions which are in turn to be found in another expert's report.

292 I am further clearly of the view that the court should disallow the attempt by the plaintiffs to seek to sustain or support the proposition that Mr Maconochie has been shown to have the requisite specialised knowledge to express opinions on particular topics, by in effect, seeking to read from the reports of other suggested expert's who seek to give evidence, for example, that Mr Maconochie used the correct methodologies in an exercise which he is said to have carried out. That form of opinion has no relevance to the question of whether or not Mr Maconochie has the requisite specialised knowledge on which to base the opinions which he seeks to express. To take an extreme example, one witness may quite by accident set out a correct methodology, in which event for another witness to say that this was indeed the correct methodology, does not speak at all to the question at hand, namely that of whether the first witness had the requisite specialised knowledge. To take an even more extreme example, the first witness may have been given by some third person, the methodology which that witness then uses. In the same way, for another witness to say that the methodology used was indeed correct, does not speak at all to the question of whether the first witness had the requisite specialised knowledge.

Application of the reasons to the statements the subject of objection

293 By reason of the many paragraphs and sentences which have been objected to across the very many statements in issue it is clearly necessary for the matters of the principle subject of the above findings to be applied to those sections of the statements as will now have to be struck out. At the same time and for that reason many of the form objections should simply fall away. It is for example, unnecessary to deal with form objections wherever Mr Maconochie sought to express opinions relating to ultimate valuation issues. There may be other circumstances in which it is necessary to revisit form issues. I have endeavoured to specifically dealt in the reasons with how the fifth statement is to be dealt with. The Court will reserve a final decision on the form objections until the parties have had adequate opportunity to seek to apply these reasons to the statements.

Evidence taken into account on the hearing of the issue going to Mr Maconochie's expertise

294 I reject the plaintiffs tender on the issue of whether or not Mr Maconochie has been shown to have section 79 specialised knowledge of statements of other experts [principally Mr Skelton and Professor Pruden] who purport to verify the methodology which Mr Maconochie is said to have adopted.

295 In a number of cases Mr Garnsey QC sought to tender particular documents on the hearing of the above issue. The proposed tender was opposed by Mr Sackar QC. The Courts approach was to reserve the question of whether the documents would be allowed into evidence on the particular issue and to make plain that a decision on that matter would appear in the final judgment. It is now necessary to announce that decision and the parties may take it of course, that the above reasons are given in the light only of the evidence allowed as now indicated.

MFI P96 and P97

296 The folder of documents MFI P96 is not allowed into evidence on the expertise issue. The materials are not sworn to for the purpose. They are wide ranging and in many instances their genealogy is unclear. The defendants had no opportunity to cross examine on the documents. The tender took place in address. A deal of the material is hearsay. The schedule MFI P97 is not allowed into evidence on the expertise issue. MFI P92 is allowed into evidence for the same purpose as that in respect of which MFI P94(1) and MFI P94(2) were placed into evidence- see transcript pages 5796.47 - 5797.15.

Further Submissions

297 By reason of the complexity of the issues raised on the expertise challenge and by reason of the wide-ranging number of objections it is possible that the above reasons have overlooked some particular issue or matter which required to be treated with. To a certain extent it has been necessary to deal with questions as a matter of principle for obvious reasons. Hopefully the essential gravamen of the critical findings is clear. The court will entertain such further submissions as either party may wish to address by way of clarification of the reasons or by way of the Court having for whatever reason simply omitted to treat with a particular issue. At the same time submissions will be taken as to timetable by which the plaintiffs will attend to those areas treated with by the judgment as appropriate for leave.

I certify that paragraphs 1 - 297 Corrigendum:
are a true copy of the reasons To add the eighth sentence at the end of
for judgment herein of the paragraph 296
Hon. Justice Einstein
given on 21 March 2001

___________________ ___________________
Susan Piggott Susan Piggott
Associate Associate

21 March 2001 21 March 2001

Last Modified: 06/13/2002

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Citations

Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 123

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Cited Sections

CITATION:	Idoport Pty Ltd & Anor v National Australia Bank Ltd & 8 ors; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd [17] [2001] NSWSC 123
FILE NUMBER(S):	SC 50113/98; 50026/00; 3991/00
HEARING DATE(S):	29/01/01, 30/01/01, 31/01/01, 1/02/01, 5/02/01, 6/02/01, 8/02/01, 12/02/01, 13/02/01, 15/02/01
JUDGMENT DATE:	21 March 2001
PARTIES :	Idoport Pty Ltd (Plaintiff) Market Holdings Pty Ltd (Plaintiff) National Australia Bank Ltd (Defendant) Donald Robert Argus (Defendant)
JUDGMENT OF:	Einstein J

COUNSEL :	JJ Garnsey QC, RC Titterton (Plaintiffs) JR Sackar QC, JA Halley (Defendants)
SOLICITORS:	Withnell Hetherington (Plaintiffs) Freehills (Defendants)
CATCHWORDS:	Evidence Act (1995) - Evidence-Admissibility - Opinion evidence - Expert opinion - Principles applicable at common law and by Evidence Act - Specialised knowledge - By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience section 79 requires that the opinion is presented in a form which makes it possible to answer that question - Experts who venture "opinions" outside their field of specialised knowledge may invest those opinions with a spurious appearance of authority and legitimate processes of fact finding may be subverted - There must be a field of specialised knowledge and witness must identify it - Witness must have expertise in an aspect of that field, and must identify it - Opinion proffered must be substantially based on expertise of witness and witness must identify it. - Any factual assumptions underlying witness' opinion must be clearly identified and articulated - Any factual observations made by witness which underlie witness’ opinion must be clearly identified and articulated and the observations must have been sufficiently detailed to form satisfactory basis for the opinion - If witness relies on combination of factual assumptions and factual observations, they must be identified Witness must explain how the knowledge on which the witness is an expert applies to the facts assumed or observations made so as to produce the opinion propounded - Opinions reliant on books, research and other data - Experiential capacity - A person put forward as an expert must by his or her study training or experience be shown to have become sufficiently acquainted with different views in field of suggested expertise as to permit he or she to be shown to be in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, literature which he or she has read - Appropriate and inappropriate use of secondary sources within opinion - Opinion on matters dealt with by other expert witnesses - Admissibility of opinions of other expert witnesses on the question of the section 79 expertise of a particular witness - Opinions grounded upon unique experience on novel matters - Court may not intrude into interior scope of the subject matter which the expert professes - Plaintiffs loss of opportunity cases - Examination of entitlement to express opinions given in relation to (i) the "functionality" of particular e-commerce financial services - (ii) the financial services markets in Australia, New Zealand, United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan - (iii) the valuation of performance bonus rights under the Consulting Agreement and the valuation of the Ausmaq Service and businesses such as the Ausmaq Service.
LEGISLATION CITED:	Evidence Act 1995
CASES CITED:	Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 Bonython v R (1984) 38 SASR 45 Bugg v Day (1949) 79 CLR 442 Clark v Ryan (1960) 103 CLR 486 Davie v Edinburgh Magistrates 1953 SC 34 HG v R [1999] HCA 2 Hughes Aircraft Systems International v Airservices Australia (No. 3) (1997) 80 FCR 276 Jacara Pty Ltd v Autobake Pty Ltd [1999] FCA 417 Jeffrey v The Queen [1991] Tas.R. 336 Lipovac v Hamilton Holdings Pty Ltd (1997) 136 FLR 400 Milirrpum v Nabalco Pty Ltd (1971) FLR 141 Murphy v R (1989) 167 CLR 94 National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The 'Ikarian Reefer') [1993] 2 LloydsRep 68 NMFM Property Pty Ltd v Citibank Ltd (1999) 161 ALR 576 NRMA v Morgan unreported, Supreme Court of New South Wales, 1 September 1998 Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 Osland v The Queen (1998) 159 ALR 170 Palmer v R (1998) 193 CLR 1 Papakosmas v R [1999] HCA 37 Paric v John Holland Constructions Pty Ltd [1984] 2 NSWLR 505 Quick v Stoland (1998) 87 FCR 371 Ramsay v Watson (1961) 108 CLR 642 R v Anderson (2000) 111 ACrimR 19 R v Fowler (1985) 39 SASR 440 R V G (1997) 42 NSWLR 451 R v Jenkins; ex parte Morrison [1949] VLR 277 R v Welsh (1996) 90 ACrimR 364 Shane Russell Sopher 74 ACrimR 21 Trade Practices Commission v Arnotts Ltd (No.5) (1990) 21 FCR 324 Trust Company of Australia Ltd v Perpetual Trustees WA Ltd Supreme Court of NSW, unreported, 18 September 1996 Wentworth v Wentworth (unreported Supreme Court of NSW, 17 April 1997)
DECISION:	Mr Maconochie held to have demonstrated by his training, study or experience that he has acquired specialised knowledge on which to base, whether wholly or substantially, his opinions:; - as to the functionality of Ausmaq; - as to the functionality of the Bank Services in question; - as to the relevant comparison between the functionality of the Ausmaq Service and of the relevant Bank Services; - as to the Australian financial services markets generally and particularly in relation to Australian mutual funds industry; - by way of an assessment of the detailed prospects for success of the introduction of the Ausmaq Service into the United States markets [findings to extend to cover expressions of opinion as to the ascertainment of United States addressable markets and their extent, likely market penetration and prediction of market success]; - from a conceptual perspective, to the effect that Ausmaq Service had an actual or potential functionality such that with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could be successfully introduced into target financial markets around the world ; Mr Maconochie held not to have demonstrated by his training, study or experience that he has acquired specialised knowledge on which to base, whether wholly or substantially, his opinions:; - as to the ultimate question of valuation [he is however capable of expressing expert opinions in relation to matters such as anticipated cash flows and costs projections and market penetration and the viability of the Ausmaq System within particular markets in respect of which he has been shown to be in a position to express expert opinions as to viability]; - as to the anticipated revenue generated by financial transactions for products worldwide (i.e. outside of Australia and the United States - position as to New Zealand reserved) ; - as to anticipated revenue to be generated by the commercialisation of Ausmaq qua mutual funds in the Japanese/Taiwanese/Hong Kong Financial Services markets; - as to anticipated revenue to be generated by the commercialisation of Ausmaq qua mutual funds and life and pension products in the United Kingdom and European financial services markets.; Leave reserved to the parties in relation to a number of matters for further consideration following the handing down of these reasons

INDEX	Page	Paragraph
Judgment on challenge to expertise of Mr Maconochie	1	1
The Principles	2	5
The Approach taken by the parties in their submissions
The Templates	14	14
The Defendants’ Overview Submissions	16	19
*Fitness/Experiential capacity*	17	20
*Broad categorisation of opinions*	22	27
Finding as to broad categorisation of opinions	23	30
As to category (a) - bare expressions of opinion or failure
to identify factual basis for opinion	24	33
Section 135(a)	25	35
Section 135(b)	25	36
Section 135(c)	25	37
As to category(b) - Absence of a proper factual
foundation for the opinions expressed	26	38
As to category(c) - Failure to demonstrate the scientific or
intellectual basis for opinions, or the relevant reasoning process	27	44
As to category(d) - Inappropriate use of secondary sources	28	49
As to category(e) - Opinions on matters dealt with by other
expert witnesses for the plaintiffs	31	59
The plaintiffs’ submissions	32	64
Mr Maconochie’s relevant professional history and
Background	38	79
Unique Experience in Novel Areas	41	89
Training, study and experience - An overview	43	93
Opinions as to Functionality	75	115
Pre Ausmaq	78	124
Page	Paragraph
Role in relation to the Ausmaq Service and its forerunners	80	127
*Commercial and IT expertise*	83	138
*Methodology - identification and application*	83	139
*Breadth of training, study or experience*	83	140
*Depth of training, study and experience*	84	143
Currency	86	151
Avoiding too narrow an approach to the route to or
categorisation of specialised knowledge	86	153
Holding - opinions as to functionality of Ausmaq	87	154
The real question of difficulty	89	158
Opinions as to functionality of Bank Services – Holding	91	165
Returning to the comparison issued	92	166
Holding - opinions as to the comparison between functionality
of the Ausmaq Service and of the Bank Services	94	172
Rulings in respect of where leave to supplement
Mr Maconochie's evidence sought to be given as to
functionality is to be granted and where sections of
Mr Maconochie’s statements are to be rejected without leave	95
*Identification of assumptions*	95	173
*Nexus between specialised knowledge and opinions*
*wholly or substantially based upon such knowledg*e	.95	174
*The Tables*	101	188
Financial Services Markets and Valuation	108	204
Specialised knowledge (general field on which Mr Maconochie
seeks to express opinion) and opinion expressed (table)	109	207
Opinions as to the United States Financial Services and
Markets	118	221
Valuation	132	245
Reasoning processes/Identification of
Assumptions/ Section 135 of the Act	138	252
Page	Paragraph
Retail distribution fragmentation schematic (table)	140	252
Opinions as to structure, operation and size of worldwide
financial markets	143	255
Opinions as to the Japanese/Taiwanese/Hong Kong
financial services	144	257
Retail fund market place potential assessment (table)	147	263
Comparison of European Retail Mutual Fund Market Place
with the World – USD billions (table)	148	264
Retail Mutual Fund Marketplaces Worldwide (table)	148	265
Cost of retail distribution outside the US
Selected Countries - 1998 (table)	151	272
Opinions as to the United Kingdom and
European Financial Services	152	275
Opinions in relation to Australian markets/financial services	153	277
Opinions in relation to the Australian Mutual Funds Industry	154	278
Opinions in relation to the Australian Financial Services
Markets generally	154	280
Opinions in relation to New Zealand Financial Services
Markets	156	282
Miscellaneous matters	158
Breadth, Depth and Currency	158	288
Opinions on matters dealt with by other expert witnesses
for the plaintiffs	159	290
Application of the reasons to the statements the subject
of objection	160	293
Evidence taken into account on the hearing of the
issue going to Mr Maconochie's expertise	160	294
MFI P96 and P97	161	296
Further Submissions	161	297
Appendices	Page	Paragraph
Appendix “A” - Defendants’ templates MFI D44 - Functionality
MFI D38 - Damages (1)	16
MFI D46 - Damages (2)	16
Appendix “B” - A consolidated version of Mr Maconochie’s relevant statements and oral evidence	41	87
Appendix “C” - Rulings as to the Fifth Statement of John Malcolm Maconochie	143	254

% personal assets	1999E	2003E 1
North America (US + Canada)	23	6432 (68%)	10120 (65%)
Europe
2228 (24%)	4057 (26%)
Asia Pacific
710 (8%)	1358 (9%)
Australia+ NZ
70+ <1%	100+ (<1%)
TOTAL	9440	15,635

Region	% personal assets	1999E	2002E	2003E1
North America (US + Canada)	23	6432 (68%)	9037	10120 (65%)
Europe
France	10	703	988	1106
Italy	10	529	961	1172
UK	6	339	477	534
Germany	9	288	498	612
Spain	20	273	415	477
Netherlands	-	96	138	156
2228 (24%)	4057 (26%)
Asia Pacific (excl.Australia + NZ)
Japan	4	451	780	936
S Korea	-	167	240	272
Hongkong	-	60+	86	98
Taiwan	-	17	25	28
Malaysia	-	11	16	18
Singapore	-	2+	3+	3+
Thailand	-	2+	3+	3+
710 (8%)	1358 (9%)
Australia+ NZ
70+ <1%	100	100+ (<1%)
9440	15,635 Note: 1 Extrapolated at growth rate shown in Exhibit 4