The Federal Court of Australia upholds expert opinion and provides an insight into what factors are relevant when considering whether the right expert has been appointed to give evidence about a particular matter.

In ASIC v Big Star Energy Limited (No3) [2020] FCA 1442, ASIC alleged that Big Star Energy Ltd (formerly known as Antares Energy Limited (Antares), had breached its ongoing disclosure requirements under s 674 of the Corporations Act 2001 (Cth).

A dispute arose when Antares entered into two contracts to sell resources assets located in Texas, in the United States of America.

Antares then announced this to the market but did not include the name of the prospective acquisition and several other details of the purchaser’s financial status. The prospective purchaser did not yet have the relevant financial approval for the acquisition of the assets, and the company did not disclose the purchaser’s capacity to complete the purchase.

In light of the above, ASIC alleged that Antares’ failure to disclose these details amounted to a failure to share information vital to potential investors’ decision-making. This contravened the continuing disclosure required under the Corporations Act 2001 (Cth).

ASIC engaged a mining equities expert (Mr B) to present his opinions on the importance of the identity of purchasers and their capacity/approvals for the acquisitions. Mr B had significant experience in trading in the resource sector, including mining equity analysis, corporate advice, and mining sales research.

Mr B found that both of the above factors would have a material effect on the price or value of the Antares shares.

Various concerns were raised concerning Mr B’s evidence, and these were whether his evidence was adequately based on his expertise and whether he was an appropriate witness for materiality issues.

Incorrect Area of Expertise

It was submitted that because Mr B was an equities analyst, he could comment on the materiality of the relevant factors for investors. The Court took the opportunity to clarify its position on previous cases with respect to materiality that an expert did not have practical experience in trading stocks. Therefore, the fact that Mr B had not personally bought and sold stocks did not undermine his credibility in giving evidence on market behaviour which he gained through his work as an advisor and analyst.

Opinion Not Based on Expertise

It was also put to the Court that Mr B’s opinion was “not wholly or substantially based on [his] specialist knowledge” as required by section 79 of the Evidence Act 1995 (NSW). In particular, Mr B had included a detailed index of all the possible factors that he considered would affect investors’ decision-making. It was argued that his report contained an unrealistic and complex analysis of stock trading behaviour and that investors would not apply such a technical approach.

The Court noted that in his evidence, Mr B pointed out that such detail in the stock analysis was widespread amongst resource investors, and it was necessary to consider numerous approaches and backgrounds of the investors.

Therefore, it was found that Mr B’s evidence was based on his expertise and his reasoning reflected those who traded the relevant and similar stocks that were subject of these proceedings.

The case highlights the importance of experts expressing the basis upon which they have formed their opinion and including the necessary detail to express this based on their training, study or experience. It is also clear that on the issue of materiality, an expert does not need to have a practical understanding of the activity they have been sought to comment on, and it is sufficient to have direct interaction with the relevant group of people and within the industry at large.

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