Young & Anor v Coupe & 4 Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2947/02 KEVIN YOUNG & Another v PAUL COUPE & 4 Others JUDGMENT - Admissibility of Exhibit 3D6 1 HIS HONOUR: Exhibit 3D6 is a valuation report dated 27 September 2001 prepared by Mr Andrew Parkinson, a certified practising valuer, of LandMark White (NSW) Pty Limited for Securcorp Limited. The report is a valuation as at 27 September 2001 of the property at 21-69 Regent Street Redfern. In the report Mr Parkinson assessed the market value "as is" of the property with existing DA consent exclusive of GST as being $5,000,000. 2 The report was tendered on 9 June 2004 on the hearing of the separate question of whether the plaintiff was entitled to the relief claimed in paragraphs (a) and (b) of its claim for relief against the third defendant. On that question it was relied upon by the third defendant. The report had as part of its annexures a photocopy of the contract for sale of the property signed by the vendors. In various places it referred to the existence of a contract for sale of the property dated 19 June 2001. It was relied upon by the third defendant to show that the purchasers had received the signed contract of sale from the vendors, which corroborated the evidence that contracts had been exchanged. It was also relied upon to show that the purchasers had evinced the intention to be bound by the contract. 3 The correctness of the valuation was not in issue on the separate question. 4 After I announced my decision on the separate question, I directed that the evidence led on that question would also be evidence on the remaining issues. I reserved the right to the parties to make objections on the remaining issues to the evidence which had been so led. 5 On the remaining issues the plaintiffs read an affidavit of Mr Parkinson sworn on 18 June 2003 to which his report was exhibited. No objection was taken to the report. 6 No expert evidence from another valuer was adduced by any of the defendants. Nonetheless the issue of the value of the property as at 19 June 2001 is an important issue in the remainder of the proceedings. It is clear that the defendants contest the proposition that the land had a value of only $5,000,000 as at that date. There is in evidence a document described as a feasibility study prepared by Mr Coupe in respect of the proposed development. It projects that using the land purchase price of $7,700,000, the development would show a profit excluding GST of in excess of $5,500,000. Evidence has been adduced that the property was sold in October 2002, apparently after the development consent had expired, for $7,100,000. (Exhibit 3D19). It appears from a letter dated 3 September 2001 from Mr Abbott, to Herron Todd White (Ex 1D20) that that organisation had valued the site at $6,000,000. However that valuation is not in evidence. Mr Abbott expressed the view that the valuation of $6,000,000 was too low and that $7,700,000 was a fair price. 7 On the afternoon of 16 June, 2004, after the affidavit had been read, counsel for the plaintiffs advised that Mr Parkinson was not available for cross-examination. The only reason given for his non-availability was that he had left the firm where he was when he prepared the valuation, that he had indicated to the plaintiffs' solicitor that he was not happy to come to court to give evidence and that if the plaintiffs wanted somebody to give evidence in respect of his valuation they should contact his former firm. There was no satisfactory reason given as to why a subpoena was not served on him to give evidence. 8 Because Mr Parkinson was not available to be cross-examined, the defendants initially submitted that an order should be made pursuant to s 136 of the Evidence Act 1995 (NSW) to limit the use to which the report could be put. The limitation initially sought was that the report not be evidence of the truth of the facts asserted in it or the validity of the opinions expressed in it. 9 In Roach & Ors v Page & Ors (No 11) [2003] NSWSC 907 Sperling J made orders limiting the use to which certain passages in reports could be put where the authors were not available for cross-examination. The limitation was that insofar as the document contained representation of fact and expressions of opinion, they would not be used as evidence of the truth of facts stated in them or as evidence of facts about the existence of which opinions were stated in them. This is a more accurate statement of any limitation which should be put on the use of the report. 10 Subsequently the third to fifth defendants submitted that the report should be excluded altogether on the hearing of the remaining issues pursuant to s 135. Counsel could not however point to any difference to the third to fifth defendants' position if the report was excluded under s 135 or if the use to which it could be put was limited in the way sought pursuant to s 136. 11 The delivery of the report and its receipt by the plaintiffs is itself part of the matrix of facts relevant to the remaining issues. The correspondence in exhibit 3D5 pages 62, 64 and 68 refers to the valuation, or a similar valuation. The fact that the valuation was given and received by the plaintiffs is relevant to the issue of whether the plaintiffs' damage, being arguably the loss of the 5% deposit and their liability to pay liquidated damages equivalent to a further 5% of the purchase price, was caused by their reliance on the alleged misrepresentations as to value. Being admissible for non-hearsay purposes, the hearsay rule does not apply (s 60). Nor does the opinion rule apply as the report is relevant otherwise than as proof of the facts about which the opinions are expressed (s 77). 12 In any event I am of the view that the report would be admissible as a business record of LandMark White or of Securcorp Ltd. Counsel for the third to fifth defendants accepted that s 69(1) was satisfied. It was initially submitted that s 69(2) was not satisfied because the relevant representations in the document were not representations of asserted fact. This question was considered by Hely J in Ringrow Pty Ltd v BP Australia Limited [2003] FCA 933. That case also concerned the tender of valuations by valuers who were not to be called as witnesses. His Honour held that s 69 of the Evidence Act was intended to have a facilitative effect and to be construed broadly. A reference to "asserted facts" in the section extended to an opinion in relation to a matter of fact. As the asserted facts consisted of opinions of the valuers which they themselves had formed and expressed, the requirement that the person who makes the representation have personal knowledge of the asserted fact was satisfied [at 13-19]. 13 Counsel did not submit that I should not follow the decision of Hely J in Ringrow Pty Ltd v BP Australia Ltd. I think I should do so. 14 In any event, the consequence of a different construction of s 69 would not be that the report was inadmissible. The exception in s 69 against the preclusion of hearsay, mirrors the hearsay rule itself in s 59. If a statement of opinion is not a statement of an asserted fact under s 69, the consequence is not that it is inadmissible as hearsay. It would not fall within the hearsay rule in the first place. 15 Mr Dimitriadis, who appeared for the third to fifth defendants with Mr Epstein SC, submitted that although the report was hearsay, it was not admissible under s 69 because I should infer that it was prepared or obtained in contemplation of legal proceedings. (s 69(3).) There is nothing in the report itself which provides support for that submission. To the contrary, the report states that it was made on the request of Securcorp Pty Limited, a proposed lender to the plaintiffs, who had approved a loan to the plaintiffs subject to the receipt of a satisfactory valuation. The valuation was requested by Securcorp on 20 September 2001. 16 Counsel pointed out that settlement under the contract of 19 June 2001 was due to take place on 17 September 2001. On 12 September 2001 the vendor's solicitors advised the purchasers solicitors that if they failed to settle on that date a notice to complete would be issued. (Exhibit 3D5 page 35). On 19 September the vendors served a notice to complete requiring completion on 4 October 2001. On 3 October 2001 the purchasers proposed that the existing contract dated 19 June 2001 be "extinguished" subject to the execution of the new unconditional contract for a sale price of $5,200,000 with the new contract to provide that the vendor would receive the retail component of the completed development in lieu of the balance of $2,500,000 of the monies which would otherwise be payable pursuant to the contract of 19 June 2001. (Exhibit 3D5 pages 60-63.) This proposal was rejected on 4 October 2001 (Exhibit 3D5 pages 65, 66). On 5 October the purchasers gave notice that they terminated the contract on the ground that they were induced to enter into it by false representations as to the value of the property. 17 It was submitted that I could infer that although the valuation was addressed to the proposed lender, it was obtained at a time when the plaintiffs contemplated that if their proposal to renegotiate the contract was rejected they would purport to terminate the contract on the basis of its value having been misrepresented to them. It was submitted that the valuation might have been obtained to support such a case as that which they have brought. 18 There is no direct evidence to support the proposition that this was the purpose for which the valuation report was prepared. The report itself states a different purpose. Mr Young was not asked about the purpose of the report. The suggestion that the report was prepared to bolster the plaintiffs' contemplated legal proceedings is speculative. I do not find that the report would not be admissible under s 69 because of s 69(3). Accordingly the report although it is hearsay, is admissible as evidence of the facts asserted in the report including the asserted value of the property as at 27 September 2001, unless it is excluded or its use limited pursuant to ss 135 or 136. 19 Because the report is relevant for a purpose other than proof of the value of the property, it would not be appropriate to exclude the report pursuant to s 135 of the Evidence Act. The question is whether the use which may be made of the report should be limited in accordance with s 136. That section provides as follows: "- SECT 136 General discretion to limit use of evidence

The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might:

The third to fifth defendants submitted that because Mr Parkinson was not available for cross-examination they were unfairly prejudiced if the report was used as evidence of the value of the property as at 27 September 2001, or 19 June 2001. 20 In Ringrow Pty Ltd v BP Australia Ltd Hely J said at [27] that inability to cross-examine ordinarily goes to weight rather than to admissibility. That may be so, but as the decision in that case demonstrates, it is not the whole story. The question of whether there is unfair prejudice in a civil trial before a judge alone owing to the admissibility of hearsay evidence which cannot be tested by cross-examination, has been considered in a number of cases. The authorities were reviewed by Sperling J in Roach & Ors v Page & Ors (No 11) [2003] NSWSC 907. With the benefit of his Honour's reasons and reference to authority the position, so far as relevant to this case, seems to me to be as follows:

(1) Sections 135 to 137 should not be used to subvert the legislative intent to expand the circumstances in which hearsay evidence is admissible, notwithstanding that representations made out of court and not on oath or subject to cross-examination lack the reliability which should inhere in testimony given in court. ( Ordukaya v Hicks [2000] NSWCA 180 at [38]-[39].)

(2) Notwithstanding the views of McHugh J in R v Papakosmas (1999) 196 CLR 297 at 325-327, (paras [93], [96], [97]), the inability to cross-examine the maker of the representation particularly on a crucial issue may constitute significant and unfair prejudice. ( Bakerland Pty Limited v Coleridge [2002] NSWCA 30 at [55] and cases there cited; ACCC v Australian Safeway Stores Pty Ltd [1999] FCA 1,269; Roach & Ors v Page & Ors (No 11) at [74];

(3) Notwithstanding the exceptions to the hearsay rule and the opinion rule, sections 135 to 137 evince the legislative intention to reject or limit the use of evidence which is otherwise admissible if the conditions in those sections are met. ( Roach v Page (No 11) at [74]).

(4) The grounds on which hearsay or opinion evidence is admissible are relevant to the consideration of unfair prejudice. As Sperling J said in Roach v Page (No 11) at [74]: "(f) However, where hearsay evidence is admissible under an exception to the hearsay rule because of the unavailability of the maker of the representation, there is a special reason for not disallowing the evidence or limiting its use on the ground that the evidence cannot be tested by cross-examination. That is because the legislature has made the evidence admissible notwithstanding that consideration. (g) Conversely, where the maker of the representation is available or is not shown to be unavailable and the party tendering the evidence does not call the person, that is a legitimate consideration in favour of a finding of unfair prejudice."

(5) Where hearsay or opinion evidence is admissible only because the evidence is relevant for a non-hearsay purpose or is relevant otherwise as opinion evidence (s 60 and s 77), special considerations apply. ( Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 377-8, 382). As Sperling J said in Roche v Page (No 11) at [74]: "(h) Sections 60 and 77 give rise to special considerations. Unlike other exceptions to the hearsay rule and the opinion rule, it is not the objective of those sections to facilitate proof. They are there to avoid a distinction having to be made about evidence being used for one purpose and not for another. Where a document goes into evidence because the existence of the document is a relevant fact, the operation of these sections without a limiting order under s136 may have a consequence which the legislature cannot have intended. Any representation in the document which is probative of some other element in the tendering party's case becomes evidence of the content of the representation. Representations of fact become evidence of the truth of the representation, irrespective of whether they are first-hand or remote hearsay and irrespective of whether the source of the information is disclosed. Representations of expert opinion in the document are probative of whatever is the subject of the opinion expressed, irrespective of whether the author of the document is qualified to express the opinion and irrespective of whether the assumptions made for the purpose of expressing the opinion are specified. Such consequences cannot have been intended where the opposite party is disadvantaged by such consequences. Section 136 serves to avoid such unfairness." 21 In his affidavit Mr Parkinson exhibited his report but did not elaborate on it. He did not swear to holding the opinions expressed in the report. The explanation for his unavailability to attend for cross-examination is unsatisfactory. Having sworn an affidavit in the proceedings which exhibited his report, he and the plaintiffs' legal representatives must have expected that he would be required to attend for cross-examination on his report and on the circumstances surrounding its creation. His apparently having left the employ of LandMark White is no reason for him not to be available to be cross-examined on his report. If he was unwilling to give evidence he should have been subpoenaed. His reluctance to submit his opinion to be tested by cross-examination and the plaintiffs' failure to compel his attendance for that purpose raises a real concern as to the reliability of the report and the opinions expressed in it. 22 One of the possible areas of unfair prejudice arises from the submission made for the third to fifth defendants as described in paragraphs 15-17 above. The defendants are unable to test Mr Parkinson as to whether his report was prepared wholly or partly with the view of assisting the plaintiffs in a case that they had been induced to enter into the contract of sale through misrepresentations of the property's value. However I do not place much weight on that consideration, as no questions were directed to Mr Young along those lines. 23 Of more significance are the matters set out in the third to fifth defendants' written submissions on the admissibility of the report. They point to evidence of the existence of other valuations of the property, not necessarily of LandMark White. Thus Mr Menere said that he told Mr Abbott that Stanley & Thompson, Valuers, had put a figure of $7,500,000 on the land component (T 307). Exhibit 1D20 refers to a valuation apparently of Herron Todd White of $6,000,000. Mr Young gave evidence of a valuation coming in in about six weeks after 19 June, i.e. at the end of July or early August, although that may have been an earlier valuation of LandMark White at $4,900,000. (T 26, T30). The content of those valuations (which have not been produced by the plaintiffs), if known to Mr Parkinson, might have proved fertile grounds for cross-examination. 24 The report struck a value for the property of $5,000,000 by first carrying out what was called a "direct comparison" with other comparable sites on either a rate per square metre or rate per unit value. Mr Parkinson listed nine such comparable sites. He selected three as being the best comparables having a rate per unit site of $52,574, $73,889 and $82,500. Each was said to be considered superior to the subject site. Without the opportunity for the defendants to test the reasons for his selection of the three sites as being the best comparable sites, his reasons for considering the three selected sites to be superior to the subject site, and his reasons for selecting the figure of about $53,764 per unit site ($5,000,000 divided by 93 see para 6.5.1) for the subject land by reference to the "direct comparables", it is hard to know what to make of his comparison. 25 Mr Parkinson then carried out a "residual cashflow analysis". As I understand the analysis, he projected the likely gross sales from the development once the development was completed. He also projected the likely costs of the development including the costs of construction (about which he disclaimed expertise) on the basis of the assumed construction, selling and other costs, including finance costs at an assumed 100% debt funding at 9%. He calculated that assuming the site had a value of $5,000,000, the development would yield profit after interest of $4,690,000, a "development margin after interest" of 20.57% and an internal rate of return after interest of 18.26%. He appears to have considered that such a profit is what a developer would expect and hence concluded that the cashflow analysis supported his valuation using the direct comparison method. Without the opportunity to test the assumptions and the projections which Mr Parkinson made, it is very difficult to see what weight should be put upon the report. 26 One of the submissions of the third to fifth defendants is that Mr Parkinson had assumed construction costs of $15,500,000 for the development but that there are no details of how that figure was arrived at. There is no evidence from a builder or quantity surveyor to support it. Mr Parkinson disclaimed expertise in making that assessment. The defendant submitted that the figure appeared excessive as it equated to a cost of $1,900 per square metre of living area which Mr Parkinson described as being "at the upper end of the likely building cost range" whereas the range which he quoted from Rawlinson's Australia Construction Handbook was $1,524 to $1,606 per square metre. It was submitted that if a figure of $1,550 per square metre rather than $1,900 per square metre were adopted, the resulting valuation for the site should be in the order of $8,000,000, although the process of calculation was not explained in the submission. 27 I do not see how considerations of this kind can be dealt with in the absence of cross-examination of the author of the report. It is not enough to say that these are questions of weight. The difficulty is that without evidence from the author of the report as to the effect, if any, which the considerations which the defendants might raise in cross-examination would have on his opinion, the Court does not know what weight, if any, should be attached to them. 28 It was also submitted for the third to fifth defendants that Mr Parkinson may have been unduly conservative in his assessment because his report was made for mortgage lending purposes and that a less conservative figure might have been obtained if the valuation was made for the purposes of sale. It was also submitted that had Mr Parkinson made the same analysis as at 19 June 2001 rather than 27 September 2001, the valuation may have been higher because, according to his report for the "past 6 months" extensive supply of units "has impacted on (sic) the activity in this market". Again, these are considerations which cannot be evaluated in the absence of the witness.

29 For these reasons I think the proper exercise of discretion under s 136 is to limit the use to be made of the report. No submissions were made that some parts of the report should be treated differently from others. The report itself comprises 32 pages of assumptions, descriptions, comparisons and calculations as part of the valuation. It also consists of ten annexures. The last of these is the residual cashflow analysis. Annexures 1-9 comprise other documents which were not the subject of specific objection. I will not make any order limiting the use which may be made of annexures 1-9 of the report. However in relation to the report itself and annexure 10, I order that insofar as it contains representations of fact and expressions of opinion they not be used as evidence of the truth of the facts stated in them or as evidence of facts about the existence of which opinions were stated in them.

Last Modified: 06/25/2004 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.