FEDERAL COURT OF AUSTRALIA

Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 933

EVIDENCE – admissibility of document – valuer’s report – expert opinion – maker of the opinion not called to give evidence – whether valuation is a business record – whether part of the records of the relevant business – whether evidence admissible as an ‘opinion’

Evidence Act 1995 (Cth) s 59, 59(2), 69, 69(1)(a)(i), 69(1)(a)(ii), 69(1)(b), 69(2)(a), 69 (3), 69(5), 78, 78(a), 79, 111, 135, 135(a), 135(b), 183

Karmot Auto Spares Pty Ltd v Dominelli Ford (Hurstville) Pty Ltd(1992) 35 FCR 560 referred to

Morley v National Insurance Co [1967] VR 566 cited

Prentice v Cummins [2002] FCA 1172 referred to

Quick v Stoland (1998) 87 FCR 371 cited

Supetina Pty Ltd v Lombok Pty Ltd (1984) 5 FCR 439 referred to

Cross on Evidence (6^th Australian Ed)

RINGROW PTY LTD v BP AUSTRALIA LTD

N 278 OF 2003

ULTIMATE FUEL PTY LTD v BP AUSTRALIA LTD

N 279 OF 2003

NADER-ONE v BP AUSTRALIA LTD

N 280 OF 2003

HELY J

4 SEPTEMBER 2003

SYDNEY

THE COURT ORDERS THAT:

1.         The tender of documents 89 and 94 in the applicants’ bundle of primary documents (Exhibit A) be rejected.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The applicants tender documents 89 and 94 in the applicants’ bundle of primary documents (Exhibit A).  The tender is objected to by Mr Walton SC, counsel for the respondent.  The documents are valuations of the service station known as “BP Lansvale” prepared by Max Henderson and Barry Coad of David Nelson & Partners Pty Ltd on the instructions of St George Bank Ltd.  The date of the first valuation report is 12 November 2001; the date of the second is 13 September 2002.

2                     The first report values the service station as at 2 November 2001 at $1,800,000.  The second report values the service station as at 3 September 2002 at $2,400,000.  Both in form, and as a matter of substance, the second valuation is an update of the first which takes into account improvements made to the service station after the first report.

3                     Each report states that the highest and best use of the property is the service station/convenience store outlet.  Each report states that it was prepared on a ‘going concern’ basis including ‘real estate, goodwill, plant and equipment etc and assumes no leased equipment’.  There is no apportionment of value between these items.

4                     The valuation report of 13 September 2002 values the freehold of the service station known as ‘BP Lansvale’ on a going concern basis, for mortgage purposes, at $2,400,000 as at 3 September 2002.  The valuation was conducted on three bases which are described in the report.  One of those bases was called an ‘investment basis’ which was used as a check.  That method assumed that the property was let on a minimum 5 plus 5 year lease at a rental of $200,000 per annum, leaving the remaining profits of the business (estimated at $230,000) for the lessee as the operation of the service station.  The report assesses the leasehold value of the goodwill, including plant and equipment as being about (‘say’) $300,000.

5                     The applicant does not propose to call either Mr Henderson or Mr Coad to give evidence.  It is common ground that the effect of s 59 of the Evidence Act 1995 (Cth) (‘the Evidence Act’) is that the reports are inadmissible unless they fall within the exception to the hearsay rule for business records established by s 69 of the Evidence Act, subject to the general discretion to exclude evidence contained in s 135 of the Evidence Act.

6                     The second Further Amended Statement of Claim (‘the FASC’) at [27] alleges that on or about 19 June 2003 BP served a Notice of Intention and Nomination on the applicant by which it seeks to purchase BP Lansvale at a price which, pursuant to cl 2.5 of the Option Deed (Exhibit A p 450) does not include any allowance for any goodwill attaching to the service station business conducted at the site.  This is alleged at [29] to give rise to an unconscionable forfeiture of property against which the applicant seeks relief.  During the course of argument, leave was granted to amend [27] to allege that the relevant date is 17 December 2002, or alternatively 19 June 2003.

7                     The ‘fact’ which Mr Holmes QC seeks to prove by the tender of the valuations was identified by him as being that there was at the relevant date valuable goodwill attaching to the service station business, the benefit of which will be forfeited by the operation of cl 2.5 of the Option Deed.  Whether that is the effect of cl 2.5 is a matter for final submissions.  An issue between the parties is whether there was any valuable goodwill in relation to the service station business as at the relevant date.  In Mr Holmes’ submission one can deduce from the entirety of the valuation that the valuers attributed a positive value to the goodwill of the service station business, although there is no specific assertion in the document to that effect.  Although the second valuation speaks as of 3 September 2002, it is submitted to be some evidence as to the position at the relevant date.

8                     Later in his submissions Mr Holmes QC shifted his ground.  He referred to the check valuation conducted on an investment basis and contended that this was a specific assertion on the part of the valuers that the goodwill attaching to the service station business had a substantial value.

9                     The following issues arise:

(i)         whether the valuation reports are, or form part of, records kept by a person, body or organisation in the course of, or for the purposes of, a business either now, or in the past: s 69(1)(a)(i) and (ii);

(ii)        whether the representations in the document were made or recorded in the course of, or for the purposes of, the business: s 69(1)(b);

(iii)       whether the representations were made by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact within the meaning of s 69(5); s 69(2)(a); and

(iv)       the effect of s 135.

Issues (i) and (ii)

10                  There is no direct evidence before me in relation to issues (i) and (ii).  Even the source of the documents in Exhibit A has not been established by direct evidence.  Section 183 of the Evidence Act provides that I may draw reasonable inferences from the documents under challenge, as well as from other matters from which inferences may properly be drawn in order to determine the question of admissibility.

11                  There is evidence that:

-                     that the valuations were prepared by a professional valuer for lending purposes at the request of St George Bank Ltd (‘the Bank’).  The valuers instructions were that the Bank did not want the valuer to send a copy of the valuation report direct to the customer, although the Bank might decide to provide a copy of the valuation report to the customer;

-                     the valuation reports were addressed to the Bank; and

-                     there was an agreed fee of $2,200 for the provision of the second report.  The instructions for the first report simply requested advice as to the cost.

12                  A reasonable inference from those matters is that at least at some point in time:

-                     the original valuation report formed part of the records kept by the Bank in the course of, and for the purpose of its business;

-                     a copy of the valuation report formed part of the records kept by the valuer, David Nelson & Partners Pty Ltd, in the course of and for the purposes of its business as a professional valuer;

-                     the representations in the valuation reports were made in the course of and for the purposes of the business of David Nelson & Partners Pty Ltd; and

-                     the representations in the valuation reports were made for the purposes of the business of the Bank.

The fact that the statements in question were made by valuers, rather than by an officer of the Bank, does not necessarily lead to the conclusion that the statements were not made for the purposes of the business of the Bank: neither Karmot Auto Spares Pty Ltd v Dominelli Ford (Hurstville) Pty Ltd (1992) 35 FCR 560 at 565, nor Prentice v Cummins [2002] FCA 1172 decides to the contrary.

Issue (iii)

13                  The precursors to s 69 admitted ‘statements’ or ‘representations’.  ‘Statement’ or ‘representation’ included any representation of fact; ‘fact’ was defined to include ‘opinion’.  Section 69 admits representations of ‘asserted facts’, ie the facts which the person intended to assert by the representation: the Evidence Act s 59(2).  There is no express specification in the Evidence Act that an ‘asserted fact’ includes an ‘asserted opinion’: see Cross on Evidence (6^th Australian Edition) at [35555].

14                  The ‘asserted fact’ (s 59(2)) in the present case is the expressions of opinion by the valuers contained in the valuation reports.  For the reports to be admissible the valuers must have personal knowledge of the asserted fact: s 69(2)(a).  Section 69(5) provides that a person is taken to have personal knowledge of a fact if it is based on what the person saw, heard or otherwise perceived. 

15                  The value of property as at a particular date is a question of fact.  Whether valuable goodwill existed in relation to a particular business at a particular time is also a question of fact.  These facts are usually established by calling opinion evidence from a qualified expert.  It was not contended that Messrs Henderson and Coad were not qualified to express whatever opinions are contained in their valuation reports.  However, Mr Walton SC submits that s 69 of the Evidence Act is confined in its operation to ‘facts’, and does not extend to ‘opinions’ even if expressed by an expert.

16                  The distinction between a fact and an opinion is not clear cut: see Quick v Stoland (1998) 87 FCR 371 at 375 (Branson J).  The author of Cross on Evidence (supra) at [35050] states that there is no doubt that the word ‘fact’ is wide enough to cover opinion, and cites Morley v National Insurance Co [1967] VR 566 in support of that conclusion.  At p 567, McInerney J held that ‘fact’ where used in the Evidence Act there under consideration included a statement of opinion by an expert.  The Victorian Act at the time did not allow evidence of opinion but only of facts.

17                  Provisions such as s 69 of the Evidence Act are meant to have a facilitative effect and are to be construed broadly: Supetina Pty Ltd v Lombok Pty Ltd (1984) 5 FCR 439, 442 (Spender J).  I asked to be referred to anything in the Australian Law Reform Commission (‘the ALRC’) report on Evidence which would throw any light on the reason s 69 takes a different form in relation to opinion evidence from its precursors, but was informed by counsel that they were unable to find any such reference.  My attention has not been drawn to anything in the ALRC report which would suggest that the apparent change was deliberate.

18                  Section 111 of the Evidence Act assumes that the hearsay rule is capable of applying to opinion evidence: Cross on Evidence (supra) at [35555].  If that is so, then one would expect that the exceptions to the hearsay rule would also apply to opinion evidence.  Given that s 69 is to be construed broadly, and that at least in some contexts ‘fact’ may include an opinion (without statutory extension), in my view s 69 of the Act is capable of operation even if the asserted fact is an opinion in relation to a matter of fact.

19                  Section 69(2) requires that the person who made the representation must have personal knowledge of the asserted fact.  The valuers had personal knowledge of the asserted fact, because the asserted fact consists of opinions which they themselves had formed and expressed.

20                  The language of s 69(5) is similar to that used in s 78(a) in connection with the exception to the hearsay rule for lay opinions, except that s 78(a) refers to a matter or event, rather than to a fact.  But there is no reason to assume that the legislature intended that a lay opinion rendered admissible by s 78 of the Act could be proven by the use of the business records provisions, but that an expert opinion rendered admissible by s 79 could not.

21                  Accordingly, I conclude that subject to s 135, the valuation reports are admissible, subject to the question as to whether those reports do proffer any opinion upon a fact in issue, or relating to a fact in issue in these proceedings.  That issue is best addressed in the context of s 135.

Issue (iv)

22                  Section 135 provides:

‘PART 3.11 – DISCRETIONS TO EXCLUDE EVIDENCE

135      General discretion to exclude evidence

The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:

(a)       be unfairly prejudicial to a party; or

(b)       be misleading or confusing; or

(c)        cause or result in undue waste of time.’

23                  The valuation reports are tendered on an issue which is central to these proceedings.  The applicants’ solicitor gave evidence that he issued a subpoena for Mr Coad to give evidence, but after discussing the matter of the subpoena with Mr Coad, decided not to serve it.

24                  The probative value of the valuation reports is slight.  They do not squarely address the issue on which they are tendered.  Originally Mr Holmes sought to justify their reception upon the basis that because the valuation was conducted on a ‘going concern’ basis, it must include a component for goodwill.  That was said to be implicit in the valuation when read as a whole.  Later he referred to the leasehold value of the goodwill and submitted that it is of relevance to the issue as to whether cl 2.5 of the Option Deed gave rise to a forfeiture of a valuable proprietary right.  How and why that is so does not emerge from the valuation reports.

25                  The opinions expressed as to the leasehold value of goodwill as a check on the other methods employed to value the freehold are critically dependent on the estimates of sales, profit and expenses set forth in the report.  It is apparent that those estimates do not reflect actual historical figures.  For example, the Trading Statement for the year ended 30 June 2002 shows fuel sales of $7,131,622, whereas the figure adopted was $8,400,000.  The report does not disguise the fact that the historical figures have not been adopted because the service station underwent considerable alterations in the year ended 30 June 2002, which were not completed until the end of that year.  But the report does not contain any precise statement, for example, as to how the $7,131,622 translates into an assumed figure of $8,400,000.

26                  The report states that a number of assumptions are required for valuation purposes.  They include;

-                     ‘This is a budgeted trading for our check method of valuation only having regard to the limited information and trading figures provided’.

-                     ‘In assessing our estimated gross profit, we have had regard to other service station outlets with supply agreements and associated gross profit margins as a result of being a freehold operation.  Expenses have been based on the figures and other similar turnover outlets analysed by this office.’

There is no specific identification of the information external to BP Lansvale which the valuers relied upon.

27                  Whilst inability to cross-examine ordinarily goes to weight, rather than to admissibility, in my view each of pars [a], [b] and [c] of s 135 would be enlivened if the valuation reports were admitted into evidence.  That is principally because the reports do not squarely address the issue raised in these proceedings and because one is left to infer or deduce from a report prepared for a different purpose whether the report has anything to say about whether or not valuable goodwill attached to the service station business at a relevant date, and if so for what reasons.  Whether the figure adopted for the leasehold value of goodwill is germane to that question depends upon assertion from the bar table, rather than demonstration by a reasoning process contained in the valuation report.

28                  A debate as to whether the valuation report conveys anything of relevance to these proceedings is not one which can be fairly, satisfactorily or efficiently conducted in the absence of the valuer.  In the exercise of my discretion under s 135 I refuse to admit the valuation reports.  In coming to that conclusion, I have taken into account the fact that the valuations were supplied to the respondent’s solicitor on 23 May 2003 and that a valuer from Alcorn, Corbin Nicholson inspected the service station sites on behalf of the respondents on 23 July 2003, but that no report flowing from that inspection has been tendered.

29                  Mr Walton SC submitted that, in the exercise of my discretion, I should decline to admit the reports because they do not comply with the practice direction issued by the Chief Justice in relation to experts reports.  The Chief Justice cannot alter the operation of the Evidence Act by a practice direction, nor has he purported to do so.  The valuation reports are either admissible under the Evidence Act or not.  The practice direction is silent on that question.

Associate:

Dated:              4 September 2003