Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 6)

[1996] FCA 127

CATCHWORDS

EVIDENCE - expert opinion evidence on foreign law - distinction between content and application of foreign law - general law rule that evidence of content admissible but evidence of application to facts inadmissible - whether any difference made by abolition of "ultimate issue" rule by para 80 (a) of Evidence Act 1995 - distinction between legal and other experts - intrusion into essential judicial function.

Evidence Act 1995 ss 76, 80.

United States Trust Company of New York v Australia and New Zealand Banking Group Limited (1995) 13 ACLC 1225.

ALLSTATE LIFE INSURANCE CO & ORS v AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS (No 33)

Nos NG 381 of 1994, NG 523 of 1991, NG 622 of 1991, NG 635 of 1991 and NG 193 of 1996.

Lindgren J
Sydney
26 March 1996

IN THE FEDERAL COURT OF AUSTRALIA    )
NEW SOUTH WALES DISTRICT REGISTRY    )
GENERAL DIVISION  )
  No NG 381 of 1994

BETWEEN:

ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
  Applicants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
  Respondents

No NG 523 of 1991

BETWEEN:

ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
  Applicants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
  Respondents

No NG 622 of 1991

BETWEEN:

ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
  Applicants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
  Respondents

No NG 635 of 1991

BETWEEN:

ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
  Applicants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
  Respondents

No NG 193 of 1996

BETWEEN:

PROSPECT STREET HIGH INCOME FUND PORTFOLIO INC and the parties listed in Annexure A to the statement of claim.
  Applicants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the statement of claim.
  Respondents

CORAM:Lindgren J

PLACE:Sydney

DATE:26 March 1996

REASONS FOR JUDGMENT (No 33)
       (Ruling on admissibility of expert opinion evidence
  as to foreign law)

INTRODUCTION
Yesterday, the applicants read an expert witness statement of Theodore Altman dated 12 December 1995.  Objection was taken to para 24.  Submissions were made by the applicants and by the
first cross respondent, Skadden Arps Slate Meagher & Flom ("Skadden"), for and against its admissibility respectively.  I said that I would give my ruling this morning.  The following is that ruling.

BACKGROUND
According to the statement, Mr Altman will give evidence when he adopts his statement in the witness box to the effect outlined below. 

Mr Altman became employed in 1967 as an attorney with the United States Securities & Exchange Commission ("SEC") in its Washington DC office.  Over time he was promoted to positions of increasing responsibility, including those of Assistant Chief Enforcement Attorney of the SEC's Division of Corporate Regulation and Assistant Director of the SEC's Enforcement Division.  His duties included conducting and supervising SEC enforcement actions nation wide growing out of violations of the Securities Act 1933, the Investment Company Act of 1940 and the Investment Advisers Act of 1940.  At the SEC he had supervisory responsibility over numerous cases and had approximately 25 SEC staff attorneys working for him. He left the SEC in 1975 to become an associate with the law firm at which he has been a partner since 1976, Gordon Altman Butowsky Weitzen Shalov & Wein.

I need not set out further details of Mr Altman's qualifications.  They are impressive.  He is clearly an attorney who has a wealth of knowledge and experience in the area of securities law and
practice, and in particular, in the administration of securities law by the SEC.

Mr Altman has been retained by the applicants to express opinion as an expert on certain matters relating to the process of registering securities in the United States, the registration statement filed with the SEC by Linter Textiles Corporation Limited ("Linter Textiles"), and the prospectus which was distributed to prospective investors in respect of Linter Textiles' offer of the US$200 million 13.75 per cent senior subordinated debentures in late 1988, the subject of these proceedings.

In paras 3 to 14 of his statement, Mr Altman gives a "General Overview of the Laws Concerning the Offer and Sale of Securities in the United States."  In para 15, he turns his attention to the facts of the present case.  He says that he has assumed that the facts referred to in paragraphs 1, 4‑9, 19A, 20, 22B, 23‑24, 25A, 25B, 26, 28‑34, 36‑40, 44‑45, 48‑50, 51(a), 52, 54 and 57 in the third further amended statement of claim are true and correct and incorporates them, by reference, as forming the basis of his understanding of the facts of this case.  He then adds:

"The following, set forth in paragraphs 16 to 21 below, is a brief description of some of the relevant facts as I have assumed them, and is not intended to represent the extent of the facts as pleaded and understood."

In paras 16 to 21, Mr Altman gives an account of those general
background facts relating to the issue of the Linter Textiles debentures.

In para 22 and following paragraphs, he turns his attention to the requirements of disclosure in a registration statement as those requirements apply, or might apply, to guarantees given by an issuer of debentures.  For example, in the first sentence of para 22 he says:

"Guarantees by an issuer or its subsidiaries may be required to be disclosed in a Registration Statement and failure to do so may constitute a material omission as a matter of law. The threshold issue in considering whether disclosure of any fact, condition or situation is required is whether its omission would render the statements made in the Registration Statement materially misleading..."

He proceeds to explain, again in general terms, the legal significance of the expression "materially misleading".

I digress to say that the notion of a non‑disclosure which is "materially misleading" arises from sub-s 12(2) of the Securities Act of 1933 which is relevantly as follows:

"12.Any person who -

(1)........ ........ ........ ........ ........ , or

(2)offers or sells a security ... by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading ...

shall be liable to the person purchasing such
security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security."

The contentious para 24 of Mr Altman's statement reads as follows:

"24.In my opinion, the subsidiaries' guarantees and the plans and negotiations concerning the subsidiaries' and Linter Textiles' replacement guarantees as set forth in the Third Amended Statement of Claim, were material facts as a matter of law, because no reasonable prospective purchasers of the Debentures, which would be subordinated to all other debt, would disagree that those facts would be important considerations in deciding whether to invest in the securities.  As a matter of law, omission of the existence of the guarantees and the plans and negotiations to remove and then replace the guarantees caused the Registration Statement and its Prospectus to be materially misleading. Similarly, the statement in the Registration Statement and Prospectus that there was no senior debt is a material misstatement of fact. Accordingly, based on the facts that I have assumed, as set forth herein, Linter Textiles, Linter Group and the respondent directors would be liable under the Act to persons who purchased the Debentures in the Offering."

THREE GROUNDS OF OBJECTION
Skadden objects to the admission of para 24 on three grounds.  The first is that the paragraph does not satisfy the requirements of the admissibility of opinion evidence as to foreign law.  The second is that the witness has failed to state all the assumptions underlying the opinion which he gives.  The third is lack of expertise of the witness to express the particular
opinion found in para 24.  I will deal with these grounds of objection in the sequence mentioned.

FAILURE TO SATISFY THE REQUIREMENTS OF THE ADMISSIBILITY OF OPINION EVIDENCE AS TO FOREIGN LAW.
There is no dispute between the parties about certain relevant general law principles.  It suffices to refer to the following recent statement by Sheller JA in United States Trust Company of New York v Australia and New Zealand Banking Group Limited (1995) 13 ACLC 1225 at 1236:

"A distinction is to be drawn between the content of foreign law which this court would treat as a question of fact, about which evidence is receivable, and the application of foreign law once its content has been ascertained, upon which evidence is not receivable..."

(The following further authorities were referred to in support of the same general proposition:  Di Sora v Phillipps (1863) 10 HLC 624 (11 ER 1168) at 633, 636-642 (Lord Chelmsford), 1172-1175 (Lord Cranworth); Rouyer Guillet et Compagnie v Rouyer Guillet & Co Ltd [1949] 1 All ER 244 (CA); United States Surgical Corp v Hospital Products International Pty Ltd (unreported, NSW McLelland J, 19 April 1982); Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1982) 1 IPR 315 (NSW/Powell J) at 325; National Mutual Holdings Pty Ltd v The Sentry Corporation (1989) 22 FCR 209 (Gummow J) at 226; Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited (unreported, FCA/Beaumont J, 13 September 1994, at 22).  The distinction is between identifying and expounding, in general  terms, the scope, meaning
and effect of relevant statutory and non-statutory foreign law ("content evidence") and opining how that foreign law applies to the facts of a particular case ("application evidence").

If the position were left to the general law, Mr Altman would be entitled to identify and expound United States law relevant to the circumstances of the present case as he assumes them to be, as he has done, for example, in para 22 of his statement quoted earlier.  But it would be a matter for this Court to decide how that law applies to the facts of the case, not for Mr Altman to express an opinion on that question as, in my view, he has done in para 24 (see discussion of the third ground of objection later).

It seems to me that the critical question is whether any difference has been made by the Evidence Act 1995 ("the Act"). Section 80 of the Act provides as follows:

"80.Evidence of an opinion is not inadmissible only because it is about:  

(a)a fact in issue or an ultimate issue; or

(b)a matter of common knowledge."

The language assumes that evidence of an opinion may be inadmissible for other reasons, but makes it clear that it is not to be excluded "only" because it is "about" a fact in issue or an ultimate issue.

Skadden submits that para 80 (a) has a different genealogy from
the rule excluding opinion evidence. It also submits that before any question under s 80 arises, it is necessary for the opinion evidence tendered to satisfy sub-s 55 (1), which provides that:

"The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding."

Skadden submits that para 24 cannot "rationally affect ... the assessment of the probability of the existence of a fact in issue in the proceeding."

The applicants submit that by incorporating reference to "the ultimate issue", para 80 (a) has removed the only ground on which para 24 might have been arguably inadmissible.

In my view para 24 is not admissible. It is not admissible for reasons which are not encompassed within the "reason" referred to in para 80 (a), namely, being "about ... an ultimate issue". In my view, those words are not apt to refer to expert legal opinion which impinges upon the essential curial function of applying law, whether domestic or foreign, to facts. I confess to finding it most difficult to accept that the Australian Law Reform Commission or the legislature intended by the modest terms of s 80 to make admissible in all cases before the courts the opinions of those trained, studied or experienced in the law as to how the curial function is properly to be performed.

I find it convenient at the outset to state some principles of the general law against which, in my view, the effect of para 80 (a) is to be determined.  It is fundamental that the ascertainment of the law relevant to a matter before a court and its proper application to the facts of the particular case are of the essence of the judicial function and duty.  Although those processes are properly the subject of submission, evidence of opinion, whether as to the identification of the relevant law or as to its proper application, is not admissible.  The rationale underlying this fundamental principle may be expressed in various closely related ways: to admit such evidence would be to permit abdication of the judicial duty and usurpation of the judicial function; such evidence cannot be allowed to be probative or to rise higher than a submission; such evidence is necessarily irrelevant.

In the case of foreign law, the only variation required to the foregoing statements is that foreign law is proved in the way in which facts are proved (this is what is meant by statements that foreign law is proved "as fact"), whereas the court is presumed to know the public laws of the State.  But foreign law remains law to be applied by the Court.  It has been said that where there is a jury, "the only sound view, either on principle or on policy, is that it should be proved to the judge, who is decidedly the more appropriate person to determine it": Wigmore on Evidence (J H Chadbourn (ed), Little Brown & Co, 1981) vol 9, § 2558 at p 687, and authorities there cited.  Accordingly, evidence of opinion as to the proper application of foreign law
to fact is not admissible.

It would take clearer language than that of para 80 (a) to displace the fundamental principle to which I have referred.  The origin of para 80 (a) can be traced back to the Law Reform Commission's Interim Report on Evidence (ALRC 26, 1985) and its Final Report on Evidence (ALRC 38, 1987).  I do not find it necessary to set out in detail what the Commission had to say about "the ultimate issue rule" or its abolition.  Paragraph 743 (pp 411‑415) of ALRC 26, vol 1, sets out the background.  Apart from an oblique reference to "the unlikelihood of experts in law being called" (at p 414), the paragraph does not refer to expert opinion on domestic law or the application of foreign law and in my view the Commission did not have that subject in contemplation as an object of its recommended reforms.  Rather, the paragraph was addressing non-legal opinion evidence, whether by a non-legal expert witness or a non-expert witness, which stumbles into the forbidden area of applying what could be regarded as a legal standard to facts (cf R v Palmer [1981] 1 NSWLR 209 (CCA) at 214G (Glass JA); R W Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 34 NSWLR 129 (Giles J) at 130F-131G).

In the Bill which accompanied ALRC 26, the form of provision recommended was as follows:

"69.Evidence of an opinion is not inadmissible by reason only that it is about a fact in issue."

In its final report, apart from suggesting an inclusion of a reference to "common knowledge", the Commission did not deal with the question covered by cl 69 (ALRC 38, ch 11, paras 148-151).  The form of cl 69 finally recommended by the Commission was as follows:

"69.Evidence of an opinion is not inadmissible by reason only that it is about ‑

(a)a fact in issue; or

(b)a matter of common knowledge."

The words "or an ultimate issue" were inserted following the words "a fact in issue" in para (a) in the Evidence Bill 1991 (Cth).  But the intention seems to have been to do no more than to give effect to the recommendation of the Commission discussed above - something which it was apparently thought might not be achieved by the mere reference to "a fact in issue".

The significance of s 80 has been referred to in two cases. In Westpac Corporation Limited v Jury, unreported, Supreme Court of NSW, 17 October 1995, Rolfe J also did not construe the section as referring to the ultimate legal issue for determination by the Court.  In Pepsi Seven‑Up Bottlers Perth Pty Ltd v Federal Commissioner of Taxation (1995) 132 ALR 632 Hill J also considered para 80 (a) but in a respect not presently relevant.

Paragraph 80 (a) does not dissuade me from concluding that Mr Altman's application evidence in para 24 of his statement is not admissible for the same reason that content evidence and application evidence in relation to domestic law is not
admissible.

There are various ways of expressing support for the conclusion which I have reached.  First, the use in para 80 (a) of the words "only" and "about" signify that the provision leaves untouched the fundamental common law principle which excludes expert legal opinion evidence as intruding upon the essential judicial function and duty to which I referred earlier.  Secondly, the expression "an ultimate issue" does not catch "the ultimate legal issue" for decision by a court. Thirdly, no issue arises under s 80 because s 55 is not satisfied since the evidence tendered is not evidence which could rationally affect the assessment of the probability of the existence of a fact in issue.  Fourthly, reference to the legislative background shows that the reference in para 80 (a) to the "ultimate issue" was intended to refer to opinion by non-legal expert witnesses or non-expert witnesses on an ultimate issue of fact expressed in language which applies a legal standard.

For the foregoing reasons, on the first ground referred to, para 24 is not admissible.

FAILURE TO STATE ALL ASSUMPTIONS
Skadden submits that Mr Altman has failed to state all the assumptions which he made (see Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 (FC) esp at 347, 352-353). That submission calls for a view to be formed as to the true meaning of para 15 of Mr Altman's statement. I think that it signifies
that the assumptions to the effect of the matters referred to in the various specified numbered paragraphs of the third further amended statement of claim to which he refers in para 15 represent all the assumptions which he made.

LACK OF EXPERTISE
The final ground of objection is that the witness lacks expertise to give the opinion expressed in para 24.   In my view there is substance in this ground. 

The applicants submit that, properly understood, para 24 is content evidence, not application evidence (so that the first ground of objection cannot arise).  It is put that Mr Altman is saying, in effect, that in the United States a judge would take away from a jury the question whether or not the prospectus was misleading because no reasonable person would fail to regard the intention to give the guarantees as material to the decision to buy.  However, I read para 24 as based upon what is a generalised description of actual investor behaviour contained in the first sentence.  Critical to the whole paragraph, in my view, is Mr Altman's statement "that no reasonable prospective purchasers of the Debentures, which would be subordinated to all other debt, would disagree that those facts would be important considerations in deciding whether to invest in the securities." 

In order to establish the qualification to express the opinion so understood, Mr Altman would need to be qualified to give evidence of investor behaviour.  His expertise is as an attorney,
albeit an attorney highly qualified in respect of securities law and in the related policies and practices of the SEC as regulatory authority.  However, that expertise does not entitle him to express the opinion that no reasonable prospective purchaser would in fact act in a particular way.  Accordingly, on that ground also I disallow para 24.

I certify that this and the preceding 14 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:4 April 1996

Heard:         25 March 1996

Place:         Sydney

Decision:      26 March 1996

Appearances:    Mr A R Emmett QC with Mr W G Muddle and Mr D R Stack of counsel instructed by Deacons Graham & James appeared for the applicants.

Mr S J Gageler with Dr A Bell of counsel instructed by Dibbs Crowther & Osborne appeared for the lst cross respondent (Skadden Arps Slate Meagher & Flom).