Supreme Court New South Wales Medium Neutral Citation: Smart v AAI Ltd ; JRK Realty v AAI Ltd (No 2) [2015] NSWSC 621 Hearing dates: 16 to 19 February 2015 Date of orders: 17 February 2015 Decision date: 17 February 2015 Jurisdiction: Common Law Before: Beech-Jones J Decision: Reject the tender of the following parts of Mr Roams' report: [17], questions 3 and 4; [18], answers 3 and 4 and section H. Catchwords: EXPERT EVIDENCE – expertise in finance, banking and loan origination – ascertainment of normal course of insured's business as mortgage and finance broker – report admitted – consideration of whether private borrower departed from appropriate standard – report rejected. Legislation Cited: - Civil Liability Act 2002 - Corporations Act 2001 (Cth) – s 601AG - Trade Practices Act 1974 (Cth) Category: Procedural and other rulings Parties: Nathan Smart – Plaintiff (2013/030193) JRK Realty Pty Ltd – Plaintiff (2013/144336) AAI Limited – Defendant (2013/030193, 2013/144336) Representation: Counsel: W. Washington - Plaintiffs Ms P.A. Horvath - Defendant Solicitors: Thomas Henry Bray Lawyers – Plaintiffs Moray & Agnew - Defendant File Number(s): 2013/030193; 2013/144336 Publication restriction: Nil EX TEMPORE Judgment – Objection to tender of affidavit of Dennis John Roams in its entirety; see transcript p 114 1. Counsel for the plaintiffs has taken objection to the entirety of the affidavit of Dennis John Roams and the attached report. There are two interrelated bases for the objection: namely, a lack of the relevant expertise on the part of Mr Roams, and what is said to be a lack of relevance of the opinions he expresses to the matters at issue in the proceedings. 2. In his report, Mr Roams states that he has over 49 years commercial experience including more than 42 years in banking with particular experience in lending and mortgage origination. In the balance of his report, he expands upon that statement. He names the institutions that he has worked for. His experience includes a period of two years in which he worked as a mortgage broker for a Sydney based firm in which he concentrated on loan origination for commercial and business clients as well as larger home loans. It also is inherently likely that, with the other experience that he has acquired, he dealt with mortgage and finance brokers and become very familiar with their activities. 3. Mr Roams' report identifies that he was asked four questions, the first two of which were as follows: "(1) Was Q1 Financial Services Pty Ltd's alleged conduct within the usual practice of a mortgage broker, finance broker, mortgage originator, mortgage management, and/or debt reduction? (2) Was Q1's alleged conduct outside the normal course of Q1's professional services being mortgage broker, finance broker, mortgage originator, mortgage management, and/or debt reduction?" 1. "Q1" is a reference to the entity Q1 Financial Services Pty Ltd, a company which has now been deregistered. The defendant to these proceedings issued an insurance policy to Q1 which the plaintiffs seek to enforce pursuant to s 601AG of the Corporations Act 2001 (Cth). 2. The suggested relevance of these first two questions to these proceedings arises from the terms of the insurance policy that the defendant issued to Q1. The insuring clause provides that the defendant would indemnify Q1 against liability "in respect of any claim or claims first made against the insured and notified to the insurer during the period of insurance resulting from the conduct of the professional services". One of the many exclusions to the cover provided was in respect of liability arising "directly or indirectly from or in respect of any liability which is assumed by the insured outside the normal course of the professional services". 3. It can be seen that each of these provisions refer to the defined phrase "professional services". Professional services is defined in the policy to mean the "professional business described in the schedule, and no other, of the legal entity or entities specified in the schedule". The relevant legal entity specified is Q1 and the professional services referred to in the schedule are "mortgage broker/finance broker/mortgage originator/mortgage management/ debt reduction". 4. The defendant contends that the definition of "professional services" has both an objective element and a subjective element. It contends that the objective element requires a consideration of what services fall within the definition of "professional services" as found within the schedule just noted. The subjective component is said to be that once that is ascertained, cover is provided for and only provided for so much of those services that were undertaken by the insured. 5. It is not appropriate on an interlocutory application for the Court to express any concluded opinion about matters of construction. It suffices to state that that argument is clearly, at least, open. 6. Further, there is an issue with the assumption of liability clause as to whether it is a reference to the assumption of a liability which was assumed outside the insured's normal course in delivering professional services or whether the phrase "normal course of the professional services" is a reference to how within the particular industry such services are usually provided. Again it suffices to state that the competing views appear at this stage to be both reasonably open. 7. Once these issues are identified, then the relevance of Mr Roams' answer to questions 1 and 2 becomes apparent. In my view, the opinion he expresses in relation to question 1 is clearly of assistance in determining what is meant by so much of the definition of "professional services" as requires an understanding of what is involved in being a "mortgage broker/finance broker/mortgage originator/mortgage management/debt reduction". 8. Similarly, depending upon the proper construction of the assumption of liability clause, the answer that Mr Roams gives to question 2 may be of real assistance to an ascertainment of what was involved in the "normal course of the professional services". 9. Counsel for the plaintiffs took particular issue with Mr Roams' ability to opine on these topics, given what was submitted was his limited experience as a broker. In particular, it was said that his experience concerned businesses of a different size and scope to that of Q1. However, given the breadth of experience that he has described, I consider it likely that he would have at the very least dealt with brokers of many different sizes and scope, including that of Q1. 10. In the circumstances, I am satisfied that Mr Roams has the requisite expertise to opine on questions 1 and 2 and that any answer he gives to those questions is of relevance to the proceedings, bearing in mind that it may ultimately depend upon the proper construction of the policy. I will allow the tender of so much of Mr Roams' report as concerns questions 1 and 2. 11. The third and four questions that were asked of Mr Roams were as follows: "(3) In making the JRK advances, did JRK act as a reasonable and competent lender? (4) In making the Smart advances, did Mr Smart act as a reasonable and competent lender?" 12. The reference to the "JRK advances" and to the "Smart advances" is to the amounts of funds that were provided by each of the plaintiffs either to or through Q1 and which they seek to recover as losses in these proceedings. Thus, in effect, Mr Roams is asked to opine on the appropriateness of the steps taken by each of the plaintiffs in advancing funds. 13. The answers to these questions were said by Counsel for the defendant to be relevant to the defendant's allegation that each of the plaintiffs committed contributory negligence and, in the case of JRK, that there should be a reduction in any verdict in its favour on account of the alleged negligence of its sole director, with that consequence said to flow by the operation of the proportionate liability provisions of the Civil Liability Act 2002 or their equivalent in the former Trade Practices Act 1974 (Cth). 14. The evidence that has been adduced to date in the proceedings reveals, or at least suggests, that neither of the plaintiffs were conducting anything like a business of private lending, whether conducted through brokers or otherwise. Instead the evidence that has been led to date suggests that the loans were at least analogous to some form of spasmodic private investment conducted by each of the plaintiffs through and with the assistance of Q1. 15. There is nothing in Mr Roams' report or his curriculum vitae to suggest that he has ever undertaken or supervised the undertaking of lending of that character. As I have earlier stated, his affidavit and CV reveal extensive experience, but that has been at an institutional level. In defence of Mr Roams' expertise to opine on this topic, Counsel for the defendant pointed to one part of his report, in which he stated as follows: "In this report I refer to the actions and experience of a reasonable competent lender. I use this term because, in my experience, acceptable principles of lending do not vary between reasonable and competent lenders, regardless of the size of the proposed loan, the risk profile adopted or the size of the loan portfolio." 1. This may be correct in the business context in which Mr Roams operates, but it does not accurately reflect the legal context in which questions 3 and 4 are said to be relevant. 2. A claim of contributory negligence requires a consideration of the individual circumstances of the relevant plaintiff. That must be done in order to determine whether there has been any departure from the appropriate standards. In the case of the proportionate liability claim concerning JRK, the position is no different. In particular, there must be a consideration of the experience, limited or otherwise, of the plaintiffs, as well as a consideration of the persons in whom they placed trust and confidence in executing any such transaction, and of course whether that was justified. 3. Nothing in Mr Roams' approach appears to reflect those legal constraints. Thus, while he may be qualified to answer questions 3 and 4 as posed, those questions are not the appropriate ones for the legal context in which these issues arise and thus his answers are irrelevant. However, even if the questions were modified so that they were legally relevant, I have no doubt that the end result would be that he did not have the appropriate qualifications to opine on the questions as re-stated. Either way, this aspect of Mr Roams' report will be rejected. 4. Accordingly, the Court will reject the tender of the following parts of Mr Roams' report: [17], questions 3 and 4; [18], answers 3 and 4 and section H. 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: 22 May 2015