In Temwell Pty Limited v DKGR Holdings Pty Ltd [2005] FCA 1403 the Federal Court of Australia established the importance of ensuring that expert witnesses have sound and logical reasons for altering their original opinion, particularly in regard to valuation of a claim for damages.

BACKGROUND FACTS

The applicant company commenced proceedings in the Federal Court of Australia against a number of respondent parties, alleging the assignment of rights in an Application Software was made without its consent and in breach of both software and licensing agreements. The applicant company claimed loss of profits arising from the alleged misuse of the confidential information and damages flowing from the loss of control of the Application Software.

EXPERT EVIDENCE

The evidence adduced by the applicant's independent expert witnesses was contentious as both experts not only revised and varied their opinions on multiple occasions, at the request of the applicant's solicitors, but also based their opinions on what were considered to be questionable assumptions. With each revision of the experts' opinions, the value of the banking software fluctuated.

Wilson, a partner of an accounting firm, was engaged to prepare a report on the value of the Application Software. She was instructed to base her report on a set of forecasts used by the second respondent in submissions to the ANZ Bank for financing of the company, rather than a prior valuation prepared by a reputable accounting firm.

Rayner, a chartered accountant, was asked to consider the amount of the applicant's claim for loss and damage on the basis that that the effect of the unlawful conduct of the respondents was to deprive the applicant of the value it otherwise had in the Application Software. Rayner did not attempt to complete any formal valuation of the Application Software, and relied solely upon a critique of the Wilson report of June 2003, and was therefore informed by the purportedly unreliable forecasts prepared by the second respondent.

Ryan J held that both sets of expert evidence were admissible, noting however the observation of Heydon JA in Makitsu (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at 743 - "so far as the opinion is based on 'assumed' or 'accepted' facts, they must be identified and proved in some other way". Ryan J further noted the Court's conclusion, as to admissibility, said nothing with respect to the relevant weight to be attached to Wilson's report, and that acceptance of the opinions of the experts would depend on acceptable proof of the facts contained in the projections / forecasts and other assumptions on which their opinions were based.

APPLICATION FOR CROSS-CLAIM

A cross-claim was filed against the applicant with one named cause of action being the tort of collateral abuse of process. Among other aspects of the applicant's conduct of the proceedings, the expert evidence of Wilson and Rayner was referred to by the cross-claimants, to support the inference of a collateral abuse of process.

In particular, the cross-claimants criticised what they called "the tortured history" of revisions of expert reports and "stream of fresh instructions to Wilson and Rayner requesting them to make new and doubtfully available assumptions in order to underwrite a successively larger and larger sum claimed as damages". A further reference was made to the fees paid to some of the applicant's expert witnesses, described as "enormous".

In dismissing the cross-claim, Ryan J said:

"I am prepared to assume, without deciding, that these criticisms or characterisations were justified. Even allowing that [the applicant]'s legal advisers may have been over-zealous in seeking to recruit the expert witnesses to the "[applicant] team", the matters just recounted do not, on balance, warrant an inference that the proceedings were maintained for a collateral purpose. They are at least equally consistent with a determination to apply every conceivable piece of pressure to extract a settlement in the form of a lump sum representing a substantial fraction of the damages claimed in the action, and, if that failed, to "win at all costs." [278]

IMPLICATIONS

The underlying principle in Makitsu (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, that any assumed or accepted facts upon which an opinion is based must be identified or proved in some other way, was affirmed by Ryan J. Flowing on from this, Temwell confirms that any assumptions provided to an expert must be backed by sound evidence.

Also, an adverse inference may be drawn from the absence of files or notes of conference where the record shows a meeting took place and the substance of the expert's opinion substantially changed after the communications.

This article was co-written by Michael Cooper, Principal, Jemima Griffith, Lawyer and Elizabeth Berwick, Law Clerk.