Supreme Court New South Wales Medium Neutral Citation: Walton Construction v Illawarra Hotel [2011] NSWSC 952 Hearing dates: 22/08/2011, 23/08/2011, 24/08/2011, 25/08/2011 and 26/08/2011 Decision date: 23 August 2011 Jurisdiction: Equity Division - Technology and Construction List Before: McDougall J Decision: Expert's reports admitted with s. 136 limitations and subject to any specific objections. Catchwords: EVIDENCE - expert evidence - admissibility - whether evidence given by expert represents the application of the expert's training, study or experience: s 79(1) - evidence admitted subject to limitation. Legislation Cited: Evidence Act 1995 (NSW) Cases Cited: Dasreef Pty Ltd v Hawchar (2011) 85 ALJR 694 HG v the Queen (1999) 197 CLR 414 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Category: Procedural and other rulings Parties: Walton Construction Pty Limited ACN 060 900 218 (Plaintiff) Illawarra Hotel Company Pty Limited ACN 063 558 467 (Defendant) Representation: Counsel: M R Gracie / D A Neggo (Plaintiff) S R Donaldson SC / H M Durham / D A Moujalli (Defendant) Solicitors: Crisp Legal (Plaintiff) Norbert Lipton & Co (Defendant) File Number(s): 2008/290556 Judgment (ex tempore) 1HIS HONOUR: The defendant wishes to rely on four reports of Mr Robert Krochmalik in support of its claim for damages on its cross summons. The plaintiff takes objection to the admissibility of the whole of those reports, in substance because, it submits, there is no demonstrated reasoning process leading from whatever are the assumed facts to the opinions that are expressed. As part of this process, the plaintiff referred to the lack of specificity in identification of the assumed facts and other matters to which I will return. 2In addition, the plaintiff relied on the fact that, it appeared, Mr Krochmalik had taken into account material prepared by others, in particular Miss Barbara Newton and passed it off as his own. 3Finally, in identifying the broad categories of objections, the plaintiff referred to the fact that Mr Krochmalik had provided reports in reply and that it was really only from those reports in reply that his evidence-in-chief could be assessed. 4The debate focuses attention on the opinion rule set out in s 76 of the Evidence Act 1995 (NSW) and on the "specialised knowledge" exception set out in s 79(1). I set out that sub-section: 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. 5Section 79(1) directs attention to whether the opinion expressed is wholly or substantially based on specialised knowledge that in turn is based on the opinion-giver's training, study or experience. If it is, then the opinion rule does not apply and it follows that evidence of the opinion is admissible to prove the existence of a fact about the existence of which the opinion was expressed (see s 76(1)). 6In Dasreef Pty Ltd v Hawchar (2011) 85 ALJR 694, the majority (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) said at [37] that "the admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. 7The question to which s 79(1) directs attention is, as I have said, whether the opinion is wholly or substantially based on specialised knowledge in turn based on training, study or experience. The threshold question is therefore whether the opinion is expressed in a way that makes it possible to answer the question. See Gleeson CJ in HG v the Queen (1999) 197 CLR at [39]. His Honour's observation was adopted by the majority in Dasreef at [36]. 8In the context of admissibility of opinion evidence, reference is often made to the analysis of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705. His Honour's analysis appears to have commenced at [59]. His Honour's views were stated, based on his Honour's analysis of the decided cases, at [85]: In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v The Queen (at 428 [41]), on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the filed of expertise". 9That analysis was recognised by the majority in Dasreef at 705 [37]. What their Honours there said makes it clear, I think, that they perceived that what Heydon JA had said in Makita was directed principally to the need for an expert report to demonstrate the process of reasoning which in turn enabled the threshold question to which s 79(1) is, by inference, directed to be answered. 10It may be said, further, that the analysis of Heydon JA in Makita could be seen to raise further and discretionary reasons either to exclude expert evidence or to limit the use to be made of it. 11Heydon J was in dissent in Dasreef . His Honour dealt with the question of expert opinion evidence at length, from [55]. I think it is not an unduly brief summary to say that, in that passage of His Honour's reasons, he repeated, expanded upon and perhaps extended the analysis that he had given in Makita . 12In my view, what it is convenient to call the threshold question of admissibility is to be dealt with, as Gleeson CJ had said in HG and as the majority emphasised in Dasreef , by giving strict attention to the requirements of s 79(1). Whilst I accept without reservation that the analysis of Heydon JA in Makita , and his Honour's reasons in Dasreef , provide very valuable guidance to the underlying questions of principle, nonetheless, at the end, I think it could be dangerous to take out of context what his Honour said in those judgments and to "parse and analyse" those statements for the purpose of seeking to discern an answer to the question of admissibility in this case. 13In short, I think that the question with which I am confronted is whether, on reading the four reports of Mr Krochmalik, it can be seen that the opinions expressed by him represent the application of his specialised knowledge, based on training, study or experience, to the assumed facts that he states. 14In my view, that question is to be answered "yes". Fortunately, my reasons for coming to that view can be expressed more briefly than my analysis of why it is necessary to consider the question. 15I accept, as Mr Gracie of counsel (who appeared with Mr Neggo of counsel for the plaintiff) submitted, that the first two reports are somewhat lacking both in identification of the relevant assumed facts and in demonstration of the process of analysis, utilising Mr Krochmalik's specialised knowledge, that resulted in the opinions expressed. However, subject to the question of "evidence in reply", those two reports cannot be considered on their own. 16As I indicated in reasons given earlier today, dealing with the admissibility of an affidavit sworn by Mr Kam, the plaintiff has had the opportunity of having its own expert, Mr James, examine and comment on Mr Krochmalik's first two reports. Mr James gave detailed consideration to those reports. He identified a number of what he saw as deficiencies in the identification of the assumed facts and in the process of reasoning based on those assumed facts. Further, Mr James pointed out at some length, the source material relied upon by Mr Krochmalik (which included primary accounting records produced by the defendant's MYOB accounting system) was inconsistent and itself raised its own questions. 17Mr Krochmalik sought to deal with those criticisms in his later two reports. I accept that, technically, they were evidence in reply. They do not lose that characteristic simply because Mr James' reports were critical and themselves expressed no (for present purposes relevant) conclusions. But what Mr Krochmalik did in his reports in reply was revisit the material and explain, in a way that is still not entirely crystal clear, the process of reasoning that underlay the aspects of his earlier reports that had been criticised by Mr James. He dealt in somewhat more detail with the source material and said, in a way that can be followed although with some difficulty, how it was that he got from that source material through the filter of his specialised knowledge to the opinions that he expressed. 18Thus, I think, the basis for admissibility pursuant to s 79 has been laid. 19It remains the fact, no doubt, that Mr Krochmalik has not identified with excruciating particularity the particular aspects of the source material or assumed facts that he relied upon in relation to individual opinions. It remains the fact, perhaps, that some of that source material is confused, or difficult to understand, or perhaps contradictory. But that does not mean that Mr Krochmalik has not demonstrated the process of justification that is necessary to be shown for s 79 to be satisfied in principle. 20Much time was taken up with submissions based on the fact that Mr James had said that the material in question did not support, or perhaps was not capable of supporting, the views that Mr Krochmalik expressed. That may be so. But it does not detract from the fact that, when Mr Krochmalik's four reports are considered in totality, the question to which s 79(1) directs attention has been answered. Whether or not Mr Krochmalik's reasoning leads to acceptable conclusions, is an entirely different matter. 21It is regrettable that Mr Krochmalik did not address the questions properly in his evidence in chief, and that one has to go to his evidence in reply to understand in full his position. As Mr Gracie submitted, that could cause prejudice to the plaintiff because it would be forced into yet a further round of reply evidence. But it is important to bear in mind that the plaintiff was not deprived of the opportunity to put on evidence in reply. Mr Krochmalik's fourth and final report is dated 15 July 2010. The matter was before the court on 28 July 2010. Directions were made for the defendant to put on further evidence, and for the plaintiff to put on evidence in reply. There was no direction relating to expert evidence. But there is no reason why the plaintiff could not have sought such a direction. It had had a relevantly short but nonetheless not insubstantial period of time to consider Mr Krochmalik's fourth report, and more than 3 months to consider his third report (his first in reply). If it had been thought that the evidence warranted reply, there was ample opportunity to seek a direction to put on reply evidence. If it was thought that the evidence did not warrant reply, the fact that the plaintiff did not seek to reply is hardly a reason for rejecting the material now. 22Further, in my view, the argument based on Mr Krochmalik's reliance on Ms Newton's evidence is somewhat misconceived. The particular passage of one of Mr Krochmalik's reports to which the court was taken referred to adjustments of about $706,000 made in the MYOB version of one set of year end accounts. Mr Krochmalik had reduced that to some $425,000. Mr James said that he did not understand how that adjustment was carried out. Mr Krochmalik explained that in his report in reply. I have no doubt that the figure of $706,000 came from Ms Newton's records. But that was not the adjustment to which Mr Krochmalik was referring. The adjustment to which he was referring was his own adjustment, from that MYOB figure to his own, and in his view correct or appropriate, figure. That process of adjustment is not diminished, or rendered inadmissible, because the base figure was taken from someone else. 23There are remaining problems with Mr Krochmalik's evidence. For example, in one section of his reports, he makes an arbitrary reduction of 25% in turnover, in computing damages on a particular basis, to allow for the unavailability of a bar over a period of time. At least on my reading of his reports to date, it is unclear why he possesses the expertise to do this, and equally unclear on what other, reasoned, basis he made that reduction. 24There may also be problems with the extent and identification of the source documents relied on by Mr Krochmalik, in particular the extent to which those documents were made available to Mr James. 25Further, it may be, there are other problems. 26To the extent that there are discrete problems, I will deal with them individually as and if they are raised. In any event, to deal with the problem of source documentation, it will be appropriate to order that, to the extent that Mr Krochmalik's reports are admitted into evidence, a limitation should be imposed pursuant to s 136 of the Evidence Act limiting the reports to proof of the assumed facts, the reasoning process and Mr Krochmalik's opinion, and in particular prescribing that his reports do not stand as proof of truth of the assumed facts except so far as those facts are within his own knowledge or are otherwise admitted. 27But in dealing with the particular question of admissibility in principle, I conclude, for the reasons I have just given, that in principle Mr Krochmalik's reports are admissible. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 September 2011