Wu v Statewide Developments Pty Ltd

LEGISLATION CITED : (NSW) Uniform Civil Procedure Rules, rr 31.37, 31.39, 31.41

CASES CITED : Peet v Mid-Kent Healthcare NHS Trust [2001] EWCA Civ 1703; [2002] 3 All ER 688

Da Hui Wu (first plaintiff) PARTIES : Jing Jing Li (second plaintiff) Statewide Developments Pty Ltd (defendant)

COUNSEL : Mr S Brennan (plaintiffs) Mr J Stoljar SC (defendant)

SOLICITORS : Gregory J Goold (plaintiffs) Mallesons Stephen Jaques (defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

2631/07 Da Hui Wu v Statewide Developments Pty Limited JUDGMENT (ex tempore) 1 HIS HONOUR: In these proceedings the plaintiffs Da Hui Wu and Jing Jing Li claim to have validly rescinded a contract between them as purchasers and the defendant Statewide Developments Pty Limited as vendor of apartment number 304, Building G, 10-16 Marquet Street, Rhodes, on the ground that, upon registration of the Strata Plan (the purchase having been made "off-the-plan") there was registered a restriction of use which detrimentally affected the property to a substantial extent. The defendant disputes that the restriction affected the subject property to a substantial extent, and claims to have validly terminated the contract for default by the plaintiffs and to be entitled to forfeit the deposit.

2 In the statement of claim, the plaintiffs identified the restriction of use as affecting the common property, and the substantial affect as being an adverse impact on the market value of the unit. On 28 March 2008 Hamilton J - on the application of the plaintiffs, over the opposition of the defendant - made an order for the appointment of a parties' single expert under (NSW) Uniform Civil Procedure Rules, r 31.37, to answer the following questions: 1. Do you consider that the restriction of use would narrow the field of potential buyers and weigh against potential buyers choosing this particular property?

2. What is your opinion of the market value of the unit as at March 2007? 3. What is your opinion of what the market value of the unit would have been as at March 2007 had the common property of building G at the Rhodes Bay development not been affected (if it was) by the restriction of use?

4. What is your opinion of what the market value of the unit would have been as at March 2007 had the certificate of title for the unit not had the restriction of use registered on it (although the restriction of use remained registered on the common property referred to in paragraph 3)?

5. What is the difference, on a percentage basis, of the opinions referred to in 1 and 2 and the opinions referred to in 2 and 4?

3 One Mr Hepworth, a valuer, was ultimately selected as the single expert. Eventually he produced a report, dated 4 September 2008, in which he concluded that the value of the apartment as at March 2007 was $900,000; that had the common property not been affected by the restriction, it would have been $910,000; and that had the lot not been affected by the restriction, it would have been $913,750. Although he did not expressly address question 1, his report contained the following: At the outset I must advise that there are potential purchasers who, upon learning of the restriction of use, would simply not proceed with the purchase at any price. However I have reached the conclusion that whilst a small percentage of hypothetical purchasers would adopt this position, the available empirical evidence does not indicate that the wider market downgrades the property to any discernable degree on this account.

4 It appears that, on his inspection of the property, Mr Hepworth was accompanied by a principal of the defendant, one Mr Touma, and that he may have obtained some information relevant to that conclusion from that person. 5 Upon receipt of Mr Hepworth's report, the plaintiffs' representatives - who did not regard it as of assistance to their case - set about a course of inquiry. They telephoned Mr Hepworth, unbeknownst to the defendant, and counsel had a conversation with him. In the course of that conversation it was apparently put to Mr Hepworth that there were 99 litigants seeking to rescind their contracts of sale on the basis of the existence of the restriction as to use. The plaintiffs' solicitor has deposed that he believes that there are 99 such cases, whereas the defendant contends that only 14 off-the-plan contracts have purportedly been rescinded on the basis of issues associated with the restrictive covenant, and that in only one of those 14 was the restrictive covenant initially advanced as the reason, it otherwise having been raised subsequently. 6 On 24 November, the plaintiffs' solicitors wrote to Mr Hepworth, asking that he prepare a further report, for them alone. On 26 November Mr Hepworth responded, quite properly refusing to do so because of his status as a single expert. On 5 December, the plaintiffs' solicitors again wrote to Mr Hepworth, proposing that, as an alternative to a supplementary report, he advise the parties that he was not aware when he prepared his report that 99 of the 274 off-the-plan buyers were refusing to settle because of the restrictive covenant, and that had he been so aware, he would have reached a significantly different conclusion. Mr Hepworth did not in terms adopt that proposal, but on 9 December 2008 he sent a letter to the defendant's solicitor, with a copy to the plaintiffs' solicitor, in which he referred to the paragraphs of his report which I have quoted above, and recorded that it had been put to him that approximately 99 off-the-plan buyers refused to complete their contracts because of the restrictive covenant, and that it had also been put to him that Mr Touma had offered information and opinions supportive of his position. While asserting that he had reached his own conclusions on the matters put to him by Mr Touma - it being necessary for him to establish certain matters of fact in relation to the property to complete his assignment - he added that he may have reached a significantly different conclusion as to diminution in the value of the units had he been aware of the large number of purchasers who refused to complete their contracts because of the restrictive covenant on title. He continued: The original valuation does not serve the purposes of both parties whilst a serious doubt now exists as to my basic assumption. Therefore I am willing to review the original valuation so long as I receive the joint instruction of the parties and a written outline that proposes the arrangements.

7 He then specified certain further information which he would require for that purpose.

8 By notice of motion filed on 16 February 2009 the plaintiffs seek an order that the defendant provide answers to certain interrogatories - intended to ascertain the number of purchasers who are endeavouring to avoid their contracts by reference to the restrictive covenant - and a direction intended to require Mr Hepworth to provide a supplementary valuation. The defendant opposes that relief.

9 In Peet v Mid-Kent Healthcare NHS Trust [2001] EWCA Civ 1703; [2002] 3 All ER 688, the Court of Appeal of England and Wales considered whether it was permissible for one party to have a conference with a single expert appointed under rules not relevantly different from the applicable provisions of the UCPR, in the absence and without the prior written consent of the other party. The rules provide a mechanism by which either party can seek clarification of a single expert's report: (UK) Civil Procedure Rules, r 35.6, is equivalent to our UCPR, r 31.41, which provides for written questions by one party to the expert by way of clarification of the report. CPR r 35.8, which does not have a precise equivalent in our rules, provides for a copy of instructions given by one instructing party to the expert to be sent to the other instructing party. 10 The court held that such a conference was not permissible, and would be inconsistent with the whole concept of the single expert framework provided by the rules. That framework was designed to ensure an open process, so that both parties knew what information had been placed before the single expert, and it would be wholly inconsistent with that structure to allow one party to conduct a conference where the evidence of the expert was in effect tested in the course of discussions. 11 As Simon Brown LJ said (at [32]), in answer to the question "When, if at all, should one party, without the consent of the other party, be permitted to have sole access to a single joint expert": In common with Lord Woolf CJ I believe that the answer to this question must be an unequivocal, Never. Not merely is there nothing in CPR Pt 35, the practice direction supplementing Pt 35, and the relevant Queen's Bench guide suggesting that such access should be permitted, when the implications of the CPR are all the other way: See particularly CPR 35.6 and 35.8. 12 In my view the considerations referred to by Woolf LCJ and Simon Brown LJ in Peet's case are equally applicable to our rules, and the position under our rules, as under (UK) CPR, is that neither party should have a conference with a single expert or otherwise communicate with a single expert for the purposes of evaluating or testing his opinion in the absence of the other party, without the other party's prior written consent. 13 The approaches made on behalf of the plaintiffs to Mr Hepworth ought not have been made. The appropriate course was for written questions to be asked of the expert by way of clarification under r 31.41, or for directions to be sought from the court. And if the expert requires further information, r 31.39 provides for a party's single expert to seek directions from the court. 14 On the other hand, in Peet the Court of Appeal accepted (at [21]) that it was permissible for a single expert to interview one of the parties for the purposes of preparation of the report. Unfortunately, because of the initial delays which occurred in the defendant admitting liability, the claimant's parents feel traumatised by their experience. There is no doubt that they were already highly distressed at the fact that the claimant was extremely disabled as a result of what occurred during his birth. In those circumstances litigation which is prolonged adds to that distress. This court fully understands and sympathises with their position. However, litigation of this sort cannot be conducted in a particular way because of distress of this nature. One of the experts whose expertise is nursing has interviewed the parents of the claimant for the purposes of the preparation of her report. There can be no objection to that. A single expert is perfectly entitled to interview the parents for the purposes of preparing a satisfactory report. There was no suggestion, as I understand it, for the defendant to be represented when instructions of that sort were being taken by the expert, and I would not expect the defendant to raise any objection to what happened in this case. That is one thing; but the idea of having an experts' conference including lawyers without there being a representative of the defendant present, as was suggested by the claimant's solicitors, in my judgment is inconsistent with the whole concept of the single expert. The framework to which I have made reference is designed to ensure an open process so that both sides know exactly what information is placed before the single expert. It would be totally inconsistent with the whole of that structure to allow one party to conduct a conference where the evidence of the experts is in effect tested in the course of discussions which take place with that expert. I emphasise that what I have just said does not prevent one expert from communicating with another expert in order to obtain any information which that expert requires to include in his or her report.

15 What happened in this case with Mr Touma is substantially analogous to the expert interviewing a party for the purposes of preparation of his report . Where a property is to be valued, someone on behalf of the owner has to allow the valuer access. The valuer is entitled to ask questions, for the purposes of preparing a satisfactory report. In those circumstances, it does not seem to me to have been inappropriate or inconsistent with the intent of the single expert rules that Mr Touma was present and may have provided information to the expert. 16 Notwithstanding the inappropriate approach to Mr Hepsworth, one has to bear in mind that the purpose of the single expert provisions is, where it is just to do so, to avoid the time and expense occasioned by contested opposing opinions on questions of expertise.

17 It is now apparent, from Mr Hepworth's letter of 9 December 2008, that his opinion may be significantly affected if the assumption he has made as to the proportion of hypothetical purchasers who would be deterred by knowledge of the restriction were falsified. It is much preferable that his position and opinion based on the facts that can be proved at trial - rather than on assumptions that may be falsified - be known in advance of the hearing. Those facts are essentially within the knowledge of the defendant, and are the subject of the proposed interrogatories. Answers to those interrogatories will remove from the scope of contention at least one matter which may otherwise require the extensive issue of subpoenas and/or discovery to obtain documentary evidence relating to the alleged 99 purchasers said to be refusing to complete.

18 In this respect, answers to the interrogatories might very readily and expeditiously reduce the scope of the case and save considerable dispute and cost. In my view, they are "necessary" in the relevant sense. However, as I understand the manner in which the plaintiffs' case is framed, and the way in which Mr Hepworth's opinion is expressed, it is only those cases in which the existence of the restrictive covenant (as distinct from allegations or the fact of contamination) is relied on to support rescission, that would be relevant.

19 I therefore order that within 14 days the defendant answer the interrogatories 1, 2 and 3 specified in paragraph 1 of the notice of motion filed 16 February 2009, subject to the substitution in interrogatory 3 for the words "issues either contamination or" with the words "an issue" (so that the last words of that interrogatory will read "citing as an issue the restrictive covenant"). 20 Armed with answers to those interrogatories, the plaintiffs will then be in a position to seek clarification from Mr Hepworth as to what would be the impact on his opinion of those facts. For that purpose, I will extend the time in which the plaintiffs may seek clarification of the expert's report under r 31.41 to 28 days hence, and for more abundant caution and to provide the defendant with a similar opportunity, I will extend time also for the defendant to seek such clarification. 21 Therefore, pursuant to r 31.41, I extend the time within which any party may seek clarification of any aspect of Mr Hepworth's report to 27 March 2009.

22 The plaintiffs have also sought, although it was not contained in the notice of motion, a direction that the defendant provide the further information specified in Mr Hepworth's letter of 9 December 2008. Although my mind has wavered on this issue, and although the court may well be better assisted at the final hearing if Mr Hepworth is in possession of that information, the plaintiffs are not entitled to seek a revaluation from Mr Hepworth, at least at this stage, but only to obtain clarification of the report he has provided. It is of course open to Mr Hepworth, if he wishes to review his valuation, to make an application (the cost of which would probably have to be borne by the parties to the proceedings) for directions under the rule to which I have referred, and should he make such an application it would likely be favourably viewed by court. I will therefore at this stage not make a direction for provision of the material referred to in his letter, but I will direct that a copy of my reasons be provided to Mr Hepworth, so that he is appraised of his entitlement to approach the court for directions in that respect if he wishes. 23 I therefore direct that these reasons be taken out and that the defendant provide a copy of them to Mr Hepworth.

24 Although the plaintiffs have obtained much of the relief that they sought in the motion, a substantial amount of the associated costs have been incurred by reason of their failure to adopt the appropriate procedure in the first place. In those circumstances, I do not think there should be any order as to the costs of the motion. 25 I adjourn the proceedings to 9 April 2009 at 9.45am before me, for further directions.

04/09/2009 - Corrections - Paragraph(s) Paras 2, 3, 4, 6, 9 and 12

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