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Expert Blog

Clarifications on Admissible and Inadmissible Expert Evidence

Sanrus Pty Ltd & Ors v Monto Coal 2 Pty Ltd & Ors (No 8) [2019] QSC 255 concerned proceedings that Sanrus Pty Ltd brought against their venture partners Monto Coal 2 for their conduct in managing a coal deposit project at Monto in Queensland. Sanrus, the first Plaintiff, claimed that the Defendants had delayed and failed to further develop parts of the project for contractually impermissible reasons.

The Plaintiff claimed that these inactions resulted in a loss of opportunity to earn a profit from the sale of the coal, as well as the loss of the opportunity to sell interests in the Joint Venture at a value that reasonably reflected the projected profits had the coal exploitation progressed to its initially expected stages of development.

The Plaintiffs’ loss of opportunity claim required them to provide proof of the causation of the loss of opportunity and an assessment of the quantum of loss. Monto Coal 2 adduced reports from experts in coal markets and coal pricing to demonstrate that the delay and eventual cancellation of some aspects of the coal exploitation were reasonable and therefore did not actively contribute to any loss of profit from the sale of the coal. The Defendant’s expert, Mr Crump, a thermal coal marketer with approximately 40 years of industry experience, provided a report outlining multiple hypotheses on the buying attitudes of international power utility companies, particularly in Asia.

Justice Bond’s judgement in Sanrus (No. 8) addressed the Plaintiff’s objections to the expert evidence on various admissibility grounds. The Judge’s comments provide a useful overview of the extent to which courts require experts to prove their assumptions, or the basis of their opinions.

  • Opinions related to the state of mind of a third party

The Plaintiffs objected to Mr Crump’s opinions on how a corporate body would have hypothetically acted in response to marketing of coal from Monto, specifically whether certain power utility companies would have taken an interest in the coal and for what reasons, if any.  The Plaintiffs claimed that it was impermissible, even for an expert with specialisation in the sale of coal to power utility companies, to opine on what a corporate person would have done in hypothetical circumstances. (Page 6)

In deciding that Mr Crump’s evidence was nonetheless admissible, Justice Bond distinguished between ‘expert opinion evidence about how consumers in a market would react in hypothesised circumstances… and evidence about what any particular individual person would have done on a particular day’. (Page 6)

The court emphasised that the latter kind of evidence should be rejected, based on the impossibility of any individual possessing the expertise to predict the actions of any other individual person. In contrast, it held that evidence offering projections on “the preferences and attitudes of consumers in the market” was admissible. Justice Bond cited Allsop CJ’s judgement in Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd at [21]-[27], which redeemed expert evidence on “states of mind” of third parties where the expert has specialised knowledge of the behaviours of a group of people in “a reasonably specialised and confined area of human and commercial behaviour”.

In this instance, Mr Crump’s specialisation in the preferences of consumers and providers of power utilities sufficiently reflected the expertise required to comment accurately on the tendencies and attitudes of consumers in the market for thermal coal.

  • Opinions for which the underpinning facts are not stated

The Court upheld the Plaintiff’s objection to Mr Crump’s opinion regarding the quality of coal produced by several mines during 2004-2005. (Page 9) Justice Bond agreed with the Plaintiff’s analysis that, since these opinions were offered to the court without indication of the facts, data, and assumptions relied upon to make them, the opinions should be deemed inadmissible.

In arriving at this decision, Justice Bond referred to his discussion of the ‘Assumption Identification Rule’ in Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) [2019] QSC 241:

Expert evidence is inadmissible unless the facts on which the opinion is based are stated by the expert – by way of proof if the expert can admissibly prove them, otherwise as assumptions to be proved in other ways. (Sanrus 7, paragraph [98])

In Sanrus 7, the Court followed its citation of the Rule with an explanation of the Rule’s utility in safe-guarding the integrity of expert evidence; experts must specify the concrete facts on which they found their analysis and conclusions to reduce the risk of biased selection of data or assumptions for the purpose of making concluding opinions. (paragraph [98(d)]).

  • Where the basis of certain professional knowledge is not stated

In assessing whether major power utilities in Korea would choose to invest in parts of the venture, Mr Crump commented on the limitations of coal production at Wilkie Creek and the marketability of such coal production to South Korean and Taiwanese buyers. The Plaintiffs took issue with what it claimed were Mr Crump’s statements of opinions not based on factual evidence that Mr Crump could directly adduce. Specifically, the Plaintiffs objected to Mr Crump’s comments that his opinions stemmed from “discussions with representatives in various procurement teams”, and that, in some instances, Mr Crump framed his opinions without reference to an authoritative source text.

Justice Bond considered Mr Crump’s citation of his “discussions” with the representatives of the power utilities an adequate basis upon which to form his opinions. Further, the Court found that such opinions were admissible on the grounds that they constituted “expert factual evidence generalising from accumulated knowledge and experience”.

In contrast to the inadmissible opinions above, evidence concerning the marketability of coal in South Korea and Taiwan given the nature of their domestic markets did not require the same citation of very concrete data and statistics. Here, the Court were satisfied with Mr Crump’s professional competency and experience as a basis for the opinions Mr Crump offered.

Takeaways

  • Expert reports should adhere to the ‘Assumption Identification Rule’. Experts should take care to indicate the facts and sources upon which they are forming their expert opinions. Particularly where opinions clearly rely on assumptions regarding the quantity or qualitative measurement of material substances and phenomena, clarifying what those assumptions are and the sources of those assumptions will play a critical role in refuting accusations of bias in expert reporting.

 

  • Experts may opine on the hypothetical behaviour and tendencies of third parties in particular commercial industries where the expert’s education, training, and experience reflects sufficient expertise on behaviours and tendencies in those industries. Such opinions do not constitute the kind of ‘states of mind’ evidence that is inadmissible.

 

  • In some cases, courts may accept that the facts underpinning particular expert opinions have been generalised from the accumulated knowledge and experience of the expert. For such facts, the court does not require references in the expert report to concrete and specific authorities or sources.