Traderight (NSW) Pty Ltd (ACN 108 880 968) & Ors v Bank of Queensland Limited

lope Ann Gardner (Third Plaintiff/Third Cross Defendant in 08/282304; Third Plaintiff in 09/287824) Donna Quinn (Third Defendant in 08/282126; Third Defendant in 09/287816; Fourth Defendant in 09/287824) Garry Allsop (Fourth Defendant in 09/287816; Fourth Defendant in 08/282126; Fourth Defendant in 09/287816; Third Defendant in 09/287824; Third Cross Defendant in 08/279848) Shamarbre Pty Ltd (First Plaintiff/First Cross Defendant in 10/367117) Ronald George Johnson (Second Plaintiff/Second Cross Defendant in 10/367117) Geraghty & Palmer (NSW) Pty Ltd (First Plaintiff/First Cross Defendant in 08/281332) Shauna Margaret Geraghty (Second Plaintiff/Second Cross Defendant in 08/281332) Barry Palmer (Third Plaintiff/Third Cross Defendant in 08/281332) SME Business Assist Pty Limited (ACN 108 524 232) (First Defendant/First Cross Claimant in 08/279848; First Plaintiff in 09/287814) Scott Rolfe McCoy (Second Defendant/Second Cross Claimant in 08/279848; Second Plaintiff in 09/287814) Leokate Pty Ltd (ACN 111 162 068) (First Plaintiff/First Cross Defendant in 10/367086) Stephen Sargent (Second Plaintiff/Second Cross Defendant in 10/367086) Lauren Sargent (Third Plaintiff/Third Cross Defendant in 10/367086) Best Deal Pty Limited (ACN 119 366 433) (First Plaintiff/First Cross Defendant in 10/305568) Jeffrey Bruce Jones (Second Plaintiff/Second Cross Defendant in 10/305568) LJH Group Pty Limited (ACN 123 507 497) (First Plaintiff/First Cross Defendant in 10/306022) Leslie Xu (Second Plaintiff/Second Cross Defendant in 10/306022) Jin Yu Yang (Third Plaintiff/Third Cross Defendant in 10/306022) Southpole Financial Services Pty Ltd (First Plaintiff/First Cross Defendant in 10/304306) Harunur Rashid Chowdhury (Second Plaintiff/Second Cross Defendant in 10/304306) Iftekhar Tarek Hassan (Third Plaintiff/Third Cross Defendant in 10/304306) Ikthedar Hassan Murad (Fourth Plaintiff/Fourth Cross Defendant in 10/304306) Representation: NA Cotman SC with RD Glasson (OMB Parties) S Couper QC with JV Gooley, GAF Connolly and RM Higgins (Bank Parties) McCabes (OMB Parties) HWL Ebsworths (Bank Parties) File Number(s): Publication restriction: N/A

Introduction 1Before me is an application to admit into evidence a report of Professor Suzan Burton, who is Professor of Marketing at the University of Western Sydney. 2Relevant background to the current application can be found in other interlocutory judgments I have delivered in this matter and, in particular, the judgment I delivered on 4 October 2012 dealing with the admissibility of a number of documents with which Professor Burton's report is concerned (see Traderight v Bank of Queensland [2012] NSWSC 1181). It is not necessary to repeat all of the background given in that judgment in this one. I will continue to use abbreviations in that judgment in this one. It is, however, necessary to say something about the background in order to put what follows into context. 3The OMB Parties, who were franchisees of the Bank (or connected to franchisees of the Bank), allege that they were induced to enter into their respective franchise agreements by representations made by the Bank, which were false and misleading and deceptive. Many representations are relied on but relevantly the OMB Parties each allege that the Bank made representations substantially in these terms: BOQ ... impliedly represented that it actually believed on reasonable grounds that a viable business could be conducted in NSW as a BOQ franchisee, and in particular in Bathurst, by the Plaintiffs on the proposed terms of the BOQ OMB Franchise. (The terms of this representation are taken from para 33 of the 3FASC filed in the Jude proceedings which explains the reference to Bathurst. Other claims refer to the relevant branch). 4The OMB Parties also allege that the Bank represented that it believed on reasonable grounds that a metropolitan OMB could and would achieve monthly lending of $4 million and that a regional OMB could and would achieve monthly lending of $3 million and that lending at those levels would be sufficient to enable the OMB to break even by a specified time. There are variations in the way in which this representation is pleaded, but those variations are not material in the present context. 5In response to the allegation that those representations were made and were misleading, the Bank pleads among other things that it had reasonable grounds for making the representations and it gives extensive particulars of that allegation. Relevantly, those particulars include the following (this form of the particulars is taken from paragraph 253 of the amended defence to cross-claim filed in the SME proceedings): 6. The cross-defendant relies on the following as reasonable grounds for any representation or belief to the effect that the cross-defendant could successfully conduct business in New South Wales under the name Bank of Queensland: A. the cross-defendant engaged Enhance Management, a professional marketing consultant firm to carry out investigations into the cross-defendant's proposed entry into southern markets; B. Enhance Management produced to the cross-defendant a presentation entitled Bank of Queensland Southern Market Entry Quantitative Top Line Presentation dated September 2003 and a presentation entitled Bank of Queensland Southern Market Entry Quantitative Presentation dated October 2003; C. the presentations reported the results of detailed market surveys undertaken by Enhance Management; D. the reports expressed the conclusions that: (i) New South Wales and Victoria represented a relatively substantial potential market for the cross-defendant; (ii) the cross-defendant could launch in southern markets under the then current branding (Bank of Queensland); E. the content of the presentations supported the stated conclusions; F. once OMBs in New South Wales commenced to trade the performance of a number of OMBs demonstrated that the cross-defendant could successfully conduct business in New South Wales. 7. The cross-defendant relies on the following as reasonable grounds for any representation or belief to the effect that there was a substantial potential market of retail and business customers in New South Wales prepared to change banks: A. the October 2003 presentation by Enhance Management stated the conclusion that approximately one-quarter of businesses and consumers are likely to consider moving to the cross-defendant; B. the survey evidence reported in the presentation supported that conclusion; C. once OMBs commenced trading in New South Wales the performance of a number of OMBs demonstrated that such a potential market existed. 6The OMB Parties seek to rely on Professor Burton's report in support of an argument that the Bank did not have reasonable grounds for making a number of representations allegedly made by the Bank including those identified above. Specifically, Professor Burton seeks to address the following issues (Report, paragraph 6): (a) from a marketing point of view, what investigations, including market research, would have been undertaken by a reasonably competent person with marketing knowledge and experience when assessing and planning a proposed entry into the NSW financial services market using a franchised OMB model; (b) what steps were in fact undertaken by the Bank (as disclosed in the material that I have seen) in order to assess and plan the entry into the NSW Market using the franchised OMB model; and (c) whether the steps undertaken by the Bank were adequate or sufficient, relative to the steps or investigations that prudent and reasonable marketing practice would have required in the circumstances, including by reason of relevant information obtained by the Bank during the investigations or already known to it. 7The current report is the third iteration of reports prepared by Professor Burton dealing with the question whether the Bank conducted adequate investigations into the nature of the New South Wales market and the prospects of successful entry into it by the Bank. I rejected previous versions of the report most recently on 15 November 2012. 8Before dealing with the objections to the report raised by the Bank, it is necessary to say something about the relevant legal principles and to describe the report in more detail.

Legal principles 9Section 56 of the Evidence Act 1995 (NSW) (the Act) provides: (1) Except as otherwise provided by this Act, evidence that is relevant in a proceeding is admissible in the proceeding. (2) Evidence that is not relevant in the proceeding is not admissible. Evidence is relevant if, assuming that it is accepted, it "could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding": s 55(1). 10Section 57(1) of the Act provides: If the determination of the question whether evidence adduced by a party is relevant depends on the court making another finding (including a finding that the evidence is what the party claims it to be), the court may find that the evidence is relevant: (a) if it is reasonably open to make that finding, or (b) subject to further evidence being admitted at a later stage of the proceeding that will make it reasonably open to make that finding. 11Section 76(1) of the Act provides: Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed. However, s 79(1) creates an exception in these terms: If a person has specialised knowledge based on the person's training, study or experience, the opinion rule [that is, the rule set out in s 76(1)] does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge. 12It appears to follow from s 57(1) of the Act that opinion evidence is not admissible unless the court is satisfied that it is reasonably open to make the findings of fact on which the opinion is based either on the basis of evidence that has been admitted or on the basis of evidence that may be admitted at a later stage: cf, however, Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383 at [242]-[243] , where the Court of Appeal regarded the issue as open. 13Section 135 of the Act is also relevant. It provides: 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. 14In Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at [85], Heydon JA (with whom Priestley and Powell JJA agreed) said: In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all 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. 15However, as French CJ, Gummow, Hayne, Crennan, Keifel and Bell JJ explained in Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 at [37]: The admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. Nonetheless, their Honours went on to say: ... it is ordinarily the case, as Heydon JA said in Makita that "the expert's evidence must explain how the field of 'specialised knowledge' in which the witness is expert by reason of 'training, study or experience', and on which the opinion is 'wholly or substantially based', applies to the facts assumed or observed so as to produce the opinion propounded. [footnotes omitted] Moreover, the extent to which opinion evidence satisfies the requirements set out by Heydon JA in Makita will be relevant to the exercise of the court's discretion under s 135 of the Act.

Outline of the report 16Paragraphs 1 to 6 of Professor Burton's report outline her qualifications and experience and the questions which she has been asked to address. Paragraphs 7 and 8 set out the assumptions she was asked to make. Paragraphs 8 to 25 contain a summary of her report. 17In paragraphs 26 to 73 of her report, Professor Burton sets out the approach that someone with marketing experience would take in considering whether to enter a new market. Professor Burton says that the first step is to undertake an evaluation of the attractiveness of the potential market and states that the most commonly used form of market assessment is a model referred to as the "Porter's five forces analysis". Professor Burton explains that that analysis involves consideration of the level of industry competition, the threat of new entrants, the power of buyers including their ability to switch, the power of suppliers and the threat of substitute products. Relying on a number of assumptions, and applying that analysis, Professor Burton expresses the opinion that a reasonably competent person with marketing experience would have concluded that entry into the New South Wales banking market presented a high risk of failure and would have concluded that further testing and analysis was necessary before a decision to enter the market was made. Professor Burton describes the additional analyses that could have been undertaken. Professor Burton also says that a competent person with marketing experience would have prepared a marketing plan which would deal with what Professor Burton describes as the "four Ps" (that is, product, price, place and promotion). She says that failure to differentiate successfully on one or more of the four Ps for a sufficient portion of the market would carry a very high risk of failure. Implicit in what Professor Burton says is the proposition that the marketing plan would need to be prepared with that in mind. 18In paragraphs 74 to 92 of the report, Professor Burton considers what types of additional analyses the Bank did do by reference to identified documents, although Professor Burton also includes in this section statements about what work the Bank should have done. So, for example, in paragraph 91 Professor Burton states: In my view, a reasonably competent person with marketing experience and knowledge would have undertaken this type of specific product research when investigating the proposed entry into the NSW Market because the NSW Market was risky, many respondents required further information about products and the brand was "new and unknown". The type of product research Professor Burton is referring to is "Critical Incident Technique Interviews" and "conjoint choice modelling", which Enhance refers to in one of its reports. Precisely what those forms of research involve is not relevant for present purposes. 19Paragraphs 93 to 122 appear to be intended to be an analysis of the extent to which the Bank used the standard marketing tools described by Professor Burton. Paragraph 93 has the heading "THE BANK'S USE OF STANDARD MARKETING TOOLS" and appears to be a summary of Professor Burton's conclusions. Paragraphs 94 to 117 are headed "WORK NOT DONE" and paragraphs 118 to 122 are headed "WORK PROPOSED BUT NOT DONE". 20Paragraphs 94 to 117 in fact deal with the apparent failure of the Bank to consider four issues: (a)Previous failed attempts to enter the New South Wales market; (b)Whether the Bank could effectively differentiate its products from its competitors (especially Bendigo Bank and St George Bank); (c)An assessment of achievable market share; (d)The validation of a conclusion said to have been reached by the Bank that a metropolitan OMB in New South Wales could write $4 million per month. 21Paragraphs 118 to 122 set out work which was "proposed (or at least referred to)" by Enhance which was not undertaken by the Bank. However, Professor Burton does not express the view that that work ought to have been done or, assuming that her view was that it ought to have been done, the reasons for that view. 22Paragraphs 123 to 217 are intended to be a discussion of work that the Bank did do. They are divided into three subsections. 23The first subsection deals with work the Bank did in relation to brand tracking (paragraphs 124-129). Paragraph 124 refers to work done in 2003 which Professor Burton says is "impossible to generalise to the NSW population, because the sample combines BoQ customers and an apparently random sample of Australian residents, and the analysis does not include St George Bank". The rest of the section appears to be concerned with data collected during the period from July 2006 to early 2008. It is not clear what, from a marketing point of view, Professor Burton thinks the Bank ought to have done in the light of that research, given that it had already opened a substantial number of branches in New South Wales by the time the research was conducted. 24The second subsection (paragraphs 132 to 206) are concerned with the two Enhance presentations referred to in the reasonable grounds particulars. Paragraphs 130 to 132 set out some extracts from the presentations. Paragraphs 133 to 166 set out various qualifications described in the presentations and purport to comment on those qualifications and draw conclusions from them. What Professor Burton seems to be saying is that the presentations show a low likelihood that consumers would switch to the BOQ particularly in the absence of mass marketing. 25Paragraphs 167 to 202 focus on three conclusions in the presentations. Those conclusions are: (a)Approximately 25 percent of businesses and consumers were likely to consider switching or moving to the Bank; (b)New South Wales and Victoria represented relatively substantial potential markets; (c)The Bank could launch in the southern markets under its current branding. 26Paragraphs 168 to 188 explain why the first conclusion was not valid. Essentially, Professor Burton expresses the opinion that (a) the research questions asked of potential consumers were poorly worded, (b) the analysis wrongly assumed an equally positive response for all respondents in the top 4 categories (that is, on a scale of 1 to 10 with 1 being not at all likely to switch and 10 being extremely likely to switch, the analysis wrongly concluded that everyone who rated their likelihood of switching as 7 or more was interested in switching), and (c) the analysis wrongly interpreted "likely to consider" as "likely to move". 27Paragraphs 189 to 190 deal with the second conclusion. Professor Burton says little in relation to it except that she expresses the view that the relevant question is not whether there is a potential market. The question is whether the Bank would be able to capture a significant proportion of customers in that market. 28Paragraphs 191 to 195 deal with the third conclusion. Professor Burton says that the real question is whether the Bank would successfully or sustainably launch in the southern markets. She points out that the results of the Enhance reports show that 16 percent of consumers and 14 percent of businesses were less likely or less interested in the OMB concept after learning that it was related to a Queensland company. She concludes that that shows that "the OMB concept [was] less attractive for a substantial percentage of potential customers so as to make it less likely that any launch would be sustainable or successful in attaining sufficient market share" (paragraph 194). Professor Burton goes on to say that a conclusion that the Bank could launch was virtually of no utility because it did not address the critical question of "the marketing and other costs required to induce any significant proportion of customers (and a sufficient proportion) to switch from their current bank and with what financial consequences, such as the likely return on those investments" (para 195). 29Professor Burton also says that the most important limitation on accepting any conclusion from the research undertaken by Enhance and discussed in the presentations was the inability to extrapolate the results of the research to the market as a whole. That was because the brand was unknown in New South Wales and no mass marketing campaign was proposed. 30Professor Burton concludes: 203. In my view, the research and analysis undertaken by Enhance in September and October 2003 was or could only reasonably be considered as "exploratory" and not validating. By "exploratory", I mean that such research might be sufficient to decide not to proceed with a market entry, but would not be sufficient to show that market entry, or any particular market entry strategy, would be effective or successful. 204. The documents and materials provided to me contain no record of any apparent attempt to back up what I consider to have been very basic market research presented in the Presentations with more sophisticated analysis, such as choice type modelling, which would allow participants to choose between competing product offers in order to test the attractiveness of the Bank's service focused offering. 205. Such work would have allowed some estimation of how effective the Bank's positioning really was relative to its identified competitors, and would have, in my view, been required by prudent and reasonable marketing practice in the circumstances. 206. The type of analysis contemplated in the First Workplan and Second Workplan, in my view, was indicative of the more sophisticated analysis which should have been undertaken, consistent with prudent and reasonable marketing practice. 31Paragraphs 207 to 217 consider additional research undertaken by Enhance in about September 2006. Professor Burton says that that research should have been undertaken before launch and had it been it would have suggested "to a reasonable and prudent marketer that changes may need to be made to the proposed entry strategy including consideration of not launching, and/or launching with a different marketing mix (most notably with mass media advertising and/or some other significant level of marketing support)" (paragraph 208).

The Bank's submissions 32The Bank objects to admission of the report on a number of grounds. First, it submits that many of the assumptions made by Professor Burton are so vague and many are the result of the selection of isolated statements made in the Bank's documents which have been taken out of context, that it cannot be said that Professor Burton's report explains "how the field of "specialised knowledge" in which she is an expert and on which the opinion is wholly or substantially based applies to the facts assumed or observed so as to produce the opinion propounded". Second, it submits that the report is not relevant. Third, it takes objections to a large number of paragraphs in the report on various grounds. Essentially, those grounds are either that the conclusions Professor Burton expresses are not based on her specialised knowledge of marketing or she has not adequately identified the facts on which she relies or explained how, applying her specialised knowledge, she reaches the conclusions she does based on those facts.

The assumptions 33The Bank takes objection to many of the assumptions contained in paragraph 7 of Professor Burton's report on the basis that they are so vague or ambiguous or so selective that they cannot form a proper basis for an expert opinion. Assumptions (b), (c), (d), (e) and (ee) are said to be examples of the first category. Those assumptions are: (b) the largest Australian trading banks (CBA, NAB, Westpac and ANZ) (the "major banks") could obtain funds from capital markets at significantly lower cost than the Bank could by reason of their relative credit ratings. The Bank's "BBB" credit rating meant that it was generally more difficult and more expensive for the Bank to source funds compared to the major banks; (c) a higher cost of funds for the Bank made it more difficult for the Bank to match offers by the major banks based on price; (d) historically, the Bank (not being a "market leader" nor big enough to be so) had not sought to compete with the major banks for customers in Queensland on the price of its products or to engage in a price war for market share; (e) the Bank believed that its primary competitive advantage was based on service and that positioning was supported through its advertising and branding; ... (ee) the Bank had itself assessed its products to be offered in the NSW Market and had concluded that they were in large part not competitive and/or were not considered competitive, that there were real or perceived problems with the competitiveness of the Bank products, especially the business products, and that it had very few products suitable for customer acquisition (i.e. products that were sufficiently strong in competitive features to attract and secure an initial relationship with a customer); [footnotes omitted] 34Assumptions (c), (d) and (e) are also said to be examples of assumptions that are said to be selective because they are based on paragraphs from the affidavit of Mr McCann (a witness called by the Bank) but ignore the balance of what Mr McCann says on the competitiveness of the Bank's products. 35The Bank submits that the assumptions quoted "skirt around" the issue whether the Bank's products were competitive and it is not possible to tell whether Professor Burton is assuming that they were or were not competitive. Similarly, the Bank submits that it is not possible to tell from the assumptions made by Professor Burton whether she is assuming that the Queensland and New South Wales markets were materially different. 36In my opinion, the matters the Bank points to do not provide a reason for rejecting the whole of Professor Burton's report. The assumptions are not so vague that they are impossible to understand. Some are expressed very broadly. Assumption (r) is a good example. It is expressed in these terms: the NSW Market was highly competitive, exhibiting rivalrous behaviour by its participants to achieve, maintain or increase their market share; There may be a question whether, having regard to its breadth, the assumption can be made good; and similar comments may be made about a number of the other assumptions. However, I do not think assumption (r) or the others are so vague or broad that they are without meaning or that they could not form the basis of an expert opinion on marketing. 37It may be that a number of the assumptions cannot be made good because of other evidence in the case. However, it is not obvious from the material that the assumptions cannot be made good. So, for example, in relation to the assumptions taken from Mr McCann's evidence, the OMB Parties will no doubt argue that the relevant parts of Mr McCann's evidence should be accepted, but the rest of his evidence should be rejected. It is not possible to say now that that submission has no prospect of success. 38It may also be the case that the assumptions are not sufficient to justify the conclusions that Professor Burton reaches. However, whether that is the case or not can only be determined by examining individual conclusions of Professor Burton's report, asking what assumptions those conclusions depend on and considering whether the assumptions can logically support the conclusion. I do not think it can be said that the whole report should be rejected because some of the assumptions do not go as far as the Bank suggests they must to support particular conclusions reached by Professor Burton. Rather, to take one of the Bank's examples, the Bank must point to a particular conclusion which is said to depend on the factual assumption that the Bank's products were not competitive. It must then establish that, having regard to the assumptions made by Professor Burton, that factual assumption was not one open to Professor Burton to make. The Bank has not done that.

Relevance 39Mr Cotman SC, who appeared for the OMB Parties, submitted that Professor Burton's report is relevant in two ways. First, he submitted that it is relevant to the particulars of reasonable grounds given by the Bank. Second, Mr Cotman submitted that the viability of the OMB model in New South Wales was relevant to the question whether the Bank had reasonable grounds for making the representations it did because, if the OMB model was not viable in New South Wales, the Bank could not have had reasonable grounds to represent that individual OMBs would be. 40Mr Couper QC, who appeared for the Bank, accepted Mr Cotman's first point but submitted that it is clear from the particulars that the Bank relies on the Enhance presentations for two limited propositions. The first is that the Bank could have conducted a successful business in New South Wales under its own name, or, to put it another way, the fact that the Bank was a Queensland based financial institution would not of itself have prevented it from entering into the New South Wales market. The second is that one-quarter of businesses and consumers in New South Wales were likely to consider moving to the Bank. Mr Cooper accepted that, to the extent that Professor Burton gives otherwise admissible evidence on those matters, her report is relevant. Some of Professor Burton's report is clearly relevant to those issues. Paragraphs 168 to 188 fall into that category, as do paragraphs 191 to 195, although it is less clear in the case of the latter paragraphs how the conclusion follows from the relevant results. Implicit in those results seems to be the assumption that 84 percent of consumers and 86 percent of business appeared to be indifferent to the fact that the Bank was a Queensland based institution. 41As to the second way in which Mr Cotman puts the issue of relevance, it is at least arguable that, if the OMB Parties are able to prove, for example, that the Bank represented that it actually believed on reasonable grounds that a viable business could be conducted in NSW as a BOQ franchisee and at the relevant branches in particular, then Professor Burton's opinions are relevant to the reasonableness of a belief that that representation was true. That is because it might be said that it follows from the conclusions of Professor Burton's report that the Bank could not have reasonably believed that its entry into the New South Wales market would be successful, and consequently it could not reasonably have believed that each OMB would achieve the conditions necessary for viability. It is true that there is no necessary connection between the viability of each OMB and the viability of entry into the New South Wales market by the Bank. The Bank could succeed although individual OMBs failed and individual OMBs could succeed although entry by the Bank overall was a failure. However, it still might be said that the Bank ought to have appreciated that entry as a whole was likely to be a failure, that therefore it ought to have appreciated that entry by individual OMBs would be difficult and that therefore it did not have reasonable grounds for making the relevant representations. In my opinion, that argument is open on the material before me and for that reason Professor Burton's report is admissible under s 57 of the Act, subject to any other objections to it.

Paragraphs 9 to 25 42The Bank objects to the summary given by Professor Burton on the basis that there is no clear connection between it and the rest of her report. In my opinion, there is some force in this submission. The thrust of what Professor Burton says in the summary is this: (a)There are various investigations that an organisation would undertake before entering into a new market; (b)The New South Wales market had characteristics which meant it would be difficult to enter successfully particularly since the proposed entry was unsupported by mass marketing; (c)A reasonably competent person with marketing experience and knowledge would conclude that entry was sufficiently risky so as to require a higher level of analysis and planning before entering the market; (d)The Bank did not undertake that higher level of analysis or planning. 43Although the summary may be a summary of Professor Burton's opinions and although those opinions can be found in the report, I do not think that summary is a fair summary of the report as I have outlined it. The report says much more than is contained in the summary; and it is not easy to see how much of what Professor Burton says falls into the structure of the summary. Professor Burton undoubtedly explains the types of investigations that are available. However, she does not clearly set out the characteristics of the market which according to her made entry difficult. It is possible to guess what those characteristics might be. One characteristic is that the market was highly competitive. Another is that the Bank's products were not sufficiently differentiated from the products of its competitors. The first of these characteristics is simply an assumption. Although there is material in the report dealing with the second, Professor Burton never clearly states the precise basis for that view. In particular Professor Burton does not explain why the Bank was not entitled to form the view that its products would be differentiated because of the personal service that the Bank through Owner Managers would be able to provide customers. That is not to say that there is not material in the report that is relevant to that question. The difficulty, however, is that it is not clearly gathered together and analysed to justify what appears to be one of the conclusions on which Professor Burton relies. Similarly, Professor Burton never clearly explains what she means by mass advertising and its significance for her analysis. Similarly, Professor Burton explains what other types of analyses were available. However, she does not explain the basis for choosing one type of analysis over another and why the Bank should have chosen those that she says it ought to have chosen. 44The summary cannot prove something that the report does not. It is of little assistance in understanding the structure and content of the report. In those circumstances, I think it should be rejected.

Footnote 48 45Footnote 48 states "The influence of Porter's work as a basic strategic model is shown by its level of citations (one summary of his work ('On competition') has been cited over 9,000 times ...". While this statement adds little to the opinion, I cannot see why Professor Burton is not entitled to say that Porter's work is frequently referred to in marketing literature. In my opinion, the footnote should be admitted.

Paragraphs 39 and 40 46Paragraph 40 contains the following conclusion: As a result of these five factors, a Porter analysis would, in my view, have suggested that the NSW market presented a high risk of failure for any new entrant, especially for one which intended to enter, as the Bank did, without any mass media (television, print or radio) advertising when its competitors were engaging in substantial advertising of brand and products and without any significant positive differentiation from competitors. [footnotes omitted] The five factors - which are the factors that are to be considered as part of a Porter analysis - are set out in paragraph 39. First, Professor Burton says that there was a high level of competition based on the assumptions she was given (paragraph 39(a)). Second, she says there were low barriers to entry because anyone - and in particular overseas banks - who could get a banking licence could enter (paragraph 39(b)). Third, she says customers faced switching costs (paragraph 39(c)). Fourth, she says that other banks had high power because the Bank only had a "BBB" credit rating which made it unlikely that it would be able to compete on price (paragraph 39(d)). Lastly, she says that there was evidence of the growth of substitute products including mortgage brokers and online payment systems such as PayPal which could threaten existing participants (paragraph 39(e)). 47The first factor is arguably a conclusion that could be drawn from the assumptions given to Professor Burton. The other 4 factors cannot be anything other than assumptions made by Professor Burton, although they are not included in the list of assumptions set out in paragraph 6. Certainly, Professor Burton has no expertise which would permit her to give evidence concerning the truth of those matters. It is conceivable that the OMB Parties will adduce evidence to the effect that there are switching costs. It is also possible that the OMB Parties will produce evidence that the Bank was unable to compete on price, although a substantial amount of evidence has already been led on that subject to the contrary. There is no evidence that there are low barriers to entry and there is no evidence that there is a substantial risk of the development of substitute products, although the evidence in the case is not complete and it remains possible that one or more Bank witnesses will be cross-examined on those issues. 48The Bank also objects to the words in paragraph 40 commencing with "especially for one" to the end of the paragraph on the ground that no reasoning process is exposed. I accept that criticism. Elsewhere in the report Professor Burton refers to mass media advertising and the differentiation of the Bank's products from those of its competitors. However, the report does not contain a clear explanation of the role of mass media advertising in marketing. Nor does it contain a clear explanation of what assumptions Professor Burton is making about the differentiation of the Bank's products from those of its competitors. In those circumstances, I do not think the reasoning process of the second part of paragraph 40 is sufficiently exposed. 49The first part of paragraph 40 turns on paragraph 39. Paragraph 39 cannot amount to more than a statement of assumptions. There is a real question whether those assumptions can be made good, particularly those set out in paragraphs 39(b), (d) and (e). However, in circumstances where the OMB Parties have not finished cross-examining the Bank's witnesses, it is possible that they will be able to make good those assumptions in cross-examination or through documents which have or will be admitted into evidence. In those circumstances, in my opinion, it is appropriate to admit paragraph 39 and the first part of paragraph 40. However, paragraph 39 should only be admitted as assumptions made by Professor Burton and not as evidence of the truth of any of the facts stated in those paragraphs.

Paragraphs 64, 66 and 72 50These paragraphs are contained in the section dealing with what approach someone with marketing experience would take. Paragraph 64 contains an example of what Professor Burton means by a 'multiple-factor index model'. The example is expressed in these terms: This approach can be illustrated by estimating the potential market share which might reasonably be available to a new bank. For example in 2002, one study found that approximately 5% of Australians switched banks in a 12 month period and thus 5% of banking customers might be considered 'available' to the new bank (and its competitors) in any year. However, if the new bank's branch locations covered only 10% of the geographic area of a state, then only 0.5% of the population (10% of the 5% of the population who were likely to switch) would be likely to be available to the new bank (and its competitors) in any one year. [footnotes omitted] If this passage were a mere illustrative example, it is not objectionable. However, the way that the example is expressed suggests that Professor Burton is advancing it as more than a hypothetical example. The example starts off by saying "For example, in 2002, one study found ..." suggesting that we are to accept the results of the study. Moreover footnote 81 states: In my view, it is self evident that a specific bank branch location will only serve customers within a particular geographic range of that location. The example goes beyond a hypothetical illustration. The reader is being invited to accept conclusions of fact. The example and footnote should be rejected. 51Paragraph 66 states: For example, if, as identified in the Presentations, market research revealed that customers were sceptical about the ability of any bank to conform with the hypothetical scenario presented to them, and/or if the research revealed (as also identified in the Presentations) that customers wanted more detail about products or prices before they would be prepared to switch, standard marketing practice would be to develop a marketing strategy which addressed those issues, such as using advertising to attempt to convince customers of the superiority of the Bank's offering, and developing products which would be attractive to customers relative to the offerings of competitors. Again, the paragraph goes beyond a mere hypothetical example. It purports to state what is in the presentations. In my opinion, evidence about what is in the presentations does not involve the application of any expertise. The words "as identified in the Presentations" and the words in parentheses should be rejected. 52Objection is taken to the following sentence in paragraphs 72(c): For example, a new bank is less likely to attract customers in a suburb that is already well served with competing banks. Objection is also taken to the following sentence in paragraph 72(d): For example, ING Bank launched in Australia in approximately 2000 with heavy television expenditure (featuring well-known comedian Billy Connolly) and with widely publicised incentives for customers to open accounts (e.g. flyers in the Sydney Morning Herald, offering a $15 payment to people who opened an account with ING). The first of these statements may involve an expression of an opinion. However, it is not one which Professor Burton is qualified to express. The second statement is a pure statement of fact. Professor Burton is not in a position to give that evidence. Consequently, both sentences should be rejected.

Paragraphs 84, 89, 91 and 92 53Each of these paragraphs is in the section of Professor Burton's report which is principally concerned with types of additional analyses undertaken by the Bank. 54Paragraph 84 sets out a summary of the contents of an Enhance document referred to as "Brand Stretch Thoughts". The summary itself is not useful and does not appear to relate to any other material in the report. For that reason, paragraph 84 should be rejected. 55Paragraphs 89 and 91 both express conclusions. Paragraph 91 is quoted above. In paragraphs 85 to 88, Professor Burton discusses the contents of another Enhance document called "Stretch Research Inputs". In that document, Enhance discusses other potential research such as 'Critical Incident Technique interviews' and "conjoint choice modelling". Professor Burton says that she has not seen any material evidencing or recording that the Bank did work of that nature. She reaches the following conclusion in paragraph 89: In my view, not to do that work was, or would be, a critical failure, given the importance of such research generally when proposing to enter a new market (because it is, in my view, normal and prudent marketing practice) and, more specifically, given the express qualification (amongst others) in the Presentations, to the effect that many customers required further information concerning products and fees before being in a position to actually decide to switch. That conclusion is largely repeated in paragraph 91 (quoted above). 56What Professor Burton seems to be saying in paragraphs 89 and 91 is that any reasonably competent person with marketing experience who concluded that entry into a market was risky and who was told that many respondents to some form of market survey required further information about products would conduct critical incident technique interviews or conjoint choice modelling. However, Professor Burton does not explain why that is the case and she does not refer to any material which indicates that that is accepted practice. In my opinion, Professor Burton has given an inadequate explanation for her conclusions. In those circumstances, paragraphs 89 and 91 should be rejected. 57Paragraph 92 describes the contents of an Enhance document called "Stretch Research Invest". It simply summarises the contents of the document in a way that does not seem to be relevant to the opinions Professor Burton expresses. In my opinion, it should be rejected.

Paragraphs 93 to 122 58These paragraphs deal with the question whether particular issues are dealt with in the documents that have been provided to Professor Burton. 59In some cases, documents may be of such a highly technical nature that it is necessary for the court to receive expert evidence on their contents. However, I do not think that that is true of the documents in question. They are marketing reports expressed in ordinary English language. Professor Burton has explained the types of analyses that might be undertaken and I do not see why the court is unable to reach its own conclusions on whether analyses of those types can be found in the relevant documents. No expertise is involved in that question. For that reason, paragraphs 93 to 122 should be rejected.

Paragraphs 124 to 129 60As I have said, these paragraphs deal with "Brand Tracking" reports obtained in 2003 and then during the period July 2006 until at least early 2008. 61Paragraph 124 refers to a document entitled "Ghost Pack" which was prepared in 2003 which, according to Professor Burton, shows that the "Bank was lagging behind Suncorp in customer evaluations, and did not appear to be effectively differentiated from other competitors". However, as I have said, Professor Burton expresses the view that the results of the study are impossible to generalise to the New South Wales population. To the extent that Professor Burton is expressing an expert opinion, no reasons are given for that opinion. In those circumstances, in my opinion, the paragraph should be rejected. 62Paragraphs 125 to 129 deal with brand tracking reports prepared between July 2006 and early 2008. In paragraph 128, Professor Burton says: This [the tracking data] would indicate to me (and, in my view, to a reasonably competent person with marketing knowledge and experience) that the competitive position of the Bank, in the eyes of the NSW market, was relatively weak because its brand awareness was low and it was judged by many consumers as inferior to St George on size, and inferior to Bendigo on service. 63Again, however, to the extent that Professor Burton is expressing an expert opinion, she gives no reasons for that opinion. 64Moreover, it is difficult to understand the relevance of the data obtained in 2006 to 2008. At that stage, the Bank had already entered the market. Three OMBs entered into franchise agreements with the Bank after July 2006 (Best Deal in August 2006, LJH in March 2007 and Southpole in April 2007). However, it is difficult to see any connection between the results of the brand tracking reports and representations made to those OMBs or how Professor Burton can give evidence relevant to that question. In those circumstances, paragraphs 124 to 129 should be rejected.

Paragraphs 130 to 206 65Objection is taken to these paragraphs on the grounds of relevance. However, as I have explained, a number of the paragraphs deal with why a reasonably competent person with marketing experience would not accept a number of the conclusions drawn in the Enhance representations. In my opinion, that evidence is relevant. 66The Bank takes objections to paragraphs 130 to 132 of Professor Burton's report. Paragraph 130 simply identifies the two Enhance documents with which Professor Burton is concerned and defines them as the "Presentations". There is no reason not to admit that paragraph. Paragraphs 131 and 132 set out extracts from the Presentations. It is difficult to see how those paragraphs are relevant to Professor Burton's analysis. They should be rejected. 67The Bank also takes objections to paragraphs 133 to 166 on the ground that those paragraphs contain submissions or conclusions not based on stated assumptions or depend on reasoning which is not expressed. 68In my opinion, these paragraphs are very confused. They identify qualifications in the two reports and comment on their significance. However, the paragraphs contain a variety of other assertions which makes it difficult to understand precisely what Professor Burton is saying or the reasons for her conclusions. Significant parts of the material is argumentative. 69Paragraphs 135 to 143 are apparently intended to address the following qualification contained in the Presentations: Many respondents require more information about Bank of Queensland and its products/services/fees/locations etc before they would be able to make a decision about switching banks Professor Burton says that this is the most significant qualification contained in the Presentations. It is not clear that that assertion involves any expertise. In paragraph 137, Professor Burton states that later research confirmed the qualification because later research indicated that the most common reason for consumers in New South Wales not switching to the Bank was a lack of knowledge regarding products and a general lack of awareness of the Bank's positioning. Why that is relevant is not explained. Paragraph 140 repeats Professor Burton's view that, in the light of the research results, the Bank should have made further enquiries. Paragraph 141 contains the assertion that "It is a core marketing concept that a product needs to be better on a meaningful attribute for individuals to prefer, and switch to, that product". Professor Burton goes on to say that the Bank's own later research supports that conclusion. How any of this fits in with an analysis of the qualifications in the Presentations is again not explained. 70Paragraphs 144 to 149 deal with another qualification in the Enhance presentations which concerned the number of interviewees who had actually switched in the six months before the survey taken by Enhance and the number who were likely to consider switching in the next six months. Professor Burton also refers to material in the Presentations which suggested that the Bank was unknown in New South Wales, that "St George and/or Bendigo were rated close to, or higher than, the Bank on customer satisfaction" (which was an attribute that Enhance had identified as one of two dimensions of an "ideal" bank) and was seen as smaller than St George and the same size as Bendigo (size being the second dimension of an "ideal" bank). Professor Burton then draws the following conclusion in paragraph 149: In my view, the combined effect of these results is to raise serious doubts about the ability of the Bank to win any significant level of actual switching in NSW given the existing competitors, consumers' perceptions of those competitors relative to the Bank and more especially given the lack of any meaningful advertising or other marketing support by the Bank to support the brand in NSW. 71There are a number of difficulties with this conclusion. First, although Professor Burton does not say so, she seems to be assuming that the Enhance research was correct without ever stating that as an assumption. Second, it is not clear that Professor Burton is using any particular expertise in reaching the conclusions she does. Third, if Professor Burton is using her expertise, in my opinion, her reasoning process is inadequately explained. 72Paragraphs 150 and 151 refer to a finding in the Presentations that "while consumers preferred face to face interactions, they did not necessarily need to deal with someone who knows them". Professor Burton draws the following conclusion from this: The consequence of this, in my view, would be that a reasonably competent person with marketing experience and knowledge would review the marketing strategy to the extent that it was based on a belief that customers valued personal service sufficiently that the Bank did not need to compete on price. Apart from the survey information, the Bank's own assessment was that NSW customers are "deal focused' and "less. ..loya/", suggesting that other product features might be more important in the NSW Market than personal service. [footnotes omitted] 73Again, Professor Burton assumes that the statement of what the Enhance research reveals was correct. In addition, Professor Burton does not explain why the conclusion follows from the premise. The premise is that consumers preferred face to face interactions (although not necessarily with someone they knew). The conclusion is that consumers did not value personal service sufficiently that the Bank did not need to compete on price. It is not obvious that the conclusion follows from the premise; and Professor Burton gives no explanation for why it does, let alone one that depends on her expertise. 74Paragraphs 152 to 154 state that the Presentations identified "scepticism surrounding ability to provide the proposed service" as an issue. Professor Burton concludes that a reasonably competent person with marketing experience and knowledge would not proceed with a marketing strategy that did not address that issue. Again, these paragraphs depend on the unstated assumption that the conclusions attributed to the Enhance presentations were correct. To have any relevance, they also depend on the unstated assumption that the Bank did not address the expressed criticism. Implicit in what Professor Burton says is that the scepticism could only be addressed by mass media advertising, but why that is the case is not explained. 75Paragraphs 155 to 161 appear to make two points concerning advertising. The first (in paragraph 156) is that, to the extent that service was the selling point, "convincing any significant proportion of potential customers that the Bank could actually deliver on its planned service positioning could ... only have been achieved by using mass media advertising". Paragraph 157 to 161 make the point that findings in a survey can only be extrapolated to the relevant market if it is assumed that those in the market know what was known about those surveyed; and that could only occur through mass media marketing. However, neither of these conclusions is explained. The position of the Bank is that individual owner managers would be responsible for explaining to potential customers and referrers the benefits of the Bank. Professor Burton does not explain why that strategy from a marketing point of view was flawed; and she gives no other reasons for her conclusion that mass media advertising was necessary. 76Paragraphs 162 to 163 deal with the finding contained in the Enhance presentations that 16 percent of consumer respondents and 14 percent of business respondents were "less interested" in the OMB concept after learning that it related to a Queensland company. Professor Burton reaches the following conclusion in paragraph 163: In my view, the 'low involvement' survey environment of the research (discussed in paragraph 176 below), being a telephone interview, would likely limit consumer contemplation of product attributes including the Queensland brand than when actually considering whether to switch. The higher involvement associated with any actual decision to switch will be associated with higher consideration of product attributes including the Queensland brand. In those circumstances, in my view, any real or perceived disadvantages associated with the Queensland brand would be likely to become more important and important to a larger proportion of customers. The conclusion appears to be that the more consumers thought about a Queensland based institution the less attracted they would be to it. Why, however, that is the case is not explained. 77Paragraphs 164 to 166 conclude that many businesses would not switch to the Bank because of network effects. Professor Burton gives this example: "a potential network effect is the lower availability of bank branches making banking less convenient". However, in my opinion, Professor Burton is not qualified to express that opinion. Whether or not there are relevant network effects and their significance is a matter of empirical investigation. Professor Burton's assertion is unsupported by any such investigation. It also does not sit well with the assumption that Professor Burton apparently makes in paragraph 39(b) that there are low barriers to entry into the New South Wales market. 78It follows that paragraphs 133 to 166 should be rejected. In my opinion, those paragraphs do not satisfy the requirements of s 79(1) of the Act. However, even if they do, in my opinion they should be rejected under s 135 of the Act on the basis that they are confusing and their admission is likely to result in undue waste of time. 79The Bank takes objections to paragraphs 169 to 177. These paragraphs set out why it was not reasonable for the Bank to rely on the market survey that evidenced what was undertaken. I have already described these paragraphs above. In my opinion, Professor Burton's reasons are sufficiently clear and these paragraphs should be admitted. 80The Bank objects to paragraph 202 of Professor Burton's report which is in these terms: The Bank's failure to advertise appears to have resulted in ongoing low awareness by consumers in NSW. 'Brand recognition' was identified by the Bank as a challenge to the success of the interstate strategy (which I take to mean that insufficiently high brand recognition presented a known challenge for the Bank). Lack of brand awareness continued in NSW in late 2006, which lack promoted the Bank to undertake the "Barriers" research. [footnotes omitted] Professor Burton gives no reasons for the assertion in the first sentence and it is difficult to understand its relevance. The second sentence is simply an assertion about the conclusion reached by the Bank. The third sentence is another assertion which is not explained. Again, neither sentence is relevant. The paragraph should be rejected. 81The Bank takes objection to paragraphs 207 to 217. I have described the contents of those paragraphs earlier. For the reasons I have given, I am not satisfied that research conducted by the Bank after it launched in New South Wales is relevant. These paragraphs should be rejected.

Conclusion 82The following parts of Professor Burton's report should be rejected: paragraphs 9 to 25, the words in paragraph 40 commencing "especially for one which intended" down to the end of the paragraph, the material in paragraph 64 starting with the words "This approach can be illustrated" to "in any one year", footnote 81, the words as "identified in the Presentations" and the material in parentheses in paragraph 66, the second sentence of paragraph 72(c), the second sentence of paragraph 72(d), paragraph 84, paragraph 89, paragraph 91, paragraphs 92 to 122, paragraphs 124 to 129, paragraphs 133 to 166, paragraph 202 and paragraphs 207 to 217. 83Paragraph 39 should be admitted but only as evidence of assumptions made by Professor Burton and not as evidence of the truth of any of those assumptions.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 March 2013