FEDERAL COURT OF AUSTRALIA Principal Strategic Options Pty Limited v Coshott [2003] FCA 181 PRINCIPAL STRATEGIC OPTIONS PTY LIMITED v ROBERT GILBERT COSHOTT N 7559 of 2000 BRANSON J 13 MARCH 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7559 of 2000 BETWEEN: PRINCIPAL STRATEGIC OPTIONS PTY LIMITED APPLICANT AND: ROBERT GILBERT COSHOTT RESPONDENT JUDGE: BRANSON J DATE: 13 MARCH 2003 PLACE: SYDNEY REASONS FOR RULING 1 Robert Gilbert Coshott and Ljiljana Coshott ('Mr & Mrs Coshott') have moved the Court for an account to be taken of the losses which they have respectively suffered as a consequence of the making by the Court on 29 June 2000 of certain orders under s 50 of the Bankruptcy Act 1966 (Cth) ('the Bankruptcy Act'). The effect of the orders made by the Court on that day was to direct a specified registered trustee to take control of Mr Coshott's property. The applicant, Principal Strategic Options Pty Limited ('Strategic Options'), gave the 'usual' undertaking as to damages in respect of the making of the orders under s 50 of the Bankruptcy Act. 2 It is an agreed fact before me on the hearing of the motions that the undertaking given by Strategic Options was an undertaking: '(a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and (b) to pay the compensation referred to in (a) to the person there referred to.' 3 Mr & Mrs Coshott each seek an order requiring the payment of compensation for, amongst other things, the loss of increase in the capital value of a home which they claim that they would have purchased as joint tenants had the order of the Court dated 29 June 2000 not been made. They assert that, but for the order of the Court, they would have purchased a four or five bedroom home in the Vaucluse, Bellevue Hill or Woollahra area ('the Suburbs') in early January 2001 for about $2 million. The period of time over which Mr & Mrs Coshott claim to have lost the increase in value of such a property is the period from early January 2001 to about the end of May 2001. 4 In support of their respective claims for an order for the payment to them of compensation, Mr & Mrs Coshott, by their counsel, sought to have admitted in evidence a report prepared by Terence John Davis, a certified practicing valuer. On 5 March 2003 I refused to admit into evidence Mr Davis' report. At that time I delivered short oral reasons for my ruling. It was my then intention to expand on those reasons in my final judgment. As it has become necessary to adjourn the hearing of the motions I have agreed to publish separately my reasons for refusing to admit into evidence Mr Davis' report. 5 Mr Davis' report records his opinion as to the approximate extent to which general price levels of four to five bedroom houses in the Suburbs increased in the period from early January to late May 2001. The report also records Mr Davis' opinion as to the order of the increase in prices of four to five bedroom houses likely to have occurred in Vaucluse during the same period of time. 6 Strategic Options objected to Mr Davis' report being received in evidence on the basis, in effect, that the evidence of Mr Davis' opinions did not fall within any exception to rule contained in s 76 of the Evidence Act 1995 (Cth) ('the Evidence Act') that evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed. 7 The exception to the rule contained in s 76 upon which Mr & Mrs Coshott relied was that contained in s 79 of the Evidence Act. Section 79 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.' 8 It is not sufficient to bring the opinions expressed by Mr Davis within the terms of s 79 of the Evidence Act that the opinions fall within the field of Mr Davis' expertise as a valuer if his specialised knowledge was not used in reaching those opinions (Quick v Stoland (1998) 87 FCR 371 per Branson J at 374-375, Emmett J at 380-381 and Finkelstein J at 383). 9 The methodology used by Mr Davis in reaching his opinions is explained in his report as follows: 'METHODOLOGY 5. We make the following observations upon the nature of our instructions: a) Measurement of price movements in the residential real estate market are measured in a variety of ways by different companies, bodies and organisations. The nature of such measurements varies in relation to the type of properties sold, and their geographic locations, and is applied over differing time periods; b) Measurement of residential property markets on a state or nationwide criteria often includes all types of residential properties, and across the full range of prices. This type of measurement, whilst providing some indication of general residential property trends, is not well suited to this instruction. This instruction is confined to a small number of prime residential suburbs, and is best suited to analysis that is concentrated upon that sector of the overall market; c) We have had regard to statistical data that has been published by widely recognised and respected companies which have specialised in measurement and analysis of the Sydney residential property market, and, in addition, offer specific analysis in respect of houses in the Suburbs; d) Statistical analysis of the residential property market tends to be carried out on a periodic basis, mainly either monthly, quarterly or annually. These periods may not wholly coincide with the Period, and where this is the case we have utilised the closest available "fit" from the available data; e) Measurement of movements in house prices with prime suburbs (of the type represented by the Suburbs) inevitably represents a "broad brush" analysis. The nature of houses in the Suburbs has, in our opinion, a relatively high level of variance due to differences in a number of key determinants of value. These determinants include (but may not be wholly confined to) views, orientation, size/shape/topography of land, size and nature of improvements, location in neighbourhood and street. The sale of a prime property with Harbour views and modern improvements will command a higher price than a lesser property with no views and older improvements. The quality of properties sold over time is not always apparent, and there are a limited number of sales within the Suburbs. If a series of top quality dwellings are sold, then there may be a statistical interpretation of the Suburbs' sub-market that gives the impression of higher price levels and/or a higher rate of increase than would be the case if a series of cheaper houses had been transacted. 6. We have had regard to the matters referred to above in compiling our methodology in order to complete our instructions. 7. In coming to our conclusions, we have carried out the following stages of analysis of the real estate house market in the Suburbs during the Period: a) We have taken cognisance of data published by Residex Pty Limited ('Residex') in respect of the house market in the Suburbs; b) We have taken cognisance of data published by Easternstats in respect of the house market within the Suburbs; c) We have assembled anecdotal evidence of the opinions of a number of valuers and real estate agents in respect of the house market in the suburbs during the Period; d) We have taken into account the sales of a number of properties in a "typical" street in the Suburbs in order to test whether actual sales evidence reflects the broader statistical data; e) Our conclusions are based upon consideration of the above stages, and analysis of their results.' Mr Davis explained that, notwithstanding the use of plural expressions in the report (i.e. 'we' and 'our'), the report was prepared by him alone and the conclusions and opinions set out in the report were his conclusions and his opinions. 10 As is mentioned above, Mr Davis is a certified practising valuer. The only relevant specialised knowledge that he professes is knowledge concerning valuation. In particular, Mr Davis does not profess to be an expert statistician. 11 The methodology utilised by Mr Davis (see [9] above) involved his taking 'cognisance' of certain published data, assembling anecdotal evidence of the opinions of a number of valuers and real estate agents and taking into account the sales of a number of properties in a 'typical' street in the Suburbs as a means of testing the statistical data. 12 It is not suggested that Mr Davis utilised his expert knowledge in taking cognisance of the published data concerning the residential house market. Nor is it suggested that Mr Davis used his expert knowledge in assembling anecdotal evidence of the opinions of valuers and real estate agents. Mr Davis did indicate in his oral evidence that as he had himself valued properties in the Suburbs over time he had some insight into the intricacies of those markets. However, Mr Davis acknowledged that he had not himself valued any house in the Suburbs more than once during the period January to June 2001. Indeed, he was unable to confirm that he had in fact valued any house in the Suburbs during that period of time. Mr Davis conceded that the exercise undertaken by him, so far as it involved giving consideration to publicly available statistics and speaking with valuers and real estate agents, was 'the sort of exercise that most purchasers of residential properties would tend to carry out quite often'. 13 The final step in Mr Davis' methodology involved his taking into account sales of properties in a 'typical' street as a means of checking the apparent validity of the outcome of his other steps. So far as this step in Mr Davis' methodology is concerned, his lack of expertise as a statistician, in my view, assumes particular importance. Mr Davis identified ten sales which occurred in his 'typical' street over a twelve month period. He plotted these sales on a scatter chart and then used a computer program to generate a trend line from the scatter chart. Without expert statistical evidence, it is impossible to know whether the trend line so generated has any statistical significance in respect of residential property prices in the Suburbs over the period of twelve months during which the sales took place, let alone in respect of the shorter period with which this proceeding is concerned. 14 Although Mr Davis' report identifies the factual material upon which his opinions are apparently based, neither in his report nor in his oral evidence has Mr Davis exposed how, if at all, he used his specialised knowledge as a valuer in reaching those opinions. That is, the evidence does not reveal a reasoning process which demonstrates that Mr Davis' opinions are wholly or substantially based on his specialised knowledge (see Quick v Stoland per Branson J at 375; Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 at [23]). 15 I am not satisfied on the balance of probabilities (see s 142 of the Evidence Act) that the evidence sought to be adduced by the tender of Mr Davis' report, namely his opinions on the topics identified in [5] above, are opinions that are wholly or substantially based on Mr Davis' specialised knowledge as required by s 79 of the Evidence Act. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson. Associate: Dated: 13 March 2003 Solicitor Advocate for the Applicant: Mr D Francis Solicitor for the Applicant: Watkins Tapsell Counsel for the Respondent: Mr M Cashion SC Solicitor for the Respondent: CKB Partners Date of Hearing: 5 March 2003 Date of Judgment: 13 March 2003