ASIC v Rich

[2005] NSWSC 650

CITATION:	ASIC v Rich [2005] NSWSC 650
HEARING DATE(S):	15, 16, 20, 21, 22 June 2005
JUDGMENT DATE :	8 July 2005
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Some paragraphs allowed, others rejected, as particularised in the published reasons for judgment

CATCHWORDS:	EVIDENCE - expert opinion evidence by forensic accountant - admissibility on "paragraph-by-paragraph" basis - discretionary considerations
LEGISLATION CITED:	Evidence Act 1995 (NSW) ss 79, 135, 136
CASES CITED:	ASIC v Rich [2005] NSWCA 152 ASIC v Rich [2005] NSWSC 149 ASIC v Rich [2005] NSWSC 256 ASIC v Rich [2005] NSWSC 417 Butera v Director of Public Prosecutions (Vic) (1987) 164 CLR 180
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) Joanne Kelly, Solicitor (D1, D4)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

FRIDAY 8 JULY 2005

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

JUDGMENT

1 HIS HONOUR: In ASIC v Rich [2005] NSWSC 149 ("my 7 March judgment") I held that a report by Paul Carter, a forensic accountant, dated 31 May 2002 ("the Carter Report" or "the Report") was inadmissible as a whole, and in the alternative, was to be excluded as a whole on discretionary grounds. The Court of Appeal has set aside my ruling: ASIC v Rich [2005] NSWCA 152 ("the 20 May judgment"). The result is not that the Carter Report is in evidence, but only that the principle of admissibility that I applied has been held to be incorrect, and my attempts to exercise my discretion to exclude the evidence on an overall basis have been held to be impermissible. Consequently it is necessary to consider objections to the Carter report on a paragraph-by-paragraph basis (see my 7 March judgment, para 4).

2 As will be seen, the result of the paragraph-by-paragraph analysis is that most of the Carter Report will be excluded, either because of my rulings set out below or because of concessions made by ASIC. I shall hear argument on whether I should, in the exercise of my discretion under s 135 of the Evidence Act, reject the remainder of the Report and Mr Carter's supplementary evidence.

3 Mr Carter has supplemented the Carter Report with some later affidavits and reports, most notably his affidavits of 23 July 2004 and 29 November 2004 and the accompanying reports (the full list is at AS 77). Notwithstanding a strong objection from the defendants, I have decided, for reasons given in the transcript (see T 4368), that the appropriate course is to take into account this additional material in determining whether to allow or reject Mr Carter's evidence. But any application by ASIC to read additional evidence from Mr Carter will have to be supported by strong reasons.

4 In making decisions on a paragraph-by-paragraph basis, the court's task is to apply the principles stated by the Court of Appeal in the 20 May judgment and, subject to that, to apply the law as to the admissibility of expert evidence and the exercise of the court's discretion, which I endeavoured to state in my 7 March judgment. Since the principles have been set out at length in those judgments, it is unnecessary to reiterate them. Before embarking on a detailed consideration of the Carter Report in submissions, I heard submissions from the parties as to what were said to be some uncertainties and unresolved matters consequent upon the 20 May judgment. With three exceptions, I do not intend to deal with those questions at large, but only as and when they arise in the paragraph-by-paragraph review.

5 The exceptional matters that require general comment are these. First, having regard to the Court of Appeal's judgment, it is necessary to consider, paragraph by paragraph, whether each opinion in the Carter Report is supported, on the face of the Report, by asserted reasons which present a chain of argument from proven or assumed facts which is capable of supporting Mr Carter's opinion. Where that is so, the fact that Mr Carter obtained extraneous information which assisted in him to develop his opinion will not necessarily provide a basis for excluding the opinion and reasoning on grounds of admissibility or discretion (20 May judgment, at [169]-[170]). Where, however, there are gaps in the reasoning process or it is otherwise faulty, and the court concludes that Mr Carter reached his opinion in reliance upon extraneous information, it is open to the court, consistently with the Court of Appeal's judgment, to conclude both that the probative value of the asserted reasoning and opinion is weak or non-existent and that there is a danger that the evidence might be unfairly prejudicial to the defendants, or be misleading or confusing, or cause or result in undue waste of time, for the purposes of s 135.

6 Secondly, in delivering the judgment of the Court of Appeal Spigelman CJ pointed out that some findings I had made about the four categories of documents that had been explored in the cross-examination of Mr Carter were matters relating to what the document was, rather than what it meant (at [35], [42], [47]). He said that Mr Carter could not give evidence of that character other than to say what each particular document purported to be on its face (at [50]), and therefore it was necessary for ASIC to establish what the documents were in some other fashion before Mr Carter's opinions would be established. Later his Honour said that where documents were not on their face self-explanatory, their significance would depend on the circumstances of their compilation, evidence of which would have to be given by someone other than Mr Carter (at [153)). Where the documents did not speak for themselves, Mr Carter's ability to give relevant evidence was, he said, in a narrow compass. He could give evidence, if based on his expertise rather than what he had been told, of a general practice, or evidence interpreting accounting records, or evidence about what a document meant rather than what it was (at [154]).

7 Frequently during the paragraph-by-paragraph analysis, senior counsel for the defendants referred to these propositions, saying that Mr Carter, when he sourced information (such as entries in tables of figures) in identified documents, was purporting, impermissibly, to give evidence about what the documents were. In my opinion these submissions reflected too broad a reading of Spigelman CJ's observations. Mr Carter was not in a position to give evidence about what obscure documents such as comparison.xls or the deferred payments listings were, or how they were compiled or what their significance was in One.Tel's financial affairs. But on a proper reading of the Court of Appeal's judgment, there is no obstacle to a person in Mr Carter's position extracting figures from a document which is whatever, on its face, it purports to be. For example, taking cash balance entries from the intranet cashflow spreadsheets does not contravene the Court of Appeal's principles, provided Mr Carter does not purport to provide some evidentiary gloss on the documents in the course of identifying them as sources.

8 Additionally, in my opinion it is consistent with the Court of Appeal's principles for Mr Carter to explain why he preferred to use one version of a document rather than another (for example, Ferrier Hodgson's March trial balance rather than the trial balance on the I:drive). This is not evidence about what a document is, but rather evidence of Mr Carter's process of reasoning applied to select a document as the source of his calculations and opinions.

9 The third matter requiring general comment relates to a frequently repeated submission by the defendants that in extracting and tabulating financial information in his Report, Mr Carter was not using his specialised expertise, and that the process in which he engaged was one that could have been undertaken by counsel in submissions. In my opinion the principles to be applied here are reasonably clear, but their application requires judgment and involves matters of degree. One aspect of the principles was enunciated by members of the High Court in Butera v Director of Public Prosecutions (Vic) (1987) 164 CLR 180. Just as it is appropriate for the court to receive a transcript as a means of assisting in the perception and understanding of the evidence in a tape recording (at 187 per Mason CJ, Brennan and Deane JJ), so it is appropriate to receive abstracts, schedules, tables or charts prepared by suitably qualified persons which explain complicated business transactions (at 190; see also at 195 per Dawson J). Another aspect of the principles is that an expert whose specialised knowledge extends to the interpretation and analysis of complex financial information, relating to the assessment of the financial health of a business enterprise, is permitted to give evidence assisting the court to understand the financial information before it, even though the evidence partly involves selecting and assembling information from documents which are in evidence before the court (see my 7 March judgment at [273]-[278]), and an accounting expert may also give direct evidence of mathematical calculations (7 March judgment at [269]-[272]). Further, an accounting expert can give evidence summarising books and records of the business enterprise without having to spell out every link between his or her opinions and specialised knowledge (7 March judgment, [311]).

10 In combination, these principles mean that the court should assess questions of admissibility and discretionary exclusion of forensic accounting evidence in a complex case pragmatically, taking into account (inter alia) whether the evidence will assist the court to make findings of fact. A forensic accountant may give the admissible evidence which involves extracting and distilling, from a mass of documents, information that he or she regards as significant, even where the documents are in evidence and theoretically, counsel and the court might be able to extract the same information without the expert's assistance. Such evidence is to be distinguished from evidence which is no more than the reproduction of information readily accessible in documents that can speak for themselves (with explication by counsel in submissions).

11 In a judgment delivered on 5 May 2005 (ASIC v Rich [2005] NSWC 417) I held that 10 categories of documents tendered by ASIC were admissible and should not be excluded on discretionary grounds. Dealing with discretion, I noted that where documents are ambiguous or obscure or there are several versions of them or reason to suspect that they may be drafts, issues arise as to probative value. But I held it would be unwise to conclude, before all the evidence had been heard, that any of the tendered categories of documents had slight or non-existent probative value, since there are interrelationships between the documents and the deficiencies of particular documents might be overcome by other evidence (at [381]). There is a similar difficulty about assessing the probative value of Mr Carter's evidence at this stage in the trial. According to the Court of Appeal's 20 May judgment, the trial court must analyse the probative value of the particular evidence to be given by the expert, before it is authorised to exclude his evidence under s 135. Given the desirability of establishing, at this stage in the trial, whether Mr Carter's evidence is or is not excluded, the court must do its best to analyse probative value, paragraph by paragraph, on the basis of such materials as are presently before it even though the analysis may well be altered by subsequent evidence.

12 Unfortunately the Carter Report does not systematically identify all the assumptions upon which Mr Carter's opinions are based, and frequently there are assertions which appear in their form to be statements of fact, but which, upon analysis, seemed to be or to involve assumptions. During the course of argument ASIC has invited me to treat as assumptions some propositions that do not of themselves appear to be assumptions. Frequently during the paragraph-by-paragraph argument, senior counsel for ASIC submitted that passages of the Report should be treated as assumptions. I have not always accepted that submission, though for the most part I have. I have decided that everything not rejected into evidence as an assumption is to be made subject to a s 136 order to the effect that the relevant statement is received only as an assumption for the purposes of the expression of expert opinions, and not as proof of the matters asserted. I have made this decision because, in my opinion, in the absence of such an order there would be a danger that Mr Carter's many statements now to be classified as assumptions might come to be used misleadingly, in the course of a long and complex trial, as evidence proving the facts asserted.

13 It is common practice for rulings to be made on the admissibility of challenged parts of expert evidence orally with only very brief reasons (which may amount to no more than accepting the submissions of one party in preference to the submissions of the other). I have decided that in the present case, it is appropriate to give brief reasons for my rulings, having regard to the importance of the issues and the nature and substance of the submissions. Additionally, I have in mind that, as the Court of Appeal has intervened in the trial process to overrule my decision to exclude evidence on an overall basis, any decisions taken by me to exclude parts of the same evidence on a more particular basis should be explained. Now that we are at the level of a paragraph by paragraph review to determine whether evidence should be admitted or rejected, I regard it as sufficient to state the essential reasons for my rulings, without responding to every submission. However, I have taken time, after conclusion of submissions, to review the transcript of argument closely, to ensure that nothing has been overlooked.

Introduction (paras 1-12)

14 These paragraphs provide information relevant to the opinions contained in the Report and the structure of the Report. They are not rejected on that basis.

15 The same ruling extends to the paragraphs, occurring throughout the report, which provide "signposts" or outlines of subsequent material (namely, paras 28, 34, 43, 44, 48, 49, 156, 193, 290, the boxed paragraph above 301, 305, the boxed paragraph above 306, 313 and the boxed paragraph above it).

Summary and conclusions (paras 13-27)

16 The fate of these paragraphs depends upon my rulings in respect of later parts of the Report. I have not found it easy to connect the summary opinions with specific subsequent paragraphs. Therefore, before ruling on paras 13-27 I shall ask counsel to assist me by providing brief notes as to what, in their submission, should be the outcome having regard to my rulings on later paragraphs.

Background (paras 29-41)

17 This segment is essentially a summary of documents such as annual reports and ASIC company extracts, and some material from board papers and flash reports. ASIC submitted that paras 29-33, 35, 39 and 40 should be treated as assumptions (and para 41 is clearly an assumption), but paras 36 and 37 (and presumably 38) were expressions of expert opinion relevant to understanding the assumption stated in para 41 (T 4351-2).

18 In my view paras 36, 37 and 38 are, upon close examination, nothing more than descriptive summaries of some or all of the contents of the flash reports and board papers. ASIC has not submitted that I should treat them as assumptions. Either they are not statements of opinion in the requisite sense, in which case they are inadmissible and the documents (if proved) should be allowed to speak for themselves; or if they contain elements of opinion, they are not based on Mr Carter's specialised knowledge as a forensic accountant, and are inadmissible under the opinion rule. I shall therefore reject them.

19 I shall allow paragraphs 29-33, 35, 39, 40 and 41 only on the basis of ASIC's submission that they should be treated as assumptions, relevant as such to Mr Carter's reasoning process. They appear to have some general relevance to admissible opinions later in the Report. They will be subject to my proposed s 136 order.

Chronology (para 42)

20 I shall treat para 42 as a series of assumptions subject to my s 136 order (see ASIC's submission at T 4355).

Actual financial position of the Group (paras 43-47)

21 In light of the rulings explained below, the following parts of these paragraphs are rejected:

· in para 43, the second part of the last sentence beginning ("and considered whether…");

· in para 46, the whole of subparagraph (a) (since para 204 is rejected), the words "failed to pay an increasing balance of overdue creditors so that" (explained below), the whole of subparagraph (d) (since paragraph 155 is rejected), and subparagraph (e) (since almost all of the debt or analysis in section 3.1 .2 of the report is rejected);

· in para 47, subparagraph (a) (because paras 207-2 and 9 are rejected), and subparagraph (c) (because paras 54 and 234 are rejected).

22 Subparagraph 46(b) is not rejected because para 118 is not rejected, and most of subparagraph (c) is not rejected because para 133 is not rejected. The part of subparagraph (c) that is rejected is an assertion that there was a failure to pay the creditors identified as overdue, and that is rejected on the same grounds as I have rejected contentions that there was a systematic deferral and management of the creditor position. Subparagraph 47(b) is not rejected because para 122 is not rejected.

Balance of available cash compared to forecast (paras 50-56)

23 Paragraphs 52 and 53 are not pressed, and ASIC submitted that the statement about cash pledged in para 51(a) should be admitted as an assumption in respect of the month-ends from 31 December 2000 to 30 April 2001, though the May month-end is in a different category (AS 79). ASIC submitted that footnote 1 to para 54 should also be treated as an assumption. My decision that paras 51 and 54 should be rejected makes it unnecessary for me to consider whether they contain assumptions.

24 Paragraphs 50 and 51 deal with Mr Carter's assertion that the cash balances reported to the board of One.Tel were based on actual bank account balances without regard to known commitments for that cash, represented by unpresented cheques and by security for other obligations; whereas unpresented cheques were deducted from the creditors ledger. In order to ascertain what he considered to be the available cash balance, he took "intranet" cash balances and deducted pledged amounts and unpresented cheques, presenting the result of the calculations, and comparing them with forecasts, in a table in para 54 and comments in paras 55-56. The intranet cash balances were kept in the Lotus Notes cashflow spreadsheets and were accessible to One.Tel management but were not provided to the board.

25 Mr Carter's reasoning process was supplemented by Appendix C to his affidavit made on 23 July 2004. There he presented three tables: the first compared intranet Group cash balances for the end of January, February and March 2001 to the amounts reported to the board in the 30 March 2001 board papers; the second deducted unpresented cheques from the intranet Australian cash balances for January, February, March and April 2001 and then compared the resulting figures with general ledger figures; and the third listed eight cheques and recorded whether they had been presented at 28 February and whether they were outstanding as per the creditors ledgers for 31 January and 28 February respectively.

26 In my view, the opinions, reasoning process and underlying documentary facts identified in paras 50, 51 and 54-56 as supplemented by Appendix C are of low probative value. It is consistent with the Court of Appeal's 20 May judgment (see [156]) to reach such a conclusion about evidence of this kind.

27 Paragraphs 50 and 51, dealing with unpresented cheques, contain three component propositions, each of which has the appearance of a statement of fact:

· cash balances as reported to the board were based on One.Tel's actual bank account balance;

· the cash balances as reported were not reduced by the amount of unpresented cheques as at the reporting date;

· the creditors ledger was reduced to reflect payment of the amounts of unpresented cheques.

28 These propositions are important to Mr Carter's overall conclusions about the financial position and performance of One.Tel, and to ASIC's case against the defendants. Financial reporting which included the amount of unpresented cheques in the reported cash balance while removing the liabilities represented by the unpresented cheques from unpaid creditors, without identifying that the unpresented cheques had been treated in this manner, would create a falsely optimistic impression of the company's financial position with respect to cash and unpaid creditors.

29 Mr Carter's three propositions were put forward by him as propositions supported by a reasoning process in which they had the character of inferences from documentary facts. ASIC has not asked the court to treat them as assumptions, so far as they relate to unpresented cheques. They are to be treated as "intermediate" opinions notwithstanding that they appear to be statements of fact (see my 7 March judgment, at [268]).

30 As to the first of the three propositions, the first table in Appendix C showed variances between the intranet balance and the amount reported to the board for two of the three months for which full figures were given (January cash was $4 million higher in the board paper than in the intranet, and March cash was $8 million lower in the board papers than in the intranet). Mr Carter said he was not aware why there was a difference for January, and his only explanation for the difference in March was that the figure in the 30 March board paper was an estimate (something that would be unlikely to explain an $8 million difference when the estimate was made a few days before the end of the month). The degree and level of variances ex facie prevents any inference being made that the figures reported to the board were lifted without adjustment from the intranet, and also prevents any inference that if the intranet figures did not account for unpresented cheques the board papers likewise did not do so. Consequently, the first table in Appendix C does not support the first proposition.

31 As to the second proposition, the second table in Appendix C presented a comparison between intranet figures, adjusted for unpresented cheques, and bank account general ledger balances. According to Mr Carter in Appendix C, the general ledger amounts were derived from a bank reconciliation which accounted for unpresented cheques and other adjustments such as outstanding deposits. The comparison would be irrelevant unless the intranet cash balances were used in the preparation of the report to the board, a matter that does not appear to have been established by the first table or by any documentary evidence relied on by Mr Carter for this purpose.

32 Another problem with the second table is that if, as Mr Carter asserted, the figures reported to the board (or recorded in the intranet) were not adjusted for unpresented cheques, but the ledgers were adjusted when the cheques were drawn and before their presentation, one would expect Mr Carter's adjusted intranet figures to have some correlation with the general ledger figures, although a full reconciliation would entail taking account of other adjustments made in deriving the general ledger figures.

33 Mr Carter noted, in Appendix C, that the adjusted intranet balances were higher than the general ledger balances, and he said:

"I note that although the amounts do not precisely reconcile, the adjusted intranet balance is closer to the general ledger balance than the unadjusted intranet balance. For example, the 28 February 2001 adjusted intranet balance of negative $0.2 million is almost equal to the general ledger cash balance of negative $0.6 million."

34 The differences for the other months are $12 million for January, $6 million for March and $2 million for April, very large differences when considered in proportion to the total figures. Even the difference of $400,000 for February is large in comparison with the net figures involved. To call the figures "almost equal" is, on the face of it, suggestive of an ex post facto rationalisation of a position reached on other grounds.

35 In my view, the fact that the adjusted intranet amounts were higher than the general ledger bank balances does not in any significant way support Mr Carter's opinion that the cash balances reported the board were not reduced by the amount of unpresented cheques. This is in circumstances where the figures for adjusted intranet balances were still substantially different from the general ledger balances, and the general ledger figures were the product of other adjustments. The probative value of the opinions contained in the first two propositions and the supporting reasoning process is therefore weak.

36 I agree with the defendants' submission (T 4381) that it is more likely than not that someone told Mr Carter that the figures reported to the board were not net of unpresented cheques, and consequently that the original source for his opinions was undisclosed hearsay. It is not necessary to identify the person who might have supplied that information, and the evidence presently before me does not allow me to do so, but I note that Mr Holmes' position would have put him in a position to know how unpresented cheques were accounted for (see Exhibit P28) and Ms Randall and perhaps Ms Nassif were involved in preparing some of the relevant documentation (see 12 0098).

37 I have reached this conclusion after considering closely, and with the benefit of full submissions, the relevant part of the Report itself and the supporting appendices on this subject; and after having listened over a period of some months to evidence concerning the extraneous influences to which Mr Carter and his team were exposed in the course of developing and stating the opinions found in the Report. I rely on the findings made in my 7 March judgment - including those at [74], [86], [94], [100], [111], [129], [130], [131], [137], [147], [158], [194], [205], [211], [213]), which show that there were ample occasions upon which Mr Carter or his staff might have received information from someone in a position to know about accounting for unpresented cheques; and those at [155], [156], [157], [158], [172], [175] [365], [367], [378], which indicate that Mr Carter was exposed to and took into account an enormous quantity of information over a period of months. It is relevant that the opinions concerning the use of unpresented cheques appeared in the 9 April draft of the Report and the reasoning process to support those opinions by reference to documents did not appear until the 23 July 2004 affidavit.

38 The Court of Appeal did not disagree with my findings of fact on these matters (see at [11]-[84], [170]), there being no appeal against my findings of fact. Spigelman CJ held that the impact of access to extraneous materials on a particular opinion could not be determined in the abstract (at [168]). Consistently with that holding, I now seek to use my factual determinations to assess the probative value of particular opinions.

39 The fact that the reasoning process supporting the first two propositions, as proferred in the Report, is weak supports the conclusion, which I have reached on the balance of probabilities, that the asserted reasoning process was part of a "backing and filling" operation engaged in by Mr Carter when he was told not to take into account the statements of witnesses (and therefore to disregard the true source for his opinions on this matter) and to rely only on documents. I do not find that there was any bad faith on Mr Carter's part. My conclusions are consistent with the view that he was not conscious of the influence of the extraneous information, which may have been brought to bear through his staff, and that he genuinely believed that his reasoning process, objectively weak though I have found it to be, supported his opinions.

40 As the Court of Appeal pointed out in the 20 May judgment (at [169]-[170]), an expert's asserted reasoning process, based on disclosed facts, may be of such logical force that the resulting opinions have probative value even though the expert also made use of excluded material in forming his or her views. But in my opinion, when the asserted reasoning process is weak, the court's conclusion that the opinion was based on unidentified hearsay information further undermines the probative value of the evidence. That is consistent with the Court of Appeal's reasoning (see at [142], [152], [167], [168], [169], [170]).

41 If Mr Carter's evidence in terms of the first two propositions were not excluded, there would be a danger that this evidence might unfairly prejudice the defendants in the following way. They would face the danger that this evidence might eventually be given weight (since my present view as to its weak probative value could be affected by the course of the hearing - for example, if other evidence explains the anomalies in the figures that Mr Carter was unable to explain). They would have to decide whether to take that risk or to embark, in cross-examination of Mr Carter and perhaps otherwise, on a process of seeking to expose Mr Carter's reliance on that information. That process might involve them putting before the court some potentially prejudicial material.

42 I accepted general submissions by the defendants to that effect in my 7 March judgment (at [ 421], [425]). The Court of Appeal did not disagree with the substance of those findings or with the fact that I had determined the risk of unfair prejudice on a general basis (at [151]). It seems to me that the danger I identified on a general basis applies in the particular circumstances relating to unpresented cheques, given the evidence noted below with respect to the reduction of the creditors ledger by the amount of unreleased cheques.

43 The findings in my 7 March judgment (at [422]), made on a general basis, about the danger of confusion and undue waste of time are reinforced by the particular circumstances concerning unpresented cheques. Extensive cross-examination of Mr Carter on this subject, comparable to his lengthy cross-examination with respect to the four example areas explored in my 7 March judgment, would be likely if the evidence were not rejected. As the Court of Appeal observed (at [178]), where documents speak for themselves or their meaning and significance is established by other evidence, the historical use of excluded material may be of little significance and cross-examination on that subject should not be not rejected. However, it is plain that where there are some real uncertainties about the documents and other facts relied on by the expert and about the expert's reasoning process, and the matters at stake are of central significance, procedural fairness demands that cross-examination be permitted.

44 For these reasons, I have decided that Mr Carter's first two propositions and the reasoning process surrounding them (comprising part of para 50, para 51(b) and the whole of Appendix C) should be excluded under s 135.

45 The third proposition is only part of the opinion put forward by Mr Carter, and does not stand independently of the first and second propositions. Since, for the reasons I have given, Mr Carter's first and second propositions are to be excluded, it seems to me that the third must consequently be excluded as well. Its probative value is weak in the absence of the other two propositions, and to retain it would give rise to a danger of confusion as well as the prospect of undue waste of time, and perhaps also a danger of unfair prejudice.

46 For the purpose of understanding the Group's cash position, Mr Carter deducted from the Group's bank balance the sum of $8.28 million for each of the months from December 2000 to May 2001, in order (he said) "to reflect bank guarantees or cash pledged to secure international lease liabilities which do not appear to have been available for payment of other obligations". He said that according to European accounting records, the bank guarantees were deducted from the closing bank balance to calculate funds available. In a footnote he referred to two documents. The first appears to be a projection of funds available in Europe on a daily basis from 1 June to 14 June 2001. That document does not provide evidence of the appropriateness of the deduction in the month ending 31 May. Further, the nature and purpose of the document are unclear and in particular, it is not clear that the document was prepared in order to calculate funds available for general purposes, as opposed (for example) to funds available to service some contemplated loan. The document does not indicate that the monthly $8.28 million is a limit on the availability of funds for general purposes, rather than simply a projected expense. The other document is Ernst & Young's report dated 28 May 2001, which calculates the "current free cash position" on a basis which, according to the report, excludes approximately $8 million of cash pledged "to secure various commitments (e.g. property leases)". Ernst & Young did not give any further explanation of the basis for making the deduction. The document does not indicate that any review of security documentation was undertaken, and other evidence concerning preparation of the Ernst & Young report indicates it is unlikely that such a review took place.

47 It would be unsafe to rely on these documents to conclude that $8.28 million of the Group's cash as at 31 May was not available, under the security arrangements for bank guarantees or international lease liabilities, for the Group's general purposes, especially when reliance on the documents ultimately leads to the proposition that the cash position reported to the board was false because of a failure to deduct that figure. Therefore Mr Carter's opinion in para 51(a) and the asserted reasoning process to support it are of weak probative value. That conclusion is reinforced by my finding (7 March judgment at [152]) that the opinion found in paras 51(a) and 54 of the final Report was developed by recourse to Mr Werner, whose reasoning process was not set out. My findings as to the danger of unfair prejudice, confusion and undue waste of time are the same in respect of para 51(a) as in respect of the opinion on unpresented cheques. Consequently para 51(a) should also be rejected.

48 There are general statements of accounting opinion implied in paras 50 and 51, broadly to the effect that when cash balances are reported, known commitments for cash represented by unpresented cheques and cash held as security for other obligations should be taken into account, and that a cash balance should not be reported without the deduction of the amount of unpresented cheques where the creditors ledger has been adjusted to reflect the payment of creditors by those cheques. But the text of Mr Carter's opinions is fact-oriented rather than general, and it is not clear from the Report whether he would wish to qualify or expand the suggested principles. In my opinion it would not be appropriate for the court to re-write the relevant passages so as to extract some admissible general statement of accounting opinion.

49 My decision to exclude paragraphs 50 and 51 leads to the consequence that paras 54-56 should also be excluded, because their purpose is to present the effect of Mr Carter's view that unpresented cheques and pledged amounts should be deducted from the intranet balances and then to compare the resulting figures with the Group forecast cash balances. Additionally, the figures for unpresented cheques are unreliable to a degree, for reasons acknowledged by Mr Carter in footnote (4) of para 54 and in Appendix O, and his analysis does not appear to reflect any distinction between unreleased cheques which cannot be presented for payment and released but unpresented cheques - matters which further weaken the probative value of para 54. Mr Carter's assertion, to be treated as an assumption according to ASIC's submission, that the "pledged" amount should be deducted in the calculation of the cash balances for the December-April months, should also be rejected because, once the opinions in paras 50-56 are rejected, the assumption has no point. In the result, paras 50-56 are rejected in their entirety.

50 ASIC has sought leave (in AS 79) to adduce further evidence from Mr Carter about footnote (2) to para 54. That application is denied, because para 54 and its footnotes are rejected as a whole for reasons that would be unaffected by further evidence of the kind envisaged by the application.

Balance of available cash - January 2001 (paras 57-61)

51 Paras 57 and 58 are, except in one respect, merely a summary of information in the table at para 54, which I have rejected. The exception is that para 58(d) compared Mr Carter's figure for the available cash balance with the flash report for January 2001. I note that the shortfall identified in those subparagraphs was produced by Mr Carter's deduction of unpresented cheques and the pledged amount, based on a reasoning process that I have found to be of low probative value in the course of rejecting paras 50 and 51. Consequently paras 57 and 58 are rejected.

52 In paras 59-61 Mr Carter presented daily figures for bank statement balances and general ledger balances for the "main operating account" of the Australian operations. He said that the Australian operations had an overdraft facility with ANZ Bank, which allowed its main operating account to be overdrawn by up to $10 million as long as there were sufficient funds in other bank accounts to offset the overdrawn balance. Mr Carter said that while the Australian operations had sufficient funds on deposit in January 2001 to offset the overdraft, there was nevertheless a violation of the gross overdraft limit on 15 January, and there would also have been an excess on 16 and 17 January had all the unpresented cheques been presented. Mr Carter said that exceeding the overdraft limit was an indication of a potentially deteriorating cash position in the Australian operations.

53 ASIC submitted (T 4397) that the reference in para 59 to the Australian operations' "main operating account", and the statement in the same paragraph that the Australian operations exceeded their $10 million gross overdraft limit should be treated as assumptions. ASIC later submitted (T 4400) that the fact of the overdraft limit, as described in footnote 28, should likewise be treated as an assumption, and (T 4401) that the statement in para 61 that the overdraft limit would also have been exceeded on 16 and 17 January had unpresented cheques been presented should be treated as an assumption. Since I have decided to reject paras 59-61, it is unnecessary to decide whether to characterise any parts of those paragraphs as assumptions.

54 The last sentence of para 59 is irrelevant to the position in January 2001 and will be excluded for that reason (there being a separate discussion of February 2001 in paras 62-65).

55 Para 59 contained a statement of opinion, expressed in general terms, that exceeding an overdraft limit, an event assumed to have occurred on a single day, is an indication of a potentially deteriorating cash position notwithstanding the presence of sufficient funds on deposit to offset the overdraft. This statement of opinion is within Mr Carter's field of expertise, but it is of little or no probative value, because it takes no account of the variety of circumstances that might cause a company to exceed its gross overdraft limit on a particular day while having adequate funds to cover the shortfall (e.g. clerical error within the company, clerical error within the bank, a timing mismatch between incoming and outgoing funds etc). Such probative value as it may have is substantially outweighed by the danger that the evidence might cause or result in undue waste of time, because if it is not rejected, time is likely to be taken in cross-examining Mr Carter to expose the obvious deficiencies in the expression of opinion.

56 In para 60 Mr Carter set out evidence about a particular bank statement balance and compared it to the general ledger balance sourced in bank reconciliations contained on the I:drive. This involved some limited accounting skill in identifying the places in the documents where the relevant information was contained and distilling and organising that information, as ASIC submitted (AS 79), but the level of expert skill was very marginal given the nature of the information presented and its sources. A table like the one in para 60 could readily be provided to the court as a submission document based on the documentary evidence. In my opinion, the preferable course in this case is to allow the documentary evidence, explicated in submissions, to speak for itself. Allowing the matter to be addressed by expert evidence, rather than merely by submissions about the documents, would create the danger of undue waste of the court's time.

57 Once the expressions of opinion in paras 57-61 are rejected, there is no point in retaining the assumptions. The result is that paras 57-61 are wholly rejected.

Balance of available cash - February 2001 (paras 62-65)

58 Paras 62 and 63 are rejected for the same reasons as I rejected paras 57 and 58.

59 Para 64 asserted that the cash balance of the Australian operations continued to deteriorate through February 2001, and presented a table to show the net balance of the Australian bank accounts from 19 to 28 February. The table extracted figures from bank statements for a particular account, the general ledger overdraft balance, and the Australian operations' total cash balance taken from the intranet. It then deducted the balance of the Lucent advance in order to show the effect on available cash of including or excluding the Lucent advance. The selection of this material and its assembly and presentation required some forensic accounting skill, for example in finding bank reconciliations on the I:drive. There was also skill involved in the mathematical calculations shown in the table. The table is probably of limited utility because it is confined to a period of 9 days in February 2001 and is incomplete, but it may have some use in the course of the hearing. I am not persuaded that allowing it into evidence would give rise to any of the discretionary concerns identified in s 135. I shall therefore allow the table and the accompanying notes into evidence.

60 The first sentence of para 64 seems to be intended to summarise part of the table, but the sentence is unclear, does not appear to correlate completely with the table, and is not otherwise supported by any reasoning process. Allowing such a statement into evidence would create the danger of confusion as well as the prospect of undue waste of time. The sentence is therefore rejected.

61 The last part of that sentence referred to the absence of an approved overdraft facility, and that reference was expanded by footnote 31. ASIC invited the court to treat the statement and footnote as an assumption (T 4403). It also submitted that the first sentence of para 65, which asserted that the gross overdraft limit was exceeded on each day from 19 to 22 February, was to be treated as an assumption (T 4404). These submissions arose after the defendants pointed out that the documents relied on by Mr Carter for the overdraft arrangements referred to other documents not in evidence, suggesting that the true overdraft arrangements in February 2001 may not have been as described by him.

62 The purpose of making an assumption about the overdraft arrangements is to permit Mr Carter to express the opinion, on the basis of the figures in the table, that the permissible overdraft was exceeded. Once the overdraft arrangements are proven (if they are), it should be a simple matter to compare the arrangements with the table without any need to have recourse to expert opinion. If the overdraft arrangements, when proven, make something relevant that is not in the table, any opinion expressed by Mr Carter on the basis of the table would be unhelpful. In the circumstances, it seems to me likely to minimise confusion and undue waste of time if Mr Carter's evidence about the content of the overdraft arrangements which seems to be based on a questionable reasoning process about the applicability of the documents, is simply rejected.

63 The second sentence of para 65, an assertion about the purpose of Lucent's cash advance, was not pressed (AS 79; T 4401). The third sentence is merely a narrative description of the impact on the figures of including or not including the Lucent advance, and is not rejected.

64 In the result, paras 62 and 63, the first sentence of para 64 and footnote 31, and the first two sentences of para 65, are excluded. The table in para 64 and the last sentence of paragraph 65 are not rejected.

Balance of available cash - March 2001 (paras 66-68)

65 Paras 66 and 67 are to be rejected for the same reasons as I rejected paras 57, 58, 62 and 63.

66 The premise of para 68, namely that there was a difference between forecast and actual March available cash balances, refers back to other evidence that I have rejected. For that reason para 68 is rejected. Mr Carter's evidence about increases in overdue creditors is considered below.

Balance of available cash - April 2001 (paras 69-71)

67 Paras 69 and 70 are to be rejected for the same reasons as I rejected paras 57, 58, 62, 63, 66 and 67.

68 Para 71 was not pressed (AS 79).

Balance of available cash less creditor amounts (paras 72-73)

69 Para 72 amounts to an assertion of expert opinion to the effect that the decrease in the available cash balance does not show the full extent of the deterioration in the Group's financial position and needs to be supplemented by consideration of the Group's unpaid creditors and the growth in those liabilities. While the proposition that an assessment of the financial position of a company must include an examination of both its available cash and fluctuations in its level of unpaid creditors is an obvious one, para 72 satisfies s 79 and is admissible.

70 The first sentence of para 73 is a statement of Mr Carter's concluding opinion that the Group engaged in a "systematic process of selectively delaying payments to creditors" which led to artificially high cash levels. In Appendix C to his affidavit made on 23 July 2004, Mr Carter made a cross-reference to para 99 and part 3.1.1.5 of his Report. In my opinion there are deficiencies in the reasoning process set out in those later paragraphs, which I shall consider below, and consequently the first sentence of para 73 is to be rejected.

71 The second sentence of para 73 asserted that when overdue creditors were taken into account, it was apparent that from at least 28 February 2001 the Group's operations had insufficient cash to pay creditors the amounts that had passed the due date for payment. That assertion is a statement of expert accounting opinion rather than of assumed or proved fact, since it was purportedly the conclusion produced by reasoning and inferences from documentary material. It is a concluding opinion based on the table in para 74, which I shall allow into evidence. Therefore the statement of opinion in the second sentence of para 73 is not rejected.

72 In the first sentence of footnote 34 Mr Carter said, presumably with a view to identifying when an amount became "overdue", that the creditors ledgers classified creditors as not due, or overdue by up to 30, 60, 90 etc days. I shall allow that sentence, treating it as an explanation by Mr Carter of the meaning of the word "overdue". The sentence indicates that all debts listed under a "due by" column, where the given date has passed, are "overdue", according to Mr Carter's use that word.

73 The second sentence of footnote 34, which asserted that cash collections from debtors were required to meet current obligations and were insufficient to cover past due creditors, was not pressed, but ASIC sought leave to adduce further evidence from Mr Carter on this subject (AS 79). That would be evidence on a matter not addressed in the Report otherwise than in this sentence. In my view no sufficient case has been made out for introducing new evidence from Mr Carter on the subject, well after commencement of the final hearing. I shall not grant leave to do so.

Balance of available cash less creditor amounts - Australian operations (paras 74-87)

74 Para 74 presents the cash deficit position of the Australian operations from the end of January to the end of May in tabular form, and asserts the conclusion that the Australian operations had insufficient cash to pay overdue creditors. There is some forensic accounting skill required in preparation and presentation of the table and identification of the required information in the documentary sources (for example, in the identification of the available cash balance by the selection of account numbers from the trial balances). I regard Mr Carter's evidence in para 74 as admissible under s 79.

75 As to discretion, the defendants have identified some grounds for concern about the probative value of the table but, in my opinion, the court is not in a position to conclude at the present time that the probative value of the table is weak. I shall return to this point below. Additionally, my view is that, when the sources for the figures in the table are consulted, there is a rational skein of argument presented in the materials, that is not diminished by Mr Carter's exposure to extraneous information. The absence of concern over "tainting" in this area is important, because it removes the "unfair prejudice" factor under s 135. I see no basis for concern about the evidence being confusing or misleading in any general or overall way, and as to the "undue waste of time" factor, the presence of a rational argument structure independently of "tainting" means that it may be appropriate to limit or exclude further cross-examination about the table (Court of Appeal's 20 May judgment, at [178]).

76 The defendants attacked the probative value of the table on several grounds. First, they said Mr Carter chose to use trial balances rather than intranet figures without any explanation, while using intranet figures for Group cash balances in the table at para 54 and using intranet figures for available cash balances in the international operations in the table at para 89. In one month (January) the intranet balance was almost twice as high as the figure taken from the trial balance, a difference which Mr Carter acknowledged he could not wholly explain. If the intranet balance had been used, available cash would have well exceeded overdue trade creditors.

77 It does not appear from the evidence before me now that Mr Carter's selection of trial balance rather than intranet figures has generally undermined the table or his opinions and reasoning process, although some uncertainty has been created with respect to the January figures. Mr Carter has identified in Appendix O the parts of the trial balances upon which he has relied, being those parts that identify balances in specified accounts. There is an implied assumption that he regards them as figures upon which it is appropriate to rely. It is open to the defendants to challenge that assumption at the hearing, by evidence, cross-examination or submissions. For the time being, it would be wrong for the court to conclude that the probative value of the table is weak because of the use of trial balance rather than intranet figures.

78 Secondly, the defendants noted the two versions of the trial balance for March 2001, one from the I:drive and one from Ferrier Hodgson. They submitted that Mr Carter selected one of them (the Ferrier Hodgson version) without any explanation in the Report for preferring it, or any indication of whether that choice affected the figures.

79 However, Mr Carter endeavoured to remedy this defect in para 2 of the report exhibited to his affidavit of 29 November 2004. I assume for the purposes of the present determination that the whole of this affidavit and report are in evidence, notwithstanding determinations that I made prior to the Court of Appeal's 20 May judgment (T 4412). It appears that the selection of one version of the March trial balance rather than the other has no material bearing on the available cash balance; and moreover, in light of the explanation in the 29 November report there appears to be a rational basis for the selection. But even if I were to disregard the 29 November affidavit, doubt about the selection of the correct trial balance documents for one month would not, in my view, destroy or undermine the probative value of the table and the underlying argument as a whole.

80 Thirdly, the defendants submitted, probably correctly, that Mr Carter's calculations should have but did not make allowance for disputed claims and claims that had not been met because One.Tel was awaiting receipt of credit notes (DS 69, p 53; T 4409). They referred, by way of example, to the aged creditors report for the end of January 2001. According to the summary figures in that report (6 0064), the total open position was $46.762 million of which $22.341 million was due after 31 January. The figure used by Mr Carter for "overdue" trade creditors at the end of January ($24 million to the nearest million) was presumably the net balance after deducting the latter figure from the former. As the defendants noted, the summary figures also showed that, out of the total open position (and therefore out of the net $24 million used by Mr Carter), $19.11 million had fallen due by 3 October 2000. That is, nearly three-quarters of the "overdue" creditors at the end of January had been outstanding for more the 120 days. In my opinion, it is appropriate to infer, especially bearing in mind that in early October 2000 One.Tel had approximately $250 million in bank account balances (9 0023), that a substantial proportion of the "overdue" creditor figure for the end of January (though not a quantifiable proportion on the evidence so far) represented disputed claims or claims no longer payable but not yet purged from the ledger (because, for example, they awaited the issue of credit notes). If that inference is made, the table cannot be relied on to show that the Australian operations had insufficient cash at the end of January to pay overdue creditors.

81 The same argument appears to be available for February, when $20.447 million out of the total overdue of $29 million had been due for 120 days (6 0143). But it is less compelling because on Mr Carter's figures, the available cash balance would be insufficient to pay the remaining $8.553 million even if all of the debts due for more than 120 days were treated as disputed claims and disregarded. There were also shortfalls in available cash for March ($16 million in available cash, $15.483 million due for more than 120 days out of a total overdue of $50 million: 6 0241), April (negative $3 million in available cash, and $15.82 million due to more than 120 days out of a total overdue of $54 million: 6 0318) and May ($3 million in available cash, and $19.104 million due for more than 120 days out of a total overdue of $77 million: 6 0340). In summary, the defendants' argument does not destroy or undermine the overall thrust of Mr Carter's argument for his view that the cash and deficit position after deducting overdue creditors deteriorated month by month.

82 Fourthly, footnotes 2 and 3 referred to the transfer of $26 million from the UK to the Australian operations. In Appendix O Mr Carter identified two United Kingdom bank statements (14 0002-3), the account holders being One.Tel plc and One.Tel Global Wireless Ltd. In each case the statement showed a debit to the account in favour of ANZ Banking Group in UK pounds on 28 February 2001. Mr Carter said the two amounts added up, after conversion, to A$26 million. To support the position that the transfers were not recorded as received in Australia until 1 March, Mr Carter identified a cashflow statement (11 0670) in which $26 million was credited as a bank transfer on 1 March. In my opinion it is plausible for someone in Mr Carter's position, using his forensic accounting expertise, to infer from these documents and his calculation of the probable exchange rate that the two UK transactions in favour of ANZ Banking Group had the effect of a transfer of A$26 million from the UK operations to the Australian operations of the One.Tel Group. A skein of argument is presented which does not depend on witness statements or affidavits that Mr Carter was told to exclude.

83 Fifthly, the defendants submitted that Mr Carter asserted that the trial balance figures that he had used were figures after accounting for unpresented cheques, but (they contended) he gave no explanation for that assertion. But if the trial balance figures did not take into account unpresented cheques, the net available cash to meet overdue creditors' claims would be even less than stated in the table, so in this case the assertion operated conservatively. That being so, on this occasion the probability that this assertion was based on hearsay information does not weaken Mr Carter's argument.

84 In the result, para 74 is not rejected.

85 Para 75 is not pressed (AS 79). In para 77, the second sentence and the words "As a result" at the beginning of the third sentence are not pressed (AS 79; T 4425). ASIC submitted that the word "overdue" in para 82 should be treated as an assumption (T 4423). It also submitted that the second sentence of para 83 and the accompanying footnote 45 and the opening words of the third sentence ("As a result"), and the first sentence of para 86 and the accompanying footnote 48, which referred to the spreadsheet "deferred.xls", should be treated as assumptions (AS 79; T 4424).

86 Paras 76 and 78 identified, for January and February respectively, the amounts owed to trade creditors by the Australian operations, but not overdue, taken from aged creditors reports, and the amount of additional accrued liabilities. The additional accrued liabilities for those months, comprising operational liabilities and carrier liabilities, were tabulated in Appendix I-4, where source documents were identified. Footnote 36 identified some of the larger accrued liabilities.

87 The defendants submitted that the assertions about additional accrued liabilities in para 76 and footnote 36 were not sourced, and in response, ASIC sought leave to adduce additional evidence from Mr Carter sourcing that material. It will not be necessary to hear from Mr Carter on this. It seems to me obvious that, although para 76 does not specifically refer to Appendix I-4 in the way that para 78 does, the statements about additional accrued liabilities in both paragraphs, and in later paragraphs for other months, are sourced in Appendix I-4 where further documentary sources are given.

88 Paras 76 and 78 and Appendix I-4 involved a process of drawing inferences from the identified documents and therefore have the status of intermediate opinions. Forensic accounting expertise was involved in identifying and assembling the information, even if much or all of it could be presented to the court, alternatively, in submissions. There is a rational chain of argument from the identified documents to Mr Carter's conclusions as to the amounts of debts not overdue and of accrued liabilities, and therefore the fact (if it be so) that Mr Carter relied on extraneous material from Mr Holmes or Ms Nassif in putting together the material will not lead to its exclusion. The two paragraphs and the appendix are not rejected.

89 The first sentence of para 77 makes an assertion about available cash which relies on para 54, a paragraph that I have rejected. Therefore it must also be rejected. What remains of the last sentence simply reiterates information in the table in para 74. It would be allowed into evidence as part of a rational chain of argument, if there were one, but the removal of the other parts of para 77 has the consequence that the last sentence is pointless, and it should therefore be rejected.

90 Para 79 set out the text of Mr Hodgson's e-mail to Mr Silbermann dated 27 February 2001 (14 0001). In para 80 Mr Carter gave an account of what he considered to be the conclusion reached in the e-mail. It seems to me that there, Mr Carter merely gave an interpretation of a document that is in evidence, without using forensic accounting expertise. Para 80 should be rejected and the e-mail should be allowed to speak for itself. That being so, there is no point in Mr Carter setting out the text of the e-mail in para 79 and so that paragraph should also be rejected.

91 In para 81 Mr Carter repeated the assertion that $26 million was transferred from the UK operations to the Australian operations on 28 February and was received by the Australian operations on 1 March 2001. The same assertions were contained in footnotes 2 and 3 of the table in para 74, and I have ruled them to be admissible expert opinion evidence. The assertion in para 82 that the transfer "enabled" the Australian operations to make payments totalling $26.3 million on 1 and 2 March was sourced to documents and involved interpretation and inference for Mr Carter, using some forensic accounting expertise. It should not be rejected. The specific reference in para 82 (reading the text as amended in the manner proposed by ASIC in AS 79) to $7.2 million said to have been paid on 1 March to "overdue" creditors with cheques that had been drawn on or prior to 28 February but not released, was sourced to Appendix I-3, which listed cheques and payments and referred to source documents. In my opinion there is a rational chain of argument there, based on identified documents, and consequently paragraph 82 should not be rejected.

92 However, the documents do not prove that the debts of creditors to whom the $7.2 million was paid on 1 March were "overdue", even in the sense explained by Mr Carter in footnote 34 and para 73. In my opinion the best course here is to reject the word "overdue" in paragraph 82, as it is not necessary to Mr Carter's argument and is not supported by the materials. It will still be open to ASIC to prove, if there is a point in doing so, that the debts paid on 1 March were overdue.

93 The first sentence of para 83 relied on rejected material from para 54, and should therefore itself be rejected. The second sentence and the words "As a result" in the third sentence, said by ASIC to be an assumption, should also be rejected, because it is an assertion about cash balances derived from rejected material. The only remaining part of para 83 is part of the last sentence, which merely restates information from the table in para 74, and this assertion has become pointless. The whole of para 83 should be rejected. Para 84 reiterates information in footnotes 2 and 3 of the table and is an addendum to para 83, rendered pointless by the rejection of that paragraph. Para 84 is rejected. Para 85 and Appendix I-4 are not rejected, on the same basis as paras 76 and 78.

94 The first sentence of para 86 relies on rejected material from para 54 and should itself be rejected, rather than being treated as an assumption. The second sentence merely restates information appearing in the table at paragraph 74 and is pointless. The whole of para 86 should be rejected. Para 87 and Appendix I-4 are not rejected, except for the word "Further", on the same basis as paras 76 and 78.

Balance of available cash less creditor amounts - International operations (paras 88-98)

95 Paragraph 95 is not pressed (T 4431). ASIC submitted that the reference in footnote 1 to para 89 to the deduction of the $8 million pledge should be treated as an assumption (T 4432).

96 The first three sentences of para 88 are primary evidence by Mr Carter as to the sources available to him. The last sentence is a statement of opinion, though of a very obvious kind. Para 88 is not rejected.

97 Para 89 presents a table, relying on intranet figures for the international available cash balance and on Appendix I-6 for the UK liabilities overdue (the sources are specified in Appendix O). Currency conversions are explained in Appendix I-1. Appendix I-6 takes creditor figures from the UK creditors ledger, specifying the relevant documents, and then applies various contemporary exchange rates which are set out in tabular form, producing a table for aged UK creditors expressed in Australian dollars. An adjustment is then made for creditors greater than GBP300,000, as per a separate table, in a fashion explained in narrative form in the note to para 91. Although, to a degree, Appendix I-6 was composed by extracting figures from creditors ledgers in making mathematical calculations for exchange rates to Australian dollars, there is a degree of forensic skill involved in this process. The figures in the table in para 89 and in the appendices are, so far as I can see, sourced in identified documents and so there is a skein of rational argument to support the table, independently of any access to extraneous materials that Mr Carter may have had.

98 The table shows that Mr Carter deducted the "pledged" amount of $8 million from the cash balances for each month. It is appropriate to treat as an assumption, subject to my proposed s 136 order, the proposition that the pledged amount should be so deducted.

99 Like the table in para 74, the table in para 89 makes no allowance for disputed claims or claims awaiting offsetting credit notes. In their submissions the defendants referred the court to the UK aged creditors report as at 31 January 2001 (60346), according to which GBP 11.4 million out of total trade creditors of GBP 23.6 million were more than 120 days past "due dates", and the defendants asked me to infer that a substantial portion of those debts were unpaid because of disputes or for other good reasons. Making such an inference would render the UK operations cash positive at the end of January but the defendants' argument would not destroy the pattern of declining cash balances that the table demonstrates. It will be open to the defendants, if they wish, to bring out the significance of disputed claims to the overall figures during the hearing. Their argument does not, in my opinion, warrant exclusion of para 89.

100 Para 90 is a narrative statement of the effect of the table, followed by a reminder of the effect of the $26 million transfer to the Australian operations. I have already decided that the component parts of para 90 are admissible (in para 89 and in footnotes to the table at para 74, and also para 81), and consequently para 90 is not rejected.

101 Para 91 is a table based on that part of Appendix I-6 that presents the ageing profile of the UK creditors, converted into Australian dollars. The observations made about Appendix I-6 in my decision about para 89 are applicable to para 91 and the part of Appendix I-6 to which it relates. Para 91 is not rejected.

102 Paras 92 and 93 are observations based on a comparison and the tables at paras 89 and 91. The observations are expert opinion evidence based on a reasoning process supporting the tables. Paras 92 and 93 are not rejected.

103 Para 94 is Mr Carter's explanation of the effect of the transfer of $26 million on 28 February 2001. The component parts, namely the table at para 91 and the assertions in documents concerning the $26 million transfer, are not rejected for reasons already given, and the documents upon which they are based (including the Group's intranet at 9 0009) will be in evidence when ASIC makes its formal documentary tender. Para 94 is part of Mr Carter's argument and contains admissible expressions of opinion, standing coherently regardless of any access to extraneous information which Mr Carter may have received. Para 94 is therefore not rejected.

104 Paras 96 and 98 are not rejected for the same reasons as given for paras 92 and 93. Para 97 merely extracts information about creditors overdue for between 1 and 30 days from Appendix I-6, but there is an element of expertise and opinion involved in selecting that information for particular noting. It is not rejected.

Balance of available cash less creditor amounts - Group operations (paras 99-100)

105 ASIC submitted that the table in para 99 contains or implies an assumption as to the appropriateness of deducting the pledged amount of $8 million (T 4446). I agree, subject to my proposed s 136 order.

106 In para 99 Mr Carter has set out a table deducting overdue Australian and UK creditors from the available cash balance for the Group on a monthly basis. The figures for available cash balances were, as in para 54, the Group intranet figures after deductions for pledged amounts and unpresented cheques. But this table is different from the table in para 54 because it makes no assertion about whether unpresented cheques were deducted from figures presented to the board. It simply proceeds on the basis that unpresented cheques needed to be deducted from the intranet balances in order to achieve an accurate figure for cash available. That is a matter about which Mr Carter is able to express an expert opinion (on which he can be cross-examined) and he has done so.

107 The overdue creditor figures (sourced in Appendix O) do not make any allowance for disputed and other non-payable claims, but again these matters can be raised by the defendants in the hearing, and the court will be able to make a judgment on all the evidence about the extent to which, if at all, the figures in the table need to be modified to take into account such matters.

108 There is some forensic skill involved in selecting and assembling the figures for the table in para 99, Appendix O. and Appendix I-6, and there is a sufficiently plausible chain of reasoning to justify allowing the evidence to be given notwithstanding the probability that Mr Carter obtained extraneous information. The table is not rejected, on the basis that it includes an assumption about the pledged amount. Para 100 simply drew some conclusions from the table, and is not rejected.

Liquidity of the Australian operations (paras 101-104)

109 In para 101 Mr Carter expressed the opinion that in analysing a company's cash and creditor position, it was important to consider the overall liquidity of the company by taking into account, in addition to cash, other liquid assets such as trade debtors and accrued income, and also other operational liabilities in addition to creditors, such as accrued liabilities. Though a fairly obvious point, that is opinion evidence by an expert forensic accountant and is not rejected.

110 Para 102 then presented a table showing, month by month, the impact of these other factors on cash and creditors, accordingly calculating the net liquidity position of the Australian operations. The first thing to note is that the table was confined to the Australian operations of the Group, because (the Report explained) information for the international operations was not available to Mr Carter. As senior counsel for the defendants pointed out, the presentation of net liquidity calculations for the Australian operations without any figures for the international operations implied an assumption or opinion, apparently false, that the liquidity of the Australian operations was not affected by the international operations. In my opinion that does not destroy or undermine the net liquidity analysis offered by Mr Carter, but merely requires that the court bear in mind the possibility that tight liquidity in Australia in any given month might have been cured by ample or excess liquidity overseas, thus necessitating further inquiry.

111 The figures given in the table at para 101 were sourced in Appendix I-13. That Appendix tabulated figures for debtors, cash, accrued income, carrier claims, creditors and accruals, which were, in turn, sourced in trial balances identified by document numbers (with the exception of the cash figure for 31 December 2000 which was taken from the statutory accounts). It appears that the figures for cash, which correspond with those in the table in para 74, have deducted unpresented cheques. The only part of the table not coming from Appendix I-13 was the line of provisions for doubtful debts, which were sourced in paragraph 190 of the Report. I shall deal with the provision for doubtful debts when I reach that paragraph later in this judgment.

112 In my opinion the compilation and presentation of the table involved the exercise of forensic accounting skill, extending to the preparation in setting out of the information in Appendix I-13 and the mathematical calculations necessary for that purpose. Specialised knowledge was used in selecting the components relevant to a liquidity analysis.

113 The defendants were critical that, without explanation, Mr Carter used trial balance figures for cash in para 101, when on other occasions he sourced figures for cash in the intranet, and that he used trial balance figures for the trade debtors line whereas in para 158 he preferred trade debtors figures taken from collection profile summary documents. The absence of explanation for use of the trial balance figures is, in my view, a flaw in Mr Carter's reasoning process, which means that there is a gap in the logical skein of the argument. However, I do not regard it as appropriate to infer that his choice of a particular set of figures rather than some other set of figures was dictated by access to extraneous information such as information from Mr Holmes or Mr Basman. There is no particular reason for believing that they would have told him to use the trial balance figures in this table and other figures on other occasions. Further, I do not see a danger of unfair prejudice, confusion or undue waste of time in allowing this evidence and leaving it to the defendants to cross-examine Mr Carter, if they wish, as to his choice of documents.

114 In respect of the March figures, Mr Carter has used the trial balance provided by Ferrier Hodgson in preference to the trial balance in the I:drive, but in my view this is acceptable because (as noted above) there is an explanation for his doing so in para 2 of his 29 November report. Note (a) to the table refers to the transfer of $26 million from the UK operations to the Australian operations, and this is permissible for the reasons I have given.

115 My conclusion is that para 101 and Appendix I-13 are not rejected. Para 102 highlighted some of the information in the table and asserted that the net liquidity position deteriorated over the period from December 2000 to May 2001, despite receipt of the $26 million from the UK operations on 1 March. It is also not rejected.

116 The first sentence of para 103 referred back to the conclusion, expressed in para 94, that after the transfer of the $26 million the UK operations did not have sufficient available cash to pay creditors. I have not rejected para 94, and the first sentence of para 103 is not rejected, on the same basis. In the second sentence of para 103, Mr Carter said it was questionable whether significant further funds would have been available from international operations. In footnote 55, which related to that sentence, Mr Carter noted that the Australian operations had received additional funds from the international operations on five occasions in May 2001, which he listed, then noting that according to an e-mail of Mr Boaden which he identified, three transfers from the European operations were not additional funds to be retained.

117 The second sentence of para 103, which is an expression of expert opinion, is expressed to follow from the first sentence, which I have not rejected. Footnote 55 is not necessary to the reasoning and merely provides additional support. My view is that the second sentence should not be rejected, but footnote 55 should be rejected. The problem with footnote 55 is that, as explained below, Mr Carter's statements are not fully supported by the documents, suggesting that he reached his conclusions with the aid of extraneous information.

118 First, footnote 55 recorded a transfer from Hong Kong of $1.951 million on 2 May 2001 and a transfer from Hong Kong of $1.478 million on 3 May 2001. But the daily cashflow spreadsheet identified as one of the sources (11 0675) lists these figures as "receipt, interest and other" under the general heading "inflows from operations", without identifying Hong Kong. The other source (an intranet page, 9 0062) records only one cash transfer, on 3 May, of $3.645 million, a higher amount, and it does not specify the destination of the transfer.

119 Secondly, footnote 55 recorded three transfers on 10 May 2001, respectively from the Netherlands, the UK and Switzerland, for $1.423 million, $1.052 million and $1.206 million (totalling $3.681 million) and stated that Australia received $3,387,480 of these amounts on 10 May. But there is no explanation for the receipt being less than the total amount transferred. The daily cashflow spreadsheet that was identified as the source for receipt of the transfers (11 0678) shows only the figure of $3,387,480 (the amount which, according to Mr Carter, was received) but it is described as "income tax refund", and there is nothing to link it with the European operations. The intranet pages identified as sources record the three transfers in the amounts identified in footnote 55, but the transfers from the Netherlands and the UK are recorded for 9 May rather than 10 May, and there is nothing to show that the destination was Australia.

120 Thirdly, footnote 55 refers to an e-mail from Mr Boaden to Mr Cage, Mr Silbermann, Mr Weston and Mr Werner dated 8 May 2001, which said that the "transfers below" were being made on the understanding that, as promised, "you" will return the same within five working days, and that all the European offices would be at risk if that did not occur. Mr Carter said the e-mail indicated that the 10 May transfers to the Australian operations were not additional funds to be retained. Mr Carter made some inferences about the identity of the recipients of the e-mail (for example, that "mark" referred to Mr Silbermann), but I think they were reasonable inferences in the circumstances. He asserted that Mr Bowden was joint chief financial officer of the UK operations, something not stated in the e-mail. Mr Bowden's position was in extraneous information but the logical skein of argument concerning the e-mail is not disrupted by that information. A bigger problem with the e-mail is that it refers to the "transfers below" and there is an envelope symbol indicating that a document, "Transfers (753 bytes)" was attached, but the attachment is not in evidence and Mr Carter does not appear to have had access to it. He appears to have inferred without any explanation that the transfers were the three transfers made on 10 May.

121 In my opinion it is probable, given the nature of the subject matter, that information about the transfers from Hong Kong and Europe was supplied to Mr Carter or his staff by Mr Boaden or Mr Werner. Because of the gaps in the reasoning process in footnote 55 it is of low probative value, and the discretionary considerations that I analysed in rejecting paras 50 and 51 are equally applicable here. Therefore I shall reject footnote 55 under s 135.

122 Senior counsel for ASIC made several attempts (the most recent is at T 4524-4527) to supplement the references given by Mr Carter and thereby fill in the gaps in his reasoning process. It seems to me that the issue to be considered in light of the Court of Appeal's judgment is the probative value of the opinions and the reasoning set out in the Report, rather than the probative value of the expert's opinions supported by some reasoning steps that he did not take but which are now advanced by counsel. However, even if the matters identified by counsel are taken into account, my view is that the documents do not fully support Mr Carter's statements and the probability is that he took into account and relied on extraneous information.

243 Para 250, which makes some summary statements with respect to operating expenses for the digital and fixed wire business, sourced in Appendices I-9 and I-10, is not rejected. In my opinion the first sentence of para 251, relating to alleged inability to collect revenue, should be rejected. It is not expressly sourced and the sources that Mr Carter probably had in mind, relating to the debtor analysis, have been rejected. Mr Carter returned to para 251 in his 29 November report but only to provide further support for the second sentence, not the first. ASIC does not press the second sentence of para 251 or footnote 130 (T 4593).

244 Para 252 is a summary of part of the table at para 239, relating to international operations. That part of the table has not been rejected and therefore para 252 is not rejected.

245 Paras 253 and 254 compare the Group's actual financial performance by reference to the four inputs identified in my discussion of para 239, with the historical financial performance based on historical average monthly revenue and historical average gross margin percentage. The calculations are set out in Appendix J, paras 8, 13, 23 and 29, which are sourced to Appendix I-10. My ruling on para 239 applies by analogy to this material. The lines of figures showing variations in revenue, gross margin percentage and operating expenses are not rejected, but the line of figures showing the reduction in uncollectible revenue is rejected because of its dependence on Method 2 and rejected debtor material, and consequently the concluding line of figures is also rejected. Para 254, which gives highlights based on the conclusions stated in the table, is likewise rejected.

Reduction in net worth (paras 255-275)

246 Paras 255-275 and Appendix K provided Mr Carter's answers to the questions whether the Group incurred net liabilities and suffered a reduction in net worth between 28 February 2001 and 29 May 2001, and alternatively between 31 March 2001 and 29 May 2001, and if so, the amount of the reduction. Mr Carter answered these questions by making two calculations: first, a calculation of the change in net realisable value of the Group's assets in the two alternative periods; and secondly, a calculation of the net trading loss of the Group in the two alternative periods.

247 He calculated the change in net realisable value by taking the liquidators' estimates of net realisable value as at 29 May 2001, set out or adjusted in their reports dated 12 July 2001, 4 October 2001 and 14 November 2002. He assumed that the liquidators' figures were materially correct, though this was subject to some comments and adjustments, and he proceeded on the basis of some detailed assumptions set out in Appendix K-2. He then compared the liquidators' 29 May figures with figures for the book value of net assets taken from trial balances as at the end of February and (alternatively) the end of March 2001.

248 In my opinion there is no proper ground for rejecting any of this analysis. Although Mr Carter's analysis depends substantially on the liquidators' reports and trial balances, there is a clear element of forensic accounting expertise involved in reviewing the liquidators' reports, identifying all of the assumptions involved in using them, and making appropriate calculations. I disagree with the defendants' submission that as a forensic accountant, Mr Carter was precluded from expressing opinions which encompass matters of business valuation (see my 7 March judgment at [395], and note pages 5 and 6 of Mr Carter's curriculum vitae). The liquidators' reports and the trial balances will be allowed into evidence, having regard to my reasons for judgment delivered on 5 May 2005. The probative value of Mr Carter's analysis is affected by any limitations to the probative value of the underlying materials, but that does not mean that Mr Carter's analysis on these matters should be excluded from evidence. Paras 255-275 and Appendix K presented the structure of an argument which was capable of supporting the ultimate opinions reached by Mr Carter, as to the amount of reduction of net worth in the two alternative periods. As far as I can see, none of the steps in the reasoning process depends on excluded evidence.

249 ASIC made an application to adduce further evidence in relation to Mr Carter's statement in para 259 that it was reasonable to assume that the reduction in net worth occurred linearly. Since I have decided not to reject that assertion, there does not appear to be any need to adduce further evidence about it.

250 ASIC informed the court that the second sentence of para 264 was not pressed except as an explanation of material in Appendix K-2. In my opinion the sentence is not needed for that explanatory purpose and its retention on that limited basis would be confusing, and so, since it is not pressed, it should simply be excluded. The second sentence of para 275 was not pressed. Otherwise none of paras 255-275 or Appendix K is rejected.

Market announcements (paras 276-289)

251 Paras 276-289 were not pressed (T 4610).

Reporting to the board (paras 290-300)

252 Paras 290-292 explain Mr Carter's methodology and are not rejected. In para 293, the foundation for Mr Carter asserting in the first sentence that the flash reports and board papers were "the two primary sources of financial information provided to the Board" was not given and therefore the first sentence is rejected. Footnote 161 is not pressed (T 4611). I would not allow the remainder of para 293 or paras 294 and 295 if they were merely summaries of the flash reports and board papers, for reasons I gave when considering paras 36-38. However, the statements about the content of the documents serve as the foundation for the opinion expressed in para 296, namely that the information in the categories specified in paras 293-295 was not sufficient in terms of adequacy or accuracy to enable the board to carry out certain functions. I regard that opinion as falling within the specialised knowledge of a forensic accountant (see 7 March judgment at [402]) and therefore para 293 (except for the first sentence) and paras 294-296 are not rejected.

253 In para 297 Mr Carter asserted that the information provided to the board "as described above" (that is, as set out in his description of the board papers and flash reports) did not disclose certain specified categories of information. That is direct primary evidence of Mr Carter's observation of the documents, and is admissible as such.

254 Para 298 and the words "which was or should have been available to management" in para 299 are not pressed (T 4611). In the remainder of para 299 Mr Carter expressed his opinion that if certain categories of information had been provided to the board, it would have been better able to assess the deteriorating financial position and performance of the Group. That assertion clearly assumes that the financial position and performance of the Group deteriorated (presumably in the period from January to May 2001). Other parts of the Report which have not been excluded provide a foundation for that assumption, and so the assertion is not objectionable on that ground. Although it has the appearance of an expression of opinion, the assertion in para 299 implies an assumption that information in the categories set out was not in fact provided to the board. ASIC did not ask me to allow para 299 into evidence on the basis of such an assumption. The correct course is to reject the whole of the sentence above the table. Mr Carter's opinion that information in the stated categories is required by a board in order to perform its functions can be conveyed, without any implication of a "finding" by Mr Carter that the information was not supplied in this case, by allowing only the table in para 299 and then allowing the whole of para 300. I rule accordingly.

Adequacy of cash reserves within the Group (paras 301-304)

255 In paras 301-304 Mr Carter purported to set out important information the board did not receive, concerning the cash and creditors position of the Group, which in his opinion rendered information provided to the board inadequate. The information not received was specified in para 303, and appears to overlap substantially with the list in para 299, although para 303 is more specific. Mr Carter would be able to give evidence by observation that the board papers and flash reports did not include the information listed in para 303. In my opinion evidence to that effect is implied in paras 301-303. But his assertion that the board did not receive the information listed in para 303 appears to be based, in addition, on an assumption (notwithstanding para 11) that the board did not receive any information (or any relevant information) other than the information provided with board papers and flash reports (see paras 293, 301, 302). There are also more specific assumptions, such as the assumption (dealt with in my discussion of paras 50 and 51) that the cash balance reported to the board did not take account of the amount of unpresented cheques, and the assumption that the $8 million "pledged" for international lease commitments should be taken out of available cash. There is also an assertion about deferral of creditor payments similar to the ones I rejected earlier in the Report.

256 In my opinion the absence of any reasoning process or expressly articulated assumption about the board’s sources of information is a substantial defect in Mr Carter's reasoning process, and reduces the probative value of his opinion. ASIC did not submit that I should allow his opinion into evidence on the basis of such an assumption. It seems to me probable that Mr Carter was able to move from a review of the board papers and flash reports to the position that the board did not have information of the specified categories because he received and used extraneous information, probably from Mr Holmes. This give rise to the dangers of unfair prejudice, confusion and undue waste of time explained in my discussion of paras 50 and 51. In my opinion the probative value of para 303 is outweighed by those dangers. Para 303 (other than subparagraph (j), which is not pressed) is therefore rejected. Consequently paras 301 and 302, which lead up to para 303, and the second sentence in the box above para 301, are also rejected.

257 Mr Carter would be able to give an opinion to the effect that if the board was not given certain categories of financial information, it would not be able to do the things specified in the bold characters in subparagraphs (a), (b) and (c) of para 304. But he did not do so. Instead, he purported to say that the One.Tel board was unable to assess specific things because of the absence of the information listed in para 303. Being of that character, para 304 is rejected consequently upon the rejection of para 303.

Actual compared to estimated financial position and performance - debtors (paras 306-312)

258 Paras 306 and 307 provided summaries of information given to the board during, respectively, the year ended 30 June 2001 and the period from June 1998 to March 2001. It is not rejected, on the basis that it does not make any claim to be an exclusive statement of information to which the board had access or recourse. In para 308 Mr Carter pointed out that no information in relation to debtors, other than the balance of the Group's provision for doubtful debts, was provided in the board papers for certain stated months. That is a statement of a "highlight" of the table in para 307 and is not rejected. However, the first sentence of para 308, claiming that the table in para 307 showed that the board papers contained progressively less debtor information, is rejected. It does not appear to me to correspond with the table, which can in any case speaks for itself in this respect, and it would be confusing if the first sentence were allowed into evidence.

259 Para 309 is rejected. The first sentence is ambiguous and on one view, does no more than reflect the information in the table of para 307. The second sentence is based upon material I have rejected with respect to the alleged increasing portion of debtors aged in excess of 6 months.

260 Para 310 expressed opinions about the adequacy of provisioning reported to the board which were based on the collections profile summaries. This paragraph is rejected on the same ground as I have rejected other parts of the debtor analysis.

261 In para 311 Mr Carter set out some information which, he said, would have assisted the board to assess the financial position with respect to debtors and the provision of the doubtful debts. It is rejected upon the same reasoning as para 303 was rejected. Here, some of the asserted information is based specifically on the collections profile summaries, and I made some findings in my 7 March judgment (at [85]) about Mr Carter's discussions with Mr Basman on relevant matters. Once para 311 is rejected, para 312 must also be rejected.

Discrepancies in reported earnings between flash reports and management accounts (paras 314-336)

262 The following sentences and paragraphs are not pressed (T 4611-2; T 4619): the first, third and fourth sentences of 315; 316 except for last sentence and footnote 184 but not reading the word "However"; 317, 318, 319, 322, 323, 324, 329 and footnote 191, second half of 333 beginning "but note that they are …", 334, 335, 336.

263 Para 314 and footnote 180 (which is not evidence of understatement of the provision for doubtful debts or misreporting of operating expenses but merely an assertion that no adjustment was made for any such things), the first and second sentences of 315 and the last sentence of 316 other than the word "However" are descriptive background and are not rejected. Mr Carter gave some additional evidence on these matters in para 12 his affidavit of 8 September 2004 in para 14 of his affidavit of 14 April 2004, which appears to be within his expertise and adequately sourced to documents.

264 In para 320 Mr Carter set out a comparison of EBITDA figures taken from flash reports and EBITDA figures taken from management accounts on a monthly basis from December 2000 to April 2001. The figures were more fully presented in Appendix H. The table showed that the flash reports were lower than the EBITDA for each month, by figures ranging from small to very large discrepancies. In my opinion the table itself should not be rejected but there is a problem with the commentary. In view of the fact that para 317 is now not pressed, no basis is given for preferring the management accounts to the flash reports, and therefore Mr Carter is not in a position to say that the flash reports "understated" EBITDA or that they reported better performance than actually occurred. Consequently in the first sentence of para 320 the words "of the understatement of the flash reports' EBITDA loss (i.e. reporting a better performance than actually occurred)" are rejected. Likewise the descriptions used for the last two lines of the table, which contain the word "understatement", are rejected, but the figures themselves are not rejected. In para 321 the only part not rejected is the second sentence, but only down to "EBITDA loss of $112 million".

265 For the same reasons, in the first sentence of para 325, the words "understatement of EBITDA loss" are rejected, and in the table, the words "understatement/(overstatement) by flash reports" are rejected. Otherwise para 325 is not rejected. In the first sentence of para 326, the words "of the flash reports' understatement by these business units" are rejected. The second, third and fourth sentences of para 326 (that is, the remainder) are rejected. Para 327 is rejected except for the words at the end of it, "the flash reports not including any earnings (or losses as was the case) in relation to the international GWUK business unit". I shall read "not including" as "did not include". Para 328 is not rejected.

266 In paras 330-333 Mr Carter purported to identify some anomalies in the flash reports for March to April 2001. These paragraphs appear to be appropriately sourced and they involve the expression of forensic accounting opinions based on specialised knowledge. They are not rejected, except for the part of para 333 that is not pressed.

Discrepancies in reported earnings between board papers and management accounts (paras 337-341)

267 In the first sentence of para 337 Mr Carter referred to "misreporting" of EBITDA in board papers. That sentence is rejected for the same reasons as I rejected assertions about "understatements" in the flash reports, namely that the underlying reasoning structure has not been pressed by ASIC. The second sentence, referring to a significant overstatement, is rejected for the same reason. The third and fourth sentences described what is sourced in the management accounts as the "actual" loss, and therefore those sentences are also rejected.

268 Paras 338-340 gave descriptive accounts of information taken from board papers. They are not rejected. Para 341 expressed an opinion as to whether the board was in a position to perform certain functions since it had been provided with "materially incorrect information as to the earnings of the Group's operations and the Group as a whole". Since the whole paragraph was based on that assertion, and the underlying reasoning process that might support that assertion is not pressed by ASIC, the whole of paragraph 341 is rejected.

Key events and transactions (paras 342-348)

269 Para 342, which is not rejected, is important because it indicates that Mr Carter's subsequent assertions about information not provided to the board are assertions about whether information was provided to the board in the flash reports or board papers during the period from 1 January to 17 May 2001, rather than broader claims that information was not given to the board in any way. Mr Carter's expertise as an accountant extends to reviewing volumes of documents to ascertain whether certain financial information is contained in them.

270 Thus, when Mr Carter said in para 341 that no disclosure of the transfer of $26 million from the UK to the Australian operations was made to the board, he can be taken to have confined his assertion to disclosure in flash reports and board papers for the January-May period. On that basis, the first two sentences of para 343 are not rejected. The third and fourth sentences are rejected because they are assertions, not directly sourced to any documents, of very broad opinions going beyond Mr Carter's specialised knowledge.

271 In para 344 the words "as a result of the Group not paying its creditors when they fell due" are not pressed (T 4623). But I would reject the remainder of that paragraph in the whole of para 345. Those paragraphs refer back to para 155 dealing with threats to supply. Para 155 was rejected and paras 344 and 345 are rejected on the same basis.

272 Paras 346 and 347 are not pressed (T 4622). Para 348 expressed Mr Carter's opinion about whether the board was in a position to perform certain functions when it was "without sufficient accurate information in relation to each of these events and transactions". In other words, the opinion is given on the basis that the board lacked sufficient information about all of the matters identified by Mr Carter, namely the $26 million transfer, threats to supply and changes in arrangements for payment of Lucent. Mr Carter's evidence with respect to only one of these matters remains, and therefore para 348, expressing his concluding opinion expressed, is also rejected.

Reporting systems (paras 349-387)

273 Paras 349-387 are not pressed (T 4610).

Reporting systems - earnings (388-402)

274 Paras 388-402 are not pressed, except for the second paragraph of subparagraph 388(b) (T 4610) and for para 392 (T 4623).

275 Subparagraph 388(b) is Mr Carter's assertion that the management accounts for the digital and fixed wire business unit were not produced on a timely basis, giving examples from the February, March and April management accounts. I dealt with this issue at [189]-[196] and [391] of my 7 March judgment. I held that no satisfactory basis for these assertions had been identified in documentary sources, and in the absence of further explanation by Mr Carter, it was probable that the information came from a file note by Mr Holmes.

276 Mr Carter returned to this issue in his 29 November report. There he made some observations about some subdirectory entries on the I:drive showing a number of account reconciliations and consequent journal entries, some of them completed before 12 April 2001 and some after that date. He said that the preparation of reconciliations is the last substantive step for the finalisation of management accounts. He concluded that the February management accounts were probably finalised by 12 April even though there are subsequent reconciliations. He relied on the date on which the accounts were last printed, even though there was a "last modified" date of 7 May. He expressed the opinion that the March management accounts were not completed until after 18 May, relying on the fact that a trial balance including accrued revenue (an important component of monthly accounting) was last printed on 25 May.

277 In my opinion the reasoning in the 29 November report to support the views in the principal Report is speculative and unconvincing, in a manner not dependent on Mr Carter's specialised knowledge and expertise. Therefore the probative value of this subparagraph is weak or non-existent. The dangers of unfair prejudice, confusion and undue waste of time are substantial, for reasons given in my analysis of paras 50 and 51 and in my 7 March judgment (at [195]-[196]). Consequently the second paragraph of subparagraph 388(b) is rejected.

278 In para 392 Mr Carter made the assertion that if the board had received flash reports containing actual revenue and EBITDA as per the management accounts and other relevant financial data discussed in previous paragraphs, the information would have alerted the board to the adverse trends in business performance. His opinion was expressed to be based upon a view about what the board in fact received and was expressed vaguely in terms of "other relevant financial data discussed above", in circumstances where nearly all of the preceding paragraphs in this part of the Report have not been pressed. The first sentence of para 392 is therefore rejected.

279 In the remainder of para 392 Mr Carter set out a table comparing some statistics reported in the February 2001 flash reports with statistics that "would have been reported for February 2001 based on the management accounts" and. The words "For example" and "that would have been reported for February 2001" reflected the earlier rejected opinion and are themselves rejected, but the table comparing information in the flash reports and management accounts appears to me to be appropriately sourced and is not rejected. The rejected evidence of opinion is also reflected in footnote 213, and consequently the word "While" and everything from and including "in my opinion, once the management accounts …" to the end of the footnote are rejected.

Conclusions

280 The effect of my rulings and ASIC's concessions is that more of the report has been rejected or not pressed than has been saved. I shall hear submissions as to whether there is any appropriate basis for discretionary exclusion of the remainder. I received submissions on some but not all of the paragraphs of the supplementary affidavits and reports of Mr Carter. Rulings on the supplementary materials will depend upon the rulings made in this judgment, and ASIC may decide, in the light of the rulings that I have made, not to press other materials. I shall direct ASIC to revise its submissions with respect to Mr Carter's supplementary affidavits and reports and give me a note indicating which paragraphs it wishes to press in light of my rulings on the principal Report.

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