14 November 2018
By Bill Psaros
Last month saw three interesting cases in the area of expert evidence that each highlight the importance of substance over form: 

Foresters v Lifeplan - The High Court overturned a Federal Court judgment regarding the treatment of business value in an account of profits, finding “unrealised profits” are still “profits”.

Rush v Nationwide News - An interlocutory motion in Geoffrey Rush’s defamation case against the Daily Telegraph ruled on the admissibility of expert evidence from individuals with a close personal connection to a party to proceedings, ultimately allowing it. 

Wyzenbeek v Australasian Marine Imports - A Federal Court decision underlined the need for experts to act in accordance with the Expert Witness Code and the consequences of contravening it.


Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited [2018] HCA 43

 

This dispute, heard earlier in the Full Court of the Federal Court of Australia, involved an account of profits dispute between two funeral insurance providers. Two executives left their company, Lifeplan, for rivals Foresters, bringing with them key documents, client lists, and a plan to effectively steal Lifeplan’s business. In 2017 the Federal Court ruled that while Foresters were liable for an account of profits, the equitable remedy should not go so far as to unjustly enrich Lifeplan. Lifeplan were not entitled to the entire value of Foresters’ business; rather the account of profits was reduced somewhat to reflect the business risks, expertise and capital contributed by the two executives despite their breach of fiduciary duty.

The High Court decision

However, in a 4-1 High Court decision last month, this decision was overturned on cross-appeal. In the majority judgment, Chief Justice Kiefel and Justices Keane and Edelman stated that:

a defendant cannot avoid liability to disgorge profits dishonestly made by showing that those profits might have been made honestly… For these reasons, the deterrent effect of an order for disgorgement of profits should not be diminished by acceding to Foresters' attempt to confine the scope of the causal enquiry implicit in the expression "as a result of".

Similarly, the High Court rejected the argument that Lifeplan’s account of profits should be reduced to reflect the ‘opportunity cost’ invested by Foresters: 

This is not an approach to causation that is unique to dishonesty in equity… in taking an account of profits for dishonest infringement of intellectual property rights, courts do not reduce the profit by reference to opportunity cost, that is, the revenue that would have been received by a lawful alternative possession of the same amount of profit.

The majority judgment also rejected Foresters’ argument that, consistent with the conservative approach taken by accountants, future cash flows of the business should not be recognised until they were actually earned and should therefore be irrecoverable. The majority cited authority which distinguished the common law definition of ‘profit or benefit’ from the narrower definition used by accountants. Simply put, they held that: “Unrealised profits are actual profits”. It was also noted that to do otherwise would allow a wrongdoer to benefit from their wrongdoing.

Foresters were ordered to pay the entire value of the business acquired from Lifeplan – a total of $14.8 million, increased from the Federal Court’s award of $6.5 million.

Rush v Nationwide News Pty Limited (No 5) [2018] FCA 1622

Geoffrey Rush is currently suing Nationwide News and Mr Jonathon Moran for defamation in the Federal Court of Australia. Mr Rush produced an expert report from film director Mr Fred Schepisi, containing opinion evidence on Mr Rush’s reputation and issues around his expected financial loss caused by the alleged defamatory publications. Mr Rush also intended to call evidence from Mr Frederick Specktor, his Los Angeles-based agent, in the form of an expert opinion report regarding Mr Rush’s future economic loss.

Nationwide News and Mr Moran argued both reports were inadmissible because: 
  • Neither witness was capable of being impartial due to their close relationships with Mr Rush;
  • Their evidence was partly based on their personal knowledge formed over the course of their relationship with Mr Rush; and
  • The evidence was unfairly prejudicial, outweighing its probative value as per s 135 of the Evidence Act 1995 (Cth).
Justice Wigney disagreed with each point, noting in his decision that:
  • The fact that both witnesses have known Mr Rush for a long time does not preclude them from giving impartial and objective evidence. Any actual or perceived lack of independence may be taken into account in assessing the weight to be given to their evidence but is not grounds for excluding it;
  • Experts can use ‘personal knowledge’ as a basis of an opinion as long as the specific knowledge being relied on is set out and how they have used that information is also clear; and 
  • The evidence was not unfairly prejudicial simply because of the witnesses’ close relationships with Mr Rush. Nationwide News and Mr Moran had not properly addressed why it was prejudicial, nor demonstrated how or why the prejudice substantially outweighed its probative value as required under s 135 of the Evidence Act.
As a result, the evidence was admitted, on the proviso that if a lack of objectivity is  apparent when the witnesses are cross-examined, the Court will give little weight to the evidence. Justice Wigney will hand down his final decision on the matter early next year.


Wyzenbeek v Australasian Marine Imports Pty Ltd (No 2) [2018] FCA 1517

Mr and Mrs Wyzenbeek purchased a motorised yacht from Australasian Marine Imports, which made representations that it was fit for circumnavigating the globe. Following the purchase, the Wyzenbeeks sought damages for misleading and deceptive conduct.

A key issue at trial was the unsatisfactory evidence produced by two of the experts engaged to give their opinion as to the boat’s quality. Similar to Rush v Nationwide News, the experts in this case were both close personal friends and business associates of a number of individuals within Australasian Marine Imports. Justice Derrington found that the experts lacked credibility because, in their written reports and under cross-examination they: 
  • Appeared to lack impartiality - their former and continuing business association appeared to cloud their judgement;
  • Took an inconsistent approach to source information – the experts were “prone to accept material favourable to the Respondents’ case and ignored or minimised material which was to the contrary”;
  • Relied on another person’s opinion without referencing this reliance in their reports - “Under cross-examination it became apparent that this conclusion was based upon something he had been told by a person whose identity he could not recall but was identified as a naval architect. That alleged information was not referenced in his report. Such an approach to the provision of opinion evidence is unacceptable and, particularly so, when the opinion is formed without regard to evidence which did exist as to the actual circumstances.”
  • Were prone to overstatement and exaggeration; and
  • Generally had not acted in accordance with the Expert Evidence Practice Notes and Code of Conduct - “A statement in an expert’s report to the effect the author has read, considered and applied that protocol is not sufficient. The actual application of the protocol must occur and mere lip service to its requirements is insufficient.”

Justice Derrington concluded that the reports fell “well below the standard expected of experts”, rendering their evidence “…almost totally unreliable. They each adopted the position of an advocate for the respondents with the consequence that it is inappropriate to rely upon their reports to any great extent. At the very least, the careful and evidentially supported opinions of [the Wyzenbeek’s expert] are to be preferred.”
 

Further reading - Expert Evidence: Recent Cases Edition 2

KordaMentha Forensic recently published a hardcover and electronic publication titled ‘Expert Evidence: Recent Cases Edition 2’, a summary of over 200 judgments from Australian courts over the last two years, discussing significant decisions and developments from the unique perspective of those providing and preparing expert evidence. The Full Federal Court’s decision on Lifeplan v Foresters is one of the cases analysed in detail in this book. 

Click here to register your interest to receive the Expert Evidence: Recent Cases Edition 2 eBook.