Australian and New Zealand Banking Group v Pola

Judgment 1On 11 October 2013, the ninth hearing day in these proceedings, I ruled that Part Nine of the expert report of Mr David Purtle, a real estate agent and valuer called on behalf of the cross-claimants, Mr and Mrs Pola, be rejected. These are my reasons for that ruling. 2The central question in these proceedings is whether the plaintiff ("the Bank"), when exercising its power of sale over Queensland rural properties known as "Kilcummin" and "Cawildi" ("the Property"), took reasonable care to ensure that the Property was sold at market value (to adopt the language of s 85(1) of the Property Law Act 1974 (Qld)). 3The Property is in the Lower Balonne region of the Condamine-Balonne catchment area of the Murray-Darling Basin. 4In relation to that central question, an issue arises in the proceedings as to whether the Bank should have given consideration to selling to the Commonwealth two water entitlements associated with the Property. At the relevant time, the Commonwealth was inviting tenders for the purchase by it of water licences in the Lower Balonne region as part of its "Restoring the Balance" scheme to acquire water entitlements from irrigation farmers within the Murray-Darling Basin. 5Relevantly, there are two entitlements associated with the Property. Both were created on 26 March 2010 (after the Bank went into possession, but before it sold the Property) when the Queensland Government introduced a "Resource Operations Plan" ("the ROP") into the Lower Balonne region. 6The first of those water entitlements was Water Allocation 1518, which permitted the drawing of water from the Balonne Minor River on certain conditions. That water allocation replaced a similar entitlement that existed at the time of the ROP. However, unlike the earlier entitlement, Water Allocation 1518 was not attached to the land and could be separately traded. 7The second water entitlement created was Water Licence 602026. That water licence permitted the taking and storage of overland flow water. It was a new entitlement created by the introduction of the ROP. It was attached to the land and could not be separately traded. 8Mr and Mrs Pola adduced Mr Purtle's report as evidence of the "probable transfer value" of the two water entitlements. 9The fourth and seventh cross-defendants challenged Mr Purtle's qualifications to give any evidence on that topic. I did not accept that submission. Mr Purtle's curriculum vitae reveals that he has extensive experience in the valuation of rural assets, including irrigation licences. He is plainly qualified to express the opinions in his report. 10Otherwise, there was no objection to the part of Mr Purtle's report that dealt with Water Allocation 1518. 11However the Bank, and the fourth and seventh cross-defendants, objected to Part Nine of Mr Purtle's report, which dealt with the probable transfer value of Water Licence 602026. That objection was on the basis that, in relation to that water licence, Mr Purtle had assumed three critical facts which, it was submitted, will not, and in one case, cannot, be proved by Mr and Mrs Pola. 12The Bank and the fourth and seventh cross-defendants thus relied upon the "proof of assumption" rule. 13In Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588, Heydon J said: "There is... no doubt that the proof of assumption rule exists at common law. An expert opinion is not admissible unless evidence has been, or will be, admitted, whether from the expert or from some other source, which is capable of supporting findings of fact which are sufficiently similar to the factual assumptions on which the opinion was stated to be based to render the opinion of value...(at [66]). The function of the proof of assumption rule is to highlight the irrelevance of expert opinion evidence resting on assumptions not backed by primary materials. It is irrelevant because it stands in a void, unconnected with the issues thrown up by the evidence and the reasoning processes which the trier fact may employ to resolve them. If the expert's conclusion does not have some rational relationship with the facts proved, it is irrelevant. That is because in not tending to establish the conclusion asserted, it lacks probative capacity. Opinion evidence is a bridge between data in the form of primary evidence and a conclusion which cannot be reached without the application of expertise. The bridge cannot stand if the primary evidence end of it does not exist. The expert opinion is then only a misleading jumble, uselessly cluttering up the evidentiary scene." (at [90] citations omitted). 14In Dasreef the plurality, which decided the case on a different basis from Heydon J, expressed no disagreement with Heydon J. 15One of the cases cited with approval by Heydon J was Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370. 16In that case, Ipp J said (at 377): "In my opinion, expert opinion based entirely on inadmissible evidence is itself inadmissible and there is no discretion to admit it. I form this view as to admit such an opinion would be to admit, indirectly, the inadmissible evidence itself. If an opinion, based solely on evidence that the court by law is required to exclude, is itself admitted, the inadmissible evidence would have some influence over the court's decision. Such a result would defeat the purpose of the law that excludes the inadmissible evidence. If the primary facts on which the evidence is based are not admissible, the opinion is valueless and irrelevant and, in my opinion, should be excluded." 17The critical assumptions that Mr Purtle was asked to make were as follows: "Transfer value of the Overland Flow Entitlement 10. If the Pola's Overland Flow entitlement had been transferred to the Commonwealth, the stated policy objectives of the Commonwealth would been achieved by retaining within the River system the waters which would otherwise have been trapped and stored for irrigation purposes on the Pola properties known as 'Kilcummin' and 'Cawildi'; 11. A transfer of the Pola Overland Flow entitlement to the Commonwealth could have been achieved in a practical sense by: a. The mortgagee transferring to the Commonwealth the Polas' Overland Flow entitlements; b. The recording of a covenant on the title of the Pola lands, prohibiting the landholder from retaining overland flow flood waters in the S2, S3 and S4 storages, so that in times of flood and waters would simply flow across the land and then back into the Culgoa River as the river height receded; or (should the Commonwealth wish at any time to store waters on the land); and c. The recording of a covenant on the title to the lands reserving to the Commonwealth the use and benefit of the Polas' Overland Flow entitlement together with the use and benefit of the Polas' water storage facilities S2, S3 and S4 on 'Kilcummin' and 'Cawildi' for the purpose of storing water for environmental flows or otherwise. Transfer value of all water entitlements 12. If all the Pola's water entitlements had been transferred to the Commonwealth, the stated policy objectives of the Commonwealth would have been achieved by retaining within the River system the waters which would otherwise have been pumped, trapped and stored for irrigation purposes on the Pola properties known as 'Kilcummin' and 'Cawildi'; and 13. A transfer of all the Polas' water entitlements to the Commonwealth could have been achieved in a practical sense by: a. The mortgagee transferring to the Commonwealth all the Polas' water entitlements; b. The recording of a covenant on the title to the Pola lands, prohibiting the landholder from pumping water from the Balonne Minor River pump site into the S1 storage dam and additionally prohibiting the landholder from retaining overland flow flood waters in the S2, S3 and S4 storages, so that in times of flood the overland flow waters would simply flow across the land and back into the Culgoa River as the river height receded; or (should the Commonwealth wish at any time to store waters on the land); and c. The recording of a covenant on the title to the lands reserving to the Commonwealth the use and benefit of the Polas' Balonne Minor River pumping site together with the use and benefit of the Overland Flow entitlement and the water storage facilities S1, S2, S3 and S4 on 'Kilcummin' and 'Cawildi' for the purpose of storing water for environmental flows or otherwise." 18It is common ground that the transfer of Water Licence 602026 was legally achievable only by transfer of the land. 19In substance, Mr Purtle assumed that Water Licence 602026 could "in a practical sense" be transferred to the Commonwealth by the adoption of the steps described in par 11 (and, in effect, repeated in par 13) without transfer to the Commonwealth of the Property itself. 20As to the first of the steps recited in par 11 ("the mortgagee transferring to the Commonwealth the Polas' Overland Flow entitlements") this is, as the parties accept, a legal impossibility. Neither the Polas, nor the Bank as mortgagee, could transfer Water Licence 602026 to the Commonwealth. This issue also arises in relation to par 13, which deals with the transfer of "all" water entitlements, including Water Licence 602026. 21The Water Licence could be transferred to the Commonwealth by transfer to the Commonwealth of the Property itself. But that is not what Mr Purtle was asked to assume. He was asked to assume that something equivalent, "in a practical sense", could be achieved by taking the steps referred to in assumptions 11 and 13, including this first step. 22As to the second and third steps the subject of the assumptions (the recording of covenants on the title of the Property of the kind described) it is not clear whether Mr Purtle was asked to assume that the recording of the covenants referred to would be effected by the Bank as mortgagee exercising power of sale, by the person to whom the Bank sold the Property, or by Mr and Mrs Pola themselves. 23Whichever of those was the subject of Mr Purtle's assumption, I was not taken to: (a)any provision in the Bank's security, or any other matter, that would entitle the Bank to cause such covenants to be recorded on the title of the Property; (b)any evidence from Mr and Mrs Pola that they would have been prepared to do so; or (c)any evidence at all from the purchaser of the Property from the Bank. 24Nor is there any evidence that, at the relevant time, the Commonwealth was amenable to achieving a transfer, "in a practical sense", of overland flow licences such as Water Licence 602026 by adopting the techniques the subject of the assumption. 25Mr Wright SC, who appears with Dr Blount for Mr and Mrs Pola, drew attention to the following passage which appears in the Commonwealth's "Tender Guidelines" in relation to its purchases of water licences: "[O]verland flow licences are not eligible for offer under this tender because even with the Resource Operations Plan (ROP) finalised, it will be some time before practicable arrangements for trade in these licences will be settled." 26That document certainly suggests that the Commonwealth was contemplating that "practicable arrangements" for the trade in overland flow licences (such as Water Licence 602026), short of transfer of the land itself to which such licences are attached, might be "settled" at some time in the future. That, however, falls far short of evidence that the Commonwealth would have agreed, in 2010, to the strategy the subject of Mr Purtle's assumption. 27Thus, the critical assumption made by Mr Purtle to found his opinion as to the probable transfer value of Water Licence 602026 is not supported by any evidence. To the extent that Mr Purtle made assumptions 11a and 13a, those assumptions are in fact contradicted by the evidence. 28For those reasons I rejected Part Nine of the report. 29Mr Lucarelli, who appears for the Bank, made a further objection to the relevant part of Mr Purtle's report. 30Mr Purtle, having concluded that Water Licence 602026 was "at least equivalent in value" to Water Allocation 1518, then "subjectively" discounted the value of that licence to reflect what he said was a probable discount that the Commonwealth would have applied as Water Licence 602026 "was not a tradable Licence and... was attached to the Lands". 31Mr Purtle continued: "The Commonwealth, to secure the Licence would have to negotiate with the owner, with [the relevant Queensland State Department] and involve itself in a complicated and bureaucratic process and procedure to enable it to secure the Licence and then, hypothetically surrender the Licence to achieve the Commonwealth's published objectives. To achieve this, I consider the Commonwealth would have applied a discount [of 30 per cent] to the 'market price'..." 32Mr Lucarelli submitted that Mr Purtle had not revealed by what mental process he had fixed on a discount of 30 per cent (as opposed to some lower or higher figure) and had simply made an "oracular pronouncement" that the discount that the Commonwealth would apply would be 30 per cent. Mr Lucarelli submitted that Mr Purtle had engaged in no more than ipse dixit, without revelation of the thought process behind the statement. 33As I have rejected that part of the report in which Mr Purtle expresses his opinion, it is not necessary for me to deal with this submission. 34However, I would not have been inclined to reject Mr Purtle's report on this basis alone. 35As Mr Wright pointed out, Mr Purtle gave some reasons why he thought the Commonwealth would apply the discount referred to. Further, he has transparently stated that the 30 per cent figure is "subjective". I would add that Mr Purtle made what was in effect, "an evaluative determination of a discretionary nature, not susceptible of complete exposition" (to adopt the words of Emmett JA in Manuel v Lane [2013] NSWCA 61 at [9]; said in a very different context but nonetheless apt here) and that his opinion was not, for that reason alone, inadmissible.