UTSG Pty Ltd v Sydney Metro

Report of Mr David Mullins

1. Sydney Metro objects to an expert report dated 29 March 2018 of Mr David Mullins, a forensic accountant, who was engaged by UTSG to provide expert evidence as to the loss to UTSG occasioned by the acquisition ("the Mullins report").
2. The evidence of Mr Mullins is central to UTSG's case. Without it UTSG's case will fail, and consequently, both it, and Ms Singh face the very real prospect of an adverse costs order of over $2 million (the current best estimate by Sydney Metro of its costs). Sydney Metro has expressly indicated to the Court that if successful and no compensation is awarded, then it will pursue a third party costs order against Ms Singh.
3. The prejudice to UTSG, and Ms Singh, if the report is rejected by the Court cannot be over emphasised. This was a matter that was properly and frankly admitted by Sydney Metro.
4. The bases for objecting to the report are essentially two-fold: 1. first, because it is in breach of rr 31.23 and 31.27 of the Uniform Civil Procedure Rules 2005 ("UCPR") and the Expert Witness Code of Conduct contained in Sch 7 to the UCPR ("the Expert Code"); and 2. second, because the basis of the calculations undertaken by Mr Mullins is opaque and the financial documents relied upon by him in undertaking these calculations have not been fully disclosed.

Duties of Experts in Class 3 Proceedings in the Court

1. The rules of evidence do not apply in Class 3 proceedings in this Court. Section 38 of the Land and Environment Court Act 1979 relevantly provides as follows: 38 Procedure (1) Proceedings in Class 1, 2 or 3 of the Court's jurisdiction shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of this Act and of every other relevant enactment and as the proper consideration of the matters before the Court permit. (2) In proceedings in Class 1, 2 or 3 of the Court's jurisdiction, the Court is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate and as the proper consideration of the matters before the Court permits.
2. In King v Great Lakes Shire Council (1986) 58 LGRA 366 at 367 Cripps J said (cited in ULV Pty Ltd v Scott (1990) 19 NSWLR 190 at 201): In classes 1, 2, and 3, the court is not bound by the rules of evidence and may inform itself on any matter in such manner as it thinks appropriate and the proper consideration of the matter before the court permits: s 38(2) of the Land and Environment Court Act. This section has been liberally interpreted by the court. For example, the common law requirement that the facts relied upon by an expert must be proved by admissible evidence is frequently ignored. The hearsay rules are rarely enforced and experts, not infrequently, are invited to express opinion evidence on matters not calling for specialised knowledge. The distinction between inferences from observed facts and opinion evidence strictly so called is rarely adverted to. Furthermore, it is common, although not often helpful, for planning expert to be asked to express opinions on matters which the court itself must decide.
3. However, r 31.23 of the UCPR (which is applicable to Class 3 proceedings in the Court) relevantly states: 31.23 Code of conduct (1) An expert witness must comply with the code of conduct set out in Schedule 7. (2) As soon as practicable after an expert witness is engaged or appointed: (a) in the case of an expert witness engaged by one or more parties, the engaging parties, or one of them as they may agree, or (b) in the case of an expert witness appointed by the court, such of the affected parties as the court may direct, must provide the expert witness with a copy of the code of conduct.
4. Rule 31.27 provides that an expert's report "must include the following": 31.27 Experts' reports (1) An expert's report must (in the body of the report or in an annexure to it) include the following: (a) the expert's qualifications as an expert on the issue the subject of the report, (b) the facts, and assumptions of fact, on which the opinions in the report are based (a letter of instructions may be annexed), (c) the expert's reasons for each opinion expressed, (d) if applicable, that a particular issue falls outside the expert's field of expertise, (e) any literature or other materials utilised in support of the opinions, (f) any examinations, tests or other investigations on which the expert has relied, including details of the qualifications of the person who carried them out, (g) in the case of a report that is lengthy or complex, a brief summary of the report (to be located at the beginning of the report). (2) If an expert witness who prepares an expert's report believes that it may be incomplete or inaccurate without some qualification, the qualification must be stated in the report. (3) If an expert witness considers that his or her opinion is not a concluded opinion because of insufficient research or insufficient data or for any other reason, this must be stated when the opinion is expressed. (4) If an expert witness changes his or her opinion on a material matter after providing an expert's report to the party engaging him or her (or that party's legal representative), the expert witness must forthwith provide the engaging party (or that party's legal representative) with a supplementary report to that effect containing such of the information referred to in subrule (1) as is appropriate.
5. The Expert Code is contained in Sch 7 to the UCPR applies to Mr Mullins's report and relevantly provides that. SCHEDULE 7 - Expert witness code of conduct 1 Application of code This code of conduct applies to any expert witness engaged or appointed: (a) to provide an expert's report for use as evidence in proceedings or proposed proceedings, or (b) to give opinion evidence in proceedings or proposed proceedings. 2 General duties to the Court An expert witness is not an advocate for a party and has a paramount duty, overriding any duty to the party to the proceedings or other person retaining the expert witness, to assist the court impartially on matters relevant to the area of expertise of the witness. 3 Content of report Every report prepared by an expert witness for use in court must clearly state the opinion or opinions of the expert and must state, specify or provide: (a) the name and address of the expert, and (b) an acknowledgement that the expert has read this code and agrees to be bound by it, and (c) the qualifications of the expert to prepare the report, and (d) the assumptions and material facts on which each opinion expressed in the report is based (a letter of instructions may be annexed), and (e) the reasons for and any literature or other materials utilised in support of each such opinion, and (f) (if applicable) that a particular question, issue or matter falls outside the expert's field of expertise, and (g) any examinations, tests or other investigations on which the expert has relied, identifying the person who carried them out and that person's qualifications, and (h) the extent to which any opinion which the expert has expressed involves the acceptance of another person's opinion, the identification of that other person and the opinion expressed by that other person, and (i) a declaration that the expert has made all the inquiries which the expert believes are desirable and appropriate (save for any matters identified explicitly in the report), and that no matters of significance which the expert regards as relevant have, to the knowledge of the expert, been withheld from the court, and (j) any qualification of an opinion expressed in the report without which the report is or may be incomplete or inaccurate, and (k) whether any opinion expressed in the report is not a concluded opinion because of insufficient research or insufficient data or for any other reason, and (l) where the report is lengthy or complex, a brief summary of the report at the beginning of the report. 4 Supplementary report following change of opinion (1) Where an expert witness has provided to a party (or that party's legal representative) a report for use in court, and the expert thereafter changes his or her opinion on a material matter, the expert must forthwith provide to the party (or that party's legal representative) a supplementary report which must state, specify or provide the information referred to in clause 3 (a), (d), (e), (g), (h), (i), (j), (k) and (l), and if applicable, clause 3 (f). (2) In any subsequent report (whether prepared in accordance with subclause (1) or not), the expert may refer to material contained in the earlier report without repeating it. … 6 Conferences of experts Each expert witness must: (a) exercise his or her independent judgment in relation to every conference in which the expert participates pursuant to a direction of the court and in relation to each report thereafter provided, and must not act on any instruction or request to withhold or avoid agreement, and (b) endeavour to reach agreement with the other expert witness (or witnesses) on any issue in dispute between them, or failing agreement, endeavour to identify and clarify the basis of disagreement on the issues which are in dispute.
6. Paragraph 13 of the Court's Practice Note Class 3 Compensation Claims, dated 15 March 2019 states that experts are to comply with these provisions.

Mr Mullins Withdraws His Report

1. Mr Mullins acknowledged the Expert Code in his report. That is not the issue in this application.
2. Rather, as described in UTSG on 21 August 2018, Mr Mullins withdrew his report. In doing so, he gave the following reasons: Dear Damian, I refer to my previous correspondence, and in particular to my letter dated 20 August 2018 in which I outline that, as a result of certain of the matters outlined in the expert report of Mr Howman-Giles of KPMG dated 16 August 2018 ("the KPMG Report") I withdraw the opinion offered in my report of 29 march 2018 and stated that I was not, at the present time, in a position to offer an opinion. In a telephone call on the afternoon of Monday 20 August 2018, Ms Pearman of Counsel requested that I write to you setting out the materials that I would require in order to satisfy myself such that I could offer an opinion in the Proceedings. Matters raised in the KPMG Report As previously discussed, there are five principal matters that were raised in the KPMG report relating to the financial materials that I was instructed the rely upon that I consider need to be addressed prior to offering an opinion. These are addressed in turn: 1. That deposits recorded in the bank statements that were provided to KPNG are said to differ materially to revenue recorded in the financial statements that I was provided with (refer to instance to paragraph 10.4.1 of the KPMG Report); 2. That revenue recorded in the 'Work by Doctor Reports' that were provided to KPMG differs materially to (and is materially lower than) the revenue included in the financial statements that I was provided (refer, for instance, to paragraph 11.4.3 of the KPMG Report); 3. That revenue recorded in Medicare reports, obtained by Ashurst and provided to KPMG differ materially to (and is materially lower than) the revenue included in either: a. The financial statements that I was provided; or b. The 'Work by Doctor Reports'. 4. That the 'Work by Doctor Reports' include the what KPMG describe as 'unusual entries' (refer for paragraph 11.5.6 of KPMG Report); and 5. That UTSG's share of revenue, as set out in the 'Master Service Agreements' is lower than that which has been assumed in the financial materials that I was provided (meaning that UTSG's revenue is claimed to have been overstated) (refer for instance to paragraph 11.6.91 of the KPMG Report)). I consider that some of these matters may be able to be corrected by way of: Updating relevant calculations; Obtaining additional source documents (such as by obtaining Medicare records for all practitioners); and Obtaining copies of relevant agreements (such as the Master Service Agreements). In addition to the above, however, as you are also aware KPMG set out the content of several emails alleged to have been sent between Ms Singh and various employees of UTSG. The emails I refer to are those set out in paragraphs 10.5.13 to 10.5.18 of the KPMG Report. As a consequence of the content of these emails and the possible implications on the prima facie reliability of the financial materials, I do not consider that I am now able to rely upon the financial materials that I have been provided and, without performing a detailed independent review of all of the records, | am unable to do so regardless of whether any corrections are made in respect of the five specific identified 'categories' of issues identified above. My concern is not necessarily that the financial materials are incorrect per se but rather, in light of the suggestions that are contained within the KPMG Report, that I am now unable to rely upon the financial materials that I was provided (that were prepared by or on behalf of UTSG) as I did not independently verify those materials. As noted in my engagement letter (refer to paragraph 4.2) and my report (refer to paragraph 1.16), I did not undertake an audit of the materials that I was provided. I Whilst I did not consider that such independent verification was previously required (in light my 'I understanding that the financial materials were being prepared by a qualified accountant I external to UTSG), given the range of possible implications of the emails contained in the I KPMG Report, I do not consider that I am able to continue to place reliance on the financial I materials that I have been provided without undertaking my own detailed independent I verification or, alternatively, having an independent third party carry out a similar analysis to that carried out in the KPMG Report (provided on 17 August 2018).
3. In the letter he outlined the materials that he required to form an opinion: Materials required to form an opinion In light of the matters raised above, the evidence that I consider would be required in order to become satisfied regarding the financial performance of UTSG, and therefore form an opinion regarding the loss claimed to have been suffered, includes the following: 1. In respect of revenue, the following materials: a. In respect of services for which payments were received from Medicare, copies of records submitted to Medicare (and/or reports issued by / obtained from Medicare setting out revenue by Doctor and by 'service line') along with evidence of deposits having been received into bank accounts operated by UTSG; b. In respect of services for which payments were received from Medicare but for which Medicare did not cover the whole payment, patient records showing the amount invoiced (not records showing confidential treatment details) and bank deposits showing the amount paid to bank accounts operated by UTSG; c. In respect of services for which no payments were received from Medicare, copies of patient records (not records showing confidential treatment details) along with bank deposits showing the amounts paid to bank accounts operated by UTSG; d. In respect of deposits made in respect of any services provided by Doctors and other professionals into bank accounts other than those that were operated by UTSG, copies of any agreements between UTSG and the relevant health care professional (service company, or the like) that document the arrangement between UTSG and the health care professional; e. Source documents that outline any 'accounting' for payments received into bank accounts operated by Doctors that relates to services performed (this 'accounting' reflecting how obligations were 'settled' / 'netted off' between UTSG and the relevant Doctor); and f. Copies of the prevailing 'Master Service Agreements' (or equivalent) under which UTSG's share of revenue received was governed, along with copies of any variations of these agreements. 2. In respect of expenses, the following materials: a. Invoices for all expenses incurred; b. UTSG's bank statements from which the payment of each expense can be identified; and c. In order to avoid a suggestion that payments made from bank statements other than those operated by UTSG (or by Ms Singh, from which I understand that numerous UTSG-related expenses were paid), invoices (to the extent that these are available) outlining payments made in respect of all other transactions that appear in these bank statements.
4. It is not clear if these materials were ever provided to Mr Mullins but subsequent correspondence (referred to below) suggests they were not.
5. Contrary to r 31.27 and Sch 7, Mr Mullins has not issued a new or supplementary report, notwithstanding that he subsequently participated in joint expert conclaves with Dr Rodney Ferrier, the forensic accounting expert relied upon by Sydney Metro, and produced two joint expert reports with Dr Ferrier dated 29 January 2019 and 7 March 2019. Each joint expert report referenced the Mullins' report (see below). Mr Mullins should, therefore, have provided a further report explaining why he was now relying on his withdrawn report.
6. It is not clear from the evidence when UTSG became legally unrepresented. A letter from Mr Mullins to Ms Singh dated 19 October 2018 - not to the legal representatives that had engaged him - plainly indicates that by this stage UTSG was no longer legally represented. In the letter, Mr Mullins notes that he has received no response to his letter withdrawing his report.
7. This and other correspondence tendered on the voir dire, suggests that Mr Mullins has, at no material time, been made aware of the need to provide a supplementary report or any breach of the Expert Code or r 31.27(4) of the UCPR (although, he acknowledges that he read and understood the Expert Code, which contains the requirement to issue a supplementary report).
8. The correspondence also reveals a dispute as to the payment of fees dating from 19 October 2018. In later correspondence between Mr Mullins and Ms Singh between 5-10 April 2019, a further dispute as to fees emerges. Mr Mullins states that he will not be able to appear until the dispute is resolved.
9. Ms Singh gave an undertaking to the Court that the outstanding monies requested would be paid and that Mr Mullins would be available for cross-examination.
10. The Court made it clear to Ms Singh that if Mr Mullins does not appear, Sydney Metro can renew its objection to the tender of the Mullins report and that the objection would almost certainly be upheld.
11. In the joint expert report dated 29 January 2019, the experts opined that: 1.5 This Joint Report is structured to identify the matters on which the Experts agree and the matters on which they disagree This report also expresses Mr Mullins' calculation of compensation. This report does not include a calculation of compensation by Dr Ferrier because Dr Ferrier considers that there is insufficient reliable information on which to base any reasonable expression of opinion Dr Ferrier may be in a position to express an opinion after the joint expert report of Messrs Howman-Giles and Watts becomes available. … 3 Mr Mullins' Assumptions 3.1 Mr Mullins notes that, in preparing this joint report, he has assumed that UTSG is entitled to make a claim under the Land Acquisition (Just Terms) Act 1991 (the Act). As outlined in paragraphs 6.8 to 6.12, Mr Mullins does not express an opinion on the accuracy of the financial information that he was provided and instructed to rely upon' Mr Mullins notes that, whilst he has presented an updated calculation, this is entirely dependent upon the accuracy of the financial information that he was provided In that regard, and in order to present an updated calculation (which Mr Mullins does to reflect those matters upon which he has reached agreement with Dr Ferrier), there is an assumption that the underlying financial information is accurate, verifiable and reliable. 3.2 Mr Mullins refers to his letter dated 21 August 2018, a copy of which is attached to this report (Mullins Attachment 2). Mr Mullins is not aware whether the issues raised in that letter have been addressed by Mr Watts or will be addressed in the expert conference that he understands is taking place between Mr Watts and Mr Howman-Giles. 3.3 Mr Mullins notes, therefore, that in light of the above, the opinions expressed by Mr Mullins in this report relate to the framework within which a claim for compensation might be assessed and, in relation to the market value of the business, the earnings multiple that would be applicable to a given level of earnings. Mr Mullins notes that it may be necessary to update his calculations following the joint report of Mr Watts and Mr Howman-Giles. 3.4 In Dr Ferrier's opinion, Mr Mullins' assumption that the "the underlying financial information is accurate, verifiable and reliable" is not an assumption which can reasonably be made at this time, for the reasons set out by Mr Howman-Giles in his report dated 16 August 2018, including: i) The financial and business records are incomplete; ii) The financial information is apparently prepared on inconsistent bases (accrual accounting for revenues and cash accounting for expenses); iii) There are inconsistencies in relation to revenue and cost of goods sold categories; iv) The financial records are inconsistent with the terms of Practitioner Service Agreements; v) There are a number of inconsistent versions of the financial records and it is therefore not possible for all of those records to be accurate; vi) It is not possible to verify the accuracy of the financial records, and Mr Howman-Giles' attempt to do so indicates that those records are likely to be inaccurate and unreliable 3.5 Dr Ferrier also notes that, in Mr Mullins' letter dated 21 August 2018, Mr Mullins identified a range of materials which he would require in order for him to form an opinion. In substance, those materials would enable Mr Mullins (or another expert) to independently verify each item of reported revenues and expenses. Alternatively, Mr Mullins suggested that the UTSG financial information could be subject to an independent audit by a large audit firm or by a larger mid-tier audit firm. None of those materials have been provided and no audit has been conducted. 3.6 In Dr Ferrier's opinion no reasonable prospective purchaser of the UTSG, business would assume that the financial records provided to Mr Mullins constitute a reasonably reliable basis for assessing the value of the UTSG business. … 6.9 Further, and on 18 August 2018, Mr Mullins was provided with an expert report of Mr Howman-Giles of KPMG. The Howman-Giles report raised a series of questions regarding the veracity of the financial statements that were prepared for UTSG and provided to Mr Mullins. Following receipt of the Howman-Giles report, Mr Mullins withdrew the opinion expressed in his report of 29 March 2018 and, in so doing, (in light of the matters raised in the Howman-Giles report) expressed the view that he was not able to offer an opinion on the loss claimed to have been suffered and/or the value of UTSG. 6.10 Mr Mullins has not been instructed to review or respond to the Howman-Giles report. Rather, Mr Mullins understands that another expert (Mr Watts) was engaged to respond to the matters raised in the Howman-Giles report. 6.11 Mr Mullins understands that Mr Watts and Mr Howman-Giles are undertaking (or due to be undertaking) an expert conclave and are due to lodge their joint expert report by 1 February 2019. 6.12 Mr Mullins notes, therefore, that given that he expressed no opinion on the reliability of the financial information that he has provided, the calculations that he sets out within this report assume that the financial information that he has been provided is accurate. To the extent that Mr Watts and Mr Howman-Giles reach an agreed position in their joint report, Mr Mullins may need to update his calculations. Similarly, to the extent that the Court was to prefer to evidence of one of Mr Watts or Mr Howman-Giles over the other, then it stands to reason that Mr Mullins would also need to update his calculations. To the extent that Mr Howman-Giles assessment was preferred by the Court in full, then Mr Mullins agrees with Dr Ferrier's opinion regarding the loss claimed to have been suffered as set out by Dr Ferrier in RF1.
12. Sydney Metro was able to demonstrate that Mr Mullins did not appear to have disclosed all of the financial material that he had relied upon in calculating the losses contained in his report. In fact, it appears that, in part, he relied on financial documents prepared by third parties without disclosing that he did so. It is not intended that those third parties will appear before the Court in these proceedings.
13. In addition, the manner and basis of some of his calculations, and the material relied upon by him in his original report, are in some instances difficult to discern.

Applicable Legal Principles in the Admission of Expert Reports Where the Rules of Evidence Do Not Apply

1. Unlike r 31.23, there is no discretion to waive compliance with r 31.27 of the UCPR. Experts' reports must therefore comply with the Expert Code. What follows from any breach is another matter.
2. In Ray Fitzpatrick Pty Ltd v Minister for Planning [2007] NSWLEC 791; (2007) 157 LGERA 100, Jagot J appositely observed as follows (at [23]): 23. … the provisions of s 38 of the Land and Environment Court Act and, in particular, the fact that the rules of evidence do not apply to these proceedings, does not have the consequence the respondent apparently perceives. At all times the practice note and practice direction applied and imposed obligations on expert witnesses to disclose their qualifications, the facts (and assumptions of fact) on which the opinions in the report are based, and the expert's reasons for each opinion expressed. In any event, many decisions emphasise that tribunals not bound by the rules of evidence nevertheless proceed on the basis that evidence must be logically probative of issues in dispute (see, for example, the observations in South Western Sydney Area Health Service v Edmonds [2007] NSWCA 16 at [127] - [132]). To be logically probative of issues, whether the rules of evidence apply or not, expert opinions must be capable of being assessed by the trier of fact. Such opinions cannot be "a series of oracular pronouncements" but must enable the trier of fact to reach their own "independent judgment by applying the criteria furnished to the facts proved" (Makita at [87]). Problems created by unregulated expert evidence in courts and tribunals have been subject of increasing focus over the past decade. Many of the procedures introduced by courts to mitigate against these problems post date decisions such as King v Great Lakes.
3. In Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 the Court of Appeal held that an expert must establish the facts upon which an opinion is based in order to identify a proper foundation for it (at [85]) and see also Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 (at [41]-[42] and [65]).
4. In Hancock v East Coast Timber Products Pty Ltd [2011] NSWCA 11; (2011) 80 NSWLR 43 Beazley JA (as she then was) usefully set out what her Honour referred to as "the Makita principle", which although lengthy is worth repeating here given its importance to this voir dire (at [66]-[78]): 66. In Makita, Heydon JA (as his Honour then was), set out, at [85], the requirements for expert evidence to be admissible. His Honour's remarks were made in the context of the Evidence Act 1995, s 79, which provides for the admissibility of expert evidence as an exception to the opinion evidence rule: see s 76. Section 79 provides, relevantly: "(1) 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." 67. After a lengthy review of the authorities, as well as considering the express terms of s 79, Heydon JA stated, at [85] 743-4: "... 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. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v R [1999] HCA 2; (1999) 197 CLR 414 at 428 [41], on 'a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise'." 68. Heydon JA referred to the requirements for expert evidence to be admissible in less extensive terms, which are nonetheless relevant to this case, in Rhoden v Wingate [2002] NSWCA 165, at [61], as requiring that the expert gives evidence of what the expert personally observed, what the expert assumed, but did not personally observe, and, in the light of that material and the witness' expertise, what the witness' opinions were. This observation reflects the practical application of the principles governing expert evidence in circumstances where, for example, the witness' expertise is not in issue or where there is no issue that the opinion given is in an area of accepted expertise. 69. Similar practical approaches to the admissibility of expert evidence are to be found in the authorities. Thus, in Paino v Paino [2008] NSWCA 276; (2008) 40 Fam LR 96, Hodgson and McColl JJA noted, at [66], that it is inherent in the process of preparing many expert reports that the factual basis for the opinion expressed is derived from third party information. Their Honours pointed out that what the courts require is that the factual bases of opinions be clearly laid out so that the opinion of the expert may be properly tested. See also Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Limited [2002] FCAFC 157; (2002) 55 IPR 354; Adler & Anor v ASIC [2003] NSWCA 131; (2003) 46 ACSR 504. 70. In ASIC v Rich & Ors [2005] NSWCA 152; (2005) 218 ALR 764, an issue arose as to the basis upon which an expert could express an opinion. In that case, the respondent had submitted that the principles stated in Makita required that, for expert evidence to be admissible, it must be based on facts set out in the report and on no other facts, and that the opinion expressed be arrived at by the process of reasoning set out in the report and by no other process of reasoning. The alternative approach, advanced by the appellant, was that it was sufficient if the expert identified the facts and reasoning process which the expert asserted to be an adequate basis for the opinion expressed in the report. 71. The resolution of this issue involved Spigelman CJ (with whom Giles and Ipp JJA agreed) undertaking a detailed analysis of the underlying basis of Heydon JA's reasoning in Makita, by reference, in particular, to the reasoning of Gleeson CJ in HG v R [1999] HCA 2; (1999) 197 CLR 414 to which Heydon JA had made extensive reference. At [99], Spigelman CJ observed that the observations of Gleeson CJ did not represent the ratio of HG in a manner that was binding on the Court of Appeal. Nonetheless, his Honour proceeded on the basis that the reasoning of Gleeson CJ was correct and expressed his agreement with that reasoning in any event. 72. The analysis is lengthy. It is sufficient for the purposes of my reasons to refer only to the limited passages set out below. At [39], Gleeson CJ accepted that an expert's report may be based on assumed facts. His Honour said: "An expert whose opinion is sought to be tendered should differentiate between the assumed facts upon which the opinion is based, and the opinion in question. Argument in this Court proceeded upon the basis that it was possible to identify from Mr McCombie's written report some facts which he either observed or accepted, and which could be distinguished from his expressions of expert opinion. Even so, the provisions of s 79 will often have the practical effect of emphasising the need for attention 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." (footnotes omitted) 73. Of particular importance to the present case is the acceptance by Spigelman CJ of the following statement of Gleeson CJ in HG as to what is required for expert evidence to be admissible. Gleeson CJ stated, at [41], that such expert evidence: "...required identification of the facts [the expert] was assuming to be true, so that they could be measured against the evidence; and ... demonstration or examination of the scientific basis of the conclusion." (Spigelman CJ's emphasis) 74. This is a principle of long standing. It was referred to by the High Court in Paric v John Holland (Constructions) Pty Ltd [1985] HCA 58; (1985) 62 ALR 85, at [9], where the Court (Mason CJ, Wilson, Brennan, Deane and Dawson JJ) said: "It is trite law that for an expert medical opinion to be of any value the facts upon which it is based must be proved by admissible evidence: Ramsay v Watson [1961] HCA 65; (1961) 108 CLR 642. But that does not mean that the facts so proved must correspond with complete precision to the proposition on which the opinion is based. The passages from Wigmore on Evidence ... to the effect that it is a question of fact whether the case supposed is sufficiently like the one under consideration to render the opinion of the expert of any value are in accordance with both principle and common sense." (emphasis added) 75. Gleeson CJ referred to Ramsay v Watson in his reasons in HG, and in Makita Heydon JA also expressly adopted the reasoning in Ramsay v Watson. As Heydon JA said, at [66], that case was a classic illustration of the principle that the "assumed facts" need not be itemised by the expert witness in an artificial way. His Honour referred to the High Court's observation in Ramsay v Watson that: "... it was permissible for a doctor to narrate the history obtained from a patient as part of the foundation of the doctor's opinion on the patient's health, even though the narration was not admissible to prove the facts of the history unless some exception to the hearsay rule were satisfied." 76. Notwithstanding that an expert may give an opinion on assumed facts, the High Court in Ramsay v Watson observed, at 649, that if the history obtained by the doctor and upon which the doctor based her or his expert opinion is not supported by admissible evidence, the opinion "may have little or no value, for part of the basis of it is gone". 77. Spigelman CJ's analysis in ASIC v Rich of Heydon JA's reasoning in Makita concluded that it conforms with the statement of Gleeson CJ in HG, at [39], set out at [72] above. As Spigelman CJ stated, at [105]: "Although expressed in terms of 'usefulness', the starting point for Heydon JA's detailed analysis of the case law on admissibility does not suggest any focus on the true historical process by which the expert first formed the relevant opinion. The focus of attention - the 'prime duty' - is to ensure that the court, as the tribunal of fact, is placed in a position where it can examine and assess the evidence presented to it. That can occur without adopting the true factual basis approach . What Heydon JA identified as the expert's 'prime duty' is fully satisfied if the expert identifies the facts and reasoning process which he or she asserts justify the opinion. That is sufficient to enable the tribunal of fact to evaluate the opinions expressed." (emphasis added) 78. I accept this analysis, which I consider to be clearly correct.
5. The principles in Makita may be summarised as follows: 1. the duty of expert witnesses is to furnish the Court with the necessary criteria for testing the accuracy of their conclusions, so as to enable the Court to form its own independent judgment by the application of these criteria to the facts proven in evidence; 2. the bare ipse dixit of an expert upon the issue in controversy, will normally carry little weight because it cannot be tested by cross-examination or independently appraised; 3. the expert's report must identify the criteria by reference to which the Court can test the quality of the expert's opinions. Examining the substance of an opinion cannot be done without the Court knowing what are the essential elements of the opinion; 4. it is important that the Court is placed in a position to test the validity of the process by which an opinion has been formed in order to be in a position to adjudicate upon the value and cogency of the opinion evidence; 5. the hallmarks of unreliable science and the unqualified expert are an inability to articulate the central principles that need to be understood, or to describe in everyday language, the methods used and the reasons that lead to a particular conclusion; and 6. the expert opinion evidence must be comprehensible and reach conclusions that are rational. The process of inference that leads to the conclusions must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about their reliability.
6. However, importantly, in Hancock her Honour went on to observe in the context of a jurisdiction where the rules of evidence do not apply that (at [79]-[83]): 79. As I indicated above, it is important to keep in mind that in Makita , Heydon JA was concerned with the admissibility of evidence under the Evidence Act, s 79. The Workers Compensation Commission is not bound by the rules of evidence. Rather, the Workplace Injury Management and Workers Compensation Ac , s 354 provides: "354 Procedure before Commission (1) Proceedings in any matter before the Commission are to be conducted with as little formality and technicality as the proper consideration of the matter permits. (2) The Commission is not bound by the rules of evidence but may inform itself on any matter in such manner as the Commission thinks appropriate and as the proper consideration of the matter before the Commission permits. (3) The Commission is to act according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms." 80. The Workers Compensation Rules 2006, r 15.2 provides: "15.2 Principles of procedure When informing itself on any matter, the Commission is to bear in mind the following principles: (a) evidence should be logical and probative, (b) evidence should be relevant to the facts in issue and the issues in dispute, (c) evidence based on speculation or unsubstantiated assumptions is unacceptable, (d) unqualified opinions are unacceptable." 81. In South Western Sydney Area Health Service v Edmonds [2007] NSWCA 16; (2007) 4 DDCR 421, McColl JA (Giles and Tobias JJA agreeing) observed, at [127]: "While the Commission may inform itself on any matter in such manner as it thinks appropriate and as the proper consideration of the matter before it permits (s 354(2)), r 70 of the Workers Compensation Commission Rules 2003 [the Workers Compensation Commission Rules 2006, r 15.2] provides that when informing itself on any matter, the Commission is to bear in mind the principles that evidence should be logical and probative, should be relevant to the fact in issue and the issues in dispute, that evidence 'based on speculation or unsubstantiated assumption is unacceptable' and that 'unqualified opinions are unacceptable'." (The Workers Compensation Commission Rules 2006, r 15.2 superseded, but replicated in identical form, the Workers Compensation Commission Rules 2003, r 70.) 82. Although not bound by the rules of evidence, there can be no doubt that the Commission is required to be satisfied that expert evidence provides a satisfactory basis upon which the Commission can make its findings. For that reason, an expert's report will need to conform, in a sufficiently satisfactory way, with the usual requirements for expert evidence. As the authorities make plain, even in evidence-based jurisdictions, that does not require strict compliance with each and every feature referred to by Heydon JA in Makita to be set out in each and every report . In many cases, certain aspects to which his Honour referred will not be in dispute. A report ought not be rejected for that reason alone. 83. In the case of a non-evidence-based jurisdiction such as here, the question of the acceptability of expert evidence will not be one of admissibility but of weight. This was made apparent in Brambles Industries Limited v Bell [2010] NSWCA 162 at [19] per Hodgson JA. That is the way that Keating DCJ dealt with Dr Summersell's evidence in this case, so that is not the relevant error
7. Hancock was followed in Onesteel Reinforcing Pty Ltd v Sutton [2012] NSWCA 282 where Allsop P said (at [2]): 2. The relationship between the rules of evidence and hearings by the Commission is made clear by the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (the "WIM Act"), s 354. The rules of evidence do not apply. Thus, there is no prohibition on hearsay material and opinion evidence. Nevertheless, as the cases discussed by McColl JA (for example, Hancock v East Coast Timber Products Pty Ltd [2011] NSWCA 11; 80 NSWLR 43) show, the Commission is required to draw its conclusions from material that is satisfactory, in the probative sense, in order that it act lawfully and in order that conclusions reached by it are not seen to be capricious, arbitrary or without foundational material: R v Connell; Ex parte Hetton Bellbird Collieries Ltd [1944] HCA 42; 69 CLR 407 at 430; Australian Broadcasting Tribunal v Bond [1990] HCA 33; 170 CLR 321 at 359-360; Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390 at 418 [91]; Amaba Pty Ltd v Booth [2010] NSWCA 344 at [23]; Evans v Queanbeyan City Council [2011] NSWCA 230 at [109]; and the cases referred to in NADH of 2001 v Minister for Immigration and Multicultural Affairs [2004] FCAFC 328; 214 ALR 264 at [12].
8. In Onesteel Basten JA discussed the leading authorities and noted the following (at [80]-[83]): 80. In Edmonds the Court said of the predecessor to r 15.2 that it "broadly reflects fundamental principles of the common law concerning admissibility of evidence": at [128]. That language falls well short of suggesting, as the appellant appeared to imply, that an expert opinion which would be inadmissible at common law (or under the Evidence Act 1995 (NSW)) would constitute "no evidence" for the purposes of providing a ground of appeal. 8. Edmonds also referred to a statement by Mason P, in respect of another jurisdiction where the rules of evidence did not apply, to the effect that "an error of law based on absence of evidence must mean, for the Tribunal, absence of material, whether strictly admissible according to the rules of evidence or not": Smith v Collings Homes Pty Ltd [2004] NSWCA 75 at [32]. The insertion of the word "strictly" in this proposition is apt to mislead: compliance with the rules of evidence is not a pre-condition to consideration of material by the Commission. 82. The reasoning in Edmonds continued by reference to the discussion in Hevi Lift: at [130]-[131]. As is made clear at the conclusion of that discussion, the reasoning in Hevi Lift was not directly applicable, the Commission not being bound to apply the rules of evidence. There is no warrant, however, in the statute or the general law relating to procedural fairness, to import into the legally mandated procedures of the Commission, limitations on the material which can be considered, derived from the rules of evidence. 83. Once it is accepted that certain material may be considered by the Commission, the weight to be given to the material is a matter for the Commission itself. Indeed, once inadmissible evidence is before a court without objection being taken, the question for the court is merely one of weight: Makita at [86], last sentence.
9. The decision of AMP Capital Investors Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325; (2008) 163 LGERA 245 which was referred to in Onesteel by Basten JA (at [84]), concerned whether, by reason of deficiencies in an expert valuer's report, there was no evidence upon which this Court could exercise its judgment and make findings in the compulsory acquisition proceedings. Hodgson JA concluded that it could (at [42]): 42. In this case, there plainly was some such material. There was Mr Hack's evidence as to increased patronage, and Mr Wood's evidence that this meant increased value in the order of five to ten per cent. Mr Wood did not back this up with any discussion of valuation principle or other reasoning, and this impacts on the weight and cogency of his evidence: Makita (Australia) Pty Limited v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705; ASIC v Rich [2005] NSWCA 152; (2005) 218 ALR 764 at [106]-[110]. However, Mr Wood was an expert valuer, and in my opinion his opinion was admissible; and although the weight of the evidence may be considered slight because of the lack of reasons, it was nevertheless material capable of rationally supporting a conclusion.

Mr Mullins's Report Ought to be Admitted into Evidence

1. Sydney Metro submitted that notwithstanding the "very serious prejudice" to UTSG if the Mullins report was not admitted into evidence, having regard to: 1. the "very serious" nature of the non-compliance; 2. the considerable time that UTSG has had to remedy the breach and for Mr Mullins to provide a supplementary report or new report as required; and 3. the prejudice to Sydney Metro if it was tendered, 4. the Mullins report should be excluded.
2. In relation to the failure of UTSG to remedy the breach in a timely manner, or at all, it should be noted that Ms Singh is unrepresented and has been since some time shortly after the report was withdrawn. It is doubtful whether Ms Singh or Mr Mullins were aware of the need to, or the consequences of, not obtaining or providing a supplementary report.
3. Indeed during her submissions, it became tolerably clear that Ms Singh believed that Mr Mullins had provided a supplementary report by way of the two joint expert reports referred to above, however, erroneous this assumption was.
4. As to the prejudice alleged to be suffered by Sydney Metro, on the case as pleaded it now faces (in light of Ms Singh's concession) a claim substantially less than $50 million. Having said this, a claim for approximately $15 million remains. This is not an insignificant sum of money.
5. I also accept that there are deficiencies in Mr Mullins's report with respect to the disclosure of documents that he relied upon to calculate loss. Nevertheless some disclosure has been made and his calculations and the material relied upon by him in doing so are not, in my view, wholly impenetrable. Mr Mullins can be cross-examined as to the weaknesses in his report; his report is amenable to challenge.
6. As the opinions quoted above indicate, Dr Ferrier was able to participate in two subsequent joint conferences and used the paucity of the financial information to conclude that "no reasonable respective purchaser of UTSG….would assume that the financial records provided to Mr Mullins constitute a reasonably reliable basis for assessing the value of UTSG business". Notwithstanding that Dr Ferrier could not provide a calculation of compensation because of a want of sufficiency of reliable financial information, if Dr Ferrier's opinion as to the inadequacy of UTSG's financial documentation is accepted, then it follows that UTSG is unlikely to succeed with its claim for compensation.
7. By way of further example, in the joint expert report dated 7 March 2019, Dr Ferrier was able to opine that based on the information provided by Mr Howman-Giles, the business was not cash flow positive as at the date of acquisition, and therefore, had no value beyond the fair market value of its tangible assets which were not compulsorily acquired. Again, to the extent that Mr Mullins disputes this conclusion, this can be tested in cross-examination. If Dr Ferrier's evidence is accepted, it is likely that UTSG will not enjoy success in the proceedings.
8. In my opinion, while breaches of rr 31.23, 31.27 and the Expert Code has occurred, the breaches are not so serious that the Makita principle, as it is applied in a jurisdiction where the rules of evidence do not apply, is so egregious that the Mullins report ought be rejected, especially given the grave consequences of doing so for UTSG. Instead, the issue is one of the weight to be accorded to the report in due course.
9. In short, the matters complained of by Sydney Metro are able to be raised and exposed in cross-examination and may ultimately, given the onus in these Class 3 compensatory acquisition proceedings and the nature of the matters that UTSG is required to prove, assist Sydney Metro.

Conclusion and Orders

1. In my opinion, for the reasons given above, the report of Mr Mullins dated 29 March 2018 should be admitted into evidence.
2. The exhibits on the voir dire are returnable upon the publication of this judgment on CaseLaw.

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: 11 April 2019