Relevance objection advanced by applicant taxpayer
17 The applicant's first submission was that Mr McClintock's affidavit is not relevant to any issue arising in the proceedings, and is therefore not admissible on that basis alone. It was pointed out that there are no facts in issue in the proceedings, and that the only issue arising in the proceedings is a question of law, namely the proper characterisation under or pursuant to the Tax Act of the sum of $576.64 referred to in [2] and [12] above, representing the total proceeds of sale of the applicant's sell back rights, though as already indicated, the applicant accepted that $62.64 of the above amount represented a capital gain. That was by reason of CGT Event A1 (s 104-10 of the Tax Act). The submission of the applicant is based on the proposition that because both the applicant and the Commissioner have filed a statement of facts, issues and contentions which do not put any of the primary facts in issue, being the facts set out in the Bowan affidavit, then as a matter of principle, there cannot be any facts in issue within the meaning of s 55 of the Evidence Act. The applicant pointed out, in that regard, that there was an absence of any affidavit evidence provided by the Commissioner which disputed any of the facts raised in the applicant's statement of facts, issues and contentions, and moreover the more extensive or detailed factual account set out in the Bowan affidavit. It was further submitted that the market value of the sell back rights as at 19 February 2001, being the date when the trading in sell back rights on the ASX commenced, and the amount realised by the applicant in respect of those rights, are common ground between the parties, and that the absence of dispute, as thus explained, renders those matters being otherwise than in issue.
18 Section 55(1) of the Evidence Act addresses the notion of relevance of evidence as follows:
'The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.'
The reference to 'a fact in issue' was in particular emphasised by the applicant.
19 The Australian Law Reform Commission (ALRC) 26, Vol 1, par 641 explained the s 55(1) expression 'a fact in issue in the proceeding' as embracing two concepts:
'(a) the logical connection between evidence and facts; and
(b) the requirement that the matter on which the evidence ultimately bears is a matter in issue in the trial. Whether or not a matter is in issue is a question of law, determined by substantive law and pleadings. It is not necessary that it be disputed by the parties.'
20 In E I Dupont de Nemours & Co v Imperial Chemical Industries PLC (2002) 54 IPR 304, as part of the process of resolving the admissibility of expert evidence in the setting of patent litigation, Branson J said (at [50]) as follows:
'Although it may not be wise to attempt a comprehensive definition of the phrase "a fact in issue in the proceeding" in the context of s 55 of the Evidence Act, it encompasses, in my view, at least all of those matters which one party must prove in order to succeed in the proceeding and that the other must prove to establish its defence.'
21 In the present proceedings, it has become necessary of course for the applicant to prove that the Commissioner's characterisation of the sum of $576.64 as assessable as 'ordinary' income was wrong. There is of course imposed upon the applicant the onus of proof stipulated by s 14ZZO of the Taxation Administration Act 1953 (Cth). It has therefore become necessary for the applicant to adduce evidence of the facts and circumstances relevantly surrounding and concerning her alleged derivation of that sum of $576.64. By the Commissioner's statement of facts, issues and contentions, the Commissioner did not relax to any extent the applicant's statutory obligation to satisfy that onus of proof. Indeed the Commissioner's statement contains the assertion that save for any facts expressly agreed or admitted in writing, the Commissioner invoked s 14ZZO, and would put the applicant to proof of all facts upon which the applicant relied to establish that the assessment was excessive.
22 The applicant has taken what appear to be appropriate evidentiary steps in her endeavour to discharge that statutory onus. She has provided an affidavit setting out with commendable clarity and precision the circumstances of her derivation of the total sum of $576.64, and the nature and extent of her investment in public company shares listed on the ASX, other than her holding in SGL. In addition she has caused to be provided of course the Bowan affidavit, which details, again with commendable detail and clarity, the purpose, nature, objectives, components and incidents of SGL's subject sell back rights' scheme. Whether by so doing, the applicant has satisfied and discharged the statutory onus of proof, remains of course to be resolved at the final hearing of the proceedings. The admissibility of evidence issue is however another matter. It is not an easy matter to distil from the McClintock affidavit material concerning the nature and incidents of SGL share buy-back scheme not already set out and explained in the Bowan affidavit, which was completed and served some six weeks or so prior to Mr McClintock's first affidavit of 14 April 2003, which was subsequently replaced by his second affidavit of 24 July 2003 the subject of the present voir dire.
23 It is in the foregoing context that the applicant advanced its objection to the relevance of the McClintock affidavit. A useful starting point of neutrality may be identifiedin Smith v R (2001) 206 CLR 650 at [6], where it was observed in the joint judgment of Gleeson CJ, Gaudron, Gummow and Hayne JJ that '[e]vidence is relevant or it is not. If the evidence is not relevant, no further question arises about its admissibility. Irrelevant evidence may not be received'. In order for the McClintock affidavit to be relevant, it was submitted that the same must rationally affect, directly or indirectly, an assessment of the probability or otherwise of the existence of a fact in issue in the proceedings. That task was said to require a minimum logical connection between the evidence being adduced and the fact in issue. It was acknowledged that admissible evidence need not render a fact in issue probable, or sufficiently probable, and that it is enough if the evidence merely makes a fact in issue more probable or less probable than it would otherwise be the case without that evidence. Or put another way, it is required of the Court to determine whether the evidence tendered, if accepted, would affect, directly or indirectly, the Court's assessment of the probability of the existence of a fact in issue in the proceedings. None of those tests were said by senior counsel for the applicant to pass muster in relation to the McClintock affidavit.
24 The applicant therefore contended that since there are no facts in issue in the proceedings, being facts bearing in particular upon the characterisation of the sum of $576.64 received by the applicant by way of proceeds of the disposition of her sell back rights in SGL, whether before or after deducting therefrom the sum of $62.64 apparently conceded by the applicant to be a capital gains taxable amount due to the Commissioner, the McClintock affidavit could not rationally affect, directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceedings, and must therefore be rejected in its entirety. Or as put another way by the applicant, the only issue arising in the proceedings was the proper characterisation under the Tax Act of the sum of $576.64 in her hands as income according to ordinary concepts. As earlier indicated, there is no issue arising in the proceedings as to the market value of the sell back rights at any material time, and in particular as at 19 February 2001, or as to the amount realised by the applicant from her sell back rights, namely $576.64. It followed, so senior counsel for the applicant emphasised, that what appears in pars 28-46 of the McClintock affidavit (see [13-14] above) is irrelevant.
25 In elaboration upon those contentions, senior counsel for the applicant pointed to the following further matters:
(i) what Mr McClintock had to say about the operation of the SGL sell back scheme was derived, or may be assumed to have been derived, from material sourced in greater detail from the Bowan affidavit earlier provided by the applicant to the Commissioner, all of which material was common ground; so much was said to be partly evident by the footnote references to the Bowan affidavit appearing in and implicitly adopted by the McClintock affidavit;
(ii) the purpose or objection of the McClintock affidavit was ambiguous; his instructions from the Commissioner were to opine on 'the amounts of the benefits realised' from the SGL buy-back scheme; Mr McClintock maintained the use of the word 'benefit' or 'benefits', rather than simply the word 'amount' or 'amounts', in the course of expressing his opinion as to the 'benefit received or realised' by the applicant; in so doing, the applicant contended that Mr McClintock encroached impermissibly upon the ultimate legal issue, being the fiscal nature or character of the receipt of the subject moneys in the applicant's hands;
(iii) the reference in s 80(a) of the Evidence Act to the notion of 'ultimate issue' was to the ultimate factual issue(s) (my emphasis), and s 80(a) did not authorise the admission of opinions as to the ultimate legal issues(s), the resolution whereof required the application of a legal standard to the facts of a case (Allstate Life Insurance Co v ANZ Banking Group Limited (No 6) (1996) 64 FCR 79 at 84-85 per Lindgren J).
26 Senior counsel for the Commissioner submitted that because the McClintock affidavit set out his opinions as to whether the sell back rights had 'value' or 'benefits' to SGL shareholders, and as to how the issue and the sale of the sell back rights operated in that context, it was 'plainly relevant to the issues in dispute'. It was not however indicated anywhere by or on behalf of the Commissioner, so the submission continued, what aspects of the value and sale of the sell back rights were not common ground, in the light of the Bowan affidavit earlier provided by the applicant. Nothing contained in the Bowan affidavit was purportedly put in issue by the McClintock affidavit. I would add in that context reference to the applicant's affidavit, which also sets out with precision the history of the applicant's involvement in the SGL buy-back, as well as her other public company shareholding activities.
27 In response to the objections raised by the applicant as to relevance of the McClintock affidavit, the Commissioner commenced with the submission that the issues involved should be framed simply as follows:
'(1) whether the sell back rights which were received by the applicant constituted income according to ordinary concepts and therefore whether the amount of $514.00 is to be included in her assessable income for the year ended 30 June 2001;
(2) whether the amount of $576.64 which was received by the applicant on or about 2 April 2001 constitutes income according to ordinary concepts and is to be included in her assessable income for the year ended 30 June 2001.'
There was no suggestion on the Commissioner's part that the sum of $576.64 derived by the applicant from the disposition of her sell back rights represented or reflected other than the market value of those rights on the day of derivation, being the weighted average market price of each sell back right calculated as at that time.
28 In relation to the first issue so framed, the Commissioner contended (inter alia) that the grant or allocation of the sell back rights constituted a gain derived by the applicant from her shareholding in SGL, to the extent of the value thereof at the time of grant or allocation, since her sell back rights were capable of being turned to pecuniary account. It is the Commissioner's contention that such gain represented the derivation of assessable income.
29 In relation to the second issue framed by the Commissioner, it was contended on the Commissioner's behalf that the amount of $576.64 subsequently received by the applicant was obtained in connection with, and by virtue of, the applicant's existing shareholding in SGL, and constituted a gain derived by the applicant from that shareholding. Again the expression 'gain' was used in the sense of derivation of assessable income.
30 The question whether the value of the sell back rights themselves as at the time of allocation thereof, or the amount of monetary proceeds thereof subsequently received by the applicant, constituted income according to ordinary concepts, was submitted by the Commissioner to fall for determination by reference to matters including, but not limited to, the following:
(i) the terms and conditions of the sell back rights, including the alternative courses of action, or inaction, open to a shareholder such as the applicant, in response to the issue of the sell back rights;
(ii) whether the sell back rights had value at the time of their issue;
(iii) whether the sell back rights were transferable;
(iv) whether the sell back rights could be turned to pecuniary account.
Reference was made by the respondent to the long established principles in income derivation in the United Kingdom appearing in Abbott v Federal Commissioner of Taxation of the Commonwealth of Australia (1974) 23 FLR 1 concerning the derivation of income for income tax purposes. Those authorities were said to be 'plainly relevant' to the issues in dispute.
31 However the following observations may at once be made in relation to each of those four matters:
(i) Mr McClintock did not express in his controversial affidavit any opinion as to the nature of the terms and conditions of the sell back rights, but merely summarised the same in a non-contentious manner; those terms and conditions are in any event not in dispute;
(ii) Mr McClintock's purported opinions expressed in that affidavit as to the value of the sell back rights, as at the time of their issue, amounted to no more than the provision of basic arithmetical calculations on undisputed factual material, being the market prices of the SGL sell back rights and the SGL shares prevailing at the material times on the ASX, in relation to which the parties are already on common ground;
(iii) no issue was raised by Mr McClintock as to the transferable nature of the sell back rights;
(iv) no issue was raised by Mr McClintock as to whether the sell back rights could be turned to pecuniary account at the material times.
Consequently, as the applicant rightly submits, Mr McClintock's affidavit affords no relevance to any contentious fundamental aspects or elements of the SGL buy-back scheme. It is perhaps appropriate that I should make nevertheless some observations in relation to the operation of those two longstanding authorities.
32 In both Abbott v Philbin and Donaldson, to which the Commissioner referred above, taxpayers who came to have rights to options over shares were regarded as having derived those options at the time when a distinct set of legal relations constituting the options came into existence. It is therefore not readily apparent why those authorities are 'plainly relevant' to the issues in dispute, as the Commissioner has asserted. Commenting on those two decisions relating to the nature of income and its derivation, the late Professor Parsons observed in his published work Income Taxation in Australia (LBC 1985) as follows (at pages 28-29):
'2.15 …One aspect of that distinction [ie between cash accounting and accruals accounting] may be noted here: there is no derivation on a cash basis if the taxpayer merely comes to have a right to receive property. There must be an actual or constructive receipt of the money. Where the taxpayer is on an accruals basis in relation to the item, the arising of a right to receive money may however be a derivation. Generally where there is a right to some benefit or to property other than money there cannot be a derivation, whether the taxpayer is on accruals or cash, until the benefit or property has come to be vested in the taxpayer. Property for that purpose may, it seems, include a chose in action. Thus the taxpayer in Abbott v Philbin… and the taxpayer in Donaldson…, who came to have rights to options over shares were regarded as having derived those options at the time when a distinct set of legal relations constituting the options came into existence…'
It is not immediately apparent why principles as to accrual of income are relevantly addressed by Mr McClintock's thesis as to 'benefits' to St George shareholders the subject of his affidavit. Assuming that the four matters postulated by the Commissioner in [30] above relevantly arise in relation to issues to be resolved in the circumstances of the applicant, which as I have indicated is not presently apparent, it is difficult to comprehend how it could reasonably be that Mr McClintock's postulations of 'benefits' to SGL shareholders bears upon any of those four matters. Such matters, to the extent required to be clarified, would fall to be resolved by the true construction of the nature of the sell back rights and their incidents contained in the documentation provided by SGL to its shareholders and the ASX.
33 The Commissioner rejected in any event the applicant's contention that the McClintock affidavit touched upon the ultimate legal issues, contending that the affidavit 'gave evidence about the value' of the sell back rights, and the benefits realised by shareholders, depending on which alternative course shareholders adopted; the Commissioner further contended that neither of those matters was properly to be described as an ultimate issue for the purposes of the exclusionary rule at common law, and that in any event, the ultimate issue rule had been abolished by s 80 of the Evidence Act. In so contending of course, it is necessary to distinguish an ultimate issue of fact from an ultimate issue of law (Allstate Life Insurance at [25] above).
34 There remains for discussion the brief remainder of the McClintock affidavit headed 'Role of CSFB' (ie Credit Suisse First Boston) appearing shortly at the conclusion thereof. It relates to the implications of unexercised sell back rights to the holders of sell back rights (such as the applicant) who chose to do nothing. The basis for the underlying assumptions made by Mr McClintock have been derived from the same documentary material as that contained in other uncontroversial evidentiary sources already comprehensively summarised in the Bowan affidavit. None of that material renders any of the limited facts potentially or conceivably in issue more probable or less probable, as the applicant rightly submitted. That evidence of Mr McClintock, if it was to be accepted, would not rationally affect, directly or indirectly, any assessment of the probability or otherwise of the existence of any fact in issue in these proceedings. It boils down to the undisputed calculation of the so-called 'sale mechanism price' of $2.12 per sell back right obtained by the applicant in the events which happened, to which reference has already been made in [12] and [15] above, and as already stated there is no dispute as to calculations involved thereby. I therefore consider that this remaining segment of the McClintock affidavit does not constitute relevant evidence, within the scope of operation of s 55 of the Evidence Act, and is thus also inadmissible.
35 I have reached the conclusion that pars 28 to 46 of Mr McClintock's affidavit appearing under the heading 'Opinions', does not rationally affect, directly or indirectly, or establish the probability of existence of, any fact in issue in these proceedings. That being so, the opinions furnished by Mr McClintock in that affidavit in particular, concerning the value of the sell back rights, and the benefits apparently realised by shareholders by virtue thereof, do not render any facts or circumstances of relevance in these proceedings more probable or less probable. I therefore hold that senior counsel for the applicant is correct in his contention that those opinions do not rationally affect or bear upon, directly or indirectly, the market value of the sell back rights realised by the applicant, or the juridical character of the sell back rights, or the proceeds of realisation thereof, in the applicant's hands. Or put another way, the opinions expressed by Mr McClintock do not, in any relevant sense, affect directly or indirectly the probability of any evaluation or assessment of the circumstances surrounding the applicant's shareholding in SGL, and her sell back rights thereby arising, of potential relevance, for instance, as to the manner in which her original investment was made and managed, and the relationship of the applicant's stock and share investment activities to whatever might be the applicant's other sources of income derivation, and the receipt and realisation of the sell back rights by or on behalf of the applicant which actually took place.
36 The Commissioner was therefore not justified in presenting Mr McClintock's affidavit as evidence in the proceedings, in the light of the undisputed facts and circumstances concerning the SGL buy-back, and the applicant's participation therein. It is an affidavit which in my opinion serves no legitimate purpose in the resolution of the present fiscal dispute. That is not intended to constitute any criticism of Mr McClintock, who doubtless has merely undertaken the task the subject of his instructions.
37 The finding which I have made as to disallowance of Mr McClintock's affidavit of 24 July 2003 carries the consequence that the same should not be admitted into evidence in the proceedings. Since that affidavit does not contain any controversial calculations or 'raw' data concerning the SGL share buy-back, I have given consideration to the course of allowing the same to be read as a convenient reference point or explanation as to how differing financial outcomes crystallised for SGL shareholders in the events which happened, especially for those SGL shareholders 'who did nothing', such as the applicant. Put another way, I have given consideration to affording the affidavit the status of background material in the proceedings as merely a non-controversial tool or reference point of convenience, in order to possibly facilitate an understanding of the choices, and the financial implications thereof, provided to SGL shareholders by the SGL buy-back.
38 In that regard, subsequent to the hearing, senior counsel for the Commissioner, with the Court's approval and in the light of the extent of the debate on admissibility which had taken place and at my invitation, included the following in a supplementary written submission in reply:
'The ultimate legal issue in the present proceeding is, relevantly, whether the amount received was income according to ordinary concepts. In determining this issue, the use of the word "benefit" (rather than, eg "amount") in Mr McClintock's affidavit will not be determinative or material. It is clear that Mr McClintock has issued the word "benefit" as synonymous for "amount". If Mr McClintock's affidavit is admitted, the Commissioner will make submissions on the basis that the word "benefit" has in the context the same meaning as if it were "amount".'
39 The frankness of that approach, in the light of the extent of the debate which had occurred, was I thought commendable. However, as will shortly appear in my review of the second ground of objection to the McClintock affidavit, the applicant remains understandably apprehensive of the purpose of Mr McClintock's use of the expression 'benefit' in his affidavit, in the light of what appears for instance in the following passage in the judgment of the Privy Council in Commissioner of Inland Revenue v Wattie & Anor [1999] 1 WLR 873 at 883 (the bold letters have been made by the applicant for emphasis):
'Like the majority of the Court of Appeal their Lordships are unable to understand how the $5 million can be regarded as a profit. It could only be so regarded if it constituted a benefit or bonus accruing to Coopers & Lybrand quite independent of the other terms of the bargain between the parties. To regard it in this way would be plainly erroneous in principle, as well as being contradictory of the first contention put forward by the Commissioner. In support of that contention Mr McKay had argued, correctly, that the $5 million was inextricably linked to the payment by Coopers & Lybrand of the above-market rental. It might be described as the price received by them in return for their undertaking to pay that rental. Given that, according to the evidence, the undertaking was equal in value to the price then there could be no profit element in the latter.'
40 Moreover in Commissioner of Taxation of the Commonwealth of Australia v Montgomery (1999) 198 CLR 639, there appears in the following passages in the joint judgment of Gaudron, Gummow, Kirby and Hayne JJ (at 677-678) the use of the word 'benefit', in the context of a s 25(1) dispute, which involved a lump sum payment to taxpayers, being prospective lessees of office accommodation as an inducement to their commitment to a long term lease (the bold letters were again made by the applicant):
'The inducement amounts received by the firm did not augment the profit-yielding structure of the firm. The lease was acquired as part of that structure; the inducement amounts were not. There was, in the words of Pitney J in Eisner v Macomber (117) "not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being 'derived,' that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal".
To put the matter another way, the firm used or exploited its capital (whether its capital is treated for this purpose as being the agreement to take premises or its goodwill) to obtain the inducement amounts. As the papers presented to the firm in August 1989 said, the firm was then "of a size which makes it a particularly attractive tenancy target". And it was because it was a particularly attractive tenancy target that it was suggested in those papers that the firm should receive a good inducement offer to take premises. The firm used or exploited its capital in the course of carrying on its business, albeit in a transaction properly regarded as singular or extraordinary. And the sums it received from the transaction were not as some growth or increment of value in its profit-yielding structure - the receipts came in or were derived, for the separate use, benefit and disposal of the firm and its members as they saw fit.'
41 I think that in all the circumstances of the forensic debate that has occurred on the issue as to admissibility of the McClintock affidavit, I should not allow the same to remain on file, even for some limited purpose such as providing illustrations of the various so-called 'benefits' which arose in the various events which happened in relation to the SGL buy-back. Moreover if I was to take any different course for the very limited purpose I have contemplated, and the Commissioner was to be successful in the final outcome of the proceedings, issues as to recovery of the doubtless substantial legal costs incurred by the Commissioner in obtaining Mr McClintock's affidavit could well produce a controversy which should not be permitted to arise in the first place.
42 Although my findings on relevance are sufficient to dispose of the admissibility of the McClintock affidavit, it is appropriate to record and make some observations upon the additional grounds of objection raised by senior counsel for the applicant to the affidavit of Mr McClintock.
Ultimate issue objection advanced by the applicant taxpayer
43 The applicant submitted additionally and alternatively that the McClintock affidavit impermissibly bore upon the ultimate legal issue namely, the nature of the receipt in the applicant's hands of the sell back rights and their ultimate crystallisation in her favour in the events which happened. It was submitted that throughout pars 28 to 46 thereof, Mr McClintock impermissibly used and applied the word 'benefit' in the context of expressing his description of the proceeds of reduction of the sell back rights received by the different categories of shareholders, including of course the applicant. Although Mr McClintock was being thereby responsive to the Commissioner's instructions to opine on 'the amounts of the benefits realised', the issue as to whether or not the shareholders received a 'benefit', within the fiscal sense described in Wattie And Montgomery, was submitted by the applicant to be a matter exclusively within the realm of the judicial function of the Court. The Commissioner rejoined to the effect (as before) that the opinions expressed by Mr McClintock are not properly to be characterised as bearing upon the resolution of the ultimate issue to be resolved in the proceedings, for the purposes of the exclusionary rule. In the light of what I have recorded in [38] above, it would seem that this ground of objection has become academic, but in deference to counsel, I shall express my conclusion in relation thereto.
44 Section 80(a) of the Evidence Act provides:
'Evidence of an opinion is not inadmissible only because it is about: (a) a fact in issue or an ultimate issue…'
45 In Allstate Life Insurance, Lindgren J also concludedthat the evidence of an expert witness, whose evidence touched upon the ultimate legal issue, was inadmissible. His Honour said (at 83) as follows:
'It is fundamental that the ascertainment of the law relevant to a matter before a court and its proper application to the facts of the particular case are of the essence of the judicial function and duty. Although those processes are properly the subject of submission, evidence of opinion, whether as to the identification of the relevant law or as to its proper application, is not admissible. The rationale underlying this fundamental principle may be expressed in various closely related ways: to admit such evidence would be to permit abdication of the judicial duty and usurpation of the judicial function; such evidence cannot be allowed to be probative or to rise higher than a submission; such evidence is necessarily irrelevant.'
46 The ultimate legal issue here, as appears from the Commissioner's submission recorded in [27] above, is whether the amount received by the applicant constituted assessable income for the purposes of the Tax Act. When regard is had to Mr McClintock's use of the word 'benefit' in his affidavit, that is, as part of his expressions 'a benefit realised' or 'a benefit accruing', I think that it is susceptible to the criticism that it touches upon the ultimate legal issue, particularly in the light for instance of the judicial references to 'benefit' in Wattie and Montgomery earlier extracted above. However the Commissioner's ultimate submission renders this area of debate also academic, given that the references made by Mr McClintock to 'benefit' are to be effectively read down to the extent there set out.
Opinion objection advanced by applicant taxpayer based on absence of specialised knowledge
47 The applicant submitted, as a third basis of objection to the admissibility of the McClintock affidavit, that Mr McClintock does not possess any relevant field of 'specialised knowledge' in respect of valuations of listed securities, and that his conclusions as to so-called 'benefits' derived by the applicant, purportedly used in a technical sense of relevance in the proceedings, are not based on the specialised knowledge whereof Mr McClintock is expert. Rather the applicant submitted that the contents of Mr McClintock's affidavit essentially comprises a summary of the entitlements of the sell back rights on issue from SGL, and the circumstances and outcome which attended the disposition or absence of disposition thereof that occurred, being material already comprehensively adduced by the applicant.
48 A starting point to the applicant's objection on this further ground is s 76(1) of the Evidence Act reading as follows:
'Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.'
The relevant exception engaged in this proceeding is s 79 of the Evidence Act, reading as follows:
'If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.'
49 The applicant contended that for Mr McClintock to express the opinions which he did, concerning 'benefits' which accrued to the applicant by refraining from activating the sale of her sell back rights, had no basis in his stated qualifications and expertise, and comprised merely an assembly of ASX information, and the simple arithmetical calculation which produced the figure of $2.12 received by the applicant for each of her unexercised sell back rights. Mr McClintock's opinions were therefore not based, so the applicant contended, on his 'training, study or experience'.
50 I was referred by the applicant to Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, where Heydon JA (as his Honour then was) analysed the requirements of s 79 of the Evidence Act (at 743-4). The following seven requirements may be deduced from his Honour's observations:
(1) a relevant field of 'specialised knowledge' must be identified;
(2) the witness must, by reason of his 'training, study or experience', be an expert in an identified aspect of that field;
(3) the particular opinion must be wholly or substantially based on the expert's specialised knowledge;
(4) insofar as the particular opinion is based on facts which the expert himself has observed, those facts must be clearly identified and proved by the expert;
(5) insofar as the particular opinion is based on assumptions, the assumptions must be clearly identified and proved by other admissible evidence;
(6) in either case, those facts must form a proper foundation for the opinion; and
(7) the expert's evidence must demonstrate the intellectual basis for the particular opinion by explaining how the field of 'specialised knowledge' upon which the opinion is based applies to those facts.
51 The raison d'ętre for the above requirements is that 'if these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the Court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight' (at 744). The applicant submitted that it is not apparent from the McClintock affidavit how the requirements of at least (3) and (7) above have been satisfied.
52 I was then referred by the applicant to Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 where as a member of a Full Court, Branson J spoke (at [7]) of Makita as 'a counsel of perfection', and did not entirely embrace the view of his Honour that it was necessary for the Court to be '… sure whether the opinion is based wholly or substantially on the expert's specialised knowledge' (her Honour's emphasis), and that 'the test is whether the Court is satisfied on the balance of probabilities that the opinion is based, wholly or substantially on that knowledge' (at [14]). Her Honour referred in that regard to the following observations of Gleeson CJ in HG v The Queen (1999) 197 CLR 414 at [39]:
'… the provisions of s 79 will often have the practical effect of emphasising the need to requirements of form. 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.'
53 The joint judgment of the remaining members of the Full Court in Red Bull (Weinberg and Dowsett JJ at [87]) also addressed the principles formulated by Heydon JA in Makita, and in particular his Honour's use of the expression 'strictly speaking' in the concluding passage at 744 above extracted, in the following terms:
'The use of the phrase "strictly speaking" in the last sentence should not be overlooked. It may well be correct to say that such evidence is not strictly admissible unless it is shown to have all of the qualities discussed by Heydon JA. However many of those qualities involve questions of degree, requiring the exercise of judgment. For this reason it would be very rare indeed for a court at first instance to reach a decision as to whether tendered expert evidence satisfied all of his Honour's requirements before receiving it as evidence in the proceedings. More commonly, once the witness's claim to expertise is made out and the relevance and admissibility of opinion evidence demonstrated, such evidence is received. The various qualities described by Heydon JA are then assessed in the course of determining the weight to be given to the evidence. There will be cases in which it would be technically correct to rule, at the end of the trial, that the evidence in question was not admissible because it lacked one or other of those qualities, but there would be little utility in so doing. It would probably lead to further difficulties in the appellate process.'
54 For the purpose of ruling on this alternative objection, I have borne in mind what may be described as the qualifications made by the members of the Full Court in Red Bull in relation to the application of principles aggregated in Makita, to the extent that the same may relate to the issues of admissibility of evidence arising prior to the trial of proceedings.
55 The extent of Mr McClintock's specialised knowledge based on his training, study and experience has been summarised in [5] above, from which it appears that the same embraces general tax, accounting, valuation and audit principles. He has had extensive training and experience in these areas of endeavour. His professional associations are those of a fellow of the Institute of Chartered Accountants in Australia, an Associate of the Securities Institute of Australia, a registered tax agent and company auditor. An expertise in those fields, including 'general tax', would not reflect the nature and extent of expertise in sophisticated areas of the general law of taxation as to the liability or otherwise of proceeds of realisation of the sell back rights issued by SGL to income tax. Yet the applicant asserted that Mr McClintock has purported to do so, by his postulation of a so-called 'benefit' obtained by the applicant from the realisation of her sell back rights. I have already extracted dicta from Wattie and Montgomery, where the description of 'benefit' was used as a qualification for characterisation in the circumstances of those cases as taxable income. The applicant submitted that the Commissioner retained Mr McClintock, clearly an expert in his abovementioned fields, to produce a report, containing no new factual information of significance, which would afford purported legal/fiscal significance to the applicant to gain from her sell back rights by the description of 'benefit'.
56 It may be accepted that the circumstance that Mr McClintock's opinions were based on information publicly available, or to put in another way, that Mr McClintock had regard to publicly available information in reaching the conclusions upon which his specialised knowledge was applied, does not mean of course that Mr McClintock's opinions were not based on his specialised knowledge. As was pointed out in Velevski v R (2002) 187 ALR 233 (Gummow and Callinan JJ at [158]):
'…the words used in the section necessarily include, as they must in all areas of expertise, observations and knowledge of affairs and events, and departures from them. It will be impossible to divorce entirely from these observations and that knowledge from the body of purely specialised knowledge upon which an expert's opinion depends. It is the added ingredient of specialised knowledge to the expert's body of general knowledge that equips the expert to give his or her opinion.'
Gleeson CJ and Hayne J said nothing to the contrary, Gaudron J in her minority judgment expressed the view that an expert could have regard to 'matters that are within the knowledge of ordinary persons in formulating his or her opinion' (at [82]), an observation which would not appear to be at odds with the view of the majority.
57 It is apparent that by applying his specialised knowledge, Mr McClintock confirmed the accuracy of certain trading results or outcomes as and when they arose in relation to each category of shareholder, 'category' in the sense of those shareholders who actively traded their sell back rights, and those such as the applicant who 'did nothing', to adopt his description. The information provided in his affidavit, including his opinions, are not to be characterised, for example, as valuations of 'equities' in a publicly list corporation, but rather as a synopsis of the monetary sums which shareholders actually derived from their allocated sell back rights, whether or not they actively sold the same.
58 It is also apparent that the assumptions underlying Mr McClintock's opinions were based essentially upon ASX statistics referred to in the McClintock affidavit. Thus under the heading 'Do Nothing' in pars 33-4 of the McClintock affidavit the amount or so-called benefit received by a shareholder, such as the applicant was calculated by Mr McClintock in accordance with the applicable sale mechanism price obtained from ASX records and set out in the detailed assumptions appearing in pars 19-22. I refer for example to what appears in para 38 of his affidavit as follows:
'benefit - share buy-back less[SGL] share price on relevant date eg the benefit for a Sell Back Right exercised on 20 February 2001 = $16.50 less $14.75 = $1.75.'
59 Had Mr McClintock merely adopted an analysis or summary of relevant ASX statistics similarly to the course taken by Mr Bowan, then subject to an issue as to unnecessary duplication and the implication of that circumstance as to legal costs, there could have been no justifiable, or at least realistic, objection. However it is apparent that Mr McClintock went further, by his adoption of the expression 'benefit', which for reasons already indicated, was capable of carrying a fiscal conclusion of significance in the proceedings, and in relation to which he was not expertly qualified. The present basis of objection is in any event academic, in the light of the concession conveyed by senior counsel to the Court after the conclusion of the hearing (see again [38] above). The utility of the McClintock affidavit therefore tends to evaporate, being in reality an unnecessary duplication of the essence of the Bowan affidavit.
Conclusion
60 It follows that I disallow the affidavit of Steve McClintock sworn 24 July 2003 pursuant to s 56(2) of the Evidence Act.
I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.