The Supreme Court has recently considered the admissibility of conclusions reached by a forensic accounting expert which relied upon hearsay data sourced by others. The issue is of importance broadly as impacting on the admissibility of expert evidence referring to hearsay sources of data generally.
The proceedings concerned an application to wind up a company, which was heard as a trial. His Honour Henry J struck out certain parts of the expert’s affidavit which relied upon data sourced from Payscale.com because it did not meet the ‘basis rule’ but refused to strike out parts of the affidavit which relied upon data contained in a IBIS World Industry Report H4404, titled “Serviced Apartments in Australia” (the IBIS Report).
The expert report expressed two ultimate conclusions. The first, was that the wages and salary costs of Earlturn Pty Ltd were significantly higher than industry benchmarks. This view was partly based on the IBIS Report, which contained various statistics and an industry ratio of wages to revenue for operating serviced apartments during the years the subject of dispute in the application. The second conclusion was that three persons were paid salaries higher than salaries expected within the industry. That second conclusion was based, in part, from an extrapolation of an hourly rate from one internet data source, Payscale.com, to adjust it for hours worked by the three persons.
Objection was made as to the admissibility of the conclusions in the report insofar as they relied upon the Payscale.com data and the IBIS Report on the basis that those sources were inadmissible hearsay.
His Honour considered the ‘the basis rule’ as identified in Dasreef Proprietary Limited v Hawchar  243 CLR 588, 605, being:
“A failure to demonstrate that an opinion expressed by a witness is based on the witness’s specialised knowledge based on training, study or experience is a matter that goes to the admissibility of the evidence, not its weight.”
His Honour also considered there were two ‘potential paths’ around the ‘basis rule’: judicial notice of well-known and reliable sources or as an exception to the hearsay rule by demonstrating ‘that the data is part of the corpus of the expert’s professional field of learning and experience, drawn from sources known to, and considered reliable by those who are experts in that professional field.’
His Honour cited the case of Borowski v Quayle  VR 382, 386, which listed the considerations which identify the proper reliance of reported data by an expert as follows:
- a professional experience, giving the witness a knowledge of the trustworthy authorities and the proper source of information;
- an extent of personal observation in the general subject, enabling him to estimate the general plausibility, or probability of soundness, of the views expressed; and
- the impossibility of obtaining information on the particular technical detail except through reported data in part or entirely.
The question that the Court was required to answer was whether the IBIS Report and the Payscale.com data were within the expert’s field of expertise. His Honour observed the ‘marked difference’ in the quality of the testimony of the expert as between the IBIS Report and Payscale.com data. The expert gave evidence that the IBIS Reports were industry benchmark reports commonly used by forensic accountants, which gave an implicit comprehension of its trustworthiness and reliability. On the other hand, the expert was unaware whether the Payscale.com data was used by others in his field of expertise or its methodology.
His Honour inferred, on the balance of probabilities, that experts within the field of financial health of companies sanctioned the trustworthiness of the IBIS Report and that the expert in this case comprehended its methodology. Thus the IBIS Report met the ‘basis rule’ although such finding of admissibility did not preclude later challenge to the weight to be attributed to the expert’s conclusion. Because of the lack of evidence about industry use and methodology in respect of the Payscale.com data, his Honour was unwilling to draw the same inference in respect of that evidence and held that the Payscale.com data was inadmissible.
Re Earlturn Pty Ltd highlights the difficulty of discerning data that is truly within the expert’s field of expertise and the importance of ensuring that the underlying information relied upon by an expert to reach a conclusion is admissible.