Australian Securities and Investments Commission v Rich

[2005] NSWSC 1015

CITATION:	ASIC v Rich [2005] NSWSC 1015
HEARING DATE(S):	26 September 2005
JUDGMENT DATE :	7 October 2005
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Evidence excluded

CATCHWORDS:	EVIDENCE - proper scope of re-examination - whether matter the subject of re-examination arose out of cross-examination, or out of prior evidence
LEGISLATION CITED:	Evidence Act 1995 (NSW) s 39
CASES CITED:	R v Singleton [1986] 2 Qd R 535 Wentworth v Rogers (No 10) (1987) 8 NSWLR 398
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 7 OCTOBER 2005

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

JUDGMENT

1 HIS HONOUR: On 2 September 2005, when I was sitting as examiner taking evidence on deposition in London, Christopher Weston gave the following evidence ("the evidence under objection") during the course of re-examination by Mr Macfarlan QC for ASIC, after an objection made on behalf of the defendants was considered and overruled (UK T 981.23-982.25):

"Mr Macfarlan: Mr Weston, when you told the board meeting that the UK was 'on track for GBP17 million EBITDA this year', did that represent your true belief?
A. No, it did not.
Q. What was that true belief that you had at the time?
A. I thought we would not get the GBP17 million, it would be a number beneath that.
Q. Approximately what figure?
A. Around GBP12 million or 13 million.
Q. Why was it that you gave a figure that did not represent your true belief?
[Further objection heard and overruled.]
Mr Macfarlan: Why did you say that if it was not your true belief, Mr Weston?
A. Because I would not undermine my CEO in front of his board.
Q. Your CEO, you were referring to whom?
A. Jodie Rich."

2 Then Mr Macfarlan QC asked some questions about conversations between Mr Weston and Mr Rich, further objections were made, and I eventually decided (UK T 987.14-19) to disallow Mr Weston's evidence with respect to conversations with Mr Rich; but the evidence extracted above remained, on the basis that it was permissible re-examination and was not therefore subject to further cross-examination. Mr Williams SC for the defendants foreshadowed that when the depositions of UK evidence were tendered he would wish to make submissions in opposition to the tender of the evidence under objection, involving questions of procedural fairness and the like (UK T 987.7-12).

3 At the hearing in Sydney on 26 September 2005, Mr Williams SC provided the court with written and oral submissions in support of his objection to the tender of the evidence under objection (DS 89 and T 5727-5746), and Mr Macfarlan QC responded (T 5734-5742). The present judgment addresses those submissions. Mr Williams SC has raised two issues, namely whether Mr Macfarlan QC's questions were not proper questions in re-examination, and whether the evidence should be excluded under s 135 of the Evidence Act. Although I made a ruling on these points during the London hearing, I have permitted them to be re-agitated in Sydney, because the issue is a serious one which deserves to be addressed and decided after a measure of reflection and with full access to materials, circumstances inevitably absent in London.

4 After considering the matter more fully, with the aid of submissions, I have decided that the evidence under objection was not proper evidence to be given in re-examination, notwithstanding my ruling to the contrary in London. Therefore the evidence under objection should be excluded from the tender. The decision I have reached depends on a close analysis of the evidence, to which I shall now turn.

Prior evidence about Mr Weston's report to the March board meeting

5 According to the minutes of the meeting of the board of directors of One.Tel held on 30 March 2001 (located, inter alia, at PH-D 2, page 1), Mr Weston reported a number of matters to the board, including that "UK was on target for 2001". Several witnesses called for ASIC have given affidavit evidence that the minutes are accurate: affidavit of James Packer dated 18 June 2002 at [55]; affidavit of Lachlan Murdoch dated 24 May 2002 at [16]; affidavit of Peter Howell-Davies dated 29 May 2002 at [7]. Mr Packer gave more specific evidence (affidavit dated 18 June 2002 at [59]), to the effect that Mr Weston told the board:

"I agree that One.Tel (UK) is on track to achieve around GBP17 million EBITDA for that financial year".

6 Mr Howell-Davies was cross-examined in London before Mr Weston gave evidence. He was asked about Mr Weston's report to the March board meeting. He confirmed that Mr Weston indicated to the board that the UK and European businesses were on track to becoming EBITDA and cash positive, and that One.Tel UK was on track to achieve its GBP17 million EBITDA budget for the financial year (although he could not recall the precise figure): UK T 113.23-114.7; T 118.12-20. There was further cross-examination about Mr Weston's presentation to the board meeting (T 143.2-11; T 147.19-149.21; T 157.21-158.9; T 176.11-25), though not specifically about the forecast EBITDA.

7 Thus, by the time Mr Weston began to give evidence, there was a substantial amount of evidence before the court to the effect that he had reported to the board meeting of 30 March 2001 that the UK was on target in 2001 and was on track to achieve around GBP17 million EBITDA for the financial year. There was nothing to suggest that Mr Weston did not believe in the truth of those statements or that it was ASIC's case that he made those statements knowing them to be false.

Mr Weston's evidence in chief

8 Mr Weston gave evidence by affidavit made on 30 May 2002 about the transfer of $26 million from United Kingdom to Australia and about his dealings with Mr Silbermann and UK creditors on a subject that he called "management of UK creditors". His affidavit did not address his report to the board meeting on 30 March 2001. He also gave oral evidence in chief, by leave, in London (UK T 404-415). He did not deal with his presentation to the March board meeting, but his oral evidence addressed his activities in Australia late in May 2001, including a presentation he said he made as part of a due diligence process for putting cash into One.Tel (T 408.12-15).

9 He identified MTB 1614Aff as a set of presentation notes he gave at that time (T 409.1-6). At MTB 1614K there is a table showing "actual" against budget figures for June 2001 for the fixed wire business in the UK, which shows EBITDA as GBP11.6 million actual against GBP17 million budget. The Merged Tender Bundle has not yet been formally received into evidence. However, in my opinion the appropriate course is to deal with the matter currently in issue on the assumption that the document at MTB 1614Aff is in evidence, as the only reason why that document is not in evidence (and was not in evidence during Mr Weston's deposition in London) is that some issues concerning the admissibility of other documents have remained to be settled before the formal tender of the Merged Tender Bundle as a whole. On the basis of that assumption, it can be said that Mr Weston's evidence in chief included the adoption of the document as his set of presentation notes for the due diligence committee.

10 Thus, two matters were juxtaposed by ASIC’s earlier evidence and Mr Weston's evidence in chief, without further explanation: his report to the March board meeting that the UK was on track to achieve GBP17 million for the financial year ending in June 2001, and his presentation as part of the due diligence process late in May 2001 showing "actual" EBITDA for June 2001 of GBP11.6 million against budgeted GBP17 million.

ASIC's knowledge about Mr Weston's belief in the truth of his statements to the March board

11 The defendants submitted (DS 89, para 7) that the court should infer, in light of what transpired at the London hearing, that ASIC knew, before Mr Weston gave his evidence in chief, that he would say, if asked, that what he told the board at their March meeting did not represent his genuine belief at the time. During the London hearing Mr Macfarlan QC referred to a draft statutory declaration by Mr Weston (UK T 978-979), and submitted that the defendants had stopped short of asking him whether his statement to the March board meeting represented his belief at the time, because they knew the contents of the draft statutory declaration and the danger for them in this area. I was not shown the draft statutory declaration or told about its contents, but it appears to me appropriate to make the inference propounded by the defendants, in light of Mr Macfarlan's submission at T 978-9 and the absence of any submissions by ASIC to the contrary effect.

12 Therefore ASIC was in a position to give the defendants timely notice that it intended to adduce evidence about Mr Weston's true belief in March 2001, and to seek leave to adduce evidence from Mr Weston on that subject during his examination in chief. It did not do so. In a case where the court's finding as to One.Tel's EBITDA during 2001 is a matter of central importance, ASIC presented the court with evidence that Mr Weston made two inconsistent assessments within the space of two months, without any explanation of the inconsistency. That was the case the defendants had to meet when Mr Williams SC came to cross-examine Mr Weston.

Cross-examination of Mr Weston

13 Mr Weston was cross-examined about his report to the March board (UK T 729.21ff). He said he remembered talking to the board about EBITDA figures for the UK (T 731.15-16) but he could not remember much else about his presentation. He agreed that he said that the UK was on track for GBP17 million EBITDA for the year (T 738.10-12). He was not asked in cross-examination whether he truly believed that statement.

14 Mr Weston was also asked about his presentation in May 2001 in Australia. He confirmed that MTB 1614Aff were the presentation notes for his presentation to the due diligence committee in May (UK T 882.2-9). Mr Williams SC then asked a series of questions comparing the figures in the presentation notes with figures previously supplied to Mr Miller and Mr Green when they visited the United Kingdom. Then it was suggested to the witness that he was being conservative in his presentation to the due diligence committee, and he said he was being realistic (UK T 885.16-18). Later (UK T 894ff), documents were put to Mr Weston that were designed to show a discrepancy between the budgeted and actually achieved growth in "tolling diallers" up to May and the assumed growth in tolling diallers between mid-May and 30 June made for the purposes of the report to the due diligence committee. Then the following cross-examination took place:

"Q. What you were doing between the early May plan given to Mr Miller and Mr Green and the due diligence presentation was to cut average growth of 55,000 per month to a very modest growth of 5,000 to 6,000 per month, was it not?
A. We changed the growth in the diallers that were tolling per month to reflect the reality of the situation.
Q. Mr Weston, you were preparing deliberately conservative figures here, were you not?
A. No.
Q. You knew that in May 2001 there were going to be new managers to whom you were going to have to report?
A. I knew there would be changes.
Q. You wanted to make sure that the forecasts that you were giving to those new managers were going to be easily achievable, did you not?
A. I wanted them to be realistic.
Q. You wanted to make sure that they were going to be easily achievable, did you not?
A. As I said, I was trying to make them realistic.
Q. You were trying to condition management expectations, were you not?
A. Which management?
Q. New management?
A. No."

15 The cross-examination returned to these themes later (UK T 905.15ff). Mr Weston agreed that between early May and the week commencing 21 May 2001 he made some fairly dramatic changes in assumptions, which operated to reduce dramatically the EBITDA and cash figures projected to come from the UK business, but he denied that he was presenting a conservative approach in making changes so that there would be readily achievable forecasts, asserting again that he was trying to present a realistic view.

The permissible scope of re-examination

16 Section 39 of the Evidence Act 1995 (NSW) provides that:

"On re-examination:
(a) a witness may be questioned about matters arising out of the evidence given by the witness in cross-examination; and
(b) other questions may not be put to the witness unless the court gives leave."

17 Both parties relied on the following statement by Cross on Evidence (by J D Heydon, LexisNexis Butterworths, looseleaf, at [17605]) as to the proper purpose of re-examination:

"The purpose of re-examination is not merely to remove ambiguities and uncertainties, but it is allowed whenever an answer in cross-examination would, unless supplemented or explained, leave the court with an impression of the facts, whether facts in issue or facts relating to credibility, which is capable of being construed unfavourably to the party calling the witness and which represents a distortion or incomplete account of the truth as the witness is able to present it."

18 The defendants also relied on the statement by Cross on Evidence at [17610] that "the most important rule is that the re-examination must be confined to matters arising out of the cross-examination, and new matter may only be introduced with the leave of the judge" (emphasis supplied). They referred to several cases in which the point is made that re-examination is permitted to explain or qualify facts elicited in cross-examination: R v Singleton [1986] 2 Qd R 535, 537 per Macrossan J; Wentworth v Rogers (No 10) (1987) 8 NSWLR 398, 409 per Glass JA. They submitted (DS 89, para 30) that if the matter in question was in evidence before the witness was cross-examined, it is not a matter "arising out of the evidence given by the witness in cross-examination". I agree.

Application to the present case

19 The statute requires the court to consider whether the question in re-examination is about a matter "arising out of the evidence given by the witness in cross-examination". If, in cross-examination, the witness merely confirms or repeats a matter addressed in his evidence in chief, or in the evidence of another witness for the same party, without materially adding to it, and in re-examination counsel seeks to clarify or amplify or challenge that matter, the statutory language does not apply. That is, the question is about a matter arising, originally, out of the witness's evidence in chief or previous evidence, rather than evidence given in cross-examination (see DS 89, para 22). Therefore the question in re-examination should not be allowed.

20 During the London hearing, Mr Macfarlan QC submitted that Mr Weston's evidence would be "misleading" and "incomplete" without evidence of his state of mind in March 2001 (UK T 979.11-13). In the same vein, he submitted in Sydney (T 5738.22-29) that "it would be leaving the picture very much incomplete, and … in a misleading fashion" not to ask about his true belief in March, in circumstances where there was evidence before the court of what he told the board at the March meeting and also evidence of his "realistic" assessment given to the due diligence committee in May. But, as the defendants asked, rhetorically (DS 89, para 10), why was that evidence not "misleading" or "incomplete" when it was led by ASIC, and only became so when it was confirmed by the defendants in cross-examination?

21 During cross-examination Mr Weston said, at various times and in various contexts (as noted above), that the figures he adopted in his presentation to the due diligence committee in May 2001 were intended to be "realistic" rather than conservative. ASIC submitted (T 5735) that it was clear from the cross-examination that the defendants were attacking Mr Weston's claim that his May assessment was realistic, and that they would seek to rely on the earlier budgeted GBP17 million and ask the court to infer that the May assessment was anything but a realistic assessment. I agree with that description of the thrust of the cross-examination. But the inconsistency between Mr Weston's March and May statements was already present in the evidence presented by ASIC, and Mr Weston's claim that his May statements were realistic rather than conservative was really only (for present purposes) a gloss on the earlier evidence. It does not seem to me that the questions in re-examination were directed to that gloss on the previous evidence; rather, they were directed to explaining the apparent inconsistency between what Mr Weston said in March and what he said in May, evidence that had already been adduced by ASIC. The questions were not about "a matter arising" in cross-examination.

Conclusion

22 When the formalities for preparation of Mr Weston's deposition have been completed, I shall exclude from the tender of that deposition the questions and answers from UK T 981.23 to T 982.25 inclusive. This decision makes it unnecessary to address the arguments I heard on s 135 of the Evidence Act. It is appropriate to note, however, my view that it would have been unfair to the defendants to allow the evidence under objection in re-examination, after they had concluded their cross-examination based on a forensic strategy very different from the strategy they would have been likely to adopt if that evidence had been given in chief.

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