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- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Re Earlturn Pty Ltd  QSC 137
MINDORO MANAGEMENT INVESTMENTS PTY LTD
ACN 150 866 676
EARLTURN PTY LTD
ACN 091 166 817
CK Ma INVESTMENTS PTY LTD
ACN 115 205 402
354 of 2020
Supreme Court of Queensland
28 April 2021
27, 28 April 2021
EVIDENCE – ADMISSABILITY – EXPERT EVIDENCE – where a party objected to the tendering of an affidavit by a forensic accountant – where portions of the affidavit relied upon two distinct sources of data authored by others – whether it is permissible for the expert’s reliance upon data, which is hearsay, to form the basis of the forensic accountant’s expert opinion – whether that opinion would be based upon inadmissible evidence – whether the sources of data authored by others were within the expert’s field of expertise – whether habitual use of the data by the trade or profession has tested its usual and practical accuracy and has sanctioned its trustworthiness
Dasreef Proprietary Limited v Hawchar  243 CLR 588, followed
Borowski v Quayle  VR 382, applied
Bodney v Bennell (2008) 167 FCR 84, considered
M A Jonsson QC for the applicant
C J Ryall for the second respondent
(No appearance for the first respondent, the applicant and second respondent constituting the entirety of its members)
Preston Law for the applicant
Devenish Law for the second respondent
(No appearance for the first respondent, the applicant and second respondent constituting the entirety of its members)
HENRY J: In this application for winding up of a company being heard as a trial, objection has been taken to the admissibility of exhibit JJG-1 to the affidavit of forensic accountant, John Goggin. That affidavit has been received, conditioned on the outcome of argument on the objection, as exhibit 5.1 on the proceeding.
Exhibit JJG-1 to the affidavit is an expert witness report by Mr Goggin, dated 12 December 2019. Mr Goggin’s report expresses two ultimate sets of conclusions.
The first conclusion, in summary, is that in the reviewed period of 2015 to 2020, and I observe particularly from 2017, the wages and salary costs of Earlturn Pty Ltd was significantly higher than industry benchmarks. That conclusion is premised upon two aspects of Mr Goggin’s findings.
The first aspect, about which no objection is made, is Mr Goggin’s forensic findings as to the company income revenue expenses, including payroll expenses and profit margin. The second aspect, which is objected to, relies on a report on the purported industry benchmarks contained in annexure 10 to Mr Goggin’s report, namely, the IBIS World Industry Report H4404, titled “Serviced Apartments in Australia”.
The IBIS report refers to various statistics, and, at page 32 under the heading “key ratios”, identifies as a percentage, the ratio of wages to revenue in the industry of operating serviced departments during years including the review period. Mr Goggin applies those ratios to his findings as to the company’s ratio of payroll expenses to revenue, in order to reach the first ultimate conclusion that Earlturn’s wages and salary of cost was significantly higher than industry benchmarks.
The second ultimate conclusion is that Sam Ma (who is Chi Kwong), his wife Tina Ma (who is Mun Yee Kwong Ma), and their son Hin Ma (who is Cheuk Hin Ma), were paid salaries in the review period, exceeding salaries expected in the industry for the roles they performed. That conclusion is, again, premised on two aspects of Mr Goggin’s finding.
The first, not objected to, is Mr Goggin’s financial analysis of what the salaries were, how they increased, and how they varied as a percentage of revenue. Again, these may be described as his forensic findings. The second is Mr Goggin’s extrapolation of an hourly rate from a single internet data source, to in turn, adjust it for hours worked by the three persons mentioned, with some uplift for Sam Ma. It is this aspect which is objected to. The single internet data source is Payscale.com. Exhibit 6 is the sole report from that entity before me and is the source of the hourly rate in which the second ultimate conclusion is based. In point of fact, the exhibit is a more up to date version, and with the passage of time, it contains a slightly different relevant figure, but nothing turns on that point.
A feature common to each ultimate conclusion is the expert’s reliance upon data, which is hearsay, namely, the IBIS report and the Payscale.com information. The second respondent submits it is impermissible for such information to form the basis of Mr Goggin’s expert opinion, because that opinion will be based upon inadmissible evidence. The so called basis rule is discussed in chapter 2.20 of Freckelton’s Expert Evidence, sixth edition. It demonstrates that whether the rule existed at common law is a matter of some debate.
The High Court declined to examine whether the rule existed in common law in Dasreef Proprietary Limited v Hawchar  243 CLR 588, the Court there being concerned with the Uniform Evidence Act, which has not been adopted in Queensland. Nonetheless, the plurality relevantly observed for present purposes at 605:
“A failure to demonstrate that an opinion expressed by a witness is based on the witness’s specialised knowledge based on training, study or experience is a matter that goes to the admissibility of the evidence, not its weight.”
This heralds in the present context, the need for an application of the witness’s expertise in adopting source materials.
One way around the so called basis rule is the taking of judicial notice of well-known, reliable data sources such as mortality tables and other data from the Australian Bureau of Statistics. The two data sources here do not fall into that category.
The other potential path is that the data is part of the corpus of the expert’s professional field of learning and experience, drawn from sources known to, and considered reliable by those who are experts in that professional field. A difficult issue attending this admissibility pathway is the question of where the line is to be drawn between data which is and is not within the expert’s true field of expertise.
In his aforementioned text, Freckelton observes of this issue at 2.20.460:
“Little case law on this issue exists in England, Canada, Australia or New Zealand, but the indication from the decisions of Gowans J in Borowski v Quayle  VR 382 and of Muirhead J in Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 and the cases that have followed them is that a liberal attitude will be taken by the courts when called upon to receive technical evidence based on customary professional means of acquiring skills and knowledge.
It appears that an expert may give an opinion on an issue before a court based on the general state of the literature within the area of expertise in question or on the history of a series of well-known events … In R v Zandel (1987) 31 CCC (3d) 97 at 143–146, it was held, citing Pattenden (1982, pp 90–91), that there are several exceptions to the proposition that expert evidence founded on hearsay will be of no weight:
‘There are two exceptions to the hearsay rule which are relevant, and in the circumstances of this case, are, in our opinion, mutually supportive. The first is that events of general history may be proved by accepted historical treatises on the basis that they represent community opinion or reputation with respect to an historical event of general interest…The second exception which is relevant in this case is that an expert witness may give evidence based on material of a general nature which is widely used and acknowledged as reliable by experts in that field. This exception, however, has hitherto been confined to a few narrow classes of cases such as, eg, mortality tables and a standard pharmaceutical guide’.
It appears that when articles from learned journalists are referred to by experts to explain or justify their opinions, they should be referred to in such a way ‘that the cogency and probative value of their conclusion can be tested and evaluated by reference to it’.”
What was described as the second exception in Zandel was discussed by Gowans J in Borowski v Quayle  VR 382. At 386–387, his Honour cited the following passage from Wigmore on Evidence, third edition, volume 2 at pp 784–5:
“The data of every science are enormous in scope and variety. No one professional man can know from personal observation more than a minute fraction of the data which he must every day treat as working truths. Hence a reliance on the reported data of fellow-scientists, learned by perusing their reports in books and journals. The law must and does accept this kind of knowledge from scientific men.
On the one hand, a mere layman, who comes to Court and alleges a fact which he has learned only by reading a medical or a mathematical book, cannot be heard. But, on the other hand, to reject a professional physician or mathematician because the fact or some facts to which he testifies are known to him only upon the authority of others would be to ignore the accepted methods of professional work and to insist on finical and impossible standards.
Yet, it is not easy to express in usable form that element of professional competency which distinguishes the latter case from the former. In general, the considerations which define the latter are (a) a professional experience, giving the witness a knowledge of the trustworthy authorities and the proper source of information, (b) an extent of personal observation in the general subject, enabling him to estimate the general plausibility, or probability of soundness, of the views expressed, and (c) the impossibility of obtaining information on the particular technical detail except through reported data in part or entirely. The true solution must be to trust the discretion of the trial judge, exercised in the light of the nature of the subject and the witness’ equipments. The decisions show in general a liberal attitude in receiving technical testimony based on professional reading.”
More recently, in Bodney v Bennell (2008) 167 FCR 84 at 108, the Full Court of the Federal Court observed:
“Before the Evidence Act, it was well established that experts are entitled to rely upon reputable articles, publications and material produced by others in the area in which they have expertise, as a basis for their opinions. … Experts may not only base their opinions on such sources, but may give evidence of fact which is based on them. They may do this although the data on which they base their opinion or evidence of fact will usually be hearsay information, in the sense they rely on such data not on their own knowledge but on the knowledge of someone else. The weight to be accorded to such evidence is a matter for the court”.
The present tension is in part whether the sources of data authored by others were within Mr Goggin’s field of expertise.
It may be accepted some degree of divergence in the fields of expertise as between the expert witness and the source author will not be fatal. There are after all, subsets of expertise within fields, just as there can sometimes be multi-disciplinary teams of experts drawn from different fields who, collaboratively, author publications. An example of the latter encountered from time to time in personal injury cases, is actuaries working in tandem with medical experts to generate articles about the impact on life expectancy of certain injuries.
Where there is some divergence, it is logically necessary to consider whether the nature or degree of overlap between the fields under consideration is such that the expert witness’s expertise equips the witness to know the trustworthiness of the source and comprehend the source’s methodology and data, including its reliability. If the relevant expertise does not so equip the witness, the exercise would not have the characteristic of accepted methods of professional work, and would be no different from a lay person impermissibly alleging some facts which he or she has learned of by reading of them in some publication.
In the present case, there was a marked difference regarding this quality in Mr Goggin’s testimony about the IBIS report, as compared to his testimony about the Payscale.com information. In summary, it was just present in respect of the IBIS report but not present at all in respect of the Payscale.com information.
Mr Goggin is an experienced professional accountant with expertise in forensic accounting. His expertise renders his forensic findings based directly upon the company’s financial information admissible. Those findings, though, relate to the uncontroversial first aspect of each of his ultimate conclusions. His expertise as relevant to the second aspect in each instance, by which he adopted the IBIS report and the Payscale.com information, appears to be his expertise in business valuations, business restructuring and turn-around management referred to in his summary of expertise in annexure 1 to his report. That is a range of expertise as to the financial health of companies, described by Austin J in ASIC v Rich (2005) 190 FLR 242  as a broader field of expertise in accountancy and auditing.
One can readily understand that Mr Goggin’s knowledge and understanding of data of the kind referred to in both external sources at issue here, would be integral to his application of his expertise to the topic of the financial health of companies, and equip him to comprehend it and assess its reliability and the trustworthiness of its source in a way readily distinguishable from mere lay reliance on a publication.
That reasonable inference gives good reason for adopting a liberal attitude toward admissibility here. Mr Goggin described the IBIS reports as industry benchmark reports commonly used, not merely by him, but by lots of other forensic accountants. Implicit in this is comprehension of the trustworthiness of the source and reliability of its data. The respondent’s counsel submitted the evidence fell short, beyond satisfying the subjective requirement in Mr Goggin’s view, of the trustworthiness of the source. The objective test was described in the following way in another passage from Wigmore, cited in Borowski v Quayle at 388:
“There is an objective test, in that the habitual use of the work by the trade or profession has tested its usual and practical accuracy and has sanctioned its trustworthiness.”
I infer on the balance of probabilities, from Mr Goggin’s reference to the use of IBIS reports by his fellow professionals, that those in his field do sanction the trustworthiness of IBIS reports. I would also infer Mr Goggin comprehends the IBIS reports’ methodology, more readily drawing that inference because the report itself contains comprehensive analytical detail in stark contrast with the spartan information in the Payscale.com document.
In further stark contrast, the high point of Mr Goggin’s testimony about Payscale.com was that he used it as a source in his work. He is unaware of it being used by others in his field. He seemed unaware of Payscale.com’s methodology, merely observing, in effect, that they do their own research and settle on their own benchmark figures. His response to a question about Payscale.com’s reliability as a source went to its use and was unresponsive as to its reliability.
In light of the extent of these evidentiary shortcomings, I am unwilling to bridge them by inference. Payscale.com may well be a handy desktop tool, but the evidence does not support the conclusion that Mr Goggin’s comprehension of the Payscale.com information, distinguishes his reliance on it as being any different from a mere lay person’s reliance on it. The Payscale.com information is not an admissible basis for Mr Goggin’s adoption of the hourly rate relied upon to in turn, opine the salaries exceeded what would be expected in the industry. That adoption and opinion in the report occurs in paragraphs 7.13 to 7.17 inclusive, and 8.6. I, accordingly, strike out and disregard those paragraphs.
For the reasons I have given, and while the issue is very finely balanced, I am, in the end, satisfied Mr Goggin’s reliance on the IBIS report does meet the basis rule. That finding does not, of course, preclude challenge to the weight to be given to the evidence about an opinion premised upon the IBIS report.
Another more specific basis submitted for exclusion in respect of the IBIS report, was that it contains inadequate information to allow its meaning to be determined. The issue, in effect, is whether its content is sufficient to allow Mr Goggin to adequately comprehend it and he was not cross-examined on voir dire about that. I have already observed the report’s substantial detail bolsters the inference of Mr Goggin’s comprehension of its methodology. Mr Goggin can, of course, be tested in cross-examination about this issue, which may well undermine the weight to be given to his evidence. However, I reject the submission insofar as it goes to the issue of admissibility.
Finally, I note a number of other specific submissions were made, but they went to paragraphs I have already struck out. Accordingly, I need not give separate consideration to those submissions.
- Published Case Name:
Re Earlturn Pty Ltd
- Shortened Case Name:
Re Earlturn Pty Ltd
 QSC 137
28 Apr 2021