I am a Fellow of the Asia Pacific Institute of Experts. APIEx is a Singapore-based society spearheading the development of professional expertise in the field of expert evidence in the Asia Pacific region. Individual membership is restricted to practising experts with references from lawyers who have retained them as experts, and is also conditional upon completion of specialised training or review of (anonymised) work.
My evidence has been accepted without challenge (other than for admissibility), or preferred/adopted, in the Federal Court, Victorian Supreme Court, New South Wales Supreme Court, NSW Land and Environment Court, and Singapore International Commercial Court:
In the matter of Portman Securities Pty Ltd (in liq.) [2025] NSWSC 1338
I was engaged by the Plaintiffs to provide an opinion about whether a company now in liquidation would have been able to secure finance to pay the third tranche of a deposit and settle a property acquisition.
Background
“[1] …the Plaintiffs, Mr Darin, as liquidator of Portman Securities Limited (in liq) (“Company”), and the Company, seek relief against several Defendants. Broadly, their claims arise from the liquidator’s and the Company’s challenge to a contract dated 26 March 2020 (“Contract”) by the Company to purchase a property situated at Punchbowl (“Property”), which, it is alleged, was purchased at a substantial overvalue. The liquidator and the Company contend that there was no realistic prospect that the Contract could have gone to completion. The liquidator and the Company bring claims against the First Defendant, Mr Pamboris, for that transaction so far as it has resulted in the Company’s loss of a $5 million deposit and a potential further liability to the Second Defendant (“Westwood”) and bring claims against Westwood for an uncommercial transaction. Claims are also brought against Mr Pamboris in respect of transactions with another entity, Waldron Projects Pty Ltd (“Waldron Projects”) of which Mr Pamboris was a director, which appear to have some connection with the transaction in respect of the Property.
[28] …Mr Geoff Green… expresses the view that the Company may have been able to secure deposit funding from private lenders, but would have required it to arrange real estate security with a value of at least $8.5 million in order to do so, since the payment of the two deposit instalments would not create an asset that lenders would regard as providing real estate security. He also expresses the view that the available information indicated that the Company would not have been able to arrange real estate security with that value, even if Mr Pamboris had provided a guarantee and granted mortgages over his personal assets
Findings relevant to the banking expert evidence
[28] …I accept Mr Green’s evidence as to that matter
[29] Mr Golledge submits, and I accept, that:
“Mr Green’s evidence concerning the likelihood of Lenders (whether first, second or third tier) being willing to provide funding to enable the Company to meet the obligation to pay the balance of the Deposit under the Contract due at the end of June [220], and as to the terms which would apply to any finance that would be provided if offers could be obtained at all, ought be accepted. He was an impressive expert witness. Both his report and his oral evidence were appropriately restrained and, in the witness box, he avoided any dogmatic rejection of propositions put to him in cross examination by Mr Jordan – though none of those “concessions” (if that’s what they were) diminished, in any significant way, Mr Green’s opinion that finance was unlikely and, if available, it would be on terms which, based on other evidence in the case, the Court can safely conclude the Company would be unable to meet.”
Outcome
[62] I am satisfied that the entry into the Contract caused the Company to become insolvent, where the Company had insufficient funds to pay the whole of the deposit at the time of the Contract and Mr Pamboris had no apparent plan as to how the Company could fund the balance of the deposit within the short time it was due and no commitment from a lender in that regard. Mr Pamboris also made no apparent attempt to obtain a third party valuation of the property and the Company in fact contracted to purchase it at least twice its market value. I am satisfied that the Plaintiffs have established their claim for breach of general law and statutory duties on that basis…
EMR Capital Investment (No. 6B) Pte Ltd v Hallion [2024] VSC 805
I was asked to provide an opinion about whether a mining company would have been able to arrange a refinance. The extracts from the judgement set out below summarise the background to the case and explain the nature of the work I did.
Background
[1] This proceeding relates to a share sale agreement (2018 SSA) and a related share mortgage (Share Mortgage) entered into on 17 September 2018, concerning ownership of the Capricorn Copper mine located in North West Queensland…
[4] The purchase price under the 2018 SSA was an Upfront Payment (paid in four tranches) of AUD$7,285,000 million with the possibility of an additional payment (called an ‘Earnout Payment’) of approximately AUD$12.5 million…
[7] This proceeding primarily relates to whether the Sellers are entitled to the Earnout Payment from EMR6B, at the time of an agreed Relevant Transaction on 7 June 2021.
[33] Much of the time at trial was spent on expert evidence…The evidence related to three scenarios or hypotheticals: the first two of which were based on successful completion of the IPO (with 29Metals comprising the Capricorn Copper, Golden Grove, and Redhill assets); and the last of which was based on the IPO not being successful (i.e., with 29Metals solely comprised of the Capricorn Copper assets).
[36] …there was the expert evidence as to whether CCH would have been able to obtain refinance of the liabilities in existence immediately before the Restructure and IPO. This was directly relevant to [the] 3rd scenario.
Findings relevant to the banking expert evidence
[437] In summary, I consider that Mr Green was an honest and reliable expert witness, and I accept his evidence. The Sellers submit that this Court should give little weight to his ultimate conclusion… for a number of reasons, including because his experience does not qualify him to opine on the attitude of non-banking lenders to refinance CCH. I do not accept this submission. Rather, I consider that the breadth of his experience…enabled him to give expert evidence in relation to the willingness of non-bank lenders to advance funds to CCH, if the IPO did not proceed.
Challenges to Mr Green’s assumptions and whether he was provided with adequate information
[442] The Sellers challenged many aspects of Mr Green’s opinion, most relevantly, the accuracy of his assumptions and/or that he was not provided with adequate or correct information…
[446] I reject the Sellers’ primary submission that Mr Green had accepted that a proposed financier, as at October 2021, would have been interested in the actual financial performance of CCH up to that time. When presented with this proposition by counsel in cross-examination, Mr Green disagreed, and said that he did not think it would have been of assistance. Rather, the substance of his evidence was that, in general terms, a proposed financier would been interested in such information; i.e. EBITDA and serviceability. Mr Green considered that the proposed loan transaction involving CCH would have been ‘discarded well before’ consideration of the financial performance during this period To similar effect, Mr Green also gave evidence that three significant adverse factors — being, material uncertainty as to CCH’s going concern status, the concern that CCH was ‘consistently’ in breach of lending covenants, and the apparent inability of the owner to provide any further support— would ‘kill the deal [and thus, CCH’s ability to obtain refinance] before anybody look[ed] at the projections.’
[447] …I consider that it was appropriate for Mr Green to place reliance upon the cash flow information in the Prospectus, rather than the [Life of Mine] model, for the purposes of forming his view as at 7 June 2021. Mr Green gave evidence that ‘the due diligence process that goes into creating figures for a prospectus and how carefully they are worked and done and used’ was such that there is a ‘greater level of scrutiny’. This evidence was supported by [the Sellers’ valuation expert], who said that any prospectus ‘goes through a very strict vetting process and verification process.’
Challenges to Mr Green’s ‘significant adverse factors’
[448] There are three primary bases upon which the Sellers challenged Mr Green’s evidence of ‘significant adverse factors’ that a lender would identify.
[449] First, the Sellers submit that the only basis for the material uncertainty as to CCH’s going concern status, as identified by Mr Green, was the waiver of the [Debt Service Cover Ratio] DSCR covenant for the period ending 31 March 2021, which led to the waiver letter. … As set out in [105] above, [the Sellers’ valuation expert] gave evidence about the significance of the going concern disclosure, and the fact that this was due to the waiver letter. Mr Green gave evidence to the same effect. As a result, and contrary to the Sellers’ submissions, I consider that such a disclosure would be a significant adverse factor for a potential lender to consider.
[450] Second, whilst Mr Green’s report refers to CCH having ‘consistently’ breached lending covenants, he could only identify two such breaches: an unspecified breach in the 2018 audited accounts for CCH, and the DSCR covenant on 31 March 2021 (leading to the waiver letter). Even accepting that these two breaches might not satisfy the characterisation of ‘consistent’ breaches, I nevertheless accept the thrust of Mr Green’s evidence on this topic; i.e., that a prospective lender would have identified these breaches as an adverse factor when assessing CCH’s credit risk.
[451] Third, the Sellers take issue with Mr Green’s sole reliance on [a former director of CCH] evidence as to CCH’s inability to repay trade creditors, in circumstances where there was no evidence of the alleged overdue or surplus creditors as at 7 June 2021. However, for the reasons set out in [103] above, I have accepted that CCH’s trade creditor position was AUD$21.5 million in mid-2021.
[452] If the IPO had failed, in light of Mr Green’s evidence, I am satisfied that the only available option would have been a standalone sale of CCH by 31 December 2021, or thereabouts, to repay the funds owing under the amended syndicated facility agreement. As set out above, [a former director of CCH] considered that such a sale had no reasonable prospect of meeting the target return.”
Berhero Pty Ltd v Hinds [2023] NSWSC 1022
I was asked to express an opinion about whether an “expression of interest” was an offer of finance sufficient to engage a success fee mechanism.The extracts from the judgement set out below summarise the background to the case and explain the nature of the work I did:
Background
[1] A mortgage broker…[sought] to recover its fee from [the] defendant property developer…The fee was some $260,000 when charged but, with interest (at 2% per month), now stands at some $1.2 million.
[2] The broker elicited an expression of interest (also known as a discussion paper) from [a bank] to provide a $13.5 million facility for [the] property development…The question is whether the discussion paper met the requirements of the contract between the broker and its clients, such that the broker is entitled to its fee.
[4] …The defendants also relied on an expert report by Geoff Green. The plaintiff objected to the whole of Mr Green’s report. I admitted the report. My reasons for doing so are at [80]. Mr Green was not required for cross-examination.
My Banking Expert Witness work
[75]…Mr Green has significant experience in reviewing the application of lending policy.
[76] Mr Green said ANZ’s discussion paper set out generic lending criteria for property development lending, detailed the nature of information that would be required to seek a formal loan approval and did not reflect any analysis or assessment of the information provided in the broker’s application. Further, the discussion paper included two conditions precedent which may operate in practice to restrict the amount of funding available. First, lending was not to exceed the lower of 75% of Total Development Costs or 60% of gross realisable value (LVR). Second, the debt was to be 100% covered by complying pre-sales.
[77] …As the conditions precedent required the application of the lower of these two ratios, the bank may have funded $3.3 million, leaving an unfunded component of $3,835,150.
[78] The plaintiff objected to the admissibility of Mr Green’s report on the basis that it failed to expose his reasoning process, linking his specialised knowledge with the opinions expressed. It was said that Mr Green’s observations on ANZ’s discussion paper could be made by any reader of the letter without the need to deploy his expertise. Likewise, Mr Green’s analysis of cash outflows shown in the borrower’s feasibility spreadsheet was said not to require specialised knowledge but simple. arithmetic. So too Mr Green’s analysis of the implications of the bank’s LVR requirement on the funding likely to be made available by the bank and the resulting funding shortfall.
The commentary on admissibility
[82] I consider Mr Green’s area of expertise, being the analysis of cashflows and application of lending conditions, to be…less subjective and susceptible to inference….I consider that his observations reflected his industry experience as set out in his curriculum vitae. In other words, his observation was an application of his specialised knowledge, which added value to the evidentiary and judicial process. I do not agree than a judge reading the letter would necessarily come to the same conclusion, absent such expertise.
[83] The same can be said in respect of Mr Green’s analysis of the cash outflows shown on the feasibility study…Mr Green was relying on his experience to identify those expenses which were relevant to settling the land purchase and, based on those expenses, calculating the funding required for the Stage 1 payment. Beyond this, it is unclear what further reasoning Mr Green could have proffered in support of his opinion. In those circumstances, I consider Mr Green’s assessment of the required funding to be admissible.
[84] The plaintiff also objected to the report on the basis that some of Mr Green’s assumptions were unstated and unsupported…even if the assumptions stated in Mr Green’s report were not proven, that would not affect the admissibility of his report. Where Mr Green was not then challenged in cross-examination on his statement that general industry practice was that GST and loan brokerage were excluded from development costs, I see no reason to disregard his approach.
Conclusion
[92] Overall, I am not satisfied that the discussion paper was “in the terms of the Loan Term Sheet” entitling the broker to its fee…as Bryson AJ put it in Cayden, the discussion paper was “so far short of anything useful that it could not be said that the work in the retainer was done.”
The broker was unsuccessful.
BCBC Singapore Pte Ltd & Anor v PT Bayan Resources TBK & Anor [2022] SGHC(I) 2
I was asked to provide an opinion about whether Indonesian based joint venture would have been able to arrange funding to expand its Tabang plant, and if so, on what terms, in the context of a damages claim for “loss of chance”.
I prepared a separate report, prepared a joint report with another banking expert witness, and gave concurrent evidence for three hours. There were several other technical experts involved, dealing with commodity pricing, financial models, and engineering and production issues.
Extracts from the judgement below provide context, and the Court’s assessment of the work of the banking experts. I have added headings, and explanatory notes [italicised in square brackets], to assist the reader:
Background
“[1] …these proceedings…arise from a joint venture between Australian and Indonesian companies to exploit a new technology to upgrade coal for commercial sale that ended in a series of disputes.
[13] [In earlier proceedings between the same parties] We…found that BR repudiated the JV Deed by wrongfully issuing the Termination Notice…
[18] BCBCS claims damages under two heads. First, it seeks to recover wasted expenditure of US$91,591,206.68…
[20] Second, BCBCS claims damages for the loss of a chance to increase the production capacity of the Tabang Plant to at least 3 MTPA and to profit therefrom.
Would the technology have work?
[144] …the technology…would have worked, and with the proposed modifications which would have been carried out after November 2011, the Tabang Plant would have achieved nameplate capacity…by June 2012 at the latest, and…the upgraded coal [which it produced] would have been a saleable product.
The wasted expenditure claim
[194] …although the Tabang Plant could have achieved nameplate capacity by June 2012 …BR would have been entitled to put KSC [the Joint Venture company] into liquidation (see [149] above). This would have had the effect of preventing BCBCS from recouping any of its wasted expenditure (see [154] above).
Evidence from the Banking Experts
[208]…there is, strictly speaking, no need for us to decide whether BCBCS has proved its loss of a chance to profit from the Tabang Plant’s increased capacity. Nevertheless, for completeness, we briefly explain why we answer this question in the negative.
[212]…BCBCS’s and BR’s financial experts agree that the deteriorating relationship between the parties would have concerned prospective lenders, thereby throwing into question KSC’s ability to secure additional funding from third party lenders for the expansion of the Tabang Plant.
[215] In relation to funding, we do not consider that third party funding would have been available. We accept BR’s submissions that prospective lenders would not have lent money to KSC because of the breakdown of the parties’ relationship.
Further, even on…Mr Nicholson’s [BR’s Financial Modelling Expert] own numbers, however, KSC would only have an EBITDA of approximately US$36.4 million during the life of the loan, which would be substantially below the requisite DSC Ratio of 1.7.
We do not think that the evidence of BCBCS’s witnesses about the interest of banks and others in providing finance constitutes any basis for coming to a different conclusion.
[217] On that basis, we conclude that BCBCS would not have secured funding for the construction of the second and third plants, either by way of third party financing or gift funding from WEC/BCBCS.
Decision
The Plaintiffs’ claim was dismissed
Stuart v Rabobank Australia Ltd [2021 FCA 1388]
I was engaged to prepare a report “in reply” to another expert in a Federal Court matter. Together with my counterpart I prepared a joint report and gave “hot-tub” evidence.
Set out below are selected paragraphs from the judgement which explain the background and provide (limited, in the circumstances) comment about the work of the experts:
Background
“[1] By late 2007, after a series of successful rural property acquisitions and realisations, the applicants Mark and Catherine “Cate” Stuart (the Stuarts) by late 2007 found themselves in a position where they could no longer meet their financial commitments on their current rural property without continued extensions to their facility limit of the financing provided to them by the respondent, Rabobank Australia Ltd (Rabobank).
[2] The Stuarts were confident that they could address this predicament by increasing the limit of their facility to enable them to purchase an alternative property pending the sale of their existing property. Unfortunately, the combined effect of the severe drought and the global financial crisis frustrated their efforts to sell their existing property. The Stuarts were not able to continue to meet interest payments on their facility with Rabobank and they defaulted.
[3] Ultimately, both properties were sold for prices well beneath their expectations, receivers were appointed, and the Stuarts have been left with virtually nothing and a substantial debt outstanding to Rabobank.
[4] In this proceeding the Stuarts seek declarations of contravention, damages, compensation and various orders relieving them from liability and setting aside facilities and mortgages against Rabobank.
The banking expert witness evidence
The Court found that the questions directed to the first expert were in fact “matter[s] for the Court to determine” and said (at 111) “much of the cross-examination of Mr White and Mr Green only served to highlight the inherent lack of utility in asking experts to address what are innately counterfactual issues” but did note (at 101) “Mr Green’s evidence was of assistance in determining the issue [as to whether the periodic reviews had any effect on the term of the Facility].”
Outcome
“[844] The Stuarts [were] wholly unsuccessful and Rabobank…succeeded on its cross-claim.”
Tomlak Pty Ltd & Ors v Westpac Banking Corporation [2020] VSC 79
This was an expert witness report about whether a lender had met their obligations under the Banking Code of Practice in the making of loans, and also in their enforcement of security. The engagement involved the preparation of a separate report, a joint report with another expert witness, and six hours of concurrent evidence in the Supreme Court of Victoria.
The following selected paragraphs from the judgement provide background to the case, and a summary of the work I performed:
Background
“[1] Mr Gregory Butera and his brother Mr Joseph Butera have been residential builders and property developers in the northern suburbs of Melbourne and in the Frankston area since the 1990s. Their business, the ‘Butera Group’, typically involved the purchase of blocks of land with an existing single dwelling, the demolition of that dwelling and the construction of multiple residential units in its place.
“[2] The Butera Group pursued its property development business through three companies: Tomlak Pty Ltd (Tomlak), Raventhorpe Pty Ltd (Raventhorpe) and Benafield Pty Ltd (Benafield). Another company in the Butera Group — Kimpal Pty Ltd — generally undertook the building work involved in the property developments.
“[3] The Butera Group encountered financial difficulties in 2013 and 2014. Receivers were appointed in March 2014. The Butera Group attributes its demise to various failures by Westpac Banking Corporation in the period between 2010 and 2014. Westpac had been the Butera Group’s principal financier since 2003 and had funded many of the Butera Group’s property purchases and developments.
“[5] Tomlak, Raventhorpe and Benafield commenced separate proceedings against Westpac in relation to various claimed failures by Westpac in the period between 2010 and 2014 in respect of the above properties. In each of the proceedings it was alleged that Westpac engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL); unconscionable conduct in contravention of ss 20 and/or 21 of the ACL; and conduct in contravention of cls 2.2, 25.1 and 25.2 of the Code of Banking Practice 2004 (the Banking Code).
Commentary on the expert witness evidence:
“[96] The contention that Westpac failed to exercise reasonable care in forming its opinion about Tomlak’s ability to repay the loan was advanced principally by reference to expert evidence…”
“112 The unrealistic nature of…[the] standard imposed by…[the borrower’s expert] is highlighted by the following common sense evidence given by Mr Green, which I accept:
… you can’t say to your borrower, “I am not going to lend you the money to buy this property until you tell me what year and what month you’re going to start construction, until you tell me how many units you’re putting up there, what it will cost and how you are going to fund your share of the equity”. I don’t expect the bank to ask that and I don’t expect a – a customer of this size to provide that information.
Mr Green’s evidence was that such a request by a bank would be met with a borrower indicating that they could not provide the requested information and would take their business elsewhere.
“[348] I have accepted…[the bank manager’s] evidence as to why he decided to issue the demand for repayment of the Butera Group’s debts within one business day. In the circumstances which confronted Westpac on 27 March 2014, seen in the context of its previous dealings with the Butera Group…[his] reasons for taking this step were entirely understandable. I am affirmed in that view by Mr Green’s evidence, which I accept.”
G Capital Corporation Pty Ltd; Gertos Holdings Pty Ltd; Marsden Developments Ltd v Roads and Maritime Services [2019] NSWLEC 12
This was an expert witness report which was accepted, unchallenged. The following selected paragraphs from the judgement provide background to the case and a summary of the work I performed:
Background
“[1] These Class 3 proceedings comprise three objections to the Valuer General’s determination of compensation under s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) by…. related corporate entities.
“[5] The Applicants relied on three contracts of the sale of the Properties for a total of $56.5 million which had been exchanged on 28 June 2016 before the Properties were compulsorily acquired by the RMS. The contracts were made between the Applicants…and three purchasers…(the Purchasers). The Applicants state that three deposits of $50,000 were paid to them by the Purchasers, with settlement due on 28 June 2018.
My Expert Witness work
“[25] Mr Green chartered accountant prepared an expert report dated 23 November 2018. He was instructed to provide an opinion on the following matters. First, the lending institutions or banks that would have been willing to provide finance to the Purchasers that would have enabled them to complete the contracts of sale by 28 June 2018. Secondly, the terms on which any such finance would have been offered to the Purchasers. Thirdly, the inquiries that a lending institution or bank would have made of the Purchasers before agreeing to provide any such finance. Fourthly, the amount of money that a lender would have been willing to loan the Purchasers.
“[26] Mr Green concluded that there were ample lenders in the Australian market who would have been willing to provide funding to the Purchasers provided that they were able to demonstrate compliance with the criteria of the relevant lender. He described the terms on which any such finance would have been offered to the Purchasers and found that the funding required to settle the purchases was $59,822,165. He estimated the amount of money that a lender would have been willing to loan the Purchasers as:
| Bank Investment | Non-bank Investment | Asset Based | Bank Developer | Non-bank Developer | |
| Max. Loan ($) | 13,997,418 | 9,331,612 | 9,331,612 | 16,550,000 | 16,550,000 |
“[71] The RMS contended that in addition to the unusual features of the asserted transactions, as a further and independent matter, there is ample evidence that the Purchasers would have been unable to access sufficient funds that would have enabled them to complete the contracts of the sale of the Properties:
“[90] The RMS sought to emphasise the unusual nature of the contracts of sale given that Mr Savell did not know who the Purchasers were acting as trustees for according to his cross-examination, see [18], and that there was no written communication between the Purchasers and the Applicants before the contracts were entered into. The evidence of the expert accountants Dr Ferrier and Mr Green that the Purchasers would have had difficulty borrowing the necessary funds to complete the purchases from financial institutions such as banks highlights the absence of any evidence from the Applicants about the likelihood of the contracts settling. Mr Green’s evidence identifies the likely substantial shortfall in the amount that various types of lending institutions would be prepared to lend given the contract prices, at [26]. The basis for doing so is summarised in [25].
Senate Inquiry into Insolvency in the Australian Construction Industry
In 2015 I appeared as a witness at a Senate Inquiry into Insolvency in the Australian Construction Industry. One of the issues raised was the “voting value” of purchased debt with an example of a debt purchased for $30,000 having a voting value of $18m.
As a result of reforms that came into effect on 7 December 2018, debt purchased by a related party now has the voting value of the amount paid – not the face value, fixing the problem discussed in the Inquiry.
Cases of Interest
“Red Flags” – The Republic of Mozambique v Credit Suisse International & Ors [2024] EWHC 1957
Background
In 2013 and 2014 three newly incorporated state-owned enterprises (the SOEs) entered into three separate supply contracts to commercialise the Exclusive Economic Zone of Mozambique (the EEZ).
The three contracts were with the same head contractor Privinvest, and worth almost US$2 billion. The first contract dealt with the supply of radar stations, boats and aircraft for monitoring and protecting the EEZ. The second contract was for the supply of a fishing fleet to fish tuna within the EEZ, and the third contract was for the supply of shipyard facilities to build and repair the tuna fishing fleet.
The contracts were funded by loans of US$1.75b from a Credit Suisse banking group, and US$540 million from the Russian banking group VTB, all apparently with a sovereign guarantee from Mozambique.
In April 2016, the Wall Street Journal published an expose article titled “Tuna and Gunships: How $850 Million in Bonds Went Bad in Mozambique.” Shortly thereafter the IMF suspended its funding, followed by the World Bank, the UK Government, and other donors. Mozambique engaged advisory firm Kroll to carry out an independent international forensic audit of the three SOEs, which later defaulted.
Criminal charges, and settlements
In 2018 a government Minister involved in the procurement process was arrested on an international warrant issued in the United States in relation to charges of wire fraud, securities fraud and money laundering; and the United States Department of Justice filed a criminal indictment charging three members of the Credit Suisse Deal Team, the Minister, and certain Mozambique government officials with Federal Corruption offences.
The Credit Suisse deal team each pleaded guilty to one count of criminal conduct as part of a cooperation agreement with the US authorities, and two of them gave evidence for the prosecution.
Mozambique commenced various proceedings in the High Court of England and Wales, contending that corruption underlaid all of the three projects (“the Projects“), involving government officials and bank staff.
Shortly before trial there was a settlement with the members of the Credit Suisse Bank group, and separately, with some of the individuals. There was a further round of settlements after trial but before judgment was issued. This meant that although there was a great deal of expert evidence about the banking, there were no outcomes in relation to the banks – the judgement, when issued, was only required to deal with the claims against Privinvest and its principal.
Banking experts and “red flags”
There was a great deal of analysis of issues that were said to be “red flags.” The Court was careful to note that a “red flag” to a banker did not of itself mean that there was in fact something wrong, but it might indicate a concern that a banker should address.
The banking experts agreed that:
- Many of the deal documents “would have appeared superficial to the reasonable banker,” and the lack of commerciality of a business plan “would be a ‘red flag’ for financial crime.”
- The speed and quantum of increase in project value on the first project was a further ‘red flag’.
- A reasonable banker should have sought an explanation as to why contractor fees were being paid and whether the capacity to pay contractor fees reflected a large profit margin on the underlying contract, which “could point to the risk of bribery and corruption.”
- The use of an intermediary between the borrower/guarantor and the bank, particularly during risk assessment and detailed negotiations, would be a further ‘red flag’.
- A reasonable banker would investigate the required budget approval within Mozambique.
Outcome
The Court held that it would have been clear to Privinest, the banks, and the bank deal team, that the Projects “had no chance from the start.” and that the SOEs would inevitably be unable to meet their liabilities and that Sovereign guarantees would be called on.
The Court that Mozambique was entitled as against the Privinvest Group and its principal to payment of US$825.2m and to an indemnity in respect of a further US$1,501.2b.
Late delivery of Expert Report impacts costs – Luke v Aveo Group Limited (No 3) [2023] FCA 1665
Background
In 2014 the Aveo Retirement Group introduced the “Aveo Way Program” which made significant changes to the contractual arrangements with the residents of the retirement villages that it operated.
Some 2,700 existing village residents commenced a class action in response. They said that their units would be worth less when sold than if the old regime had continued, which meant that the changes had caused them loss.
Expert evidence
The Residents needed expert evidence from property valuers to support their claim that the values had fallen. That evidence was provided late – well outside the trial timetable, and it meant that evidence in response from Aveo was also late, delivered on the eve of the trial.
The response from Aveo demonstrated that in fact the Aveo Way Program was so well received in the market that it had actually increased the value of the village units – which, the Court held, “seriously damaged the prospects of the applicants being able to establish loss.”
Unsurprisingly, the case settled a few days later on terms which the Court described as “very unfavourable” for the residents – with an $11m settlement payment from Aveo that would have been wholly absorbed by legal fees and payment to a third-party litigation funder.
The Contradictor
The Court approved the overall settlement – but was concerned about the reasonableness of the legal fees claimed by the Residents’ solicitor (the Solicitor), and appointed an independent costs assessor to review the fee accounts, and appointed a barrister to represent group members’ interests (a so-called Contradictor).
The Contradictor was critical of the failure of the Solicitor to comply with the Court timetable, and argued that if the expert evidence had been submitted on time the case would likely have settled at mediation, avoiding additional legal fees. The Solicitor argued that the rapid settlement was prompted by an early ruling, and remarks made by the judge during the oral openings – neither of which could have been anticipated – and said that the Court should be careful not to apply “20:20 hindsight” when reviewing its actions.
Conclusion
The Court held that:
- The question of loss in the value of retirement village units was “central to the case.”
- The Solicitor was “seriously derelict” in conducting “large, complex and expensive” proceeding for more than five years before obtaining a report from an expert property valuer, and it “beggar[ed] belief” that they would run up “such huge costs” – notably including fighting an attempt to have loss decided as a separate question – when they did not have a proper basis for understanding whether they could establish loss, or the approximate quantum of any loss.
- Had the solicitors arranged expert evidence in accordance with the Court timetable it was likely that the case would have settled at mediation, avoiding significant costs incurred thereafter.
- In the circumstances it was appropriate to reduce the legal costs by $2.476m, which meant that an amount of $1.9m would be shared by the residents.
Questions asked by an expert, of another expert – Elanor Funds Management Ltd v Alceon Group [2023] FCA 1291
The purchaser of a shopping centre claimed damages, said to follow from misleading and deceptive conduct on the part of the vendor.
The Purchaser was comprehensively unsuccessful. The Court did not accept that the information was misleading and deceptive, or that the Purchaser had 𝘳𝘦𝘭𝘪𝘦𝘥 on the information, or that the Purchaser had suffered a loss.
There was specific and detailed assessment of the independence and impartiality of the Purchaser’s expert valuer, who had provided valuations of the shopping centre as at the settlement date, on three separate occasions: in 2017 for mortgage purposes, at $55.25m; in 2021, an “retrospective indicative valuation” at $51m; and in 2022 as an independent expert witness to support the damages claim, at $49m.
The Court found that the Valuer was a well-qualified and professional valuer who had honestly approached his work – but it also found that he “did not act as one would expect an independent expert witness to act in the preparation of a valuation opinion.”
Not only had his response affidavit included unnecessary negative comments about the experience of the vendor’s expert, in the concurrent evidence session he had asked the vendor’s expert about his recent registration, which, the Court held, “demonstrated his role as an advocate for the Purchaser.”
Despite those concerns, the Court specifically declined to personally criticise the Valuer for accepting the expert witness engagement. It noted that it was his first such engagement; and also noted that the Purchaser’s solicitor was aware that he was not independent – because they had stated so in his engagement letter.
The High Court on expert evidence – Lang v The Queen [2023] HCA 29
Lang v The Queen was a criminal matter – where the appellant had been charged and convicted of the murder of a women found stabbed to death.
He claimed that he was not responsible for the victims injuries, which could only otherwise have been self-inflicted.
The evidence of a forensic pathologist was at issue on appeal, and specifically whether his opinion was demonstrated at trial “to have been founded substantially on specialised knowledge.”
The Court endorsed the 𝘔𝘢𝘬𝘪𝘵𝘢 𝘷 𝘚𝘱𝘳𝘰𝘸𝘭𝘦𝘴 requirement that an expert opinion must be demonstrated to be the product of the application of the specialised knowledge of the expert – but said that that the requirement was “not absolute” [at 12].
The High Court identified “a distinction touched on but not elaborated upon” in 𝘔𝘢𝘬𝘪𝘵𝘢, between “a question as to whether a process of reasoning engaged in by an expert is sufficient to demonstrate that his or her opinion is the product of the application of specialised knowledge and the question of the extent to which a process of reasoning engaged in by an expert through the application of specialised knowledge is clear and convincing.” [15].
In Lang the question was “whether the process of reasoning disclosed by [the forensic scientist’s] testimony was sufficient to demonstrate that his opinion…was the product of his application of the specialised knowledge.”[19]
There was “difficulty appreciating [his] evidence…merely from the transcript” because it appeared “that English may not be his first language” [20] but it was “clear enough from his cross-examination in the pre-trial hearing that what he was saying was that he had engaged in a process of inductive reasoning which involved applying his knowledge…to observed features…to form a conclusion.”[21]
The appeal was dismissed.
Sole expert engagement can’t be “converted” – re Blockchain Tech Pty Ltd [2022] VSC 564
Almost two years an after an expert had submitted a court-ordered report, he was approached by the Plaintiff to prepare what it described as a supplementary report, in the same proceedings.
He acknowledged receipt of the new instructions by an email, notably, addressed to both parties, and the Plaintiff’s lawyers shared the letter of instructions with the Defendant’s lawyers.
One week later the Defendant’s lawyers wrote to the Plaintiffs’ lawyers, objecting to the letter of instructions and the further engagement of the expert. Despite further correspondence their complaints were unresolved, and in due course there was an application to Court to resolve the matter.
The Defendant asked for orders terminating the expert’s joint appointment, and either treating his report as a report filed by the plaintiffs – or removing it altogether. The Plaintiff accepted that the further engagement of the expert “was inappropriate, a mistake” and that it should have consulted with the Defendant on the further instructions. Notwithstanding those concessions, it sought orders for the expert to respond to joint supplementary questions – arguably having the effect of converting the second engagement into a joint engagement.
The Court held:
- The expert’s original appointment came to an end when he submitted his report. As a result, the termination sought by the Defendant was unnecessary, and either side was therefore “at liberty to call him as a witness.”
- The Plaintiff should not have unilaterally engaged the expert as it did – but the expert “was entitled to assume that there was no objection by [the Defendant] to his retainer.”
- It was not appropriate to convert the engagement into a joint role. The expert’s ability to sit impartially between the parties had been “compromised” and a fair-minded lay observer “might reasonably consider that…he might not bring an impartial mind to the role.”
Cost of experts scaled back by Singapore High Court – EFG Bank AG, Singapore Branch v Surewin Worldwide Ltd and Ors [2022] SGHC 26
Background
A successful plaintiff in Singapore claimed $1.6m in disbursements for the fees of an expert on Taiwanese law, an expert on Jersey law, and two banking experts.
The defendant submitted that some of these fees were unreasonably incurred, and that all of the fees were excessive in amount.
Relevant issues
The Court noted the following as factors in its consideration:
- It had not accepted the evidence of the plaintiff’s experts on Taiwanese Law and Jersey Law on a number of issues.
- The plaintiff’s experts’ fees were “consistently higher” than the fees of the equivalent defendant’s expert.
- There was no need for the plaintiff to have called two banking experts, and “a large part of the banking expert’s evidence was either not directly relevant to the issues in this action or overlapped with the other banking expert’s evidence.”
Taking all those factors into account, the Singapore High Court found that amounts claimed for those experts were unreasonably incurred as to 30%, and allowed only 70% of the fees paid to each expert.
Banking expert “out of date”: Tecnimont Arabia Ltd v National Westminster Bank Plc [2022] EWHC 1172 (Comm)
Background
Following what appeared to be a legitimate instruction from head office, a company paid $US5m to an account held at NatWest. In fact, the payment instruction was bogus, issued by a fraudster who also controlled the bank account into which the money was paid. By the time the fraud was discovered, almost all of the funds had been paid out from the NatWest account, and were lost.
The company took action against NatWest, claiming that it had been “unjustly enriched” by the transaction, arguing that NatWest had failed to follow its own systems – a failure that it said would prevent NatWest from being able to rely on the “change of position” defence.
Two NatWest systems were relevant: SilverTail – a real time system aimed at protecting customers from fraud; and Fortent – an Anti-Mooney Laundering (AML) system which operated retrospectively.
The Banking Expert evidence
The experts agreed that a bank staffer had failed to follow the Bank’s internal protocols, however they also agreed that following the procedure would not have led to a different outcome. Firstly, if the bank had contacted the account holder, the fraudster would have confirmed the validity of the payments. Secondly, if the previous three day’s transactions had been examined, there was nothing that would have raised concerns either.
The experts didn’t agree about the adequacy of NatWest’s AML system. The company’s banking expert expressed the opinion that AML analysis should be monitored in real time, whereas NatWest’s banking expert gave evidence that it was industry standard to monitor AML retrospectively.
Conclusion
The Court held that:
- The mechanics of the international payment system meant that any unjust enrichment did not occur “at the claimant’s expense,” and so the claim must fail.
- Natwest’s systems were “perfectly acceptable and in line with industry standards.”
- Evidence to the contrary “harked back to the long-gone practices of a golden age of banking,” was from an expert whose approach to banking practice “was out of date,” and was explicitly rejected. As a consequence, NatWest would have been entitled to a change of position defence if it had been required.
Allowing unpleaded claims would deny the defendant the benefit of Expert evidence – CJ & LK Perks Partnership & Ors v NatWest Markets Plc [2022] EWHC 726
Background
A borrower took action against RBS, claiming mis-selling of an interest rate swap, as well as a conspiracy on the part of the Lender said to arise from the involvement of a borrower-side adviser engaged and paid by the borrower but nominated by the lender.
The borrower contended that the lender had failed to properly explain risks from entering into the swap, which it said arose from:
- Substantial break costs
- A negative impact on future lending decisions of RBS
- That the borrowers might be restricted from selling properties that they owned.
The need for banking expert evidence
The Court held that it would be unfair to allow the points to be argued at trial without having been pleaded, because the absence of a pleading meant that RBS did not have a fair opportunity to prepare for the case, in particular by arranging for expert evidence which, the Court noted, was typically sought in similar cases.
Conclusion
The Court found that:
- The borrower “had become obsessed with blaming the Bank for the collapse of his business” and some parts of his evidence were “at best wishful thinking, mis-recollection and bluster, and at worst (as the Bank submitted) an obvious lie.”
- There was no complaint by the borrower at the time when advised that loan approval was subject to interest rate hedging.
- There was no evidence to support the conclusion that claimed misrepresentations were made, or that risks had not been properly explained.
- There was no causation because the borrower wanted the loan and was “happy to enter a swap if that is what the Bank wanted.”
- It was true that the adviser had put moderate positions to RBS, but that was because she recognised that a favourable outcome for the businesses required the agreement of RBS, and that “it was unproductive to take positions which were likely to be rejected.”
- There was “no substance in the case of conspiracy” and it was appropriate to exonerate both the adviser and the RBS staff, who had “acted with integrity.”
The borrower was unsuccessful.
Routhan v PGG Wrightson Real Estate [2021] NZHC 3585 (21 December 2021)
Background
The purchasers of a New Zealand dairy farm were unable to achieve the results that the vendor had apparently reported. They tried re-seeding the property, brought in expert dairy consultants, increased supplementary feeding, and changed the herd – but nothing worked, and eventually they were forced to sell the farm at a loss.
They later discovered that not only were the farm’s true production figures lower than they had been told, but that production was also steadily trending down. They took legal action against the real estate agent, alleging misleading conduct in breach of New Zealand’s Fair Trading Act, negligence, and deceit.
The banking expert
Part of the agent’s defence was around the issue of causation: the agent said that there were multiple causes of the farmer’s loss, unrelated to anything the agent had done. The agent also argued that the “chain of causation” had been broken by the actions of the farmer’s bank, which – it was claimed – had provided credit when it should not have, and had failed to enforce its security as early as it should have.
The agent tabled the report of a rural banking expert who criticised the bank for lending to a borrower with “very little equity” and with minimal surplus cashflow to pay down debt.
Conclusion
The Court did not accept the expert’s opinion. It held that a subordinated low-interest rate unsecured loan from a friend was quasi-equity for the bank’s purpose, and that interest-only loans were “common” when the loan was advanced.
The Court held that the reason that the bank allowed the position to continue rather than enforce security was that they too had been misled about the farm’s potential – but that in any event, the purchasers had already lost their capital investment well before the misrepresentation was realised.
The Court awarded damages against the agent.
Banking expert evidence inadmissible – Philipp and Barclays Bank UK PLC [2021] EWHC 10
A bank account holder made two international payments totalling £700,000 thinking that that she was assisting an investigation by the Police. In fact, she was the victim of an “authorised push payment” fraud, and the monies were completely lost.
She took action against the bank arguing that it failed to comply with a duty to protect her by stopping or delaying the transactions. The Bank argued that that the Quincecare duty did not extend to protect an account holder from their own actions, especially when it would conflict with the established duty to comply with the account holder’s instructions; and the bank sought summary judgement against her.
The Bank had objected to a witness statement on several grounds, including that it sought to introduce expert evidence by reference to “expert evidence” from a banking expert when the court had not granted permission for expert evidence.
The Court that there was a realistic prospect that expert evidence might have been permitted if the case did proceed to a trial, but held that in the circumstances the evidence was not admissible:
…it is important to bear in mind the proper limit of such contemplated expert evidence. It is one thing for the court to be guided by expert evidence which expresses a view as to whether or not, in the particular circumstances of the case, a bank complied with generally accepted and practised banking standards or (which may not necessarily be the same thing) the standards legally required of the ordinary prudent banker. However, it is for the court to determine what legal duty was owed by the bank – including the requisite standard of care carried with it – in those circumstances.
While the England and Wales High Court expressed “acute sympathy” for the victim, it held that the Quincecare duty could not be extended in the way that victim proposed, and it would not be fair, just or reasonable to impose liability on the Bank.
Expert evidence “completely inadequate” – Domanti & Anor v Domanti [2020] QSC 360
Background
One of three children of a deceased cane farmer made an application for “further provision” under the Queensland Succession Act 1981 in relation to an estate with a cane farm and other assets valued at $4.6m, and bank debt of $1.7m.
The will provided for the assets to be sold, with the proceeds distributed equally between three adult children once the bank debt and any other liabilities were cleared. The applicant proposed an alternative arrangement by which he would inherit the cane farm and pay $520,000 to the estate, which would be funded by a loan secured over the cane farm.
In addition to considering whether “further provision” was appropriate, the Court also considered whether the applicant would be able to obtain the $520,000 loan necessary to satisfy the arrangement he proposed.
The non-banking expert’s evidence
The applicant arranged evidence from an accountant about his ability to borrow $520,000 on the security of the farm, which included a report prepared for an earlier mediation, further affidavit evidence, and oral evidence at trial.
The Court held that:
- The accountant’s evidence was “completely inadequate… hearsay (in effect, “the mortgage broker told me…”) upon vague hearsay…[or] opinions offered about rural lenders, on the run, in cross-examination or re-examination without appreciating all of the facts.”
- An expert should have been asked “to nominate the matters relevant to a decision to grant a loan or not, in the present circumstances, which were likely to include cash flows and the farm’s valuation – but which may have included other matters; to assume certain things about those relevant matters (which would ultimately need to be proven in evidence); and from there, to offer an opinion as to whether a lending institution or their lending institution would be prepared to lend…[ the applicant] $520,000.”
- “The hearsay evidence presented did not persuade me that [the applicant] would be able to raise $520,000 on the security of the farm…[or] that the farm would be able to service such a debt.”
Conclusion
The application was rejected. The Court found that the applicant had not established that his needs exceeded the provision made for him in the will, and further, that he had not established that he could have satisfied the terms of the alternative proposal.
KinCare Community Services Limited v Chief Commissioner of State Revenue [2019] NSWSC 182 (6 March 2019) [2019] NSWSC 182
Background
A company sought the review of a decision withdrawing a previous exemption from payroll tax, made on the basis that – it was said – the company had ceased to be a non-profit charitable organisation.
The key question was whether the company was a “non-profit organisation. Central to this was the relationship between the company, and related “for profit” entities with which it contracted for the supply of services.
Banking Expert Evidence.
The Commissioner relied upon two expert reports from an accounting expert, and another report from a banking expert.
The banking expert gave evidence that the company and its related entities were “inextricably linked,” and that a related for profit entity would not have been able to secure a loan if the company had not provided a guarantee. His evidence was not challenged, and he was not required for cross-examination.
Conclusion
The Supreme Court found that:
- The question of whether the company was a “non-profit organisation” required an assessment firstly as to whether its constitution prevented profits from being distributed to members, and secondly whether its business was “carried on for the benefit or gain of particular individuals.”
- On the evidence, funds flowed from the “for profit” entities to the non-profit company, and no income or property of company had ever been paid or transferred to its members.
- “On any fair view of the evidence, the company was being “carried on” throughout the relevant period for the purpose of providing home care services to its aged, disabled and Aboriginal and Torres Strait Islander clients in accordance with its Commonwealth and NSW Government grants.”
- The granting of a guarantee was a benefit – but that did not of itself prove the case that the company was being carried on for the benefit or gain of particular individuals because such benefit was incidental to its purpose.
The objection was allowed, and the original decision was revoked.
Expert “flouts” the judge’s instruction – R v Pabon [2018] EWCA Crim 420
Background
In 2016 there were criminal prosecutions of six employees of Barclays Bank (the Original Trial), said to have submitted dishonest information to the British Bankers Association which compiles submissions from 16 banks to create and publishes the benchmark LIBOR Interest Rate. The result of that misinformation, the prosecution claimed, was to manipulate the LIBOR benchmark in a way that was to the benefit of money market trading positions held by Barclays.
One employee pleaded guilty, and three more were convicted. The jury was unable to agree a verdict for the other two who faced a new trial in 2017 (the Re-Trial), at which they were acquitted.
This case dealt with an appeal by one of the three bank employees convicted in the Original Trial, based on fresh evidence concerning the conduct of a banking expert witness called by the prosecution, which only emerged in the Retrial.
The Evidence of the Banking Expert
The Banking Expert was asked to provide a report “explaining the workings of an investment bank, inter-dealing brokerage and related financial instruments and trading terms used by individuals within these institutions.” The Appeal Court described the principal reason for his evidence as “to provide a “human face” to introduce to the jury essentially uncontroversial banking and trading concepts.”
Prior to the Original Trials there were contests over the admissibility of his written report.
The employees argued that the Expert had no direct experience of interest rate derivatives trading, cash trading or making LIBOR submissions, which meant that much of his report was inadmissible. That application was unsuccessful – the judge ruling that he was unable to assess the Expert’s expertise because the employees had not called their own expert, and he therefore had no basis for comparison.
However, the employees were successful in having an Addendum to the Expert’s original report excluded, the Judge ruling that:
“ …the lack of any detailed analysis by [the Expert] in his report as to the basis for his opinion and, without any research being apparent into what was in fact happening at Barclays at the time on which he could have relied, leads me to rule that, as the report is presented, there is no admissible basis for his evidence on this issue.”
The Expert oral evidence extended over two days.
The Retrial
The information that emerged at Re-trial concerning the Expert’s evidence at the Original Trial, included that:
- A partner at the Expert’s firm had in fact been responsible for drafting sections of his original report. This was not disclosed in the report or at trial.
- The Expert had shared case information with three other people, and invited their opinion without explaining that their opinions would be used in his expert report, and without disclosing their role in the report, or at trial.
- Despite an express warning by the Judge not to discuss his evidence at the end of the first day, he had done so: exchanging twenty-six text messages with two of the three helpers, apparently to obtain explanations of technical definitions that he expected to be questioned about the following day.
Appeal Court findings about the Expert Evidence
The Appeal Court found that the Expert:
- Failed to comply with his basic duties as an expert by signing declarations of truth and of understanding his disclosure duties, despite knowing that he had failed to comply with these obligations.
- Obscured the role his colleague played in preparing his report.
- Did not inform the solicitors instructing him, or the Court, of the limits of his expertise.
- Gave evidence on matters beyond his expertise – “glaringly revealed” by his need to consult with others.
- Had “flouted the Judge’s admonition not to discuss his evidence.”
Overall conclusion
The Court noted that “the Appellant had not identified any area of the Expert’s evidence which was fundamentally wrong or of any significance to the case advanced by the Appellant at trial.”
Notwithstanding the severe conclusions about the Expert’s evidence, the Court was unable to conclude that the Appellant’s conviction was unsafe, because that evidence did not impact “at all or sufficiently on the key issue in the trial.”
Banking expert’s evidence accepted – Smart v AAI Ltd; JRK Realty Pty Ltd v AAI Ltd [2015] NSWSC 392
Background
In 2007 and early 2008, two investors transferred funds into the bank account of a finance broker in the belief that they were to be on-lent to clients of the broker. In fact, the funds were not invested – they were misappropriated by the then general manager and part-owner.
After the misappropriation was discovered, the brokerage closed, and was wound up and de-registered. Several years later, the two investors commenced proceedings against the broker’s insurance company.
The insurer denied coverage, pointing to five exclusion clauses.
The Banking Expert Witness Evidence
One of the exclusion clauses addressed liabilities that arose from activities “outside the normal course of the Professional Services” as defined in the policy.
The insurer arranged evidence from an banking expert witness who said:
… once [the broker] approached [the investors] for funds and received funds from [them], in my opinion [the broker] ceased to be acting as a mortgage broker and/or finance broker. This was not a usual method of disbursing loan funds. In my experience lenders generally provide loan funds directly to borrowers and not to mortgage or finance brokers.
Conclusion
The Court accepted the expert’s evidence, and agreed that the claim arose from activities not covered by the policy. Even if this were not the case, the claim had been made after the policy expired, the Court ruled, and would also have been excluded because it arose from dishonesty. There was a “write-back” clause for the dishonest or fraudulent acts of employees – but, the Court ruled, the general manager did not work in the business as an employee, but as a half- owner.
Expert Evidence not required: Commonwealth Bank of Australia v Doggett & Ors [2014] VSC 423
Background
Two borrowers owned several apartments in a Queensland apartment complex, and when the management rights became available they arranged bank finance to purchase both the management rights business, and the managers’ apartment.
As soon became obvious after they took over, the business was undercapitalised and did not trade profitably. Efforts to improve the business – further impacted by the GFC – failed, and the bank appointed receivers some two years later. The receivers sold all of the security, and in due course the bank took action to recover a $3.1 million shortfall from the guarantors.
The guarantors raised several counterclaims. The claimed that the bank had made misleading or deceptive representations that the business could service the loan, said that the bank had acted unconscionably, and argued that the bank had failed “to exercise the care and skill of a diligent and prudent banker” as clause 25.1 of the Code of Banking Practice required. They said that a “compromise letter” had been obtained by duress, and that the bank should not be allowed to rely upon it.
Financial due diligence
The sale contract was conditional upon the borrowers obtaining independent verification by an accountant of the business’s financial records, with the right to terminate the contract if an independent accountant did not verify a specified minimum net operating profit.
Critically, that accountant’s report (provided to the purchaser and the bank) assumed that the purchasers would work in the business and perform the role of a ‘two person management team.’ That assumption was incorrect and so in practical terms the business profit would be reduced by two additional management salaries – which meant that the minimum profit hurdle would not be met.
Was expert evidence required?
The Bank contended that the Court could not make a finding of negligence, or breach of warranty, because the defendants had not called expert evidence as to the practice of bankers in assessing credit risk, relying on a 1998 English decision of Sansom v Metcalfe Hambleton & Co, where the Court stated:
a court should be slow to find a professionally qualified man guilty of a breach of his duty of skill and care towards a client (or third party), without evidence from those within the same profession as to the standard expected on the facts of the case and the failure of the professionally qualified man to measure up to that standard. It is not an absolute rule …but, unless it is an obvious case, in the absence of the relevant expert evidence the claim will not be proved.
Conclusion
The Court held that on the facts, it was indeed “an obvious case” and so the Court “did not require the assistance of an impartial [expert] witness with special skills, training or expertise.”
The Court concluded that the borrowers could not establish the representations on which they relied, and the Bank did not act unconscionably.
The Court held that the Banking Code of Practice was incorporated into the defendants’ guarantee as a term, and the Bank had breached clause 25.1 of the Code by failing to recognise the impact of the management salaries. However, it found that the compromise letter was not procured by duress, and so it did operate to release the Bank from such a claim arising from that breach, which last finding was also confirmed on appeal.
Harbourside Advisory 