Case Studies

Expert Evidence – Admissibility remains a challenge for experts and lawyers  

In the recent case of Rolleston v Insurance Australia Ltd, the NSW Court of Appeal upheld the lower Court’s rejection of a valuer’s opinion on the value of a Mosman residential property. Whilst not making new law, the case provides a useful reminder on the quite stringent requirements for experts’ reports, including the need for experts to provide their detailed reasoning.

Facts

In May 2013, a fire destroyed a substantial portion of a part built Mosman house with harbour views. The owner agreed with the property’s insurer that it would cost $991,946 to rectify the damage. The insurer denied liability however, suspecting the owner’s involvement in the fire. The owner could not afford to rebuild without the insurance monies. The owner therefore sold the fire damaged property in February 2014 for $4,068,000 and sued the insurer.

The owner claimed damages, being the difference between the actual sale price of the damaged house in 2014, versus the estimated completed state value of the house at that date.  He claimed that if the property had been rebuilt, it could have been sold in that rebuilt state for $7.5 million. He relied on a valuer’s report of comparable sales to reach that value.

The valuer’s report was rejected as inadmissible by the court at first instance and so the owner was only awarded the agreed repair costs, plus interest. The owner appealed.

Legal Principles

To be admissible as expert opinion evidence, the valuation needed to satisfy section 79 of the Evidence Act NSW. That section allows opinion evidence from a person with specialised knowledge, that is wholly or substantially based upon that person’s training study or experience.

Justice Emmett gave the leading judgment. He explained that to fall within section 79, the reasoning process showing how the opinion was reached must explicitly reveal that the opinion is based upon the particular specialised knowledge.

Meagher JA observed that: “…analyses undertaken by the valuer will involve estimate, inference, deduction and other judgments that are not likely to be exact or precise. Nevertheless the valuer must lay out the process by which this method has been followed.”

Flaws in this valuation

The valuation report in this case, in summary:

  • Described the property;
  • Described 7 Mosman properties as comparable sales over the prior 15 months;
  • Compared the property with the “other relatively comparable properties”, making adjustments for points of difference via a direct comparison approach;
  • Considered many indicia, which were listed;
  • Described the four most comparable properties and explained how they differed from the subject property;
  • Then valued the subject property at $7.5 million as at February 2014, assuming it had been re-built.

The Court of Appeal found that the flaws with the report were:

  • The valuation did not explain why the four properties were the most comparable;
  • The Court could not see how the report demonstrated that the four comparable properties sales led to the value for the subject property.
  • The valuation did not explain its conclusion that the residential market had improved, how that affected the property value, or what facts the valuer relied on in reaching that conclusion.

Emmett AJA also queried why the property’s worth was not the actual sale price plus the costs of rectification. He said it might be inferred that this was its value at that sale date.

Comment

The expert must comply with the UCPR Code of Conduct and not be an advocate for a party.  The party’s lawyer must still ensure however, that the final expert’s report complies with section 79 to  be admissible.

July 2017

James Hamilton

Solicitor

(02) 9318 6423

james.hamilton@surrypartners.com.au

Surry Partners Lawyers