Yara Pilbara Fertilisers Pty Ltd v Oswal
[2016] VSC 440
•3 August 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 00804
| YARA PILBARA FERTILISERS PTY LTD (ACN 095 441 151) | Plaintiff |
| v | |
| PANKAJ OSWAL & OTHERS | Defendants |
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JUDGE: | DODDS-STREETON JA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 July 2016 | |
DATE OF JUDGMENT: | 3 August 2016 | |
CASE MAY BE CITED AS: | Yara Pilbara Fertilisers Pty Ltd v Oswal | |
MEDIUM NEUTRAL CITATION: | [2016] VSC 440 | REVISED 23 August 2016 |
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EVIDENCE – Admissibility – Witness examined regarding ownership of corporate assets – Whether conclusions of witness opinions or statements of observed facts – ASIC v Rich (2005) 190 FLR 242 – Whether, if opinions, admissible under s 78 of the Evidence Act 2008 –La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd (2011) 190 FCR 299 – Whether unfairly prejudicial to defendants if admitted without qualification – Evidence Act 2008 ss 76–79, 135–136.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A C Archibald QC with Mr P H Solomon QC, Ms P Neskovcin and Ms K E Foley | Herbert Smith Freehills LLP |
| For the First Defendant | Mr S Finch SC with Mr A G Cameron and Mr J M Ross | Murcia Pestell Hillard Pty Ltd |
| For the Second and Fourth Defendants | Mr P H Wallis | Watson Mangioni Lawyers Pty Ltd |
HER HONOUR:
INTRODUCTION
On the 24th day of trial, the first defendant in this proceeding (S CI 2015 804) objected to four questions put or proposed to be put to a witness called by the plaintiff in the course of the witness’s evidence-in-chief in relation to a number of different assets and services. The first defendant submitted that the responses to the questions would be inadmissible. The trial could not usefully proceed until the objection was determined.
The questions are as follows:
1. In light of all information you received, did you in or about February 2011 conclude whether the asset should be included in the company’s normalised accounts? What view did you form?
2. In light of all information you received, did you in 2011 conclude whether the Baldivis land was an asset of Fertilisers? What was that conclusion?
3. In light of all information you received, did you in 2011 conclude whether the Baldivis land was connected to the business operations of the company? What was that conclusion?
4. You received financial records of the company at the commencement of the receivership? At that time, did you observe the Land to be an asset of the company?
I have found, for reasons set out in more detail below, that:
(a)Questions 1 and 2 should not be put as the responses would be inadmissible. They would constitute opinions which are not exempt from the prohibition in s 76 of the Evidence Act 2008 (‘the Act’) under the exceptions in s 79 or s 78. I was not persuaded by the plaintiff’s submission that conclusions in response to those questions would constitute statements of fact based upon observed facts, and admissible as such, rather than opinions;
(b)Question 3 may, if clarified, be put. The response would be admissible as evidence of a fact based on the witness’s observations, but subject to an appropriate direction under s 136 of the Act; and
(c)Question 4 is ambiguously expressed, but, if clarified in accordance with the explanation of senior counsel for the plaintiff, may be put.
BACKGROUND
In the trial, three distinct but related proceedings are being managed and heard together, with evidence in each being evidence in the others.
In proceeding S CI 2012 1995, the plaintiff, Pankaj Oswal, in broad terms, alleges, inter alia, that the first to third defendants, Messrs Ian Carson, David McEvoy and Simon Theobald, as receivers and managers appointed on 17 December 2010 by the fourth defendant, the ANZ Banking Group Ltd (‘ANZ’), on 31 January 2012 sold, in breach of duty, and at a significant undervalue, his shareholding in a company Yara Pilbara Holdings Pty Ltd (‘Holdings’). Holdings’ wholly owned subsidiary, Yara Pilbara Fertilisers Pty Ltd (‘Fertilisers’) had, from 2001, constructed and, from 2006, operated an ammonia plant in Western Australia. The receivers were appointed to, inter alia, the assets and undertaking of Fertilisers, Holdings’ shares in Fertilisers, and 37.5 per cent of the share in Holdings.
In proceeding S CI 2011 4653, the plaintiff, Radhika Oswal, the wife of Pankaj Oswal, alleges that the receivers and the ANZ sold, in breach of duty and at a significant undervalue, 7.5 per cent and 27.5 per cent respectively, of shares (totalling 35 per cent) in Holdings, which belonged to her. Mrs Oswal also alleges that the ANZ, in December 2009, engaged in unconscionable conduct and duress which caused her to provide her shares as security.
In proceeding S CI 2015 804, Fertilisers, as plaintiff, alleges that Mr Oswal (as the first defendant), during the period 11 August 2008 to 17 December 2010, whilst managing director of Fertilisers prior to the appointment of receivers, in breach of his fiduciary duties and statutory duties pursuant to ss 181 and 182 of the Corporations Act 2001 (Cth), caused Fertilisers to make payments to a number of different entities in which he had a personal beneficial interest or an association by which he had a personal interest in causing the payments to be made, and further, that between 8 September 2007 and 17 December 2010, he caused Fertilisers to make to a further category of entities, a number of payments which did not discharge any of its liabilities or obligations, were not intended to result in Fertilisers’ acquisition of assets, were not made for any proper purpose or for any consideration or value, and did not otherwise benefit Fertilisers. The plaintiff claims against the first defendant compensation of AU$99,104,858.62 plus US$46,821,847.80.
Fertilisers alleges that the second defendant, Mrs Oswal, received the benefit of certain payments as a volunteer, or as a knowing recipient and claims against her: (1) a declaration that she was involved in the first defendant’s contravention of his directors’ duties; (2) compensation of AU$21,424,689.47 in respect of that involvement; (3) a declaration that she holds various properties and vehicles wholly, or partly, on constructive trust for the plaintiff or subject to an equitable charge in favour of the plaintiff; (4) all, or part of, AU$21,424,689.47 on the ground of knowing receipt, knowing assistance or receipt as a volunteer, or as equitable compensation.
The plaintiff also claims that two corporations, the third and fourth defendants hold various assets on constructive trust for the plaintiff.
At trial, in the course of the plaintiff’s case in proceeding S CI 2015 804, the first defendant objected that any evidence-in-chief given by Mr Theobald, one of the receivers (who was called as a witness by the plaintiff), in response to the four questions set out above at [2], would be inadmissible.
Senior counsel for the plaintiff sought to put to Mr Theobald the four questions in relation to a specific asset, known as the ‘Baldivis land’. Senior counsel for the plaintiff acknowledged that he also proposed to pose the same questions, with appropriate adjustments, in relation to seven additional assets, and certain services. Senior counsel for the first defendant objected to the questions in relation to the Baldivis land, and foreshadowed the same objection if the same questions were asked in relation to additional assets or services.
The witness gave some evidence in relation to a second asset (the Otarian Restaurant chain), but it is not clear that the evidence is completed. He has not yet given evidence in relation to the additional assets or services. The admissibility of the evidence he will give on those matters must be determined on the basis of its individual nature and content. However, similar considerations are likely to apply to the determination of the present objection, and to the foreshadowed objections to the evidence which may be given in relation to the further questions on additional assets and services. The issue must be determined before the hearing can proceed.
MR THEOBALD’S EVIDENCE
Qualifications, experience and conduct of the Fertilisers’ receivership
Mr Theobald gave evidence-in-chief of his professional qualifications as a chartered accountant, including academic qualifications in commerce and insolvency, and his work experience as a receiver, liquidator, voluntary administrator, deed administrator and in forensic accounting and valuation engagements.
He identified the standard activities usually undertaken in the receivership and management of large companies.
Mr Theobald testified that he was first engaged as a partner of PPB Advisory in late 2009 until early 2010 to prepare an independent business review of, and report on, the Burrup entities, including Fertilisers. He undertook the work with a team of people. He performed a large amount of the work himself, superintended other persons, and was part of a team that prepared the report.
In performing that work, ‘he and the team’ had regard to statutory accounts, cash flow reports, bank statements, and general ledgers, including that of Fertilisers. He received Fertilisers’ balance sheet, statutory accounts, cash flow reports, bank statements and operating reports going back approximately 12 to 18 months. He also discussed matters concerning the business of Fertilisers.
He personally spoke to Raj Jeyarajah, Fertiliers’ Director of Finance, and to Basil Lenzo, the Legal Director. He did not speak to any staff. The resultant report was a paper-based or ‘desktop’ review based on balance sheets, fixed asset registers and the like.
Mr Theobald testified that later in 2010 ‘we’ reviewed similar information of Fertilisers for a six to eight week period as a ‘permitted person’, during which review he obtained some new information, including operating reports. He had regard to creditor lists, bank statements, bank balances and general ledger reports.
Mr Theobald testified that both he and the staff and team reviewed the available operating reports which were not all up to date.
Mr Theobald testified as to the conduct of the urgent tasks at the outset of the receivership, and stated that he, and ‘we’, met with and addressed employees.
He testified as to what he and the team did in order to get control of and understand the business. He stated that it was his role effectively to step into the shoes of management, while other PPB partners did other tasks.
Mr Theobald gave evidence that he was assisted by an operational team of about 10 to 15 people, which progressively reduced in number.
Mr Theobald testified that, from 17 December 2010 until the end of the receivership, ‘he and the team’ took the following steps to identify Fertilisers-owned physical assets:
We reviewed the company’s fixed asset register. We obtained a valuation of its fixed assets. We conducted searches of publicly available information in respect of land titles, vehicles and vessels …
He testified that he also spoke to Fertilisers’ management, being Raj Jeyarajah, Basil Lenzo, Wolfgang Jovanovic (the Commercial Director), Vinojit Ambalavaner (who was in charge of contracts and procurements) and Ross Amaral.
‘Without identifying all of them’, Mr Theobald agreed that ‘he and the team’ spoke to various members of staff in all departments.
Mr Theobald testified that the receiver’s team was divided into two groups, the smaller of which worked at the head office, while the larger group worked at the ammonia plant site in Karratha.
Mr Theobald testified that ‘we also received the financial accounts’, including statutory accounts, management reports, management accounts and bank balances, ‘to ensure that we were picking up all of the available assets’, as the balance sheets, in particular, would record ‘the company’s available assets and … the assets that might be available.’
He took steps to ensure that the identified assets were properly secured, by retrieving them, insuring them adequately, and ascertaining their location. The securing of assets was, Mr Theobald said, a key focus which ‘we undertook as a matter of urgency.’
In relation to Fertilisers’ computer systems, Mr Theobald testified that ‘we authorised some spending’ to ensure stability and completed a forensic image of all the computer data as at the date of the receivers’ appointment.
Mr Theobald testified that he was personally involved in a review of Fertilisers’ general ledger. He was taken to an electronic document and confirmed that it was in the form of the general ledger.
Mr Theobald testified that he reported ultimately to the ANZ through his colleagues, but ‘I was in charge of the business’. He visited the plant at Karratha for one full day in the first three months and three times in total during the fourteen month receivership, in order to meet the key management staff. He spoke to about fifteen staff in order to understand the business.
During the receivership, Mr Theobald personally approved all payments by signing off on a payment voucher after speaking to the staff who had given prior approval and matching to a purchase order. He approved about a hundred payments per month.
Mr Theobald testified that he regularly spoke to Mr Jeyarajah, Mr Lenzo and Mr Jovanovic, both formally and informally, initially meeting them on a daily basis and on a needs basis thereafter. He spoke with Mr Jeyarajah about financial matters and with Mr Lenzo about legal matters.
Mr Theobald gave evidence that he personally spoke to the non-management staff regularly.
Mr Theobald testified that at the commencement of the receivership, he gathered financial material, bank statements, general ledger reports, trial balances, statutory accounts, ATO running balance lists, profit and loss statements, balance sheets, fixed asset registers, aged creditors listings and the like, which was typical of the material gathered in previous receiverships to perform the role.
Mr Theobald agreed that he was ‘personally involved’ in the review of the above financial material.
Mr Theobald testified that, in the Fertilisers receivership, ‘We, or I prepared a normalisation report which identified transactions to be normalised. It is ultimately the responsibility of [Fertilisers’] account staff to process those normalisations but the identification of the relevant transactions was my responsibility’.
Mr Theobald testified that the PPB team prepared accounts and provided them to PricewaterhouseCoopers for review.
Mr Theobald testified that he had ‘extensive personal involvement’ in the various accounting and other tasks to normalise the accounts.
He testified that it was necessary for him to understand both the payments made by the business historically, and the asset and liability position of Fertilisers, not only in order to prepare normalised accounts but also to perform the operational role; and because he had formed the view that some transactions should be investigated further, and potentially, that reports should be prepared for ASIC.
In response to the question, ‘Did you understand assets and liabilities in a financial sense for that or not?’, Mr Theobald responded, ‘Yes’.
Evidence in relation to the Baldivis land
In examination-in-chief, Mr Theobald was questioned about, and testified, that he first became aware of payments from Fertilisers’ cash flow in relation to the Baldivis land during his engagement as a ‘permitted person’ from November–December 2010.
He testified that he took steps further to evaluate the payments in respect of the land during the receivership in December 2010 to March 2011.
He was asked to state ‘one by one’ the enquiries that he made, or caused to be made, and testified that:
We discussed the payments with management [that is, Raj Jeyarajah and Basil Lenzo].
…
We obtained the supporting information that was attached to the payments … [which material was] payment authorisations, any supporting invoices, any supporting emails and the like that was attached to the payment documentation. We also verified the payments to the bank statements.
When asked about the personal involvement in reading, reviewing and further discussing those documents, Mr Theobald responded:
I read and reviewed a large number of the documents. I directed the process that was — I designed and directed the process by which the documents were all collated.
When asked whether there were further enquiries that he made, or caused to be made, Mr Theobald responded, ‘Yes’, and identified the enquiries as follows: ‘We had undertaken title searches, land title searches’.
Mr Theobald stated that he reviewed the land title searches for the purpose of determining ‘who was the owner of the land’.
Mr Theobald explained that he was uncertain of the chronological order in which the above steps were taken.
Mr Theobald testified that ‘we interrogated the electronic database’, and explained that, as a general practice, ‘we would ask searches to be run across the database, keyword searches to help us find information, documents et cetera that were on the database’.
Mr Theobald testified that ‘it would be a keyword, for this one, for example, Baldivis or the property owner, Oswal Developments … I don’t remember what the specific search terms were’.
Mr Theobald agreed that he made enquiries, or caused enquiries to be made, to identify the owner of the property and ‘that was from the title search indicated that the owner was a corporation and so we obtained a company search’.
In response to the question whether, ‘as a practice, as you reviewed payments or if you recall precisely please say, did you review the company searches?’, Mr Theobald replied, ‘Yes … to determine who [were] the owners of the corporation and who were its directors’.
Mr Theobald stated that as a matter of practice, there were also discussions with Fertilisers’ accounting staff.
In response to the question, ‘personally do you recall whether you had, or caused to be had, discussions with the staff in respect of Baldivis?’, Mr Theobald stated, ‘I don’t recall discussions with the account staff specifically in respect of Baldivis’. In response to the question, ‘Were there any other enquiries you made or caused to be made?’, Mr Theobald stated, ‘Not that I can recall.’
Evidence in relation to the Otarian payments
Mr Theobald was then questioned in evidence-in-chief about ‘the Otarian payments concerning a restaurant chain that were made to Oswal Projects Singapore’. He recalled that he identified such payments.
As to the enquiries that he caused to be made, Mr Theobald stated:
We discussed the payments with management [principally Raj]. We discussed the payment with the accounting staff … To understand the legitimacy of the payments … to determine whether they were legitimate expenses of Fertilisers.
We obtained searches of the Oswal Projects Singapore which was the company receiving the payments … To understand who were its directors and shareholders.
We also conducted searches of the databases [which were of an equivalent type to those I’ve already described for Baldivis].
He did not, in fact, recall the search terms, but ‘could say as a matter of practice what they probably were.’
The scope of Mr Theobald’s evidence re the Baldivis land and Otarian restaurant chain
Mr Theobald did not produce a report, whether prepared by himself, or with other persons, in relation to the matters to which he testified. He was not taken to any document, save for a document which he identified as being in the form of the general ledger of Fertilisers. In particular, he was not taken to any financial statement evidencing, or any record of, any payment made by Fertilisers in respect of the Baldivis land, and did not identify the dates, amounts, methods and total quantum of such payments.
Mr Theobald was not taken to the documentary evidence of supporting information attached to the payments, which he described as: ‘payment authorisations, any supporting invoices, any supporting emails and the like that was attached to the payment documentation’, nor to the bank statements verifying the payments.
Mr Theobald did not produce any land title search, although he stated that he reviewed title searches to determine who was the owner of the Baldivis land. Mr Theobald was not asked to state what the title searches revealed, but indicated that it showed that the owner was a corporation.
He stated that he discussed the payments with management (Mr Jeyarajah and Mr Lenzo).
He stated that he reviewed a large number of the supporting documents and designed and directed the process for their collation.
He testified to a general practice of a database search using keywords, but could not remember what the keyword search was in the case of the Baldivis land and indeed, did not unambiguously state that he recalled the conduct of the search.
Mr Theobald’s response to the question whether he reviewed the company search associated with the Baldivis land personally was ambiguous. The company search was not produced.
He did not personally recall discussions with account staff in respect of the Baldivis land.
In respect of the payments to Oswal Projects Singapore for the Otarian restaurant chain, Mr Theobald did not give clear testimony that he, rather than others, discussed the payments with Fertilisers’ management or staff, or that he personally obtained or saw the company search. He did not expressly respond to senior counsel’s comment that ‘so you spoke to people and you undertook those searches’. He did not testify that he personally undertook the database searches, which were equivalent to those described for the Baldivis land, and he could only say as a matter of practice what the search terms probably were. He did not state the probable search terms, but testified that he was ‘involved’ in the Otarian search terms.
He stated that he collected and collated the supporting documentation, but did not in fact recall reviewing it, and could only say, as a matter of practice, what he did in relation to the documents.
He stated: ‘They were reviewed in their totality once we had pulled it all together and on the basis of that review, we would make decisions such as whether the payments should be normalised out of the accounts or not’.
He was unable to say with which payments he was involved, although there were some.
He could not recall any other matters.
Mr Theobald did not produce any report on, and was not taken to, any documents in relation to the Otarian payments. The payments were not identified by reference to date, amount, method or total sum.
THE FIRST DEFENDANT’S OBJECTIONS
Senior counsel for the first defendant objected to the four questions in relation to the Baldivis land and to the admissibility of any evidence in response, on the basis that:
1.The witness was asked generic questions about a general search process without identifying particular documents, particular persons or particular conversations, and was then asked to give a summary of his conclusion.
2.The witness did not review all the documents and did not specify which documents he had reviewed.
3.The witness did not identify by name or position, other than generically, any person with whom he had conversations (albeit it would be objectionable anyway), or the content of the conversations.
4.The witness did not perform all of the work himself, and it was not possible to identify who contributed to it, or on what terms its results were reported back [to him].
5.The veracity of the summary of the documents could not be checked or verified, as it was, of necessity, a comment on undisclosed material.
6.Even if admissible, the evidence would be of such little weight as to invoke the exercise of the discretion to exclude it.
7.There was no basis on which to cross-examine, or otherwise test the questions asked, their terms, factual basis, the fairness and propriety of the answers, the context, or the accuracy of the summation.
8.The search terms could not be recalled and the database was not identified. The adequacy of the search and its reach could not be assessed.
9.The witness had not complied with the rules in relation to expert evidence, had not filed a report and there was, in any event, no proper basis for his opinion.
10.In so far as the witness was proffering testimony in the character of a ‘quasi-expert’ or lay expert giving expert evidence, again, the deficiency was the lack of any basis for that opinion.
11.The probative value of any evidence elicited would, in any event, be zero, or so small that it should not be admitted.
THE PLAINTIFF’S SUBMISSIONS
The plaintiff submitted that the four questions could properly be asked in relation to the Baldivis land (and additional assets and services) and that the witness’s responses would be admissible.
The plaintiff acknowledged that it was intending to establish that eight particular assets were not assets of Fertilisers and that Mr Theobald would give evidence that payment in relation to each asset was made by Fertilisers, that he had formed a view that further enquiries should be made in relation to them, and that, to that end, certain reviews and steps occurred in which he participated.
The plaintiff acknowledged that it would ask the court to accept evidence that Mr Theobald concluded as a fact that certain assets would require normalisation, and were not assets of Fertilisers, and that the court could properly act on that evidence.
The plaintiff primarily submitted that the objection that there was no basis for Mr Theobald’s opinion was misdirected, because his response to the questions was not being proffered as, and would not constitute, opinion evidence. Accordingly, it was not to the point that the criteria for admission under s 79 of the Act was not satisfied.
Rather, the anticipated evidence of Mr Theobald that—
in the light of all the information he received he concluded that the asset should not be included in the company’s normalised accounts;
that the Baldivis land was not an asset of Fertilisers;
that in 2011 the Baldivis land was not connected with the business operations of Fertilisers;
and that when he received the financial records of Fertilisers at the commencement of the receivership, he did not observe the land to be an asset of the company;
amounted to an objective analysis of observed fact rather than opinion evidence. The conclusions were thus admissible as a fact.
The plaintiff, as I understood its submission, did not seek to use the relevant evidence merely to establish that Mr Theobald had a particular state of mind, but rather to establish the truth of his conclusions. The plaintiff did not seek to rely on s 77 of the Act.
The plaintiff alternatively submitted that if, contrary to its primary submission, the conclusions were opinions, they were, or could be, admissible under s 78 of the Act.
The plaintiff relied on ASIC v Rich,[1] Castel Electronics Pty Ltd v Toshiba Singapore Pty Ltd,[2] CDPV Pty Ltd v Commissioner of State Revenue (Vic),[3] Matthews v SPI Electricity (Ruling No 9),[4] La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd,[5] and Lithgow City Council v Jackson.[6]
[1](2005) 190 FLR 242.
[2](2011) 192 FCR 445 (‘Castel Electronics’).
[3][2016] VSC 322.
[4][2012] VSC 340 (‘Matthews No 9’).
[5](2011) 190 FCR 299 (‘La Trobe Capital v Hay’).
[6](2011) 244 CLR 352 (‘Lithgow City Council’).
EVIDENCE ACT 2008
It is convenient, before reviewing the authorities, to set out certain relevant provisions of the Act.
55 Relevant evidence
(1)The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.
(2)In particular, evidence is not taken to be irrelevant only because it relates only to—
(a) the credibility of a witness; or
(b) the admissibility of other evidence; or
(c) a failure to adduce evidence.
56 Relevant evidence to be admissible
(1)Except as otherwise provided by this Act, evidence that is relevant in a proceeding is admissible in the proceeding.
(2)Evidence that is not relevant in the proceeding is not admissible.
…
76The opinion rule
Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.
…
77Exception—evidence relevant otherwise than as opinion evidence
The opinion rule does not apply to evidence of an opinion that is admitted because it is relevant for a purpose other than proof of the existence of a fact about the existence of which the opinion was expressed.
78Exception—lay opinions
The opinion rule does not apply to evidence of an opinion expressed by a person if—
(a)the opinion is based on what the person saw, heard or otherwise perceived about a matter or event; and
(b)evidence of the opinion is necessary to obtain an adequate account or understanding of the person's perception of the matter or event.
79 Exception—opinions based on specialised knowledge
(1)If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.
…
135 General discretion to exclude evidence
The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might—
(a)be unfairly prejudicial to a party; or
(b)be misleading or confusing; or
(c)cause or result in undue waste of time; …
136 General discretion to limit use of evidence
The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might—
(a) be unfairly prejudicial to a party; or
(b) be misleading or confusing.
THE AUTHORITIES
In ASIC v Rich,[7] Austin J held that an expert witness report prepared by a forensic accountant partner of a firm retained by the plaintiff, ASIC, was wholly inadmissible under s 79 of the Act and would, in any event, be excluded under s 135 on discretionary grounds, in circumstances where it did not adequately identify the factual basis for the opinions expressed, carried a risk that the accountant had not excluded a consideration of information by his firm at an earlier investigative phase, and created a misleading impression of an absence of any prior involvement, which was only partially disclosed.
[7](2005) 190 FLR 242.
Further, Austin J held that the expert report did not disclose the true reasoning processes by which the expert’s opinions were formed, and extraneous influences could not be excluded.
In the context of discussing expert opinions and the facts and assumed facts (which must be proved or admitted to the extent that the expert opinion depended upon them), Austin J referred to curial definitions of an ‘opinion’, the proper characterisation of intermediate propositions in an accountant’s report (whether representations of fact or assumed fact) and whether the expert must expressly categorise statements of opinion for admissibility under s 79.
His Honour considered it unnecessary to expressly label an opinion as such. He considered that it would suffice if it were plain as a matter of substance, and on a fair reading, that a particular proposition was an inference from the assumed or accepted facts drawn by the expert with the aid of his or her specialised knowledge.
It was in that context that Austin J recognised (at 306 [269], on which the plaintiff particularly relied), that in addition to assumed and accepted facts, an expert report could include another category of proposition — viz, statements by which the expert gives evidence of facts, which might be either a lay observation which is then recorded in the report, or an observation made where the expert has observed and recorded something by bringing to bear his or her expertise (scientific facts).
Austin J stated:[8]
Consider, for example, the evidence of a valuer recording his or her observation of the presentation of the property being valued, the locality in which it is situated and the attributes of possibly comparable properties; or the evidence of a doctor recording his or her observation of a patient during a clinical examination. Sometimes such evidence does not in any way depend upon the expert's specialised knowledge, and is admissible simply as evidence of a directly observed fact. At other times, the witness’s expertise is relevant to the making of the observation, but still, the evidence is admissible as evidence of an observed fact. As the learned editors of in Howard, MN et al Phipson on Evidence (15th ed, 2003) say (at 922–3, [37-10]):
Expert witnesses have the advantage of a particular skill or training. This not only enables them to form opinions and to draw inferences from observed facts, but also to identify facts which may be obscure or invisible to a lay witness … A microbiologist who looks through a microscope and identifies a microbe is perceiving a fact no less than the bank-clerk who sees an armed robbery committed. The only difference is that the former can use a particular instrument and can ascribe objective significance to the data he perceives. The question of subjective assessment and interpretation which is the essence of opinion evidence hardly enters into the matter at all.
[8](2005) 190 FLR 242, 306 [270].
Austin J noted that a microbiologist’s statement, that he identified a microbe through a microscope might be neither an accepted nor assumed fact, nor an opinion. Rather, it could be direct evidence of the witness’s own work and observation, which was relevant in a secondary sense because it formed part of the expert’s reasoning process.[9]
[9]Ibid 306 [271].
Austin J went on to note that some of the work of a forensic accountant could be treated as admissible in the same fashion as a scientific fact, like identifying a microbe. He instanced a complex financial calculation in a forensic report, which, if done correctly, did not involve inference or judgment, but was simply an analytical mathematical proposition, analogous to scientific observation. In both cases, there would be a factual conclusion, admissible as evidence of fact derived from the application of specialised knowledge.
In Castel Electronics,[10] the Full Court of the Federal Court considered the admissibility of the opinion of an expert witness whose expertise in the relevant subject matter was disputed, and whose opinions were allegedly based on assumptions the foundations of which were not proved.
[10](2011) 192 FCR 445.
The Full Court examined the exercise carried out by the expert, noting that he had presented a written report, and had identified the matters to which he had regard in writing his report.[11]
[11]Ibid 477 [201].
It is apparent from the Full Court’s description that the expert specifically identified a large number of documents in his report, which he referred to and ‘went behind’, and that he had regard, in the report, to source documents which he used to calculate losses.
It was in that context that the Full Federal Court stated:[12]
202.Forensic accountants and persons who have qualifications in business administration and the like practise in a well-recognised field of expertise. In their practice those experts have regard to financial statements and records for the purpose of expressing accounting and audit opinions often in regard to claims against accountants. They also have regard to those records to identify losses which are said to have been suffered by a business as a result of some actionable wrong. In that regard the experts must have regard to the changes in the financial condition of the business from time to time.
203.The exercise carried out by Mr Acton is often carried out by expert forensic accountants who identify the financial documents which are relevant to the inquiry. To the extent necessary, the documents are explained including their contents in order that the court can understand the company’s business. They are often explained to establish some trend in the company’s business activities both before and after the cause of action arose. The Court could carry out the inquiry for itself. It could have regard to the underlying source documents and construct for itself the trends upon which reliance is put. However, the practice is to have forensic experts carry out the exercise in advance of the hearing in order to save the Court the time and trouble of the exercise. It is an appropriate way of presenting evidence relating to the financial affairs of a company which claims to have suffered a loss. Their evidence assists a Court in understanding transactions which involve complex accounting treatments. The evidence is a summary of the financial records of the company and admissible: Potts v Miller (1940) 64 CLR 282 per Dixon J at 302–303. It is not opinion evidence at all. It is a summary of the company’s financial records.
[12]Ibid 477–478.
In Matthews No 9, J Forrest J, in the context of noting that some expert witnesses would provide an expert opinion in relation to bushfires without filing a r 44.03 statement, stated that ’merely because a witness has expertise does not mean that his or her evidence is opinion evidence.’[13]
[13][2012] VSC 340, [35].
His Honour noted the native title case of Gumana v Northern Territory, where Selway J stated that the question whether evidence constituted an opinion would ‘depend upon the nature of the expert and the nature of the evidence’.[14]
[14](2005) 141 FCR 457, 500 [156].
Selway J in Gumana v Northern Territory[15] instanced an anthropologist or missionaries or teachers, who had lived with a claimant clan over a long period and could give evidence of what they observed. The anthropologist in that instance would give such evidence as a direct consequence of his significant field work over a lengthy period. It would not be opinion evidence, but evidence of what he or she had observed.
[15]Ibid.
J Forrest J also referred to Austin J’s observations, discussed above, in ASIC v Rich.His Honour stated that where a witness gives evidence based on his or her own observations and/or scientific or specialised analysis, ‘it may, when properly analysed, not amount to opinion evidence but rather is properly characterised as a factual conclusion.’[16]
[16]Matthews No 9 [2012] VSC 340, [38].
In La Trobe Capital v Hay, the Full Federal Court (Finkelstein, Jacobson and Besanko JJ) allowed an appeal in relation to the damages recoverable by a secured lender that had lent money in reliance on a negligent valuation of a security.[17] One ground of appeal was whether the trial judge had erred in admitting evidence in relation to the lender’s alternative loan opportunities.
[17](2011) 190 FCR 299.
At trial, the lender tendered a witness statement by a senior manager who had explained its typical treatment of a new loan application. The controversial part of the evidence, to which the appellant objected, was in relation to what the lender would have done had it not made the impugned loan in question. In his witness statements, the witness gave evidence based on the lender’s records that the total amount would have been lent to other borrowers at particular rates of interest during particular periods.
In La Trobe Capital v Hay, the objection was essentially that none of the lender’s witnesses, including the senior manager (who stated, inter alia, ‘The $2.4 million lent to Jet Constructions would have been lent to another borrower or borrowers if it had not been lent to Jet Constructions’[18]) had provided direct evidence that any particular loan was foregone.
[18]Ibid 307–308 [37].
Finkelstein J (with whose analysis of evidentiary issues Jacobson and Besanko JJ agreed) stated:[19]
The formal grounds of objection were threefold. First, it was put that the evidence was inadmissible by reason of s 76 of the Evidence Act 1995 (Cth). The section provides that: ‘[e]vidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.’ Mr Riordan characterises Mr Gidman’s ‘assertions’ as opinions. Second, it was argued that Mr Gidman’s evidence was irrelevant (see s 56(2) of the Evidence Act), for the reason that opinions without substance are irrelevant. Third, it was put that the evidence should have been excluded under s 135 of the Evidence Act, because counsel was unable to cross-examine Mr Gidman about his opinions without knowing the evidence on which those opinions were based.
[19]Ibid 308 [40].
The respondent submitted, inter alia, that much of the senior manager’s evidence was as to facts, not opinion, and to the extent to which it was opinion it was based on what he saw or heard or otherwise perceived about a matter or event, and the evidence of the opinion was necessary to obtain an adequate account or understanding of his perception, within terms of s 78.
The appellant submitted that, to the contrary, in the absence of any direct evidence regarding particular loan investments which were foregone, the witness simply made an inference based on unarticulated factual observations.
Finkelstein J recognised the difficult and probably — in some instances — artificial nature of the distinction between evidence of fact and evidence of opinion. His Honour observed that:[20]
It might be said that the more concrete the evidence in the sense that the more grounded the evidence is in a witness’s direct observation or perception of an event, the more likely it is to be factual in nature. It is, however, always a question of degree.
[20]Ibid 309 [44].
Recognising that the essence of the objection to admissibility was, in many ways, that the evidence ‘involves assertions which are not fully particularised’, Finkelstein J stated:[21]
In some cases it may be that an unparticularised statement will be inferential in nature. Thus a summary as to the effect of a conversation may well be an opinion, albeit admissible lay opinion. In other cases, a recollection of an observation may be imperfect, but not be inferential. A traffic officer might testify that s/he has observed thousands of vehicles without recalling the precise number. This evidence is not inferential.
His Honour referred to the example of testimony by a witness that all persons with whom he had dealt had used two particular expressions interchangeably, which was held to be a statement of fact, not opinion, although the witness did not give particular instances of the use of the expression.
[21]Ibid 309–310 [45] (citations omitted).
Finkelstein J stated:[22]
Where evidence is not fully particularised, the dividing line between what is opinion and what is fact is not always easy to draw and clearly depends on the extent to which the evidence goes beyond the witness’s direct observations or perceptions. While a lack of particularity may affect the weight to be given to the evidence, it does not necessarily render it inadmissible as opinion evidence.
[22]Ibid 310 [46].
His Honour went on to say that various portions of the impugned evidence at issue in the appeal were clearly statements of fact rather than opinion.[23] For example, the witness’s recollection that the lender did not keep statistics about rejected loan enquiries or his recollection of the average number of loans rejected daily. Similarly, the witness’s statement that the lender had rejected one or more loan applications totalling $2.4 million did not, ‘when read in context, involve an inference.’ Instead, it was, in effect, a statement that although the witness could not recall rejections of specific loans, his general recollection was that one or more loans totalling $2.4 million were rejected at some point after the Jet loan was made: ‘This seems to me to be no less of a direct observation than if [the witness] had been able to point to a particular loan being rejected.’[24]
[23]Ibid 310 [47].
[24]Ibid.
Moreover, the statement that the demand for loans exceeded the available funds was not an inference, but a direct observation, although the failure to particularise constituted facts forming the basis of the comparison might add to the weight of the evidence of the comparison. His Honour stated, however: ‘But that is separate from whether the comparison is in the nature of an opinion’.[25]
[25]Ibid 310 [48].
In discussing the approach to ‘relative statements’, his Honour referred[26] to the Full Court’s finding in Bank of Valetta plc v National Crime Authority[27] that a senior NCA investigator’s statement at trial that ‘the information then available [to the NCA] did not identify any particular suspect person in relation to any offence [under relevant Maltese law]’ was an opinion. Rather, the Full Court concluded that the evidence was ‘a statement about a negative fact.’[28]
[26]Ibid 310 [49].
[27](1999) 90 FCR 565 (‘Valetta’).
[28]Ibid 570 [22].
The Full Court in Valetta stated that:[29]
The circumstance that the statement concerns that material does not make it an inference from observed and communicable data any more than it would be such an inference if a witness were to depose that a file did not contain any document printed on yellow paper.
[29]Ibid.
Finkelstein J observed that:[30]
It could equally be said that if a witness were to depose that a file mostly contained documents printed on yellow paper, this would not involve an inference.
[30]La Trobe Capital v Hay (2011) 190 FCR 299, 311 [50].
His Honour concluded that the impugned statements were not opinions for the purpose of s 76 of the Act and it was thus unnecessary to consider whether they were admissible under s 78 of the Act.[31]His Honour found the evidence relevant and not too abstract in nature. It was mostly factual even if not fully particularised.[32]
[31]Ibid 312 [58].
[32]Ibid 312 [60].
Finkelstein J declined to exclude the evidence under s 135 of the Act on the ground that it was so unsubstantiated and without factual basis as to preclude effective cross-examination, which could not be other than ‘blind’ in the circumstances.[33]
[33]Ibid 312 [61].
Finkelstein J observed that exclusions under s 135 required compelling circumstances and the discretion should be exercised only where the prejudice substantially outweighs the probative value of the evidence, as its admission would not otherwise cause ‘unfair prejudice’.[34] His Honour noted that:[35]
Too much, in my view, is nowadays made of the need to have at hand every piece of information imaginable to enable effective cross-examination to take place. Perhaps there are a handful of cases where the discretion to refuse evidence should be exercised. But that can hardly be so here where the evidence is straightforward and could easily be challenged if untrue.
[34]Ibid 313 [63].
[35]Ibid 313 [62].
The plaintiff relied on Lithgow City Council[36] in support of its alternative submission that the witness’s conclusions were opinions admissible under s 78 of the Act.
[36](2011) 244 CLR 352.
In Lithgow City Council, the High Court considered s 78 of the Evidence Act 1995 (NSW). Lithgow City Council concerned a claim for damages for negligence by the respondent, who was found injured and unconscious after a fall into a large drain in a park maintained by the appellant council. The respondent had to establish that he fell due to tripping from the retaining wall at the top of the western vertical face of the drain, rather than from the sides. He had no recollection of what had happened. There was no evidence of how he came to be injured other than the following statement that the ambulance officers (who were not called to give evidence) included in their notes: ‘? Fall from 1.5 metres onto concrete’.
The plurality held that, contrary to the decision of the Court of Appeal majority, the impugned representation was not opinion evidence admissible under s 78 of the Act as an exception to the opinion rule in s 76.
The plurality rejected the respondent’s submission that the statement was an opinion that was an inference from observed and communicable data.
The plurality held that while what the ambulance officers did observe, and could have observed, could have caused them to draw an inference from the observations ‘the present question is whether they actually did do so, not whether they could have.’[37]
[37]Ibid 365 [28].
The High Court plurality noted that the material in the ambulance officers’ notes preceding the impugned representation recorded what apparently were personal observations by the makers of the statement, but said nothing about what could be observed about the body’s position and nothing about what the makers of the statement actually observed in those respects.[38]
[38]Ibid 367 [36].
The plurality stated[39] that if the impugned representation expressed a relevant opinion, it must be possible to extract from the form of what the person stating the opinion said, construed in context, that it is ‘based’ on what the person stating the opinion ‘saw, heard or otherwise perceived’ about that matter or event.
[39]Ibid 368 [39].
The plurality held[40] that the opinion stated a question about the matter or event of the respondent’s fall. The opinion could not relate to a matter or event that the witness did not purport to see, hear or otherwise perceive. The plurality accepted that s 78 applies only to opinions given by those who actually witnessed the event about which the opinion is given.[41]
[40]Ibid 368 [41].
[41]Ibid.
The plurality referred to authorities consistent with a requirement that the witness perceive the ‘matter’ or event ‘personally’, as distinct, for example, from examining security photographs recording a robbery to identify a robber, rather than witnessing the robbery.[42]
[42]Ibid 369 [42].
Their Honours considered authorities to the effect that ‘perceived’, in the context of s 78, means to observe by one of the five senses of sight, hearing, smell, taste or touch. They did not determine whether an ‘understanding’ was properly within a perception.
The plurality rejected the argument that to limit s 78 to witnesses who actually saw the event would deprive the section of any function.[43] They instead accepted that s 78, if limited to witnesses who actually saw the event, ‘would have the same broad function as the corresponding common law rule’, which[44]—
permitted the reception of non-expert opinion evidence where it was very difficult for witnesses to convey what they had perceived about an event or condition without using rolled up summaries of lay opinion — impressions or inference — either in lieu of or in addition to whatever evidence of specific matters of primary fact they could give about that event or condition. The usual examples are age, sobriety, speed, time, distance, weather, handwriting, identity, bodily health and emotional state, but a thorough search would uncover very many more.
[43]Ibid 370 [44].
[44]Ibid 370 [45] (citations omitted).
The plurality said that it was clear that even if not precisely identical to the common law rule, ‘section 78 is dealing with the same problem as the common law did in instances within the category just described’,[45] where it was difficult for the observer ‘to separate the inferences from the primary facts on which they are based, and often very difficult to identify and recall the primary facts themselves.’[46]
[45]Ibid 371 [46].
[46]Ibid 371 [45].
Their Honours referred to the rationale of Gibson J approved by Wigmore, viz:[47]
[W]herever the facts from which a witness received an impression are too evanescent in their nature to be recollected, or are too complicated to be separated and distinctly narrated, the impressions from mere facts become evidence.
And to the statement of Loomis J, also approved by Wigmore, that the principle rests[48]—
on the ground of necessity, where the subject of the inquiry is so indefinite and general as not to be susceptible of direct proof, or where the facts on which the witness bases his opinion are so numerous and so evanescent that they cannot be held in the memory and detailed to the jury precisely as they appeared to the witness at the time …
The very basis upon which … this exception to the general rule rests is that the nature of the subject matter is such that it cannot be reproduced or detailed to the jury precisely as it appeared to the witness at the time.
[47]Ibid 371 [46] (citations omitted).
[48]Ibid.
The plurality stated that:[49]
But the ‘impression’ which the witness received must be based on a ‘fact’ which the witness perceived … ’the facts from which the witness received an impression’ or … ’the subject matter … precisely as it appeared to the witness at the time’.
[49]Ibid (citations omitted).
Their Honours observed that s 78 ‘is not a “best” evidence provision permitting reception of the evidence if there is no better evidence.’[50]
[50]Ibid 375 [54].
In CDPV Pty Ltd v Commissioner of State Revenue (Vic),[51] Croft J accepted that a land management officer had sufficient expertise to give evidence, admissible as fact, that there was cultivation on particular land at all times as an accepted means of weed control. Reliance on s 78 of the Act was therefore unnecessary.
[51][2016] VSC 322.
DISCUSSION
Evidence, even if relevant within the meaning of s 55(1) of the Act, may be excluded by the operation of the opinion rule in s 76. Sections 78 and 79 of the Act establish exceptions to the general exclusion in s 76.
In the present case, the plaintiff does not rely on s 79 for the admissibility of the witness’s anticipated responses to the four questions. Rather, the plaintiff principally submits that the responses would not constitute opinions at all, whether expert or otherwise, but would rather amount to evidence of facts that the witness had observed, albeit his specialised knowledge was required in order to make the observation. In the plaintiff’s submission, as I understood it, Mr Theobald’s anticipated conclusions that the Baldivis land: (1) was not an asset of Fertilisers; (2) should not be included in normalised accounts; (3) was not connected with the operations of Fertilisers’ business; and (4) that Mr Theobald did not observe the Baldivis land to be an asset of the company when he received its financial records at the commencement of the receivership; were observed facts, the admissibility of which did not depend upon the necessary basis for expert opinion described in Dasreef Pty Ltd v Hawchar,[52] setting out the assumed and accepted facts, and exposing the expert’s process of reasoning.
[52](2011) 243 CLR 588.
Accordingly, the plaintiff submitted that if the established facts constituting the basis for the conclusions were scant, incomplete, non-specific, lacked particularity or were otherwise inadequate, such deficiencies would go only to weight.
Questions 1 and 2
In ASIC v Rich, Austin J set out definitions of an ‘opinion’, including ‘an inference drawn from facts’; ‘judgment resting on grounds insufficient for complete demonstration’; ‘belief of something as probable, or as seeming to one’s own mind to be true, though not certain or established’; or ‘a conclusion, usually judgmental or debatable, reasoned from facts’.[53]
[53](2005) 190 FLR 242, 304 [261] (citations omitted).
The particular context of an expert report in which Austin J in ASIC v Rich discussed evidence of observed facts may inform or limit the application of his Honour’s observations at [269]–[271], on which the plaintiff particularly relied. It is unnecessary to address that question, as I am not, in any event, persuaded that a conclusion that the Baldivis land constitutes an asset of the company, or that a particular asset should be included in the company’s normalised accounts, is simply a perception of an objective fact which (even if identifiable only by a person with some specialised knowledge) involves no inference, subjective assessment or interpretation.
As Finkelstein J stated in La Trobe Capital v Hay, the dividing line between opinion and fact can be difficult to draw.[54] The distinction may be informed by context and the extent of the evidence about the mental processes of the witness who produces a given conclusion.
[54](2011) 190 FCR 299, 310 [46].
Indeed, as senior counsel for the first defendant submitted, the difficulty of identifying whether a conclusion is an inference may be compounded where, as in the present case, the witness discloses few if any details of particular documents or matters to which he had regard, or of his associated thought processes.
Mr Theobald gave no evidence of what he understood by the concept of land being an asset of the company or of the factors he identified as relevant to, and the intellectual processes associated with, reaching a conclusion on that matter.
There is no evidence that Mr Theobald attributed any specialised meaning to the phrase. A conclusion that the land was or was not an asset of the company would ordinarily require determination of the company’s rights and interests (if any) in the land, which would usually involve the application of legal principles, to which financial or accounting expertise might be relevant. The status of the land as an asset of the company would not depend solely upon its registration as title holder. Other relevant factors would require consideration and assessment. If the company were the registered title holder, there may be enforceable contracts, security interests or other adverse claims which must be either excluded or evaluated; or, if the company were not the registered title holder, it would be necessary to identify whether there were, and if so, evaluate, any transactions or circumstances giving rise to proprietary claims in the company. Despite the generality of his evidence it is clear that Mr Theobald did not rely only on title registration but made or caused to be made other inquiries and searches. The identification, evaluation or exclusion of such matters in the process of reaching a conclusion whether land is an asset of a company necessarily involves judgment, assessment and interpretation.
Similarly, a conclusion that an asset should or should not be ‘normalised’, a process described by Mr Theobald as ‘taking accounting information as it’s presented and then adjusting it for the impact of one-off or abnormal transactions that are unlikely to repeat, so that you get an idea of the run rate of performance of a business’ is not, in my view, the mere observation of a fact which might be obscure or invisible to a lay witness.
Mr Theobald stated that the normalisation process required an ‘understanding of the payments made by the business historically’, an understanding of the liabilities and the rates at which they were incurred and whether historic payments would recur (which required discussions with management and accounting and other staff, and ‘applying our own knowledge and thinking’).
Accordingly, I do not consider that a conclusion in response to questions 1 or 2 is in any meaningful sense analogous to the identification of a microbe through a microscope, as discussed by Austin J in ASIC v Rich; or to producing a financial calculation which will inevitably result from the application of mathematical formulae by any qualified person without requiring any subjective assessment, albeit specialised skill may be necessary.
In my view, the conclusions of Mr Theobald elicited in response to questions 1 and 2 would not be equivalent to, nor admissible on the same basis as, scientific facts.
Nor am I persuaded that such conclusions would constitute statements of fact equivalent to the instances discussed by Finkelstein J in La Trobe Capital v Hay, of an average number of loans made during a particular period; a statement that a lender rejected an application or applications totalling a particular amount during a particular time; or a statement that demand for loans exceeded available funds. Such representations are, as Finkelstein J stated, matters of fact. They do not involve the application of subjective assessment or interpretation, although they may be imperfectly recollected.
Nor are the witness’s anticipated conclusions to questions 1 or 2 comparable to the exercise described in Castel Electronics,[55] where an expert forensic accountant identifies and explains financial documents, including their contents, to the court, in order to assist it to understand transactions which involve complex accounting treatments. While such a summary of the company’s financial records or other relevant matters made for the purpose of saving the court time and effort would not be opinion but admissible as fact, in contrast, the anticipated responses to the questions 1 and 2 would involve subjective assessment.
[55](2011) 192 FCR 445, 477–478 [203].
Moreover, in this case Mr Theobald has neither specifically identified any documents (save for identifying the form of the general ledger) nor explained to the court their content. He described relevant documents generically. The documents to which he referred were not produced and the contents of documents, including those relevant to the Baldivis land, were not disclosed, whether in summary form or otherwise.
The plaintiff did not seek to rely on s 79 and any attempt to do so would be futile. Mr Theobald did not comply with the Expert Witness Code of Conduct[56] and the plaintiff did not contend that his evidence provided an adequate basis for an expert opinion admissible under s 79.
[56]Supreme Court (General Civil Procedure) Rules 2015 Form 44A.
Whether conclusions opinions admissible under s 78 of the Act
The plaintiff, at a late stage, made an alternative, subsidiary submission that if the relevant conclusions were, contrary to its primary submission, opinions, they would be admissible under s 78 of the Act.
The plaintiff relied on Lithgow City Council, but did not greatly amplify or develop its argument in relation to the point. Moreover, senior counsel indicated that the plaintiff would or might lead further evidence to support the application of s 78.
On the basis of the evidence currently before the Court, however, the admissibility of Mr Theobald’s anticipated conclusions in relation to the Baldivis land as opinions under s 78 is not established.
The plurality’s discussion of the ambit of s 78 in Lithgow City Council suggests potential difficulties in its application to a forensic accountant’s opinion on whether particular land constitutes an asset of a company or whether a particular asset should be normalised in the company’s accounts on the basis of the accountant’s reviews and investigations:[57]
Section 78(a) goes to questions of form. It must be possible to extract from the form of what the person stating the opinion said, construed in context, that the opinion is about a ‘matter or event’, and that it is ‘based’ on what the person stating the opinion ‘saw, heard or otherwise perceived’ about that matter or event.
[57]Lithgow City Council (2011) 244 CLR 352, 369 [42].
In the present case, it would seem necessary to establish that Mr Theobald’s conclusion was an opinion about whether the Baldivis land was an asset of Fertilisers which was based on what he saw, heard or perceived. It would be necessary to establish that Mr Theobald saw, heard or perceived (which may or may not extend to understanding[58]) something about that matter on which the opinion is based.
[58]Ibid 369 n 40.
The plurality judgment in Lithgow City Council stated that s 78 only applies to opinions given by those who actually witnessed the event (or matter) on which the opinion is given. If Mr Theobald’s opinion is based on a totality of multiple reviews, investigations and searches about a matter, but he did not personally see, hear or otherwise perceive all of the relevant elements, his opinion could not be said to be based, as required by s 78(a), on what he personally saw, heard or perceived about the matter.
Further, it is not clear whether s 78(a) extends to something that a witness understood about a matter, in the sense of the meaning of a document he or she examined, or an investigation or search in which he or she participated. That uncertainty illuminates the more fundamental doubt of whether this case presents an instance of the problem which the common law rule corresponding to s 78 addressed. The plurality in Lithgow City Council adverted to the controversy about whether s 78 was precisely identical with the common law, but noted that it dealt with the same problem as the common law did in instances within the category described, that is, where the primary facts on which ‘the opinion is based are too evanescent to remember or too complicated to be separately narrated’.
There is currently no evidence that the primary facts on which Mr Theobald based his opinions (about whether land was an asset of the company or whether the asset should be normalised in the company’s accounts) were too evanescent to remember or too complicated to be separately narrated.
Moreover, the current evidence does not establish that it would be impossible in practice for Mr Theobald ‘separately to identify, remember and narrate all the particular indications which led to’ the relevant conclusion. It is not apparent why the process involved would be one ‘where component observations are made which are incapable of meaningful expression without stating the composite opinion to which they led.’[59]
[59]Ibid 373–374 [48].
The requirement in s 78(b), that it is necessary to admit the opinion in the sense that it is the only way to obtain an account of the witness’s perceptions, also poses an impediment to the application of s 78(b) in this case.
Question 3
In my opinion, the anticipated response to question 3 may, in contrast to questions 1 and 2, be admissible as a negative fact that Mr Theobald, as the operator of the Fertilisers’ business throughout the receivership, observed at a particular time. Mr Theobald could, in my view, give evidence that he observed as a fact and concluded that there was no connection between the land and the company’s business operations.
Questions 1, 2 and 3 all commence with the phrase, ‘In light of all information you received’. That could suggest that the questions are directed at information given to the witness by other persons, to the exclusion of information that he obtained as a direct result of his own reviews, searches, examinations and investigations. The phraseology sits uneasily with the submission that the response elicited constitutes facts based on the witness’s observations.
Assuming that the terms of the question are appropriately reframed or clarified and Mr Theobald’s response is based on his own observations, a factual conclusion based solely on his searches, review and investigations of the Baldivis land, of which he has given evidence, could be accorded little weight. Mr Theobald’s evidence does not establish that he personally effected, conducted, participated in or reviewed all the relevant searches and reviews, which were, in any event, very generally identified. He was in many instances unable to state which relevant tasks or reviews he, rather than members of his team, had undertaken. His general familiarity and involvement with the affairs and accounts of Fertilisers is not a substitute for specific evidence about a particular asset.
At the hearing, very little argument was directed to ss 135 and 136 of the Act. The first defendant nevertheless made clear that it relied on those provisions. Given the quality of Mr Theobald’s evidence about the Baldivis land, the probative value of his conclusion in response to question 3 would be slight. Senior counsel for the first defendant submitted that its admission would be unfairly prejudicial, as effective cross-examination would be impossible.
In Seven Network Ltd v News Ltd (No 8),[60] Sackville J held that the evidence of a witness about the strategic advantages of a network’s position within the pay television industry was not admissible under s 78 of the Act because they were opinions that did not seem to be based on what he saw, heard or perceived about particular matters or events. Rather, the opinion seemed to have involved the evaluation of a range of information bearing on those matters.[61]
[60](2005) 224 ALR 317 (‘Seven Network No 8’).
[61]Ibid 320 [10].
The relevant evidence was, however, admitted as evidence that the witness held an opinion on the matter, which was admissible under s 77, subject to a direction under s 136 that it was not to be for the purpose of proof of the existence of facts about which the opinions had been expressed.
His Honour noted:[62]
13.Telstra and PBL contend, however, that a direction should be made pursuant to s 136 of the Evidence Act because otherwise there would be a danger that Mr Gammell’s evidence might be unfairly prejudicial to them. They argue that Seven Network, in effect, is attempting to have opinion evidence admitted without having to comply with the requirements that govern the admissibility of expert evidence: cf Makita (Australia) Pty Ltd v Sprowles(2001) 52 NSWLR 705; [2001] NSWCA 305 at [64], [85] per Heydon JA; Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd(2002) 55 IPR 354; [2002] FCAFC 157 at [14] per Branson J. They say that they would be prejudiced because the statement contains no reasoning process to support the opinions of Mr Gammell which he says he formed in the course of advocating an ‘integrated media’ strategy. They further say that the statement does not identify such enquiries as Mr Gammell may have made or any information upon which he relied to form his opinions. Nor is it clear whether his assessment was based on any particular experience or expertise he might have had. They acknowledge that Mr Gammell can be cross-examined, but they point out that cross-examination would have to be undertaken without any of this material being exposed in advance. They would therefore be at a severe forensic disadvantage.
…
22.In the present case, Seven Network seeks to use Mr Gammell’s evidence to prove the truth of a number of highly contentious propositions relating to its position in the pay television market. It appears that these propositions are, or may be, of considerable importance to the very large damages claim that Seven Network makes against the respondents. The evidence takes the form of an account by Mr Gammell of his reasoning process for advocating a particular strategy that was apparently formed in the years after 1995.
23.The opinions Mr Gammell expresses are couched in general language. He does not divulge the basis for those opinions. Nor does he identify the documents upon which he relied or the enquiries that he made before forming his opinions. There is nothing to indicate the extent to which he used his own expertise or experience to make his assessment. Indeed, it is not clear when he formed the opinions referred in the Statement. They might have been formed, so it appears, at any time after 1995.
24.It is true, as Mr Sheahan emphasised, that the respondents will be able to cross-examine Mr Gammell. This is therefore not a case where Mr Gammell’s opinions cannot be subject to any scrutiny. But it is a very large and complex case in which tens of thousands of documents have been discovered. Special procedures have been devised to deal with the vast volume of documentation. To mount an effective challenge in cross-examination to Mr Gammell’s opinions may well prove to be an extremely difficult task, given the form in which his opinions are expressed. It would presumably be necessary for the cross-examiner to ascertain the bases for Mr Gammell’s opinions and then test whether they were well-founded. The obvious risk is that the bases for the opinions will only be exposed in the course of the cross-examination, potentially placing the cross-examiner at a serious forensic disadvantage. It may be very difficult, for example, to obtain instructions about documents or transactions referred to by Mr Gammell in the witness box. For these reasons, in my view, there is a danger that the use of Mr Gammell’s evidence in the manner proposed by Seven Network might be unfairly prejudicial to the respondents.
[62]Ibid 320–322 [13]–[24].
The present case (while the plaintiff did not seek to rely on s 77 of the Act) involves a number of circumstances comparable to those in Seven Network No 8. Mr Theobald’s conclusion is couched in general language and he did not identify comprehensively, precisely or with particularity, the documents on which he relied or the enquiries he made in coming to the conclusion. The extent to which he relied on his own reviews or inquiries or those of other persons was unclear. He did not expose his reasoning process. As in Seven Network No 8, there are thousands of discovered documents in the present case. In my view, such circumstances would, as the first defendant submitted, present potentially serious forensic disadvantages in cross-examination. The establishment of an absence of connection between payments the first defendant allegedly caused Fertilisers to make and various assets (including the Baldivis land) may be highly significant to establishing the plaintiff’s allegation of the first defendant’s serious breaches of duty and its claims against the defendants for compensation of very great magnitude. Although a judge is the trier of facts, and a more robust approach may frequently be appropriate, there is, in all the circumstances, a significant risk that the use of the evidence to establish the truth of the relevant conclusion would be unfairly prejudicial to the first defendant. Accordingly, while in my view it is unnecessary to exclude the evidence, it would be appropriate to make a direction under s 136 limiting its use. I shall invite further submissions on its terms.
Question 4
Question 4, as presently expressed, is ambiguous.
In oral submissions, senior counsel for the plaintiff made clear that it is intended to ask only whether, when the witness ‘came in and reviewed the accounts’, he saw the Baldivis land in those accounts (or records). Such a question may be asked and the witness’s response would be admissible as a fact.
If, however, question 4 sought to elicit whether the witness concluded from the company’s financial records that the land was an asset of the company, the response would, in my view, constitute an opinion. Accordingly, that question could not properly be put for the reasons discussed in relation to questions 1 and 2.
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