Australian Cement v Adelaide Brighton

8 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

FRIDAY 27 JULY 2001 50054/00 - AUSTRALIAN CEMENT HOLDING PTY LTD v ADELAIDE BRIGHTON LIMITED & ANOR JUDGMENT - On admissibility of Mr Anderson's affidavit and whether it may be read. See p334 of transcript

HIS HONOUR: 1 At the close of his clients' evidence late yesterday, Mr Jackman, counsel for the defendants, sought to read a further affidavit which, by leave, was filed in court earlier that day. Mr Meagher SC, for the plaintiff, objected to that course. 2 The affidavit is an affidavit of Mr K.A.H. Anderson, the director of technical services of Horwath (NSW) Pty Ltd and a chartered accountant of some 40 years standing. To it is annexed a report by Mr Anderson on two questions referred to him for opinion by the defendants' solicitors. One question concerns the application and operation of accounting standards and accounting principles. The other is a question as to what, based on Mr Anderson's experience, an experienced and competent company director would do in circumstances which he describes and which are intended to represent an equivalent of what may be found to be facts in this case. 3 Mr Meagher objected to the affidavit being read because it is late. He had had no opportunity to come fully to grips with what he might need to do in response, with the result that there is a serious issue of prejudice going beyond anything that a costs order might resolve. As to the second aspect of the report, Mr Meagher raised two objections going to admissibility, one of relevance and one based on s.79 of the Evidence Act, 1995 bearing in mind that the evidence is clearly evidence to which the opinion rule in s.76 is relevant. 4 Looking first at the s.79 issue, I have to identify the "specialised knowledge" that Mr Anderson has and the training, study or experience on which that specialised knowledge is based. On the first part of the report concerning accounting standards and principles and their application, I readily accept that Mr Anderson's 40 years as a practising accountant, plus the training and study he must have undertaken, are the source of specialised knowledge on which that part of the report is based. 5 When it comes to the second part, however, I must confess to great difficulty in identifying a relevant body of specialised knowledge, based on his training, study or experience, which enables Mr Anderson to speak about the conduct of experienced and competent company directors. It is not suggested that Mr Anderson has studied, in any formal sense, the behaviour of company directors or that he has any training in their ways. It is said only that he has experience, consisting of dealing with company directors for some 40 years and attending audit committee meetings over about 20 years. He says that he has become aware in that way of what is well known by experienced and competent directors in Australia and how they act. 6 I do not think that the experience of watching practitioners do what they do, or even discussing with them why they do what they do, arms the observer with specialised knowledge of the particular field of practice. The emphasis must be on "specialised" in the phrase "specialised knowledge". This connotes something beyond the product of the observations of a non-participating onlooker. It is important to bear in mind the caution in this field enjoined by Gaudron J in HG v The Queen (1999) 197 CLR 414: "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." 7 In other words, a professional qualification has its limits so far as specialised knowledge is concerned. That reality was recognised also by Lindgren J in Allstate Life Insurance Company Ltd v Australia & New Zealand Banking Group Ltd (1996) 64 FCR 79 which concerned evidence about investment behaviour to be given by a United States lawyer with impressive credentials in SEC law. Lindgren J said: "In order to establish the qualification to express the opinion so understood, Mr Altman would need to be qualified to give evidence of investor behaviour. His expertise is as an attorney, albeit an attorney highly qualified in respect of securities law and in the related policies and practices of the SEC as regulatory authority. However, that expertise does not entitle him to express the opinion that no reasonable prospective purchaser would in fact act in a particular way." 8 Another investor behaviour case is AAPT Ltd v Cable & Wireless Optus Ltd (1999) 32 ACSR 63, a decision of Austin J in this Division. His Honour had to decide whether to admit expert evidence of an accountant skilled in company valuations and financial analysis when the evidence concerned the expected content of takeover documents. The following passage in the judgment of Austin J should be quoted in full: "However, Mr Lonergan's field of specialisation has its limits. He is an expert in the valuation of businesses and companies and company shares, and the interpretation of financial statements and other financial information. That expertise qualifies him to provide financial advice to shareholders and others, and he frequently gives such advice. Specialised knowledge and experience of those kinds does not, in my opinion, qualify him to give evidence of the kind which he purports to give in the paragraph of the affidavit to which objection has been taken. The opinions in those paragraphs are expressed too widely to be wholly or substantially based on Mr Lonergan's specialised financial knowledge. He purports to speak from a "commercial perspective" rather than strictly from a financial perspective. Some of his opinions are about what he regards as proper or standard or reasonably expected disclosures and practices in Part A statements though he claims no recent experience in assisting in the drafting of those documents and, in answer to the question in cross-examination, was not able to display any detailed familiarity with the contents of Part A statements in recent widely discussed takeovers." That, to my mind, is substantially the position here. 9 There is also, in relation to the second aspect of Mr Anderson's report, the question of relevance. The matter to which the evidence goes is, in substance, the correctness or appropriateness of a particular accounting treatment in the books of a subsidiary company. In the end, it seems to me that the correct accounting treatment or, perhaps, the range of correct accounting treatments comes down to the operation of the accounting standards in the context of the corporations legislation including, of course, the provisions of that legislation requiring adherence to approved accounting standards and the addition of any note that may be required by the "true and fair" override. In other words, we are really dealing here with what is ultimately a question of law. 10 I do not see that opinion evidence about the practice of company directors is relevant to the question of fulfilment of the statutory accounting requirements although I readily concede that evidence about accountants' understanding of underlying accounting standards and accounting principles may well be. In that connection, it is appropriate to quote remarks of Oliver J in Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1979] 1 Ch 384: "The extent of the legal duty in any given situation must, I think, be a question of law for the court. Clearly, if there is some practice in a particular profession, some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage, evidence of that can and ought to be received. But evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the court; whilst evidence of the witnesses' view of what, as a matter of law, his solicitor's duty was in the particular circumstances of the case is, I should have thought, inadmissible, for that is the very question which it is the court's function to decide." By analogy with this, the opinion of the present deponent as to what company directors do to prepare accounts conforming with statutory standards is irrelevant. 11 In the result, therefore, I consider that, on both the s.79 ground and the ground of relevance, the parts of Mr Anderson's affidavit and report in which he expresses an opinion about the behaviour of experienced and competent company directors is inadmissible. 12 As to the earlier part in which Mr Anderson expresses an opinion as to accounting standards and accounting principles, the position is quite different. He is eminently qualified in terms of s.79 to give opinion evidence on those matters and I believe such evidence is relevant. It is therefore admissible. 13 There remains the point made by Mr Meagher that the affidavit and its annexed report are late and, for that reason alone, should not be read. While it is undoubtedly true that they are late, it is also true, as Mr Jackman says, that the particular issue about appropriate accounting treatment in the subsidiary's books did not form part of the plaintiff's evidence in chief but then came through very strongly in the cross-examination of all three of the plaintiff's witnesses. That being so, I do think that the interests of justice require me to allow the reading of the parts of the affidavit and report I have identified as admissible. 14 Before making my formal ruling I would like to hear further from Mr Meagher on the issue of prejudice now that he has had time to give it some attention overnight.

SUBMISSIONS 15 My ruling is that the following parts of the report which is the annexure B to the affidavit of Mr Anderson, there being apparently no annexure A, are rejected, namely paragraphs 1.1(i)(b), 6.1, 6.2, 7.1, 7.2 and 7.3. I give leave to the defendants to read so much of the affidavit and the annexure B as has not been rejected. ******

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