By Notice of Motion filed on 29 August 2019, the Plaintiff, First Class Securities Pty Limited ("FCS") seeks an order under r 1.12 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that the time for it to file and serve its evidence in support of its claim be extended to 30 August 2019, to the extent of permitting it to serve and rely on an affidavit of Ms Milne sworn 29 August 2019 and the exhibits to that affidavit. That order was also sought on an alternative basis, but it is not necessary to address that alternative basis, where Mr Glasson, who appears for the Defendant, Ms Neuhaus, rightly accepts that the Court has power to extend the time for service of, and reliance on, Ms Milne's affidavit in an appropriate case.
It is necessary to say something further as to the circumstances in which the issue arose. On 18 March 2019, after a succession of delays in the Plaintiff filing and serving the evidence on which it was to rely, the Court made an order that it file and serve that evidence by 8 April 2019, failing which the proceedings would be struck out. The Plaintiff then filed an affidavit of Ms Milne dated 8 April 2019, which exhibited an insolvency report which she had prepared. Ms Milne is a chartered accountant. I will address some of the issues raised by her report below. That report contained, in paragraph 8.1.1, a statement that Ms Milne had undertaken some of the steps which might be expected in respect of an expert's report, including that she had completed all inquiries she considered appropriate in formulating her conclusions, except as otherwise stated in the report; that her opinions were genuinely held by her; and that she had referred to significant matters; and that she understood that her overriding duty as an expert was to assist the Court and she had complied with that duty; and that the opinions expressed in her report were independent and impartial. That report did not, however, comply with the Expert Witness Code of Conduct ("Code") set out in Schedule 7 to the UCPR, as required by UCPR r 31.23. That provision requires that an expert witness comply with that Code; that the engaging parties must provide the expert with a copy of that Code and that, importantly:
"Unless the court otherwise orders, an expert's report may not be admitted in evidence unless the report contains an acknowledgment by the expert witness by whom it was prepared that he or she has read the code of conduct and agrees to be bound by it."
That deficiency appears to have been subsequently recognised and has prompted FCS' application for an extension of time to file a further affidavit of Ms Milne. An affidavit of Mr Long, who is FCS' solicitor, refers to the fact that Counsel was briefed in mid-August and, after he was briefed, it became apparent that some further material would need to be put before the Court to address Ms Milne not having acknowledged and agreed to be bound by the Code.
The further affidavit of Ms Milne, as to which an extension of time is now sought, seeks to bring Ms Milne's report into compliance with the Code, by indicating that she has now been provided with a copy of that Code; she has read it and agrees to be bound by it; that, in preparing her report, she made all inquiries that she believed are desirable and appropriate, other than for matters identified explicitly in the report, and no matters of significance had, to her knowledge been withheld; stating that, to the best of her knowledge, she had complied with the requirements of the Code, other than as to specified requirements in respect of the acknowledgement that she read the Code and agreed to be bound by it and a declaration that she had made all inquiries which were desirable and appropriate, which is now addressed in her affidavit. She also indicates that she relied solely upon material that had been provided by the previous liquidator of Spotted Cow Cookie Co Pty Ltd ("Company") in preparing her report. It became apparent that was not correct in the course of her cross-examination on the voir dire.
After some procedural skirmishing at the commencement of this application, it proceeded on a basis which focussed on the substantive issue in dispute, namely whether Ms Milne can bring her earlier report, which has not been revised, into compliance with the Code in the manner provided in her affidavit dated 29 August 2019. It seems to me that, if she can take that course as a matter of substance, then the Court would extend the time for FCS to file and rely on her affidavit to permit her to do so. If she cannot take that course, as a matter of substance, then there is no utility in permitting the filing of that affidavit, in a manner that seeks to do so, and putting the parties to the additional cost of then addressing an unsuccessful attempt to tender the report based on that affidavit. This in turn requires the Court to give attention both to the circumstances in which a report may be rehabilitated in this manner, and to the issues which arose in respect of Ms Milne's report in cross-examination on the voir dire.
[3]
Applicable principles
Mr Finnane, who appears for FCS, draws attention to the treatment of the consequences of non-compliance with the Code in P Taylor, Ritchie's Uniform Civil Procedure New South Wales (LexisNexis, 2019), where the commentary recognises that the Court should not otherwise order for the purposes of the relevant rule unless there are good reasons to admit the evidence. The commentary there notes, by reference to authority, that the discretion may be appropriately exercised where the Court is satisfied that the non-compliance with the acknowledgement requirement was "technical" in the sense that the report was in fact prepared in compliance with the Code; and that it may be appropriate to exercise the discretion where the expert witness subsequently confirmed the report after being apprised of the contents of the Code; and where the Court is otherwise satisfied of the likely impartiality of the opinions expressed in the expert witness report.
It seems to me desirable to refer to the case law which underpins those statements, although I accept them as a broadly accurate summary of the applicable principles. There have been, regrettably, many occasions on which the Court has had to consider the position of expert reports where there has been non-compliance with a requirement to provide the expert with a copy of the Code, or where the expert has not acknowledged compliance with it. In Investmentsource Corporation Pty Ltd v Knox Street Apartments Pty Ltd [2007] NSWSC 1128, McDougall J approached that question by reference to the policy underpinning the Code, and the provisions that introduce it, observing that (at [44]):
"In my view, the clear intention of this change in the regulatory framework is to reinforce the proposition that, as a general rule, expert evidence should not be admitted unless the expert has at the relevant time subscribed to the obligations that are now to be found in Schedule 7 [the Code]."
That question was then addressed at first instance in Genworth Financial Mortgage Insurance Pty Limited v Hodder Rook & Associates Pty Ltd [2010] NSWSC 1043, where Einstein J applied a somewhat more demanding standard, in observing only in "exceptional circumstances" would a Court permit the tender of an expert report absent compliance with the Code. In Hodder Rook & Associates Pty Ltd v Genworth Financial Mortgage Insurance Pty Limited [2011] NSWCA 279 at [57]ff, the Court of Appeal did not endorse that standard, and noted that each case must be considered on its merits.
There are subsequent cases where reports which have not complied with the Code, when first prepared, have been admitted, and other cases where they have not, where steps have later been taken to seek to bring them into compliance with the Code. In Wollongong City Council v Ensile Pty Ltd [2008] NSWLEC 154 at [8], Jagot J made an order that otherwise permitted an expert report to be read, where a further affidavit disclosed the expert was aware of the substance of the obligations in the Code when she prepared her report and accepted those obligations at the time, observing that that was not a case of "a mere retrospective adoption of the code." Her Honour there relied on oral evidence which supported the conclusion that the expert had in fact understood the central obligations in the Code as to her paramount duty to the Court and the requirements for impartiality, at the time when the relevant evidence was prepared.
On the other hand, in Welker v Rinehart (No 6) [2012] NSWSC 160, to which Mr Glasson draws attention, Ball J declined to make an order in respect of three expert reports, following a comprehensive review of the applicable authorities. His Honour noted that in that case the experts had done what is sought to be done here, by swearing a further affidavit indicating that they had read the Code and agreed to be bound by it and that, having read the Code, they confirmed that they held the opinions expressed in the report and did not wish to alter any of them. His Honour referred to several earlier authorities, and to the Court of Appeal's observations in Hodder Rook & Associates Pty Ltd v Genworth Financial Mortgage Insurance Pty Limited above. In particular, his Honour referred to the observation of Young JA (with whom Beazley JA and Handley AJA agreed) (at [63]) that:
"The Court may consider that the assumed "real risk" [that the expert will have committed to a particular form of opinion from which he or she will not withdraw] is non-existent or minor. If so, in the case where an expert makes an initial report without having the Code in mind and then is shown the Code and swears that in fact he or she did abide by it and now affirms the original report, the evidence should be admitted. Again, if the court can see that he or she is not just rubber stamping the original report, the later report should be admitted into evidence."
Ball J also observed (at [35]) that it is necessary to consider all the circumstances of the case to determine whether the objectives sought by UCPR r 31.23 have been affected by the non-compliance and noted that those circumstances include the nature of the instructions that were actually given to the expert; the expert's prior familiarity with the Code; the extent to which the report on its face appears to comply with the Code; and the evidence subsequently given by the expert concerning the question whether he or she complied with the Code at the time and whether his or her opinions have been affected by non-provision of it. His Honour also emphasised that it is for the parties seeking to lead the evidence to satisfy the Court that the non-compliance with UCPR r 31.23 has not affected the objectives of the rule, or that there are other reasons which justify a departure from it. His Honour was not satisfied, in that case, that he should make an order dispensing with compliance with that rule, where it was not apparent that the experts had familiarity with the obligations of an expert giving evidence, and, in particular, the obligation of independence.
[4]
Determination
Here, as I observed above, the question is not immediately whether I should make an order dispensing with the compliance with UCPR r 31.23, at the time the initial report was prepared, or treat Ms Milne's subsequent affidavit as compliance with that requirement. That question arises, as I noted above, indirectly, so far as I should only grant leave to rely on Ms Milne's affidavit out of time if there is any utility in doing so.
I am not satisfied, in the relevant circumstances, that the objectives of r 31.23 and the Code will be met by the course which FCS seeks to adopt. It seems to me that difficulties that have arisen with Ms Milne's approach are matters of substance, and have had a significant impact upon Ms Milne's report, which a later reading of the Code and re-adoption of her report cannot cure.
As I have observed above, Ms Milne was cross-examined on the voir dire, and it emerged in that cross-examination that some aspects of her later affidavit overstated the extent of her compliance with the Code. Her later affidavit indicates that she has complied with the requirements in the Code that no matters of significance which she regards as relevant were withheld from the Court. I do not find that Ms Milne does not genuinely hold that view. However, it became apparent in her cross-examination on the voir dire that there are matters of significance which have been omitted from her report, including the fact that she had not reviewed the terms on which FCS made finance available to the Company, which she accepted in the cross-examination may well be a matter that is relevant to its solvency.
It also became apparent in her cross-examination that her statement, in paragraph 10 of her further affidavit, that she had relied solely upon material provided by the previous liquidator of the Company to the current liquidators, was incomplete and strictly incorrect. She had also relied, at least to some extent, upon factual information by way of background which emerged from FCS' Amended Statement of Claim. I have had regard to the fact that this matter might be treated as undermining the weight of Ms Milne's report, rather than going to any question of compliance with the Code. I ultimately do not consider that this matter would, in itself, be sufficient to lead to a refusal to permit reliance on the report. A question also arose as to her reliance on the liquidator's report, but I also give little weight to that matter where she had disclosed reliance on that report in her expert's report.
It has, however, emerged, both on the face of Ms Milne's report, and from her cross-examination on the voir dire, that there are more significant omissions from the report, which do not seem to me to be capable of now being addressed by a retrospective assertion that the report complied with the Code, where it is not apparent that the result reached in the report is the same as that which would have arisen had the Code been complied with.
First, the Code has an important requirement that an expert report set out:
"The assumptions and material facts on which each opinion expressed in the report is based (a letter of instruction may be annexed)".
Ms Milne's report in turn indicates that:
"In certain instances I have been required to make assumptions, based upon limited information available. I have noted in this Report where I have made any assumptions. To the extent that any assumption is found to be incorrect, the conclusions drawn by me may require amendment."
It seems to me there are two difficulties with that disclosure. It is now apparent that Ms Milne was given instructions, at least to some limited extent, by the solicitor who retained her, and possibly by the current liquidators of the Company. There is no reference to the extent of those instructions in her report. The Defendant has investigated that matter, and FCS has now produced minimal file notes which record conversations as to that matter. That does not seem to me to be, in the relevant circumstances, a substitute for the expert having disclosed in her report what instructions she was in fact given, and the assumptions she made in consequence to the extent that they may have impacted on the approach that she has adopted.
Second, there is a more fundamental difficulty with Ms Milne's report which, in the particular circumstances, could not now be addressed, and is not addressed, by Ms Milne now adopting the Code. Paragraph 3(j) of the Code requires an expert witness to specify any qualifications of an opinion expressed in the report without which the report is or may be incomplete or inaccurate and paragraph 3(k) requires that the report specifies whether any opinion expressed in the report is not a concluded opinion, inter alia, because of insufficient data or for any other reason. Ms Milne's report recognises, both generally and in particular cases, that the documents provided to her are incomplete. For example, in paragraph 1.1.9, she states that, as a result of the limited information available, certain insolvency indicators were not able to be considered. However, she records, at paragraph 2.1.3 that, on the basis of her examination of the primary insolvency indicators to which she refers, she is of the opinion that the Company was not solvent from at least June 2014.
Ms Milne also notes, at paragraph 4.1.5 of her report that she understands that access to the Company's electronic accounting file is no longer available, and she has been unable to extract reports specific to her investigations, and she reserves the right to amend her opinion if those records later become available. Ms Milne does not there address whether the absence of such information is such as to undermine her ability to reach a conclusion, whether generally, or over particular time periods. At paragraph 6.1.3 of her report, Ms Milne again notes that she has not been provided with access to electronic accounting files of the Company, on the understanding that those files are not held by her instructing solicitor, and has relied on a number of miscellaneous reports extracted from an accounting software by the liquidator but notes those records appear to be incomplete. Once again, she does not address whether that incompleteness is such as to prejudice her ability to form a conclusion.
It seems to me that a critical aspect of paragraph 3(k) of the Code is to place an onus upon the expert not to approach his or her role on the basis that he or she will do the best he or she can to draw such conclusions as he or she can from such information as is available to him or her, whether or not those conclusions are reliable, but reserving the ability to change them if better information becomes available in the future. That provision, in terms, requires the expert to address the question whether an opinion expressed in the report is not a concluded opinion because, inter alia, there is insufficient data to support it. It is not apparent, on the face of the report, that Ms Milne has done so. That is not necessarily a criticism of Ms Milne, when the Code was not drawn to her attention. The significance of the Code, at least in that respect, is that it would require a witness to do something which he or she might not otherwise do, unless he or she was informed of the necessity to do so, and Ms Milne was not informed of that matter.
It emerged, in the course of Ms Milne's cross-examination on the voir dire, that this issue is not theoretical. Ms Milne accepted, in cross-examination, that the limits of information available to her are such that there are difficulties in forming a conclusion as to the Company's solvency, for example, in January 2015, because of a lack of monthly information in that month. That proposition, however, stands in stark contrast with the conclusion at paragraph 2.1.3 of the report that she is of the opinion that the Company was not solvent from at least June 2014, which stands unqualified by such a reservation.
In these circumstances, I cannot be satisfied that the expert report prepared by Ms Milne addresses those matters which she would have addressed, and should have addressed, had the Code been drawn to her attention. In particular, she has not addressed the question of the adequacy of the information available to her to support the conclusions which she had reached, to the extent which the Code would require, because that Code was not drawn to her attention.
I am not satisfied that I could make an order dispensing with compliance with UCPR r 31.23 in respect of Ms Milne's report, so far as it does not comply with that rule. There is no utility in permitting the reading of Ms Milne's second affidavit, which will not achieve its intended result of allowing the admission of that report. I therefore do not extend the time for that affidavit to be read.
[5]
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Decision last updated: 22 September 2019