FEDERAL COURT OF AUSTRALIA NMFM Property Pty Ltd v Citibank Ltd (No 7) [1999] FCA 252 PRACTICE AND PROCEDURE – opinion evidence – whether witness shown to have "specialised knowledge" within s 79 of Evidence Act 1995 (Cth) – whether opinions expressed intruded upon exclusive function of court. EVIDENCE - opinion evidence – whether witness shown to have "specialised knowledge" within s 79 of Evidence Act 1995 (Cth) – whether opinions expressed intruded upon exclusive function of court Evidence Act 1995 (Cth) s 79 Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 6) (1996) 64 FCR 79. NMFM PROPERTY PTY LIMITED (formerly called "National Mutual Property Services (Australia) Pty Ltd") v CITIBANK LIMITED (formerly called "Citibank Savings Limited") NG 765 of 1994 LINDGREN J 11 MARCH 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 765 OF 1994 BETWEEN: NMFM PROPERTY PTY LIMITED (formerly called "National Mutual Property Services (Australia) Pty Ltd") First Applicant NATIONAL MUTUAL ASSETS MANAGEMENT LIMITED Second Applicant THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED Third Applicant AND: CITIBANK LIMITED (formerly called "Citibank Savings Limited") Respondent FIRST CROSS-CLAIM CITIBANK LIMITED (formerly called "Citibank Savings Limited") Cross-Claimant [Lance Kelly Financial Management Pty Ltd, removed as a party] First Cross-Respondent LANCE KELLY Second Cross-Respondent [Dennis Jones & Company Pty Limited, removed as a party] Third Cross-Respondent DENNIS JONES Fourth Cross-Respondent TONY BAHR Fifth Cross-Respondent ALAN J BLEE Sixth Cross-Respondent [Wayne Fitcher, removed as a party] Seventh Cross-Respondent NORMAN KIRBY Eighth Cross-Respondent PAUL KENNEDY Ninth Cross-Respondent PETER KINROSS Tenth Cross-Respondent JAMES NAUGHTON Eleventh Cross-Respondent [D Rodstead, removed as a party] Twelfth Cross-Respondent [G Blaiklock, removed as a party] Thirteenth Cross-Respondent ERIK JAMES BUTTARS Fourteenth Cross-Respondent ROMMEL HACOPIAN Fifteenth Cross-Respondent CRAIG BYRON ROBERTS Sixteenth Cross-Respondent ANNA WASS Seventeenth Cross-Respondent ALLAN STEWART CRAWFORD Eighteenth Cross-Respondent PERMANENT TRUSTEE COMPANY LIMITED Nineteenth Cross-Respondent AMERICAN HOME ASSURANCE COMPANY Twentieth Cross-Respondent LAWRENCE C GRIMA Twenty-first Cross-Respondent SECOND CROSS-CLAIM LANCE KELLY Cross-Claimant CITIBANK LIMITED (formerly called "Citibank Savings Limited") Cross-Respondent JUDGE: LINDGREN J DATE: 11 MARCH 1999 PLACE: SYDNEY REASONS FOR JUDGMENT (No 7) (ruling on objection to opinion evidence) 1 National Mutual objects to Citibank's reading affidavits of Richard William Hargraves sworn 25 June 1998, and 10 March 1999. The objection has raised questions under s 79 of the Evidence Act 1995 (Cth) which provides: "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." 2 The section uses the expression "based on" in two places: the opinion must be "based on" specialised knowledge and the specialised knowledge must be "based on" the person's training, study or experience. 3 It is objected, first, that Mr Hargraves is not shown to have "specialised knowledge" and, second, that the opinions which he expresses are not based upon "specialised knowledge" and in fact intrude upon the exclusive function of the Court (cf Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 6) (1996) 64 FCR 79). 4 I turn first to the question whether Mr Hargraves is shown to possess "specialised knowledge" within s 79. I do not understand Citibank to rely upon his having such knowledge based on "training" or "study"; its case is that he has specialised knowledge based on "experience". 5 According to the evidence, from 1970 to date Mr Hargraves has had experience in what he describes as "the Funds Industry". He gives an account of various positions held by him, including "General Manager, Sales and Marketing, Australian Fixed Trusts Limited (AFT)" from 1984 to 1985, "General Manager Operations (AFT)" from 1985 to 1986 and "Deputy Chief Executive" of AFT from 1986 to 1988. Late in 1988 he resigned his position with AFT to form "a consultancy operation focused on the Funds Management Industry." He describes certain "publicly announced undertakings" and "assignments of a confidential nature" which he has undertaken as a consultant. 6 While it is easy to see that Mr Hargraves possesses knowledge related to the management of investment funds beyond the knowledge of that subject possessed by the ordinary member of the community, I do not know what his knowledge is. What, for example, am I to conclude from the fact that in some unspecified way Mr Hargraves was involved in "development of the rationalisation proposals of the Brick Securities Property Trusts"? Again, what am I to conclude from the following elliptical descriptions of two of his "undertakings": "7. Independent opinion provided to the Australian Securities Commission in regard to a notice of meeting and an explanatory memorandum. 8. Advisers to the Board of Chartered Pacific Superannuation Limited." Examples from his curriculum vitae could be multiplied. 7 What s 79 requires to be shown, but what the evidence here fails to show, is that Mr Hargraves has specialised knowledge of an identifiable kind. It is only if this is established that it is possible to determine whether an opinion expressed by Mr Hargraves is "based on" specialised knowledge. I simply do not know what is the "specialised knowledge based on ... experience" that Mr Hargraves has. On this ground alone, I would not admit his report. 8 I turn to the second ground, that is, that the opinions expressed by Mr Hargraves are of a kind not able to be given in evidence because they intrude on the exclusive function of the Court. Mr Hargraves was asked to provide opinions in response to the following questions: "(a) were the losses for which Citibank is sought to be held liable in these proceedings caused by any of the matters identified in paragraph 12 of the Defence and if so, which matters and to what extent; (b) was the negative gearing package devised and introduced by National Mutual itself; (c) did National Mutual implement and promote the negative gearing package through statements in the prospectuses and other promotional documents and by its other conduct; (d) did National Mutual fail to take reasonable steps to ensure compliance with the conditions of its dealer's licence and particularly, those conditions relating to the supervision and training of its representatives; (e) did the prospectuses fail to include all the information which investors would reasonably require to make an informed assessment of the Property Trust and its prospects; (f) did the conduct of National Mutual's agents consist of the systematic provision of negligent, misleading and deceptive investment advice relating to the negative gearing package and if so, did National Mutual fail adequately to supervise and control that conduct; (g) did National Mutual promote excessive and unrealistic projections of anticipated returns to investors from their investment in the Property Trust and through the negative gearing package; (h) did National Mutual promote the financial benefits of gearing and in particular of negative gearing to investors without any sufficient revelation of the financial risks to investors; (i) did National Mutual promote the standing and supposed investment expertise of the National Mutual group of companies as a positive factor for the benefit of investors when in reality those factors were either non-existent or not of any benefit to investors; (j) did National Mutual fail to disclose to investors fairly or accurately, either at the time their investment was originally made or subsequently, the true financial position of the Property Trust and its financial prospects, including in particular the fact that major properties within its portfolio would soon be without any rental stream, the fact that those properties had been purchased from other companies within the National Mutual group, the fact that there had been a marked decline since 1989 in the value of the property portfolio of the Property Trust and throughout the general property market and the fact that in the period late 1990 onwards there were legislative changes being sought for the removal of unitholders' rights to redeem their units on 7 days' notice; (k) were the transactions, the subject of these proceedings, procured otherwise than by a licensed investment adviser's authorised representative's lawful use of a lawful prospectus?" 9 Mr Hargraves' report begins by giving his answers to these questions and continues by exposing his reasons for those answers. Most of the report is concerned with question (a). That question refers to the matters raised in the subparagraphs of para 12 of Citibank's third amended defence which, for convenience, Mr Hargraves renumbers (i) to (ix). For convenience I set out as follows the subparagraphs of question (a) incorporating the renumbered subparagraphs of para 12 of Citibank's defence. "(a) Were the losses for which Citibank is sought to be held liable in these proceedings caused by (i) National Mutual embarking upon an investor compensation scheme in response to the Australian Securities Commission investigation into their activities which commenced in 1993; (ii) the value ascribed by National Mutual to the units in their Property Trust at the time the compensation was paid by them; (iii) the general fall in value in the Australian commercial property market due to changing market conditions; (iv) the general loss of investor confidence in unlisted property trusts; (v) changes in the legislation regulating unlisted property trusts, namely those introduced by the Corporations (Unlisted Property Trusts) Amendment Act 1991; (vi) National Mutual's inadequate training and supervision of its representatives; (vii) the misleading and inadequate information contained in the prospectuses issued by National Mutual for the Property Trust; (viii) National Mutual attributing excessive values to properties held in the Property Trust with the effect that the purchase price paid for units in the Property Trust was correspondingly excessive; and (ix) National Mutual's failure to adequately disclose in the prospectuses for the Property Trust that purchases had been made of certain properties for the Trust otherwise than on an arms-length basis; and if so, which matters and to what extent?" 10 I do not think it necessary to deal separately with each of questions (a) to (k) set out earlier or with each of these subquestions (i) to (ix) of question (a). Generally the subquestions of question (a) raise particular factual questions of causation on which expert opinion may not be given and which are within the exclusive function of the Court to decide. I think it profitable to say nothing further except in respect of those that might arguably belong to a different category. These are subquestions (a)(iii), (iv), and (v). As I understand it, there is or may be no dispute that in one sense any losses suffered by the Investors were caused by "the general fall in value in the Australian commercial property market", "the general loss of investor confidence in unlisted property trusts" and "changes in the legislation regulating unlisted property trusts, namely those introduced by the Corporations (Unlisted Property Trusts) Amendment Act 1991 (Cth)". The important questions are, first, whether any losses suffered are attributable to representations that were made and, if so whether those representations were made on behalf of Citibank, and, second, whether any losses suffered were caused by a breach of a primary duty owed by Citibank to the Investors. In other words, as I understand it, the conclusion reached by Mr Hargraves in relation to subquestions (a)(iii), (iv) and (v) state, or may state, common ground. 11 It is possible that Mr Hargraves does possess specialised knowledge qualifying him to express opinions relevant to subquestions (a)(iii), (iv) and (v). For this reason, although I would not admit his report for lack of evidence of his qualification to give opinion evidence, I will reserve leave to Citibank to re-tender the opinions Mr Hargraves gave in answer to those subquestions if it thinks that any purpose would be served by their being in evidence. But they would have to be re-tendered with evidence of qualification satisfying s 79 of the Act. 12 I turn to the only other matters which have caused me some doubt. These are questions (e), (g) and (h). It is possible that Mr Hargraves may be qualified to express opinions in response to those questions by reference to industry norms and practice. I reserve leave to Citibank to apply to read opinion evidence by Mr Hargraves in relation to those two questions also, again with evidence satisfying s 79. 13 Otherwise, it seems to me that Mr Hargraves' report expresses opinions which, no matter what Mr Hargraves' qualifications are, may not be given in evidence at all. I reject the two affidavits sought to be read. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 11 March 1999 Counsel for Applicants; 2nd, 4th, 19th and 20th Cross-Respondents; and Cross-Claimant on 2nd Cross-Claim: Mr J C Kelly SC, Mr J T Gleeson and Mr C Moore Solicitor for Applicants; 2nd, 4th, 19th and 20th Cross-Respondents; and Cross-Claimant on 2nd Cross-Claim: Cutler Hughes and Harris Counsel for Respondent; Cross-Claimant on 1st Cross-Claim; and Respondent to 2nd Cross-Claim: Mr B W Rayment QC, Mr S D Epstein and Ms R P Rana Solicitors for Respondent; Cross-Claimant on 1st Cross-Claim; and Respondent to 2nd Cross-Claim: Deacon Graham James Counsel for 5th, 6th, 8th to 11th, 14th to 18th and 21st Cross-Respondents: Mr J A Loxton Solicitors for 5th, 6th, 8th to 11th, 14th to 18th and 21st Cross-Respondents: Wood Marshall Williams Date of hearing: 10 March 1999 Date of judgment: 11 March 1999