I am a Chartered Accountant with significant experience as a banking expert witness, and have given evidence in the Victorian Supreme Court, Federal Court, and the Singapore International Commercial Court.
Evidence to Senate Inquiry
I represented Nab at a Senate Inquiry into Insolvency in the Australian Construction Industry in 2015.
The appearance gave me the opportunity to address one of the issues raised in Nab’s earlier submission to the Productivity Commission, which concerned the practice by which a company’s debt could be purchased very cheaply and then used to change the outcome of crucial decisions – with an example of debt with “voting value” of $18m being purchased for $30,000.
Changes to the law in 2018 now mean that if debt is purchased by an associated party the voting value is the amount paid – not the face value – and so the issue has been fixed.
Tomlak Pty Ltd & Ors v Westpac Banking Corporation  VSC 79
I was asked to provide an opinion about whether a lender had met their obligations under the Banking Code of Practice 2004 in its decisions to provide finance and later enforce 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:
“ 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.
“ 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.
“ 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.
“ 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 banking expert witness evidence:
“ 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.
“ 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  NSWLEC 12
This was an expert witness report accepted without challenge about whether borrowers would have been able secure finance, and if so on what terms. The extracts from the judgement set out below summarise the background to the case and explain the nature of the work I did:
“ 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.
“ 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 Banking Expert Witness work
“ 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.
“ 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|
“ 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:
“ 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 , 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 . The basis for doing so is summarised in .
Cases and other resources
Banking expert evidence unchallenged – ABN Amro Bank N.V. v Royal & Sun Alliance Insurance PLC & Ors  EWHC 442
In 2016 two of the leading players in the world cocoa market went into insolvency, and senior executives of both were convicted for frauds committed against several banks, which included deliberate misstatement of the quality and value of their collateral.
One of the lenders made a claim against an insurance policy which, it said, provided credit risk insurance in respect of all risks of financial default.
The underwriters disputed the claimed coverage, and they argued that the Bank had contributed to the loss by failing to check the quality of the cargo being financed to be independently checked. They also criticised the bank for an inappropriate response to a first default, arguing that the bank should have immediately checked the quality and value of the product and taken steps to liquidate the products as soon as possible, and entered into derivative contracts to hedge the price.
The banking expert witness
The underwriter relied on hedging experts, whereas the bank called a banking expert witness. The Court found the banking expert’s evidence ‘impressive’ and noted that it was not “countered by any witness called by the underwriters with equivalent expertise.”
The Court accepted his evidence that it was a reasonable strategy to roll the deals whilst negotiating with their customer, and that overall, the bank’s actions were reasonable and “well within the boundaries of the normal and ordinary responses of a lender attempting to sell collateral after a borrower’s default.”
The Court held that:
- There was no evidence that the Bank failed to comply with normal banking practice and procedures in relation to its approach to collateral.
- The banking expert witness provided “valuable evidence as to how reasonable bankers might be expected to react to particular situations” and his evidence was “more persuasive” than the underwriters’ witnesses.
- The claim against the underwriters was successful.
Banking expert evidence inadmissible – Philipp and Barclays Bank UK PLC  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.
Restructuring expert’s report inadmissible – Hai Jiao 1306 Ltd and Ors v Yaw Chee Siew Singapore International Commercial Court  SGHC(I) 16
A business with a large fleet of offshore vessels wanted to delist from the Singapore Stock Exchange as part of a broader restructuring. However, delisting without bank consent would have been a breach of the terms of three “sale and charter-back” finance arrangements, and to secure consent the company arranged for its executive chairman to sign “Letters of Support” addressed to the bank.
Unfortunately, the restructuring was not successful, and the company was later placed into liquidation.
The bank took action against the former executive chairman. It claimed damages said to arise from breaches of his obligations under the Letters of Support, and damages for representations that he was said to have made during the course of negotiations.
The restructuring expert witnesses
The Court heard expert evidence on two main issues: the extent and value of assets that were available to meet the payments due to the bank; and the likely recovery if the bank had called in the loan at the time of the delisting.
The defendant’s expert was subject to sustained criticism, and the Court found that:
most, if not all, of the criticisms of and objections to [the defendant’s expert] evidence are entirely justified. In particular…much of his evidence lacked factual foundation and was otherwise inadmissible; and that it was littered with unstated assumptions and conclusory statements which were unsupported in whole or in part by the factual evidence…[and it was] of little assistance due to its limited scope and difficulties with his methodology. In addition, we regret to say that we were troubled by his apparent lack of independence in at least certain respects.
The Singapore International Commercial Court held that:
- The chairman had made the statements attributed to him in the course of negotiations, but the statements “were too vague to have the meaning/ significance that [the bank] attached to them.”
- A bank “would not rely on such vague statements, but would insist on some form of written agreement,” and so the Court could not be satisfied that the claimed representations, if made, had been relied upon.
- In the circumstances, the misrepresentation claims should be rejected.
- The chairman was in breach of his obligations under the Letters of Support, and the bank was entitled to damages of $US32.8m.
Banking expert witness assumptions overtaken by the Court’s findings of fact – Wade v J Daniels and Associates Pty Ltd  FCA 1708
A borrower in default of her home loan engaged a specialist debt advisory company to assist with bank negotiations. The adviser arranged a deferral of the foreclosure proceedings and a temporary adjustment to her loan repayments, but she fell back into arrears and her house was sold in September 2017 to repay the bank, and to pay $9,832 to the adviser.
The borrower later took legal action against the adviser. She said that the adviser knew or ought to have known that it was never realistically possible for her to keep her home – which was her disclosed objective – and so the negotiation and “credit repair” services provided were not “fit for purpose” as required by the Australian Securities and Investments Commission Act 2001.
The banking expert witness
The banking expert witness had concluded that it was not reasonable to expect that the borrower would be able to refinance her home loan to another lender, because she had no permanent income, and was reliant on government benefits and child support.
However, it became clear that the banking expert had assumed that the borrower had accurately informed the adviser about her financial position. In fact, the Court held that the borrower had provided the adviser with information to which indicated she could afford the repayments, and there was no reason to think the adviser would have known that that information was incorrect.
The Court ruled that:
- It was true that the borrower was unemployed – but she had previously been employed, and there was no reason to think she would not be able to regain employment, which would significantly improve her financial position.
- On the basis of the information provided, the adviser had “acted reasonably and appropriately” in concluding that she would be able to refinance.
- On the basis of the banking expert evidence, the “credit repair” afforded no benefit to the borrower, and so the fee should be reduced by $2,000.
- Because the borrower was otherwise unsuccessful, in the circumstances it was appropriate that she pay 50% of the adviser’s legal costs.
A banking expert witness contradicted by his own work – Malayan Banking Berhad And Barclays Bank PLC – Singapore International Commercial Court  SGHC(I) 04
A remitting bank had sent a payment instruction via the interbank SWIFT system. After the receiving bank had credited funds to the account of the ultimate recipient, the remitting bank purported to cancel the payment instruction – with a notice that was received well outside normal banking hours.
The receiving bank argued that there was an implied contract which arose because the remitting bank had sent the payment instruction which it had then acted upon.
The remitting bank said that the payment instruction was not irrevocable, because it could be cancelled, and that the receiving bank had acted in a manner inconsistent with market practice by paying out before it had received the funds from the remitting bank.
Banking expert witness evidence as to “market practice”
The remitting bank’s expert witness gave evidence that it was market practice to pay ahead of the receipt of funds until the GFC. However, the practice had changed, the banking expert said, following the introduction of screening processes introduced for AML, counter-terrorism financing (“CFT”) purposes and sanctions – such that receiving banks would wait until actual receipt of the funds before crediting the ultimate recipient.
The Court was critical of the banking expert’s evidence, finding that he:
- ignored the terms of the SWIFT materials, or “distorted their meaning.”
- disregarded “years of banking practice as referred to in the SWIFT materials when objectively read.”
- Was contradicted by a Guaranteed Service Level document promulgated by an industry body – which he himself had drafted, as well as a paper which he had written in 2018.
The Singapore International Commercial Court held that the remitting bank’s submission was unsustainable, and found in favour of the receiving bank.
The consequences of failing to present banking expert witness evidence where appropriate – Commonwealth Bank of Australia -v- Dinh  WASC 456
Two borrowers defaulted on a loan that was originally provided to help them purchase farmland in Carnavon. In due course the bank brought an action against them seeking to recover the money owed, and take possession of the security property.
Claimed non-compliance with the Banking Code
The borrowers resisted the Bank’s claim, arguing (amongst other things) that the security was unenforceable because the Bank breached its contractual obligation to apply the 2004 Code of Banking Practice (available here) by exercising “the care and skill of a diligent and prudent banker” in forming an opinion about the borrowers’ ability to repay the loan.
The borrowers argued that the banker should have verified information provided to them by the vendor of the property, that he had erred in making assumptions about their ability to improve the yield from the property.
The absence of banking expert witness evidence
The borrowers had failed to provide any expert witness evidence as to whether a prudent banker would have verified the information, or made the assumptions that their banker had made. The Court held that in the absence of such evidence, it could not draw the conclusions that the borrowers asserted.
The borrowers were unsuccessful on the point, and in the rest of their claim.
The importance of a firm factual foundation – Gooley v NSW Rural Assistance Authority  NSWSC 1314
The borrowers were a married farming couple in New South Wales. They were unable to meet their loan obligations, and in due course their farming properties had to be sold, leaving them with “virtually nothing.” They claimed compensation, arguing that their bank had breached the loan contract, and contravened credit and consumer laws.
Admissibility of the Banking Expert Witness report
The borrowers sought to call opinion evidence from an economist and academic, who was instructed to “review the pleaded failure of the Bank with respect to the [borrowers] credit arrangements and to comment.”
The Court found that:
- “The legal assumptions were not articulated and the factual assumptions were not identified, at least explicitly. In general, [the expert] seems to have accepted, uncritically, every factual allegation made by the [the borrowers].”
- “The Evidence Act did not “make writings by an expert generally admissible. It is an exception to the opinion rule which provides that a fact cannot be proved by having someone express an opinion that it exists (s 76(1)). For the exception to operate, it is critical to identify the fact which the opinion is supposed to be evidence of.”
- In the circumstances the expert’s conclusions “were expressed at a level of generality that made it impossible even to begin to undertake the s 79 analysis.”
His report was wholly inadmissible.
Expert witnesses working together – Avwest Aircraft Pty Ltd as trustee for Avwest Aircraft Trust -v- Clayton Utz  WASC 306
Commentary in the judgement makes it clear that Australian Courts expect experts to be able to work together collaboratively:
 Two accounting experts were called as to quantification of damages…
 [Both experts] had impeccable credentials as experts. Despite that, somewhat unusually, each side criticised the other side’s expert in their approach to giving evidence before the court. CU claimed that [Expert A] had limited ability to give impartial assistance to the court. AVWest suggested that [Expert B] was cavalier and provided an estimate of loss so wildly divergent from reality that its application was unsupportable.
 The experts’ dealings with each other left a lot to be desired. As is common the experts were ordered to confer and provide a joint expert report. The Joint Experts Report (“JER”) was to provide a summary and set out matters of agreement and points of difference (referencing each expert’s position on the points of difference). That attempt to narrow differences ‑ and highlight the issues for determination ‑ failed conspicuously. The JER is some 81 pages (mostly in small font and sometimes very small font) with very little agreement. Indeed, there was limited ability to even agree on the points of difference. More disconcerting were the unnecessarily personal attacks that each expert made of the other’s work and conduct in the context of preparation of the JER.
 The experts’ approach to the JER was simply unhelpful. The JER ‑ which should guide the court’s consideration of the issues that are the subject of the competing expert evidence ‑ was unsuitable for the function it was supposed to fulfil. It provided no assistance to the court. The experts misconceived the purpose of the JER. A joint expert report should provide succinct identification of: (1) the matters on which the experts are agreed; and (2) the points of difference between the experts ‑ explaining, by reference to the expert reports, the reasons why each expert holds his or her opinion. It is not an opportunity to re‑state what is already in an expert report. All the more so it is not an opportunity to disparage the conduct of the other expert.
 In giving evidence in person, however, both experts endeavoured to provide expert assistance. The oral evidence was given in conclave following a protocol in which counsel for both parties, most helpfully, had identified topics for the concurrent evidence with suggested questions for the oral evidence‑in‑chief of the expert witnesses. Counsels’ identification of the relevant topics highlighted the experts’ areas of disagreement and made up for the deficiency in the JER. The experts gave considered oral evidence that focused on those areas in dispute. The nitpicking and confrontational approach evident in the JER fell away. I am satisfied that each expert genuinely attempted to do his best to assist the court by providing opinion evidence based on his specialised knowledge. I reject the criticisms levelled at [the experts] based on their respective approach to giving evidence.
The expert’s view of “exceptionally high risk” – Torchlight Fund No.1 LP (In Receivership) v Johnstone & Ors  New Zealand High Court 2559; Wilaci Pty Limited v Torchlight Fund No 1 LP (In Receivership)  New Zealand Supreme Court 112
A Private Equity Fund borrower sought a declaration that late payment fees of $500,000 per week charged on a short term loan of $37m was an unenforceable and irrecoverable penalty.
‘Penal’ or ‘compensatory’
Although a New Zealand decision, by contract the relevant law was that of New South Wales. One of the issues for the Court was determining whether the fee was ‘penal’ in nature or whether it was ‘compensatory.’
The Lender tabled the report of a banking expert witness, who described the transaction as ‘off the scale’ in terms of risk. He said it was a transaction that no commercial lender ‘would have touched,’ regardless of fees, because the GSA security arrangements were ‘very unsatisfactory and inadequate.’
At first decision the New Zealand High Court accepted the banking expert’s evidence, but held that there was ‘such a disproportion’ between the contracted rate of recovery and recoverable damages that the fee did not ‘possess sufficient compensatory character’ to escape being categorised as a penalty.
The New Zealand Supreme Court held that:
- Both Lender and Borrower were economically astute and independently advised, and there was no disparity of bargaining power- which altogether placed the case ‘in a very different category from consumer transactions.’
- As the banking expert had testified, the transaction involved ‘exceptionally high risk to the lender’ and was ‘unbankable except by lenders of last resort.’
- The late payment fee of $500,000 per week represented a daily cost of credit of $71,428 – which in fact was lower than the equivalent credit cost of the primary transaction.
- The Court could not agree that the late payment fee was out of all proportion to any legitimate interest of the Lender, or that the predominant purpose of the late payment fee was to punish the borrower.
When the borrower is an expert – Haynes v St George Bank  SASC 23
The borrower was an Adelaide based real estate agent who planned to retire from real estate work, buy a flower farm with borrowed funds, and then sell his city home to pay down the debt.
Bank criticised for relying on the real estate agent borrower’s knowledge of the real estate market
The city property took much longer to sell than expected, and sold for less, and eventually the real estate agent was forced to sell the flower farm too. He later took action against the bank, claiming it had failed to act prudently as required by the Code of Banking Practice 2004, when assessing his capacity to service the loan.
The Court held that:
“Had this been a different transaction involving a long term advance with a different, less experienced, less historically successful customer, the Bank’s financial analysis may have caused a diligent and prudent banker to pause, even to reject the application to extend the credit limit for the purchase of Longwood. Further, the Bank’s financial analysis, viewed in isolation, may have rendered the application as, at worst, marginal insofar as the Bank’s policy and guidelines were concerned and insofar as a diligent and prudent banker might have considered it.
However, consistent with the evidence given by [the bankers] and [the banking expert witness]…the transaction was one that a diligent and prudent banker was entitled to assess as “bankable” when all the circumstances are considered. Further, there has been no proved failure by the Bank to have exercised the care and skill of a diligent and prudent banker in selecting and applying the assessment methods, in fact, employed and informing its opinion as to [the borrowers]’ ability to repay the extended facility.”
The borrower was unsuccessful.
Banking Expert’s uncontradicted evidence persausive – Cahill v Kiversun Pty Ltd; Molonglo Group (Australia) Pty Ltd v Cahill & Anor  VSC 641
Two parties both claimed to have purchased the same commercial property, and both had placed caveats on the title. The issue for the Court to address was whether the lower value earlier contract was binding, and if it was, whether the purchaser was able to settle.
The Court found that the first-in-time contract was a binding agreement, which the vendor could not terminate.
The purchaser had tabled a report from a banking expert witness who said that the purchaser was “likely to obtain finance.”
The vendor said that the purchaser had not provided information necessary to allow the Court to adequately assess the question, and said that the banking experts’ evidence should be disregarded. Under cross-examination the banking expert conceded that there were a range of documents he did not have that a lender would wish to see, and he acknowledged that he had not “guaranteed” that the purchaser would obtain finance.
The Court held that it was not the purchaser’s current financial situation that was relevant, but his financial position at the time that a formal application would be made. The Court found the “coherent plausible evidence of a well-qualified expert – who maintained his views under cross-examination” to be persuasive in the absence of any challenge by evidence of any other banking expert, and found that it was likely, on the balance of probabilities, that the purchaser would settle.
The absence of appropriate expert evidence – NRAM Plc v Jane Steel & Bell & Anor ScotCS CSIH 11
After a property developer sold the first two units in a four unit complex, its solicitor wrote to the non-bank commercial lender to arrange settlement. By mistake – ‘acting wholly without instructions‘ according to the Court – she asked the lender to discharge their entire security, which they did without checking.
When the borrower was later placed into liquidation the lender realised its loss, and took action against the solicitor.
The Original Decision
At first decision the Court agreed that the solicitor’s conduct fell below the requisite professional standard – but held that she did not owe any duty of care to the lender. The Court held that:
Any prudent bank taking the most basic precautions would have checked the information provided by seeking clarification from the first defender and/or looking at their file.
…it was not reasonable for a bank…to rely on the misstatement information without checking its accuracy
…a solicitor…would not foresee that such a bank would reasonably rely on that information without carrying out such a check.
At first instance the solicitor was successful.
The Appeal decision
The lender appealed. It pointed to the absence of any banking expert or other evidence about the ‘basic precautions’ that a prudent bank would have taken in the particular circumstances, and argued that it was not a matter that would ‘fall within judicial knowledge.’
The Appeal Court held that ‘the facts simply cannot support the proposition that no reasonable solicitor would have foreseen reliance by…[the lender] on the misstatements’ and held that the solicitor did owe the lender a duty of care.
The expert’s view disregarded – Irish Bank Resolution Corporation Limited v Cambourne Investments Inc & Ors  IEHC 262
A bank provided an offer of finance subject to a number of conditions, including a requirement that that the security property be valued at no less than €17.12m, with a Loan to Value ratio of 80% thereafter.
The bank later waived those conditions based on a credit paper which the Court described as “bizarre” and “foolish” – although it did not tell the borrower or guarantor it had done so.
The day after signing a guarantee, the managing director received a written valuation of €13.7m, which resulted in an LVR ratio above 120%. Unperturbed, his company drew down most of the loan. When the bank later took action to recover under the guarantees, the Managing Director argued that as guarantor he should have been told of the change in valuation, and that it was “inequitable not to allow him at least the opportunity to dissent.”
The Expert Witness
The Bank’s expert witness told the Court that the LVR and minimum valuation conditions were “entirely for the benefit of the bank in terms” – which, it was then argued, meant that the bank could waive them if it wished.
The Court disagreed, finding that LVR and minimum valuation conditions were for the benefit of both sides, and that they were not severable. Because those conditions were not met, the Court held, the contract of loan did not come into operation.
The Court held that:
- Although the terms in the letter of offer fell away, a contract of loan remained: “The decision of the bank to lend money was foolhardy, and the decision to borrow it was as bad. Once lent, money is repayable.”
- Likewise, the guarantee contained in the Letter of offer also fell away – but the guarantees that had been provided earlier continued to apply.
- The first substantive drawdown of funds took place only after the lower valuation had been tabled, and it the guarantor objected to the advance “then it was entirely within his power, as agent for [the borrower] to refrain from the drawdown of facilities and instead to make a formal objection…that he did not so act makes any remedy in equity inapplicable.”
The bank was successful – even though its expert’s opinion was not accepted.
Give your experts enough time, and a complete picture! – Moorview Developments & Ors v First Active PLC & Ors  IEHC 214
The proceedings arise out of the collapse of a series of a group of companies which occurred after the appointment of a receiver by the group’s bank.
The borrower argued that the bank had fraudulently represented that money would be made available when in fact the bank did not have an intention to advance those monies, and criticised the work of the receiver in his management of one construction project and his attempts to sell another.
Criticism of the expert evidence
The Court provided some quite striking criticism of the evidence provided by the borrower’s experts:
It is clear, therefore, that the experts were given a very short period of time to prepare their expert reports. Many of the shortcomings in those reports can, in my view, be attributed to that timescale… the blame must attach to [the borrower] and its advisers who, for whatever reason, did not seem to have addressed themselves to the question of instructing experts until an extraordinary late stage in the proceedings.
No person reading the witness statement…[provided by the expert insolvency practitioner] could have reasonably anticipated the oral evidence which was subsequently given. For that reason alone I would have been satisfied to disregard that element of the evidence.
The only evidence on causation was the statement of [the insolvency practitioner] to the effect that in his view, and for the reasons which I have just outlined, it was likely that the appointment of an “insolvency Q.S.” would have made some difference…[the insolvency practitioner] did not know of his own knowledge what would have happened had an Insolvency Q.S. been employed…[and so] I am satisfied that the evidence given by [the insolvency practitioner] in relation to causation is no more than speculation.
[The borrower’s banking expert] like the other expert witnesses called on behalf of [the borrower], was, on any view, not given a complete picture of all relevant facts. Some additional matters were, therefore, drawn to his attention in the course of cross examination. In the light of his consideration of the banking documents and in the light of the established factual circumstances which led up to the appointment of the receiver, [the borrower’s banking expert] gave the opinion that the bank had little option but to appoint a receiver in the circumstances which had then arisen. It seems to me that, even without the benefit of expert banking evidence, that position would be clear to any well informed person with reasonable business experience. A view to that effect is simply strengthened by the fact that an expert banker came to the same view, having had the opportunity to read with a banker’s eye the internal documentation of First Active.
While dealing with the evidence of [the borrower’s banking expert], it is perhaps, appropriate that I should also note that much of [his] evidence seemed to me to be wholly irrelevant to the issues which arose in this case.
The English High Court held that each of the questions at trial were “properly the subject of a non-suit.”
Common Sense preferred – Territory Sheet Metal Pty Ltd & Ors v ANZ Banking Group Ltd  NTSC 31
A sheet metal fabrication business which later became involved in building development and construction projects had experienced continuous cash flow problems and suffered losses on two projects.
To address its balance sheet problems the owners found a new equity partner who had promised to inject $400,000. He did contribute some $80,000 – but drew against that, and so there remained a significant funding need.
The company approached a new bank with a re-financing proposal which the Court found was “flawed in a number of respects” and “inaccurate to the point of being seriously misleading.”
The funding was approved, and settlement took place. However the net result of a series of transactions undertaken by the new director at settlement – described by the Court as “fraudulent conduct” – was that the company did not retain the benefits of the funds that it was liable to repay to the bank.
After the other directors discovered what happened they advised the bank and arranged a repayment program. The bank was able to recover the loan, but the repayment process drained the business of working capital, and the company entered into liquidation.
The borrower and the guarantors later took action to claim damages from the Bank. In summary they said that the Bank had known of information about the new director which it should have shared with them, and they criticised the Banks for providing “special clearance” on two cheques totalling $1.03m.
Banking Expert Witness evidence
Expert evidence was available from several expert witnesses, addressing both loan processing and the process for the special clearance of cheques.
The Court preferred the “common sense” evidence of two experts who testified that the known circumstances surrounding the special clearances “raised obvious questions and should have caused a prudent banker to have clarified the situation with a director of [the company].”
The Court held that:
- Acting as a “prudent banker” in relation to the interests of the bank was not necessarily the same as acting as a “prudent banker” in relation to the interests of the bank’s customer.
- The presentation of the cheque for special clearance “was not only outside of any routine banking transaction…but was also one that cried aloud for proper clarification with the directors…[because] the circumstances were such as to put [the Bank] on inquiry.”
- “The failure to seek such clarification constituted a failure by [the Bank] to exercise the standard of care and skill of a reasonable banker in transacting its customer’s business” and constituted breaches of an implied term of the banker/customer contract.”
Meeting in the middle – Reading Entertainment Australia v Burstone Victoria  VSC 546
A joint venture to redevelop a shopping centre between a US cinema company and two Australian property developers failed, and the centre was sold at a considerable loss to the JV.
In the aftermath the US company took legal action to recover a loan it had made to the property developers. They counter-claimed, seeking damages for alleged repudiation and for breach of the JV agreement.
A key issue was whether the joint venture would have been able to proceed, and central to this was whether the JV could have secured finance of around $35m, either from GE – with whom the JV had already engaged, or from Australian banks.
Based on evidence from the GE executives involved, the Court held that work to obtain an approval from GE “would have taken months rather than weeks,” that approval was not certain, and that any finance provided would have been expensive, with terms that may have been problematic.
The opinions of the banking experts
The two banking experts agreed that Australian banks would have considered advancing funds for the project, and they agreed on the key terms that lenders would want. The experts took different views on the information that the lenders would require, and they disagreed about how long it would take the lenders to process an approval: one expert said it would take a month, the other expert said it would take 7 to 9 months.
The Court held that:
- The US Company did repudiate the joint venture agreement.
- If “diligently and competently pursued” it was likely that the JV would have obtained finance from an Australian bank. Those banks may have required some of the additional information identified by the “more conservative” expert, which may have caused some delay, but not the seven to nine months he suggested.
- Each of the JV parties had capacity to make an equity contribution necessary to support such a loan.
- The property developers were entitled to an order for damages, which exceeded the outstanding loan balance.
The Australian Banking Code of Practice as it applies to Lending to Business
The BCP is mandatory for members of the Australian Banking Association. Many ABA members incorporate it into their contractual terms, which means that in some cases it may apply to customers who would not otherwise meet the criteria.
A full version of the Australian Banking Code of Practice in effect from 1 March 2020, is available here from the Australian Banking Association. The following provides details on those parts most relevant to business lending.
The BCP applies to Australian small businesses:
A business is a “small business” if at the time it obtains the banking service all of the following apply:
(a) it had an annual turnover of less than $10 million in the previous financial year; and
(b) it has fewer than 100 full-time equivalent employees; and
(c) it has less than $3 million total debt to all credit providers including:
(i) any undrawn amounts under existing loans;
(ii) any loan being applied for; and
(iii) the debt of all its related entities that are businesses.
Responsible Lending to Australian Small Businesses
 If we are considering providing you with a new loan, or an increase in a loan limit, we will exercise the care and skill of a diligent and prudent banker.
 If you are a small business, when assessing whether you can repay the loan we will do so by considering the appropriate circumstances reasonably known to us about:
(a) your financial position; or
(b) your account conduct.
Where reasonable to do so, we may rely on the resources of third parties available to you, provided that the third party has a connection to you (that is, to the small business). For example where the third party is a related entity of yours (including but not limited to your directors, shareholders, trustees, beneficiaries or related body corporates), or is a partner, joint venturer, or guarantor of yours.
Enforcement of small business loans
 If you are a small business and in default under your loan, we will give you 30 days’ notice before we either require you to repay the loan in full, or take enforcement proceedings.
 If you remedy the default during the 30 day period, and no default of the same type has arisen during that period, we will not require full repayment or take enforcement proceedings.
 We may give you a shorter notice period, or no notice period, if:
(a) the default is unable to be remedied; or
(b) it is reasonable for us to do so to manage a material and immediate risk relating to the nature of the relevant default, your particular circumstances, or the value of the security; or
(c) we have already given you a period to remedy the default under paragraph, and you have not remedied that default.
 If you have an overdraft or on-demand facility, we may not be required to give you any notice
when we require repayment, but if a failure to repay that facility on demand also constitutes default under another loan with us, we will comply with this Chapter if we enforce that other loan based on that default.
Specific events of non-monetary defaults [applying to standard form small business loans]
 If you are a small business and you have met all your payment obligations under the loan terms, we will not take default based action against you unless:
(a) you or a guarantor is insolventgoes into bankruptcy, voluntary administration, other insolvency process or arrangement, or no longer has legal capacity;
(b) enforcement proceedings are taken against you or a guarantor or your or their assets by another creditor;
(c) early repayment is required under a separate financing arrangement you or a guarantor has with us, or default based action is taken against you or a guarantor by us, due to an event of default which is described in this chapter;
(d) we believe on reasonable grounds that you or a guarantor has not complied with the law or any requirement of a statutory authority, or it becomes unlawful for you or us to continue with the loan;
(e) you or a guarantor gives us information or makes a representation or warranty to us which is materially incorrect or misleading (including by omission);
(f) you use the loan for a purpose not approved by us;
(g) your assets or a guarantor’s assets are dealt with, or attempted to be dealt with in breach of the loan, or any security or other agreement with us without our consent;
(h) you or a guarantor do not provide financial information required by your agreement with us;
(i) you or a guarantor do not maintain a licence or permit necessary to conduct your business;
(j) you or a guarantor do not maintain insurance required by your agreement with us;
(k) legal or beneficial ownership, or management control of a borrower or guarantor or their business changes without our consent; or
(l) status, capacity or composition of you or a guarantor changes without our consent.
Remedying your non-monetary default
 We will:
(a) give you a notice specifying the grounds on which we consider there is a non-monetary default; and
(b) allow a reasonable time for you to remedy your non-monetary default, where it is able to be remedied, and notify you of this time period.
 If paragraph 81 applies, a reasonable time will not be less than 30 days unless it is reasonable for us to act to manage a material and immediate risk relating to the nature of the relevant default, your particular circumstances, or the value of the security.
 We will only act on a specific event of non-monetary default identified in paragraph 80, if the event by its nature is material, or we reasonably consider the event has had, or is likely to have, a material impact on:
(a) you or your guarantor’s ability to meet your or their financial obligations to us (or our ability to assess this);
(b) our security risk (or our ability to assess this); or
(c) our legal or reputation risk where paragraph 80(d) or (e) and (f) applies.
Specialised small business loans
 For the following types of small business standard form loans, we may include financial indicator covenants or special covenants tailored to the particular nature of these loans as a trigger for default based action:
(a) loans for property development; or:
(b) loans for a specialised lending transaction, where because of their nature, require additional covenants as a way of banks managing their risks, including margin lending, loans to self-managed superannuation funds, bailment, invoice discounting, construction finance, foreign currency loans and tailored cash flow lending.
When we decide not to extend a loan – How much notice will we give a small business before the end of a loan
 If you are a small business and you are not in default, and the principal owing on your loan is not due to be fully repaid at the end of its scheduled term by regular periodic repayments, we will give you notice of our decision not to extend your loan, at least 3 months before you need to repay your loan in full.
 If we decide to extend or refinance your loan, we are not required to do so on the same terms
Federal Court of Australia Rules governing the use of experts, and expert witness reports
Definitions – The following are defined by the Federal Court Rules Dictionary:
“expert evidence” means the evidence of an expert that is based wholly or substantially on the expert’s specialised knowledge.
“expert report” means a written report that contains the opinion of any expert on any question in issue in the proceeding based wholly or substantially on that expert’s specialised knowledge, including any report in which an expert comments on the report of any other expert.
The Federal Court Rules 2011 are available online, replicated below for convenience:
23.11 Calling expert evidence at trial
A party may call an expert to give expert evidence at a trial only if the party has:
(a) delivered an expert report that complies with rule 23.13 to all other parties; and
(b) otherwise complied with this Division.
23.12 Provision of guidelines to an expert
If a party intends to retain an expert to give an expert report or to give expert evidence, the party must first give the expert any practice note dealing with guidelines for expert witnesses in proceedings in the Court (the Practice Note).
Note: A copy of any practice notes may be obtained from the District Registry or downloaded from the Court’s website at www.fedcourt.gov.au
23.13 Contents of an expert report
(1) An expert report must:
(a) be signed by the expert who prepared the report; and
(b) contain an acknowledgement at the beginning of the report that the expert has read, understood and complied with the Practice Note; and
(c) contain particulars of the training, study or experience by which the expert has acquired specialised knowledge; and
(d) identify the questions that the expert was asked to address; and
(e) set out separately each of the factual findings or assumptions on which the expert’s opinion is based; and
(f) set out separately from the factual findings or assumptions each of the expert’s opinions; and
(g) set out the reasons for each of the expert’s opinions; and
(ga) contain an acknowledgement that the expert’s opinions are based wholly or substantially on the specialised knowledge mentioned in paragraph (c); and
(h) comply with the Practice Note.
(2) Any subsequent expert report of the same expert on the same question need not contain the information in paragraphs (1)(b) and (c).
23.14 Application for expert report
A party may apply to the Court for an order that another party provide copies of that other party’s expert report.
23.15 Evidence of experts
If 2 or more parties to a proceeding intend to call experts to give opinion evidence about a similar question, any of those parties may apply to the Court for one or more of the following orders:
(a) that the experts confer, either before or after writing their expert reports;
(b) that the experts produce to the Court a document identifying where the expert opinions agree or differ;
(c) that the expert’s evidence in chief be limited to the contents of the expert’s expert report;
(d) that all factual evidence relevant to any expert’s opinions be adduced before the expert is called to give evidence;
(e) that on the completion of the factual evidence mentioned in paragraph (d), each expert swear an affidavit stating:
(i) whether the expert adheres to the previously expressed opinion; or
(ii) if the expert holds a different opinion;
(A) the opinion; and
(B) the factual evidence on which the opinion is based.
(f) that the experts give evidence one after another;
(g) that each expert be sworn at the same time and that the cross‑examination and re‑examination be conducted by putting to each expert in turn each question relevant to one subject or issue at a time, until the cross‑examination or re‑examination is completed;
(h) that each expert gives an opinion about the other expert’s opinion;
(i) that the experts be cross‑examined and re‑examined in any particular manner or sequence.
Singapore International Commercial Court Practice Directions Governing the use of Experts and their evidence
87. Appointment of expert witnesses
(1) In cases where expert witnesses will be called to give evidence at the trial, counsel for each party intending to call an expert witness or expert witnesses shall write to all other parties in accordance with the timelines directed by the Judge (at a Case Management Conference or otherwise) to:
(a) inform the other parties of the name(s) of the expert(s) which that party intends to engage;
(b) set out the areas or issues which the expert(s) will be providing testimony; and
(c) attach the curriculum vitae of the expert(s).
(2) Counsel for each party is to inform all other parties in accordance with the timelines directed by the Judge on whether there are any objections to the experts that will be called by the other parties.
(3) Counsel may raise objections about the experts at or prior to a Case Management Conference, and seek directions from the Judge at the Case Management Conference. If objections are raised prior to a Case Management Conference, such objections should be in writing and sent to all other parties.
88. Preparation for witness conferencing for expert witnesses
(1) The Court will, as a default practice, direct that the experts meet before trial to discuss their respective reports, to determine where they are in agreement on the issues, and, where they do not agree, the extent of their disagreement. The parties and their lawyers will not be permitted to attend these expert meetings unless otherwise directed by the Court. The experts will thereafter be expected to prepare a joint experts’ report setting out:
(a) a list of issues and/or technical issues;
(b) areas/issues where they are agreed;
(c) areas/issues where they disagree;
(d) the reasons, nature and extent of their disagreement; and
(e) any other information which may assist the Court.
(2) If the experts reach an agreement on an issue or issues, the parties shall not be bound by it unless the parties expressly agree to be bound by it. However, the Court will be entitled to take cognizance of the experts’ agreement.
(3) Accordingly, as far as possible, and in accordance with the timelines directed by the Judge (at a Case Management Conference or otherwise), parties should agree on a timetable for:
(a) the experts’ meeting; and
(b) the preparation of a joint experts’ report.
(4) Counsel for each party is to seek consensus with counsel for all other parties on the issue of use of concurrent evidence procedure (see paragraph 90 of these Practice Directions) for experts pursuant to Order 40A, Rule 6 of the Rules of Court, and to update the Court at a Case Management Conference or by correspondence, as may be directed by the Court.
89. Expert evidence at trial
(1) The provisions of Order 40A of the Rules of Court shall apply to all aspects of expert evidence.
(2) Generally, at the trial, expert witnesses will give evidence after all the witnesses of fact have been heard. This issue will usually be discussed at the Case Management Conference(s).
(3) Expert witnesses may be examined concurrently as a panel (see paragraph 90 of these Practice Directions). This issue will usually be discussed at the Case Management Conference(s).
(4) Sub-paragraphs (2) and (3) above are subject to the parties waiving their right or rights to submit no case to answer. For the avoidance of doubt, if the parties do not agree to waive their right or rights to submit no case to answer, there will not be concurrent examination of the expert witnesses as a panel.
(5) To avoid doubt, paragraph 111A of these Practice Directions applies where leave is sought for an expert witness who is outside Singapore to give evidence by live video or live television link.
90. Concurrent evidence procedure
(1) The Court may direct that the evidence of several experts be taken concurrently. Where the taking of concurrent evidence is contemplated, experts may be directed to agree on a list of issues and the order in which expert evidence on those issues are to be given. For this purpose, an experts’ meeting may be directed for experts to:
(a) discuss without the presence of counsel (unless such presence is otherwise directed by the Court); and
(b) agree on the list of issues and the order in which expert evidence on those issues are to be given.
(2) Where concurrent expert evidence is directed, the manner in which concurrent expert evidence is to be taken is at the Court’s discretion. Parties should note that in general, a full cross-examination or re-examination is neither necessary nor appropriate.
Australia: Evidence Act 1995
(1) Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.
(2) Subsection (1) does not apply to evidence of an opinion contained in a certificate or other document given or made under regulations made under an Act other than this Act to the extent to which the regulations provide that the certificate or other document has evidentiary effect.
Note: Specific exceptions to the opinion rule are as follows… expert opinion (s 79)
(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.
Credibility evidence about a witness is not admissible.
Note 1: Specific exceptions to the credibility rule are as follows…evidence of persons with specialised knowledge (s 108C)
(1) The credibility rule does not apply to evidence given by a person concerning the credibility of another witness if:
(a) the person has specialised knowledge based on the person’s training, study or experience; and
(b) the evidence is evidence of an opinion of the person that:
(i) is wholly or substantially based on that knowledge; and
(ii) could substantially affect the assessment of the credibility of a witness; and
(c) the court gives leave to adduce the evidence.