Giving Evidence & Expert Witness work

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           


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.


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.