In our latest publication, John Dawson, Executive Director in our Perth office, discusses a case which highlights important questions legal practitioners should consider to ensure their expert's reports are not rejected.
Rolleston v Insurance Australia Ltd (2016) NSWSC 1561 (4 November 2016)
"For all the report shows, that figure might have been plucked from the air."
The plaintiff, John Rolleston, owned a property at Mosman on Sydney's north shore on which he was building a large house. The property was insured with the defendant, Insurance Australia Ltd ('IAL').
On the 10 May 2013 a fire broke out which caused substantial damage to the property. Mr Rolleston claimed on his insurance policy. IAL refused to pay out on the policy, alleging that Mr Rolleston was involved in the fire, and had acted fraudulently, dishonestly and in bad faith.
On the face of things, this may have seemed reasonable. The facts suggested the fire was deliberately lit, with no signs of forced entry and the alarm system had been deactivated using the security code shortly before the fire. Mr Rolleston's home loan provider had refused further funds to finish construction, and Mr Rolleston's parole condition that prohibited him from living in the Mosman area had been lifted the same day as the fire.
Unfortunately for IAL, it became evident that Mr Rolleston had an alibi. He was attending a performance of the Australian Ballet at the Sydney Opera House and had not been notified of his parole conditions being lifted. However, numerous individuals were identified that had access to the keys and the alarm security code, 'some of whom at least appear to have borne ill will to the plaintiff, whose movements are unaccounted for and who could well have set the fire'.
The Court found in favour of Mr Rolleston and awarded damages represented by the cost of repairs of approximately $1 million. However, Mr Rolleston's primary claim for damages of $3.4 million, being the difference between what he said would have been the value of the property if the damage caused by the fire was repaired and the amount ultimately received on the sale of the property (in its damaged state) in February 2014, was rejected for the reasons set out below.
To substantiate the value of the property if the damage caused by the fire had been repaired (the 'if repaired' value), Mr Rolleston relied on the evidence Mr L, an independent property valuer.
In preparing his valuation, Mr L said that he had adopted the 'comparison method' of valuation. This method involves:
- identifying the sale price of properties with comparable characteristics to the subject property at or about the relevant valuation date ('comparable sales'), and
- adjusting those sale prices for characteristics of the subject property, on the basis that no two properties are identical in all respects.
In seeking to identify comparable sales, Mr L investigated a number of sales of properties in the Mosman area. From those sales, he selected seven sales on dates ranging from 12 October 2012 to 19 February 2014. Only two of those sales occurred in 2014 and both of them were in February 2014.
Having selected those seven comparable sales, Mr L:
- Described the comparable properties and contrasted their qualities to the subject property.
- Indicated the respects in which he thought the comparable properties were superior or inferior to the subject property, by reference to location, views, land area, quality of improvements and the like.
- Undertook his 'direct comparison approach' including reference to the various factors that required "...adjustments (to be) made for points of difference. " He noted that "...the most comparable sales evidence utilised... range in value between $6,700,000 and $9,250,000 ", commenting that the range "...reflects characteristics like location, land size, views, quality of improvements, functionality, accommodation, parking, vehicular access, building size and topography ".
- Selected what he said were the four 'most comparable properties', including one property which sold for $11,060,000 which was significantly above the sales prices evidenced by the 'most comparable sales' to which he had previously referred. Of the four properties selected, Mr L concluded one was 'broadly comparable', one 'superior overall', one 'inferior overall' and one 'far superior overall', and
- Stated that "...the sales evidence analysed is considered to support a valuation assessment for the subject property of $7,500,000 ".
The Court made the following comments in relation to the evidence of Mr L:
- There was no identified reasoning to show how the sales data that Mr L had identified was used in his assessment of the value of the property. There was also no reasoning process to show how the sales evidence supported his assessment of value. His Honour commented "...for all the report shows, that figure might have been plucked from the air".
- Mr L did not show any evidence to support some of his other assertions, including his assertion that "...the local residential market had improved post this transaction ", nor did he explain how the suggested improvement in the market might have affected his valuation.
- Pursuant to section 79 of the Evidence Act 1995 (NSW), expert evidence may be exempt from the opinion rule set out in section 76 of the same Act. However, for such an exemption to apply, the witness must have specialised knowledge based on his training, study or experience. Further, it must be shown that the opinion is wholly or substantially based on his or her specialised knowledge. In this case, Mr L's report did not enable any assessment to be made of the validity of the reasoning process that he undertook. His Honour found that "...his report does not show that the conclusion expressed by him was based on, or the result of, the application of his specialised knowledge to the facts (assumed by or known to him) stated in his report. Consequently ... Mr L's report did not pass through the section 79 gateway ".
- His Honour also stated that, if he was wrong in drawing the above conclusions, he would have excluded the report in the exercise of the discretion conferred by section 135 of the Evidence Act. His Honour referred to his previous decision in Bone v Wallalong Investments (2012) NSWSC 137 and re-iterated his findings in that case that "...it is wholly unfair to the defendants to expect them to elucidate [the expert's] reasoning process in the course of cross-examination and then to challenge that process without the opportunity to reflect on it" and "...since the reasoning (for the valuation opinion) has not been exposed in [the expert's] report, counsel are put in the entirely unsatisfactory position that they need to expose the reasoning in cross-examination before they can attack it ".
Consequently, the Court did not regard Mr L's report as being that of an expert and disregarded the valuation opinion of Mr L in assessing the loss and damage of Mr Rolleston.
Significance of decision
When reviewing the reports of experts engaged to prepare reports for the purposes of proceedings, legal practitioners should be mindful to address the following:
- Does the report clearly identify the specialised knowledge of the expert?
- Is there an obvious and clear link between that specialised knowledge and the conclusions drawn in the report?
- Are the facts upon which the expert's opinions are based clearly identified in the report, and are those facts clearly delineated between those known to the expert and those which the expert has assumed?
- Is the basis upon which the expert's opinions have been drawn clearly explained in the report with sufficient clarity so that a lay person could understand them?
- Is there a sufficiently transparent linkage between the analysis undertaken by the expert and the opinions drawn by the expert in the expert report?
As this judgment demonstrates, failure to consider these issues at any early stage may result in the expert report being rejected later.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.