FEDERAL COURT OF AUSTRALIA Oztech Pty Ltd v Public Trustee of Queensland (No 13) [2016] FCA 1153 File number: NSD 937 of 2014 Judge: YATES J Date of judgment: 19 September 2016 Catchwords: EVIDENCE – voir dire – ruling – expert evidence – whether witness has relevant "specialised knowledge" based on training, study or experience Legislation: Corporations Act 2001 (Cth) ss 283AB, 283AC, 283BB, 283DA, Pts 2L.2, 2L.3, 2L.4, Ch 2L Evidence Act 1995 (Cth) ss 76, 79 Cases cited: ASIC v Rich [2005] NSWSC 1170 Australian Cement v Adelaide Brighton [2001] NSWSC 645 Australian Securities and Investments Commission v Vines (2003) 48 ACSR 291; [2003] NSWSC 1095 Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 HG v The Queen (1999) 197 CLR 414; [1999] HCA 2 Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] Ch 384 Oztech Pty Ltd v Public Trustee of Queensland (No 9) [2016] FCA 785 Date of hearing: 16 September 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 46 Counsel for the Applicant: Mr RPL Lancaster SC with Mr CH Withers, Mr AM Hochroth and Mr RJ May Solicitor for the Applicant: Squire Patton Boggs Counsel for the Respondent: Mr W Sofronoff QC with Mr DB O'Sullivan QC, Mr MJ O'Meara, Mr JP O'Regan, Ms E Hoiberg and Ms F Lubett Solicitor for the Respondent: Clayton Utz ORDERS NSD 937 of 2014 BETWEEN: OZTECH PTY LTD ACN 005 907 871 Applicant AND: THE PUBLIC TRUSTEE OF QUEENSLAND Respondent JUDGE: YATES J DATE OF ORDER: 19 SEPTEMBER 2016 THE COURT: 1. Makes the rulings set out in [46] of the reasons of judgment published today as Oztech Pty Ltd v Public Trustee of Queensland (No 13) [2016] FCA 1153. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (VOIR DIRE) YATES J: Introduction 1 The applicant objects to the whole of the expert report of Phillip Anthon dated 21 June 2016. The applicant contends that Mr Anthon lacks the specialised knowledge that would support the admissibility under s 79 of the Evidence Act 1995 (Cth) (the Evidence Act) of the opinions Mr Anthon has expressed. 2 Section 76(1) of the Evidence Act provides that evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion is expressed. Section 79 provides an exception to this rule. Relevantly, s 79(1) 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. Legal context 3 This case concerns the duties and responsibilities of a trustee of a debenture trust governed by Ch 2L of the Corporations Act 2001 (Cth) (the Corporations Act). A body that makes an offer of debentures in this jurisdiction (the borrower) must enter into a trust deed that complies with s 283AB of the Corporations Act. 4 Section 283AB(1) provides: (1) The trust deed must provide that the following are held in trust by the trustee for the benefit of the debenture holders: (a) the right to enforce the borrower's duty to repay; (b) any charge or security for repayment; (c) the right to enforce any other duties that the borrower and any guarantor have under: (i) the terms of the debentures; or (ii) the provisions of the trust deed or this Chapter. 5 Only certain persons can be a trustee of debentures governed by Ch 2L: s 283AC of the Corporations Act. 6 The trustee has a number of statutory duties: see Pt 2L.4. These duties include the duty to exercise reasonable diligence to ascertain whether the property of the borrower and of each guarantor that is or should be available (whether by way of security or otherwise) will be sufficient to repay the amount deposited or lent when it becomes due: s 283DA(a) of the Corporations Act. These duties also include the duty to exercise reasonable diligence to ascertain whether the borrower or any guarantor has committed any breach of the terms of the debentures, the provisions of the trust deed, or the provisions of Ch 2L: s 283DA(b) of the Corporations Act. 7 The borrower has a number of general and specific statutory duties: see Pt 2L.2. These include the duty to make all of its financial and other records available for inspection by the trustee and to give the trustee any information, explanations or other assistance that might be required about matters relating to those records: s 283BB(c) of the Corporations Act. A guarantor also has a number of similar general and specific statutory duties: see Pt 2L.3. 8 Thus, the Corporations Act sets up a specific statutory regime governing the requirements of a debenture trust and the duties and responsibilities of the trustee, the borrower and any guarantor. Factual context 9 The applicant has tendered four reports made by Philip Joseph. These reports were admitted over objection: Oztech Pty Ltd v Public Trustee of Queensland (No 9) [2016] FCA 785 (Reasons 9). The present reasons should be read with an understanding of Reasons 9. I will use the same abbreviations in these reasons. 10 Mr Joseph's reports are directed, purportedly, to the rights and responsibilities of a trustee of a debenture trust under Ch 2L of the Corporations Act in the period 2006 to 2008. 11 In his first report, Mr Joseph expresses opinions as to what steps the respondent, as the trustee for noteholders, should have taken under the trust deed and/or the Corporations Act by 29 February 2008 in order to discharge his duties as trustee, including when those steps should have been taken. 12 By way of broad overview, Mr Joseph says that, at least by 17 May 2007, the respondent should have put in place a monitoring regime by which he received regular (monthly) information from OL. According to Mr Joseph, this monitoring regime should have included the appointment of an investigative accountant to prepare a report on the ability of OL (presumably, OIN) to meet repayment of the notes on issue. 13 Another expert called by the applicant, Mr Borrelli, has provided a report which, the applicant says, is the kind of report that would have been provided by an investigative accountant at the time. 14 In his second report, Mr Joseph expresses opinions as to what action the respondent should have taken in August 2007 as a result of receiving the report prepared by the investigative accountant (here, Mr Borrelli). Mr Joseph says that, amongst other things, he would have followed the recommendations in Mr Borrelli's report and engaged an investigative accountant on an ongoing basis to undertake the monitoring recommended by Mr Borrelli. Mr Borrelli has provided a second report which deals with that ongoing monitoring. In that report, he makes a number of recommendations. 15 In his third report, Mr Joseph expresses opinions as to what action he would have taken in the periods August to October 2007, November 2007, December 2007 and January 2008 had he been trustee, based on the advice and recommendations contained in Mr Borrelli's second report. 16 It can be seen that, for the purpose of considering these expert reports, Mr Joseph is to be taken as a proxy for the respondent and Mr Borrelli is to be taken as a proxy for the investigative accountant reporting to the respondent. 17 In his fourth report, Mr Joseph gives evidence about certain assumptions he made and certain information on which he relied in expressing the opinions in his third report. Mr Anthon's report The issues addressed by the report 18 Mr Anthon's report is responsive to Mr Joseph's first three reports. In this connection, Mr Anthon was requested to provide opinions based on the following questions. First: On the basis of the information available to the Public Trustee between 6 July 2007 and 18 January 2008, and between 18 January 2008 and 29 February 2008, and the assumptions that you have been provided with, were the steps taken by the Public Trustee during these periods appropriate, or not? If so, why? If not, why not? 19 Secondly: Did the nature of the Octaviar Group's business mean that a debenture trustee in the position of the Public Trustee ought to have requested "monthly cash flow reports, monthly management accounts and monthly updates on the sale and purchase of businesses by the group" as set out in para 23 of the first Joseph report between: (a) November 2006 and 17 May 2007? If so, why? If not, why not? (b) 17 May 2007 and 8 June 2007? If so, why? If not, why not? 20 Thirdly: Does the Third PwC Report bear the characterisation set out by Mr Joseph at paras 4(d) and 35 to 37, and elsewhere (see paras 39 to 41 and 46 to 48), of the first Joseph report? 21 Fourthly: Did the contents of the Third PwC Report warrant a debenture trustee in the position of the Public Trustee taking the step described in the first Joseph report at para 40, where Mr Joseph states that he would have appointed an "investigative accountant" to obtain a "thorough and extensive report on whether OL would be able to repay the notes". If so, why and if not, why not? 22 Fifthly: Assuming that it was appropriate for a debenture trustee in the position of the Public Trustee to commission a "thorough and extensive report on whether OL would be able to repay the notes": (a) Was the appointment of an investigative accountant appropriate to achieve that end? If so, why? If not, why not? (b) Was it appropriate for an investigative accountant so appointed to undertake the task set out at para 43 of the first Joseph report? If so why? If not, why not? (c) Was it appropriate for an investigative accountant so appointed to make the requests set out in Tab 2 of the first Borrelli report? If so, why? If not, why not? 23 Sixthly: Please provide your expert opinion on the opinions expressed by Mr Joseph on the resignation of the Public Trustee as debenture trustee, and his criticisms of the Public Trustee's actions. 24 Seventhly: Having regard to the findings of the first Borrelli report, ought a debenture trustee in the position of the Public Trustee have appointed an investigative accountant such as Mr Borrelli, to conduct the on-going monthly monitoring envisaged in para 115 of the first Borrelli report? If so, why? If not, why not? 25 Eighthly: Assuming that it was appropriate for a debenture trustee in the position of the Public Trustee to appoint an investigative accountant such as Mr Borrelli to conduct on-going monthly monitoring of the Octaviar Group: (a) Was it appropriate for an investigative accountant so appointed to make the requests set out in Tab 8 of the first Borrelli report? If so, why? If not, why not? (b) If not, what would be the scope of an appropriate monthly (or other) monitoring regime? 26 Ninthly: Assuming (contrary to the format of the second Borrelli report) the investigative accountant reported to the Public Trustee on a monthly basis, and in light of (i) the investigative accountant's findings in August, September and October 2007 (so far as they can be discerned from the second Borrelli report and para 8 of the third Joseph report), and (ii) your assessment of the material otherwise available to the Public Trustee between August and October 2007, should a debenture trustee in the position of the Public Trustee have continued the on-going monthly monitoring beyond October 2007? If so, why and if not, why not? 27 Tenthly: Assuming that the second Borrelli report was provided to the Public Trustee on 31 January 2008, should a debenture trustee in the position of the Public Trustee have taken the following steps (and if so why and if not why not): (a) Issued the notice of demand to OIN and OL that Mr Joseph outlines at para 20 to 23 of his third report? if yes, in the timeframe there indicated? (b) commenced the proceedings to wind up OIN and OL that Mr Joseph outlines at para 25 of his third report? if yes, in the timeframe indicated? 28 Eleventhly: Assuming that the second Borrelli report was provided to the Public Trustee on 7 February 2008, would your answers to Question 10 change or not? 29 It will be seen that these questions are not only directed to Mr Joseph's reports; they are also directed, either in terms or by implication, to the position of a debenture trustee in the position of the respondent. 30 In short, Mr Anthon's report is directed to the question of whether the respondent met the standard of care required by a debenture trustee under Ch 2L of the Corporations Act. In order for Mr Anthon's opinions to be admissible, it is necessary for the respondent, who relies on those opinions, to show that Mr Anthon has the specialised knowledge (to which s 79 of the Evidence Act refers) to give those opinions. The applicant submits that the respondent has not shown that Mr Anthon has that specialised knowledge. 31 The respondent accepts that Mr Anthon does not have direct experience with Ch 2L debenture trusts. However, he points to other experience which Mr Anthon had "in the corporate trustee field" which, the respondent says, gives Mr Anthon "a good basis for forming opinions as to the proper professional standards for a corporate trustee such as a debenture trustee under Chapter 2L …". 32 The respondent submits: Whether [Mr Anthon's] experience is directly and wholly comparable is not to the point: it does not need to be. It is substantially and relevantly applicable. Moreover, the core obligation imposed by section 283DA of the Corporations Act is an obligation that is not relevantly different from the obligation that the general law imposes upon a person occupying the office of a debenture trustee. Mr Anthon has extensive experience with, and expertise in, the practical application of those standards to "real world" fact patterns. 33 The respondent also points to the fact that, in the further amended statement of claim, the applicant pleads breaches of a general duty of care. I would observe, however, that those pleaded breaches must be understood in the context of a trustee appointed for the purposes of undertaking the duties and responsibilities prescribed in Ch 2L of the Corporations Act. It does not seem to me, therefore, that this submission provides an independent or different basis for the admission of Mr Anthon's report. 34 The respondent also argues that the applicant's objection really goes to the weight of Mr Anthon's proposed evidence, not its admissibility. Mr Anthon's qualifications and experience 35 In his report, Mr Anthon describes his qualifications and experience as follows: 4. I have been involved in an advisory capacity within the financial services arena for 20 years in a variety of roles as outlined below and in my CV, a copy of which is annexed to this report at Annexure 2. 5. I hold a Bachelor of Laws from the Queensland Institute of Technology (as it then was). 6. From 1985 to 1996 I practised as a solicitor. Between 1994 and 1996, my practice was focused on business succession planning activities, including developing superannuation trust deeds. 7. In 1997, I left private practice as a solicitor to take up the role of Queensland State Manager for the Corporate Trustee Department at Perpetual Trustee Australia Ltd (Perpetual), a role I held until 1999. During this period, I also sat on the board of directors of Perpetual Trustees (Queensland) Limited (Perpetual Qld), which acted as corporate trustee for a number of trusts, private client managed funds, investment mandates and deceased estates, including philanthropic bequests. 8. During my time at Perpetual, my role included oversight of over 20 trusts of varying natures and asset classes for which Perpetual acted as the corporate trustee. For example, these trusts included: (a) three substantial unlisted property funds; (b) a range of managed investment trusts holding market securities; (c) several mortgage trusts; (d) a debenture trust; (e) an investment capital trust. 9. Perpetual Qld acted as the corporate trustee of the Breakwater Island Trust during this period. As part of my role in relation to this Trust I sat on the board of directors and looked after all aspects of the trust including day to day management, reviewing and approving long term cash flows and strategic forecasts, investor management and associated operations, and dealing with the regulatory requirements of the Queensland Gaming Commission. I was also involved in overseeing the risk management and compliance activities relevant to the effective operation of the trusts by the Trust Manager. 10. After leaving Perpetual, I joined Suncorp-Metway Limited as General Manager in the Compliance and Trusts Department. I held that role from 1999 to 2002. In that role I was responsible for the creation of a new role within the business called the "Single Responsible Entity" (SRE) for the property and investment trusts managed by Suncorp-Metway Limited. This role was essentially formed by the merger of the former Trust Manager and Trustee roles. Development of the SRE roles included development of protocols necessary to deliver appropriate fiduciary guidelines and regulatory compliance for each of the Suncorp-Metway SREs. This also included training all directors of the SRE entities, which included a number of Suncorp-Metway head board directors. 11. The scope of my role at Suncorp also included oversight of trustee and investment protocols for the following trusts: (a) three unlisted property funds with a value of circa $4.5 billion; (b) the Suncorp Property Fund an ASX listed property trust. My involvement with this Fund included providing guidance to the Trustee on fiduciary issues relevant to advancing the interests of unitholders in the sale of 50% of the issued units in the Suncorp Property Fund to Westfield Corporation; (c) a variety of wholesale investment trusts in a number of different market securities; (d) a variety of retail investment trusts. 12. In July 2002 my role within Suncorp changed to General Manager in the Risk Management & Compliance group. I held that role until September 2008 (with a six-month appointment as the Acting General Manager in the Suncorp Wealth Management & Customer Development group between March and August 2006). 13. In that role, I was responsible for the development and implementation of a group-wide education program on the fiduciary role of a trustee and its personnel, and the governance and risk/compliance obligations imposed by various regulatory changes. The role also involved: (a) regulatory compliance of all aspects of the Wealth Management business from Asset Management, Superannuation, Life Insurance & Managed Funds through to Distribution of Wealth Products; (b) delivery of Trustee Support services for Suncorp Superannuation Pty Ltd (SSPL) as trustee for the Suncorp Public Offer Superannuation Fund, which included providing guidance and assistance to the directors of SSPL on their duties and obligations under the Superannuation Industry (Supervision) Act 1993 (Cth) and their fiduciary obligations to members. 14. While at Suncorp, for a period of 10 months I sat as a director on the board of Suncorp Metway Investment Management Limited, the SRE of the wholesale investment trusts responsible for the proper treatment of the investment assets held on behalf of a range of unitholders. For a period approaching five years I sat as a director on the board of SSPL, the Corporate Trustee of a public offer superannuation product regulated under APRA guidelines. 15. Presently, my role as an independent consultant involves advising on best practice in governance, risk management and compliance for participants in the financial services sector. This includes providing guidance, direction and advice to trustees of managed investment schemes and trustees of superannuation trusts. I have been an independent consultant since 2008. 16. I am familiar with s 283DA and more broadly, chapter 2L of the Corporations Act and I have given consideration to the content of the duties imposed by s 283DA. The premise of s 283DA is that the trustee is acting in the interest of others – the debenture holders. To act in the interests of others is also the key obligation imposed on a trustee under the general law. I am also familiar with the duties imposed on responsible entities of managed investment schemes under s 601FC of the Corporations Act, which also reflect and codify the general law duties of a trustee. In my view, the obligations imposed on a debenture trustee by s 283DA match the obligations of a trustee under the general law who occupies the role of trustee for debentures. I do not consider that s 283DA adds materially to the obligations that would otherwise be imposed on a person who was a trustee appointed pursuant to the OIN Notes trust deed. The obligation to exercise "reasonable diligence" to my mind is no different from the obligation imposed by the general law on a trustee to exercise the same care and skill as an ordinary prudent man of business would bring to the management of his own affairs. I consider that I am qualified to provide an opinion to the court as to whether the Public Trustee has, on the facts that I have been asked to assume, exercised reasonable diligence according to ss 283DA(a) and (b). Consideration 36 At the outset, I cannot see how paragraph 16 of Mr Anthon's report (quoted above) is admissible. The content of the duties of a trustee under s 283DA of the Corporations Act is not a matter on which Mr Anthon can give evidence by reference to his experience. The extent of a legal duty is a question of law for the Court: Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] Ch 384 at 402; Australian Cement v Adelaide Brighton [2001] NSWSC 645 (Australian Cement) at [10]. 37 In a number of places in his report, Mr Anthon describes his experience at a high level of generality. One important example of this is his use of the word "oversight". For example, in paragraph 8 of his report (also quoted above), Mr Anthon says that he had "oversight" of over 20 trusts of varying natures and asset classes for which Perpetual Trustees (Queensland) Limited (Perpetual Qld) acted as corporate trustee. One cannot tell from this description what Mr Anthon's actual experience was in that regard. True it is that Mr Anthon says that he was the Manager of the Corporate Trustee Department, but this description says very little about his actual role and virtually nothing about his relevant experience. As the applicant correctly points out, in order to have "specialised knowledge" for the purposes of s 79(1) of the Evidence Act, something beyond the "observation of a non-participating onlooker" is required: Australian Securities and Investments Commission v Vines (2003) 48 ACSR 291; [2003] NSWSC 1095 (Vines) at [12]; Australian Cement at [8]. 38 Mr Anthon also says that he was a member of the Board of Directors of Perpetual Qld. But his role as a board member of a trustee company holding and managing investments is not the role of a trustee exercising the powers, and subject to the duties and responsibilities, prescribed by Ch 2L of the Corporations Act. 39 Mr Anthon also uses the word "oversight" in the same oblique way in paragraph 11 of his report (also quoted above) when describing his role at Suncorp-Metway Limited as General Manager in the Compliance and Trust Department (which, Mr Anthon says, included "oversight" of trustee and investment protocols for certain trusts). Mr Anthon provides greater detail with respect to his involvement in the Suncorp Property Fund. This involvement was providing guidance to the trustee on fiduciary issues in relation to the sale of units in that particular fund. However, this particular experience is not directed to the specific duties and responsibilities of a trustee under Ch 2L of the Corporations Act. 40 In the course of oral submissions, the respondent sought to rely on Mr Anthon's general commercial experience with corporate trustees (as described in his report) to argue that many of the questions on which Mr Anthon's opinion was sought are questions that could be answered simply by recourse to commercial judgment (which, it was said, Mr Anthon could be taken to have possessed). In my view, that submission goes close to destroying any basis for saying that Mr Anthon had "specialised knowledge" that would support the admission of his opinions. His opinions cannot be admissible simply because he is a person who has or professes to have commercial judgment. The danger of this line of argument is exposed by Gleeson CJ's warning in HG v The Queen (1999) 197 CLR 414; [1999] HCA 2 at [44]: …Experts who venture "opinions" (sometimes merely their own inference of fact), outside their field of specialised knowledge may invest those opinions with a spurious appearance of authority, and legitimate processes of fact-finding may be subverted. … 41 While it may be true to say that the questions on which Mr Anthon was asked to opine might involve aspects of the application of commercial judgment, it is in fact the commercial judgment of a trustee governed by Ch 2L of the Corporations Act that is in question. Mr Anthon simply does not have that experience. 42 Further, I do not accept that Mr Anthon's description of his experience with corporate trustees is sufficiently cognate to enable him to express opinions on the steps that a trustee of a debenture trust under Ch 2L of the Corporations Act should or would take in the discharge of that trustee's duties: cf Vines at [60]-[63]; ASIC v Rich [2005] NSWSC 1170 at [10]. 43 In the same way, Mr Anthon's opinions cannot be admissible simply because, based on his experience, he has an appreciation of the general fiduciary obligations of a trustee or, as a consultant, he advises on best practice in governance, risk management and compliance for participants in the financial services sector. 44 I note that in paragraph 8(d) of his report, Mr Anthon refers to his "oversight" of "a debenture trust". The features of this trust are not described. The respondent did not rely on this debenture trust as one having the features of a debenture trust under Ch 2L of the Corporations Act. 45 Finally, contrary to the respondent's submission, I do not accept that the applicant's objection goes merely to the weight that should be attributed to Mr Anthon's intended evidence. A failure to demonstrate that an opinion is based on a witness's specialised knowledge is a matter that goes to admissibility, not weight: Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 at [42]. Disposition 46 For these reasons, the respondent has not established that Mr Anthon has specialised knowledge that would support the admissibility of the opinions he expresses. The respondent does not seek to support any part or parts of Mr Anthon's report on any other basis. In the circumstances, I will reject the tender of Mr Anthon's report. I will also reject Mr Anthon's affidavit made 21 June 2016. This affidavit serves no independent purpose. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 23 September 2016