ASIC v Rich

[2006] NSWSC 980

CITATION:	ASIC v Rich [2006] NSWSC 980
HEARING DATE(S):	7 September 2006
JUDGMENT DATE :	21 September 2006
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Production not required
CATCHWORDS:	EVIDENCE - defendants' witness gives evidence of the existence of certain documents - plaintiff calls for production of documents - whether court should decline to require production on discretionary grounds
PARTIES:	Australian Securities and Investments Commission (P) John David Rich (D1) Mark Alan Silbermann (D4)
FILE NUMBER(S):	SC 5934/01
COUNSEL:	R B S Macfarlan QC with J P A Durack SC (P) D L Williams SC with M J Steele (D1, D4)
SOLICITORS:	Georgina Hayden, Solicitor for Australian Securities and Investments Commission (P) Thompson Eslick (D1, D4)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

THURSDAY 21 SEPTEMBER 2006

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS

JUDGMENT

1 HIS HONOUR: These are the reasons for my decision (T 14,414) not to require production by Mr Maizels, a witness for the defendants, of any of the subject matter of a call made by ASIC at T 14,182.47 to 14,183.6.

2 There has been a considerable amount of evidence given at the hearing as to claims that there was $40 million of unbilled call data in One.Tel at the end of March 2001. Mr Rich addressed the subject in his affidavit (at [518]-[519]). He was cross-examined about the matter. It was put to him (T 11,777) that the daily cashflow spreadsheet 2704jrmssh contemplated the billing of further amounts in respect of backbilling, but those amounts were largely not able to be billed, and he replied that a substantial portion of the data at the time that he left One.Tel and at the time of the voluntary administration had not been billed but could have been billed. It was then suggested to him that the amount of the $40 million of backbilling referred to at the March meeting of directors which was in fact billed at any time was significantly less than $10 million. Mr Rich replied:

"No, Mr Macfarlan, and I'm very happy to explain where you can go and have a look to test what you are putting to me."

3 Later he was asked (T 11,795) to identify the place or documents to which he was referring in that answer. He replied:

"As I sit here now, the two places that I would certainly go and look would be the March and April 'to be billed' reports and then a report from the billing system of unbilled data at whatever date we’re choosing to run the report for."

4 He was asked whether the documents to which he had referred in that answer were estimates and he said they were not. He was asked whether he suggested there was unbilled data that the administrators or liquidators failed to bill and he answered, "Yes, I think that's a possibility". It was put to him that he did not know that to be the case and he said (T 11,796), "I would have to look at some documents to answer that question".

5 During the re-examination of Mr Rich, he was referred to this evidence and especially the answer at T 11,795. He was asked (T 12,689) whether a report of that nature had been prepared by him and he answered in the affirmative. He was asked (T 12,690) what were the documents to which he referred when he said he would have to look at some documents to answer Mr Macfarlan's question, and he answered, "I had in mind the report that we ran in about 2003". He was then shown a document that became MFI 748 (and eventually Exhibit D 34) and he said that was the report he had in mind.

6 Senior counsel for the defendants tendered MFI 748, and another document that was intended to assist to explain the first document (MFI 749; Exhibit D 35). There was discussion about the tender, and some rulings by me, and eventually the defendants read the affidavit of Mr Maizels, a computer programmer, made on 8 August 2006. In para 6 of the affidavit, Mr Maizels said that in 2003 Mr Rich had asked him to assist in preparing a report showing "what would have been billed when" if the billing data in the billing system had all been billed in a timely manner (this paragraph was not read by the defendants but was brought into evidence during cross-examination). The affidavit explained how the report, which related to March 2001, had been prepared, referring to the source database and computer programs used to fashion the report.

7 Mr Maizels was cross-examined. He said that there were some other reports produced that had looked at February (T 14,170) and January (T 14,171). Senior counsel for ASIC called for those reports and they were eventually produced (T 14,178). Then he was asked (T 14,180) whether there were other reports created pursuant to the instructions he had received from Mr Rich and he said, "there are a number of reports that look at the same question in different ways".

8 Senior counsel for ASIC made the following call (T 14,182):

"I call for the production of the reports described by Mr Maizels as being 'a number of reports that look at the same question in different ways' referred to by him at T 14,180. I also call for all reports, draft reports and other documents recording the result of performance of Mr Maizels of the instructions referred to in paragraph 6 of his affidavit."

9 The call was resisted and after hearing submissions I ruled that I would not require production (T 14,414). I was informed by senior counsel for the defendants that more than just one or two documents would fall within the terms of the call, even if it were construed narrowly. I expressed the tentative view that the call did not extend to production of the database and programs used to prepare the report (T 14,391).

10 I am concerned, at this stage in the trial, to arrive expeditiously at the point where ASIC and the defendants have closed their respective cases and ASIC has closed its case in reply. At the time of my ruling, the case had continued for nearly three weeks beyond the scheduled close of evidence according to the most recent timetable. One of the reasons for that related to the tender of MFIs 748 and 749 and the evidence of Mr Maizels. Overshooting the evidentiary timetable has undesirable consequences in terms of cost to the parties and the court's planning of the allocation of its resources. Additionally, it is important as a matter of case management to reach the point where both sides declare to the court that their evidentiary cases (the defendants' case, and ASIC's case in reply) are closed, so the parties can get on with the job of preparing their final submissions knowing that all of the evidence had been presented.

11 As result of hearing submissions, I formed the view that it would be possible for the defendants to comply with the call without any substantial delay, although senior counsel for the defendants informed me (T 14,392) that the legal team had not yet identified and brought together material in the possession of the defendants themselves but not in the possession of Mr Maizels. Perhaps that could be done within days. However, what would be produced would be a substantial quantity of material that would require interpretation with expert assistance. As senior counsel for the defendants reminded the court (at T 14,395) the reports for which the calls were made are not reports in the English language; they are spreadsheets of various kinds, run off different computer programs. I was concerned that the production of the material would lead to a series of further, time-consuming steps.

12 When the defendants filed Mr Maizels' affidavit, ASIC took various steps with a view to obtaining expert assistance in responding to it and cross-examining on it. Those steps were outlined in the affidavit of Joseph Kouper made on 30 August 2006. According to that affidavit, it was necessary to transfer the billing database, contained over 6 tapes, to disk and then load the disk onto a computer, a process that took about 20 hours. ASIC's Forensics and Electronic Enforcement Team organised the purchase of computer hardware for accessing the billing database, and ASIC also had to acquire software for that purpose, which was superseded software not readily procurable. Once the billing database was available in accessible form, Thomas Harman (ASIC's consultant, a computer programmer) interrogated the database and prepared his own report, which included his affidavit of 14 September 2006. That process took over four weeks.

13 When I made my ruling about the call, it seemed to me there was a substantial risk that the production of the material would lead to a similar process, involving some, though probably not all, of the steps described by Mr Kouper. In particular, I regarded it as inevitable that ASIC would instruct Mr Harman or some other computer expert to review the produced material, and that senior counsel for ASIC would ask for time to do so, postponing the completion of Mr Maizels’ cross-examination for that period. That review, taking perhaps a week or so, would probably lead to a request by ASIC for access to the programs used to produce the reports (though probably not the database, which would be likely to be the same database as for the March report). The process of dealing with that request and supplying the programs (assuming a contest resolved in favour of ASIC) might take another week. Then ASIC's expert would review the material and the programs, perhaps taking another two weeks to do so. This suggests a period of roughly a month.

14 Senior counsel for ASIC submitted that the court should not assume a lengthy process of preparation for cross-examination on the produced material, because ASIC was able to deal with the January and February reports in cross-examination without any delay. But those reports, as I understand them, were based on the same database and programs as the March report in MFI 748. Reports that look at "the same question in different ways" could very well involve different programs, although probably not any different database.

15 The estimate of about a month does not take into account another important factor. Senior counsel for the defendants informed me that he had not yet had the opportunity to review the material that Mr Maizels had identified in response to the call, with a view to advising his clients whether they should make a claim for privilege in respect of any of it (T 14,393-4). "Privilege" extended to both client legal privilege (principally litigation privilege but perhaps also legal advice privilege) and penalty privilege, the latter on the assumption that the call was a form of discovery application against the defendants (T 14,408).

16 Senior counsel for ASIC informed the court (T 14,409) that if penalty privilege were to be claimed by the defendants in response to the call, then while not generally accepting the position, ASIC would not want to put any submissions in opposition to the claim. Consequently, if penalty privilege were claimed then a decision might be reached on that claim quickly and, in the absence of opposition from ASIC, favourably to the defendants. Making and dealing with the penalty privilege claim would not consume very much time. According to the submission by senior counsel for ASIC (T 14,410), there would remain the question of production by the witness. Issues of client legal privilege might arise in respect of that question.

17 Dealing with claims for client legal privilege might be a different matter. I inferred that the process of reviewing the material for that purpose and taking instructions would take only a day or two, once all the material had been identified. It seemed to me that there was a significant probability that a claim for privilege would be made. If the claim for privilege was made in such circumstances, it is likely that it would be contested and the defendants would need to support their claim by evidence, probably by affidavit. That evidence might be challenged in cross-examination. Those processes might add another two weeks.

18 All things considered, I reached the view that there was a substantial risk that if I required the call to be answered, I would thereby defer the closing of evidence for a period of weeks, perhaps as long as 6 weeks. I expressed that apprehension to senior counsel for ASIC and while he sought to persuade me that 6 weeks would be too pessimistic an assessment, he conceded that it was possible (T 14,403, T 14,404). Senior counsel for the defendants informed the court (T 14,406):

" I think it certainly is quite possible that it could extend that long or even longer. It might be somewhat shorter, but once the process is started, who knows how far it will go."

19 Senior counsel for the defendants referred to the call as a "fishing exercise" (T 14,395). Without going that far, I was concerned that the investigation that would be undertaken by ASIC if the call was allowed would move well away from the circumstances in which Mr Maizels' evidence was adduced. Mr Maizels' affidavit was read in support of the tender of a single document identified by Mr Rich in cross-examination and re-examination. It seemed to me likely that if the material was produced and ASIC were given the opportunity to investigate it, what would develop would be an inquiry of a much broader kind involving Mr Rich's work with his computer programmer on the billing data. I did not think that process was justified by what had occurred.

20 I endeavoured to weigh the undesirability of such matters against the probative value of evidence that might be adduced through that process. ASIC already has the benefit (such as it may be) of the evidence given by Mr Maizels in cross-examination, in the sense that it can make submissions about his evidence and the evidence of Mr Rich in light (inter alia) of Mr Maizels' acknowledgement that there are more reports, not produced, that answer the same question in a different way. ASIC was given the opportunity to continue the cross-examination of Mr Maizels after receiving the report of its computer programmer (indeed, as it happened, ASIC was able to adduce evidence from its computer programmer). The lengthy and inevitably expensive process that I have outlined might have established that there were other reports less favourable to the defendants' case that they had chosen not to use, or it might have shown that there were good reasons for the defendants to choose to tender the report they did, or it might have left the matter in an unclear state. If the first outcome resulted, the evidence might affect the court's assessment of the volume and status of the unbilled data at the end of March or at the end of other months, and might reflect on the credit of Mr Rich and perhaps Mr Maizels. But it would be no more than one of the many evidentiary factors to be weighed up on those matters. There was a real question, in my mind, as to the degree of probability of the first outcome. My assessment, approaching the matter pragmatically, and for the purposes only of this ruling, was that there was no reason to regard any outcome as more likely than the others.

21 I therefore decided not to require the call to be answered.

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