Kennett & Anor v Mayrana Pty Ltd and Ors

MAYRANA PTY LTD (ACN 101 363 688) First Respondent

GARRATT'S LIMITED (ACN 000 003 725) Second Respondent

CHRISTOPHER CAMPBELL Third Respondent

PARTIES: MICHAEL TRAYNOR Fourth Respondent

MATTER NUMBER IRC 3680 OF 2003 _________________________________

MAYRANA PTY LTD (ACN 101 363 688) First Respondent

GARRATT'S LIMITED (ACN 000 003 725) Second Respondent

CHRISTOPHER CAMPBELL Third Respondent

MICHAEL TRAYNOR Fourth Respondent

CATCHWORDS: Evidence - reasons for admissibility of further reports of expert - opinions - relevance - assumptions - hearsay and sections 60 and 136 of the Evidence Act 1995 - expertise - exposure of reasoning - valuation - report irrelevant to claims advanced - irrelevant documents

LEGISLATION CITED: Evidence Act 1995 Industrial Relations Act 1996

Barbosa v Di Meglio [1999] NSWCA 307 Harrington-Smith on behalf of the Wongatha People v State of Western Australia (No 7) [2003] FCA 893 (20 August 2003) Kennett & Anor v Mayrana Pty Ltd and Ors (No 6) [2007] NSWIRComm 234 CASES CITED: Kennett & Anor v Mayrana Pty Ltd and Ors (No 5) [2007] NSWIRComm 199 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Roach & Ors v Page & Ors (No 11) [2003] NSWSC 907 Sydneywide Distributors v Red Bull Australia Pty Limited (2002) 55 IPR 354 The State of Queensland and Anor v JL Holdings Pty Limited (1996) 189 CLR 146

HEARING DATES: 14 September 2007, 17 September 2007

APPLICANTS: Dr JP Berwick of counsel SOLICITORS: GH Healey & Co

FIRST AND SECOND RESPONDENTS: Mr AJ Bulley of counsel SOLICITORS: Gray & Perkins LEGAL REPRESENTATIVES: THIRD RESPONDENT: Mr BKB Cross of counsel SOLICITORS: Thomson Playford

FOURTH RESPONDENT: Mr PW Taylor SC with Mr PL Carr of counsel SOLICITORS: Yeldham Price O'Brien Lusk DLA Phillips Fox

Matter No IRC 3679 of 2003 KEITH FRANKLIN KENNETT AND ANOTHER v MAYRANA PTY LTD AND OTHERS Application under s.106 of the Industrial Relations Act 1996 Matter No IRC 3680 of 2003

MYONG HO PAK v MAYRANA PTY LTD AND OTHERS Application under s.106 of the Industrial Relations Act 1996

1 On 13 September, I gave reasons for the conclusions which I reached as to the admissibility of an expert's report of Mr Robert Benjamin Prior, Exhibit 57. (See Kennett & Anor v Mayrana Pty Ltd and Ors (No 6) [2007] NSWIRComm 234). This judgment deals with the reasons for the conclusions reached in relation to the admissibility of further reports of Mr Prior.

Exhibit 58 2 The objection to this report included whether opinions were expressed; relevance; hearsay; expertise; and absence of disclosure of methodology and reasoning. It is convenient in beginning these reasons to respectfully adopt an observation made by Lindgren J in Harrington-Smith on behalf of the Wongatha People v State of Western Australia (No 7) [2003] FCA 893 (20 August 2003):

19 Lawyers should be involved in the writing of reports by experts: not, of course, in relation to the substance of the reports (in particular, in arriving at the opinions to be expressed); but in relation to their form, in order to ensure that the legal tests of admissibility are addressed. In the same vein, it is not the law that admissibility is attracted by nothing more than the writing of a report in accordance with the conventions of an expert's particular field of scholarship. So long as the Court, in hearing and determining applications such as the present one, is bound by the rules of evidence, as the Parliament has stipulated in subs 82(1) of the NT Act, the requirements of s 79 (and of s 56 as to relevance) of the Evidence Act are determinative in relation to the admissibility of expert opinion evidence.

3 These observations are equally apt in a case such as this. Section 79 of the Evidence Act 1995 permits the calling of opinion evidence from an expert. The evidence must of course be relevant. When such evidence is called, the expert's opinions should be clearly expressed. The expert's specialised knowledge, gained through training, study or experience, should be specified. How the opinions are based on that specialised knowledge should be explained. The facts and assumptions on which the opinions are based should be clearly specified and the expert should also clearly expose the reasoning process by which the opinions were reached. It is in ensuring that an expert's report satisfies these requirements, that a lawyer's involvement can be invaluable, for the party who calls the expert. 4 Not only will that approach ensure that objections which are taken to an expert's report are minimised, thereby reducing the costs of the litigation, it will also maximise the likelihood that the expert's report will ultimately persuade the trial judge.

Opinions 5 Mr Prior is an accountant. There was no challenge to that expertise. His report was directed to the conclusions Mr Traynor had reached in a due diligence exercise conducted for the purchasers of Excelsior College, the parties having agreed on a formula by which the sale price was to be calculated. That exercise had led to the view that the College had sustained a loss and a renegotiation of the sale price of the College resulted. Mr Prior disagreed with various of the conclusions which Mr Traynor had reached and took the view that he should have taken various steps, in order to ensure that the parties would have engaged in a different process, whereby an agreed profit figure for the College could have been arrived at. 6 In particular, it was Mr Prior's opinion that Mr Traynor's opinion that the College had sustained a loss of $126,124 in the year ending June 2002 was unreliable, unsafe, unfair and reckless. There could be no doubt that this opinion was relevant to what has to be decided in these proceedings, provided that the necessary foundation for the opinion was established. 7 I was again satisfied that various of the objections pressed to aspects of the report, were, in reality, complaints as to the way in which Mr Prior had structured his report and expressed his opinions. There can be no question that there was difficulty in the way in which the report was expressed and structured. 8 Nevertheless, I took the view that the fact that the report was not as clearly expressed as it might have been, was not a proper reason for refusing to receive many of the aspects of the report to which objection was taken. The report took the form of an argumentative reasoning process, which may or may not be ultimately accepted as well founded or sound, but that approach and the method of expression adopted, could not of themselves be a proper basis upon which the report could be rejected.

Relevance 9 There were many relevance objections pressed. The report included, for example, a description of the circumstances in which it came to be prepared, which was dealt with in Kennett & Anor v Mayrana Pty Ltd and Ors (No 5) [2007] NSWIRComm 199, where the application for leave to lead the report was granted. It was argued that such descriptions were not relevant at this stage of the proceedings. I did not accept this objection, because this part of the report explained how the report came to be prepared and structured, by way of a response to Mr Traynor's affidavit of 27 March 2007, which was finally tendered in the applicants' case. I took the view that the introductory explanations given assisted in an understanding of the structure of the report and the reasoning process adopted. 10 I came to similar conclusions in relation to other relevance objections; others were upheld, for reasons which are dealt with below.

Assumptions 11 Various objections were resolved on the basis of an acceptance by the applicants that the parts of the report in question were assumptions which Mr Prior had made, even though not expressed in that form, and that an assessment would have to be made, in due course, as to whether the facts proved provided a foundation for those assumptions. (See Kennett (No 6) at [20].)

Hearsay and sections 60 and 136 of the Evidence Act 1995 12 The report also contained sections where Mr Prior again said that he had conducted 'inquiries'. His various summaries of what his inquiries had revealed, referred to information provided to him by people such as Mrs Brash, the College's former accountant and Mr Brash, the College's former Registrar. Both Mrs Brash and Mr Brash had already been called to give evidence. 13 On this occasion, it was the applicants' case that the evidence was first hand hearsay admissible under s 60 of the Evidence Act and if not, the evidence should be admitted provisionally, with leave being given to permit the applicants to recall Mr Brash and Mrs Brash. 14 The respondents' argument was that s 60 did not permit the evidence to be led in this way; that if it did, the discretion given by s 136 of the Evidence Act should be exercised to limit the use to which the evidence could be put and that no leave would be given at this stage of the proceedings, for Mr and Mrs Brash to be recalled. 15 There can be no doubt that pursuant to s 60, first hand hearsay, if admitted on the basis of its relevance to Mr Prior's expert opinion, will also be admissible as evidence of the facts stated. (See the discussion in Odgers Uniform Evidence Law, Seventh Edition, at [1.3.940]). The weight which would be given to such evidence, is a different matter however. 16 In Harrington- Smith, Lindgren J observed:

33 The hearsay rule is stated in s 59 of the Evidence Act, and s 60 provides for the first exception to it as follows: `The hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of the fact intended to be asserted by the representation.' Some of the anthropologists' reports refer, with varying degrees of particularity, to things which the authors were told. Some of the informants have previously testified in tranches of hearing held in the Western Australian Goldfields region. Often the author's informants are not identified, even in general terms. Objection has been taken on the ground of hearsay to such references in the reports.

34 The question of the admissibility, as evidence of the asserted facts, of an anthropologist's evidence of representations made to him or her by persons whose society he or she is studying has been considered by trial judges in several cases: see Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 (Blackburn J) at 161; Yarmirr v Northern Territory of Australia (1998) 82 FCR 533 (Olney J) at 560--563; Ward v State of Western Australia (1998) 159 ALR 483 (Lee J) at 531; Daniel at [30]--[40]; Lardil, Kaiadilt, Yangkaal, Gangalidda Peoples v States of Queensland [2000] FCA 1548 (`Lardil') (Cooper J). Only in Daniel and Lardil did the question fall to be considered in the context of the application of both s 82 of the NT Act in its present form and s 60 of the Evidence Act.

35 RD Nicholson J and Cooper J, in Daniel and Lardil respectively, considered: * that evidence of statements made to an anthropologist was admissible for the purpose of showing the assumed factual basis of the anthropologist's opinions;

• that this enlivened s 60 of the Evidence Act; and

• that there arose for consideration the discretions conferred by subs 82(1) and ss 135 and 136 of that Act. I referred to the discretion given by subs 82(1) of the NT Act to order that the rules of evidence not apply at [7] above. Sections 135 and 136 are as follows: ` 135 The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might: (a) be unfairly prejudicial to a party; or

(b) be misleading or confusing; or (c) cause or result in undue waste of time. 136 The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might: (a) be unfairly prejudicial to a party; or

36 In Daniel , RD Nicholson J deferred deciding whether to exercise his discretion under s 135 until he had the benefit of examination and cross-examination in relation to the particular items of hearsay evidence in question. His Honour invited the parties to apply for him to exercise his discretion under s 136, adding (at [37]): `It would appear the discretion could even be exercised on a temporarily limited basis until argument has been heard on a particular item of hearsay evidence, where that is to occur.'

Finally, his Honour rejected an application for an order under subs 82(1) of the NT Act that the rules of evidence not apply.

37 In Lardil , Cooper J declined to make an order under s 136 limiting the use to be made of an anthropologist's evidence of representations made to him. In summary, his Honour's reasons for declining to do so were that: * if the applicants wished to rely on evidence of the facts alleged in the representations, they would have to recall the makers of the representations (a development which no party in the present proceeding would embrace) or give a notice or notices under s 67 of the Evidence Act and seek to have the hearsay evidence admitted under s 64 of that Act (it would be difficult to regard as `reasonable', for the purposes of subs 67(1), a notice given so late, and, indeed, in the course of the ruling on the hearsay objections, in the present case);

• section 60 made the hearsay evidence only some evidence of the asserted facts, and gave no added weight to that evidence; and

• it would remain open to the respondents to contend that his Honour should give the evidence little or no weight.

38 With respect, I will follow the views expressed by RD Nicholson J and Cooper J, which I do not think are clearly wrong, that ordinarily an anthropologist's evidence of statements made to him or her about practices of the society being examined by members of that society will be relevant for the purpose of exposing the factual basis of the anthropological opinions expressed. It is, however, odd that the tendering party should be in a better position because the anthropologist's report is in the form, Informant A told me facts X, Y and Z', rather than (in my opinion, the orthodox and preferable model) I assume, as the basis of my opinion, facts X, Y and Z'. It is perhaps arguable that the choice of the former in preference to the latter suggests two purposes: the purpose of exposing the expert's factual assumptions and the purpose of proving the asserted facts by hearsay evidence. I am not satisfied in the present case that the hearsay form was chosen for the latter purpose. If I were, I would make an order under s 136 of the Evidence Act limiting the use to be made of the evidence to the proof of the anthropologist's factual assumptions.

39 The way in which the discretions provided for in s 82 of the NT Act, and ss 135 and 136 of the Evidence Act, are to be exercised depends on all the circumstances of the particular case. I have referred earlier to the practical exigencies touching the giving of rulings on the objections in the present case. Like Cooper J, I propose not to make orders under any of those provisions, at least at this stage. No party would welcome a return to the Goldfields region for the purpose of affording the indigenous informants an opportunity of testifying about the things of which they told an anthropologist, and of affording counsel the opportunity of cross-examining them on that testimony. In my opinion, that burden can, with justice, be avoided by my taking the course which Cooper J took in Lardil , of taking into account the hearsay nature of the evidence as going to its weight as evidence of the facts intended to be asserted by the representations.

17 Similar views have been expressed by Sperling J, for instance, in Roach & Ors v Page & Ors (No.11) [2003] NSWSC 907 at [75(j)]:

(j) The operation of s60 on assumption evidence which is given as the basis for an expert opinion is also a special case. Where such evidence is in the form of a bare statement of facts or where facts are stated as having been provided by some other person or persons, s60 operates to make the account evidence of the truth of the facts so stated. That is not so if the expert says that certain facts are assumed for the purpose of providing the opinion. A disadvantage should not be incurred in legal proceedings by happenstance. If the facts stated are contentious, it will ordinarily be unfair that the opposite party is fixed with assumption evidence as evidence of the truth of the facts stated by reason of those facts having been stated in one form rather than the other. 18 In this case, Mr Prior's hearsay evidence went to the result of his inquiries into how the College had conducted its financial and accounting affairs; the state of its accounts and how a trust account had been operated. In his evidence, Mr Prior did not set out what he had been told, but rather summarised the results of his inquiry. The applicants elected not to call direct evidence about various of the matters dealt with in Mr Prior's evidence. It must follow that in this case, the applicants chose the hearsay form, for the purpose of proving the asserted facts by hearsay evidence. 19 This is an unusual approach, as is observed in Odgers, where it is said at footnote [74] 'as a practical matter, one would expect the persons who made the statements to be called as witnesses'. Here, while Mr Brash and Mrs Brash, for example, were called, it appears that there was a deliberate decision made not to call direct evidence from them about matters relevant to what has to be determined in those proceedings. Rather, in his report, Mr Prior summarised his understanding of what they had told him. The end result would appear to have been a process whereby the applicants determined to engage an expert to inquire into matters relevant to what arises for determination in these proceedings, rather than to have the evidence as to those matters called and tested directly at the hearing, before the Court which has to decide the claims which the applicants seek to advance in the proceedings. 20 This is a very unusual approach in my experience, involving a very significant departure from the ordinary course, which involves an expert dealing with matters such as this in his evidence as assumptions, otherwise to be proven in the applicants' case by calling evidence directly from the people who have first hand knowledge of the matters in question. There was no explanation given for this unusual course, simply a bald assertion that it was permitted by s 60 of the Evidence Act. 21 In my view, that is not an approach consistent with the underlying purpose of s 60 of the Evidence Act, nor one which can be encouraged by this Court, particularly in proceedings brought under s 106 of the Industrial Relations Act 1996 ('the Act'), where the fairness of the parties' contracts arise for consideration. In considering those questions, the provisions of s 106(2)of the Act will arise. It provides:

(2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

22 Here, on the approach adopted, Mr Prior inquired into the way in which the College was operated, so far as its accounting and other computer systems were concerned, in circumstances where the accuracy and reliability of the information which was recorded in these systems, is in issue in the proceedings. Also in issue is the consequences of any deficiencies and how they were dealt with by the parties. It is the applicants who seek to establish the unreliability of the College's systems, in circumstances where it was those systems which they used to produce information which they provided to the purchasers of the College, and which led to the due diligence exercise Mr Traynor was then engaged to conduct, in relation to that information. 23 It was in that context that the question of whether the discretion given by s 136 of the Act should be exercised in favour of the respondents, to limit the use which could be made of Mr Prior's hearsay evidence, arose for consideration. 24 In Kennett (No 6), I had concluded in relation to Mr Prior's earlier report at [26] that 'as a matter of justice between these parties, the assumptions of fact on which Mr Prior's opinion was based, must be established in the ordinary way'. 25 I came to a similar view in relation to this report and so concluded that the discretion under s 136 had to be exercised, to limit the use which could be made of Mr Prior's hearsay evidence. Again, I took the view that in these circumstances, there could not fairly be a departure of the kind which the applicants' had embarked on, from the ordinary approach to the calling of expert evidence, in relation to the matters in issue. That approach was discussed by Heydon J in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [64]:

64 The basal principle is that what an expert gives is an opinion based on facts. Because of that, the expert must either prove by admissible means the facts on which the opinion is based, or state explicitly the assumptions as to fact on which the opinion is based. If other admissible evidence establishes that the matters assumed are "sufficiently like" the matters established "to render the opinion of the expert of any value", even though they may not correspond "with complete precision", the opinion will be admissible and material: see generally Paris v John Holland Constructions Pty Ltd [1984] 2 NSWLR 505 at 509-510; Paris v John Holland Constructions Pty Ltd (1985) 59 ALR 844 at 846. One of the reasons why the facts proved must correlate to some degree with those assumed is that the expert's conclusion must have some rational relationship with the facts proved.

26 The application to recall Mr Brash and Mrs Brash, was made on the basis that Mr Prior's evidence should be admitted provisionally and the applicants given leave to recall those witnesses, to give further evidence about matters dealt with in Mr Prior's report. I concluded that this application had to be refused, given the history of these proceedings. There has been an unrelenting stream of applications, amended and further amended applications by the applicants, repeatedly seeking leave for various further indulgences, including the calling of late evidence. Leave to call Mr Prior's further expert evidence, as well as further evidence from Mr Rodgers, Mr Brash and Mrs Brash, was given in August, after Mr Prior had resiled from the opinions which he had earlier expressed in his 2006 reports. (See Kennett (No 5) at [39] to [67]).

27 As noted in Kennett (No 5) preparation of Mr Prior's further expert evidence was commenced in February 2007, with the assistance of Mr and Mrs Brash. Evidence was called from them as to the assistance which they provided. The applicants have made various forensic decisions in the conduct of their case. They have been relieved of the consequences of many of them, as well as the consequences of errors seemingly made by their legal advisers. 28 This further application to recall Mr Brash and Mrs Brash to lead even further evidence from them, was made not only after Professor Kennett and Mr Pak had given their evidence, but also after Mr and Mrs Brash had been called and excused. To support their application, the applicants complained as to the time at which they had received the respondents' objections to Mr Prior's latest reports, in the week before the resumption of the hearing. That there would be an objection to the hearsay parts of the report, cannot have come as any surprise to the applicants, given the form of the reports; the conclusions which Mr Prior reached and the applicable authorities. 29 There comes a point, in any proceedings, where a party is not entitled to any further indulgences from the Court. At the end of the day, justice must be given to both parties. As Kirby J observed in The State of Queensland and Anor v JL Holdings Pty Limited (1996) 189 CLR 146 at 171-2:

Justice will not necessarily require that a party should have multiple opportunities to plead and present its case. A court must accord justice to the particular litigant. But it must also maintain its responsible use of scarce public resources and consider, in a general way, the impact which its orders have on other litigants and on the public generally. 30 As I observed in Kennett (No 5) at [57] - [64]:

57 On Mr Prior's evidence in cross examination, it seemed that there was no reason why the conclusions which he reached in 2007, could not have been reached in 2005 and 2006, when the applicants were obliged to put on their evidence. Mr Prior always had access to the applicants, Mr Rogers, Mr Brash and Mrs Brash. Had Mr Prior been provided with the information which he required at the proper time, there is no reason to think the exercise he undertook in 2007, could not have been undertaken before he provided his first report in April 2006. These proceedings were commenced in 2003. Provision of the relevant documents, such as a 2001 price list and Mr Traynor's working papers, depended on the applicants providing them, or obtaining access to them, in so far as that material was not in their hands.

58 Providing Mr Prior with the information which he required, in order to provide a report about the adequacy of the due diligence exercise conducted by Mr Traynor in 2002 and the profitability or otherwise of the College in that year, did not depend on any conference of experts, to which Mr Prior repeatedly referred in his evidence.

59 It appeared that the necessary information was forthcoming in 2007, in part from Professor Kennett, Mrs Brash and Mr Brash and in part from the documents attached to Mr Traynor's affidavits. Those documents had already been produced to the Court in 2006, in answer to a summons issued for the applicants. The failure to provide those documents to Mr Prior earlier, plainly did not rest with the respondents.

60 Mr Prior's final opinions rested on the view which he reached in 2007, as to the unreliability of the records maintained by the applicants, prior to the sale of the College. On the evidence, there was no reason to think that the information on which that opinion finally rested, could not have been provided earlier, prior to Mr Prior preparing his 2006 reports, if the matter had been given proper attention by the applicants and their advisers at the necessary time.

61 In those circumstances, the question of whether any discretion should be exercised in favour of the applicants, to permit them to recast their case, at this late stage of the proceedings was not an easy one, particularly given the time already directed to aspects of the basis of the opinions expressed by Mr Prior in 2006, during the cross examination of Professor Kennett and Mr Pak in April and June. This was particularly so, because it appeared that this cross examination occurred at a time when, on Mr Prior's evidence, he had long held the view that he could not adhere to his 2006 opinions, but that had not been revealed to the respondents, as it should have been, once it was appreciated.

62 What could not be overlooked however, it seemed to me, was that Mr Prior's evidence was relevant both to the claimed unfairness of the parties' contracts and arrangements and the money orders sought. On the evidence as it stood at the conclusion of Mr Prior's cross examination, it was quite apparent that if the leave sought were not granted, the applicants' cases would in all likelihood fail, because Mr Prior had resiled from his 2006 opinions, thereby removing what appeared to be an important plank in the applicants' case. I accept Dr Berwick's submission that in those circumstances, to refuse the leave would have been devastating for the applicants' cases.

63 In all of the circumstances, I concluded that this was a situation where a discretion had to be exercised in favour of the applicants and, as was conceded for them, a costs order made against them, in relation to all of the costs thrown away in the respondents meeting Mr Prior's 2006 evidence. This includes any time spent in cross examining Professor Kennett and Mr Pak about matters relevant to those reports, which are no longer relevant to the claims advanced, given the receipt of Mr Prior's 2007 reports.

64 I accept, as the respondents explained, that the granting of this leave may present difficult forensic challenges for the respondents, which will have to be met. Nevertheless, I came to the conclusion that I am bound by the observations of the High Court, that an applicant ought not to be shut out from litigating an issue which is fairly arguable. I am satisfied that would be the practical effect of now precluding receipt of Mr Prior's 2007 reports, he having resiled from his 2006 opinions. The errors seemingly made by the applicants' advisers, put this situation into a category of the kind discussed by Kirby J in JL Holdings Pty Ltd at [169] - [180]. Undoubtedly, the new evidence is of considerable importance to the applicants; the evidence suggested that the new evidence has come forward as the result of fault on the part of the applicants' advisers and human error; there is sufficient time for the respondents' expert to reply to these reports and a costs order may be made, to rebalance the parties' competing claims as to justice.

31 The evidence which had already been called by the applicants from Mr and Mrs Brash, included evidence as to what they had done by way of assistance to Mr Prior in preparing his 2007 reports, in respect of which leave was also given in Kennett (No 5) (at [68]). There is no reason why the evidence in respect of which leave is now sought, could not have been put on in the affidavits in respect of which leave was given in August 2007 and every reason why it should have been, given the regrettable course which this litigation had taken to that point. 32 I was entirely satisfied that the applicants had been given every proper opportunity to put on their case and that the circumstances were not such as to properly allow leave for even further evidence to be called from Mr Brash and Mrs Brash, at this stage of the proceedings. The applicants had to be bound by the forensic decisions which they had made in respect of calling further evidence from Mr Prior, Mr Brash and Mrs Brash. To do otherwise would have resulted in injustice to the respondents, which could not be permitted. Nor could the public interest have permitted the granting of this application, given the extraordinary twists and turns this litigation has taken as the result of the approach adopted by the applicants and the resulting demands which have been made on public resources. (See 146(2) of the Act.)

Expertise 33 A section of Mr Prior's report at pages 15 - 16, under the heading 'Research by Prior' dealt with the lack of integration between two computer systems which the College operated, one a MYOB system and the other, a CMS system. Mr Prior there referred to enquiries made of the vendor of the CMS system and advice he received, that it was a flat file system. Mr Prior stated that 'I am not a database expert but I have completed post graduate studies in digital systems design in an electronic document centric environment. This extends to database interaction.' This part of Mr Prior's report concluded with:

If the CMS system was in fact a flat file system as I was told it could not, in my opinion, be considered reliable under any reasonable circumstance.

It is recommended that MXL be requested, under subpoena if necessary, to provide details of the underlying design of the CMS, including whether or not it was flat - file. A database expert should then be asked to review and comment on the system.

34 In his earlier oral evidence, Mr Prior had explained that he had himself not seen either of the College's systems and had never worked with a flat file system. 35 This part of the report was attacked on the basis that Mr Prior's expertise to deal with the matters set out had not been established. In Kennett (No 6), I dealt with Mr Prior's qualification to give opinion evidence in relation to the inherent difficulties of flat file data bases (at [7] to [15]) I concluded that Mr Prior did not have the relevant specialised knowledge to give that evidence. 36 I was invited to reach a similar conclusion in relation to this aspect of this further report. 37 In his report Mr Prior explained his lack of familiarity with the particular brand of system which the College had operated and the steps he consequently took to investigate the architecture of the system, because of Mr Traynor's view that the system was unreliable. Mr Prior explained that he came to share Mr Traynor's view that the system was unreliable, after referring to information obtained from the supplier of the system and extracts from various text books. Mr Prior concluded this aspect of his report, by suggesting that another expert should be engaged 'to review and comment on the system.' This part of the report formed a part of the chain of reasoning, which lead to the opinions expressed by Mr Prior that:

Having had unfettered access to the financial records, Systems and staff of Excelsior College Pty Limited Mr Traynor's opinion, that the education business of Excelsior College Pty Limited sustained a loss of $126,124 for the year ended 30 June 2002 was: s Unreliable: Because it did not comply with the AASB 1001 and make disclosures about uncertainties relating to the underlying information and systems. s Unsafe: Because Mr Traynor knew of serious problems and limitations associated with the accounting and CMS system. He admits knowledge of limitations and unreliability in his Affidavit of 27 March 2007. s Unfair: Because his opinion was both unreliable and unsafe. s Reckless: Because he knew that the systems and accounting environment was flawed and unreliable but he relied on a single spreadsheet to test 'theoretical revenue'. He applied no other tests.

9 On his evidence, Mr Prior had undertaken studies at TAFE and Masters degree level, in information technology, including database technologies. In 2004, he had completed the Master of Business (Information Innovation) degree at RMIT, which included a subject, Digital Information Innovation in Business, at the conclusion of which students were expected to be able to 'understand the technologies which are available for organizations to capture unstructured documents in flat file, relational and object oriented databases'. The affidavit evidence also dealt with various work Mr Prior had performed in connection with various computer systems, dating between 1985 and 2001. No reference was made, however, to any work relating to flat file databases.

11 Also in evidence was advice given by Mr Prior to the applicants' instructing solicitors in September 2007, that he was 'not a database expert'. He recommended that a database expert be retained. Despite this, his view was that he was qualified 'to reliably comment, as part of my Expert report, on the systems environment at Excelsior College in 2002.' 39 Having in mind that evidence and the views expressed in this part of the report which was essentially that Mr Prior agreed with a conclusion Mr Traynor had reached, I concluded that sufficient expertise had been established to satisfy the requirements of s 79 in relation to this aspect of Mr Prior's report. 40 There were other difficulties with this part of the report, in respect of which s 60 of the Evidence Act was again relied on in relation to various hearsay evidence. Annexed to the report was also various correspondence, which indicated that information had been sought, but not provided by the supplier of the College's computer system, hence no doubt Mr Prior's suggestion that other expert evidence should be obtained. I concluded that it followed that as a matter of fairness, while this aspect of the report should be received, the use to which it could be put, also had to be limited by the exercise of the discretion provided by s 60. 41 There was a further challenge to Mr Prior's expertise, in relation to giving expert evidence in relation to auditing. It was accepted by the applicants that Mr Prior had no such expertise, with the result that some parts of the report were not pressed. In another part of the report, entitled 'Audit and Auditing Standards', after referring to Mr Traynor's affidavit, correspondence and certain auditing standards, Mr Prior provided a number of 'observations', which concluded with two questions:

If this is so, and Mr Traynor never provided any advice to Messrs Kennett and Pak, and they were not 'parties' under the AUS904 engagement the questions are: · Specifically, why did Mr Traynor attend the meeting with Messrs Kennett and Pak (and with Mr Campbell) on 1 August 2002 if he did not have to? · Had Mr Traynor not attended that meeting it is likely that Messrs Kennett and Pak would taken the due diligence opinion that would have been provided by Mr Campbell and sought advice, in an unpressured environment, from Mr Rodgers?

42 In so far as these observations and questions were opinions, they were objected to on the basis that Mr Prior did not have the specialised knowledge upon which opinions in relation to auditing standards could be based. They were otherwise submitted to be irrelevant, argumentative and not opinions, in any event. 43 For the applicants it was argued that Mr Prior's expertise as an accountant was sufficient to permit Mr Prior to proffer these opinions. 44 The difficulty with the form of the report is readily apparent from this aspect of the parties' contest. As discussed by Priestley J in Barbosa v Di Meglio [1999] NSWCA 307 at [33], however, such an approach, whereby opinions rest on an 'argument' advanced by an expert, cannot of itself be a basis for excluding a report. 45 At the end of the day, an assessment will have to be made as to whether or not the arguments advanced in the report provide a sound basis for the opinions expressed. That must await another day. 46 Nevertheless, that conclusion does not do away with the necessity of the expert both having the specialised knowledge necessary to advance an argument, exposing the reasoning process used and showing that the opinion which is reached, in fact, rests on the expert's specialised knowledge. (See Makita at [85]). 47 In this case, it was accepted by the applicants that Mr Prior had no specialised knowledge in relation to audit. Despite the submission that Mr Prior's accounting expertise was a sufficient basis for him to advance this part of his report, a proper consideration of this part of his argument showed, however, that it was advanced by reference to an audit standard and what that standard required. 48 I was satisfied that Mr Prior's acknowledged expertise in relation to accounting, could not, without more, demonstrate that he had the necessary training, study or experience which qualified him to give such evidence in relation to an audit standard. 49 It followed that this aspect of the report had to be rejected.

Exposure of reasoning 50 In his report Mr Prior explained how he had tested Mr Traynor's due diligence opinion. Again, this formed part of Mr Prior's argument, upon which Mr Prior rested his opinion that Mr Traynor's opinion as to the loss sustained by the College was unreliable, unsafe, unfair and reckless. 51 The objection to this part of the report, and others, was that there was no adequate disclosure of the reasoning process. 52 Mr Prior also devised three test models to test 'financial performance, with a view to objectively maximising transparency, relativity and cause and effect factors', to support the opinions which he came to. Similar objections were made to these models and the detailed explanation given of the tests themselves. Amongst other things, the relevance of this approach was also challenged, as was the expertise relied on. 53 Apart from one matter, I was satisfied that the proper approach to adopt to these objections was that discussed in Sydneywide Distributors v Red Bull Australia Pty Limited (2002) 55 IPR 354 at [87]. Whether Mr Prior's opinions should be accepted does not arise for determination at this stage. Questions of the weight to be given to his opinions, given their basis and how Mr Prior's arguments have been developed and supported, will undoubtedly arise to be considered. The question of whether the report is intelligible and convincing, once it has been tested, also remains to be seen. 54 On page 37 of the report, Mr Prior made reference to developments after the sale, so far as the company which sold the College was concerned. The contest between these parties concerns the fairness of the contract under which the College was sold in 2002. I was satisfied that what that company achieved after the sale, when it was no longer operating the College business, can have no relevance to anything which I am called on to decide in these proceedings. It followed that this aspect of the report had to be excluded.

Valuation 55 On p 37 of the report, Mr Prior commented that 'he had not had time to prepare any indicative valuation of future maintainable earnings basis', but went on to proffer various observations, which led him to express an opinion as to future maintainable earnings. As well as an objection to Mr Prior's expertise to proffer opinions in relation to valuation, the objection to this aspect of the report included that Mr Prior was also later instructed by the applicants to give a valuation report, which the applicants sought leave to tender in their case. That leave was refused and thus, questions of relevance, hearsay and lack of any basis for the opinion being provided, were advanced as objections to this aspect of the report. 56 Consistently with the decision in Kennett (No 5), I did not receive this aspect of the report. There I concluded that:

52 This valuation emerged from further instructions given to Mr Prior in July 2007. Why those instructions were given was not revealed. Indeed, there was no explanation given at all for the late production of that evidence. On the evidence, that report had no connection with the parties' transaction. Nor was the report connected with any of the relief sought in the applicants' second further amended summonses. The applicants' summonses did not seek a variation of the parties' arrangements to provide for such a valuation, and no money orders were sought by reference to such a concept. Nor had Mr Pak or Professor Kennett mentioned the idea of such a valuation in any of their evidence, as a basis for their claims.

53 It followed that the applicants had demonstrated no basis for the admission of that new evidence and so the leave sought to introduce that further evidence was refused.

Report irrelevant to claims advanced 57 It was argued that aspects of the opinions which Mr Prior expressed were not relevant to the claims advanced in the applicants' summonses. The applicants were proceeding on the basis of their second further amended summonses, filed in April 2007. The claims advanced in Professor Kennett's summons, for example, are:

An Order declaring that the Contract, Arrangement or Collateral Arrangement between the First and Second Applicants and the First, Second and Third Respondents consisting of the negotiations to provide employment to the First Applicant and associated sale of Excelsior College Pty Ltd is an unfair Contract pursuant to Section 106 of the Industrial Relations Act 1996 ("the Act").

An order declaring the Contract, Arrangement or Collateral Arrangement between the First Applicant and the First Second and Third Respondents to be an unfair Contract pursuant to Section 106 of the Act.

An Order declaring void from its commencement or from some other time (except to the extent to which money has been paid to the Applicants) the Arrangement consisting of the Contracts bearing the date 5 July 2002, 9 July 2002, 18 July 2002, 19 July 2002, 6 August 2002 and 8 August 2002, between the First and Second Applicants and the First, Second and Third Respondents having regard to the circumstances under which the Applicants sold their interest in the business known as Excelsior College (conducted by Excelsior College Pty Ltd ACN 081 128 207) and the First Applicant performed work for the First, Second and Third Respondents.

An order varying from its commencement any Contract, Arrangement or Collateral Arrangement by inserting the following provisions: (a) That any Contract , Arrangement or Collateral Arrangement will not be terminated without the consent of the First Applicant except for serious misconduct unless the Respondents jointly or individually pay the First Applicant: (i) a period of notice of not less than the equivalent of 12 months remuneration at the rate of $120,000.00 per annum,

(ii) an amount of $24,000.00 in respect of unpaid consultancy invoices,

(iii) a payment of $200,000.00 as a consequence of the three year restraint of trade imposed,

(iv) that any Contract, Arrangement, or Collateral Arrangement shall not be terminated for reasons relating to the Applicant's conduct or performance unless: (a) the First Respondent shall give the Applicant notice of intention to terminate the Contract and provide to the Applicant reasons for the proposed decision, (b) the Applicant has been given an opportunity to defend himself against any allegations made in relation to his conduct or performance by the First, Second and Third Respondents, (c) the First, Second and Third Respondents have undertaken a thorough investigation of any allegations made in relation to the Applicant's conduct or performance and any matters presented by the Applicant in his defence (b) That the Contract will not be varied on the basis of the representations of the Fourth Respondent unless the Fourth Respondent or the First, Second or Third Respondents, or any one of them, pays to the Applicants: (i) an amount of money equal to the value of his shares in the Second Respondent, at the value of $0.50 per share, as per the Contract of 5 July 2002, being part of the original agreed consideration totalling $210,000.00 (ii) an amount of money being $210,000.00 and the balance of the original agreed amount of the consideration to acquire the Applicants interest in the business of Excelsior College Pty Limited, (c) The First, Second and Third Respondents shall not make any decision to terminate the Contract, Arrangement or collateral Arrangement, save for serious misconduct and/or unreasonably having regard to: (i) the First Applicant's personal circumstances in that he was: s 66 years of age; s Suffered from diabetes; s Was dependent as to capital needs upon completion of the contract; s Subject to a three year restraint of trade imposed by the contract. (ii) the satisfactory performance by the First Applicant of his obligations under the Contract.

(iii) The representations made to the First Applicant by and on behalf of the First and Second Respondents by the Third Respondent that he would be engaged at a senior executive level on a full-time basis.

(iv) The misrepresentations made to the First Applicant by and on behalf of the First, Second and Third Respondents by the Fourth Respondent in relation to the accounting treatment of agents fees as at the date of the purchase of the business which purportedly reduced the net profit below $300,000.000. (v) The misrepresentations made to the First Applicant by the Third and on behalf of the First and Second Respondents in relation to the premium value placed on the Second Respondent's shares at $0.50 when the market value was approximately $0.30 was due to information in the public domain relating to the purchase of Australian College of Technology and, its number of students , its wide range of course offerings, its profitability of approximately $700,000.00 per annum and its potential Chinese market .

An order that the First, Second, Third and Fourth Respondents be held jointly and severally liable for the amounts claimed.

In the alternative, an Order that the Respondents jointly and severally pay the Applicants such sum of money in connection with Contract as the Commission considers just in circumstances of the case.

Further, or in the alternative, each Respondent be held jointly and severally liable for such amount as the Commission considers to be just in the circumstances of the case.

An Order for payment of interest on sums of money ordered to be paid by the Commission.

Such further and other Orders as the Commission deems fit.

An Order that the Respondents pay the costs of the proceedings.

58 Those claims had been particularised, including:

The Fourth Respondent failed to adopt accounting standards, specifically AAS 15. The net profit formula was not clear and as a matter of professional practice should have been clarified between the parties. The accounting and systems environment made it difficult to measure net profit as defined by the relevant profit formula and accounting standards. The Financial Statements and Trust Account operated on a net cash basis and the Student Data Base and Revenue Report on a forced gross basis. Neither system could be conveniently reconciled with the other. The Fourth Respondent should have recognised the respective issues and clarified in a transparent way an alternative approach with the parties. Rather the Fourth Respondent simply adopted a convenient short cut approach and presented to the Applicants his figure as to net profit as a fact .

59 The applicants accepted that in so far as Mr Prior's report referred to a failure to comply with AASB 1001, it departed from the claims, as particularised. The applicants foreshadowed making a further application to amend their summonses. Until leave to further amend the summons is both sought and granted, the objection had to be upheld. This aspect of the report was not received.

Irrelevant documents 60 Various documents appeared at annexure 5 to the report which were objected to on the ground of relevance. 61 One document, a letter from FMRC Benchmarking, to Professor Kennett of 3 July 2007, responded to an enquiry, which was not in evidence. It provided a 'set of benchmark averages for a range of small business sectors'. A table with various statistics in relation to debtors was provided. The table referred to various industry sectors, none of which included the education sector, and an average was arrived at. 62 Mr Prior referred to that information at p 24 of his report, without any explanation of what relevance it had to the College, or its operations. In those circumstances, the objection of relevance was upheld. 63 A second document at annexure 5 was a memo from 'Jules' to Mr Rodgers, regarding the 'Audit of Trust Fund', dated 3 August 1999. The document was incomplete, not including the various documents attached, which included an excel spreadsheet containing relevant trust information. Mr Prior extracted one comment in the memo at p 24 of his report, about 19 students who had '$0 in their trust fund and owe considerable amounts of money', without providing the annexed document to which this comment referred. 64 The sale price of this College was structured by reference to the financial year ending June 2002. What relevance this document had to the claims here advanced was thus not readily apparent. It followed that given the incomplete nature of the document annexed to the report and the use to which Mr Prior sought to make of the extract from the document, this objection also had to be upheld.

65 Pages 29 to 31 of the annexure RBP, Mr Prior's review of the acquisition, was objected to, it being argued that all this part of the report amounted to was a commentary on documents, not expert opinion. Again, I was satisfied that the proper approach was to receive this part of the report, on the basis discussed above in relation to Sydneywide Distributors.

66 Part 4.9 of Mr Prior's report in exhibit A was pressed, even though it appears to form a part of the approach he had adopted in 2006, which he had abandoned, when he came to prepare his 2007 reports. It was explained that in this part of the report. Mr Prior dealt with Mr Traynor's approach to a particular accounting standard, which was not resiled from. 67 While that was not accepted by the respondents, I concluded that the objection could not be upheld. If this part of the report is adhered to even though it contradicts a later approach, no doubt that will impact on the persuasiveness of Mr Prior's evidence. I was satisfied, however that that assessment was one which could not properly be made at that stage of the proceedings.

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