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Expert Blog

The Impact of Expert Evidence: ASIC v Vocation

The True Cost of Not Engaging an Expert

Although the cost of an expert can be significant, the cost of not engaging the right expert witness can be far greater. Australian Securities and Investments Commission v Vocation Limited (In Liquidation) [2019] FCA 807 is a pertinent reminder of the impact expert evidence can have on a matter, and the difficulty of refuting expert evidence without the assistance of an expert witness to offer an opposing view.

Failure to Fully Disclose

In this case, ASIC brought proceedings against Vocation Limited (Vocation), an ASX listed entity that specialised in providing vocational training services.

Vocation received revenue from funding contracts with the Victorian Department of Education and Early Childhood Development (DEECD). In 2014, the DEECD suspected Vocation of breaching its contract and subsequently withheld funding and requested that Vocation cease commencement of any more of its courses.

Vocation did not fully disclose to the ASX the nature and progression of DEECD’s withholdings and suspensions. When Vocation did disclose information to shareholders regarding its dispute with DEECD, it specified that the impact of those payment withholdings and suspensions would not be ‘material’.

Alleged Breaches of Corporations Act

ASIC claimed that Vocation was liable for a number of breaches of the Corporations Act 2001 (NSW) (the Act), including:

  • The breach of subsection 674(1) which required Vocation to follow Rule 3.1 of the ASX Listing Rules: that an entity must immediately report to the ASX any information that would have a material effect on the price or value of the entity’s securities.[1]
  • A breach under Subsection 274(2) which also requires entities to report to the ASX as soon as they become aware of information that would ‘have a material effect on the price or value’ of the shares.
  • A number of other breaches.

Expert Speciality and Issues of Contention

ASIC engaged Mr Andrew Sisson to provide expert evidence on the issue of the ‘materiality’ of the DEECD payment suspensions. Mr Sisson was a share analyst and share portfolio manager, and the Managing Director of an equity management company. He possessed extensive experience in managing share market portfolios in Australia on behalf of large institutions.

Mr Sisson’s Evidence

Mr Sisson presented expert evidence on the effect on investing behaviour, had Vocation fully disclosed to its investors the true nature and extent of the DEECD withholdings and suspensions.

The court considered Mr Sisson a “meticulous witness”. [532] He outlined several key issues investors were likely to consider when investing in securities, all of which, he opined, would have rendered a negative assessment of Vocation’s potential for growth, if not revenue loss.

These issues included: that the amount of withheld revenue was significant (40% of Vocation’s total revenue); that revenue was closer in nature to a permanent loss rather than a matter of cash flow timing; and that the revenue loss would lead to reputational damage or the loss of trust of Government organisations in the future. [543] – [544]

Mr Sisson’s expert evidence assisted the court in making the decision that “the Withholding and Suspension Information was information that a reasonable person would expect to have a material effect on the price or value of Vocation shares.” [603], thus satisfying the court that Vocation had contravened s 674 (2) of the Act [Which Act?], as outlined above.

Defendant’s Objection to Mr Sisson’s Evidence

Counsel for the Defendants objected to ASIC’s expert evidence on the basis that Mr Sisson was, contrary to s 79 of the Evidence Act, not “properly qualified by his training or experience to express the opinions given by him in his report”. [554]

Specifically, they argued that Mr Sisson’s evidence should not be given any weight because his qualifications displayed specialisation in investing in ASX 100 companies. Such experience did not reflect an understanding of the significantly more diverse and esoteric approaches of investors in and companies like Vocation trading outside the ASX 100 and in the vocational and training industry. Thus, the Defendants argued that Mr Sisson was not qualified to provide opinions on the investing behaviour of people who commonly invest in securities since his expertise was not in common investing behaviour. [550]-[558]

The Court’s Decision

The court found in favour of ASIC on the grounds of a number of breaches of the Corporations Act, including for the breach of s 274(2). It ultimately accepted Mr Sisson’s analyses of the negative influence that full disclosure of the DEECDA dispute would likely have had on the attitude of Vocation investors. It held that Mr Sisson was nonetheless qualified to provide the opinions in his report, noting that the Defendants had not distinguished any substantial way in which Mr Sisson’s expertise would confine his ability to understand common investing behaviours. [555]-[558]

Whilst Justice Nicholas reasoned that Mr Sisson’s expertise did not give less weight to his evidence, he also commented that “Mr Sisson’s evidence… was not contradicted by any expert witnesses called by any of the defendants”. [549]

The court rejected the Defendants’ argument regarding the distinct nature of companies trading in the vocational and training industry and relying on government funding on the basis that “there was no evidence to indicate that either of those characteristics would make any difference to the investment strategies and techniques applied by Mr Sisson and other institutional investors when determining whether to acquire or dispose of a particular company’s shares”. [558]

Takeaways:

As commented by Justice Nicholas at [549], the lack of any expert evidence which provided a contradictory view of investing behaviours and industry patterns permitted the court to accept the substance of Mr Sisson’s report with no issues. This case demonstrates the importance of having the right expert evidence involved in a case, and the difficulty of contradicting the substance of any expert report without the strength of an opposing expert opinion.

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References:

[1] https://www.asx.com.au/regulation/rules/asx-listing-rules.htm; https://www.asx.com.au/documents/rules/Chapter03.pdf