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[2001] NSWSC 123
Supreme Court of NSW
2001-03-21
Einstein J, Compania Naviera J
Original judgment source is linked above.
CITATION : Idoport Pty Ltd & Anor v National Australia Bank Ltd & 8 ors; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd [17] [2001] NSWSC 123 FILE NUMBER(S) : SC 50113/98; 50026/00; 3991/00 HEARING DATE(S) : 29/01/01, 30/01/01, 31/01/01, 1/02/01, 5/02/01, 6/02/01, 8/02/01, 12/02/01, 13/02/01, 15/02/01 JUDGMENT DATE : 21 March 2001
Idoport Pty Ltd (Plaintiff) PARTIES : Market Holdings Pty Ltd (Plaintiff) National Australia Bank Ltd (Defendant) Donald Robert Argus (Defendant) JUDGMENT OF : Einstein J
COUNSEL : JJ Garnsey QC, RC Titterton (Plaintiffs) JR Sackar QC, JA Halley (Defendants) Withnell Hetherington (Plaintiffs) Freehills (Defendants)
CATCHWORDS : Evidence Act (1995) - Evidence-Admissibility - Opinion evidence - Expert opinion - Principles applicable at common law and by Evidence Act - Specialised knowledge - By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience section 79 requires that the opinion is presented in a form which makes it possible to answer that question - Experts who venture "opinions" 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 - There must be a field of specialised knowledge and witness must identify it - Witness must have expertise in an aspect of that field, and must identify it - Opinion proffered must be substantially based on expertise of witness and witness must identify it. - Any factual assumptions underlying witness' opinion must be clearly identified and articulated - Any factual observations made by witness which underlie witness' opinion must be clearly identified and articulated and the observations must have been sufficiently detailed to form satisfactory basis for the opinion - If witness relies on combination of factual assumptions and factual observations, they must be identified Witness must explain how the knowledge on which the witness is an expert applies to the facts assumed or observations made so as to produce the opinion propounded - Opinions reliant on books, research and other data - Experiential capacity - A person put forward as an expert must by his or her study training or experience be shown to have become sufficiently acquainted with different views in field of suggested expertise as to permit he or she to be shown to be in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, literature which he or she has read - Appropriate and inappropriate use of secondary sources within opinion - Opinion on matters dealt with by other expert witnesses - Admissibility of opinions of other expert witnesses on the question of the section 79 expertise of a particular witness - Opinions grounded upon unique experience on novel matters - Court may not intrude into interior scope of the subject matter which the expert professes - Plaintiffs loss of opportunity cases - Examination of entitlement to express opinions given in relation to (i) the "functionality" of particular e-commerce financial services - (ii) the financial services markets in Australia, New Zealand, United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan - (iii) the valuation of performance bonus rights under the Consulting Agreement and the valuation of the Ausmaq Service and businesses such as the Ausmaq Service. LEGISLATION CITED : Evidence Act 1995 Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 Bonython v R (1984) 38 SASR 45 Bugg v Day (1949) 79 CLR 442 Clark v Ryan (1960) 103 CLR 486 Davie v Edinburgh Magistrates 1953 SC 34 HG v R [1999] HCA 2 Hughes Aircraft Systems International v Airservices Australia (No. 3) (1997) 80 FCR 276 Jacara Pty Ltd v Autobake Pty Ltd [1999] FCA 417 Jeffrey v The Queen [1991] Tas.R. 336 Lipovac v Hamilton Holdings Pty Ltd (1997) 136 FLR 400 Milirrpum v Nabalco Pty Ltd (1971) FLR 141 Murphy v R (1989) 167 CLR 94 National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The 'Ikarian Reefer') [1993] 2 LloydsRep 68 NMFM Property Pty Ltd v Citibank Ltd (1999) 161 ALR 576 NRMA v Morgan unreported, Supreme Court of New South Wales, 1 September 1998 CASES CITED : Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 Osland v The Queen (1998) 159 ALR 170 Palmer v R (1998) 193 CLR 1 Papakosmas v R [1999] HCA 37 Paric v John Holland Constructions Pty Ltd [1984] 2 NSWLR 505 Quick v Stoland (1998) 87 FCR 371 Ramsay v Watson (1961) 108 CLR 642 R v Anderson (2000) 111 ACrimR 19 R v Fowler (1985) 39 SASR 440 R V G (1997) 42 NSWLR 451 R v Jenkins; ex parte Morrison [1949] VLR 277 R v Welsh (1996) 90 ACrimR 364 Shane Russell Sopher 74 ACrimR 21 Trade Practices Commission v Arnotts Ltd (No.5) (1990) 21 FCR 324 Trust Company of Australia Ltd v Perpetual Trustees WA Ltd Supreme Court of NSW, unreported, 18 September 1996 Wentworth v Wentworth (unreported Supreme Court of NSW, 17 April 1997) DECISION : Mr Maconochie held to have demonstrated by his training, study or experience that he has acquired specialised knowledge on which to base, whether wholly or substantially, his opinions:; - as to the functionality of Ausmaq; - as to the functionality of the Bank Services in question; - as to the relevant comparison between the functionality of the Ausmaq Service and of the relevant Bank Services; - as to the Australian financial services markets generally and particularly in relation to Australian mutual funds industry; - by way of an assessment of the detailed prospects for success of the introduction of the Ausmaq Service into the United States markets [findings to extend to cover expressions of opinion as to the ascertainment of United States addressable markets and their extent, likely market penetration and prediction of market success]; - from a conceptual perspective, to the effect that Ausmaq Service had an actual or potential functionality such that with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could be successfully introduced into target financial markets around the world ; Mr Maconochie held not to have demonstrated by his training, study or experience that he has acquired specialised knowledge on which to base, whether wholly or substantially, his opinions:; - as to the ultimate question of valuation [he is however capable of expressing expert opinions in relation to matters such as anticipated cash flows and costs projections and market penetration and the viability of the Ausmaq System within particular markets in respect of which he has been shown to be in a position to express expert opinions as to viability]; - as to the anticipated revenue generated by financial transactions for products worldwide (i.e. outside of Australia and the United States - position as to New Zealand reserved) ; - as to anticipated revenue to be generated by the commercialisation of Ausmaq qua mutual funds in the Japanese/Taiwanese/Hong Kong Financial Services markets; - as to anticipated revenue to be generated by the commercialisation of Ausmaq qua mutual funds and life and pension products in the United Kingdom and European financial services markets.; Leave reserved to the parties in relation to a number of matters for further consideration following the handing down of these reasons
INDEX Page Paragraph Judgment on challenge to expertise of Mr Maconochie 1 1 The Principles 2 5 The Approach taken by the parties in their submissions The Templates 14 14
The Defendants' Overview Submissions 16 19 Fitness/Experiential capacity 17 20
Broad categorisation of opinions 22 27
Finding as to broad categorisation of opinions 23 30
As to category (a) - bare expressions of opinion or failure to identify factual basis for opinion 24 33
Section 135(a) 25 35
Section 135(b) 25 36
Section 135(c) 25 37
As to category(b) - Absence of a proper factual foundation for the opinions expressed 26 38
As to category(c) - Failure to demonstrate the scientific or intellectual basis for opinions, or the relevant reasoning process 27 44
As to category(d) - Inappropriate use of secondary sources 28 49
As to category(e) - Opinions on matters dealt with by other expert witnesses for the plaintiffs 31 59
The plaintiffs' submissions 32 64
Mr Maconochie's relevant professional history and Background 38 79
Unique Experience in Novel Areas 41 89
Training, study and experience - An overview 43 93
Opinions as to Functionality 75 115
Pre Ausmaq 78 124 Page Paragraph Role in relation to the Ausmaq Service and its forerunners 80 127
Commercial and IT expertise 83 138 Methodology - identification and application 83 139 Breadth of training, study or experience 83 140 Depth of training, study and experience 84 143 Currency 86 151 Avoiding too narrow an approach to the route to or categorisation of specialised knowledge 86 153 Holding - opinions as to functionality of Ausmaq 87 154 The real question of difficulty 89 158 Opinions as to functionality of Bank Services - Holding 91 165 Returning to the comparison issued 92 166
Holding - opinions as to the comparison between functionality of the Ausmaq Service and of the Bank Services 94 172
Rulings in respect of where leave to supplement Mr Maconochie's evidence sought to be given as to functionality is to be granted and where sections of Mr Maconochie's statements are to be rejected without leave 95
Identification of assumptions 95 173 Nexus between specialised knowledge and opinions wholly or substantially based upon such knowledge .95 174
The Tables 101 188
Financial Services Markets and Valuation 108 204
Specialised knowledge (general field on which Mr Maconochie seeks to express opinion) and opinion expressed (table) 109 207
Opinions as to the United States Financial Services and Markets 118 221 Valuation 132 245
Reasoning processes/Identification of Assumptions/ Section 135 of the Act 138 252 Page Paragraph Retail distribution fragmentation schematic (table) 140 252
Opinions as to structure, operation and size of worldwide financial markets 143 255
Opinions as to the Japanese/Taiwanese/Hong Kong financial services 144 257
Retail fund market place potential assessment (table) 147 263
Comparison of European Retail Mutual Fund Market Place with the World - USD billions (table) 148 264
Retail Mutual Fund Marketplaces Worldwide (table) 148 265
Cost of retail distribution outside the US Selected Countries - 1998 (table) 151 272
Opinions as to the United Kingdom and European Financial Services 152 275
Opinions in relation to Australian markets/financial services 153 277
Opinions in relation to the Australian Mutual Funds Industry 154 278
Opinions in relation to the Australian Financial Services Markets generally 154 280
Opinions in relation to New Zealand Financial Services Markets 156 282
Miscellaneous matters 158
Breadth, Depth and Currency 158 288
Opinions on matters dealt with by other expert witnesses for the plaintiffs 159 290
Application of the reasons to the statements the subject of objection 160 293
Evidence taken into account on the hearing of the issue going to Mr Maconochie's expertise 160 294
MFI P96 and P97 161 296 Further Submissions 161 297 Appendices Page Paragraph
Appendix "A" - Defendants' templates MFI D44 - Functionality MFI D38 - Damages (1) 16 MFI D46 - Damages (2) 16
Appendix "B" - A consolidated version of Mr Maconochie's relevant statements and oral evidence 41 87 Appendix "C" - Rulings as to the Fifth Statement of John Malcolm Maconochie 143 254
THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION - COMMERCIAL LIST
50113/98 IDOPORT PTY LIMITED & ANOR v NATIONAL AUSTRALIA BANK LIMITED & 8 ORS
50026/99 IDOPORT PTY LIMITED & ANOR v DONALD ROBERT ARGUS
3991/00 IDOPORT PTY LIMITED ("JMG") v NATIONAL AUSTRALIA BANK
Judgment on challenge to expertise of Mr Maconochie 1 The plaintiffs seek to read in their respective cases, the numerous statements made by Mr John Maconochie. A large number of objections to the statements have been directed to be dealt with in accordance with the Directions on Admissibility given on 4 December last [2000 NSWSC 1250]. As made plain by paragraphs 51-56 of those Directions, the issue of challenges to the expertise of Mr Maconochie is being separately dealt with. This judgment deals with those challenges 2 The approach of the court envisaged by the directions may be summarised as follows: (a) to first examine the training, study or experience of the witness; (b) to next examine whether the witness has been shown to have specialised knowledge based upon that training, study or experience
(c) to then outline the extent to which the witness has been shown to be entitled to express opinions based wholly or substantially on the specialised knowledge which has in turn been based on his or her training, study or experience; (d) to the extent that the witness has expressed opinions on matters not satisfying the criteria set out in section 79 of the Evidence Act (1995) NSW ("The Act") such opinions would not be admitted into evidence; (e) to the extent that the witness has expressed opinions which are arguably "borderline" in satisfying the criteria set out in section 79, to determine whether it is appropriate to refuse to admit such opinions in the exercise of the Court's power under section 135 or section 136 of the Act; (f) to the extent that the witness may have expressed opinions which are found to not satisfy the criteria set out in section 79 of the Act, to nevertheless determine whether, if such ruling be incorrect, the Court would have utilised its powers under section 135 or section 136 of the Act to refuse to admit such evidence. 3 The submissions addressed these issues and embraced a number of areas commonly raised in an attack on the admissibility of the evidence of a person held out as qualified to give expert evidence. Such areas included the requirements that: · the factual basis for an opinion be identified; · the facts described provide a proper, rational or logical foundation for the opinion and; · the scientific or intellectual basis or the relevant reasoning process be demonstrated. 4 It is convenient to commence with an examination of the relevant principles.
The Principles 5 The current rules for the admissibility of expert evidence at least include: (1) the evidence must be relevant (s 55) and have sufficient probative value (s135, and in criminal proceedings s137); (2) the witness must have specialised knowledge based on training, study or experience (s 79); (3) the opinion expressed by the witness must be based wholly or substantially on that knowledge (s 79). 6 At the most basic level section 79 points up that there is a critical nexus between: (a) the requirement that the specialised knowledge be shown to be based on the training, study or experience of the witness, and (b) the requirement that the opinion expressed by the witness be based wholly or substantially on the specialised knowledge. 7 If either nexus be broken section 79 is not satisfied. 8 These requirements bear close examination. That examination is considerably assisted by a recent extra curial commentary by Heydon JA of the New South Wales Court of Appeal on a paper delivered at a seminar dealing with aspects of the Act held by the Judicial Commission of New South Wales on 14 November 2000 [the Commentary and my own paper in respect of which the Commentary was delivered are now published on Lawlink NSW [www.findlaw.nsw.gov.au]]. The parties' submissions have referred to these materials extensively. 9 The Paper which was addressed by the Commentary included the following: 'It is important to note that an expert witness should not be allowed to stray outside the witness' area of expertise. It is for this reason that the opinion expressed by the witness must be based wholly or substantially on the witness' specialised knowledge, which is in turn specialised knowledge based on training, study or experience. At common law, the field of expertise prerequisite required a court in determining the admissibility of expert evidence, to assess the reliability of the knowledge and experience on which the opinion was based. An immediate question arose as to whether a similar exercise was required under the Act. The question appears to have been answered by Gaudron J in terms of the expression 'specialised knowledge' in a recent decision to which I shall refer. I note that the Australian Law Reform Commission did not enter the difficult field of determining what were the criteria which were required to be shown before the field of expertise would be treated as a recognised or accepted field of expertise. The Commission recommended that there be no field of expertise test. The Commission's position was that:' "There will be available the general discretion to exclude evidence when it might be more prejudicial than probative, or tend to mislead or confuse the tribunal of fact. This could be used to exclude evidence that has not sufficiently emerged from the experimental to the demonstrable." Australian Law Reform Commission, Evidence, ALRC 26 (Interim) Vol.1 (AGPS, Canberra, 1985) at para 743. 'This position one might have thought, is reflected in s 79 of the Act, which requires only that the expert have "specialised knowledge", with the exclusionary rules regarding irrelevant, prejudicial or misleading evidence presumably operating to exclude the opinions of specialists in unreliable and unacceptable fields of expertise.' [See generally Peter Berman "Fundamentals of Expert Experience: part 2" (1996) 3 Criminal Law News 55-56.] 'It is appropriate then that a trial judge examine evidentiary reliability under s 79, s 56 and/or s 135, and when doing so, exercise the court's appropriate discretion to ensure that the manner in which evidence is adduced by an expert does not have the quite often unforeseen consequence, which by dint of s 60 and/or s 77 of the Act would otherwise result, namely that evidence which neither party intended to be evidence of the fact, becomes evidence of the fact. That situation can very easily arise if the court is not astute to limit the precise purpose for which assumptions relied upon by experts in their reports or matters stated in those reports as facts, are admitted into evidence.' In HG v R [1999] HCA 2, Gleeson CJ adverted to the significance of the need for an expert whose opinion is sought to be tendered, to differentiate between the assumed facts upon which the opinion is based and the opinion in question. In the view of the Chief Justice, the provisions of section 79 of the Act will often have the practical effect of emphasising the need for attention to requirements of form . His Honour said: 'By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience, the section requires that the opinion is presented in a form which makes it possible to answer that question .' [at para 39] [cf approach taken in Trust Company of Australia Ltd v Perpetual Trustees WA Ltd Supreme Court of NSW, unreported, 18 September 1996 per McLelland CJ in Eq] Gleeson CJ pointed out that in trials before judges alone, as well as in trials by jury, it is important that the opinions of expert witnesses be confined, in accordance with section 79, to opinions which are wholly or substantially based on their specialised knowledge. As his Honour said at paragraph 44: '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.' In that case, Gaudron J saw the first question raised by the suggested expertise of the psychologist, as whether psychology or some relevant field of psychological study amounted to 'specialised knowledge'. Her Honour said at paragraph 58: 'The position at common law is that, if relevant, expert or opinion evidence is admissible with respect to matters about which ordinary persons are unable "to form a sound judgment . . . without the assistance of [those] possessing special knowledge or experience . . . which is sufficiently organized or recognized to be accepted as a reliable body of knowledge or experience.' [Citing in support of that proposition Australian authorities running from Bonython v R (1984) 38 SASR 45 at 46-47, Clark v Ryan (1960) 103 CLR 486 at 491 through to Osland v The Queen (1998) 159 ALR 170 at 184]. Gaudron J then continued: 'There is no reason to think that the expression "specialised knowledge" gives rise to a test which is any respect narrower or more restrictive than the position at common law.' Gleeson CJ held that it was not in dispute that psychology is a field of specialised knowledge and that a psychologist may be in a position to express an opinion based on his or her specialised knowledge as a psychologist. However, his Honour's holding was that the witness had to identify the expertise he or she could bring to bear and cited Clark v Ryan (1960) 103 CLR 486 in support of the proposition that the opinions of the expert had to be related to his or her expertise. Here again, the emphasis is on a close examination of the assumptions upon which the opinion is based and upon the nexus between the opinion on the one hand and the suggested specialised knowledge on which the opinion is said to have been wholly or substantially based, on the other hand. The view expressed by Gaudron J focuses, when one is examining questionable special knowledge or experience, upon the parameters of whether that specialised knowledge or experience is firstly sufficiently organised, or secondly sufficiently recognised, to be accepted as a reliable body of knowledge or experience.' 10 Heydon JA in the above Commentary conveniently identifies and elucidates the relevant requirements under the following 7 headings: 1. There must be a field of specialised knowledge and the witness must identify it.
The Approach taken by the parties in their submissions
The Templates 14 In order to assist the Court in the task of determining whether a sufficient nexus had been established between the opinions expressed by Mr Maconochie, any particular specialised knowledge he might possess, and in turn the extent to which that specialised knowledge may be seen to be based on any relevant training, study or experience of Mr Maconochie, the Court directed the plaintiffs to prepare a "template document". As produced in updated form that document ("the plaintiffs' template" - MFI P89) is a four column document dealing with each of the following matters in relation to Mr Maconochie's opinion evidence: (a) specialised knowledge; (b) training, study or experience; (c) description of opinions which may be expressed; and (d) opinions expressed 15 The defendants have submitted that there are several deficiencies in the plaintiffs template as follows: (a) The descriptions of specialised knowledge in the first column of the document are said to be inadequate in that the categories of specialised knowledge identified are said to be expressed at a level of generality or ambiguity that makes it difficult if not impossible to comprehend the scope and nature of the alleged specialised knowledge. The submission is that the plaintiffs have not sought to identify particular specialised knowledge relevant to the types of opinions that Mr Maconochie purports to express in his statements. (b) the training, study or experience identified in the second column is said not to be directly related to each category of specialised knowledge identified in the first column. Rather, the plaintiffs are said merely to have identified in a composite fashion the alleged training, study or experience of Mr Maconochie and then sought to assert that that training, study or experience as a whole is relevant to each category of specialised knowledge. (c) a further suggested deficiency in the training, study or experience column is said to be that on many occasions reference is merely made to paragraphs in Mr Maconochie's statements, rather than to a distillation of the relevant training, study or experience which is relied upon. (d) the defendants submit that little or no attempt is made to link the description of opinions which it is asserted may be expressed to any particular specialised knowledge. Rather, these matters are said to largely be dealt with generically in a composite fashion. (e) the defendants submit that little or no attempt is made to link the description of training, study or experience of Mr Maconochie to the opinions which it is alleged he may express by reason of his training, study or experience. (f) the defendants submit that little or no attempt is made to identify any of the opinions that Mr Maconochie expresses with any specificity, and that typically the reader is merely confronted with a number of paragraphs references, and in the case of Mr Maconochie's reply to Mr Turner, the reader is simply referred to the statement with no identification of the opinions or paragraphs references. 16 The defendants then produced their own templates ("the defendants templates") in an attempt to assist the Court to establish whether the section 79 criteria were satisfied. Those templates which were marked for identification as MFI D38, D44 and D46 become an important tool in relation to this Judgment and for this reason are appended to the judgment as appendix "A". 17 The defendants have sought to summarise the landscape or field of specialised knowledge in respect of which Mr Maconochie purports to express opinions on functionality in the left hand column of their functionality template MFI D44. This is also the approach taken by the defendants in the left hand column of their damages templates MFI D 38 and MFI D 46. The remaining headings are self explanatory. 18 In the result the defendants' templates are of assistance to the Court in dealing with the first three of the seven requirements identified in Justice Heydon's Commentary. The remaining four requirements, where relevant, require to be determined in the context of an analysis of specific categories of objection and in some cases in the context of specific paragraphs of Mr Maconochie statements.
The Defendants' Overview Submissions 19 The defendants generally embraced the propositions set out in Justice Heydon's Commentary and I do not understand them to reject any of the propositions identified in my own paper and set out above. The defendants do emphasise that the requirement that the opinion be based on specialised knowledge would normally be satisfied by the person who expresses the opinion demonstrating the reasoning process by which the opinion was reached. As the defendants submit, in such a case it would clearly be necessary for the report in which the opinion is recorded to expose the reasoning of its author in a way that would demonstrate that the opinion was based on particular specialised knowledge: "The further requirement that an opinion be based on specialised knowledge would normally be satisfied by the person who expresses the opinion demonstrating the reasoning process by which the opinion was reached. Thus a report in which an opinion is recorded should expose the reasoning of its author in a way that would demonstrate that the opinion is based on particular specialised knowledge . Similarly, opinion evidence given orally should be shown, by exposure of the reasoning process, to be based on relevant specialised knowledge" [per Black CJ, Cooper and Emmett JJ in Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 at paragraph 22 (Judgment delivered on 27 November 2000)].[emphasis added]
Fitness/Experiential capacity 20 A threshold submission of the defendants (pressed generally, but in my view perhaps more particularly relevant to the opinions sought to be expressed by Mr Maconochie in relation to the extent to which the Ausmaq service may have penetrated overseas markets and hence to the questions of the overseas financial services markets and valuation issues) relates to Mr Maconochie's extensive citation of two particular books to support and to provide a suggested sound basis for many of his opinions. The issue becomes one of examination of the circumstances in which a person claiming to be an expert may show that he or she has, by reading particular materials published in a relevant field, satisfied the criteria now stipulated for in section. 21 In this respect the defendants cited extensively from Wigmore 'Evidence in Trials at Common Law' 1979 volume 2. Wigmore uses the expression "experiential capacity" to express the necessary capacity. The defendants' proposition is that a person put forward as an expert must by his or her training, study or experience be shown to have become sufficiently acquainted with different views in the field of suggested expertise so as to show that he or she is in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature which he or she has read. In short a highly intelligent paper gatherer who reads materials must show far more if he or she is to have the requisite specialised knowledge to satisfy section 79. 22 At paragraph 555 in chapter 23 Wigmore states as follows: "That sort of capacity which involves, not the organic powers, moral and mental, requisite for all testimony, nor yet the emotional power of unbiased observation and statement, but the skill to acquire accurate conceptions , may be termed experiential capacity." [the emphasis is that which appears in Wigmore] 23 Wigmore continues:
" Since upon some matters accurate understanding can never be attained without special preparation or familiarity, the rules of evidence must recognise this, and must see to it that the testimonial statements offered as representing knowledge are not offered by persons who are not fitted to acquire knowledge on the subject in hand. Such fitness or skill to acquire accurate impressions comes from circumstances which may broadly be summed up in the term 'experience'. If, at the one extreme, be imagined the babe in arms, practically lacking in any such skill or fitness, and, at the other extreme, the trained professional student of a department of science, in whom the fitness exists in the highest degree, it is seen that this attribution of the source of the fitness to "experience" is sufficiently accurate for purposes of nomenclature. In experience, then, are included all the processes - the continual use of the faculties, the habit and practice of an occupation, special study, professional training, and the rest-which contribute to produce a fitness to acquire accurate knowledge upon a given subject . Two fundamental principles, involved in the very nature of the sort of capacity, are to be noted: (1) The capacity in every case is a relative one , ie., relative to the topic about which the person is asked to make his statement . The object is to be sure that the question to the witness will be answered by a person who is fitted to answer it. His fitness, then, is a fitness to answer on that point. He may be fitted to answer about countless other matters, but that does not justify accepting his views on the matter in hand. Conversely, if he is skilled enough to acquire knowledge on the matters in hand, it is immaterial that he is not skilled upon any or every other matter… (2) If by "expert" we mean one possessing experiential qualifications, then all witnesses must be "experts", but it is common and not unnatural to confine the term "expert" to witnesses whose fitness , by reason of the subject matter, needs to be first shown . But while there is (as will be seen), a practical distinction between the instances in which the fitness must be expressly shown and the instances in which it need not be, that is no reason for ignoring the fundamental principle that every witness whosesoever is and must be, by hypothesis, fitted in the matter about which he is allowed to give his supposed knowledge ." Wigmore then continues to deal with different kinds of experiential capacity stating inter alia: "Although (as just noted) the single and uniform principle is that every witness must be sufficiently experienced for the matter in hand, yet it is possible and necessary in practice to distinguish two broad groups of matters with reference to experiential capacity. Between these two the distinction constantly becomes a question of law, because of reasons of practical convenience. First , there is that class of matters as to which a sufficient experience is possessed by every person of ordinary fortunes in life -the kind of skill in the ordinary use of the senses which is developed necessarily, in the course of the daily dealings, for every mature member of society. To every one who is intelligent enough to take the witness stand at all is attributed a sufficient kind and degree of skill upon these matters… Second , there is that class of matters as to which it is only by means of some special and that peculiar experience , more than is the common possession, that a person becomes competent to acquire knowledge. Hence, the possession of this cannot be assumed, for an individual witness, but must be expressly shown beforehand. This special and that peculiar experience may have been attained, so far as legal rules go, in any way whatever; all the law requires is that it should have been attained. Yet it is possible here to group roughly two classes of experience which are usually, though not necessarily, found separately: (a) There is, first, an occupational experience-the kind which is obtained casually and incidentally, yet steadily and adequately, in the course of some occupation or livelihood. From the advertising agent to the wood chopper there is a long list of occupations in any one of which, and perhaps in that alone, the fitness will be obtained to acquire knowledge on a particular topic.
(b) There is, second, a systematic training , directed deliberately to the acquisition of fitness and involving the study of a body of knowledge forming a branch of some science or art. This may be termed scientific experience. Now the line, if any can be drawn, between these two has no general legal significance. In truth no accurate line can be drawn. Each shades into the other imperceptibly. In some instances the witness will need both; in some instances he may have both, though he does not need both. Neither is generally favoured above the other by the courts. The question in each instance is whether the particular witness is fitted as to the matter in hand . On many points the nature of the subject is such that a scientific training is indispensable; but rulings requiring it make no general discrimination between the two sources of fitness; they simply apply the general principle and require the particular sort of experience which fits the witness to acquire knowledge on the particular matter." 24 In Shane Russell Sopher 74 AcrimR 21 a decision by Byrne J of the Supreme Court of Queensland, objection had been taken to the evidence proposed to be adduced from a forensic scientist on DNA profiling. The submission was that the doctor was not competent in the field and in any case was not a credible witness. Another objection was that the reliability of his conclusions was not established. The following passage appears in the judgment at paragraph 24: "Dr Roberts is a forensic scientist who works at the Victorian governments State Forensic Science Laboratory. He has been a forensic scientist for 11 years. He has worked in DNA profiling, a relatively new field of knowledge, since September 1988. In taking his first university degree, Bachelor of Arts from York, Dr Roberts majored in biology. Chemistry was also a significant component in his undergraduate studies. In 1972 the University of Oxford awarded him the degree of Doctor of Philosophy for his work in biochemistry. Dr Roberts' knowledge of and experience in the area is relevant to his competence to give expert testimony on those aspects of statistical analysis and population genetics pertinent to this case derive from formal study at university, subsequently acquired knowledge and practical application of the concepts… Dr Roberts has the knowledge of the concepts of population genetics requisite to the predictions of the frequencies of DNA profiles incurring in a population to give useful evidence in this call. He is, I should add, well acquainted with the different views explored in the scientific literature. He appreciates the arguments and studies relating to such questions as the potential for population subgroups to affect the product rule. His own views on this and related matters have been formed after study of the rival Contentions and the published data on which they rely" [emphasis added] 25 The Court accepted that the qualifications of Dr Roberts to give expert evidence in that case were impeccable and the criteria specified by s79 of the Act may permit persons of an entirely different training study or experience to have gained the specialised knowledge requisite to giving expert evidence. The significance of this quotation from Byrne J however. is to point up the importance of the court being satisfied that the claimed expert, through training, study or experience, is shown to have become capable of appreciating the validity (and sometimes the invalidity) and the substance (and sometimes the lack of substance) in statements made and points of view expressed in such extrinsic reading materials. Putting the matter in the terms adopted by Wigmore, the witness must be accepted by the Court as fitted in the matter about which he or she is allowed to give his or her supposed knowledge. An important parameter of an exercise in a particular case may be whether the witness is shown to have by training study or experience, sufficient specialised knowledge to be in a position to be aware of the trustworthy authorities and proper sources of information. As Wigmore says under the heading "Expert opinion founded on books and other data" in paragraph 665b3: "The data of every science is enormous in scope and variety. No one professional man can know from personal observation more than a minute fraction of the data which he must everyday treat as working truths. Hence a reliance on the reported data of fellow scientists , learned by perusing in their reports in books and journals. The law must and does accept this kind of knowledge from scientific men. On the one hand, a mere layman, who comes to court and alleges a fact which he has learned only by reading a medical or a mathematical book, cannot be heard. But, on the other hand, to reject a professional physician or mathematician because the fact or some facts to which he testifies are known to him only upon the authority of others would be to ignore the accepted methods of professional work and to insist on finical and in possible in possible standards. Yet it is not easy to express in useable form that element of professional competency which distinguishes the latter from the former. In general, the considerations which define the latter are (a) a professional experience, giving the witness a knowledge of the trustworthy authorities and the proper sources information, (b) an extent of personal observation in the general subject, enabling him to estimate the general plausibility, or probability of soundness, of the views expressed, (c) the impossibility of obtaining information on the particular technical detail except through reported data in part or entirely. The true solution must be to trust the discretion of the trial judge, exercised in the light of the nature of the subject and of the witness' equipments. The decision show in general a liberal attitude in receiving technical testimony based on professional reading." [Cf. Jeffrey v The Queen [1991] Tas.R. 336 at 348 where Cox J put the matter as follows "In my view the factual material relied upon Mr Ross was shown by the evidence to be part of the corpus of his field of science. He, himself, was shown to be a person with a knowledge of trustworthy authorities and proper sources of information and with the necessary expertise to evaluate the plausibility of the data relied upon and of the conclusion it sustained" ] 26 Of course none of this is to suggest for a moment that the Court at the threshold consideration of the fitness (within the parameters laid down by section 79 of the Act) of the suggested expert to give expert evidence, is concerned at all with whether the witness by his or her lights has come to a particular view on a particular matter or has come to an entirely different view. Broad categorisation of opinions 27 The defendants seek to categorise the opinions expressed by Mr Maconochie said to be of an expert nature, as opinions given in relation to the following three broad areas: (a) the "functionality" of electronic financial services; (b) the financial services markets in Australia, New Zealand, the United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan; and (c) the valuation of businesses. 28 The plaintiffs in their written submissions [MFI P93 paragraph 17.1] seek to categorise the classes of opinion in respect of which Mr Maconochie gives expert evidence as follows: "(a) evidence that in his opinion, each of the NAB Services is a service with equivalent or similar functionality to the functionality of the Ausmaq Service; (b) evidence of the value of JMG; and (c) evidence as to JMG's expected royalty streams in Australia, New Zealand, the United Kingdom and Europe, North America and Taiwan, Hong Kong and Japan." 29 During submissions from the bar table [transcript 13 February 2001], Mr Garnsey QC for the plaintiffs indicated a general acceptance with the defendants' categorisation subject to: · the first category referring to the functionality of e-commerce financial services [I note that in reply Mr Sackar QC submitted that if e-commerce is used to mean 'electronic' in the more general sense but more particularly here in relation to financial services then there was not very much difference, if any, of substance between the descriptions 'e-commerce' or 'electronic' financial services'] · the third category referring to: (i) the valuation of the performance bonus rights under the Consulting Agreement; and (ii) the valuation of businesses such as the Ausmaq Service.
Finding as to broad categorisation of opinions 30 The parties' respective categorisation analyses differ very slightly and I do not see that very much turns on the variance of expression. However, to my mind the opinions expressed by Mr Maconochie said to be of an expert nature would appropriately be described as opinions given in relation to the following three broad areas:
(a) the "functionality" of particular e-commerce financial services; (b) the financial services markets in Australia, New Zealand, United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan; and
(c) the valuation: (i) of the performance bonus rights of JMG under the Consulting Agreement; and (ii) of the Ausmaq Service and businesses such as the Ausmaq Service. 31 As the defendants' templates make plain there are only very few areas in respect of which the defendants accept that Mr Maconochie has satisfied the criteria set out in section 79 of the Act and is capable of expressing expert opinions. 32 The defendants submit that, to the extent that any of Mr Maconochie's opinion evidence may be found by the court to have satisfied section 79 of the Act, a significant proportion, if not all, of that evidence falls within one or more of the following categories and should be excluded: (a) bare expressions of opinion, or failure to identify any factual basis for an opinion; (b) expressions of opinion for which the facts described do not provide a proper, rational or logical foundation; (c) expressions of conclusions where there is a failure to demonstrate their scientific or intellectual basis, or the relevant reasoning process; (d) expressions of opinion which make inappropriate use of secondary sources; (e) expressions of opinion in relation to matters upon which other witnesses for the plaintiffs have also produced expert opinion evidence.
As to category (a) - bare expressions of opinion or failure to identify factual basis for opinion 33 The defendants generally rely upon the fourth requirement for the admissibility of expert evidence identified by Justice Heydon. The defendants' submission is that a number of the opinions expressed by Mr Maconochie in his statements constitute bare assertions or expressions of opinion for which no factual basis is set out. 34 The defendants' submission is that such bare expressions of opinion should be excluded on one or both of the following bases: (a) the failure to identify any factual basis for an opinion is said to prevent the Court from being able to determine whether the opinion even if accepted "could rationally affect (either directly or indirectly) the assessment of the probability of the existence of a fact in issue" in accordance with section 55 of the Act, with the suggested result that the opinion evidence requires to be excluded pursuant to section 56 of the Act; (b) the failure to identify any factual basis for an opinion is said to reduce the probative value of the opinion and to cause any probative value to be substantially outweighed by the danger that the opinion might be unfairly prejudicial to a party, misleading or confusing, or cause or result in undue waste of time. To that extent the defendants submission is that such an opinion should be excluded by an exercise of the Court's discretion under section 135 of the Act.
Section 135(a) 35 The submission is that the bare expression of an opinion by an expert may be such that its probative value is substantially outweighed by the danger that the opinion might be unfairly prejudicial to the party against whom the evidence is sought to be adduced and that section 135(a) should be applied. The defendants point to a failure to properly identify the factual basis of an opinion as having been one of the problematic aspects of the expert evidence excluded under that section in NRMA v Morgan (unreported, Supreme Court of New South Wales, 1 September 1998, Giles J).
Section 135(b) 36 The further submission is that such opinion evidence may also be substantially more misleading or confusing than probative and therefore fail to survive section 135(b) of the Act. This is said to be particularly the case where the opinions expressed relate to hypothetical matters such as the likely behaviour of members of the NAB board and the likely reaction of players in the market to a hypothetical business proposition. The defendants refer to a similar exercise of the discretion under section 135(b) as having been undertaken by Finn J. in Hughes Aircraft Systems International v Airservices Australia (No. 3) (1997) 80 FCR 276 at 283.
Section 135(c) 37 Finally the defendants submit that the probative value of certain of Mr Maconochie's bare expressions of opinion is substantially outweighed by the danger that they may cause or result in undue waste of time, justifying an exclusion under section 135(c). The principles which apply to the exercise of this head of the section 135 discretion to which the defendants point are said to be accurately summarised by Sundberg J. in Jacara Pty Ltd v Autobake Pty Ltd [1999] FCA 417 at paragraph 19.
As to category(b) - Absence of a proper factual foundation for the opinions expressed 38 The defendants cite the fifth requirement identified by Justice Heydon and in referring to the authorities cited in support of that proposition (mainly R v Anderson and Bonython v R), the defendants submit that although those cases dealt with observed facts rather than assumed facts, an analogy may be drawn with the opinion evidence of Mr Maconochie. 39 The central submission is that Mr Maconochie expresses a number of opinions for which he purports to set out the factual bases but that in many instances the facts do not constitute a proper, rational or logical foundation for the opinions expressed. 40 Examples of this category of opinion evidence are said to include assertions in relation to the following matters: (a) the percentage of the Australian retirement asset market which could have been accessed by Ausmaq; (b) the manner in which Ausmaq would have been capable of being organised and operated globally; (c) the best target markets for the Ausmaq Service in Asia; and (d) the reasonableness of the assumption that the Euromaq system would have satisfied the minimum operational requirements of its users, which was supplied to Mr Joslin. 41 The defendants submit that this principle applies to those of Mr Maconochie's opinions which are ostensibly founded upon asserted facts or documents not rationally or logically capable of supporting the opinion expressed. 42 As in the case of a bare expression of opinion, the defendants submit that evidence falling within this category may be excluded on the basis of section 56, or through an exercise of the section 135 discretion. The submission is that like a bare assertion, an opinion with no logical factual foundation, even if accepted, may not be capable of "rationally affecting (either directly or indirectly) the assessment of the probability of the existence of a fact in issue" in accordance with s55 of the Act. 43 The defendants repeat their earlier submissions as to the principles in relation to an exercise of the discretion under section 135 of the Act.
As to category(c) - Failure to demonstrate the scientific or intellectual basis for opinions, or the relevant reasoning process 44 The defendants generally adopt the seventh requirement for admissibility identified by Justice Heydon and make the point that it has also been held that an expert's reasoning process must be clearly identified so as to enable a tribunal of fact to choose which of competing hypotheses is the more probable: Lipovac v Hamilton Holdings Pty Ltd (1997) 136 FLR 400 at 102. 45 The defendants submit that a significant proportion of Mr Maconochie's opinion evidence involves a failure to properly identify and distinguish between the factual bases for his opinions, the assumptions made (hypothetical or otherwise) and the opinions themselves. The submission is that as in fact occurred in HG v R, this results in a failure to disclose the relevant reasoning process, and a failure to demonstrate that the requirements of section 79 are satisfied. 46 Examples of this category of evidence are said to include the following passages in Mr Maconochie statements:
(a) the definition of "functionality"; (b) the analogy drawn by Mr Maconochie between the Ausmaq service and a "game at a sports stadium"; (c) the matters set out by Mr Maconochie relating to whether it would have been "reasonable and practicable" to implement the 1997 Business Plan for Australia and New Zealand. 47 The defendants submit that this difficulty is also present in a number of the opinions which fall into the other categories identified in the defendants' submissions. They make the point, as earlier stated, that rather than an application of section 56 or 135, it has been held that the appropriate ground for the exclusion of such evidence is that it is incapable of satisfying section 79 of the Act and should therefore be excluded as inadmissible opinion evidence under s76 of the Act.. 48 The defendants with reference to the template documents submit that those paragraphs of Mr Maconochie's evidence which are expressed in a form which fails to express the relevant reasoning process or to identify and distinguish between facts, assumptions and opinions, are not capable of satisfying section 79 and should therefore be excluded as inadmissible opinion evidence under section 76 of the Act.
As to category(d) - Inappropriate use of secondary sources 49 The defendants point out that a substantial amount of the opinion evidence of Mr Maconochie also relies extensively upon secondary sources. In his Second and Third Statements, Mr Maconochie relies upon a selection of documents created by the National Australia Bank for the purposes of undertaking the functionality comparison between the AUSMAQ Service and the Bank projects. In his Fifth Statement, Mr Maconochie relies heavily upon the book Net Worth and the Cerrulli Reports for the purposes of establishing the concept of a "market systems service" and of making assertions in relation to the US financial services markets. 50 The defendants then submit that the use made by Mr Maconochie of these secondary sources is generally inappropriate on one or more of the following suggested bases, and that the opinions ostensibly based upon these sources are therefore inadmissible: (a) failure to identify the line of reasoning by which the source materials could have influenced the opinions expressed, or failure to identify which specific parts of those materials were relevant to the opinions expressed (see for example: Second Statement, paragraph 8.3 and Table 1: Vision and Strategy Comparison at page 78, Volume 2);
(b) failure to distinguish between the source material, other factual matter and the opinions expressed, including making additions to tables taken from secondary sources, without identifying the source of the additional information (see for example: Fifth Statement, Exhibit 5 at paragraph 9.15, Volume 12, cf CA2 Exhibit 23);
(c) failure to place the extracted material in a transparent and appropriate context and quoting from secondary sources selectively without explanation (see for example, Fifth Statement paragraph 9.10, Volume 12); and (d) failure to adduce evidence, or to evince an intention to call witnesses, which would enable the defendants to test the use made of the secondary sources. 51 The defendants cite NRMA Limited v Morgan & Ors (unreported, Supreme Court of NSW, 1 September 1998) where Giles J considered the admissibility of expert evidence which suffered from the defect described in subparagraph (a) above. It was held that this defect, in combination with others, rendered the evidence substantially more unfairly prejudicial than probative, justifying an exercise of the discretion under s135(a). Giles J described the expert evidence in the following way: "a vast mass of material . . . with unclear specialised knowledge, and with an unexpressed line of reasoning or application of the knowledge from the five files and the assumptions to the opinions, and [the plaintiff] would have to either take the matter up in cross-examination and itself seek to find out what really lay behind the opinions or run the risk of the weight which the Court might attribute to the opinions." 52 The defendants submit that where Mr Maconochie purports to use secondary sources in support of his opinion evidence, there is a failure to identify the relevant specialised knowledge and to explain the applicability of the source material to the opinions expressed which is analogous to the description of the evidence in NRMA v Morgan. A ruling under s135(a) would therefore be appropriate. 53 The defendants further submit that an alternative basis for excluding evidence falling within category (a) above may be ss55 and 56 of the Act. As indicated by Branson J in Quick v Stoland, evidence which amounts to a bare expression of opinion may not survive those threshold requirements. Where Mr Maconochie has failed to identify the line of reasoning connecting the source material to assertions made, these may be considered bare expressions of opinion. 54 On the defendants' submissions, evidence falling within category (b) above should be excluded under ss 79 and 76 of the Act as it suffers from the defect identified by Gleeson CJ in HG v R, described above. It is not evidence in a form which makes it possible to determine whether the requirements of s 79 have been met, and is therefore inadmissible opinion evidence under s76. 55 The defendants submit that evidence falling within category (c) above may be excluded on the basis that its probative value is substantially outweighed by the danger that it might be misleading or confusing as provided for in s135 (b) of the Act. This basis for exclusion was applied by Finn J in Hughes v Airservices. In that case, it was held that evidence should be excluded under s135(b) where it presented only part of the relevant factual matrix and distorted the true position. 56 The defendants further submit that the admission of opinion evidence which falls within category (d) above would result in unfair prejudice to the defendants, as they would be unable to test the use made by Mr Maconochie of the book Net Worth, or of the Cerrulli Reports, due to the lack of any evidence from the authors of those works, or from any other person, which could support or explain the applicability of those materials to the opinions ultimately expressed. 57 The defendants submit: "It has been observed that the concept of "unfairly prejudicial" evidence in the Evidence Act is likely to include both forensic prejudice to a party as well as the danger that a finder of fact may "use the evidence to make a decision on an improper, perhaps emotional basis": see Evidence Act (Civil Matters), paper delivered by Justice Einstein, seminar on 14 November 2000 given at the Judicial Commission of NSW in Sydney for NSW Judges, at page 12." 58 In further support of that proposition, the defendants submit that the prejudice to which Giles J referred in the passage quoted from NRMA v Morgan above was of a forensic nature similar to that identified by Santow J in Wentworth v Wentworth (unreported Supreme Court of NSW, 17 April 1997) at page 12, rather than of the more substantive nature referred to by McHugh J in Papakosmas v R [1999] HCA 37 at paragraph 93.
As to category(e) - Opinions on matters dealt with by other expert witnesses for the plaintiffs 59 The defendants submit that a further category of Mr Maconochie's opinion evidence which may be excluded is those opinions which relate to matters dealt with by other expert witnesses, in circumstances where, the defendants submit, Mr Maconochie has very limited expertise, if any, upon which to base his opinions. 60 The defendants submit that these matters include: (a) loss of opportunity and valuation of damages in the US markets: these matters are dealt with by Thomas Mack (5 June 2000, Volume 17 and 25 June 2000, Volume 28) and Professor Pruden (6 June 2000, Volume 19); (b) loss of opportunity and valuation of damages in the UK and Europe: these matters were initially dealt with by Ian Joslin (19 April 1999, Volume 5), and have since been dealt with in greater detail, again by Mr Joslin (9 June 2000, Volume 25), Diana Mackay (15 June 2000, Volume 26), Jonathan Heller (6 July 2000, Volume 37) and Anthony Laing Davies (10 July 2000, Volume 46); (c) valuation of the Bank Services: this has been dealt with by Phillip Cox (6 July 2000, Volume 34) and Geoff Kirk (11 July 2000, Volume 54); (d) loss of opportunity and valuation of damages in Japan, Hong Kong, and Taiwan (these are proposed by the plaintiffs to be dealt with by additional experts in the relevant markets). 61 The opinion evidence of Mr Maconochie in relation to these matters is said to have little incremental probative value, given the greater level of detail which has now been provided by the additional expert witnesses, and taking into account the very limited experience of Mr Maconochie in these areas, even were the Court to find that the requirements of s 79 had been met. 62 The defendants submit that the admission of the opinion evidence of Mr Maconochie in relation to these matters would amount to an unnecessary duplication of evidence and would therefore "cause or result in undue waste of time" which substantially outweighs the probative value of the evidence as provided for in s 135(c) of the Act. 63 Finally the defendants point out that it has been envisaged by commentators that this head of the relevance discretion may be used in circumstances where there is unnecessary duplication of evidence: see Odgers, Uniform Evidence Law, 4th Edition, at paragraph 135.6.
The plaintiffs' submissions 64 The plaintiffs generally traversed the submissions put by the defendants. 65 The general approach of the plaintiffs was to submit that the defendants had arbitrarily selected a number of fields of specialised knowledge of their own choosing and had then proceeded to criticise particular individual statements in a random fashion, with selective and incomplete reference to the evidence concerning Mr Maconochie's training, study and experience as a basis for specialised knowledge. 66 The plaintiffs submitted that many of the criticisms addressed by the defendants in respect of Mr Maconochie's entitlement to express expert opinions particularly in relation to the equivalent or similar functionality issues could be seen to be contradicted by evidence of the defendants' own experts to the extent that the defendants' objections in many areas seen in the light of their own proposed evidence, could be seen to be seeking to raise matters which were not bona fide in dispute. 67 The plaintiffs' submission was that the defendants' approach was arbitrary, partial and atomistic and was designed to lead away from a fair estimate and assessment of the evidence concerning Mr Maconochie's training, study and experience, in total, or a determination of the specialised knowledge required, for the opinions which he purports to express. 68 The plaintiffs do not accept the defendants so-called categories of specialised knowledge and sought to approach the issue before the court concerning Mr Maconochie's expertise in a manner which the plaintiffs suggested was designed to follow the structure and requirements of section 79, by looking to Mr Maconochie's training, study and experience, in relevant parts and in whole, as a basis for the specialised knowledge he professes to have and in respect of which the opinions he expresses were said to be based. This was said by the plaintiffs to involve firstly, a consideration of the totality of the evidence concerning Mr Maconochie's training, study and experience and secondly, an examination of the structure and form of the statements, in order to determine the specialised knowledge which he is said to have applied in expressing the opinions he expressed. 69 The plaintiffs submitted that many of the defendants' objections were beyond the scope of the issues legitimately capable of being raised on the question (which may or may not be appropriately described as 'interlocutory', but is probably more precisely described as a part of the final hearing dealing with admissibility) of whether Mr Maconochie had established an entitlement to give expert evidence within the meaning of section 79. The plaintiffs' submission was that in substance many of the defendants' objections require a determination on the merits and that the court "cannot and should not deal with and determine such matters before the close of evidence". The plaintiffs' submission was that insofar as the defendants sought to rely upon an exercise of the court's discretion to reject evidence under section 135, it was not possible for the court fairly at this stage to determine those objections. The proposition was that the issue of Mr Maconochie's expertise was being determined presently on a limited basis only, on a limited hearing on the voir dire without cross-examination and was limited to whether, on the basis of his training, study and experience, he has specialised knowledge on which the opinions he expresses can be said to be based, wholly or substantially. The submission was that the scope for any application of section 135 is very limited and that the substantive considerations for the exercise of a discretion under this section showed that it was inappropriate for any discretion to be exercised at this stage in this case. The submission was that the scope for exercise of discretion under section 135 is far more limited when the judge is the tribunal of fact as opposed to when a jury would be that tribunal. 70 The plaintiffs submitted that the authorities clearly indicated that the discretion under section 135 is to be exercised with great care, in circumstances with matters of evidence which the plaintiffs submitted were far removed from those in the present case. 71 The plaintiffs submitted that both in relation to section 135 and in relation to the purposes of section 79, there must be proper materials before the court to enable a decision to be made, whether as to the existence, scope and nature of specialised knowledge, or as to the matters within section 135. The submission was that although the determination of the admissibility of evidence is a matter for the court, that does not mean that the determination can be exercised without sufficient and proper materials being before the court. 72 An important submission of the plaintiffs which was pressed was that although the court may take judicial notice of matters of which judicial notice can properly be taken, the court cannot speculate and intrude "into the interior scope of the subject which the expert professes". 73 The plaintiffs rely upon the following quotation from Sir Richard Blackburn in Milirrpum v Nabalco Pty Ltd (1971) FLR 141:
"In such a matter, it seems to me, there can be no precise rules. The court is expected to rule on the qualifications of an expert witness, relying partly on what the expert himself explains, and partly on what is assumed, though seldom expressed, namely that there exists a general framework of discourse in which it is possible for the court, the expert and all men, according to their degrees of education, to understand each other. Ex hypothesi, this does not extend to the interior scope of the subject which the expert professes . But it is assumed that the judge can sufficiently grasp the nature of the expert's field of knowledge, relate it to his own general knowledge, and thus decide whether the expert has sufficient experience of a particular matter to make his evidence admissible. The process involves an exercise of personal judgment on the part of the judge, for which authority provides little help. I accept with respect what Menzies J said in Clark v Ryan, that it 'is very much a question of fact' but it seems to me a question of fact of a peculiar kind, not unlike the question of whether a judge may take judicial notice of some matter." 74 As I understood the plaintiffs submission it was that the issues going to questions of expertise which are before the court in these proceedings and in particular the issues in respect of which Mr Maconochie purports to give expert opinions said to satisfy the criteria stipulated by section 79, are of such complexity that the court is not presently in a position to identify what is the appropriate categorisation of a relevant field. It would only be after additional evidence was before the court that the appropriate categorisation of a relevant field could be adjudicated upon. The plaintiffs submitted as follows: "[T]here is no evidentiary basis put forward by the defendants to justify their arbitrarily selected and asserted "categories of specialised knowledge", nor for the exercise of any discretion under section 135. These categories [ put forward by the defendants as the categories in respect of which opinions are said to be expressed and in respect of which specialised knowledge upon which such opinions could be wholly or substantially based was said to be required] can only be upheld by speculation and intrusion into the interior scope of the subject which the expert professes, an impermissible exercise." [emphasis added] 75 Turning to the defendants' categories of objection [MFI D39-C1-C5] the submission is that these so-called formal objections were not really formal objections to evidence but sought to have the court exercise sub silentio a discretion under section 135. 76 The plaintiffs' further submitted that a number of the categories raised objections which cannot and should not be exercised in the absence of challenge on cross-examination. The plaintiffs' submission was that many of the matters the defendants seek to raise under their so-called 'categories of formal objection' are really matters which depend upon the court reaching conclusions on the merits of the evidence, or anticipating the result of cross-examination. 77 As to the defendants' individual categories of formal objections the plaintiffs' submissions were as follows: ' Category C1 - (Bare expressions of opinion, or failure to identify any factual basis for an opinion): Most, if not all of these objections depend upon an unfair "atomistic" reading of single lines, phrases or sentences, without taking account of the context, the whole of the relevant passage of the purpose of the opinion. Category C2 - (Expressions of opinion for which the facts described do not provide a proper, rational or logical foundation): · The Court should not be asked to determine in advance of expert evidence tested on cross-examination, at the least, these categories of indeterminate reference. Probably the Defendants' expert evidence is necessary to enable the Court to make the requested conclusions. They should not be made on the basis of the Defendants' unsupported assertions or speculation. · These matters really raise EA s135 without a proper basis to enable the exercise of that discretion. Category C3 - (Expressions of conclusions where there is a failure to demonstrate their scientific or intellectual basis, or the relevant reasoning process): · The Court should not be asked to determine in advance of expert evidence tested on cross-examination, at the least, these categories of indeterminate reference. Probably the Defendants' expert evidence is necessary to enable the Court to make the requested conclusions. They should not be made on the basis of the Defendants' unsupported assertions or speculation. · These matters really raise EA s135 without a proper basis to enable the exercise of that discretion. Category C4 - (Expressions of opinion which make inappropriate use of secondary sources): · The Court should not be asked to determine in advance of expert evidence tested on cross-examination, at the least, these categories of indeterminate reference. Probably the Defendants' expert evidence is necessary to enable the Court to make the requested conclusions. They should not be made on the basis of the Defendants' unsupported assertions or speculation. · These matters really raise EA s135 without a proper basis to enable the exercise of that discretion. · Further, as submitted below, the respective and different use of the Cerulli Reports and Net Worth is proper. Category C5 - (Expressions of opinion in relation to which other witnesses for the plaintiffs have also produced expert evidence): · The Defendants have not sought to or take the Court to any evidence on this limited application to justify this assertion. The Court could not determine the matter without comparing in detail the "duplicate" evidence relied on. · In any event it is not a proper objection, formal or otherwise. 78 Albeit in misdescribing the first column of MFI D44 which purports to identify the general fields of specialised knowledge on which Mr Maconochie seeks to express opinions, the plaintiffs submitted as follows: Categories F1 to F3, and F4 (MFI D44) - (See MFI D44 for statement of categories): · The selection of these categories is arbitrary, unsupported by evidence and contrary to it. · The Defendants have not sought to or take the Court to any evidence on this limited application to justify these assertion. The Court could not determine the matter without comparing in detail the "duplicate" evidence relied on. · In any event they are not proper objections, formal or otherwise. · Furthermore, as a result presumably of the "atomistic" and arbitrary approach of the defendants, these categories appear to be based on the erroneous view that training, study and experience cannot give specialised knowledge to enable the appropriate collection and selection of facts and their assessment to base opinions on matters otherwise unknown to the expert, or involving novel subject matter in emerging markets or technology. This is not the case. See paragraph s 8.4 to 8.13 below. · Furthermore, Mr Maconochie clearly has the specialised knowledge based on training study and experience to give the evidence he does about the functionality of the AUSMAQ Service and the NAB Services. It does not depend at the level of functionality on qualifications or experience in computer science at the technical program level. The experts, for the Plaintiffs and Defendants (Professor Aitken and Mr Macpherson), simply do not approach the matter at that level or on that basis. The Plaintiffs refer to their statements Plaintiffs Vols 4, 20, and 21, and to Vol 32 (Mr Maconochie), and to Defendants' Vol 12 Tab 6, and Mr Macpherson's recent statement. See paragraph 16 below. · Further, an expert does not have to work in or for NAB or be an expert in banking to evaluate its e-commerce services. Mr Maconochie has the training and experience in (at least) the Australian, and, the Plaintiffs say, in respect of ex-Australian financial markets and products to make proper categorisation for the purposes of the functionality comparison. · Furthermore, it is erroneous to suggest (Category F4) that Mr Maconochie cannot have reference to NAB documents or contractual documents to the extent and in the manner he does: he is stating his assumptions on a clearly stated and described basis. 4.9 It cannot be said that the evidence to which the Defendants solicit the Court to apply EA s135 can clearly or unarguably be determined to be within the categories in s135: it has probative value if only as the basis for an expert's opinion and there is no danger that the tribunal of fact will use the evidence upon a basis logically and" connected with the issues in the case, or be otherwise mislead.'
Mr Maconochie's relevant professional history and background 79 Mr Maconochie has made a number of statements in which he has carefully outlined his relevant professional and background history for the purpose of endeavouring to make good the proposition that he is appropriately qualified within the meaning of section 79 of the Act, to express expert opinions on a number of matters. Certain sections of those statements were objected to in terms of form and in consequence in some cases rejected and in some cases rejected with leave granted to the plaintiffs to endeavour to adduce supplementary evidence if this could be done in admissible form. The plaintiffs then provided a further statement and this was then ruled upon in terms of admissibility. 80 Importantly Mr Maconochie ultimately and following the defendants' objection to his use of particular words, furnished in statement form the detail of precisely what he meant by using particular words. Finally Mr Maconochie gave oral evidence in-chief in an endeavour to cure remaining problems with the form in which his written statements dealing with his claim to expertise had been prepared. 81 It is important to note that procedurally the defendants had been obliged to notify all form objections to Mr Maconochie's statements so that the plaintiffs could be in a position to understand those objections and as necessary apply for leave to adduce supplementary evidence rejected on form bases if this could be done in an admissible form. However in very many cases the plaintiffs first learned of the detailed types of form objection which the defendants took to Mr Maconochie's purported statements of expert opinion when the defendants handed up their templates and then addressed in very great detail inter alia on this type of formal objection. In the result the plaintiffs have to my mind a reasonable complaint to the effect that they were met with form type objections which they had not expected at the time when the defendants' submissions were taken in relation to Mr Maconochie's demonstration of his having the necessary training, study or experience/necessary specialised knowledge to express the opinions which he seeks to express. 82 Returning to the approach of the court envisaged by the Directions on Admissibility set out at the commencement of this judgment, the defendants prayed in aid the references to the court's intent as and when appropriate to examine the admissibility of expert opinion in relation to section 135 and/or section 136 of the Act. The defendants proposition is that embraced within any such examination would be the type of questions going to form of expression of an expert opinion and transparency of reasoning processes which were raised by the defendants. Whilst this may well be the case and although the plaintiffs to my mind would always have to have assumed that areas of claimed expertise were clearly open for detailed examination and objection on every parameter, the plaintiffs have had on the run so to speak, to deal with these form matters of objection. The fact is that the exercise of taking objections to the admissibility of suggested expert opinions of a witness extends sometimes in seamless fashion to covering section 79 criteria as well as to more fundamental areas of form. And if there be some legitimate room for debate as to a misinterpretation by either or both parties of what may have been ambiguous in the Directions on Admissibility then I would favour in the exercise of the court's discretion a lenience towards granting leave to the plaintiffs to seek to adduce in admissible form, if this can be done, such of the evidence of Mr Maconochie rejected on form/expertise bases and going to functionality or to functionality comparisons. 83 Returning to the question of principle for a moment it seems to me that at least a number of the so-called formal objections which the defendants have taken to the admissibility of Mr Maconochie's statements of suggested expert opinion, squarely raise the requirement that there be shown to be a nexus between the opinion expressed by the witness and the specialised knowledge on which the opinion is said to be wholly or substantially based. It seems plain that for example where there is a failure to demonstrate a relevant reasoning process then the Court simply cannot follow the opinion or be satisfied as to how the opinion was reached and in particular as to whether or not the witness has demonstrated that the opinion is wholly or substantially based on any specialised knowledge said to be held. 84 Hence in circumstances where there is a failure to demonstrate a relevant reasoning process the court is entitled to reject the evidence pursuant to s76 of the Act on the basis that the criteria stipulated for in section 79 are not satisfied. Whether or not this approach be correct upon the assumption however, that the evidence was otherwise admissible pursuant to section 79, the court may deal with the matter pursuant to one or other sub-section of section 135 as may be applicable. Whilst it may well be also arguable that a failure to demonstrate a relevant reasoning process may mean that the evidence should be rejected at an altogether earlier stage by reason of it simply not being received (cf sections 55, 56) I propose to deal with the matter in terms of s79, primarily because of the very great width of the s55 definition of relevance. Section 135 may also be enlivened. 85 It has to be said that following the defendants' very careful attack on Mr Maconochie's several statements in terms of the form objections to his own mode of expressing his alleged background and experience, the net result of Mr Maconochie's more detailed evidence furnishes the court with a very detailed explanation and statement of his precise training, study and experience. Hence when Mr Maconochie was required for example to state what he meant by use of the word "research" in a statement his answer was: 'By "research" I mean an iterative process whereby I systematically investigated and set out the data, facts or hypotheses or theories of the situation as I understood it by writing them down in an ordered fashion. I mean by "investigated" that I conducted surveys of technical and commercial literature that appeared may contain information relevant to the components of the subject at hand, identified the sources of the information, retrieved and collected the information in both written form and by conducting interviews with personal information sources (either by telephone or in person), collated the information, inspected, examined, studied and analysed the information, compared the information to the facts or hypotheses or theories as I then understood them, marshalled them and formed conclusions and then personally repeated or supervised the repeating buy someone else of the process to the extent possible in the time imposed on or specified to me to complete the project. That is what I intend to convey by the use of the word "research" in this statement.' 86 As will become apparent this precision was sometimes absent in his attempts to express the so-called opinions. 87 In the result it becomes a fairly difficult task to physically travel through a number of statements and through Mr Maconochie's oral evidence in order to see the finished result in terms of just what it is that is before the court in relation to his claimed expertise. The plaintiffs have helpfully assisted in this regard by producing as MFI P105 [originally MFI P90 but later updated] a consolidated version including the relevant sections of Mr Maconochie's statements and relevant oral evidence. Here again the convenient course is to simply append MFI P105 as appendix "B" to this judgment. It is important to note that certain sections of the statements were treated as going no further than being a suggested summary by Mr Maconochie of the specific and detailed evidence of what he later identified. These sections are shown in MFI P105 as "….". 88 The facts set out in MFI P105 are not in issue as there was no claim to cross-examine Mr Maconochie on the voir dire. The real issue before the court is as to precisely what Mr Maconochie's training, study and experience, as identified in MFI P105 amounts to in relation to the section 79 criteria when matched as against the opinions which he claims to be entitled to express has an expert.
Unique Experience in Novel Areas 89 Before proceeding further into the specifics by way of Mr Maconochie's demonstrated training, study and experience, it is pertinent to refer to an important submission of the plaintiffs. This is that the court is here dealing with opinions which are said to, in many instances, involve unique experience in novel areas. The plaintiffs submission is that the specialised knowledge with which the court is required to deal in determining questions of expertise involve new areas of learning in relation to emerging markets. The submission is that the specialised knowledge does not involve the application of narrow expertise gained from narrow experience in established fields of knowledge. To my mind the submission is one of real substance. Naturally each set of proceedings in respect of which a person is put forward as having the necessary qualifications to give evidence of an expert nature compliant with section 79 will have to be determined on the instant specific facts and circumstances and issues raised in those proceedings. It is clearly correct that many of the issues raised in these proceedings concern attempts to express opinions as to a hypothetical world. That is to say the issues posed by the plaintiffs case require the court to closely examine a number of new or substantially new initiatives in e-commerce. The plaintiffs' case requires an assessment by the court on the evidence as to whether and if so to what extent the commercialisation of the Ausmaq Service both inside as well as outside of Australia and New Zealand would have been viable, and in terms of the loss of opportunity damages case requires the court to closely examine not only the technical parameters of relevance as to whether and if so how Ausmaq, whether or not modified, would have had the technical capacity to operate in foreign markets, but also to examine questions of the regulatory position in relation to those markets as well as the detailed structure and operations of those markets. 90 The plaintiffs emphasise that section 79 does not require that the opinion of the suggested expert be wholly based upon the necessary specialised knowledge (which is in turn to be based on the person's training, study or experience). The opinion of the suggested expert may be substantially based on that specialised knowledge. 91 In terms of the opinions which Mr Maconochie seeks to express on the equivalent or similar functionality of the NAB Services to that of the Ausmaq Service, the plaintiffs' submission is that such opinions involve unique experience in novel areas with the analogous application of suitable skills and specialised knowledge gained in past training, study and experience. The submission is that those skills and specialised knowledge must include skills and specialised knowledge relevant to: (a) the design of e-commerce systems at a functional level; and (b) the nature, structure and operation (including costing) of financial markets in Australia and at a global level. 92 The plaintiffs' submission is that Mr Maconochie is clearly a person with specialised knowledge in relation to the Ausmaq Service. The submission is that he must have such specialised knowledge if he invented it and implemented it into geographic locations in Australia and New Zealand. The submission is that the Ausmaq Service was at the time of its inception, novel and unique and that the level at which functionality identification required to be made clearly shows that Mr Maconochie is in possession of specialised knowledge concerning the Ausmaq Service based on his experience and "training", assisted by his earlier training and study in relevant respects. The submission is that in relation to comparing the functionality of the NAB e-commerce services with that of Ausmaq, if Mr Maconochie is qualified by a specialised knowledge based on his experience (assisted by his training and study) in relation to the Ausmaq Service and its functionality, he is equally qualified in respect of expressing an opinion as to the functionality of the NAB e-commerce services.
Training, study and experience - An overview 93 A shorthand version of MFI P105 which is not intended to summarise in any real depth the far more detailed material set out in MFI P90 follows. The reader is referred to the MFI for word and verse as it were. The Courts ultimate holding in relation to expertise is based on the whole of the evidence given in that MFI. 94 Mr Maconochie's professional qualifications are Bachelor of Engineering (Mech. Eng. Hons), Melbourne University, 1968. 95 From 1969 to 1977 Mr Maconochie was employed by Esso Australia Ltd during which period he worked on the exploration and development of the Bass Strait oil and gas fields. For a time during this period he was an offshore drilling engineer. 96 In 1973 he was transferred to Sydney and joined the reservoir engineering section as a reservoir engineer. Reservoir engineers determine from test data and by mathematical means, the quantity of oil and gas reserves, the best way to develop oil and gas fields, the outflow characteristics and flow profiles over time, and provide the engineering data to the production and petroleum engineers necessary for the design of the oil and gas production and processing facilities. That information is also used by the evaluation and planning engineers to determine the economics and commerce of development. 97 Mr Maconochie applied his studies in engineering at university and his training and experience and know-how gained in his employment at Esso whilst engaged in making functional and design specifications in relation to production engineering, petroleum engineering and reservoir engineering projects, and his knowledge of the chemical content and projected three-phase fluid flow and pressure performance of the Bass Strait oil and gas fields, to think of and research and specify the functions and design and work out the detail and bring into existence and establish a mathematical computer simulation of the Bass Strait production system. 98 In 1976 and 1977 Mr Maconochie worked as a senior engineer in the three-person planning and evaluation section of Esso's Production Department, undertaking the commercial evaluation of Gas Plant No 3 at Longford, the Snapper Gas Platform commercial assessment and budget submission and various oil and gas pipeline proposals. He undertook several courses given by Esso Production Research Company in the analytical techniques of profitability analysis and computer simulations of commercial appraisals. 99 Detail of a number of the courses which Mr Maconochie attended was given in paragraph 2.4.1 of Mr Maconochie's 10 December 2000 statement. [I interpolate to note that the notation 'R/Leave' was used in rulings on admissibility as shorthand for provisionally rejecting evidence but granting leave to adduce further evidence in admissible form if that could be done. In many instances supplementary evidence was then adduced and the sentences provisionally rejected were taken as read on the basis that they went no further than proving the more detailed facts stated in the supplementary evidence - square brackets are used to identify such areas] Paragraphs 2.4.4 - 2.4.9 to the statement were in the following terms: "2.4.4 I had attended all three courses [that is, the production, drilling and reservoir engineering courses referred to in paragraph 2.4.3]. The commercial evaluation course assumed an extensive knowledge and familiarity of the oil and gas exploration and production business, and the commercial drivers of that business including assessment of risk and return. 2.4.5 [In my experience the methodologies presented in these courses could be applied to the evaluation of any project or business - R/Leave and T 5061 limiting order confining admission into evidence of this sentence to witnesses use as indicated in his evidence of the methodologies in relation to projects or businesses which he has been involved in and as otherwise described in his oral/written evidence] . They were particularly applicable and critical to the oil and gas business because of the large dollar numbers involved compared to most other businesses and the risks and consequences to the company (and indeed whole economies of countries, for example, Australia), if serious mistakes were made. I say this because the methodologies involved the following matters or aspects: (a) they laid down the type and quality of information that was necessary to enable a commercial appraisal to be undertaken. This information covered a wide range of matters commonly faced by prospective large enterprises, for example, government regulation and policy parameters, the treatment of corporate taxation, foreign exchange rates, project capital costs, operational costs, depreciation, special industry tax allowances, cost of money, joint venture parameters (for example expenditure and reporting obligations), residual costs, establishment and exploration costs, minimum commitments to customers and regulators, price ranges over time, volume capacity over time, and time itself. (b) they tied the business objectives of the project being evaluated to the stated functional outcome: for example, strategic market positioning and leverage, revenue capabilities and objectives, rates of return on capital invested, payback periods, and capacity to absorb risk and adverse outcomes were tied to the functional outcome of, for example, being able to produce X barrels of oil or Y cubic meters of gas in 250 feet of water from day Y for 25 years to meet a contract with Z within a given range of sale prices and industry product price benchmarks and capacity of the market to absorb the product. (c) they set out the purpose of the project and tested the commercial outcomes against it. (d) they enabled a commercial evaluation to be made of the (version of) functional specification and an economic assessment to be made of the merits of enhancements, modifications or additions or subtractions to the key features (e) they enabled the economic impact of variations (sometimes called sensitivities or 'what ifs') in project parameters, for example, revenue projections, capital cost overruns, sale price and volumes, and items critical (sometimes called 'mission critical' or 'short or long term dependencies') to the success of the project to be to be identified and assessed. (f) they enabled 'windows of opportunity' to be identified and other insights gained and plans and projects to proposed and evaluated to take advantage of them. (g) they enabled the impact of the project on the target market and the target customer segment to be assessed. For example, the introduction of a new project, particularly a large project, may quickly dominate an industry and change the original assumptions for better or for worse. In the oil and gas industry in Australia for example, the introduction of 100% domestically produced oil and gas in Australia with different properties to imports required the oil refineries to be redesigned and large amounts of gas condensate liquid to be exported to avoid poisoning the refinery process; coal gas and briquette production became obsolete almost overnight and large amounts of LPG produced from domestic oil and gas production flooded the market and enabled petrol driven cars to be converted to cheap LPG fuel. The economic impact also had a major positive effect on the Australian economy which in turn made for policy changes which lead to a changed production pricing regime. (h) they enabled the impact of the project on access and distribution of the product and the industry to be made. For example, the impact of the start of Bass Strait oil production in large volumes in March 1970 and increasing to more than 100% of domestic consumption by 1974, among other things, transformed the distribution of hydrocarbons in Australia and the economics and will of oil companies to be in retailing, as is now more than evident some 25 years later. 2.4.6 [These matters are of general application in respect of any business, and particularly businesses that are either large or have the potential to make changes to strategic perceptions of an industry by the participants in it. For example, the strategic business objectives of the investment companies I describe below was to provide the platform for a global investment business by entering the North American market (target market) at the retail level (target customer segment). The purpose was to offer convenient investment vehicles to the target customer segment which enabled investors to participate in the growth in Australian equities and to earn a high rate of income from highly rated debt securities - R/Leave : In relation to the first sentence of paragraph 2.4.6, that sentence is allowed on the basis of an order limiting the admission into evidence of the sentence, pursuant to section 136 of the Evidence Act, that sentence being admitted and confined to the witness' use as indicated in his evidence of the particular matters in relation to any projects or businesses with which he has been involved, or which he has otherwise described in his written statements or oral evidence: T 5063 line 1. The second and third sentences of paragraph 2.4.6 are admitted into evidence on the basis that those sentences be read as limited to the witness' subjective consideration of the strategic business objectives as to the second sentence and the purpose as to the third sentence. On that basis an order pursuant to section 136 limiting the admission into evidence of those sentences is made" T 5063 line 35. ]. 2.4.7 The courses were attended by 20 to 30 people (usually all engineers) of whom a high proportion of the United States attendees had multiple post-graduate qualifications. This reflected the positions held by attendees to the courses which were mostly ones of high responsibility requiring extensive high level study and training. In my experience in Australia, the jobs held by the attendees involved significant responsibilities, in terms of engineering (and safety) and commercial outcomes. The company relied on those jobs being competently handled and the conduct and content of the courses reflected how seriously the company took them. 2.4.8 The work involved in planning, assessing and implementing 'green fields' projects ('developments') in the oil and gas industries included the following and application of the following methodologies: (a) research (as I have defined it in this statement); (b) the framing of ideas and hypotheses in relation to complex physical systems (for example, underground oil and gas reservoirs, directional drilling and production processes) in a form that would lend itself to rigorous analysis and testing; (c) the testing the ideas; (d) the application of engineering principles and practice in the preparation of functional specifications; (e) the writing of functional and technical specifications; (f) the design of projects (as I have defined these terms in this statement); (g) project management; (h) project development (as I have defined the words develop and project in this statement); (i) the assessment and mitigation of development, operational and commercial risk; (j) the management of regulatory matters and issues and compliance with antitrust and trade practices laws; (k) written communications and presentation; and (l) development management 2.4.9 [In my experience, while developments in property, asset management and financial services businesses are different to 'green fields' developments in the oil and gas and resource infrastructure industries, and the technologies are different, many if not all of these same methodologies (in which respect I refer to paragraph 2.4.8 above), in which I have training and experience, apply. In saying this, I refer to paragraph 2.4.5 above. I also say this because, (a) in property development, by which I mean making capital improvements and adding functional value to land (property), the business requires research, framing ideas and hypotheses, consideration of (market) testing, writing functional and technical specifications, project and development management, commercial evaluation and management of regulatory matters. In addition, there is the marketing of the project to prospective 'anchor tenants' and contracting them on acceptable commercial terms and the securing of external finance ; (b) in asset management, by which I mean the management of financial assets (as distinct from physical assets like real property), the business requires research, identification and analysis of addressable markets, the creation and manufacture of new products in target markets to meet the needs target customer segments, risk management and mitigation, investment and customer management and administration. The business requires consideration most of the methodologies referred to in paragraph 2.4.8, but in addition requires methodologies in securities markets, marketing and customer management. (d) [in financial services businesses, by which I mean businesses which are involved in the provision of investment, credit (for example loans), protection(insurance) and payments, the business requires the application of methodologies similar to the asset management business - R/Leave : I therefore have the same ruling in relation to 2.4.9, the whole paragraph. I reserve my ruling: T 4934 line 28. In relation to the objection to paragraph 2.4.9, pursuant to section 136 of the Evidence Act, I make an order limiting the admission into evidence of that paragraph so that the material in the paragraph is to be confined to the witness' use as indicated in his evidence of the methodologies in relation to projects or businesses which he has been involved in and which he has otherwise described in his written statements or oral evidence: T 5064-5064]. 100 In 1978 Mr Maconochie joined the Lend Lease Group as a project manager and his extensive experience during that employment including in his capacity as a development manager is detailed in the December 2000 statement. He thought up the idea and wrote the proposal for example for the privatisation of the coal transport and coal and port facilities at Port Kembla and inter alia supervised the technical assessments of the project, did the commercial evaluation of the project and wrote the functional specification and commercial assessment of the project for presentation to the New South Wales Government. 101 In about mid 1984 Mr Maconochie joined EquitiLink Australia Ltd a newly formed funds management company, as a consultant. He carried out certain work in relation to making an estimate of the value of the EquitiLink company. 102 In and after about 1984 he also began developing his own design development business relating to the development of a free trade zone in Turkey adjacent to the NATO bases in southwest Turkey. The proposal concerned development of a power station and regional coal transportation facility port. 103 In about mid 1985 he became a director of EquitiLink Australia Ltd from which time his role with this group was full time. He reviewed the original ownership structure of the EquitiLink group and reorganised that group into four sections. He researched what services and software were available in the market and contracted Digital Equipment Corporation to replace the internally based investment management and investor services computer system with one sourced from DEC. He also wrote and introduced financial flow charts and controls and reporting and computer-based accounting. This involved him personally reviewing each of these areas, writing functional specifications, writing an operating and exploration budget for the company, writing a proposal for the reorganisation to the company's board of directors, supervising and directing the design specifications for the investment management and company and customer administration systems and reviewing and approving their implementation. 104 During the period of Mr Maconochie's continued involvement with EquitiLink which terminated between about July and about September 1987 Mr Maconochie had certain experience with respect to the conception and preparation of a number of prospectuses. His evidence in chief in the witness box supplementing his written statements was very particular and very detailed in relation to this experience and the question of the relevance of this experience to his claimed expertise has been the subject of detailed submissions from both parties. The prospectuses in respect of which Mr Maconochie had an involvement were as follows: · the Lend Lease Petroleum prospectus relating to what became a listing on the Australian Stock Exchange; · the First Australia Fund Inc prospectus relating to what became a listing of a United States based investment closed-end investment company on the American Stock Exchange; · the First Australia Prime Income Fund prospectus also related to what became a listing in the United States and · the First Australia Prime Investment Company prospectus relating to what became a listing on the Toronto Stock Exchange. 105 An example of Mr Maconochie's involvement with the First Australia Fund Inc throws up the following: Mr Maconochie did not conceive the original idea, however, he devised the means by which the Fund was realised and established and successfully implemented the plan within a stringent US regulatory regime. In developing this idea, he: · founded the investment management company EquitiLink International Management Limited in Jersey Channel Islands; · "thought about and researched" how such a US-based fund would be managed from a base in Australia; · visited New York to discuss the matter with Bear Stearns and Co.; · met with representatives of Pru-Bache and Bear Stearns who agreed to underwrite the US investment company; · compiled and wrote the submission to the then SEC for a dealers licence; · appointed Price Waterhouse in the US as the Fund's auditors; · visited Boston to negotiate the custody contracts; · met with the President of the American Stock Exchange to arrange for the listing of the new investment company on the American Stock Exchange; · negotiated tax clearance arrangements with the Australia Tax Office; · met with the Jersey Road Court officers several times; · met with US investment advisers to answer questions about the scheme; and · received information about fund administrators, transfer agents, registrar agents and custodians. 106 In producing the Fund's prospectus, Mr Maconochie researched everything he could find about the organisation of the US securities markets. He also liaised with Pru-Bache and the lawyers in New York as to the content of the document, and made several visits to New York to finalise the details. 107 Mr Maconochie was also involved in the promotion of the prospectus and prepared summary materials for a series of presentations that took place in the US. He attended these presentations as a representative of the company, and answered questions about the company and its capability to undertake the role that was proposed in the management and advisory functions of the fund. 108 When operations commenced in mid-December 1985, Mr Maconochie was responsible for EquitiLink International meeting the compliance requirements of the Jersey, US and Australian tax and regulatory authorities. He was also responsible for and personally supervised all matters involving the establishment of the company (except the road show for the investment fund advisers). 109 He wrote operational procedures which would govern the management operations in Sydney, Jersey and Boston in accordance with the US Investment Act 1940 and thereby became acquainted with US tax and securities laws. He spent 6 weeks with lawyers in New York learning about these matters as well as the accompanying accounting and reporting and compliance procedures. 110 Mr Maconochie also negotiated and signed the underwriting agreement. He instructed on all regulatory matters, and took on the role of Treasurer and Chief Financial Officer of the Fund whilst supervising all the operational procedures. He also drafted Board papers and quarterly reports to shareholders and devised and established the management contract review process. (Mr Maconochie's Additional Statement (10 December 2000), paragraphs 2.9.13-2.9.40, see also T4973/36-T4980/15) 111 For approximately two years between 1987 and 1989 Mr Maconochie was involved in the sailing of his yacht. 112 Mr Maconochie sought to give evidence that: (a) between 1989 and 1995 he conceived, and developed and created what he has described as the on-line, securities and investment transaction, information and portfolio administration and reporting service known as the "Ausmaq Service" [paragraph 5.3 of his second statement dated 20 November 1998]; (b) in 1989 and 1990 he conceived, developed and created the first forerunner of the Ausmaq Service which was known as the Electronic Funds Marketing Service-"EFMS" [paragraph 5.3.2 of the second statement dated 20 November 1998]; (c) he conceived and designed the EFMS for his company Investors Buying Service (IBS) Pty Ltd and that the functional specification was written at his direction and under his supervision. 113 As earlier indicated, following objections taken to the plaintiffs' attempt to read so much of Mr Maconochie statement as set out the matters referred to in subparagraphs (a), (b) and (c) it became necessary for Mr Maconochie to give very detailed evidence as to precisely what he was referring to in this regard. That evidence became subparagraphs (a) - (n) at pp 64 - 67 of Mr Maconochie's 10 December 2000 statement in the following terms: '(a) I thought up the idea of EFMS which I have described in paragraphs 5.3.3 - 5.3.6 of my second statement. (b) [I conducted research into the then current state and direction of communications technology, data base performance, data bases and data base suppliers, computer operating systems and suppliers, computer and telecommunications facilities operators, consumer hardware items such as modems, printers and PC's, the messaging technology of the day, the identity and capabilities of the software design and construction houses of the day, the identity and capabilities of software and hardware prime contractors and facilities operators, prospectus delivery regulatory requirements, the structure and operating norms of the Australian financial services industry and the main participants in the financial services market. - following oral evidence this paragraph was made the subject of an express S.135 order permitting it to be read as only admissible as a summary of the further evidence; Grant the plaintiffs leave to read that subparagraph upon the basis that it is to be read as no more than identifying the specific matters which the witness has now given evidence he personally was involved in. Subparagraph 5.3.2(b) is now allowed on the basis I have just indicated: T 5084 line 54. ] (c) I wrote the detailed flow charts and diagrams and operating relationships which formed the initial functional specification and business model and business plan. (d) I negotiated and completed an agreement with the head of Telecom's value added services for Telecom to be the prime contractor to construct and project manage the building of the EFMS service to my functional specification and design for my company Investors Buying Service (IBS) and to provide the telecommunications and computer facilities under a facilities management agreement with IBS which I wrote. (e) I wrote the construction sub-contract that I required between Telecom and its main subcontractor (Cybersoft Pty Ltd). I personally supervised the conduct of that subcontract through the Project Control Group which I chaired. (f) I made the necessary additions and enhancements to the functional specification that I required to fulfil the business objectives and purpose of the proposed service and reviewed in minute detail every version which was compiled and produced under contract to IBS by Syscorp Pty Ltd. (g) I researched and selected the type, make and model of the computer operating system (Kodak's Unix) and the data base (Oracle) and reviewed the performance and operation of Telecom's proposed computer facilities. (h) I negotiated with the Chairman of the NCSC Mr Henry Bosch and his officers to enable the proposed EFMS service to distribute prospectuses electronically and obtained regulatory approval from the NCSC to do so. (i) I instructed my solicitors, Mallesons, in matters of contract and regulations in relation to IBS and the operation of the proposed business. (j) I developed (as I have defined the word in this statement) the project using the methodologies and practices I had experience in and which I have referred to above. (k) I required that a project manager be engaged (Telstra engaged PA Consulting) to manage the detailed design and construction of the project according to the practice and principles I have referred to above and which I believed on the basis of my training and experience were necessary. (l) I planned and conducted the marketing and presentation of the EFMS Service to funds managers.
(m) [I estimate, based on my experience, that in major undertakings, and particularly new undertakings, the software component, in terms of the project overall, is in the order of 10-20% (which is mainly the task of skilled technicians). I refer in this respect to JMG170 at page 2232 which shows the component stages of the software projects in the 1997 JMG Business Plan. - Reserve Leave ; paragraph 5.3.2(m). The paragraph is allowed on the basis that the statements in it are read as limited to the particular experience that the witness has given evidence he has personally been involved in during the course of his statements or oral evidence: T 5087 line 15 .]
(n) The hierarchy in the development of software is functional architect, application architect and system architect. In relation to the EFMS project and development, I was the functional and application architect who set the parameters and boundary conditions for the system architect. I was the also the development manager of the project. The customer was IBS.' 114 Subject to the rulings as to admissibility paragraphs 5.3.10 - 5.4.4 of Mr Maconochie's 10 December 2000 statement were in the following terms at pp 67-75 of that statement: '5.3.10 In November 1990, I conceived the idea of an exchange to trade units in unlisted property trusts as the impetus to establish a new independent market trading system that I called the Australian Unit Exchange. (p) [I researched (as to the meaning of which I refer to paragraph 2.3.2): (i) the operation of the Australian Stock Exchange and in detail its methods of market surveillance, its rules and regulation, the laws that governed stock exchanges and clearing houses in Australia, their ownership structure and their funding, and their membership structure and operation; (ii) how the ASX's SEATS exchange trading system operated and how the ASC cleared and settled trades; (iii) the ASX's trading operations and trading volumes and spreads, and its efficiency relative to other stock exchanges in the world - this paragraph was made the subject of an express section 136 order permitting it to be read as only admissible as a summary of otherwise disclosed evidence - T 5088 line 12] (q) I wrote a preliminary functional specification and held discussions with the NCSC/ASC about its policies towards exchanges.
(r) I prepared and delivered presentations to fund managers who I hoped to attract to list on the System.
5.3.17 My observations of the market place indicated to me that the Australian funds management industry, and indeed, the financial services industry worldwide, was becoming increasingly consumer driven, with commodity manufacturers and managers of products polarising on the product supply side, and intermediaries on the demand, or customer side. (s) [I researched (and I again refer to paragraph 2.3.2) the current state of the funds management industry in Australia and the US, reviewed the information and drew conclusions - relevant oral evidence and transcript references were as follows: I would reserve and grant leave: T 4940 line 43.
Q. What did you do to research the matters you've referred to there ? A. I went down to Dymocks and went to other book shops in the city that I no longer recall the names of, but in close proximity to the court. I purchased a number of books on the development and history of the stock exchanges in the world and their membership and how they interacted with the market. I obtained publications from the Investment Funds Association. I might say the books that I purchased also covered the US and other jurisdictions in the world as to the structure of the funds management industry . Again, I requested information and obtained it from ASIFA in the similar sort of information that I've previously given evidence on. Then I, as I say, studied that, examined it and thought about it and in some cases I telephoned people who are either mentioned in those books or people who I had been referred to by other fund managers or dealers, or people who were providing technical support to the Australian Stock Exchange.
A. Yes. One was a book on the History of Global Markets and Stock Exchanges which comes out in successive editions. It was an edition which had been updated over the years and it was a current book. I was able to obtain information from the United States in relation to National Association of Securities Dealers, or NASD. I was able to find information about the operation of NASD's automated quotation system called NASDAQ and the history of its development and how it was regulated and the algorithms that those exchange systems used to match orders and obtain a price (T 5089)
Q. Now, you then said you reviewed the information? A. Yes. Q. What did you do to review that information ? A. Well, I spread it out on the desk and read it and made notes and looked at - really absorbed that information, I suppose. The best way to put it is I made an appreciation of the information there and was able to form certain views. It was an iterative process. As I found out more, I sought more information until I felt some idea as to what was happening.
Q. Mr Maconochie, I'm not asking you what the opinions or views you actually formed were, but can you say in relation to what sort of matters did you form conclusions or views as a result of -- A. Consumer and regulatory matters. (T 5090)
GARNSEY: Q. Mr Maconochie, what period are you speaking of in relation to 5.3.17(s)? A. In about 1991. Probably I could be more specific, probably around mid-1991 through to the end of 1991. (T 5091)
GARNSEY: Q. Mr Maconochie, in relation to the information you were obtaining in this period, that's the second half of 1991 more or less? A. Yes.
Q. In relation to the United States ? A. Yes.
Q. You've referred to a book that you received? A. Yes.
Q. Did you obtain any other information concerning the United States? A. Yes, I did.
Q. What was that? A. I got information on NASD, which was by fax. It was about half an inch thick of pages on NASD rules and information that was current about NASD and their systems that they were proposing, and I also rang the NASD. I don't recall the officer I talked to there, but they provided certain other information. Then shortly after that, Bob Hardiman, who was the president of NASD, visited Australia and I met with him and I orally asked him some questions about the development of NASDAQ which were their system, how they were going about it, who was doing the work, how many dealers they had on the system, the types of machines they were using, the problems they were experiencing and where they thought their exchange was going in relation to, for example - in particular actually, the New York Stock Exchange.
Q. What information did he give you, if any? A. He told me the names of various contractors, I don't recall them now, that were working on the system, the suppliers of the machines. I recall one quote. He told me that changing it was quite difficult, given the loads that they had. He likened it to changing the engine of a 747 in flight. But he was quite forthcoming as to -- (T 5092)
Q. Apart from the book, the NASD information and the information of Mr Hardiman, did you receive any other information or obtain any other information concerning the United States? A. Yes, I obtained some information on research companies that researched stocks, how they went about it and how they interacted with dealers in relation to that research.
Q. In what form was that information? A. That was written. It was brochures. It was from a New York firm who specialised in researching companies and providing it to dealers so they could assess the value of the stocks.
Q. Was there any other information concerning the United States that you obtained? A. No, not at that stage that I recall.
GARNSEY: Q. Could you inform his Honour what the organisation was that you referred to by that acronym? A. I will have a go at it, Mr Garnsey. I think I discovered a document, but I think it stands for - and I may be corrected on this - I think it's the Australian Society of Investment Planners , but I would have to look it up. I can supply that because I have a document that states it.
Q. Is that in the document you have produced in answer to the defendants' notice to produce? A. Yes, it is.
I allow paragraph 5.3.17(s) of Mr Maconochie's statement on the basis that it is to be admitted as a shorthand summary rising no higher than the witness' statement of the specific matters which he says constituted research and has given evidence of in his oral evidence or statements: T 5093 line 15. ]
5.3.18 In about June 1992, I determined to develop a new functional specification for an AUSMAQ production system that would satisfy the needs of the missing market place mechanism.
5.3.19 This knowledge had been gained, initially, through my experience and observation of trends as a successful funds manager in Australia and developing and operating large investment companies in the United States for investors in North America and Europe and my subsequent experience with EFMS and the Registry of Record described above. As I developed the foundation concepts into a functional specification, I tested them by discussing them with a wide range of Product Suppliers, Dealers and Customers.
5.3.20 By December 1992, I had developed the new functional specification for the production version of the new Ausmaq System. In [doing so I]: (t) [I researched the current state of the funds management industry in Australia and the US, reviewed the information and drew conclusions. These conclusions gave me the basis for writing a functional specification which I decided to write. - relevant oral evidence and transcript was as follows: The same ruling as 2.10.20(c): T 4940 line 41. (T 5093)
Q. Mr Maconochie, could you turn to page 69 of your statement at 5.3.20(t). You say in that paragraph you researched again the current state of the funds management industry in Australia and the US , reviewed the information and drew conclusions, speaking as at by December 1992? A. Yes. (T 5094)
GARNSEY: Q. In relation to 5.3.20(t), what did you do to carry out the research you've referred to there? What information did you obtain and in what form? A. The information --
HIS HONOUR: Q. That's by December 1992; i.e., I don't know if this was the problem, but if you just told us a whole lot of what is already covered, I think you can tell us that and then add to it if there's anything to add. You may assume by Mr Sackar's assent that there's no problem with that. The question is --
A. No, I didn't duplicate what I had done before. I added to it by seeking information. I telephoned research houses and researchers who I knew. I asked them -- Q. Pausing there, what research houses did you telephone? What researchers? Can you recall them? A. The actual individuals, I think, were - I think there was one that comes to mind, Purvis Van Ike. I forget whether it was called that then, but one of those individuals, for example, there was another firm, one of the Sealcorp subsidiaries, Assirt, and there was another one in Brisbane called - it was run by a gentleman by the name of Royson James. I always forget the name of it. It was subsequently purchased by Perpetual Trustees.
They were the main sources of information for the industry and also the Investment Funds Association. I telephoned each of them and asked them for their current publications on the applications and redemptions in the funds management industry, the size of the various sectors such as cash, fixed interest, equities, overseas equities, property funds, mortgage funds and those types of sectors, the inflows and the outflows, the management fees and the fees being charged by the fund managers, the fees being received by dealers, the projected growth rates.
In addition, I also talked to people, for example, Bankers Trust Australia and also Perpetual Trustees and Permanent Trustees as to the state of their technical or support systems, computers and telecommunications, that sort of thing, and also sought - I sometimes didn't receive it, but I asked the question of people like Bankers Trust Australia as to what their business model was and as far as I could, try and find out what they planned to do. I think that probably summarises it. What I sought to do was to find out the size of the addressable markets and whether they were growing, the state of health of them and (T 5095) whether it was a good area to be addressing and how one might go about that.
Q. Mr Maconochie, those inquiries you made, were they in relation to Australia only or in relation to the United States? A. This was in particular to Australia at this time.
Q. In relation to the inquiries about Australia, what information did you receive? In what form? A. It was written and it was in the form of reports and it covered the information that I've previously just described.
Q. In relation to the United States, as at this time, what did you do to research in relation to the United States? A. I telephoned some of the suppliers to the funds, people like State Street, Bank of New York, some of the dealers such as Prudential and also the investment manager of the funds in Jersey and asked them to provide current information . As I recall, the information that I received was fairly superficial because my main concentration was on Australia and I wanted to use the information in Australia. It was a fairly general inquiry.
Q. In relation to the information you received at that time, what did you do to consider it or review it? A. I compiled tables and on the basis of that, wrote an information memorandum which I used to talk to prospective investors in the company.
Q. In relation to the United States information you obtained, Mr Maconochie, are you able to recall - when you referred to it as superficial - its content or subject matter? A. It was similar to the sort of information that I researched in about mid-1991. There were particular things that I wanted to check to see if it was current or if they still applied .
Q. Dealing in what sort of matters, are you able to say? A. More exchange systems in relation to exchange systems . (T 5096)
GARNSEY: Q. In relation to the review of the information, and you gave some evidence as to what you did for that, you then say you drew conclusions. In relation to what sorts of matters did you draw conclusions? I'm not asking you to spell out the conclusions, just to say in relation to what sorts of matters you drew the conclusions? A. The relative power of the consumer versus the supplier, the regulatory aspects and the application of technology.
Q. Now, after you had drawn those conclusions, did you do anything in relation to preparation of any documents? A. Yes.
Q. What did you do? A. I wrote a document called an information memorandum.
Q. Did you write any other documents as a result of those conclusions? A. Yes, I wrote a number of documents, one was called a - it might not have been exactly this, but it was a vision specification, and I could describe the general content of that as being where I thought the funds management and exchange systems were heading in relation to consumers and technology and regulation.
Q. You've referred, then, to an information memorandum and a vision memorandum. Are there any other documents you wrote after reaching those conclusions? A. I wrote a policy statement at the request of the Federal Attorney-General's Department, that was for Mr Jim Murphy, to provide to the minister.
Q. Are they all the documents you wrote as a result of reaching your conclusions? A. I wrote a document at the request of the Australian Securities Commission which was circulated to, as they said, interested participants in the industry and that was the basis of a public hearing. I recall that was in about April or May 1992.
GARNSEY: If your Honour pleases, I press 5.3.20(t), limited to the evidence given .
On the same basis, paragraph 5.3.20(t) is admitted as, and doing no more than, a summary of the evidence the witness has now given orally and has given in his statement: T 5096 line 53. ] (u) I drew on my experience as a founding director of one of the most successful publicly listed fund management companies in Australia. (v) [I drew on my experience in establishing and managing successful investment companies with operations in Europe, the US, Canada and with market research activities in Japan, Hong Kong, Bangkok and Singapore. - relevant oral evidence and transcript was as follows: I reserve and grant leave in relation to 5.3.20(v): T 4941 line 3. (T 5097)
Q. You say there you drew on your experience on establishing and managing successful investment companies with operations in Europe, the US, Canada and with market research activities in Japan, Hong Kong, Bangkok and Singapore; do you see that? A. Yes. (T 5098)
Q. Now, in relation to 5.3.20(v), Mr Maconochie, what did you do to establish and/or manage investment companies with operations in Europe, the US or Canada? If you are able to refer to previous evidence about activities, do so. A. If I could, I would merely refer to the evidence I gave in relation to the two US funds at that stage, the Canadian fund and in relation to Europe, the sale of the Canadian prime investment company to European investors and the management of the customer interface through Morgan Guarantee in Brussels in relation to the bearer stock.
Q. Did you intend to convey by reference to market research activities that they were activities of the companies you referred to in that paragraph? A. Yes.
Q. What involvement did you have in relation to those market research activities or do in relation to them? A. Each quarter I was required to compile an investment report for the investors for the US and Canadian companies and to make inquiries to the Prudential Insurance Company of America who provided research, and also to Nikko in Japan, who manage money for the company and who also provided research, at least for Japan. I don't recall what other it supplied. That information came in as a matter of course in relation to certain research houses.
I don't recall who they came into, but they came into an economist, Hugh Hodgers, at the company and I would review that information, ask him questions as to what it all meant, and write a report for investors as that information or at least a first draft of that report as to how I thought that information applied to the companies in the United States and Canada.
Having done those reports, I would then provide them to the investment managers who were responsible for the detailed investment management operations of the companies to see what they thought of them and finally produce a report that was substantiated in the research that had come from those various areas of the world. I would then send that off to Prudential Insurance Company of America and also to the research analysts at Bear Stearns. I recall it also went to Nikko and they would put in their (T 5099) comments which would then be incorporated into a report.
I would then compile a report for the directors of the US and Canadian funds and they would be included in the board papers. The short reports were provided to the investors as to the Australian outlook and how the Australian outlook for the investments of those companies in Australia might be impacted by global trends. I relied on information provided from the in-house economist Hugh Hodgers and also from the various research houses to write those reports.
Q. Mr Maconochie, what sort of matters did the information you received from Prudential and others and through the analyst in the EquitiLink organisation, what sort of matters did that information deal with? A. Mainly economic matters and how those economic matters might impact on markets and whether the markets would go up or down. That was basically the thrust of them.
GARNSEY: If your Honour pleases, I press 5.3.20(v) as limited to the evidence given.
Paragraph 5.3.20(v) is admitted into evidence on the basis that it is a summary, and no more than that, of the evidence which the witness has now given and has given in his statement.] (w) I used the same methodology as I had used previously and which I have described above in relation to the oil and gas and funds management and investment industries to research, develop and establish the AUSMAQ business, starting with writing the functional specification…. 5.3.26 [I subsequently implemented this strategy and it worked. - R/Leave] (x) In relation to commercial implementation of the proposed business I focused on contracting an "anchor tenant" in order to provide initial order flow and liquidity. The anchor tenant was Bleakleys.
5.3.33 From December 1993, I undertook the role of system development director, responsible for the design, construction and commissioning of the software and peripheral support systems that together would comprise the Ausmaq production system.
5.3.34 . . . I also began assembling the technical development team, and purchasing and commissioning the SUN development computer and other equipment and specialised software that would be necessary for the construction of the Ausmaq Production System.
I reviewed the Shares system and concluded it was, and would be, a first class system and attract good custom from stock brokers. (y) [ I researched the design and technical and commercial operation and many of the rules of the various stock exchanges around the world and their interaction with markets, including the New York Stock Exchange and the exchange in the US owned and operated by the National Association of Securities Dealers ("NASD") and known as the NASD Automated Quotations system or NASDAQ. NASDAQ incorporates NASD's main trading system known as the National Market System ("NMS"). I examined and researched the history of the stock market in the world, products traded, its structure and operation, techniques used by shareholders and traders, globalisation of the securities business, electronic trading, regulatory changes and trends, program trading and market strategies . - relevant oral evidence and transcript is as follows: The ruling is in the same terms as the ruling in relation to 2.10.20(c) [ reserve and grant leave ]: T 4941 line 39. (T 5107)
Q. Now, in subparagraph (y) on page 71 which is objected to, you refer to researching the design and technical and commercial operation and many of the rules of various Stock Exchanges around the world? A. Yes.
Q. Do you see that? A. Yes.
Q. When did you do that in relation to (y)? A. It was a continuous process . I gave some evidence yesterday of some work that I had done on researching the rules of NASD and NASDAQ and the public hearing that the Australian Securities Commission had required be held into the proposed AUSMAQ System and the proposed changes to the law that were to be requested of the parliament. From time to time I telephoned the Securities Commission and asked them for any relevant information that they had on exchanges and their policies . I telephoned the Australian Stock Exchange and received, often without requesting it, information about their CHESS system, or proposed CHESS system as it was then, their SEATS system and the various stages that that system was at.
I also requested regulatory information from the Federal Attorney-General's Department, Mr Murphy, Jim Murphy, and also from the Trade Practices Commission and I dealt with Mr John Broom at the Trade Practices Commission.
Q. Did you do anything with that information you received? A. Yes, I wrote from end to end a set of rules for a stock market proposed to be operated by AUSMAQ. I wrote certain submissions to the Federal Attorney-General's Department and also to the Australian Securities Commission and the Trade Practices Commission. Q. Could I ask you this: are they the matters you refer to in paragraph (z) and following after (y)? A. Yes, in relation to paragraph (z), that's correct - and (aa), that's correct. (T 5108)
GARNSEY: When you say a continuous exercise, can you say when it began and relate that to your evidence yesterday without going through it again and say over what period? A. Yes, Mr Garnsey. It started at the beginning of 1991 and the public hearings - in relation to public hearings, they were held in April and May 1992. In latter 1992, I added to the draft rules and in 1992/93 was involved - did the work in relation to the Trade Practices Commission and CHESS, the ASX's systems. From time to time, I would make inquiries to see what, if anything, had happened on my original understanding based on the information I got in 1991, I think it was on NASD and NASDAQ.
In 1994, I drafted with the Federal Attorney-General's Department the proposed changes to the Corporations Law which were to be put before parliament, as I recall, in mid-1994, which in fact happened. Also at the end of 1994, the final rules for surveillance, the Attorney-General's Department sent those to me and asked me to review them. I read them. I provided some comments to the Attorney-General's Department and my recollection is they were passed into law on 1 January 1995. (T 5109)
Q. Did you do anything to examine and research the history of stock markets in the world apart from what you've already given evidence about ? A. Yes.
Q. When and what did you do? A. In about 1994 and also 1995, I sought and obtained information on the London Stock Exchange. They had a system, as I recall, called Crest and the development of the London Stock Exchange's proposed new trading system. I also talked to the prime contractors and the suppliers of computers to NASDAQ. NASDAQ - I knew about those people because NASDAQ had referred me to them and provided introductions to them and I asked them - one of the pieces of information I sought was, for example, how did they log-on , I think some 200,000 dealers in the space of 15 minutes each morning on NASDAQ and the sorts of systems and computers they were using to undertake those tasks . As a result of that, I talked to their contractors , I think - I just don't recall the names of them, but they had representatives in Sydney and I recall a number of conversations and they made presentations to myself personally and some of my technical colleagues as to what they thought would need to be done that would scale the system - the AUSMAQ System to support a NASDAQ size or New York Stock Exchange size operation.
Q. Is that all you want to say in relation to stock markets at that stage? A. I think there was only one other thing. I investigated the Reserve Bank, it became known as the RTGS or Real-time Gross Settlements System, and I proposed to use the AUSMAQ System as the basis for a bid to build and operate the RTGS system for the Reserve Bank.
HIS HONOUR: Q. Which Reserve Bank do you mean? The Australian Reserve Bank? A. The Reserve Bank of Australia, your Honour. (T 5110)
Q. In relation to products traded on world stock markets and the structure and operation of stock markets, did you do anything by way of examination or research at that time? A. I don't recall, as I speak now, Mr Garnsey; nothing comes to mind at the moment.
Q. In relation to techniques used by shareholders and traders in relation to stock markets, did you do anything at that time by way of examination or research? A. Yes, the work I did was to examine the - at least insofar as Australia, I didn't examine the laws in other countries, but I did in Australia - to determine the ability for me to operate in the broadest sense, or establish I think is a better word, a Stock Exchange that was privately owned and not owned by its members and to set out the rules and the agreements that would be necessary for dealers, and I use the word "dealers" generally. By that I mean stockbrokers, financial planners and intermediaries acting on behalf of clients, to contract with that company operating facilities that supported stock markets and also to list products or securities on that stock market facility.
Q. In relation to globalisation of the securities business, did you do anything by way of examination or research in relation to that matter ? A. Yes.
Q. Can you explain, first of all, what you intend to convey by the words "globalisation of the securities business"? A. Yes. (T 5111)
HIS HONOUR: Q. Mr Maconochie, can you give us the date to which you are referring before answering the further question? A. Yes, your Honour. The sentence as it appears in (y) is rolled up because the review of the Shares System took place in late November/December 1993 and the contracts that I wrote were in January/February, I think they were concluded in February or March 1994. In relation to products themselves, that was undertaken - I undertook that between mid-1994 and mainly through 1995.
What I did was to telephone product suppliers, fund managers and to ask them how they organised their business so that a security could be offered - first of all, yes, how they organised their business so that they could offer a security - the same security or substantially the same security in a number of legal jurisdictions; for example, the United States or Hong Kong or Australia or the UK and how they organised their business to manage the manufacture of those securities and the management and marketing of those securities .
HIS HONOUR: Firstly, when was it that this was taking place? A. What I'm talking about now, your Honour, about the detail of how those securities and the companies were organised to provide those securities, that was mainly in 1995.
Q. What did you do which you have thumbnail sketched as an examination and research at that point in time of what you have said was globalisation of the securities business? What did you actually do? (T 5112) A. I telephoned in the main foreign - when I say "foreign", companies whose main domicile was outside of Australia. I asked them to send me information about their products and about their organisation . I invited them to visit me at AUSMAQ's business in Sydney and on a number of occasions, people such as the head of - I just don't recall his name, it might have been Tom Brennan, but people such as MFS, I think, in Boston; Fidelity, later on in 199 - this was a continuing thing right through 1997; the head of Vanguard; Merrill Lynch in Sydney and asked them much the same question which was the nature of their securities, how they were marketed, how they were managed.
GARNSEY: Q. Did you receive any information from the sources you've just mentioned ? A. Yes.
Q. What was that information ? A. It was written information about the products and the companies and how they managed those products and manufactured them and marketed them.
Q. Did you do anything with that information ? A. Yes. I compared that to the proposed method of listing in 1995/96, the actual method of listing on the AUSMAQ Service . I provided that information to those companies and requested them to consider listing their products on the service. (T 5113)
A. The information I received were product descriptions of each of the products and how that product fitted into the manufacture or the supplier or manager of that product , I use that word interchangeably, but it was the fund manager who owned or managed that product and how the product could be sold in different jurisdictions and the extent, if any - I sought the extent and I received the extent, if any, that those products were different from one jurisdiction to another and who in the organisation in the different jurisdictions - sometimes that wasn't supplied, but in other cases it was - who the individuals were responsible for those products, who was responsible for marketing it and what they required of my company - that was AUSMAQ - to list their products or to consider listing their products .
I think probably I've described the - albeit purpose in general terms - the information that I received, but that was the genera of the information that I sought and received.
Q. Mr Maconochie, in relation to inquiries you made in respect of jurisdictions outside Australia or countries (T 5114) outside of Australia, in respect of what countries did you make inquiries ?
A. The United States, or fund managers whose head offices were in the United States and also New Zealand, and those companies also had Hong Kong offices, so that -- HIS HONOUR: Q. Mr Maconochie, you say that you spoke to persons in the United States? A. Yes.
HIS HONOUR: Q. Are you able to tell us what the information is which was imparted to you or not? A. Yes, your Honour. (T 5115)
Q. Mr Maconochie, you were being asked about what inquiries you made in respect of countries or jurisdictions outside Australia? A. Yes.
Q. So can we take that as the general area? A. Yes.
Q. Secondly, can I ask this: whom did you make those inquiries of? A. Yes.
Q. Can you give a list to the best of your recollection? A. If I just understand, you want the jurisdictions and the people?
Q. No, just first I want the people. A. Okay. In the United States, Morgan Stanley. I'm recalling them as I sit here. I'll try and recall them. Massachusetts Financial Services, Fidelity, later in 1996 Vanguard, Merrill Lynch. In Japan, Nikko and Nomura Securities and I think it was Nikko Securities. In Europe - I use the word "Europe", continental Europe, ABN AMRO . Some of those companies had representative offices --
Q. You can't say what your understanding is. A. Yes, Mr Garnsey. (T 5116)
Q. You have mentioned companies in the United States, Japan and Europe? A. Yes.
Q. That's continental Europe. Did you make inquiries of any other companies? A. HSBC in Hong Kong, Barclays in the UK. There may have been others, but I don't recall them.
Q. Now, in going back to the United States, in relation to Morgan Stanley? A. Yes.
Q. What inquiries did you make? A. I inquired as to what products they produced for retail markets or which were suitable for retail markets and I asked them for details of their tax clearances .
Q. What information did you receive, if any? A. They provided me with folders of information prospectuses and, in particular, Morgan Stanley provided me with documentation which concerned their tax advice and tax clearances for those products to be marketed in Australia.
Q. Now, in relation to Massachusetts Financial Services, what inquiries did you make? A. I telephoned the local representative and the head of MFS visited with me in Sydney and the information he provided was, in the main, oral. (T 5117)
GARNSEY: Q. Are you able to describe the nature of the information that you received from Massachusetts Financial Services, Mr Maconochie? A. No, I can't, but the reason is that I asked for it and I went into hospital and there was a video conference with the head of MFS in Boston and certain information was provided, but I never did catch up on exactly what they did provide.
GARNSEY: Q. In relation to Fidelity , what inquiries did you make? A. I asked them for their product list, prospectuses, I asked them for the details of their proposed operation in Australia from Richard Dark, who is the managing director of Fidelity in Australia, and details of what he required for AUSMAQ to interact with their administration in the UK , as I recall, and any objections they may have had to our settlements agreement for their products. I also asked them for their pricing of their products and for copies of their information memorandum. They had wholesale products and proposed prospectuses.
Q. Did you receive any information? A. Yes.
Q. What was the nature of that information? A. It was written and it covered, to some extent, the information that I've just stated that I requested.
Q. In relation -- A. Some of it was oral also.
Q. In relation to Vanguard , what inquiries did you make? A. Very much the same as I asked of Fidelity and also their corporate structure and their methods of marketing, the extent of their research and development and what they were spending it on and what they proposed to do in Australia , and who their new managing director would be who was to be Jeremy Duffield in Australia.
Q. Did you receive any information? A. I received some. Whatever I received it was written, but I don't recall the extent of it or the content of it. Q. In relation to Merrill Lynch , what inquiries did you make? A. I telephoned the local representatives of Merrill Lynch. I met with them and I asked them for much the same information that I've recorded that I asked of Fidelity and the other fund managers. Q. What information did you receive? A. I received some --
Q. If any? (T 5118)
A. -- written information as to their products. They provided, as I recall, several prospectuses that they proposed to launch in New Zealand. They gave me some information of their proposed financial planning operations and they provided some information - this would have been about 1996 - on how they planned to operate their dealer group when they bought McIntosh Securities and I think that was around mid-1996.
Q. In relation to Nomura Securities , what inquiries did you make? A. I asked them what products they were selling in Japan , the public disclosure documents, and their details of their Australian operation. I asked them how that interacted with their operation in Japan and what their plans were for Australia.
Q. Did you receive any information? A. Not much , as I recall, Mr Garnsey.
Q. Are you able to describe the nature of it? A. Yes, I had, as I recall, several letters, but not much information was provided. It was letters of a general nature describing their operation, but I have to say it wasn't terribly helpful to me or it wasn't really what I was seeking.
Q. In relation to ABN AMRO, what inquiries did you make? A. I asked them for prospectuses for their European operations . I asked them for their prospectuses that they had registered in Hong Kong . I asked them for details of how they managed their investments around the world, that's investment management of their products around the world, and how they marketed those products. I asked them for the disclosure documents in the European and Hong Kong jurisdiction. I asked them for any arrangements they had come to with the Australian Securities Commission to distribute those products in Australia and later in mid to late 1996, I asked them about their operations in the 11 am call market in Australia which was for cash. Q. What information did you receive, if any? A. They provided me with quite extensive information on the prospectuses and the products that they sold in the United States . I didn't ask for that, but they provided it, as I recall, Europe and Hong Kong. They provided me with the performance of those products in the various jurisdictions . They put me in contact with their investment manager who resided in Hong Kong as to - that was in relation to the question I asked about where the investment products were managed from and how they were managed , and I received certain oral information. I received performance information on the funds and some written information and oral as to how they proposed to go about establishing a funds management operation in Australia to sell the products from other jurisdictions which included Hong Kong. I also received information as to the volumes of business they did on the 11 am call (T 5119) market and how they would propose listing a product on AUSMAQ for cash. That was in late 1996 in relation to cash and early 1997.
Q. In relation to HSBC, what inquiries did you make? A. I telephoned Chris Ryan in Hong Kong who was the investment manager for HSBC in Hong Kong and asked him to send down the prospectuses and details of HSBC's retail operation. I asked them for - this was in 1996 - details of their electronic commerce operations. I asked them for details of their sales and customer relationships and how they had gone about doing that. I asked them for the prospectuses that they had in Hong Kong and how they related to their products in Australia, and I asked them to introduce me to their local head in Australia.
Q. Did you receive any information in relation to those requests? A. Yes. They provided written information in the form of brochures and some semitechnical-type information as to what they were doing in Hong Kong on electronic services at the retail level, the products that they had in the form of prospectuses. Their local operation in Australia provided me with all their prospectuses, the performance of them and, as I recall, some information about what they proposed to do. Some of that was in a written form. Some was in an oral form.
Q. Now, in relation to Barclays, what inquiries did you make? A. I asked Richard Webb, who was head of retail for Barclays in the UK, as to the products they had for sale there, how they interacted with Barclays in Australia. He had previously been managing director and Chairman of Barclays in Australia, and also corporate information as to how he proposed to manage the Australian operation, whether it would still be in existence and, if so, what the products would be. I sought information from prospectuses and I received copies of those. It was a fairly general nature, I think, and I didn't --
Q. I don't want you to give an impression of what you received. You said you sought information from prospectuses and you received copies of those? A. Yes. I didn't receive - I just wanted to qualify it - I didn't receive any prospectuses in the UK from Barclays at all. The information that I got was, as I recall, only in respect of Australia.
Q. I see. Are you able to say anything about the nature of the information you received from Barclays? A. Other than what I've said, no.
Q. Now, in relation to - I'm sorry, did you want to add something to that answer? A. If I may. There was another fund manager which was Societe Generale. The information I sought from Societe Generale was in relation to fixed interest products and cash products and the construction of fixed interest products, and they provided me written calculations and estimates and designs of fixed interest products for listing on AUSMAQ. Barry Little was the person in charge at Societe Generale who I talked to. (T 5120)
Q. Where was he? A. He was located in Sydney.
Q. In relation to the information you've given evidence about as to the general nature of it, at least as having received from Morgan Stanley and the other entities in the United States, Japan, Europe, Hong Kong, the United Kingdom and Australia, did you do anything with that information? A. Yes, I did.
Q. What did you do ? A. I read it all and --
Q. Did you do anything else? A. I made a list of products that I wished to list in Australia and made further inquiries of those managers as to when they would be providing public disclosure documents for listing on AUSMAQ. Then I sent them - invariably sent them settlements agreements for their consideration to list the products on AUSMAQ.
Q. Now, in relation to examination and research into electronic trading, regulatory changes and trends program trading and market strategies, to which you refer in the second sentence of subparagraph (y) which is objected to, did you do anything by way of examination and research in relation to those matters and, if I can add this, about which you haven't already given evidence? A. No, I think the information I've given probably encompasses those, Mr Garnsey. In relation to paragraph 5.3.35(y) of Mr Maconochie's statement, that paragraph is admitted into evidence upon the basis that it seeks to summarise and go no further than the evidence now given by the witness in the witness box orally and given by the witness in his statement: T 5120 line 51. ] (z) I wrote the draft rules for a broad-based (as is the ASX) retail stock exchange and attended and represented AUSMAQ and was examined at a public hearing in 1992 by the ASC as to whether the ASC should recommend to the Federal Attorney General that he approve AUSMAQ as a non-member-owned stock exchange.
(aa) I drafted recommendations and made presentations to the Federal Attorney General's Department in Canberra (Jim Murphy) and negotiated new sections in the Corporations Law [s770A] which were passed into law by Parliament in 1994 in accordance with my submissions to the public hearing in 1992 and thereafter in relation to the operation of the AUSMAQ service as a stock exchange in Australia. I personally instructed Mallesons where it was necessary to obtain legal advices in the above regards.
(bb) I devised and wrote the design of the AUSMAQ system including making diagrams and flow charts of its precise method of operation and reviewed and approved (as I have defined the words in this statement) the successive drafts of the functional specification as it went through the usual and normal iterative process of becoming the "approved for construction" functional specification. (cc) I reviewed and made the decision to approve every major or mission critical technical aspect of the system. I personally selected the technical team and assigned them their jobs. (dd) I adopted the methodology that I have described in this statement to settle the specifications and develop the project and establish the business. I personally set up the corporate structure of the business and personally wrote the information memoranda and gave presentations to prospective investors and personally did the corporate finance work necessary to fund and found the business. (ee) I analysed the Shares System and contracted Star to supply it. (ff) I wrote the contracts with the sub contractors to construct and commission the System to my specification……
5.3.37 Whilst development of the Production system was proceeding, I also conducted the marketing to dealers in the Bleakleys dealer group of the yet-to-be delivered Production System, and in conjunction with Bleakleys, to the fund managers in respect of securing a supply of products on substantially better terms than the prevailing terms being offered to the retail market by funds managers. (gg) I wrote the content of the presentations and gave them to staff to transform them into Powerpoint presentations to dealers and fund managers. Examples are the presentations to Bleakleys in 1994, 1995 and 1995. (hh) I devised and negotiated the terms of listing products and dealers on the AUSMAQ service. 5.3.47 [Concurrently with the testing, commissioning and certification of the production system, and the development of the above-mentioned documentation of the legal operating environment for the production system, I also negotiated with the Australian Securities Commission for a suitable regulatory environment for the production system. - R/Leave] 5.4 I conceived and developed the AUSMAQ Service in the light of what I perceived at the time to be needs created by the rationalisation and reorganisation of financial markets, caused and facilitated by developments in electronically-based technology, and described generally today by the term "electronic commerce" or "e-commerce". 5.4.1 I thought up the idea for the AUSMAQ service as a result of my research into the financial markets and the needs of the participants in them which I had identified. 5.4.2 I wrote a preliminary functional specification for the proposed service and then wrote successively more detailed specifications which I gave to the project manager John Wise at Syscorp to put into form of document with additional "in-fill" detail, which he and I cycled in successive versions or iterations until it reached its final form, whereupon I finally reviewed it and approved it for construction. The next step was the preparation of the design specification which set out precisely how things were to be done and which was the basis of the instructions to computer programmers and other technologists to write code. I also reviewed the design specification and approved it. 5.4.3 I thought up how to apply the communications and computer technology to support the functions of the business. 5.4.4 I used the methodology and my training, study and experience that I gained and used on other projects in my career to develop the AUSMAQ System and establish the business.'
Opinions as to Functionality 115 The defendants press many objections to Mr Maconochie's attempts to express opinions in relation to functionality. 116 It is appropriate in dealing with the question of Mr Maconochie's expertise in relation to functionality to commence by setting out the detail of the defendants' written submission to be found in MFI D43: 'Maconochie Expertise - Functionality
Pre Ausmaq 124 An overview of Mr Maconochie's pre-Ausmaq training, study and experience has already been set out. In particular, on his evidence, the three engineering courses and the commercial evaluation course which he completed, presented methodologies which involved a number of matters or aspects including the following aspects, to use the words of the 10 December 2000 statement: '(a) they laid down the type and quality of information that was necessary to enable a commercial appraisal to be undertaken. This information covered a wide range of matters commonly faced by prospective large enterprises, for example, government regulation and policy parameters, the treatment of corporate taxation, foreign exchange rates, project capital costs, operational costs, depreciation, special industry tax allowances, cost of money, joint venture parameters (for example expenditure and reporting obligations), residual costs, establishment and exploration costs, minimum commitments to customers and regulators, price ranges over time, volume capacity over time, and time itself. (b) they tied the business objectives of the project being evaluated to the stated functional outcome : for example, strategic market positioning and leverage, revenue capabilities and objectives, rates of return on capital invested, payback periods, and capacity to absorb risk and adverse outcomes were tied to the functional outcome … and (c) they set out the purpose of the project and tested the commercial outcomes against it. (d) they enabled a commercial evaluation to be made of the (version of) functional specification and an economic assessment to be made of the merits of enhancements, modifications or additions or subtractions to the key features (e) they enabled the economic impact of variations (sometimes called sensitivities or 'what ifs') in project parameters, for example, revenue projections, capital cost overruns, sale price and volumes, and items critical (sometimes called 'mission critical' or 'short or long term dependencies') to the success of the project to be to be identified and assessed. (f) they enabled 'windows of opportunity' to be identified and other insights gained and plans and projects to proposed and evaluated to take advantage of them. (g) they enabled the impact of the project on the target market and the target customer segment to be assessed . For example, the introduction of a new project, particularly a large project, may quickly dominate an industry and change the original assumptions for better or for worse. … they enabled the impact of the project on access and distribution of the product and the industry to be made. .." [emphasis added] 125 Mr Maconochie sought to give evidence that those matters "are of general application in respect of any business, and particularly businesses that are either large or have the potential to make changes to strategic perceptions of an industry by the participants in it. [That sentence was allowed into evidence on the basis of a section 136 order limiting the reading of the sentence as confined to the use by Mr Maconochie as indicated in his evidence of the particular matters in relation to any projects or businesses with which he had been involved, or which he had otherwise described in his written statement or oral evidence.] 126 As the defendants point out in the first column on page 10 of their template MFI D44, Mr Maconochie gives evidence that he undertook various courses in analytical technique and commercial appraisal is at Esso. His general evidence during the period that he was Development Manager with Lend Lease and his experience in relation to infrastructure projects and asset management is given in detail in MFI P105 as is his general evidence in relation to the period of his involvement with EquitiLink. The involvement with EquitiLink becomes more specifically relevant in relation to the claim to Mr Maconochie's expertise on foreign markets and on valuation. He did however research what services and software were available in the market and contracted Digital Equipment Corporation to replace the internally based investment management and investors services computer system with one source from that Corporation. He also wrote and introduced financial flowcharts and controls and reporting and computer-based accounting. This involved him personally reviewing each of those areas, writing functional specifications, as well as supervising and directing the design specifications for the investment management and company and customer administration systems and reviewing their implementation.
Role in relation to the Ausmaq Service and its forerunners 127 On the evidence before the court on the question in hand, Mr Maconochie has clearly been shown to have played the most integral part in the conception development and creation of what became known as the Ausmaq Service and of its three forerunners namely the Electronic Funds Marketing Service ('EFMS'), the Registry of Record proposal and the Australian Unit Exchange proposal. 128 A careful examination of pages 140-222 of MFI P105 [paragraphs 5.3 and following] discloses the depth and breadth of the work and activities which he personally undertook in relation to the conception development and creation of the Ausmaq Service and of its forerunners during the years 1989 through to 1995. 129 His unchallenged evidence is that he thought up the idea for the Ausmaq Service as a result of his research into the financial markets and the needs of the participants in them which he had identified [MFI P105 at page 222; paragraph 5.4.1 of 10 December 2000 statement]. He conceived the proposed 'Registry of Record Service'. He conceived the idea of an exchange to train units in unlisted property trusts as the impetus to establish a new independent market trading system which he called the Australian Unit Exchange. 130 As to EFMS he wrote the detailed flow charts and diagrams and operating relationships which formed the initial functional specification and business model and business plan. He made the necessary additions and enhancements to the functional specification that he required to fulfil the business objectives and purpose of the proposed service and reviewed in minute detail every version which was compiled and produced under contract by Syscorp Pty Ltd, a software design house. He researched and selected the type, make and model of the computer operating system and the database. He developed the project using the methodologies and practices he had experience in. He planned and conducted the marketing and presentation of the EFMS Service to funds managers. In relation to the EFMS project he was the functional and application architect who set the parameters and boundary conditions for the system architect. He was also the development manager of the project. The customer was his company Investors Buying Service ('IBS'). 131 His unchallenged evidence at this time is that in relation to the proposed Registry of Record service, his activities were similar to those which he carried out for EFMS as far as the project developed. 132 As to AUX it was he who conceived the idea of an exchange to train units in unlisted property trusts as the impetus to establish a new independent market trading system which he called the Australian Unit Exchange. An examination by him of problems thrown up by the prevailing economic situation in Australia in 1990 and 1991 suggested the opportunity to obtain approval for a new broad-based trading system in Australia. He wrote a preliminary functional specification. He then renamed the AUX proposal as the Australian Market Automated Quotation (Ausmaq) System proposal and from July 1991 concentrated on the development of a functional specification and the building of a prototype of the Ausmaq trading system. 133 Mr Maconochie devised and wrote the design of the Ausmaq System. This included the making of diagrams and flow charts of its precise method of operation, and reviewing and approving the successive drafts of the functional specification as it went through the usual and normal iterative process of becoming the "approved for construction" functional specification (MFI P105 at page 207). 134 The prototype of the Ausmaq System had originally been designed by IBS and Syscorp. It was Mr Martin, a consultant to Syscorp who wrote the technical specification and built the trading engine. Mr Nelson was employed as a consultant to write the test specifications for the prototype system. By mid 1992 Mr Maconochie had determined to develop a new functional specification to satisfy what he perceived as the needs of the existing marketplace. By December 1992 he had developed the new functional specification for the production version of the new Ausmaq System and in so doing carried out certain research into the funds management industry in Australia and the United States. He also prepared an information summary to describe that functionality for prospective investors in Ausmaq. 135 The second column in the functionality template (MFI D44) sets out what the defendants submit to be the limits of the actual training, study or experience identified by Mr Maconochie and potentially relevant to that suggested field. Whilst I am not satisfied that this column comprehensively details all of the training, study or experience that Mr Maconochie's many statements establish as going to his entitlement to express opinions in relation to this field, the column certainly summarises sections of his evidence. 136 Presumably by reference to Mr Maconochie's evidence, the defendants concede that he may comment on aspects of the functionality of Ausmaq from a commercial perspective, such as identifying the objective, purpose, key features, target market, products and distribution channels of the Ausmaq Service. They emphasise however what they submit to be his lack of IT experience for the reason that on their submissions, he outsourced the writing, building and testing of the Ausmaq Service to Syscorp and to Star Systems. On the defendants' submissions Mr Maconochie on the evidence is only shown to have assisted in the drafting of functional specifications. 137 To further make their point as to the suggested limits of Mr Maconochie's training study or experience as a basis for specialised knowledge on this and related issues, and most particularly on Mr Maconochie's capacity to make functionality comparisons, the defendants in the fifth column of their functionality template deal with the issue under four headings:
Commercial and IT expertise 138 The first head constitutes a general submission that the identification of the functionality of a computerised (or partially computerised) service or program in the financial services industry for the purpose of undertaking a functionality comparison typically requires commercial and IT expertise. IT experience is said to at least be required to the extent that the identification of functionality extends to the provision of functionality which is the subject of planned enhancements, modifications or additions to a service or program.
Methodology - identification and application 139 The defendants then submit that the identification and description of the functionality of a service requires the following two steps: Step 1 - the identification of an appropriate methodology to identify and classify each functional element of the service. Step 2 - the application of the methodology to an appropriate factual substratum in order to accurately describe each functional element of the service.
Breadth of training, study or experience 140 The second head goes to the suggested breadth of the training study or experience required to be demonstrated as a basis for showing the requisite specialised knowledge. 141 The defendants here submit that in order to identify all the functionality of a computerised (or partially computerised) service or program in the financial services industry it would typically be necessary to have the following: - experience in the computer industry, specialising in software development of complex applications, including some experience in the development of real-time systems - high-level exposure to the development and positioning of a range of products in the financial services industry - experience in the determination and interpretation of business requirements of computerised (or partially computerised) services or programs in the financial services industry in the context of an understanding of the relevant market and the needs of market participants. 142 The defendants submit that in relation to breadth, Mr Maconochie has had limited high-level commercial experience in relation to his role in the development of the Ausmaq Service and its forerunners. Mr Maconochie is said to lack IT experience as he is said to have outsourced the writing building and testing of the Ausmaq Service and to have only assisted in the drafting of functional specifications.
Depth of training, study and experience 143 The third head goes to the suggested depth of the training, study or experience required to be demonstrated as a basis for specialised knowledge. 144 The defendants here submit that the following would be required: - a degree in computer engineering or equivalent; - experience in the computer industry typically gained over a number of years; - experience in the computer industry which would need to cover a broader range of experience rather than a single lengthy project and would need to demonstrate a progression from low-level, hands on technical experience to high-level software development; - specific experience it is said would typically include at least the following: (a) the writing of functional and technical specifications; (b) knowledge and understanding of the common software development languages; (c) calculation of effort estimates, including use of function point analysis and source lines of code. 145 The proposition is that the commercial experience required would include the identification and analysis of business requirements over a number of years, across a range of financial services. 146 The defendants submit that in relation to depth, Mr Maconochie's exposure to the development and positioning of products in the financial services industry and his experience in the determination and interpretation of business requirements of computerised services is limited to his experience in the development of the Ausmaq Service. The submission is that in order to have the expertise necessary to identify the functionality of the Ausmaq Service and the Bank Services for the purpose of a functionality comparison, experience with a range of products and services would be required. 147 The submission is that Mr Maconochie's IT experience is largely limited to an involvement in the preparation of functional specifications for the Ausmaq Service and its forerunners, EFMS and Registry of Record and AUX, in the period from 1989 to 1995. 148 The submission is that in relation to EFMS and Registry of Record, Mr Maconochie's IT experience was limited to drawing flowcharts and diagrams illustrating the concept (the initial functional specifications) and speaking to various people regarding telecom capabilities, databases and operating systems, computer suppliers and programmers. 149 The submission is that in relation to Ausmaq, Mr Maconochie's IT experience was limited to writing diagrams and flowcharts and reviewing drafts of the functional specification and to review and approval of the design specification. 150 The submission is that Mr Maconochie's experience does not extend to the writing of technical specifications, or the building or testing of computerised services. The submission is that there is no evidence that Mr Maconochie is familiar with common software languages or the calculation of effort estimates
Currency 151 The fourth head goes to the question of currency. 152 The defendants' submission is that it would be essential in terms of the necessary training study or experience required as a basis for acquisition of the requisite specialised knowledge to demonstrate continuous updating of knowledge in the field. The submission is that Mr Maconochie's experience, which in any event is said to be limited, has not been continuously updated.
Avoiding too narrow an approach to the route to or categorisation of specialised knowledge 153 Identification of functionality may take place at more than one level. Comparisons as to functionality may take place at more than one level. The Court must exercise special care to permit appropriately qualified experts having shown the requisite specialised knowledge based on training, study and experience, to express their opinions. The Court must take special care to permit opinions for example as to functionality, to come forward from different streams of persons each of whom may have been able to establish by a different route that the section 79 criteria have been satisfied. The requisite specialised knowledge may have been acquired from different types of training, study and experience. Hence for example, the question of whether or not a person has satisfied section 79 criteria in showing an entitlement to express opinions as to functionality or as to functionality comparisons, may be answered in the affirmative in respect of A who has demonstrated specialised knowledge of a very technical nature (as for example in relation to the writing of technical specifications and functional specifications and calculation of effort estimates and use of source lines of code and the like) with far less experience of a conceptual nature. The question may also be answered in the affirmative in respect of B who has demonstrated specialised knowledge of functionality at far more of a conceptual level but with less technical experience. There are some cases where too narrow an approach to the route to or categorisation of specialised knowledge or to classification of the opinions capable of being expressed as based whether wholly or substantially, on that specialised knowledge, may lead to injustice because the Court will have pre-empted the entitlement of the parties through appropriately qualified experts to have the issue litigated and only determined in the final judgment following the receipt of the respective opinions of experts. This is such a case.
Holding - opinions as to functionality of Ausmaq 154 It seems to me that the plaintiffs have established through Mr Maconochie's evidence the proposition that Mr Maconochie has shown particular experience during the development of what became the Ausmaq Service. He has shown that he was intimately involved in various degrees in all aspects of the preparation of the Ausmaq Service. He was involved at a general level in relation to the technical development of the Ausmaq Service, although most of the detailed technical work was undertaken by Messrs Martin, Nelson, Star System and others. He was involved in relation to assessing the market in which Ausmaq was proposed to enter in order to determine what that market was, what were the gaps in the market and how the new Service might fill the needs of the market. He was also heavily involved in ascertaining what were the regulatory requirements which required to be satisfied and in this regard approached the matter with the aid of expert legal advice. 155 Mr Maconochie's professional training, study and experience have given him an appreciation of and an ability to analyse and assess complex systems and situations and to identify and define objectives and to assess alternative modes of implementing engineering or commercial solutions to meet particular objectives. He has had very considerable experience in relation to computer services and programs. That experience has regularly been focused by reference to the financial services industry and his studies and analysis of parameters of that industry and of the possibilities with respect to utilising computer and computerised functionality have been shown to be extensive and long-standing. He has had a detailed involvement with and formed an ability to assess customer needs in target markets and target customer segments in financial services industry. He has had extensive experience in the exercise of having to describe, assess classify and carry out analyses of financial services in terms of a range of reference points including purpose, business objectives, service facilities, features, products and to a certain extent, regulatory requirements. He has had intensive and extensive involvement in the analysis of documents describing e-commerce financial services and in relation to determination of functionality, objectives and strategy of e-commerce financial services. 156 The evidence satisfies me that his experience in relation to the Ausmaq Service and its forerunners required a considerable understanding and command of conceptual design matters and of functionality at a number of levels and clearly furnished him with specialised knowledge as to the functionality of Ausmaq. 157 To my mind Mr Maconochie' s evidence put before the court does demonstrate in large measure all or close to all of the training, study and/or experience described under the head "breadth" set out in the fifth column on page 2 of the defendants functionality template. As already stated it is important to recognise that of course one may find that a number of persons have had experience and exposure of this type in different measure so that some may, and some may not, be held to have the necessary training, study or experience required for the necessary specialised knowledge requisite to serve as a basis for expressing opinions on this area as to the functionality of Ausmaq. However this is not an occasion to express a finding as to precisely where, along a continuum of similar experience which a number of experts may have had, Mr Maconochie's experience of this nature would be measured. For present purposes what is called for is the court's adjudication as to whether Mr Maconochie has demonstrated by his training, study or experience that he has acquired specialised knowledge on which to base his opinions as to the functionality of Ausmaq including the functionality posited in terms of possible enhancements, modifications and additions and/or including the notion of potential functionality [for internal dictionary purposes the expressions 'functionality of Ausmaq' or 'functionality of the Ausmaq Service' are used to describe this composite notion]. Having satisfied that threshold or gatekeeper requirement, Mr Maconochie becomes entitled to give admissible evidence on this area, whilst the question of the weight of that evidence is altogether another matter for determination in the final judgment.
The real question of difficulty 158 The real question of difficulty is as to whether or not Mr Maconochie by his training study or experience has been shown to have acquired the specialised knowledge on which wholly or substantially to base an expert opinion by way of making a comparison (on one or other parameter) of the functionality of Ausmaq as against the functionality of the relevant Bank Services. 159 One might expect to find in a case such as this that the person put forward as an expert is given a set of assumptions upon which to base his or her opinion as to the necessary comparison. The relevant assumptions would include assumptions as to precisely what the functionality of the Ausmaq Service was and also as to precisely what the functionality of the relevant Bank Services was. In that event the plaintiffs would ultimately require to prove the validity of the assumptions. In this instance the plaintiffs on the Court's holding are also entitled to call Mr Maconochie as an expert satisfying the section 79 criteria to seek to prove the validity of the assumptions as to the functionality of the Ausmaq Service. Of course the question discussed in the Heydon Commentary at paragraphs 4.2 to 4.4 of weighing the case supposed against the case proved remains one for the Court. But the case supposed by the expert must be quite clearly identified so that the necessary weighing exercise can be carried out by the Court. [cf Wigmore, Evidence in Trials at Common Law, volume 2, 1979 at paragraph 672: "The key to the situation, in short, is that there may be two distinct subjects of testimony - premises, and inferences or conclusions; that the latter involves necessary a consideration of the former; and that the tribunals must be furnished with the means of rejecting the latter if upon consultation they determined to reject the former, ie, of distinguishing conclusions founded from conclusions in properly founded"] 160 In many cases the expert is not concerned to prove the validity of the assumptions which the expert is asked to make for the purpose of expressing his or her opinions. The expert simply makes the assumptions he or she is asked to make and then, if shown by the relevant training, study or experience to have acquired specialised knowledge in relation to which to base relevant opinions (as here by way of the comparative exercise), goes ahead and expresses the relevant opinions. 161 A parameter of the present exercise involves Mr Maconochie having purported to personally examine particular materials discovered by the defendants in relation to the subject Bank Services then, at least as a matter of form, simply announcing what the functionality of the subject Bank Services was and as a second step, proceeding to carry out the comparative exercise. The defendants strenuously contend that this procedure is fatally flawed not the least because it is said to offend the mandatory requirement that any factual assumptions underlying the witness' opinion must be clearly identified and articulated. The problem as I see it is the complete lack of transparency in relation to the process engaged in when Mr Maconochie simply asserts first, that he has read certain discovered materials which are identified, (and which deal with the Bank Services in some way), and second, that the functionality of the Bank Services is x, y and z. Mr Maconochie has not sufficiently identified the particular documents or pages in those documents to which he had regard in reaching his opinion as to what the functionality of the Bank Services was (he clearly does this in some areas, but only in part). The point of the matter is that "the premises, that is the facts upon which [his] opinion [that the Banks Services are shown by the documents and/or other inferences, to have the suggested functionality] has been reached are not expressly stated" [cf Trade Practices Commission v Arnotts Ltd (No. 5) (1990) 21 FCR 324 at 330], nor are those facts or other inferences capable of being discerned from the statements. 162 Leaving aside questions of form for the moment, at least it may be said that Mr Maconochie is therefore put forward as having the expertise necessary to be in a position to carry out the tasks which he apparently did carry out. 163 Clearly, as it seems to me, a necessary prerequisite for Mr Maconochie to be able to express any such expert opinion, would be his having demonstrated that he has by his training, study or experience been shown to have acquired the specialised knowledge on which wholly or substantially to be in a position to base an expert opinion as to what the functionality of the relevant Bank Services is. 164 One would then have to examine whether he has demonstrated that he has, by his training, study or experience, been shown to have acquired the specialised knowledge on which wholly or substantially to be in a position to base an expert opinion as to the necessary comparison as between the functionality of the Ausmaq Service and the functionality of the relevant Bank Services. As previously pointed out, the exercise of demonstrating transparency of reasoning in reaching the actual opinions expressed must take place so that the Court can be satisfied that the opinions are wholly or substantially based upon the specialised knowledge.
Opinions as to functionality of Bank Services - Holding 165 As to the first matter, a combination of his training, study and experience demonstrates that he has acquired specialised knowledge in relation to parameters of functionality concerning conceptual design matters and general analytical skills applied to the design of a range of e-commerce financial services. It is certainly true that his exposure to services and products in the financial service industry does not extend to his ever having worked in a bank and the question of whether or not an individual has had sufficient exposure to an adequate range of services and products in the financial services industry to be seen to have acquired the necessary specialised knowledge to permit the expression of particular expert opinions as to functionality in respect of particular banking or other financial institution services must always be a matter of degree depending upon the special facts matters and circumstances which obtain in relation to the individual whose expertise is being tested. However I have formed the view from all of the material before the court on the instant application that Mr Maconochie has, by his training, study and experience, been shown to have acquired sufficient of such specialised knowledge on which to base, wholly or substantially, opinions as to the functionality of the Bank Services in question. There is no doubt but that Mr Maconochie has had extensive experience in relation to the functionality, at a conceptual level, of a range of financial products and services, and equally no doubt but that he has had sufficient IT exposure to, and involvement in, overseeing the technical development of sundry complex software and other computer-related applications treating with a range of products in the financial services industry as to have a legitimate claim of substance to have acquired specialised knowledge on which to base, whether wholly or substantially, opinions of an expert nature as to the functionality at a conceptual level of a range of financial products. And most particularly, as the plaintiffs emphasise in their submissions, the questions which are raised in terms of the issues in respect of which Mr Maconochie seeks to express expert opinions relate to novel matters and relatively new areas of learning in terms of new or relatively new, or relatively newly modified and ever expanding groupings of financial services in relation to the dynamics of e-commerce. [I note in this regard that the defendants' overview submissions in reply at paragraph 11 appear to accept that the Ausmaq proposition was indeed novel]. Hence, as it seems to me, there is substance in the plaintiffs' submissions that the section 79 examination must take into account in real measure the fact that the specialised knowledge which requires to be shown and the training, study or experience which requires to have provided the basis for acquisition of that specialised knowledge, extend at least to a real extent beyond established fields of discipline and knowledge. In the result the training, study and experience of Mr Maconochie in the dynamic and fast moving and rapidly expanding e-commerce field where his focus has been shown to be squarely based upon novel approaches to existing and innovative requirements for electronic financial services and to functionality, has furnished him with specialised knowledge on which, wholly or substantially, to base opinions on the functionality of the Bank's Services as well as on a range of computerised (or partially computerised) services or programs in the financial services industry.
Returning to the comparison issue 166 Much of what has already been set out by way of the Court's holdings as to Mr Maconochie's training, study or experience and as to the specialised knowledge which he is shown to have acquired in relation to functionality issues remains clearly germane to the question of whether he has shown that the section 79 criteria are satisfied in relation to his attempt to give expert opinions as to a comparison of the functionality of the Ausmaq Service and the functionality of the Bank Services. I do not propose to repeat the earlier examination nor the earlier holdings. 167 A close comparison as between F1 and F2 of the defendants sixth column in their functionality template MFI D44 dealing with the actual training, study or experience possessed by Mr Maconochie [and often suggesting the limits or shortcomings of that training, study or experience], shows that most of the detail set out in the F1 section ['general field-identification of functionality of computerised (or partially computerised) services or programs in the financial services industry'] is repeated in the F2 section ['general field-comparisons of the functionality of computerised (or partially computerised) services and/or programs']. 168 The defendants' further submissions in relation to the actual training, study or experience possessed by Mr Maconochie (on the entitlement to express opinions on the comparison issue) assert that: (a) Mr Maconochie has no direct experience in comparing functionality ;
(b) There is no evidence that Mr Maconochie's IT experience or his limited experience in 'analytical techniques' has been continuously updated. 169 As appears from the fifth column of the defendants template [against F2], the defendants' proposition is that the training, study or experience required for specialised knowledge to deal with the comparative issue would require a variety of different types of expertise, including experience in the comparison of computerised services which might typically be gained from: (i) evaluating and selecting software products to meet specific business requirements, functional specifications and technical specifications; (ii) deciding whether to upgrade an existing package or system or to build or purchase an alternative product to meet specific business requirements, functional specifications and technical specifications; (iii) evaluation in relation to allegations of intellectual property disputes. 170 The defendants further submit that in relation to the 'depth' parameter it would be necessary to show experience involving the comparison of computerised services gained over a number of years which would involve a variety of different services. 171 In relation to the 'currency' parameter the defendants submit that it would be essential to demonstrate continual updating of knowledge in the field up to the date on which the comparison is sought to be made.
Holding-opinions as to the comparison between functionality of the Ausmaq Service and of the Bank Services 172 In my view, Mr Maconochie has been shown to have acquired specialised knowledge by his training, study or experience to permit him to express opinions as to the relevant comparison between the functionality of the Ausmaq Service and of the Bank Services; in this case on the basis that the applicable test is whether or not the Ausmaq Service and the Bank services have equivalent or similar functionality. The experiences he has gained [as earlier described] in relation both to the Ausmaq Service and to its forerunners has necessarily been focussed upon the functionality of the Services with which he has been involved and has developed. His experience has also focussed on the need to satisfy the missing marketplace service needs of the financial services industry. That an analysis of the marketplace sufficient to permit the identification of novel Services would necessarily involve the need to understand the parameters of functionality of programs in the financial services industry could scarcely be disputed. I have already referred to Mr Maconochie's extensive experience, understanding and command of conceptual design matters in relation to the functionality across a range of financial products and services. I have equally referred to my finding that he has had sufficient IT exposure to and involvement in overseeing the technical development of sundry complex software and other computer-related applications treating with a range of products in the financial services industry to have a legitimate claim of substance to have acquired specialised knowledge on which to base, whether wholly or substantially, opinions of an expert nature as to the functionality at a conceptual level of a range of financial products. Capacity to make functionality comparisons across a range of financial products is not far removed from the former specialised knowledge or from Mr Maconochie's above described extensive experience. When one adds into the equation detail of the courses of study which he completed which inter alia enabled a commercial evaluation to be made of particular versions of functional specifications as well as an economic assessment to be made of the merits of enhancements, modifications or additions or subtractions to the key features and which tied the business objectives of the project being evaluated to the stated functional outcome and which set out the purpose of the project and tested the commercial outcomes against it, to my mind the necessary specialised knowledge on which to base, wholly or substantially, opinions as to the above described comparison between the functionality of the Ausmaq service and the functionality of the Bank Services has been made out as held by Mr Maconochie. Again I repeat that this is not an occasion to express a finding as to precisely where, along a continuum of similar experience which a number of experts may have had, Mr Maconochie's experience of this nature would be measured.
Rulings in respect of where leave to supplement Mr Maconochie's evidence sought to be given as to functionality is to be granted and where sections of Mr Maconochie's statements are to be rejected without leave
Identification of assumptions 173 I have already adverted to the complete lack of transparency in relation to the process engaged in when Mr Maconochie simply asserts first, that he has read certain discovered materials which are identified and second, that the functionality of the Bank Services is x, y and z. This matter requires to be corrected in terms of the adducing, if this can be done, of supplementary evidence in admissible form to expose this process. The exercise will require to make plain just what the reasoning processes were in Mr Maconochie coming to the conclusions which he did from the documents which he read. The sections of the documents referred to in relation to the opinions expressed will have to be specified with far greater particularity. I am disposed to grant leave to permit that exercise to occur.
Nexus between specialised knowledge and opinions wholly or substantially based upon such knowledge 174 As earlier made plain in this judgment, in my view a lack of transparency in reasoning processes will mean that the court is unable to be satisfied as to whether or not a particular opinion is wholly or substantially based upon specialised knowledge which may be established. In a number of areas Mr Maconochie's statements offend the requirement to make transparent his reasoning processes. These are also matters in respect of which I am disposed to grant leave to permit Mr Maconochie to supplement his statements in an admissible fashion if this can be done, in order to make transparent those reasoning processes. 175 It is apparent that Mr Maconochie has sought to give a definition of the word "functionality" in relation to the Ausmaq Service. That definition is to be found in paragraph 5.2 of his second statement of 20 November 1998. He does not however anywhere in his statements state what definition he gives of the word "functionality" per se when used in relation to other subject matter and most particularly, when used in relation to the Bank Services. Mr Sackar QC at transcript page 5598 put the matter as follows, using by way of example some of the items to be found in Mr Maconochie's definition of "functionality in relation to the Ausmaq Service" [statement paragraph 5.2]: "'functionality', it is clear from his own definition, either means business objectives or functions in the sense of things that they are intending to do, like provide an electronic platform and [engaging] in real-time or on-line activities operating multiple taxes currency environments…". 176 Whilst the Court might be in a position to guess that Mr Maconochie uses the word "functionality" generally in the senses that Mr Sackar suggested, this is not a situation in which the Court is required to speculate about the matter. It will be necessary for Mr Maconochie by supplementary evidence to make perfectly plain in what sense he uses the word "functionality". I am disposed to permit him to so supplement his evidence for this purpose. 177 Nor does Mr Maconochie in his statements make plain in what fashion and with what meaning he uses the words "equivalent or similar functionality" in terms of the comparison which he makes as between the Ausmaq Service and the Bank Services. Whilst the court is acutely aware that there is a real issue as to the proper construction of these words for the purpose of construing the Consulting Agreement and that it would be inappropriate in this judgment to endeavour to come to findings on that issue, it remains clear that the Court does have to follow what a witness means when the witness uses those words in a statement and particularly in a statement where the above described comparison is sought to be made on that parameter. Mr Sackar [at transcript page 5601] suggested that the notions of 'substitutability' or of 'exact or identical correspondence' figured amongst the catchment area of possible parameters being used by Mr Maconochie when he uses the words "equivalent or similar functionality" . Later at transcript page 5602 Mr Sackar submitted that on balance it seemed that Mr Maconochie was looking for identity rather than similarity, that is to say, was looking for identical functionality rather than similarity. Whatever was the approach taken by Mr Maconochie in using those words, in my view it will be necessary for him to attend to this matter in supplementing his evidence in order to make his reasoning processes apparent. 178 In Mr Maconochie's outline of his methodology commencing at paragraph 8.2 of his second statement of 20 November 1998 he explains how he compiled a table that described the functionality of the Ausmaq Service in 24 main categories and 174 sub-categories [bullet point 1] and details various parameters of the table. 179 Bullet point 2 then reads: "I then reviewed the documents that described the Gateway Service, the Remote Wealth Service, the Automated Lending Service and the FX Auto-Dealing Service and identified the functions that were similar or equivalent to the Ausmaq Service, notating them with a 'Yes' in the above-mentioned Table 2." 180 The difficulty with Mr Maconochie's statement is that it appears that he includes in the task of the equivalent and similarity comparative work which he undertakes, an exercise which he calls "Vision and Strategy Comparison". He produces Table 1 which purports to set out the Vision and Strategy Comparison. He also includes in the equivalent and similar comparative exercise, an examination of functionality and produces Table 2 in that regard. He states that the Table 2 Functionality Comparison "was represented, but at a higher business level, in Table 1-Vision and Strategy Comparison - where [he] compared 9 categories of Vision and Strategy parameters. Mr Maconochie then states as follows: "A comparison of the strategy and objectives of the services to be compared, and in the case of Table 1 which also included the Vision and Strategy of the NAB Group, enabled me to determine the degree to which the services were heading on a common course, and second, to a common destination or objective. The remainder of the comparison was designed to determine the degree of similarity that the services exhibited in the means by which they travelled their respective courses to their objectives". [paragraph 8.4]
181 As Mr Maconochie may well might have included, but the Court cannot be certain, the notion of vision and strategy in his privately known and undisclosed definition of 'functionality', the court is unable to discern what was the reasoning process which he engaged in when he carried out his comparison of the functionality of the Ausmaq Service and the Bank Services or how it is that the notion (or notions) of 'vision' and 'strategy', play any, and if so what, part in the analysis which he claims to have carried out. These are matters which required to be clearly spelled out in a supplementary statement before being admitted into evidence so that the reasoning processes can be understood. Absent this occurring the Court cannot be satisfied that the opinions sought to be expressed are wholly or substantially based upon the specialised knowledge. 182 One of Mr Sackar's submissions was put in the following terms: "[T]o look at functionality purely from the vantage point of business objective is to only look at part of the equation. Because if the business objectives or function in that sense is looked at, and one doesn't look at the information technology capacity of the system to perform those functions or indeed how the functions might be performed, then one can't really look, we say, merely at that level, especially when you are trying to compare it with other systems". [transcript page 5602] [Emphasis added to make the point that the defendants elected not to cross examine on the issue, called no evidence on the issue and must rely upon the Courts assumed acceptance of the proposition as a matter of common sense or as so basic as to be quite clear - cf the quotation earlier set out from the judgment of Sir Richard Blackburn in Milirrpum v Nabalco]. 183 Mr Sackar then went on to submit that one of the things which Mr Maconochie never did was to compare functionality from an information technology point of view because, so Mr Sackar submitted, Mr Maconochie: " never looked at any bank documents which are technical specifications in the technical sense of describing precisely how the logic flows work and how the various functions are performed…." [Transcript page 5602] 184 To my mind this is an area where the defendants' submissions moved outside questions of transparency of reasoning processes and into the question of the merits of the particular opinions which Mr Maconochie seeks to express. The very question of the parameters which one legitimately as an expert, takes into account in making a comparison as to equivalence or similarity as between two different electronic (or e commerce financial Services) is , it seems to me, one ripe to be litigated and one can well imagine two persons both of whom are seen by their training, study or experience to have acquired the necessary specialised knowledge on which wholly or substantially to base expressions of opinion on the subject, to have quite disparate but nevertheless, 'expert' views on the question. 185 The matter referred to in the previous paragraph serves as at least one of the reasons why I view as misconceived, the defendants' emphasis on the suggestion that Mr Maconochie lacks the necessary IT qualifications or experience to enable him to comment on the functionality, existing or potential, of a particular Service, be it the Ausmaq Service, the Banks Services or an innominate Service in the financial services industry. I have already sought to refer to Mr Maconochie's IT experience. The defendants' submission is that in order to be able to express an expert opinion on that subject one would need to have a progression from low-level hands-on technical experience up to high-level software development experience which would typically include items such as the writing of functional and technical specifications; knowledge and understanding of the common software development languages and calculation of effort estimates, including use of function point analysis and source lines of code, is not to my mind clear at all. The evidence before the court does not satisfy me that it is necessary for an expert to have reviewed the technical specifications, systems architecture diagrams, technical manuals, design documents or performance results associated with particular Services to be in a position to express opinions as to the equivalent or similar functionality existing or potential, of one Service as compared to another. Plainly however, to be in a position to satisfy the section 79 criteria, a person put forward as being able to express an opinion on that subject would have to have had considerable experience in relation to IT and related matters but to my mind Mr Maconochie has demonstrated sufficient such experience to be able to be said to have acquired sufficient specialised knowledge upon which wholly or substantially to be in a position to express an expert opinion on the existing or potential functionality of a particular Service. Whether and if so to what extent shortcomings, such as they may be, in the suggested lack of breadth or depth of his IT related technical experience may impact upon the Court's acceptance of the evidence which Mr Maconochie seeks to give on the functionality of the respective Services, or on comparative equivalence or similarity of the respective Services, remains to be assessed following the evidence of all experts on the subject. This is not an appropriate time for that form of exercise to be the subject of Court determination. It cannot be said that the plaintiffs have failed on the evidence presently before the Court on the issue to demonstrate that Mr Maconochie has by his training, study or experience acquired sufficient specialised knowledge upon which wholly or substantially to be in a position to base an expert opinion on the existing or potential functionality of a particular Service or on the equivalence or similarity of the functionality of particular Services. 186 In paragraph 8.2 of his Second Statement Mr Maconochie uses the word 'main' when he states that he compiled Table 2 to describe the functionality of the Ausmaq Service in 24 main categories and 174 sub-categories. Mr Sackar made the point that Mr Maconochie did not identify what he means by use of the word "main". To my mind there is no substance in this submission which points up the difficulties which can be encountered when an expert's report is so very closely travelled through in order to throw up the ambiguities or uncertainties. But this is not to say that Mr Sackar's submissions were not very often of substance. The defendants have every right to require the putative experts report to be clear. However in this instance I do not accept that further elicitation is necessary. The word "main" is in common use and even in this context, an expert is entitled to use that word in the manner in which Mr Maconochie has. Too great a degree of specificity in definition can itself be counter-productive and one has to achieve a happy medium between on the one hand transparency in reasoning process and on the other hand, common sense. 187 A reading of pages 69, 70, 71 and 72 of Mr Maconochie's second statement makes clear that although he has referred to particular source documents obtained no doubt by discovery in respect of each of the NAB services, he simply follows his reference to those documents by merely stating that each of the four NAB Services 'has the following characteristics'. This is a clear example of what I have earlier referred to as his failure to expose the process which he has engaged in moving on the one hand from his examination of the particular documents to on the other hand, his conclusion as to the characteristics held by the four NAB Services. The inferences which he drew from the documents which he inspected require to be stated in order to be understood. And to the extent that the documents are said to have expressly identified the characteristics of the Bank Services which Mr Maconochie then sets out in the Statement, this can also be made clear in a supplementary statement. I am disposed to permit that exercise at this time in these proceedings so that the Court may assess whether the reasoning process is made transparent to satisfy the Court of the requisite connection between the opinions and the specialised knowledge on which the opinions are to be seen to be wholly or substantially based.
The Tables 188 When one comes to consider the tables already referred to [which are to be found at pages 74 - 113 of the version of Mr Maconochie's second statement to be found behind Tab 1 in MFI D45] against the detailed submissions put by Mr Sackar it becomes apparent that the central criticisms are suggested lack of transparency of reasoning processes in relation to (i) the methodology adopted; (ii) the criteria utilised by Mr Maconochie in the 'Vision and Strategy Description/Implementation' column of Table 1 and in the 'Functional description' column of Table 2; (iii) as already mentioned, the relationship between "Vision and Strategy" and the determination of whether the Bank Services are equivalent or similar to the Ausmaq Service; (iv) the basis for the inclusion of enhancements in the functionality tables; (v) the items and categories selected to describe the functionality of the respective Services; (vi) the choice of documents reviewed by Mr Maconochie in relation to each of the Bank Services; and (vi) the decision that items of functionality that have been used to describe the Ausmaq Service are 'Not Applicable' to the provision of a particular Bank Service. 189 Mr Sackar strenuously submitted that a careful inspection of the Tables threw up how imprecise, abstract , 'woolly' and subjective the terms used in the Tables were. Whilst I accept that a reading of the Tables does suggest that many of the terms may well required to be explained and expanded upon, I do not accept that the Tables viewed as a whole, are so imprecise or ambiguous as to be meaningless, or more to the point, as to be Tables in respect of which the defendants' experts could not respond by reason that they would not be able to understand most of the concepts used in the Tables. In some instances however it seems to me that it will be necessary for Mr Maconochie to expose precisely what he means when he uses particular terms and in that regard I have in mind explanations being required of the following terms which I have italicised: - Value ("best of breed" value/worth) - Table 1 on page 78 of Second Statement MFI D45 - Trust ( low-risk, peace of mind ) - Table 1 on page 78 of Second Statement MFI D45 - Uniqueness ("hard/not possible to get/find elsewhere"- category killer ) - Table 1 on page 78 of Second Statement MFI D45 - ambidextrous" organisation and recognisable delivery capability - Table 1 on page 78 of Second Statement MFI D45 - flexible and opportunistic outlook - Table 1 on page 79 of Second Statement MFI D45 - New Service, new opportunities - Table 2 on page 107 of Second Statement MFI D45 - Valid wealth creation tool- Table 2 on page 111 of Second Statement MFI D45 - Means of protecting and enhancing 'share of wallet' of preferred customers - Table 1 on page 111 of Second Statement MFI D45 190 There is then a question as to what were the criteria adopted by Mr Maconochie in determining whether to fill the boxes in the Tables with the answer 'Yes' or 'No' or 'Unknown' or otherwise. Effectively the defendant submitted that one has literally hundreds of boxes of "faux" science: "[W]e don't know what parts of documents... We know that he had to draw inferences from documents. He creates a comprehensive table which is meaningless and lacking in transparency and then, to give it some credibility, calculates percentages…..He assumes that every component, whether it be vision strategy or functionality, in Ausmaq as against the Bank's Services, one underlying assumption must that they, each of them, have equal weighing one to the other." [Defendants' address, transcript page 5617] 191 The essence of the defendants' submission is that a glance at the explanation of and the detail of the tables which Mr Maconochie sets out in his relevant Statements shows that there simply is no intellectual rigour; that ex facie the Court can discern that Mr Maconochie has engaged in inference upon inference and on subjective evaluation which is not only lacking in transparency but is untestable. The defendants point out that there are many hundreds of boxes in the tables and submit that the tables are meaningless and lacking in transparency to the extent that the more one inspects the tables and the reasoning of Mr Maconochie expressly set out in his statements and dealing with the tables, the more difficulties one is able to point to in terms of lack of transparency in such methodology, if any, as may have been adopted. 192 Although there are certainly some differences in approach, in the main it may be seen that Mr Maconochie has in his third statement (also to be found in MFI D45), in the matter of his earlier (second statement) similarity and equivalence comparison of the functionality of the Ausmaq Service, now gone about extending the comparison to including the Maple Leaf Service and the Independence One Service. Hence the defendants repeat their earlier submissions in relation to the second of Mr Maconochie statements. 193 Particular attention is however addressed to two of the specific documents to which Mr Maconochie makes reference on page 20 these being documents prepared by McKinsey & Company, including a draft such memorandum. The defendants submit that Mr Maconochie is now seeking to second-guess these outside consultants' recommendations to the Bank as part of an overall assessment of what some or all of the subject Services were intended to do. 194 A further particular complaint addressed to Mr Maconochie's third statement concerns paragraph 8.5 reading: "Where the terminology used in the above referenced documents [these the being documents referred to in paragraph 8.3 to which Mr Maconochie makes express reference] is different to the terminology used in Tables 1 and 2, but a reasonable interpretation is that the substance is the same or substantially the same as described in Table 1, it is translated for reference purposes in Reference Table 1R below." 195 The submission is that Mr Maconochie is now exposing the very subjective approach which he took and the poetic licence which he took in interpreting Bank discovered documents. It seems that in the exercise which he carried out in relation to his Second Statement he located a number of Bank documents which appeared to deal with strategy or similar considerations [in fact entitled from time to time for example, 'Strategy Implementation Workshop' or 'Strategic Direction Document']. It seems that in relation to the Bank documents which he had regard to in preparing the analysis in his Third Statement, he often could not find documents with similar such headings or material. The defendants therefore submit that when he adverts in his Third Statement to a "reasonable interpretation of the documents" which were taken into account being that "the substance is the same or substantially the same as those which had been looked at for the purpose of constructing the tables" [in his Second Statement], it becomes quite transparent that he has engaged in an altogether inappropriate exercise when seeking to extrapolate from the words in the Bank documents which he was inspecting, to his opinions as to functionality of those Bank Services and as to equivalence and similarity comparisons. 196 If the defendants submissions were accepted in their entirety than this would be upon the basis that the opinions sought to be expressed in tabular form (and by reference to the tables) throw up so many types of insuperable difficulties in relation to the failure to expose the source premises relied upon and are so difficult to follow in terms of the reasoning processes (such as they were) which Mr Maconochie had engaged in, as to simply lack the requisite scientific rigour to permit of being allowed as expert evidence, satisfying section 79 criteria. The submission as I understand it is that this is 'faux science' which does not bear any analysis and that ex facie the opinions must be rejected against each and every parameter required by section 79 of the Act. 197 I have previously adverted to the construction issue for determination in the final judgment as to the meaning to be attributed in the Consulting Agreement to use of the words "equivalent or similar functionality". The difficulty in presently rejecting out of hand Mr Maconochie's attempts to tabulate the notions and concepts related to functionality which underpin opinions which he seeks to express on the issue, reposes in the very uncertainties in being able to pin down with precision at this point in the hearing, what are the extremes of the possible approaches to construing those words. Although I am conscious of the specific defects in the Tables to which I have referred and although I hold that in a number of specific areas it is necessary for Mr Maconochie to make transparent what were his reasoning processes and to clarify a number of ambiguities in relation to those Tables and that it is necessary for Mr Maconochie to expose quite clearly how he went about stepping from his reading of the Bank documents into identifying what he asserts was the functionality of the Bank Services dealt with in those documents, it does not seem to me that the general submission as to faux science and necessary lack of scientific rigour is made out. There is a narrow line, in a case such as the present, between on the one hand, a holding that an opinion is inadmissible as being seen to lack the necessary scientific rigour and/or by reason of being riddled with lack of transparency and/or by reason of lack of identification of the premises considered by the expert, and on the other hand, a view that the very subject matter/comparison under consideration and in respect of which opinions are sought to be expressed may be so subjective or so lacking of precision or definition as to make a court especially cautious not to peremptorily dismiss a bona fide attempt by a person with specialised knowledge as to functionality from being held to be qualified under section 79 to be able to express opinions by way of comparative functionality. 198 My view in this respect is fortified by the fact that in a number of cases the Tables do appear to represent a serious attempt to express opinions on parameters which ex facie appear to have real content. It is extremely difficult for the court in that circumstance to reject the Tables as faux science or an attempt by the Emperor to show his new clothes. In these circumstances I have sought to identify wherever appropriate and possible those sections relating to the Tables where the reasoning processes require to be made explicit. That approach draws the necessary balance between the plaintiffs' entitlement to have a proper opportunity to expose the reasoning processes and hence if they can be exposed, being entitled to have Mr Maconochie's opinions allowed as satisfying section 79 criteria, and on the other hand, the defendants' legitimate entitlement to ensure that they have the benefit of the reasoning processes so that cross-examination can take place and so that an expert duly shown to be qualified within section 79 to express opinions upon this type of subject matter, may be heard when the matter is fully litigated. 199 In the result the court has identified above a number of specific areas in respect of which leave is granted to the plaintiffs to supplement Mr Maconochie's statements essentially by making transparent what were his premises, what were assumptions and what were his reasoning processes. Once the supplementary statements or evidence to achieve this has been brought forward and dealt with it will be possible for the court to complete the exercise of adjudicating upon whether or not Mr Maconochie's opinions can be shown to have been wholly or substantially based upon his specialised knowledge. Until that occurs the Tables to which I have referred and which appear in the Second and Third statements will not be allowed and the ruling in respect of them will remain reserved. Likewise, until that occurs, the conclusions in the Second and Third statements based upon the Tables will not be allowed and the ruling in respect of them will remain reserved. 200 As to the vast bulk of the defendants' other objections to the Statements which appear in MFI D45 the objections fail and the evidence is allowed as admissible. 201 As will be seen from the reasoning above I have generally seen it as appropriate to approach lack of transparency in reasoning processes as going to one of the section 79 criteria, that is to say the necessity for the plaintiffs to establish that the particular opinions sought to be expressed are wholly or substantially based upon the specialised knowledge. An altogether different approach would be to take the view that lack of transparency enlivens one or more of the criteria in section 135 of the Act. It seems clear to me that lack of transparency in reasoning or the failure to properly identify the premises [the factual basis] or the assumptions on which an opinion is based, or relevant ambiguity in the manner in which an opinion is expressed, are all clear candidates for a ruling that the probative value of sections in an expert's report may be substantially outweighed by the danger that the opinion might be unfairly prejudicial to the party against whom the evidence is sought to be adduced [section 135 (a)], as well as for a ruling that such opinion evidence may be substantially more misleading or confusing than probative [section 135(b)], as well as for a ruling that the probative value of opinions is substantially outweighed by the danger that they may cause or result in undue waste of time [section 135 (c)]. 202 Quite obviously a deal of the issues which I have determined to treat with under the rubric of section 79 overlap considerably with the considerations required to be taken into account on section 135 issues. 203 I have closely considered the detailed submissions put by the defendants seeking to have the court exercise one or more of the section 135 discretions to refuse to admit into evidence large sections of Mr Maconochie's statements in which he seeks to express so-called expert opinions or on which he seeks to base so-called expert opinions. If the plaintiffs, notwithstanding the leave granted to supplement Mr Maconochie's statements, prove unable to cure the specific problems which I have identified in relation to sections of the statements then in most instances those sections of the statements will simply be rejected as having failed in the manner explained above, to satisfy section 79 in respect of failure to expose assumptions and transparency of reasoning processes. In that circumstance and as foreshadowed in the Directions on Admissibility I propose to make also plain that if my ruling be incorrect, then the court would have utilised its powers under section 135 to refuse to admit such evidence. If however the plaintiffs pursuant to the leave granted to supplement the statements, are able to cure the specific problems which I have identified in relation to the relevant sections of the statements, then I would anticipate that the defendants may formally seek to again press their submissions seeking to have the court utilise section 135 (a), (b) and/or (c) to refuse to admit those sections into evidence. The defendants may wish to raise additional section 135 submissions going more particularly to the manner in which the plaintiffs come forward with supplementary evidence from Mr Maconochie to cure the above described problems. The proper course in that circumstance is simply to reserve on the section 135 issue until after the plaintiffs have come forward with their supplementary evidence. This will enable the defendants to further consider their position and leave the section 135 issue for determination following any further attack on the supplementary evidence.
Financial Services Markets and Valuation 204 It is convenient to deal at the same time with Mr Maconochie's opinions as to (a) the financial services markets in Australia, New Zealand, United Kingdom, Europe, the United States, Japan, Hong Kong and Taiwan;
(b) the valuation of the performance bonus rights of JMG under the Consulting Agreement; and
(c) the valuation of the Ausmaq Service and of businesses such as the Ausmaq Service. 205 For convenience I shall refer in short to these issues as the "markets/valuation" issues. From time to time I shall refer to the issue referred to in (a) as the "markets" issue and to the issues referred to in (b) and in (c) as the "valuation" issue. 206 As before the parties produced templates. As before the templates proved to be dimensionally different to one another on most parameters. 207 The defendants' templates MFI D38 and MFI D47 sought to categorise both the general field upon which Mr Maconochie seeks to express opinions on the markets/valuation issue as well as to categorise the opinions sought to be expressed in summary fashion. It is convenient to set this categorisation out: Specialised Knowledge (general field on which Mr Maconochie seeks to express opinion ) Opinions Expressed
1.1 Mutual funds D 1 D1.1.1 Market statistics (market size, share, fees) Japanese/Taiwanese/Hong Kong Financial Services D1.1.2 Distribution D1.1.3 Evaluation of entry strategy
D2.1 Mutual funds and life and pension products D2.1.1 Market statistics (market size, share, fees) D2 UK and European Financial Services D2.1.2 Distribution D2.1.3 Evaluation of entry strategy D2.1.4 Required functionality for AUSMAQ D2.1.5 Suitability of UK regulatory environment for EUROMAQ D2.1.6 Exchange opportunity D3.1 General market structure D3 United States Financial Services D3.2 Mutual funds D3.2.1 Trends D3.2.2 Fund supermarkets and service agents D3.2.3 RIA distribution D3.2.4 Informediaries, internet and e-commerce D3.2.5 Market statistics (market size, market shares, fees) D3.2.6 Contestability D4 Structure, operation and size of worldwide financial markets D4.1 Revenue generated by financial transactions for all products worldwide. Maconochie 5 (Vol 12) dated 9 June 1999 paras 10.1-10.5. D4.2 Nature of worldwide financial services marketplace. D5 New Zealand Financial Services D5.1 Included as part of discussion of Australian financial services markets, see paragraph references for D2-D12 above. D6 Analysis of cash flows and cost projections for the purposes of predicting future income. D6.1 Analysis of cash flow and cost projections of financial services projects/businesses and extrapolation to predict future income D7.1 Selection of discount rates in undertaking valuation of financial services businesses. D7 Valuation of financial services businesses D7.2 Estimation of cost to income ratios of financial services businesses. D7.3 Valuation of future cash flows of financial services businesses (including selection of valuation method and price to earnings multiples) D8 NAB Strategic Objectives D8.1 Strategic direction of NAB's e-commerce arm. D9.1 Construction of Consulting Agreement including meaning of performance bonus and buyout provisions, definition of "Operating Entity" and definition of AUSMAQ. D9 Australian Legal Issues - contractual construction, taxation law and admissibility of expert evidence. D9.2 Taxation law relating to capital gains liability of master funds. D9.3 Qualification of a witness to give expert opinion evidence. D10 Australian land titles market D10.1 Characteristics and contestability of Australian land titles market. D11 Australian electricity transaction market D11.1 Size and contestability of Australian electricity payments market D12 Australian insurance market D12.1 Size and contestability of Australian insurance market, emphasising acquisition of NAB customer base. D13 Australian payments market D13.1 Size and contestability of Australian payments market, including functionality comparison with RBA RTGS System and analysis of NAB payments business. D14 Australian bonds market D14.1 Size and contestability of Australian bonds market D15 Australian foreign exchange market D15.1 Size and contestability of Australian foreign exchange market. D16 Australian superannuation market D16.1 Size, segmentation and contestability of Australian superannuation market D17 Australian equities market D17.1 Size and contestability of Australian and New Zealand equities markets D18 Australian cash management market D18.1 Size and contestability of Australian cash management market D19 AUSMAQ Operating Deficiencies D19.1 Likely market reaction to operating deficiencies. D19.2 Ease of rectification of operating deficiencies D20 Australian financial services markets generally
D20.1 General market description and trends (including definitions. D20.2 Key industry trends (including master trusts, wraps and internet/e-commerce. D20.3 Key industry statistics such as market size and growth, market shares of existing firms and fee levels. D20.4 Uniqueness of AUSMAQ's regulatory structure D20.5 Planning and implementation of 'green fields' projects. D20.6 Susceptibility of financial services markets to reconfiguration D20.7 Estimating market penetration of a service designed to reconfigure financial services markets (including application of crowd behavioural finance models) D20.8 Internet distribution
D21.1 Analysis of Market statistics, for the purpose of drawing conclusions from statistics and giving projections D21.2 Pricing of products D21.3 Operating complexity and regulatory structure of Master funds D21.4 Relative power of industry participants D21.5 Description of investment process D21.6 Revenue sources and categories of cost of advisers/dealers D21 Australian mutual funds industry D21.7 Revenue sources and categories of cost of fund managers D21.8 Client access requirements of fund managers D21.9 Fund manager strategy D21.10 Makeup of a typical investor's portfolio D21.11 Difference between wholesale and retail markets D21.12 Distribution General D21.13 Failure of Competing order routing services
208 A careful examination of MFI P105 which in general serves as a convenient repository with which to examine Mr Maconochie's background and varied experiences, (by which I intend to include every parameter of his expressed training, study or experience), makes clear that from the time he gained his tertiary qualifications he has been engaged in many and diverse professional and business activities which by reason of their complexity have regularly required a variety of skills of high order and have generally required a complex of skills of analysis, reasoning, application of methodologies and research (in the sense of iterative process in terms of the systematic investigation and setting out of the data, facts or hypotheses of the situation/project/study then in focus). It is clear from Mr Maconochie's evidence that he has on many occasions conducted surveys of technical and commercial literature which appeared to contain information relevant to the components of the subject at hand and has identified the sources of the information, retrieved and collected the information in both written form and by conducting interviews, correlated the information, inspected examined, studied and analysed the information, compared the information to the facts or hypotheses, marshalled them and formed informed conclusions. 209 It is also clear from Mr Maconochie's evidence that he has been entrusted by his several employers, partners and/or fellow directors, to carry out tasks which could only be required of a person with the intelligence and aptitude able to work through multiple facets of difficulty and complexity with an eye to detail. The range of his professional and work-related activities bears testimony to this. 210 It is also clear from Mr Maconochie's evidence that a considerable part of the experiences which he has had both before and in particular after 1989 have involved the need for him to identify 'windows of opportunity' and to make commercial evaluations of posited new projects which have often involved at various levels and degrees, a complex of technological and technology related issues. 211 The evidence establishes that his professional experience has included computer-based analysis and research involving complex mathematical models of physical and commercial systems, and applying that experience in the conception, analysis, design and realisation of new projects and services. The evidence establishes that he has had a considerable exposure over an extended period of time to financial products and services and a special interest in relation to new and innovative approaches to improving modes of access to and dealings in relation to financial products and services and markets. Clearly the evidence establishes that he has had considerable occasion to carefully contemplate matters of this type. The evidence establishes considerable reading by him on matters of this type and establishes research and enquiries by him at a number of levels at different points in time generally in relation to both financial products and services and in relation to new and innovative approaches to improving modes of access to and dealings in relation to financial products and services and markets. 212 The manner in which the parties, but more particularly the defendants, addressed their submissions on the expertise question was to focus upon the particular countries or continents in respect of which Mr Maconochie had had particular training, study or experience in order to, from the defendants' perspective, seek to suggest that the evidence showed a considerable gap between the breadth and depth of that training, study or experience in relation to Australia on the one hand and in relation to countries or continents outside of Australia on the other hand. [I do not by this mean to suggest that the defendants' accepted in general terms that Mr Maconochie had the breadth and depth of training, study or experience necessary to qualify him to be in a position to express expert opinions on many of the issues in relation to Australian market issues. However the defendants did concede, for example, that Mr Maconochie had the necessary training, study or experience required in order to be able to show that he had specialised knowledge from which to be in a position to express a number of opinions in relation to the Australian mutual funds industry as for example, as to the relevant power of industry participants; the description of investment process; revenue sources and categories of cost of fund managers; client access requirements of fund managers; fund managers strategy; the difference between wholesale and retail market; and distribution aspects]. 213 As the above reasons have already stated it is also of course quite plain, that his experience in relation to the Ausmaq Service and its forerunners required a considerable understanding and command of conceptual design matters and of functionality at a number of levels and clearly furnished him with specialised knowledge as to the functionality of Ausmaq. The evidence also establishes that his experience has extended to a clear involvement and understanding within Australia covering a range of financial products and services in the financial services industry [the reasons below reserve for further submissions, the issue in relation to New Zealand]. As the reasons below will make plain the evidence clearly establishes that his training, study and experience has equipped him with the necessary specialised knowledge to be in a position to express opinions in relation to Australian financial services markets generally and particularly in relation to the Australian mutual funds industry. These areas are generally the areas in respect of which Mr Maconochie has carried out extensive and intensive work from 1989. 214 The fundamental substantive issue to my mind concerns whether Mr Maconochie has been shown to have specialised knowledge upon which to be able wholly or substantially to base opinions in relation to the viability of the exploitation of Ausmaq in target markets outside of Australia. This of course focuses on both the ability to express opinions as to the product and forms of product suggested as having the capacity to penetrate relevant target markets, as well as upon the ability to express opinions as to what those markets were and by reference to his own suggested knowledge of those markets, to express opinions as to the potential for penetration of those markets. But as will be seen from the reasons below, the anterior focus is also upon the ability to express opinions as to the alleged new concept said to be embodied within the Ausmaq System functionality. The essential point is that the relevant issue in the proceedings concerns a matter of considerable complexity capable of analysis at a number of levels and from a number of points of perspective. The proceedings concern a claim that the defendants had, but did not grasp or pursue, the opportunity to take the lead in introducing what is alleged to have been a new technology or new technology paradigm, seeking 'first-mover advantage'. The issue concerns at least at one important level, whether or not the Ausmaq Service had any and if so what potential to change substantially the way market dealers and players (whether individuals, groupings of individuals, or institutions) had conventionally carried on relevant activities and their interrelationships and manner of dealing with one another. The issue concerns the posited arrival of a new player, the identification of what the new player offered [viz the functionality of Ausmaq and the posited enhancements, modifications and additions to Ausmaq] and the need for existing players to reassess their antecedent positions in the light of the posited activities and suggested new approaches brought onto the scene by the new player. One only has to describe such an issue to appreciate the difficulties which are involved in determining whether a particular person with a particular background in terms of training, study or experience has or has not been able to demonstrate the acquisition from that training, study or experience, of the requisite specialised knowledge to be in a position to express opinions on the subject matter at hand. 215 This shorthand reference to Mr Maconochie's entitlement within section 79 to 'express opinions on the subject matter at hand' directs one's attention to a very significant matter. In a way it may be seen to be at the heart of the issue as presented. What precisely is it, it may be asked, in relation to which Mr Maconochie is seeking to give evidence and to express opinions? The answer would seem to be as follows : (a) that over a period of time and by reference to his experience, training, reading and study, he came to identify a new concept which, if capable (as he believed it was) of being successfully introduced into financial markets, would be likely (as he then believed) to revolutionise those markets and hence to prove of enormous financial benefit to those who might introduce the concept into sundry target financial markets around the world; [it is convenient to refer to these matters as 'class "a" evidence] (b) that he conceived, created and built or had built, the Ausmaq Service as the vehicle by which to achieve/deliver the concept; [it is convenient to refer to these matters as class "b" evidence]
(c) that from a conceptual perspective, the Ausmaq Service had an actual or potential functionality such that with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could be successfully introduced into target financial markets around the world; [it is convenient to describe opinions of this nature as class "c" opinions] (d) [that his own training, study or experience has been such as to have permitted him to acquire specialised knowledge on which wholly or substantially to be in a position to base opinions of an expert nature]: (i) as to the actual detailed structure of relevant target worldwide financial markets and as to the actual detailed interrelationships between different players in the different worldwide markets and as to the actual dynamics of those interrelationships (all being matters suggested as germane to the question of the probability that the new concept would, over particular periods of time, prove viable [or as Mr Maconochie puts it in his Fifth Statement, be on "the verge of 'tornado growth'" ] in those particular markets) (ii) taking into account his capacity to give expert opinions on the matters identified in (i), as to what, over particular periods of time, were, or are, the particular prospects for the posited success of the introduction into relevant target financial markets, of the Ausmaq Service (with such enhancements, additions or modifications as might be necessary in any given case). [It is convenient to describe the d(i) and (ii) types of opinion as the class "d" opinions] 216 I see no difficulty in Mr Maconochie being entitled to give evidence of the nature referred to in (a) and (b). In a real sense evidence of certain of these matters is not 'opinion' evidence at all but is simply evidence of what Mr Maconochie as a matter of fact, did and came to believe. Whether the vehicle for delivery of the concept said to have been built for that purpose was adequate for that purpose is a question of opinion at various levels dealt with in these reasons which, subject to some limitations, hold that Mr Maconochie has by his training, study or experience been shown to have specialised knowledge on which wholly or substantially to be in a position to base such opinions. 217 I see no difficulty in Mr Maconochie being entitled to give evidence of the nature referred to in (c). His training, study or experience has been demonstrated to be such as to have equipped him with the necessary specialised knowledge on which wholly or substantially to be in a position to base opinions at that level on that matter. It may seem curious that Mr Maconochie, in the absence of very detailed knowledge of every parameter of the relevant markets, may be said to have satisfied the section 79 criteria in being able to express any opinions at all in relation to target financial markets around the world, whether at a conceptual or any other level. The matter rests on the evidence before the court as to his training, study and experience. I am satisfied from his evidence that in the course of his experience including his reading of a number of books inter alia on the development and history of stock exchanges in the world he identified a missing link in the financial services industry in Australia and generally, that being a market service mechanism that was independent of product suppliers and intermediaries and that would enable the customer to be represented as the most important person-the one with the money. The matter is referred to above [see the class "a" evidence] and is referred to again below. I am satisfied from this evidence as well as from his evidence that he made sufficient general enquiries relating to the management and marketing of securities and in relation to market structure as to permit him to give evidence by way of "c" class opinions. 218 The particular problem on the matters argued before the court in relation to his suggested expertise within section 79 parameters, goes to whether or not he has been shown from his training, study or experience to have been equipped with the necessary specialised knowledge on which wholly or substantially to be in a position to express the "d" class opinions. 219 Where on the evidence Mr Maconochie appears to have had virtually no, or no appreciable, training, study or experience in or involvement with a target market, it becomes fairly plain as it seems to me, that notwithstanding firstly, his very extensive and skilled background and experience and secondly, his training and demonstrated earlier ability to use methodologies to evaluate a number of projects and businesses in order to enable windows of opportunity to be identified, he simply falls short in not having demonstrated sufficient adjectival knowledge of the target market to be in a position, even with the benefit of having read books and outside reading materials relating to the target market, to qualify as having acquired the necessary specialised knowledge to permit the expression of the "d" class opinions sought to be expressed. And insofar as he may in relation to such markets, be entitled to express "c" class opinions, the weight of those opinions in relation to the plaintiffs case generally will be a matter for final address. 220 But where one does have a target overseas market in respect of which Mr Maconochie is shown to have acquired certain real familiarity and to have had certain dealings, the position becomes more difficult. With his demonstrated ability at analytic technique and use of methodologies to identify windows of opportunity, and taking into account his specialised knowledge in relation to the Australian market, in relation to how Ausmaq is said to have been conceived and developed with careful and considered thought to its aim of achieving a paradigm shift in the relationships of different players in the market and is said to have had the potential to have achieved this end and in relation to the functionality of Ausmaq, it may well be that a certain demonstrated level of depth and breadth of experience in relation to financial services in the subject overseas market may have given Mr Maconochie a sufficient foundation on which to build by extensive reading of books and outside reading materials and/or by the making of certain particular enquiries, to in fact move across the mark, so that it can be said that he has, by this route, demonstrated training, study or experience which has equipped him with the specialised knowledge on which, wholly or substantially, to be in a position to base expert opinions in relation to the Ausmaq window of opportunity qua that overseas market. This is particularly the way in which, as I see it, the question is raised as to whether or not Mr Maconochie has acquired specialised knowledge on which to base expert opinions in relation to the Ausmaq window of opportunity in the United States.
Opinions as to the United States Financial Services and Markets 221 There is no doubt but that Mr Maconochie's evidence establishes that he has had a significant interface with United States financial services and markets over the course of a number of years. 222 Take for example the evidence which he has given in relation to his research into the funds management industry in the United States. [transcript 5088 and following]. He seeks to give evidence that he identified a missing link in the financial services industry in Australia and generally that being a market service mechanism that was independent of product suppliers and intermediaries and that would enable the customer to be represented as the most important person - the one with the money. He seeks to give evidence that the functionality of the market which he envisaged required the simultaneous matching and settlement of the needs of three parties; first and foremost the customers, whose money he asserts drove markets; second, the dealers who would have a role in bringing the service to the market; and third, the product suppliers [MFI P105 at pp 165-166]. The evidence is that during the period of probably around mid-1991 through to the end of 1991 he purchased a number of books on the development and history of stock exchanges in the world and their membership and how they interacted with the market. He also obtained publications from the Investment Funds Association. The books he purchased also covered the United States as to the structure of the funds management industry. He studied that material, he examined it and he thought about it and in some cases he telephoned people who were either mentioned in the books or to whom he had been referred by other fund managers or dealers or persons who provided technical support to the Australian Stock Exchange. His evidence also includes particular detail of his contacts at different points in time with for example fund managers in the United States. His evidence is that he carried on research [this word being no more than intended to summarise the precise evidence which he gave as to precisely what he did] over a period of time [which he described as 'a continuous process' but which more particularly appears to have taken place from the early 1990s and in 1994 and also 1995], which inter alia involved telephoning fund managers and foreign companies requesting them to send to him information about their products and their organisation and inviting them to visit him at Ausmaq's business in Sydney. Such visits did take place this being a continuing occurrence through 1997 and for example he was visited by persons from Fidelity Investments, the head of Vanguard [Fidelity Investments and the Vanguard Group have apparently been leading mutual fund companies also providing services to the US adviser market] and he apparently also spoke with Merrill Lynch in Sydney. There were others. He apparently asked these contacts much the same question which was the nature of their securities, how they were marketed and how they were managed. He received information about the products and the companies and how they managed the products and manufactured them and marketed them. That information included product descriptions of each of the products and how that product fitted into the manufacture, or questions as to the supplier or manager of that product. He learned that it was the fund manager who owned or managed the product and was apparently in receipt of information as to how the product could be sold in different jurisdictions. He sought and received information as to the extent, if any, that those products were different from one jurisdiction to another and as to who were the individuals who were responsible for those products. He made such inquiries in relation to the United States of fund managers whose head offices were in the United States. More specifically in relation to the United States his evidence was that the companies from whom he received information included Morgan Stanley, Massachusetts Financial Services, Fidelity, and later in 1996, Vanguard and Merrill Lynch. 223 It is clear that in the absence of cross-examination the court must give full credence at this point in the hearing to sworn evidence of the study by Mr Maconochie of books covering the structure of the funds management industry in the United States and of an ongoing process over a number of years by way of his interest in and research ( both in writing and by making inquiries of personal contacts), in relation to the products marketed by fund managers, the nature of the securities etc offered by fund managers, the nature of the marketing and the nature of the management of such funds. 224 I return to Mr Maconochie' s evidence as to his involvement with the United States. He had a detailed involvement with the writing and promotion of the prospectus for First Australia Fund Inc which became a closed-end investment company listed on the American Stock Exchange in New York, the concept being to establish a 'country fund' which would enable retail investors in the United States to invest in Australian equities by simply buying securities listed on a US stock exchange. He met a number of US investment advisers to answer questions about the company and the company's capability to undertake the role that was proposed in the management and advisory functions of the fund. He thought about and researched how such a US-based fund would be managed from an Australian base He carried out many activities related to the administration of the company including giving instructions to incorporate the investment manager. In order to examine the fees which the underwriter and the investment manager should receive, he ascertained the fees that United States companies were able to charge on bond funds and the typical expense ratios. He obtained that sort of information through an underwriter who subscribed to Lipper Analytical Services and from whom he was able to obtain a number of volumes, including one which showed all of the managed funds and investment companies in the United States showing the fees and the nature of the investment management operations. He dealt with underwriters and had to become familiar with certain SEC requirements. After the closing of the prospectus he attended several promotions in New York at which there would typically be a large number of advisers representing many millions of investors. Once the underwriting agreement was executed and the final prospectus issued on the closing, he received a cheque for in the order of US$700 million and directed the investment of those moneys into short-term securities which were called re-purchase agreements. He was also involved in the decision as to how to bring the funds into this country dealing with currency brokers and obtained information as to what the brokers had on the depth of the United States/Australian currency market; who were the traders; who was involved; how much volume they did each day; typically who were the main players in the market-it being Mr Maconochie's endeavour to ascertain whether it was possible to bring over $1 billion of Australian currency into this country in the space of five or six working days without moving the Australian currency market. 225 He was also involved with the other prospectuses earlier referred to. Each of these prospectuses involved obtaining similar or additional information to that already referred to. Each involved circumstances in which he was obliged to and did give presentations. In relation to what became the Prime Investment prospectus, the structure of the fund was designed to sell securities or shares to Canadian investors as well as to European investors but not to US investors. The underwriters suggested a structure that had shares and warrants or options. To sell the shares in Europe required that the form of bearer bonds be utilised. Hence Mr Maconochie travelled to Brussels to speak with Morgan Guarantee Trust to see how bearer bonds worked and how they would issue them and how they would manage them. Mr Maconochie together with others gave a number of presentations in London to broking houses and institutions interested in purchasing bearer stock or bearer shares for their clients. It was necessary for Mr Maconochie to write certain procedures in relation to certain transmissions and dealings and in that regard to ensure, with advice no doubt, that the procedures complied with United States and Canadian Law and with the United States dealer licences under which they operated. 226 In approximately mid 1985 Mr Maconochie was involved with researching the alternatives for establishing and operating the proposed new international investment management company, EquitiLink International Management Limited in Jersey. In connection even later with the prospectus for the First Australia Fund with the aid of lawyers he wrote the submission to the SEC for a dealer's licence and on one of his visits to New York to finalise the details of the prospectus and company and licence matters, he met with the President of the American Stock Exchange and arranged for the listing of the new investment company on the American Stock Exchange. When operations commenced in the December 1985 he was responsible for EquitiLink International meeting the compliance requirements of the Jersey, United States and Australian tax and regulatory authorities. In about late October and November 1985 he was one of three persons who visited the United States to conduct a 'roadshow' to Pru-Bache's and Bear Stearn's investment fund advisers. He attended the large presentations in New York to the investment fund advisers who would be selling the securities in the Fund and provided support to the marketing operation by representing EquitiLink with Messrs Freedman and Sherman. He also wrote the operational procedures which would govern the management operations in Sydney, Jersey and Boston in accordance with US Investment Act of 1940 which governed the management of closed-ended investment companies in the United States. In doing this he had to acquaint himself with United States tax and securities laws and spent several weeks in New York with a firm of lawyers learning about the legal and tax structure of the United States securities industry covering dealers to investment and investment company matters and the accompanying accounting and reporting and compliance procedures. He was given voluminous documents and wrote notes and used the information which he gained to write the operations manuals for Jersey, Australia and the United States and Australian custodians. It was Mr Maconochie's function as Treasurer and Chief Financial Officer of the First Australia Fund to ensure that the proportion of funds the United State Fund invested in certain categories satisfied the levels necessary to achieve the tax-free status of the Fund under United States tax law and the Investment Company Act of 1940 was preserved and to direct the operations of the Fund and supervise its Investment Adviser and Manager and to conduct the multicurrency operations at the outset to convert United States dollars into Australian dollars. He also drafted the Board papers and quarterly reports to shareholders and devised and establish the management contract review process. The Board papers typically contained audit reports, investment management reports, reports on the United States and Australian investment markets, market and economic reports from the consultants Prudential Insurance Company of America, investment performance forecasts, cost performance of the Fund against budget, financial analysis and contract renewal reports. In the early days he wrote and compiled the entire set of Board papers except reports from third parties such as the custodian and Prudential which he reviewed and he briefed each director on the duties and performance of the Fund. 227 In early 1986 he played a leading role in the development of The First Australia Prime Income Fund Inc, the objective of which was to invest in Australian and New Zealand debt securities. Originally envisaged as a US$200 million sized fund, the demand was for US$2 billion worth of stock in the Fund. The underwriters put a ceiling of US$850 million on the offering and on 17 April 1986 the fund closed with US $856 million and an estimated 350,000 US investors. Mr Maconochie was again in the role of Treasurer and Chief Financial officer. This was the largest initial public offering in US history. Ten years later the fund had grown in size to more than US $3 billion and was one of the best performing funds in the Morgan Stanley Index over that period. 228 In early 1986 Mr Maconochie thought up the idea of offering United States investors, who typically received interest rates of about 6% in the United States on their deposits, Australian interest rates which were then up to about 19 percent per annum on cash and ninety-day maturity debt securities and 14% - 15% on 2 - 5 Year maturity debt securities. Mr Maconochie's proposal was that a company similar to The First Australia Fund Inc be established which, instead of investing in equities, would invest in Australian and New Zealand debt securities to exploit the anomaly. Thus, if interest rates in Australia and New Zealand dropped in the future, any weakening in the value of the Australian dollar against the United States dollar would be offset or even exceeded by an increase in the market value of the debt securities in the Fund's portfolio. Meanwhile, US investors would receive interest at about 10 percent more than they could in the United States. 229 During the course of the exercise in which he was writing a draft prospectus in substantially final form from end to end, he had to acquaint himself with debt securities markets in Australia and New Zealand and with how the debt securities were rated and how this compared with the situation in the United States. Hence it was necessary for him to research the United States debt securities market and it's structure, including the distribution of debt securities by dealers, for this purpose. In researching the New Zealand debt securities market he had to acquaint himself with the New Zealand economy and the New Zealand debt securities markets. 230 Mr Maconochie also gave evidence that in relation to what he did concerning the United States prospectuses and funds, he did have dealings with United States administrators, transfer and register agents. He telephoned several of the organisation's listed in a book under the headings of fund administrators, transfer and register agents and custodians and received from them certain information which led to him telephoning them to ask them certain questions as to how much they charged for varying numbers of investors and moneys in relation to custodians. He also attended in-person meetings with some of them. The information which he requested was as to what the custodian did or what it provided or what the registrar or transfer agent did or provided. In relation to a custodian he asked them the process by which they operated; how they went about their business; who was involved and in particular, how they went about taking securities into custody, settling those securities, reporting on them and accounting for them. In relation to administrators he asked them how they accounted for realised and unrealised capital gains, realised and unrealised currency gains and losses and the like. The main material which he received from administrators, transfer agents and custodians concerned distribution of prospectuses as well as the distribution means of communicating with investment fund advisers and dealer networks and their clients in relation to the funds (including information that was released to the stock exchange). 231 Mr Maconochie was asked in relation to what he did in connection with United States funds, whether he did anything in relation to ascertaining securities investment markets or the state of technology applications. His evidence was that he asked the underwriters how many investment fund advisers they had, received answers and asked how the underwriters communicated with the investment fund advisers. Prudential-Bache for example said that they had a very large network of about 15,000 investment advisers and that they communicated with them once a week by telephone on a hook up with all those advisers on the line as necessary-if the advisers wanted to find out something about the fund directly they would often get on the line and the underwriter or the dealer group would get onto the fund or the Treasurer. On one occasion Mr Maconochie in relation to the Prime Income Fund, attended at a meeting where a number of executives of Prudential-Bache were present and there was a speaker on the wall and those present consecutively spoke to the dealer group of which there were about 15,000. On another occasion Mr Maconochie was telephoned at home when a representative of Prudential informed him that the advisers wished to know what he was going to do about a currency loss and was informed that there were 15,000 advisers on the line and asked to address those advisers as he did. 232 Mr Maconochie was asked as a result of what he did in connection with the United States funds and prospectuses whether he had any understanding of the state of technology applications in relation to financial services in the United States. His answer was in the affirmative and that his understanding had become that it was almost entirely manually based. By this he meant that information was sent out by post or received back from advisers by post or internal company mail. The highest state in relation to communicating with dealers was on the telephone network but in terms of practical operation, almost everything else was manual paperflow and manual intensive. 233 The defendants then submit that the central focus of many of these contacts took place during the course of his developing the Ausmaq Service with an eye to attracting such products to the Ausmaq Service in Australia. The reasons below deal with Mr Maconochie's demonstrated specialised knowledge entitling him to express class "d" opinions by way of an assessment of the prospects for success of the further commercialisation of the Ausmaq Service in Australia and identify the many areas qua the Australian Financial Services markets in relation to which he has demonstrated s79 specialised knowledge on which to base opinions. 234 The short proposition for which the defendants contend is that the whole of the evidence advanced by Mr Maconochie as to his relevant training, study and experience, amounts to far too superficial and flimsy a basis to possibly qualify him as having acquired the necessary specialised knowledge to express opinions in relation to for example the United States Mutual Funds market. In that circumstance it is of course necessary for the court to return very closely to the precise general evidence given by Mr Maconochie in relation to his experience with and study of the United States markets generally and in relation to the financial industry in the United States generally. At this point it is pertinent to observe that once one has, as here, a witness with a demonstrated particular interest in e-commerce/electronic commerce in relation to the financial services industry with particular experiences in relation to that industry both in Australia and in United States who has set about endeavouring to study in order to understand aspects of that industry and whilst engaged in that endeavour perceives that a particular market service mechanism is absent (the so called 'missing link') and whom, in the course of that exercise, has taken the opportunity to read books and other materials and to make particular inquiries of representatives of players in the different countries and who has clearly acquired certain knowledge as to aspects of the structure, product providers and players who participate in the markets in each of these countries, it is always going to be a question of degree as to whether or not such a person will have demonstrated acquisition of the necessary specialised knowledge in order to be in a position to express opinions on the relevant issue. Whilst it is important for the court to be satisfied as to how the training, study or the experience has made the witness an expert in some aspect of the field of specialised knowledge and whilst it is important that witnesses must identify their expertise 'with precision', the fact is that special focus requires to be placed upon the particular issue in respect of which the opinions are expressed in any particular case. As has already been observed, the claim is that the defendants had, but did not grasp or pursue, the opportunity to take the lead in introducing what is said to have been a new technology or new technology paradigm seeking 'first-mover advantage'. 235 At the end of the day I have found the question for decision a very difficult one indeed. Has Mr Maconochie been shown to possess specialised knowledge on which wholly or substantially to base opinions as to the posited arrival of a new player and the need in that circumstance for existing players in United States markets to reassess their antecedent positions in the light of the posited activities and suggested new approaches brought onto the scene by the new player and with what result qua the plaintiff's loss of opportunity damages case? The clear burden of the defendant submissions was that notwithstanding the plaintiffs strenuous attempts to identify and elicit every skerrick of Mr Maconochie's relevant training, study or experience in the endeavour to make good the proposition that the requisite specialised knowledge had been achieved, the evidence suggested a patchwork of ad hoc inquiries into the workings of the United States markets accompanied by some wider reading. The submission was that there was no demonstrated or suggested cohesion of study to suffice to satisfy the requirement that he show special knowledge or experience which is sufficiently organised and which he has acquired in relation to the United States markets generally but more particularly in relation to the dynamics of the interrelationships between particular players in the United States markets. The submission was that some knowledge of aspects of the United States markets was not enough. The submission was that what was disclosed was an exposure or involvement limited to the particular matters and projects in respect of which Mr Maconochie had been carrying out focused but limited, albeit significant, tasks. The submission was that he was simply not shown to have acquired a sufficiently deep understanding of the history and structure of the relevant markets but to have simply reacted to commercial imperatives and to have gained his relevant knowledge in that limited way which was insufficient to be shown to have conferred upon him the necessary specialised knowledge. 236 Clearly the central issue is always going to require the court to deal with the hypothetical and necessarily artificial situation posited by the plaintiffs' loss of opportunity damages case. Clearly in respect of that issue, diverse views from different perspectives may be advanced albeit by persons with differing types of specialised knowledge. Depending on the instant specific situation before the court in relation to a particular putative expert, specialised knowledge in great depth and breadth as to the nature of the target markets may suffice to permit a particular person with a comparatively shallow knowledge of the functionality of the Ausmaq Service, to express "d" class opinions in relation to the plaintiffs loss of opportunity damages case based upon assumptions as to posited functionality parameters. Specialised knowledge may also be capable of being shown in terms of a relatively conceptual approach to the loss of opportunity damages case by a person who understands sufficient of the market structure and the structure of the funds management and investment management operations to be able, with the benefit of current statistics, to be able to express "d" class opinions in relation to the loss of opportunity case. There are a number of sub-aspects and arguable approaches of relevance to the loss of opportunity damages case. The nature of the issue is simply not such as to permit the court to narrowly circumscribe the nature of the training, study or experience which may qualify as showing the acquisition of specialised knowledge on which to permit a putative expert wholly or substantially to base expert opinions in relation to the issue. In real terms a measure of perspective is here necessary simply by reference to the complex of practical, conceptual, technology oriented and/or business oriented issues all of which may in some fashion play a part in equipping a putative expert with specialised training, study or experience more particularly in one field then another (but having had diverse involvement with other fields), to be shown to have satisfied section 79 in being then entitled to express opinions in relation to the issue. 237 It is to be recalled that this judgment is being delivered fairly early in the life of these proceedings where the evidentiary cases of the parties are shortly to commence. The difficulty has been that the court has been pressed by the parties and more particularly by the defendants to decide the question of Mr Maconochie's expertise now, as that question is likely to impact on the Court's approach to many other witnesses and to impact upon the mode in which the defendants cross-examine witnesses to be cross-examined prior to Mr Maconochie being called. And of course Mr Maconochie has not been cross-examined on the voir dire. It is also to be recalled that in the very extensive openings delivered by the parties, the court has been taken to many areas of detail said to be later to be exposed by the evidence. The defendants in particular have taken the court to detailed charts which seek very extensively to examine for example, parameters of the relevant suggested overseas markets. The chart in relation to the United States markets goes in minute detail into a discussion of the suggested complexity of the United States markets. But at this point in the hearing the court is not entitled to regard this chart or that opening as evidence before the court on the question of Mr Maconochie's expertise. That question requires to be determined on the evidence before the court on that question. In the result such uncertainty as the court may have with respect, for example, to precisely how the detailed information and study by Mr Maconochie of the United States markets may or alternatively may not ultimately be shown to fall short in depth and breadth to prove as a reliable source of evidence on the issue, simply remains one of the factors with which the court must deal at this point in time. Take for example the question of whether and if so to what extent Mr Maconochie's experiences in relation to developing the Ausmaq Service in Australia may be in part a legitimate platform from which he is able to express opinions in relation to the possible exploitation of the Ausmaq Service with or without modification or adaptation in the United States market and with what potential results. This again is a further question the answer or possible answer to which must be unknown at the present state of the litigation. 238 Whilst the defendants would no doubt submit that in relation to areas of uncertainty such as the above, the plaintiffs have simply not made good the onus which lies upon them to satisfy the court that the section 79 criteria are established in relation to Mr Maconochie [cf NMFM Property Pty Ltd v Citibank Ltd (1991) 161 ALR 576], the defendants also approached the matter by an alternative route. Here they submitted that the court may take judicial notice of the suggested fact that the mutual funds market in Australia is likely to be very different from the mutual funds market in other countries such as for example the United States. The submission is that the court should simply infer that there will be an entirely differing environment in relation to many parameters including for example market structure, dynamics, major trends, automation modes, different players, differing legislation, differing allegiances, differing product structure and the like. The plaintiffs on the other hand submit that in the absence of evidence the court is in difficulty in drawing any such inference with any specificity. 239 It seems to me that commonsense dictates that the court may and should take judicial notice of the fact (or simply infer) that there will be very different dynamics in relation to differing markets in different countries. But this is not necessarily to say that there may not be some respects in which similar types of factor may well be found as having a relevance or possible relevance to [or as operating] both in Australia as well as in certain markets in different countries. Hence the court ought not to simply assume that there can be no respect in which specialised knowledge gained by training, study or experience held by a person in relation to the Australian market can have a relevance as assisting a chain of reasoning process qua questions thrown up by or relating to a foreign market. 240 As earlier pointed out the United States market is one in respect of which Mr Maconochie is shown to have acquired certain real familiarity and to have had certain dealings and in relation to which he has been shown to have acquired certain adjectival knowledge. In my view the evidence establishes that he has carried out research into the funds management industry in United States and that he has studied detailed material in relation to the structure of the funds management industry in the United States and has over a number of years had an interest in and carried out research in relation to products marketed by fund managers, the nature of securities etc. offered by fund managers, the nature of the marketing and the nature of the management of such funds. His Australia Fund position involved him in drafting Board papers over a period of time which contained reports on both the United States and Australian investment markets. He also carried out research into the United States debt securities market and structure. Whilst Mr Maconochie may not be shown to have had anything like the most intricate knowledge in terms of the United States markets at the most detailed levels the question is whether or not he has acquired sufficient knowledge of those markets to be in a position to express "d" class opinions.
241 I return to the simple fact that the clear burden of a very great deal of the opinions which Mr Maconochie seeks to express on the markets/valuation issues relate in one way or another to the prospects for success of what both parties appear to accept as being the 'novel' Ausmaq proposition in the established financial markets around the world. To my mind in the very unusual circumstances of the issue as raised in these proceedings, Mr Maconochie's training, study or experience in the terms in which he has expressed it does demonstrate that he has acquired sufficient knowledge of the United States relevant markets as to be in a position to express expert class "d" opinions by way of an assessment of the detailed prospects for success of the introduction of the Ausmaq service into the United States markets. [Without being exhaustive I intend this finding to extend to cover expression of opinions as to the ascertainment of United States addressable markets and their extent, likely market penetration and prediction of market success] In reaching this view I have taken into account the extent to which Mr Maconochie is entitled to rely upon the full extent as sworn to, of his own study and analysis (weighed in the light of his further inquiries and obtaining of information in relation to particular research and in light of the background of his antecedent adjectival knowledge, such as it was in relation to the United States markets) of books and materials on a number of areas as having furthered his store of knowledge upon which to lay claim to having acquired the necessary 'specialised knowledge'. It particularly takes into account his earlier identified training and experience in relation to computer-based analysis and research involving complex mathematical models of physical and commercial systems and applying that experience in the conception, analysis, design and realisation of new projects and services. He has carried on research into the funds management industry in the United States including the structure of that industry. He examined and thought about the books and materials he read. He discussed aspects of the information with the persons identified. In investigating aspects relating to fee issues qua the Country fund proposition, he had the benefit of a volume showing all of the managed funds and investment companies in the United States showing the fees and the nature of the investment management operations. The holding does not however extend to suggest that he has been shown to have acquired specialised knowledge on which to be in a position to wholly or substantially base opinions as to relevant United States regulatory requirements. 242 The above holding carries with it a finding that in terms of the approach taken by Wigmore, Mr Maconochie has been shown to have acquired by his training, study or experience, the experiential capacity necessary to qualify him to express opinions on the market issues. He has by his study, training or experience been shown to have become sufficiently acquainted with different views in the field with which the markets issue is concerned as to permit him to be in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature which he has read. Importantly he has sufficient experiential capacity to permit him to draw on statistics and other forms of graph or tables or figures as may be located in relevant literature to provide him with a proper basis upon which to draw in expressing his own opinions. 243 Clearly this finding says nothing in relation to the weight which the court may ultimately determine to place upon his opinion evidence. And of course the court may ultimately in respect of Mr Maconochie' s evidence, as no doubt with the evidence to be given by a number of other witnesses, determine that opinions as to particular sub-aspects of the many matters to be taken into account on the plaintiffs loss of opportunity case in relation to the United States markets, deserve to be given more weight, whilst opinions as to other sub aspects of the many matters to be taken into account on that case deserve to be given less weight. 244 In the result Mr Maconochie is shown by his training, study or experience to have acquired specialised knowledge upon which wholly or substantially to express opinions relating to United States Financial Services, that is to say being class "d" opinions as well as the opinions described in Column 4 of MFI D38 as D3.1 - D3.2(3.2.1 - 3.2.6).
Valuation 245 It is convenient to refer at this point to the question of Mr Maconochie's suggested expertise in relation to valuation issues and the like. As the defendants template MFI D38 makes plain Mr Maconochie purports to express a number of opinions in relation to the field described by the defendants as "D6" - "analysis of cash flows and cost projections for the purposes of predicting future income" and further attempts to express opinions as to valuation of the relevant financial services businesses (the field described by the defendants as "D7") and generally in relation to the plaintiffs' loss of opportunity damages case. 246 Mr Maconochie in a number of statements endeavours to set out or exhibit financial calculations and information concerning the actual, projected and/or expected gross operating revenue and cash flows of NMG in relation to the potential of the Ausmaq Service for a number of countries including the United States, Australia and New Zealand for the purposes of the Consulting Agreement and the claimed associated rights of JMG as relevant to its claims in the proceedings. He endeavours to express opinions based upon the detailed financial calculations and information included in his statements or appended to them, concerning the actual, projected and/or potential revenue and cash flows of NMG, and of certain NAB Services which JMG contends are, for the purposes of the Consulting Agreement, of similar or equivalent functionality to the Ausmaq Service. He purports to state what in his opinion is the basis for the value and for the valuation of the actual, contingent or potential assets of NMG and JMG in relation to the Consulting Agreement and the buy-out of the Performance Bonus rights of JMG and the related rights of JMG under that agreement. He purports to state what, in his opinion, is the basis for the value or worth and for the valuation of business opportunities lost to NMG by reason of the alleged failure to exploit the Ausmaq Service, and as to the value which can or should be attributed to those assets and lost opportunities. He seeks to state what in his opinion, is or should have been the nature and relevant aspects of the actual, contingent or potential assets of NMG and JMG said to be represented by the provisions of NAB 's Guarantee in relation to the Performance Bonuses payable under the Consulting Agreement, as assumptions to be made for (a) the purposes of valuation of those assets, and (b) the ascertainment of the value or worth of business opportunities of NMG by reason of failure to exploit the Ausmaq Service, and (c) for the purpose of determining whether a value can be attributed to those assets and lost opportunities. He purports to set out what, in his opinion, (as a result of his experience and knowledge of JMG, NMG, the NMG Group, the Ausmaq Service, the System IP Rights, and his understanding of the Consulting Agreement, the NAB Guarantee of the Consulting Agreement and other related agreements) are the relevant factors and the appropriate and proper rationale and methodology for the valuation of JMG's and NMG's rights and actual, contingent or potential assets under or in relation to the Consulting Agreement, the Ausmaq Service, the System IP Rights, the NAB Guarantee of the Consulting Agreement and other related agreements for the ascertainment of the value or worth of business opportunities of NMG by reason of the alleged failure to exploit the Ausmaq service. He endeavours to place a value on assets and lost opportunities. 247 The extent to which Mr Maconochie seeks to express opinions of this type based upon and relating to the Australian and United States markets, the opinions which he seeks to express, the parameters which he seeks to take into account in expressing those opinions, the methodologies which he seeks to use for the purpose of expressing those opinions and the substratum of training, study or experience with which he seeks to substantiate his claimed entitlement to have the specialised knowledge on which wholly or substantially to base ultimate valuation opinions, are very closely interrelated with the substratum of training, study or experience by reference to which he seeks to substantiate his claimed entitlement to have the specialised knowledge on which wholly or substantially to base his opinions by way of an assessment of the prospects for success of the Ausmaq Service in Australia and New Zealand (properly exploited) and by way of an assessment of the prospects for success of the introduction of the Ausmaq service into the United States markets and by way of his claim to be entitled to express class "c" and class "d" opinions. Hence amongst other areas Mr Maconochie seeks to provide market share estimates for the United States market; purports to undertake an analysis of the United States Mutual Fund markets; purports to set out revenue estimates based on this analysis; purports to express opinions in relation to a number of markets relying upon Cerulli data for market size and for determining addressable markets; estimates Ausmaq market share using a United Kingdom estimate as proxy; endeavours to calculate and to express opinions as to the revenue which NMG would have earned from Ausmaq had it followed the business path set out in JMG business plans; uses more than one method to endeavour to state revenue calculations including using an expected market share; seeks to give evidence in relation to new approaches to the nature of the Ausmaq offering; Ausmaq pricing structure to investors and advisers; Ausmaq superannuation and equities offerings; 'Ausmaq strategic alignment'; comparison between Ausmaq and Master Trusts; NMG cost to income ratio; and purports to express opinions as to the calculation of revenue which NMG would have allegedly earned from the New Zealand market had the business path set out in JMG business plans been followed. 248 There is no doubt but that Mr Maconochie has received training in relation to the use of methodologies by way of the evaluation of both projects and businesses. Equally there is no doubt but that he applied the methodologies to the businesses which he described. On his evidence the methodologies involved the following matters or aspects:
"(a) they laid down the type and quality of information that was necessary to enable a commercial appraisal to be undertaken. This information covered a wide range of matters commonly faced by prospective large enterprises, for example, government regulation and policy parameters, the treatment of corporate taxation, foreign exchange rates, project capital costs, operational costs, depreciation, special industry tax allowances, cost of money, joint venture parameters (for example expenditure and reporting obligations), residual costs, establishment and exploration costs, minimum commitments to customers and regulators, price ranges over time, volume capacity over time, and time itself. (b) they tied the business objectives of the project being evaluated to the stated functional outcome: for example, strategic market positioning and leverage, revenue capabilities and objectives, rates of return on capital invested, payback periods, and capacity to absorb risk and adverse outcomes were tied to the functional outcome of, for example, being able to produce X barrels of oil or Y cubic meters of gas in 250 feet of water from day Y for 25 years to meet a contract with Z within a given range of sale prices and industry product price benchmarks and capacity of the market to absorb the product. (c) they set out the purpose of the project and tested the commercial outcomes against it. (d) they enabled a commercial evaluation to be made of the (version of) functional specification and an economic assessment to be made of the merits of enhancements, modifications or additions or subtractions to the key features. (e) they enabled the economic impact of variations (sometimes called sensitivities or 'what ifs') in project parameters, for example, revenue projections , capital cost overruns, sale price and volumes, and items critical (sometimes called 'mission critical' or 'short or long term dependencies') to the success of the project to be to be identified and assessed. (f) they enabled 'windows of opportunity' to be identified and other insights gained and plans and projects to proposed and evaluated to take advantage of them. (g) they enabled the impact of the project on the target market and the target customer segment to be assessed . For example, the introduction of a new project, particularly a large project, may quickly dominate an industry and change the original assumptions for better or for worse. In the oil and gas industry in Australia for example, the introduction of 100% domestically produced oil and gas in Australia with different properties to imports required the oil refineries to be redesigned and large amounts of gas condensate liquid to be exported to avoid poisoning the refinery process; coal gas and briquette production became obsolete almost overnight and large amounts of LPG produced from domestic oil and gas production flooded the market and enabled petrol driven cars to be converted to cheap LPG fuel. The economic impact also had a major positive effect on the Australian economy which in turn made for policy changes which lead to a changed production pricing regime.
(h) they enabled the impact of the project on access and distribution of the product and the industry to be made . For example, the impact of the start of Bass Strait oil production in large volumes in March 1970 and increasing to more than 100% of domestic consumption by 1974, among other things, transformed the distribution of hydrocarbons in Australia and the economics and will of oil companies to be in retailing, as is now more than evident some 25 years later." [emphasis added] 249 During his earlier employment activities and in particular during the period when he was working with Lend Lease Petroleum, it was necessary for him to spend months analysing companies and how they were valued by the market. His evidence was that he would have looked at possibly 30 to 40 companies in those days. That exercise involved close examination of prospective cash flows, comparisons of various types carried out in relation to the value which the market put on a particular company and divisions of the market value of the company by the number of shares on issue. Mr Maconochie was also involved in carrying out detailed work in relation to valuing EquitiLink and gave evidence as to the approaches which he took in the work which he did in this regard. This exercise in the mid-1980s required a number of assumptions to be made for example as to how much the relevant funds might increase in market value (including estimations necessary as to how much a fund might grow from new subscriptions to the funds). The assumptions which required to be injected into his calculations included growth in size of funds; no growth or some growth; growth or reduction in costs of the company; the liquid position of the company; operating surplus; and how much capital the company might require. In making capital estimates he looked at monthly cash flows as against receipt of fees from the funds. 250 He became familiar with using forecast projected cash flows; and how much an investor would be prepared to pay for a share in the company. As I have said his evidence was that during the period he was with Lend Lease he spent months analysing companies and how they were valued by the market. 251 It is necessary to return to the fact that the plaintiff's case involves the evaluation of a novel proposition. The valuation exercise must require a person who seeks to express expert opinions in relation to this matter to be given relevant assumptions in respect of the subject matter of the valuation. I am unable to accept from the evidence which Mr Maconochie has given that he has been shown by his training study or experience to have acquired the necessary specialised knowledge on which wholly or substantially to base expert opinions relating to the ultimate questions of valuation which he seeks to address. I do not accept that his experience in relation to valuation of financial services businesses (which is fairly reasonably summarised in column 2 on pages 18 and 19 of MFI D38) is sufficient to have equipped him with the necessary specialised knowledge needed in order to be able to give expert opinions relating to the ultimate question of valuation. It does not appear that he was regarded by EquitiLink as a valuation expert although he apparently made some assessments of the type in respect of which he gave evidence. Mr Maconochie is not in a position to give evidence as to his training, study or experience covering valuation over a sufficiently extended period of time covering a sufficiently diverse range of financial services, projects and businesses, in terms of what is a refined and technical area of expertise. There are many persons who carry out complex exercises in business by way of using cost projections, cash flows, costs, discount rates and price-earnings multiples. But it takes far more, as it seems to me, to qualify a person within the section 79 criteria, to be shown to be an expert beyond the field of viability within particular markets of a particular product and into the related but different area/discipline of valuation. And whilst I have given close consideration to this parameter, familiarity with the asset or thing which is to be valued is by itself insufficient to permit a person to be in a position to express expert opinions in relation to valuation of one or more businesses which are posited to exploit that asset. This is why assumptions may be put to an expert who is familiar with valuation concepts and who is shown to have a very wide-ranging and current familiarity with the parameters necessary to be carefully understood when an expert is put forward as a valuer. Mr Maconochie has not satisfied the section 79 criteria in that he has simply not been shown to have acquired the necessary specialised knowledge to express the opinions which he seeks to express on the ultimate valuation type issue. This is not however to say that he is not perfectly capable of expressing expert opinions in relation to matters such as anticipated cash flow and costs projections and market penetration and the viability of the Ausmaq System within the particular markets in respect of which on my holdings, he has been shown to be in a position to express expert opinions as to viability [see the earlier reasons]. Only at that level is he shown to have the specialised knowledge permitting him to analyse cash flow and cost projections impact of a project on the target market and like concepts. However when it comes to applying the underlying facts and assumptions requisite to be made in order to finally, as a bottom line as it were, express opinions, as for example in relation to the valuation of Ausmaq or the valuation of JMG by reference to the buyout provisions of the Consultancy Agreement, Mr Maconochie does not have sufficient specialised knowledge to be put forward as an expert. It is one thing to be shown by one's training, study or experience to have acquired the specialised knowledge on which wholly or substantially to be in a position to express opinions going to market share of a particular product or Service including anticipated cash flow and cost projections. It is quite another to be shown by one's training, study or experience to have acquired the specialised knowledge on which wholly or substantially to be in a position to express opinions as to the different modes of or approaches to valuing the rights to the subject product or Service and as to why one mode or approach is correct or preferable to another mode or approach. Mr Maconochie has been shown to have acquired specialised knowledge in relation to the first mentioned area but not in relation to the second mentioned area. And this notwithstanding that some of the formulae, parameters and processes/calculations utilised by experts in both fields may be common or may be based upon similar underlying theoretical bases.
Reasoning processes/Identification of Assumptions/ Section 135 of the Act 252 Whether one approaches difficulties relating to adequate transparency of reasoning processes, adequate identification of assumptions and other questions of form by reference to section 79 of the Act or by reference to section 135 of the Act, it is quite plain that the court has available the means whereby to decline to admit statements posing such difficulties. In my view there are undoubtedly many difficulties of form exposed by the way in which Mr Maconochie, particularly in his fifth statement but in fact also in some other statements, endeavours to use external materials. In many instances he endeavours to use the reports of Cerulli Associates Inc and of Boston and the book entitled 'Net Worth-Shaping Markets-When Customers Make the Rules' by Hagel & Singer of McKinsey & Co. A careful reading of Mr Maconochie's fifth statement makes plain that he seeks to rely very extensively indeed upon charts, statistics, theories, analyses and opinions expressed in these reports and in this book. The whole of the fifth statement is permeated with references and cross-references particularly to these works. It suffices for example to set out paragraphs 9.76-9.80 to Mr Maconochie's fifth statement:
9.76 I refer to paragraph 9.31 and Exhibit 12 above and Cerulli Associates CA21. "Now that such alternative distribution technologies (master-sub accounting, customised statements) exist, true direct sales - fund manager to client - have actually started to level off in the US. As a result, CA expects that as retail fund evolutionary elements fall into place overseas - increased demand, product proliferation, best-of-breed fund selection - traditional distributors will respond by buying or building such technology and deploying alternative distribution schemes. (Many, having seen how independent asset managers successfully used direct sales approaches to erode brokerages' commanding market share in the US, will be quick to react.) This will create strong channels that foreign managers - as well as smaller, independent domestic investment firms - will use instead of direct-sales strategies.: "These alternative distribution systems have already begun to appear in several different forms worldwide · The direct bank/discount brokerage, for example Schwab UK; · Supermarchees de Sicav - French mutual fund supermarkets, Vega, Cortal and AmEx (Caisse des Depots et Consignations' Vega Finance ("Vega"), Group Paribas' Banque Cortal ("Cortal"), and American Express Bank in France) · Skandia Life's unit-linked (insurance products linked to mutual funds) product super-markets · Bank channels, for example, Standard Chartered's Personal Investment Program, a monthly savings program that automatically invests customer assets into a select list of funds, determined by risk-adjusted performance and systematically re-evaluated (and eventually automatically rebalanced, with advice and guidance, for a fee)."
Note: 1. CA2, p 120 - "Alternative distribution could aid foreign managers
9.77 "CA believes the trends and events that shaped the evolution of the US retail fund marketplace will also rise overseasCA2, p87. Financial services vendors will find themselves forced to stock their shelves with third-party investment products; indeed, many already have, and we expect that trend to spread to Europe." 9.78 "CA CA2, p89 believes that the trends and events that shaped the evolution of the US retail fund market place will also arise overseas (from the US). But the histories of non-US mutual fund industries significantly differ from the American experience, and as a result CA feels safe in making two general conclusions: · Distribution in overseas retail fund marketplaces will fragment at a much slower pace, primarily because elemental variables in distribution fragmentation - such as a significant increase in demand for mutual funds from some markets - are currently missing and, without help, will take longer to form. · Intermediary distribution will remain the law of the land overseas because intermediaries will have enjoyed the advantage of watching how US mutual fund companies used direct sales to significantly erode the market share of intermediaries and their products and how the intermediaries have since struck back by developing alternative distribution systems." (In my opinion, this further demonstrates the tension that exists between fund managers and intermediaries and the desire by intermediaries for greater commercial independence from fund managers.) "As demand for mutual funds increases, overseas (from the US) intermediaries will adapt alternative distribution systems at a much faster rate, modelling their approaches on US systems." "These two generalisations, considered in tandem, lead CA to believe that (US) fund manufacturers will find it increasingly easier to penetrate overseas marketplaces - especially if they help accelerate distribution fragmentation by encouraging mutual fund demand and promoting new sales channels." Global development of market system services 9.79 "Global financial services providers CA,p86 must follow one of two paths. The first involves building or buying an asset management operation. The other option involves abandoning proprietary product and focussing on becoming a global distributor or aggregator. With the possible exceptions of Merrill Lynch & Co and the newly merged Citigroup, no company can yet claim to truly have a global distribution platform from which investment products can be delivered from anywhere to anywhere." In my opinion, the opinions expressed by Cerulli Associates in paragraphs 9.76-9.78 above are similar, and consistent, with Mr Joslin's analysis of the UK market that he has given in his statement. In my opinion, they indicate a ready and receptive market for EUROMAQ (I also refer to paragraphs 9.85 and 9.87 below) had it been developed in a timely and efficient manner and in accordance with the Consulting Agreement.
Further, in my opinion, an indication of market readiness may be gained from the current opportunity in the UK and which NMG has failed to respond to and satisfy (I refer to paragraph 9.81 below. Also, I refer to paragraph 9.79 above. In my opinion, this further demonstrates the probable uniqueness of the AUSMAQ Service as it is, or as further developed as may have been necessary, and to the forces shaping global financial services that are leading to the creation of a market system global services industry. In this regard, I also refer to my Fourth Statement, paragraphs 9.42, 11.1, 11.18, 14.3.1-14.3.10 and to this statement, paragraphs 9.5, 9.6, 9.10-26), 9.61, 11.1.6. 253 The technique of first setting out in some cases very extensive and in other cases less extensive quotations from Cerulli and/or from Net Worth and then either adopting as his own, opinions forming part of those quotations or extrapolating from material in the quotations so that in part Mr Maconochie is seeking to suggest a basis for his own opinions, in part is seeking to set out someone else's opinions and very often adopts what seems to be a mid-position as between these possibilities, is one which poses for a defendant very particular forensic difficulties. But at the same time and as a consequence of the earlier holding that Mr Maconochie has been shown to have experiential capacity on the basis of which he is shown to be in a position to express expert opinions taking into account in an informed way, the materials which he has read, he is shown to be entitled to take into account in expressing his own opinions, opinions expressed by others in the field. Hence he is essentially entitled to draw from outside materials and to compare his own opinions with the opinions expressed by others in those materials. Whether or not he may be said to have gone about this task in a fashion which the defendants suggest (a) amounts to an altogether inappropriate and improper slavish adoption of huge slabs of particular works and (b) amounts to an improper attempt to effectively adduce, albeit indirectly, the opinions of the authors of these works into evidence, without exposing those authors to cross examination,
are matters which go to weight and remain for adjudication following cross-examination and final address. 254 A reading of the whole of these reasons makes clear that there are a number of sections of Mr Maconochie's fifth statement which cannot stand with certain of the findings. The whole of the statement has been reviewed by the Court and the rulings in relation to the statement are set out in appendix "C". In some instances the rulings are reserved for the reason that it seemed to me that the parties should be in a position to address upon how these reasons impact upon certain sentences or paragraphs which raise particular difficulties and which may be seen to be grey areas.
Opinions as to structure, operation and size of worldwide financial markets 255 Mr Maconochie has not been shown by his training, study or experience to have acquired specialised knowledge on the basis of which whether wholly or substantially to be in a position to express expert opinions going to the anticipated revenue generated by financial transactions for products worldwide. He may however express expert opinions going to anticipated revenue to be generated by the commercialisation of Ausmaq in the United States and in Australia. The position with regard to such opinions qua new Zealand is reserved as the reasons below make plain. Hence his endeavours to express opinions as to the gross operating revenues which the Ausmaq Service could have derived from a global commercialisation falls outside of his demonstrated section 79 expertise. 256 However there is a subtle distinction between Mr Maconochie's inability to express expert opinions going to the anticipated revenue to be generated by financial transactions for products worldwide on the one hand and his demonstrated specialised knowledge upon the basis of which (whether substantially or wholly) he is, as already held, entitled to express opinions of a class "c" nature. The holding in relation to his entitlement to give evidence of the "c" class opinions allows him to give the evidence he seeks to give in paragraphs 5.3.17 and 6.2 of his second statement dated 20 November 1998. Mr Maconochie however has no entitlement to express "d" class opinions in relation to any market outside of the United States, Australia and possibly New Zealand, because in order to express those types of opinion in the way in which he has approached his statements, he would have to have demonstrated from his training study or experience, specialised knowledge qua each market in respect of which he sought to express those opinions. But this is not to say that he cannot express opinions that from a conceptual perspective, the Ausmaq Service had an actual or potential functionality such that, with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could have been successfully introduced into target financial markets around the world. The weakness of his position is twofold. It is firstly because the plaintiffs claim that by virtue of his own suggested specialised knowledge and without requiring to make assumptions (as for example in relation to relevant market dynamics and statistics qua markets with which he has not been shown to have acquired sufficient knowledge), he is shown to be qualified to express opinions in relation to the prospects of success (in terms of anticipated revenue), of the novel proposition into these overseas markets. And it is secondly because his adjectival knowledge in relation to markets outside of the United States, Australia and possibly New Zealand is so sparse as to preclude his being shown qua those markets to have acquired by his training, study or experience, the experiential capacity necessary to permit him to draw on statistics and other forms of graph or tables or figures as may be located in relevant literature by way of providing himself with the necessary assumptions upon which to draw in expressing his own opinions. He has simply not, by his own study, training or experience, been shown to have become sufficiently acquainted with different views in the field with which the markets issue in detail (as opposed to 'in concept')is concerned, as to permit him to be in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature on the basis of which he seeks to express class "d" opinions.
Opinions as to the Japanese/Taiwanese/Hong Kong financial services 257 In relation to the Japanese/Taiwanese/Hong Kong Financial Services area identified in MFI D38 as "D1", to my mind the defendants have in column 5 reasonably accurately summarised generally the type of training study or experience which would be requisite to be shown in order for it to be established that Mr Maconochie has acquired the specialised knowledge necessary to permit the expression of opinions relating to Mutual Funds, [that is to say dealing with market statistics (market size, share, fees) ; distribution; and the valuation of entry strategy]. I further accept the defendants description given in column 6 of MFI D38 as a reasonably accurate thumbnail sketch of Mr Maconochie's training, study or experience in fact proven by his evidence. It seems to me that there is close to no evidence of any specificity at all to suggest the necessary familiarity with the subject markets. Apparently whilst developing Ausmaq, Mr Maconochie asked ABN Amro for its prospectuses and disclosure documents for Hong Kong, asked Nomura and Nikko Securities for their product lists and disclosure documents and asked HSBC for their Hong Kong prospectuses. This falls far short of what is required for specialised knowledge in the area. To my mind there is a clear chasm between on one hand, the necessary training study or experience which he would have to have had in order to establish that he had the requisite specialised knowledge on the basis of which wholly or substantially to be in a position to express opinions in relation to anticipated revenue to be generated by the commercialisation of Ausmaq qua mutual funds in the Japanese/Taiwanese/Hong Kong Financial Services markets, and on the other hand, the training study or experience which he has been shown on the evidence to have had, as to clearly mandate the conclusion that he has not been shown to have acquired the necessary specialised knowledge to be in a position to express such opinions. As pointed out above this is not to say that he cannot express class "c" opinions that from a conceptual perspective, the Ausmaq Service had an actual or potential functionality such that, with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could have been successfully introduced into particular target financial markets such as these. As earlier pointed out the weight of such opinions will remain for address in final submissions. 258 It is pertinent to note that under the column headed 'specialised knowledge' in the plaintiffs template MFI P89, the plaintiffs have included under the head "Damages Issues", the description 'the content and effect of market, financial and other relevant information in respect of the financial markets and products in Taiwan and Hong Kong and Japan'. This seems to reflect an acceptance, at least in part, that specialised knowledge in relation to this area would be requisite in order to satisfy section 79. 259 It is also pertinent to note that under the same column in the same template the plaintiffs have included under the same heading the following description: "Description, assessment, classification and analysis of financial services in terms of their target markets, target customer segments, purpose, business objectives, service facilities, features and products and their regulation, including description, assessment, classification and analysis in respect of… the financial markets and products in Taiwan and Hong Kong and Japan". There is simply nothing like sufficient evidence to establish the necessary training, study or experience gained by Mr Maconochie in acquiring any adjectival knowledge which could remotely qualify him to express expert opinions upon this type of subject matter. 260 At this relatively early point in the examination of the evidence sought to be given in relation to the markets/valuation issue it is useful to give an example of the type of problem thrown up by the form and content of Mr Maconochie's statements on this issue (and also on numerous other aspects of the markets/valuation issues). 261 In paragraph 5.3 of Mr Maconochie's fifth statement a copy of which is to be found in MFI D 40 (1) behind tab 3 one finds the following: "In making this statement, where indicated, I have had regard to and relied upon, inter alia, information in Bulletins issued by the Reserve Bank of Australia; in reports of Cerulli Associates, Inc. of Boston, MA, USA ("CA") which JMG has purchased and which are confidential. (CA are a well-known Boston-based management consulting firm which provides research services on US and international markets, competitive analysis, strategic positioning, and development guidance to financial institutions); Mr Joslin's Statement that relates to European asset markets; Net Worth, by Hagel & Singer, McKinsey & Company, Harvard Business School Press, Boston MA 1999; and Mr Hume's Second and Third Statements" 262 In paragraphs 9.96 and 9.97 of the same Statement the following appears:
9.96 I refer to paragraph [9.72] and Exhibit 38 above. [there appears to be a typographical error here and the typed numeral 9.7 is seemingly incorrect]. The Asia Pacific market place for retail mutual funds will, in 2003, be about one seventh the size of North America's (13%), about 30% of the European's and about 2.5 times Australia's contestable market place of USD 550 billion (I refer here to my Fourth Statement, paragraph 9.10.3). 9.97 I refer to CA2p174. "The retail environments overseas differ in two ways: the size of their addressable markets (as a proportion of their overall retail-fund marketplaces) and the fragmentation of their distribution channels". For the AUSMAQ Service, the greater the fragmentation, the easier it is and would be to penetrate the marketplace. I refer to Exhibit 46 below. 263 Exhibit 46 set out on page 80 immediately below paragraph 9.97 is the following table:
EXHIBIT 46{CA2 Exhibit 93} Retail fund market place potential assessment Retail Distribution Fragmentation Potential Addrssable Market
264 When one goes to paragraph 9.72 one finds it in the following terms:
9.72 I refer to Exhibit 5, Retail Mutual Fund Marketplaces Worldwide. The European market is about one third the size of North America's - 24% compared with 68%. EXHIBIT 38 ( Ref: Exhibit 5) Comparison of European Retail Mutual Fund Market Place with the World - USD billions % personal assets 1999E 2003E 1 North America 23 6432 10120 (US + Canada) (68%) (65%)
Europe 2228 4057 (24%) (26%) Asia Pacific
710 1358 (8%) (9%) Australia+ NZ 70+ 100+ <1% (<1%) TOTAL 9440 15,635
265 The reference to Exhibit 5 is a reference to the following chart which appears on page 29 of the same Statement: EXHIBIT 5 ( CA2 Exhibit 23) Retail Mutual Fund Marketplaces Worldwide (USD billions)
Region % personal assets 1999E 2002E 2003E1 North America 23 6432 9037 10120 (US + Canada) (68%) (65%)
Europe France 10 703 988 1106 Italy 10 529 961 1172 UK 6 339 477 534 Germany 9 288 498 612 Spain 20 273 415 477 Netherlands - 96 138 156 2228 4057 (24%) (26%) Asia Pacific (excl.Australia + NZ) Japan 4 451 780 936 S Korea - 167 240 272 Hongkong - 60+ 86 98 Taiwan - 17 25 28 Malaysia - 11 16 18 Singapore - 2+ 3+ 3+ Thailand - 2+ 3+ 3+ 710 1358 (8%) (9%) Australia+ NZ 70+ 100 100+ <1% (<1%) 9440 15,635 Note: 1 Extrapolated at growth rate shown in Exhibit 4
266 It is immediately apparent that Mr Maconochie in expressing the opinions in paragraphs 9.96 and 9.97 is basing his approach upon materials which he acknowledges have been extracted from the reports of Cerulli Associates. I have already outlined the shortcomings of Mr Maconochie's training, study or experience in relation to the Japanese/Taiwanese/and Hong Kong financial services and markets. This is one of the examples where Mr Maconochie seeks impermissibly to base his expression of opinions upon the Cerulli Reports. 267 In paragraph 9.98 of the same Statement Mr Maconochie says: "9.98 By reason of the above potential assessment (moderate to high) shown in Exhibit 46, I conclude that Japan, Hongkong and Taiwan would offer the AUSMAQ Service the best prospects for success among the Asia Pacific countries, particularly Japan. These countries together have a projected size of retail market place of USD1062 billion in 2003 (USD 874 billion in 1999 dollars), which is 78% of the total for Asia Pacific ( I refer to Exhibit 5 above)." 268 Mr Maconochie appears now to be using for his own purposes, the expression "fragmentation" which was used by the Cerulli Reports. In order to follow even that notion it would be necessary for Mr Maconochie to deal with the notion and the Court could not be expected to itself study the Cerulli Reports in order to work out in what precise way those reports seek to use that expression. It would also be necessary for Mr Maconochie to himself either adopt or to adapt the expression and to indicate how he uses the expression. 269 And even in relation to these particular tables and figures taken from the Cerulli Reports it appears that Mr Maconochie may well have misread the Cerulli exhibit 93 [referred to by Mr Maconochie as his own Exhibit 46]. If, as Mr Maconochie appears to believe, it is the case that for the Ausmaq Service the greater the fragmentation, the easier it is and would be to penetrate the marketplace, then he appears to have misread the Retail Distribution Fragmentation column which in fact, against Japan, has the entry "Low". In short it is at least arguable that Mr Maconochie had in mind as the relevant Fragmentation column entry, the "High" entry which appears not in the Fragmentation column but rather in the Potential Addressable Market column. Whilst this is certainly not the time for the defendants to engage in point taking exercises which ought to occur in the cross-examination of a person who succeeds in being shown to have the necessary specialised knowledge on which wholly or substantially to base relevant opinions, the example points up the closeness with which attempts by an expert to extrapolate from tables in external reports must be examined, not only for accuracy, but more importantly to permit the Court to follow, through the eyes of the expert, precisely in what manner: (a) the authors of external reports have used particular phrases or expressions and what views the expert has as to whether such use is correct or not, (b) statistics and the like have been used in external reports and what view the expert has as to the validity/currency of such statistical analysis. 270 In paragraphs 9.99 and 9.100 of the same Statement, Mr Maconochie says: 9.99 "The expected market share for the AUSMAQ Service in the US is 17.75% of the retail market (Exhibit 53, paragraph 11.1.9-12, probably greater than that in Australia and New Zealand and 8% in Europe (Exhibit 41). By reason of what I understand to be different circumstances in each of these three countries CA3 ,, I have used the lower 8% market share for the purposes of this statement for the Asia Pacific region." 9.100 "I refer also to Exhibit 39. In my opinion a portfolio of 0.30% pa of asset value would be reasonable and competitive, and I have adopted this amount as the fee charged by the AUSMAQ Service in Japan, Hongkong and Taiwan; and a cost to income ratio of less than 0.45 as in Australia, the US and Europe." 271 The reference CA3 in paragraph 9.99 is a reference back to the following section of paragraph 9.11 of the same Statement: " Global Asset-Gathering Strategies, Volume II: Country Profiles, 1999 - Cerulli Associates, Inc. (The Table of Contents and List of Exhibits of this report are annexed to statement as "CA3") " 272 The reference in paragraph 9.100 to 'Exhibit 39' is a further reference to a Cerulli table which is to be found as part of paragraph 9.75 of the report in the following terms:
273 It seems clear from the 2nd sentence of paragraph 9.99 that Mr Maconochie has a form of understanding as to there being different circumstances in each of Japan, Hong Kong and Taiwan. But that understanding is not identified. The reader can only discern that the whole of the table of contents and list of exhibits to the relevant Cerulli report [on examination this appears to cover a table of contents dealing with some 427 pages of text and a list of the 265 exhibits referred to enact text], is to be regarded as a point of reference which is presumably to assist the reader in following where or how Mr Maconochie acquired that understanding. 274 As to Mr Maconochie's opinions [cf paragraph 9.100] that a portfolio of 0.30 percent per annum of asset value would be reasonable and competitive as appropriate to be adopted as the fee charged by the Ausmaq Service in Japan, Hong Kong and Taiwan and that a cost to income ratio of less than 0.45 is appropriate, how it may be asked, is he qualified to give evidence in relation to proposed portfolio fees or cost to income ratios in relation to markets in respect of which he has no specialised knowledge flowing from relevant training, study or experience?
Opinions as to the United Kingdom and European Financial Services 275 In relation to the United Kingdom and European Financial Services area identified in MFI D38 as "D2", to my mind the defendants have in column 5 reasonably accurately summarised generally the type of training, study or experience which would be requisite to be shown in order for it to be established that Mr Maconochie has acquired the specialised knowledge necessary to permit the expression of opinions relating to Mutual Funds [that is to say dealing with market statistics (market size, share, fees); distribution; evaluation of entry strategy; suitability of United Kingdom regulatory environment; Euromaq; Exchange opportunity]. I further accept the defendants description given in column six of MFI D38 as a reasonably accurate thumbnail sketch of Mr Maconochie's training, study or experience in fact proven by his evidence. It seems to me that there is close to no evidence of any specificity at all to suggest the necessary familiarity with the subject market. Here again the extent of Mr Maconochie's actual training study or experience disclosed on the evidence falls far short of what is required for specialised knowledge in the area. Here again there is a clear chasm between on the one hand, the necessary training, study or experience which he would have to have had in order to establish that he had the requisite specialised knowledge on the basis of which wholly or substantially to be in a position to express the subject opinions in relation to mutual funds and life and pension products in the United Kingdom and European financial services markets, and on the other hand the training study or experience which he has been shown on the evidence to have had, as to again clearly mandate the conclusion that he has not been shown to have acquired the necessary specialised knowledge to be in a position to express the subject opinions. Here again as pointed out above, this is not to say that he cannot express opinions from a conceptual perspective, the Ausmaq Service had an actual or potential functionality such that, with such enhancements, additions or modifications as might be necessary in any given circumstance, the Service could have been successfully introduced into particular target financial markets such as these. The weight of such evidence is another matter for ultimate adjudication.. 276 I intend however to reserve for further argument a number of questions raised by paragraphs 9.2.1 (g)-(j), 9.2.2 (a) and 9.2.2 (d) ['required functionality for Ausmaq'] of Mr Maconochie's sixth statement dated 14 July 1999
Opinions in relation to Australian markets/financial services 277 Mr Maconochie's extensive background, training, study and experience in relation to Australian markets and financial services generally clearly entitled him to be in a position to express expert class "d" opinions by way of an assessment of the prospects for success of the further commercialisation of the Ausmaq Service in Australia. Hence he has been shown to have necessary specialised knowledge on the basis of which to express opinions as to the ascertainment of Australian addressable markets and their extent, likely market penetration and predictions of market success-particularly bearing in mind his case that the business plans ought to have been followed. And here again in relation to the approach taken by Wigmore, Mr Maconochie has been shown to have acquired by his training, study or experience, the experiential capacity necessary to qualify him to express opinions on the market/valuation issues. He has by his study, training or experience been shown to have become sufficiently acquainted with different views in the field with which the markets/valuation issues concerned as to permit him to be in a position to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account , the literature which he has read. Importantly he has demonstrated sufficient experiential capacity to permit him to draw on statistics and other forms of graph or tables or figures as may be located in relevant literature to provide him with a proper basis upon which to draw in expressing his own opinions.
Opinions in relation to the Australian Mutual Funds Industry 278 A measure of the specialised knowledge which Mr Maconochie's training study or experience has furnished him with in relation to the Australian Mutual Funds Industry may be gleaned from the extent of the concessions which the defendants make in this regard. I have already indicated the concessions covering areas in respect of which Mr Maconochie's attempts to express expert opinions are not challenged on the basis of lack of specialised knowledge. These include in relation to this industry, pricing of products, relative power of industry participants, description of investment process, revenue sources and categories of cost of fund managers, client access requirements of fund managers, fund managers strategy, difference between wholesale and retail markets and 'distribution general'. 279 In my view Mr Maconochie has been shown by his training study or experience to have not only acquired specialised knowledge on which wholly or substantially to base opinions of the above categories, but has also to have acquired specialised knowledge on which wholly or substantially to base opinions going to the analysis of market statistics for the purpose of drawing conclusions from statistics and giving projections; the operating complexity and regulatory structure of master funds; the revenue sources and categories of cost of advisers/dealers; the make up of a typical investor's portfolio and the failure of competing order routing services.
Opinions in relation to the Australian Financial Services Markets generally 280 Turning to the field of Australian financial services markets generally [described by the defendants in MFI D38 as field D20), in my view the evidence demonstrates that Mr Maconochie's training, study or experience has been such as to furnish him with specialised knowledge on which wholly or substantially to be in a position to base his expression of opinions on general market description and trends including definitions; key industry trends (including master trusts, wraps and the Internet/e-commerce; key industry statistics such as market size and growth, market shares of existing firms and fee levels; uniqueness of Ausmaq's regulatory structure; the planning and implementation of 'green fields' projects; susceptibility of financial services markets to reconfiguration; estimating the market penetration of a service designed to reconfigure financial services markets (including application of crowd behavioural finance models) and Internet distribution. As earlier stated the fact that he has the experiential capacity which equips him with the ability to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature, statistics, graphs tables or figures as may be located in relevant literature to provide him with a proper basis upon which to draw in expressing his own opinions, qualifies him to express opinions on certain of these matters where in the absence of the experiential capacity it may well have been debatable as to whether he was in a position to express certain of these opinions. 281 In my view, Mr Maconochie has also been shown by his training, study or experience to have acquired specialised knowledge on which wholly or substantially to be in a position to express opinions in relation to the Australian cash management market, the Australian equities market, the Australian superannuation market, the Australian foreign exchange market, the Australian bonds market, the Australian payments market, the Australian insurance market, the Australian electricity transaction market and the Australian land titles market. Here again the fact that he has the experiential capacity which equips him with the ability to appreciate the arguments and studies relating to particular issues in the field in order to then be in a position to express expert opinions taking into account in an informed way, the literature, statistics, graphs tables or figures as may be located in relevant literature to provide him with a proper basis upon which to draw in expressing his own opinions, qualifies him to express opinions on certain of these matters where in the absence of the experiential capacity it may well have been debatable as to whether he was in a position to express certain of these opinions.
Opinions in relation to New Zealand Financial Services Markets 282 Both parties apparently see the New Zealand position as closely relevant to the Australian financial services markets position. The defendants in MFI D38 include as their category "D5" being "New Zealand Financial Services", the notation D5.1 which they refer to as "included as part of discussion of Australian financial services markets…". Likewise in relation to the defendants category D17 being "Australian equities market", the defendants include the notation D17.1 which they describe as "size and contestability of Australian and New Zealand equities markets." 283 I have already referred to the evidence given by Mr Maconochie to the effect that he researched the New Zealand debt securities market and had to acquaint himself with the New Zealand economy and New Zealand debt securities markets. 284 I have the clear impression that by reason of the extensive materials the subject of submissions by both parties on the expertise issue, both parties may have failed to fully or adequately treat with all parameters relevant to the issue of Mr Maconochie's expertise in relation to the New Zealand financial services markets. It was for example quite plain during the extensive openings that, as I understood it, both parties accepted that Mr Maconochie had spent a reasonable amount of time in New Zealand between the day when the Consulting and Restructuring Agreements were settled and say for example mid 1997. Neither party referred with any specificity to this fact which was apparently common ground during the openings. It seems curious if the position be that the parties seek for the issue to be determined on a basis otherwise. And following the taking of submissions in relation to the expertise issue, the defendants continued to open their case on a number of additional aspects. As I understood that address particularly relating to MFI D 51 (2), the defendants apparently concede that the primary stakeholders in the New Zealand investment industry and the roles which they play are similar to Australia [see also transcript page 6013.45]. It is likely however that this concession, if concession it be, is not to be taken into account on the evidentiary issue going to expertise which is presently under consideration. 285 I do not accept as of substance the defendants submission that in relation to the field of New Zealand financial services Mr Maconochie's evidence before the court discloses no breath, no depth and no currency. On the other hand I do think it is reasonable to give the plaintiffs a further opportunity to place before the court such evidence as the plaintiffs may seek to rely upon in terms of those sections of the existing statements, or further statements which may be relied upon, dealing with Mr Maconochie's particular New Zealand experiences. Most importantly in proceedings such as the present, I am concerned that the real issues be litigated. Given the approach taken by both parties to the opening addresses and the other matters referred to above it seems to me appropriate that both parties be given a further opportunity in the light of these general reasons, to further address the issue as to whether Mr. Maconochie may be shown to have acquired the requisite specialised knowledge from his experiences in relation to New Zealand, to equip him with the entitlement to express, wholly or substantially based upon that specialised knowledge, opinions in relation to the New Zealand Markets. 286 In the result I currently refrain from finally determining this issue. It certainly cannot be said that Mr Maconochie has had no involvement at all with New Zealand. My understanding from the openings was that neither party so submitted. As I say, he has given evidence up to this point that in researching the New Zealand debt securities market he had to acquaint himself with the New Zealand economy and with New Zealand debt securities market. In relation to the research which he carried out into the New Zealand debt securities market pertaining to the development of the First Australia Prime Income Fund, his evidence was that he acquainted himself with the debt securities markets in not only Australia, but also New Zealand, with how debt securities were rated and with how this compared with the United States situation. His evidence was that he had encountered some difficulties when attempting to locate official information in relation to New Zealand and that he conducted the research himself and provided it to the Reserve Bank of New Zealand who adopted it as their estimate of official statistics on the New Zealand debt securities markets. He also telephoned two leading New Zealand stockbrokers, the Reserve Bank of New Zealand and various Australian research houses explaining what information he required and worked with those entities to find out the necessary details. He received cooperation from them and was advised as to other places to which he could go where they did not have the relevant data. He obtained information regarding the debt securities and cash markets in New Zealand, the price of currencies in New Zealand going back a number of years, special considerations in relation to the markets and in relation tying in those markets to the investment objectives and policies of the fund. After obtaining the information in an unconsolidated form from a number of sources, he compiled a table with text descriptions and referenced to each of the sources of information. That was sent to New York and information was finally included in the prospectus. His evidence was that this research provided a background of experience for his later research into markets when he came to develop the Ausmaq Service. Also in relation to his experience it appears from his evidence that during the 1996 period development of the Ausmaq Service, he examined and researched globalisation of the securities business, requesting information from various fund managers regarding their products and how their businesses were organised to allow securities to be offered in a number of legal jurisdictions. One of the United States fund managers which he contacted provided him with a variety of materials including several prospectuses which they proposed to launch in New Zealand. 287 On the basis of this material it seems clearly arguable that Mr Maconochie has acquired sufficient specialised knowledge to be in a position to express opinions in relation to the relevant New Zealand markets. I wish to hear further from both parties as to whether they wish to address any additional submissions on the issue and as to whether the parties or either of them wish the court to take into account any further evidence on the issue.
Breadth, Depth and Currency 288 The above reasons take into account the defendants several submissions with respect to suggested shortcomings in relation to the breadth, depth or currency of Mr Maconochie's study training or experience. To the extent that the court has held that Mr Maconochie has been shown by his training, study or experience to have demonstrated that he has acquired the specialised knowledge on the basis of which wholly or substantially to be in a position to express opinions, the court has taken into account all the evidence which he has given and has come to the conclusion that there is no substance in the defendants submissions as to relevant lack of breadth, depth or currency. These parameters are always both relevant and relative to the particular form of specialised knowledge sought to be upheld. They are always both relevant and relative to the type of opinions sought to be expressed. 289 There remain a number of discrete matters which are required to be dealt with.
Opinions on matters dealt with by other expert witnesses for the plaintiffs 290 As a general rule the court would be inclined to disallow this type of evidence if for no reason otherwise than that it amounts to an unnecessary duplication of evidence and would therefore be likely to 'cause or result in undue waste of time' and be a candidate for exclusion under section 135 (c) of the Act. It may well be that in a number of instances the rulings which are earlier given in this judgment amount to Mr Maconochie in any event simply not having been shown to have the requisite specialised knowledge to be in a position to express expert opinions for example by way of supporting another expert's views as to valuation. In those circumstances it seems to me appropriate to reserve on most of the questions relating to Mr Maconochie's endeavours to express opinions on matters dealt with by other plaintiffs expert witnesses, for further decision following the parties having had an opportunity to read the above reasons. 291 I am however of the view that a person who is put forward as an expert is entitled to, as a matter of form, rely upon assumptions which are in turn to be found in another expert's report. 292 I am further clearly of the view that the court should disallow the attempt by the plaintiffs to seek to sustain or support the proposition that Mr Maconochie has been shown to have the requisite specialised knowledge to express opinions on particular topics, by in effect, seeking to read from the reports of other suggested expert's who seek to give evidence, for example, that Mr Maconochie used the correct methodologies in an exercise which he is said to have carried out. That form of opinion has no relevance to the question of whether or not Mr Maconochie has the requisite specialised knowledge on which to base the opinions which he seeks to express. To take an extreme example, one witness may quite by accident set out a correct methodology, in which event for another witness to say that this was indeed the correct methodology, does not speak at all to the question at hand, namely that of whether the first witness had the requisite specialised knowledge. To take an even more extreme example, the first witness may have been given by some third person, the methodology which that witness then uses. In the same way, for another witness to say that the methodology used was indeed correct, does not speak at all to the question of whether the first witness had the requisite specialised knowledge.
Application of the reasons to the statements the subject of objection 293 By reason of the many paragraphs and sentences which have been objected to across the very many statements in issue it is clearly necessary for the matters of the principle subject of the above findings to be applied to those sections of the statements as will now have to be struck out. At the same time and for that reason many of the form objections should simply fall away. It is for example, unnecessary to deal with form objections wherever Mr Maconochie sought to express opinions relating to ultimate valuation issues. There may be other circumstances in which it is necessary to revisit form issues. I have endeavoured to specifically dealt in the reasons with how the fifth statement is to be dealt with. The Court will reserve a final decision on the form objections until the parties have had adequate opportunity to seek to apply these reasons to the statements.
Evidence taken into account on the hearing of the issue going to Mr Maconochie's expertise 294 I reject the plaintiffs tender on the issue of whether or not Mr Maconochie has been shown to have section 79 specialised knowledge of statements of other experts [principally Mr Skelton and Professor Pruden] who purport to verify the methodology which Mr Maconochie is said to have adopted. 295 In a number of cases Mr Garnsey QC sought to tender particular documents on the hearing of the above issue. The proposed tender was opposed by Mr Sackar QC. The Courts approach was to reserve the question of whether the documents would be allowed into evidence on the particular issue and to make plain that a decision on that matter would appear in the final judgment. It is now necessary to announce that decision and the parties may take it of course, that the above reasons are given in the light only of the evidence allowed as now indicated.
MFI P96 and P97 296 The folder of documents MFI P96 is not allowed into evidence on the expertise issue. The materials are not sworn to for the purpose. They are wide ranging and in many instances their genealogy is unclear. The defendants had no opportunity to cross examine on the documents. The tender took place in address. A deal of the material is hearsay. The schedule MFI P97 is not allowed into evidence on the expertise issue. MFI P92 is allowed into evidence for the same purpose as that in respect of which MFI P94(1) and MFI P94(2) were placed into evidence- see transcript pages 5796.47 - 5797.15.
Further Submissions 297 By reason of the complexity of the issues raised on the expertise challenge and by reason of the wide-ranging number of objections it is possible that the above reasons have overlooked some particular issue or matter which required to be treated with. To a certain extent it has been necessary to deal with questions as a matter of principle for obvious reasons. Hopefully the essential gravamen of the critical findings is clear. The court will entertain such further submissions as either party may wish to address by way of clarification of the reasons or by way of the Court having for whatever reason simply omitted to treat with a particular issue. At the same time submissions will be taken as to timetable by which the plaintiffs will attend to those areas treated with by the judgment as appropriate for leave.
I certify that paragraphs 1 - 297 Corrigendum: are a true copy of the reasons To add the eighth sentence at the end of for judgment herein of the paragraph 296 Hon. Justice Einstein given on 21 March 2001
Susan Piggott Susan Piggott
Associate Associate
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[1999] HCA 2
(1990) 24 FCR 313
(1984) 38 SASR 45
(1949) 79 CLR 442
(1960) 103 CLR 486
(1997) 80 FCR 276
(1997) 136 FLR 400
(1989) 167 CLR 94
(1999) 161 ALR 576
(1998) 159 ALR 170
(1998) 193 CLR 1
(1998) 87 FCR 371
(1961) 108 CLR 642
(1985) 39 SASR 440
(1997) 42 NSWLR 451
(1990) 21 FCR 324
(1985) 59 ALJR 844
(1991) 161 ALR 576
[1999] HCA 37