Graham Leonard Brand and Ors v Digi-Tech (Australia) Limited and Ors; Christopher Gerard Kelliher and Ors v Digi-Tech (Australia) Limited and Ors [2002] NSWSC 996 (23 May 2002)

Last Updated: 31 October 2002

NEW SOUTH WALES SUPREME COURT

CITATION: Graham Leonard Brand & Ors v Digi-Tech (Australia) Limited & Ors; Christopher Gerard Kelliher & Ors v Digi-Tech (Australia) Limited & Ors [2002] NSWSC 996



CURRENT JURISDICTION:

FILE NUMBER(S): 50169/99
50087/00

HEARING DATE{S): 23/5/02

JUDGMENT DATE: 23/05/2002

PARTIES:
Graham Leonard Brand & Ors (Plaintiffs)
Christopher Gerard Kelliher & Ors (Plaintiffs)
McLean Pty Ltd, AI McLean Pty Ltd (Plaintiffs)
Digi-Tech (Australia) Limited (1st Defendant)
Digi-Tech Equities Limited (2nd Defendant)
Digi-Tech Communications (3rd Defendant)
John Anthony Reid (4th Defendant)

JUDGMENT OF: Einstein J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
Mr A J Meagher SC, Mr I M Jackman (Plaintiffs)
Mr J C Sheahan SC, Mr M Christie (Defendants)

SOLICITORS:
Atanaskovic Hartnell (Plaintiffs)
Blake Dawson Waldron (Defendants)


CATCHWORDS:
Evidence
Expert evidence given by accountant
Technical terms
Whether use of words in accounting context have accepted technical meaning
Evidence Act S.80
Whether accountant qualified as having specialised knowledge so as to express opinion on meaning of words used in contract
Relevance

ACTS CITED:
Evidence Act 1995. S.80

DECISION:
Rulings to be found in Judgment given.


JUDGMENT:


IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

EINSTEIN J

Thursday 23 May 2002 Ex Tempore
Revised 24 October 2002

50169/99 GRAHAM LEONARD BRAND & 22 ORS V DIGI-TECH (AUSTRALIA) LIMITED & 3 ORS

50087/00 CHRISTOPHER GERARD KELLIHER (FORMERLY TRADING AS FREERIDER INVESTOR PARTNERSHIP) & 32 ORS V DIGI-TECH (AUSTRALIA) LIMITED & 3 ORS


JUDGMENT - Re admissibility of certain paragraphs of report Mr Paul Carter of 14 December 2000 (see page 1108 of transcript)

1 Objection is taken to the reading of certain of the bracketed paragraphs commencing at paragraph 17 and running up to paragraph 53 of the report of Mr Paul Carter of 14 December 2000. Mr Carter is called as an expert witness in relation to certain issues raised in the proceedings. His background is in the accounting discipline and as a corporate financial adviser and auditor and is generally set out in appendix A to the report.

2 It is apparent from his CV that he is a Fellow of the Institute of Chartered Accountants in Australia, a registered company auditor, and a registered tax agent who has practised in accounting tax and audit, being admitted to partnership in a small accounting firm in 1976 and admitted to partnership in PricewaterhouseCoopers in 1993. It is apparent from that CV that his experience includes audit of listed public companies, teaching of accounting standards to post-graduate students on behalf of the Institute of Chartered Accountants, and guest lecturing and tutoring at the University of South Australia in relation to business management and share valuation. He has provided independent expert opinion on a wide range of matters set out in that appendix and carried out a number of investigative assignments.

Mr Carter was asked to express an opinion based on his knowledge and experience as an accountant and corporate financial adviser on the following questions, described as questions 1 to 5 within paragraph of his report:

"(a) whether, having regard to paragraph 34(h) of the Defence filed by Digi-Tech (Australia) Ltd (DTAL), dated 8 December 2000 (the Defence), the obligation to retain sufficient cash reserves to meet reasonably foreseeable liabilities, as set out under Clause 8.15 of the Agreement for Sale and Purchase of Intellectual Property Rights between DTAL, TAIP and DTSPL (the Sale Agreement) would include an obligation to:

(i) have one year's operating expenses plus DTSPL's current liabilities, and

(ii) provide for instalments payable by the investors of TAIP to DTAL under the terms of the Sale Agreement (Question 1).

(b) whether Clause 8.15 of the Sale Agreement would include an obligation to provide for one year's operating expenses under either of the following scenarios:

(i) where sufficient cash reserves are required to meet liabilities paid,
and/or

(ii) where sufficient cash reserves are required to meet liabilities incurred in the following 12 months (Question 2)

(c) whether the obligation to retain sufficient cash reserves should include the approximate share of estimated expenses for the year ended 30 June 1998 as shown in the Indicative Valuation of Deloitte Touche Tohmatsu, dated April 1997 (the DTT Indicative Valuation) attributed to TAIP (Question 3)

(d) the level of cash reserves as at 24 March 1999, on the assumption that cash reserves means actual cash held (Question 4), and

(e) the level of operating expenses of DTSPL and TAIP on or about 24 March 1999 (Question 5).

3 These questions deal with the meaning of clause 8.15 of the agreement for sale and purchase of intellectual property rights between DTAL, Terminal Adaptor partnership, and DTSPL, the sale agreement, and the similarly worded sale agreement relating to the Freerider partnership and transaction.

4 Clause 8.15 is in the following terms:

"The Investor Partnership must and must procure that DTSPL at all times retain sufficient cash reserves to meet all reasonably foreseeable liabilities during the ensuing 12 month period and do not make any distribution to the Investors if the making of such a distribution might materially adversely affect the ability of the Investor Partnership or DTSPL as the case may be to comply with its obligations under this Agreement or the Licence."

5 It is clear from the evidence which is sought to be adduced through Mr Carter that he apparently maintains that certain of the concepts and terms which are required to be taken into consideration in relation to a proper understanding of and construction of clause 8.15 are to be found within definitions commonly resorted to for accounting purposes.

· In paragraph 24 he seeks to give the definition of the term "cash" for accountancy purposes deriving the same from accounting standard AASB1026.

· In paragraph 25 he seeks to give the definition of the term "cash equivalence" deriving that from accounting standard AASB 1026.

· In paragraph 37 he seeks to give the definition of the term "liabilities" for accounting purposes, deriving the same from the statement of accounting concepts, SAC 4.

· In paragraphs 27 and 28 Mr Carter seeks to expand upon the CCH Macquarie Dictionary of Accounting in terms of defining the term "reserve", and in paragraph 31 he seeks to give evidence as to the way in which accountants use the word "reserve" in everyday usage to carry the connotation that something has been kept for a later occasion, usually implying the setting aside of profits. Mr Carter on the other hand makes perfectly clear that in his opinion "the meaning of the phrase 'to retain sufficient cash reserves to meet all reasonably foreseeable liabilities during the ensuing 12-month period'" is not readily apparent in an accounting context.

· The term "cash reserves" is not a technical accounting term and is not defined in the statement of accounting concepts, the accounting standards, the Corporations Law or any of accounting literature to which he generally seeks to refer in terms of either of the definitions which he seeks to give.

6 Whilst I readily accept that by reference to section 80 of the Evidence Act 1995 evidence of an opinion is not inadmissible only because it is about a fact in issue or an ultimate issue, real questions concerning the elucidation of section 80 do arise and these were conveniently the subject of some examination in Idoport Pty Ltd & Anor v National Australia Bank Ltd & Ors [2000] NSWSC 1077; 50 NSWLR 640, which treated with the core component of the so-called ultimate issue rule which concerns evidence of an expert as to the satisfaction or not of a standard which had legal effect. That decision further dealt with the question of whether the ultimate issue rule was affected by the enactment of section 80 of the Evidence Act. The holding was that the section was enacted by reason of a clear intention to abolish the rule which prevented a properly qualified expert from expressing an opinion as to the satisfaction or otherwise of a certain legal standard. The effect of the section was not to permit evidence which went to an ultimate issue at all events and was not to exclude evidence. Its effect was to remove the fact that the evidence goes to an ultimate issue from the reasons for which the court must or could exclude the evidence.

7 The essential difficulty presently facing the court is as to whether the witness is shown to have specialised knowledge by his training, study or experience, on the basis of which, whether wholly or partly, he is in a position to express an opinion on the issue in hand. In my view he is not shown to be qualified in terms of having that form of specialised knowledge so as to be in a position to express an opinion as to the proper construction of clause 8.15. He is, however, qualified to give evidence as to the meaning of words if those words in an accounting context have an accepted technical meaning. He is clearly qualified to express the opinion sought to be given in paragraph 15 that the meaning of the subject phrase is not readily apparent in an accounting context. Likewise, he is clearly qualified to express the opinion that the term "cash reserves" is not a technical accounting term. Likewise, he is clearly qualified to refer to the statements of accounting concepts and to the accounting standard where relevant and to evidence as to the definition of particular terms for accounting purposes.

8 Questions as to whether the definitions for accounting purposes should be taken into account in any particular and, if so, what fashion by the court in construing clause 8.15 are for the court and not this witness. But this is not to say that his evidence in relation to definitions for accounting purposes of particular terms can have no relevance to the issue and must by definition be seen to fall outside of his specialised knowledge, nor is it to say that evidence of this character falls outside the very wide definition of relevance to be found in section 55 of the Evidence Act.

9 To my mind there is some guidance given to the proper approach to be taken presently from the decision of Street J, as his Honour then was, in Ancher, Mortlock, Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd, [1971] 2 NSWLR 278 where his Honour was concerned with conflicting expert evidence as to similarity or dissimilarity concerning architectural plans. Street J said at 286:

"In view of the volume of expert evidence, and the differing views expressed by the expert witnesses, I should state the use that can properly be made of that evidence in reaching a decision in a suit such as this. The decision upon the issue of similarity is an original decision for the court itself. It is to be reached upon an assessment of such similarities and dissimilarities as appear to the court between the plans or buildings under consideration. The fact that one particular expert of the highest authority and of unimpeachable credit is permitted to swear to an opinion on similarity or dissimilarity does not relieve the court of the responsibility of forming its own opinion on this issue. In this sense the expert evidence in a suit such as the present fills a somewhat unusual role. It is almost as if each side calls an expert to argue out counsel in examination-in-chief and cross-examination the similarity or dissimilarity which that particular expert sees between the plans and houses. By attending to the progress of this argumentative process between counsel and expert the court is enabled to perceive and more readily to appreciate the points of similarity dissimilarity. In this way the tendering of expert evidence is of value in exposing the facets of the ultimate question to which the expert opinion evidence is directed. But the important point is that, in distinction from the judicial process in relation to expert evidence such as is normally encountered in litigation, a court in the present type of litigation is entitled and, indeed, bound, to form and act on its own original opinion."

10 Clearly, however, the way in which the issue now before the court comes before the court is somewhat different to that facing Street J in Hooker Homes.

11 In Idoport v National Australia Bank, [2000] NSWSC 1077; 50 NSWLR, 640 at 658 reference was made to the fact that expert evidence on the question of effect of foreign law was necessary to inform the court of a matter in respect of which it was ex-hypothesi ignorant. To my mind precisely the same may be said of a circumstance in which questions of the definition of particular terms for accounting purposes relate. There is, however, a clear difficulty in the court permitting Mr Carter to give an opinion as to the meaning of the phrase to "retain sufficient cash reserves to meet all reasonably foreseeable liabilities during the ensuing 12 month period" simply because he prefaces the giving of that opinion by the use of the words "from an accountant's perspective". Use of those words is objectionable simply as a matter of form. Lack of transparency of reasoning processes provides a legitimate ground for objection of any sentence or section in the report by an otherwise qualified witness. In this case the use of the words "for accounting purposes" or the words "in an accounting context" or the words "accountants understand the word" in paragraphs 24, 25, 26, 31 and 37 seem to me to be unexceptional.

12 Clear difficulty is, however, encountered in the use of the words "from an accountant's perspective" in the first line of paragraph 41, in the last line of paragraph 45 and in the first line of paragraph 46. Those words are objectionable simply as a matter of form. In other words, it is simply not clear what precisely the witness is seeking to assert by use of those words. To my mind and for that reason it is appropriate for the court to reject paragraphs 41 to 46 but to grant leave to the plaintiffs to adduce evidence in an admissible fashion if this can be done Mr Carter as to what it is that he is seeking to express in using that form of words.

13 In the result the court's rulings in relation to the sections which are objected to in Mr Carter's report are as follow:

Paragraph 14 is rejected.

Paragraphs 15 to 29 are allowed.

Paragraph 30 is rejected.

Paragraphs 31 to 33 are allowed.

The last sentence of paragraph 34 is rejected; the balance of paragraph 34 is allowed.

Paragraphs 35 to 38 are allowed.

Paragraph 39 is rejected.

As to paragraph 40, the words "within the context" to the end of the paragraph are rejected and the balance is allowed.

Paragraphs 41 to 46 are rejected.

Paragraph 47 is allowed.

As to paragraph 48, the first sentence is rejected. The words "I also note that" which commence the second sentence are rejected.

The balance of paragraph 48 is allowed.

Paragraphs 49 and 50 are rejected.

Paragraph 51 is allowed.

Paragraphs 52(a), (b) and (c) are rejected.

There is no objection to paragraph 52(d) or to paragraph 53. Each of those sections of the report will be allowed.

Paragraphs 54 to 56 are allowed, there being no objections to any of those.


I certify that paragraphs 1 – 13
are a true copy of the reasons
for judgment herein of the
Hon. Justice Einstein
given on 23 May 2002 ex tempore
and revised 24 October 2002.

___________________
Susan Piggott
Associate
24 October 2002




LAST UPDATED: 29/10/2002