Supreme Court New South Wales

• Medium Neutral Citation: Provident Capital Limited v John Virtue Pty Ltd (No 1) [2011] NSWSC 1281
• Hearing dates: 26/10/2011
• Decision date: 26 October 2011
• Jurisdiction: Common Law
• Before: Harrison AsJ

Decision

Pursuant to s 79 of the Evidence Act 1995 the report of Mr Finn is admissible

• Catchwords: EVIDENCE - expert witness - s 79 Evidence Act 1995 - evidence in relation to lending practices in 2004-2005 - evidence based on specialised knowledge - evidence will not cause undue delay - report admissible
• Legislation Cited: Evidence Act 1995
• Cases Cited: Dasreef Pty Ltd v Hawchar [2011] HCA 21
• Category: Procedural and other rulings
• Parties: Provident Capital Limited - Plaintiff; John Virtue Pty Ltd - First Defendant; Mr Grant Phillips - Second Defendant
• Representation: P Braham SC - Plaintiff; J Catsanos - Defendants; Tiernan & Associates Lawyers - Plaintiff; DLA Phillips Fox - Defendants
• File Number(s): 2008/284253

Judgment

1 HER HONOUR: Mr Finn has provided a report which the defendants seek to rely on. The issue is whether Mr Finn is an expert for the purposes of s 79 of the Evidence Act 1995. That section provides an exception to the opinion rule, based on specialist knowledge. It reads:

"79 Exception: opinions based on specialised knowledge

(1) If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge..."

2 The expert's evidence must explain how the field of specialised knowledge in which the witness is expert by reason of training, study or experience, and on which the opinion is wholly or substantially based, applies to the facts assumed or observed so as to produce the opinion propounded: see Dasreef Pty Ltd v Hawchar [2011] HCA 21 at [37].

3 The plaintiff, Provident Capital Limited ("Provident Capital"), is a mortgagee in the business of lending on the security of registered mortgages over real property.

4 The first defendant, John Virtue Pty Ltd ("John Virtue"), is a company in the business of providing valuation services to lenders in relation to loans to be secured on mortgages over residential properties.

5 The valuation that is the subject of dispute in these proceedings is an "as is" valuation on a former industrial site at XXXX Coulson Street, Erskineville, NSW ("the property") which had a development consent attached to it for the development of 103 apartments and one commercial unit ("the valuation").

6 The valuation was prepared by Mr Grant Phillips, the second defendant. At the time of valuations in 2004, 2005 and 2006 Mr Phillips was a valuer employed by John Virtue, and also a director of that company.

7 In late 2004, the company known as Toubia Constructions Pty Ltd ("Toubia") approached Provident Capital through its broker, Karen Gold of Capital Now, to obtain bridging finance for a development site located at the property. The purpose of the loan was to advance funds sufficient to allow Toubia to settle on their purchase of the property for which they had exchanged contracts in March 2003.

8 The contract for sale for the property was for $13,520,000, the vendor being Herro Trading Corporation Pty Ltd, with a deposit of $1,352,000 having already been paid by, or on behalf of, Toubia.

9 The loan that was being contemplated by Provident Capital was to be for the lesser of either $10,860,000 or 66 per cent of the valuation of the property.

10 The loan being provided was an asset lend and Provident Capital obtained a valuation of the property from Mr Phillips.

11 On about 2 December 2004 Mr Phillips furnished the valuation of the property, valuing it at $12,000,000 for mortgage security purposes, exclusive of GST.

12 Provident Capital says that in reliance on the valuation provided by Mr Phillips it advanced funds equal to 66 per cent of the valuation, being $7,920,000.

13 Some of the issues for determination in these proceedings are: Did Provident Capital rely on the valuation to advance the loan amount to the borrower? If the answer is in the affirmative, was this reliance reasonable? Did the defendants breach a duty of care owed to Provident Capital in relation to the valuation? Did Provident Capital cause or contribute to its own loss by failing properly to assess the credit worthiness of the borrowers or capacity to repay the loan?

14 The defendants allege that Provident Capital unreasonably relied on the valuation and any damage suffered by it was as a result of its own imprudent conduct.

15 This court does not have knowledge of the relevant banking practices in relation to lending in the period 2004 to 2005. Thus, it would be assisted by expert evidence. I accept that in 2004 and 2005 there were various types of lenders in the market, varying from large banking institutions to smaller non-conforming "low doc" lenders. Provident Capital falls into the latter category.

16 Provident Capital objects to Mr Finn's evidence on the basis that he does not satisfy the requirements of s 79 of the Evidence Act . They rely on s 135 of the Evidence Act and submit that this evidence will prolong the trial by at least one day and will be of no utility.

17 So far as Mr Finn's qualifications are concerned he is a certified practising accountant. He has had over 45 years commercial lending experience including more than 24 years in banking, with particular experience in lending/mortgage origination. His career includes a period of approximately 42 years, from 1963 to 2006, with the Commonwealth Bank of Australia, during which time he held various roles incorporating most facets of lending, particularly business and corporate lending. At times he had a lending authority of up to $25 million.

18 During his career he says he has come to understand the credit policies and procedures of lenders other than the Commonwealth Bank when working in conjunction with them to form a syndicate for larger loans.

19 Mr Finn also says that he has many years experience in assessing loan applications for bridging finance and construction finance such as is relevant to these proceedings.

20 Certainly, Mr Finn has an in-depth knowledge of the practices, procedures and lending practices of the Commonwealth Bank. However, in my view, it does not follow that he does not possess specialised knowledge as to what was happening and the lending practices in other areas of the market in relation to bridging finance and construction finance. I am satisfied that Mr Finn does have training, study and experience so as to be able to give expert evidence as to what a reasonable lender would do in evaluating whether or not it should advance loan funds to Toubia and later in 2005 to MMT Investments Pty Ltd.

21 As this evidence is of assistance to the Court, it should not be excluded under s 135 of the Evidence Act . Its probative value is not substantially outweighed by the danger that it might result in undue waste of time.

22 In my view the report of Mr Finn is admissible.

The Court orders that:

1. Pursuant to s 79 of the Evidence Act 1995 the report of Mr Finn is admissible.

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Decision last updated: 05 April 2012