A technique for damaging the credibility of a valuer
A technique for damaging the credibility of a Valuer.
Cross-examining any expert witness can be a difficult experience for any advocate. After all, the witness is very likely to know much more about the subject of his or her evidence than the cross-examiner.
Property valuers are one of the experts that are often encountered in civil litigation in New Zealand. Generally valuers who appear as expert witnesses will be some of the most respected and experienced around. Cross-examination of them can be difficult and, to an inexperienced advocate, somewhat intimidating.
This shouldn’t be the case. A properly prepared advocate can cross-examine valuers (and other experts) very effectively. One possible approach to cross-examining is discussed below.
Many expert valuers will give their evidence by appending a valuation report prepared they have prepared to a witness statement. The valuation report is often exactly the same as that the valuer would prepare for any valuation instruction.
This is something that can be exploited. Valuation reports often contain commentaries on market conditions, prepared by their firms, and used in a large number of valuations. Often these commentaries are not even looked at by recipients of the report, who tend to be more interested in the quantum of the actual valuation.
For a cross-examiner intent on attacking the credibility of an expert valuer, such commentaries can be gold mines. The transcript below is a very good example of this. This case concerned the valuation of rural property in 2009. There were several competing and differing valuations. The cross-examiner in this instance was trying to show that the valuation figure from this particular expert was too high. As the transcript below shows, he was able to do this in a very effective fashion.
The lesson for advocates is to prepare by delving deeply into the detail of an expert’s report. The lesson for the valuer is that what works in a normal valuation report is often not suitable for a report to be used in evidence…
Q.
20 CROSS-EXAMINATION: MR PHANTOM
Q. Good morning Mr Slippery. Could you just take your new brief and report and turn to page 4? So just taking you through this, this is a sort of an overview of the land market and presumably you are giving this because you think it will be helpful to His Honour in understanding the
25 context in which this property is being sold, is that fair?
A. Yes.
Q. Presumably it’s something you’d usually do in your valuation reports anyway, you’d usually have an overview early on?
A. We do.
30 Q. So just looking at your overview, would it be fair to say that the first paragraph puts the emphasis on a growing market. Growing values, a farm market that’s doing well?
A. Yes.
Q. Do you see that in the first sentence you say, “Over the nine years prior to 27 July 2009, rural land values have gone through an unprecedented rise”?
5 A. Yes.
Q. His Honour might take from that, if he didn’t know better, that the market had continued to rise up to July 2009. Would that be fair?
A. If he only read that sentence.
Q. Yes but the rest of it doesn’t help much either does it, as we get to it.
10 So that’s that first paragraph, you would say it’s uniformly positive? Is that fair?
A. I didn’t catch that question.
Q. I describe that first paragraph as uniformly positive. Is that a fair description?
15 A. Well it was. Leading up to 2009 until the market changed, the market’s incredibly positive.
Q. I agree with you that leading up to when the market changed it was positive but I don’t agree with the 2009. So let’s come to that. So then look at the second one. Again you’d say that’s a positive market report
20 for His Honour? Things are looking good?
A. That’s quite simply saying what was going on.
Q. Then you do get around to referring to the global financial crisis and the way you do it is you refer the economic position and you say about four lines down, “This along with the associated negative publicity caused a
25 perception which eventually became a reality among participants in the land market that there was or would be a reduction in land values,” and then you say, “While this may have been occurring at the effective date of these valuations it was difficult to measure because of the low volume of sales at that time. Do you see that?
30 A. Yes.
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Q. And would you agree with me that what His Honour might take from that is that your expert view is that while there had been a general global financial crisis and while there might have been concerns that this would
affect land values, by the time of this transaction it wasn’t really clear whether that was happening or not. Is that fair?
A. It wasn’t fair.
Q. It wasn’t fair. Well according to you it wasn’t fair, is that fair?
5 A. The number of sales dropped dramatically so we didn’t have sales to refer to and we were hanging out hats on a very small number of sales.
Q. But the opinion seems to be divided on this topic, doesn’t it, because who are “we”? Well you keep saying “we” who’s “we” in that sentence?
A. It’s our firm I'm talking about.
10 Q. Sorry?
A. I'm talking about our, the people I work with and valuers generally.
Q. In your office or in the valuation profession?
A. Mmm, valuation profession generally.
Q. So I just want to hand up a couple of news articles so I'm going to hand
15 you up two news articles and I'm going to hand you up a little graph so could my learned junior please approach? So there are three documents that are being handed to you. The one I’d like to look at first is a Herald business article from 21 January 2010. Could you find that?
A. Yes.
20 Q. So this is reporting on the farm sales in 2009 and REINZ reports according to the Herald at least that in the last three months to December 2009 241 farms were sold compared to 753 in 2007 and 346 in the last three months of 2008. Do you see that? And do you see that it then reports that compared to the same period in 2007, so two years
25 earlier the medium farm value or the medium farm price had dropped by
$650,000 to $1 million. Do you see that?
A. Sorry I'm sorry – it might be –
THE COURT:
30 Q. Do you want a moment to read through this?
A. Yes, it would be helpful.
Q. It might be a good idea, so this is the, just so we are clear, this is the article. What is the heading for this article.
MR PHANTOM:
So it says “Business farm sales down in 2009” and it’s dated 21 January 2010.
5 CROSS-EXAMINATION CONTINUES: MR PHANTOM
Q. So just have a read and tell me when you're ready to talk about it. Now so do you have any comment on that? I mean is, do you take any issue with what the Herald is reporting about actual sales experience or prices?
10 A. Not in general terms because that is what ha – everything just stopped that time. Some farms sold that had to be sold for whatever reason and that wasn’t only financial reasons. People sometimes get to a stage in their life and they need to sell their prop – so those sort of transactions went on but farms that were well established productively and in good
15 financial positions and so on generally didn’t meet that early market. They held their properties and that’s why this, the volume of sales were so low. You know people just weren't going to sell into a what they perceived to be a poor market so yes there was a volume of sales reduction because of that but some other work I've, I've done through
20 that period the good farms in the good locations, an example would be two or 300 hectares at Matamata quite suddenly didn’t change in value because it’s a good property.
1115
Q. Okay so you'd accept though that in that sort of market, you said it’s a
25 poor market, people don't want to put their farms into and what you mean by that is there is little demand for farms, correct?
A. It’s a combination, no demand or low demand, there is a huge element of cautiousness.
Q. Would you agree the consequence of that is a lower price?
30 A. If people had to go into the market in those circumstances there would be a downward movement in the price.
Q. But just take this farm for example, so are you aware what was offered for this farm on 10 September 2008?
A. Sorry I didn’t catch that?
Q. Are you aware of what was offered as a purchase price for this farm in September 2008 by Battery Farms?
A. Not absolutely sure but I think it was $3,600,000.00.
5 Q. No, it was $6.2 million and that included what's known as the primary Douglas Fir and it included the Trading Post and all the forestry?
A. No, I wasn’t aware of that.
Q. And then are you aware that Varley Morton in what, May 2009 said that it was worth, all of that same property was worth about $4.65
10 million?
A. That’s not the Varley Morton report I've got.
Q. That’s fine, anyway so let’s come back to the general position. Could you just take a look at the second document, now this is headed, “Dairy farm prices tumble 25%,” by Adrian Chang and it’s dated 17 July 2009,
15 just take a minute to read that and tell me when you're ready.
A. That’s the sort of comment that was being made at that time and but again the volume of sales is very low or was very low.
Q. Well that’s true but do you know that this is 10 days before the transaction we’re worried about?
20 A. I can't hear you I'm sorry.
Q. Sorry do you note that this article is written days before the transaction that we’re concerned with?
A. I see the date, yes.
Q. And do you see that it says that prices of dairy farms are a full 25%
25 lower than at the same time last year?
A. They would’ve taken that 25% from the sales that did occur, there would've been a very low number of sales, it was based on a very – that assumption or not that, that calculation would be based on a very low amount of data.
30 Q. I want us just to be clear, I've understood your point that you say there were a low amount of sales, I understand that and my response to you and you're welcome to comment on it, is the reason there are a low number of sales is because if someone sold their farm on that market they would get a lower price, do you have any comment about that?
A. Yes, that’s why they didn’t sell, that didn’t mean in my view that their asset, you know, reduced by 25% across the board, it just doesn’t happen.
Q. Could you just take the third document I handed you which is a graph
5 and it’s headed, “Box B dairy farm land valuation, an examination based on price multiples,” and it’s taken from the Reserve Bank of New Zealand website and this is a graph that shows the land price per hectare and the land price per kilogram of milk solids over a period from 1978 through to past 2014, do you see that?
10 A. Yes.
Q. And do you see that according to this graph some time in 2008 prices on those two metrics fall off a cliff?
A. Yes through here, yes.
Q. So let’s just come back to your brief. Would you agree with me that that
15 third paragraph could've been expressed in a less, well in a more troubling way, let’s put it that way, that it might understate the actual position for someone who was selling a farm in July of 2009?
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A. I think that’s a reasonably balanced assumption of what was going on
20 for us that were working in the valuation work, valuation profession at that time.
Q. Well so the Real Estate Institute figures show dairy prices falling by 25%, I accept on a lower volume but that doesn’t seem to be something that you're conveying in that paragraph. You just refer to the low
25 volume leaving an unclear picture, is that fair?
A. Interestingly, I don't know whether the – in my first brief, did you have a graph attached to it? The original.
Q. I don't know but anyway let’s move on from that, can you just turn over the page and let’s see what this paragraph’s doing. So have a read of it
30 and I’m just going to ask you some questions. Now would you agree with me that what you're really saying here is a few things. One is, you're saying, good news though prices for pastoral products were pretty good at least as far as price of lambs for example. You then acknowledge that wool was disappointing. You also acknowledged that
the dairy payout was down but then there’s more good news because it improved in the 2009/2010 season when the payout was $6.37 and then you note that, yes, finance was a limiting factor but again some more good news, interest rates were lower than they had been for some time.
5 What I’m going to put to you is that if His Honour were to read this, he is supposed to take from this that even though we’re in the middle of the global financial crisis and it’s in full effect, the situation is actually pretty good when you look at it in the round. Is that fair?
A. I don't think so. There were a lot of problems out there and we knew
10 about those but there was also an element of – people were, you know, it wasn’t all gloom and doom among the market, among the people that we were working with. There were problems, we acknowledged that but not everyone had a problem by any means.
Q. Let’s just look at that a bit more closely. So you say that the dairy
15 payout was down from $7.66 to $5.20 in 2008/2009 but then it improved to $6.37, do you see that?
A. Yes.
Q. Did you pay any attention to the question of when it improved?
A. (no audible answer 11:23:31).
20 Q. Let me ask a different question. Can you tell me when the $6.37 was announced?
A. The date?
Q. Just roughly is fine.
A. It would’ve been late winter, early spring of that year.
25 Q. Of which year though? A. 2009.
Q. Well I’m going to correct you there. It was actually announced in September 2010 at the end of the 2009/2010 season, do you have any comment on that?
30 A. No I don’t.
Q. Well would you agree with me that up until 27 July 2009 when this sale occurred, the prediction was actually that the payout would be even less than the previous year?
A. Yes I would say that. 2008/2009 was $5.20 down from $7.66.
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Q. No I’m asking a different question. So that was the 2008/2009 prediction, I was asking you about the prediction – sorry, price I should say. I was asking you about the prediction for the 2009/10 season and
5 I’m asking you, would you agree with me that up until this transaction we’re concerned with here it was predicted to be even less for the price for the ‘08/’09 year?
A. I don’t recall that but I do accept that.
Q. Well let’s just get some confirmation. If you could just take back that
10 article headed, “Dairy farm prices tumble 25%” and if you look at the third paragraph of that you can see that the Fonterra payout has swung to a current forecast of $4.55. Do you see that? Sorry I'm looking at this one, it’s the article headed, “Dairy farm prices tumble 25%”?
A. Yes, I see that paragraph.
15 Q. So look we all make mistakes, but would you agree with me that what is written in that paragraph does not really give His Honour a fair account of what was really happening to product prices actually leading up to the sale?
A. I think it’s you know due to the uncertainty at the time I don’t think, I
20 think we, well I've summed it up reasonably well.
Q. Well sorry I have to take issue with you there because you're referring to a subsequent increase in the payout which happened over a year later which as at the time of the transaction the prediction was 455 so I’d like to know how that is a fair description of what’s going on?
25 A. I, I remain of my opinion. The thing is we didn’t know, we were in an environment where we actually didn’t know what was going on to any great degree. We had the real estate people making these sorts of announcements. We had our own organisation gathering information and we were working in the market and dealing with people constantly
30 through that period.
Q. Wouldn't it be fairer to say that everyone knew it was bad, they just didn’t know how bad it was going to be in the future? Wouldn't that be fairer?
A. That would be a fair comment. We didn’t know.
Q. Sorry you said that would be fair?
A. I said we didn’t know how bad it would get and in fact I would say in our view it didn’t get as bad as we thought it might get.
THE COURT ADDRESSES MR PHANTOM (11:28:01) – PUT PROPOSITION
5 AGAIN
CROSS-EXAMINATION CONTINUES: MR PHANTOM
Q. Yes the proposition I'm putting to you is at the time the actual general view of things in this market was that things were bad but people were unsure about how bad it was going to be in the future?
10 A. At that time, yes.
Q. Right that’s fine. Just let’s look at your last comment, so “While availability of finance for land purchase was a limiting factor, interest rates were lower than they had been for some time.” I think that you'd accept that there was as credit crunch in effect in this period?
15 A. Because of the GFC circumstances, yes.
Q. And you'd accept it was very difficult to borrow funds from banks to fund farm purchases for the usual, for the average farmer?
A. It was very difficult. The criteria was much tougher than it had been.
Q. So that’s something of a mixed blessing, isn't it, when his – in a sense
20 of, yes, if you could get a loan it was a reasonable interest of six to 7% but most people couldn't get a loan, correct?
A. Our experience was when we were doing valuation for banks through that time that any proposition that was good and obviously the bank defined that as what it thought was good, would get money.
25 Q. Well there will be expert evidence about from the executors so we can perhaps leave that to me and that might be a good point to stop Sir.
COURT ADJOURNS: 11.29 AM