Australian Securities and Investments Commission v Rich

[2005] NSWSC 1031

CITATION:	ASIC v Rich [2005] NSWSC 1031
HEARING DATE(S):	26, 27, 28 September 2005
JUDGMENT DATE :	13 October 2005
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	See under heading "Overall conclusions"

CATCHWORDS:	EVIDENCE - admissibility of business records - admissibility under s 1305 of the Corporations Act - admissibility of judgment - discretionary exclusion of evidence - no issue of general principle
LEGISLATION CITED:	Corporations Act 2001 (Cth), s 1305 Evidence Act 1995 (NSW), ss 69, 91, 135
CASES CITED:	ASIC v Rich [2005] NSWSC 417 ASIC v Rich [2005] NSWSC 471 Regina v Adler [2005] NSWSC 274 Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 933 Roach v Page (No 11) [2003] NSWSC 907 Young v Coupe [2004] NSWSC 546
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

THURSDAY 13 OCTOBER 2005

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

JUDGMENT

1 HIS HONOUR: This judgment relates to the admissibility of documents in MFI 151, and certain pages of exhibit CRA-2 to the affidavit of Craig Richard Allsopp sworn on 4 July 2005.

2 At the hearing on 11 August 2005 ASIC tendered a folder of documents, which I marked for identification as MFI 151 (T 5648). At the invitation of senior counsel for the defendants, senior counsel for ASIC made a statement of the relevance of the documents at pages 8-12, 43-50 and 52-82 of MFI 151, and of the CD-ROM at Tab 12 (T 5655-5657; 5660-1).

3 Since that was the last hearing day before the court's departure to take evidence in London, I heard submissions as to the admissibility of the documents tendered as part of MFI 151 that might be relevant to international issues and therefore to the London evidence. Senior counsel for the defendants informed the court (T 5648) that the documents relevant to international issues were:

· pages 5-7;

· pages 22-29;

· the document at pages 226-228;

· the document at pages 235-236;

· the whole of Tab 8.

4 The defendants did not specifically object to pages 22-29, 226-228, or 235-236 - these last two pages being tendered on a limited basis (T 5649-5650). They informed the court that they were still receiving instructions in relation to the document at pages 5-7, and they were not in a position to deal with the Tab 8 documents but that would not affect the proceedings in London. In London, senior counsel for ASIC made a statement to the court about the relevance of the document at pages 5-7 and senior counsel for the defendants informed the court that his clients formally objected to the tender of those pages but in light of my rulings on business records they had nothing additional to say (UK T 394-397; 170-171).

5 As was made clear at the hearing on 27 September 2005 in Sydney, the defendants' position, as explained in London, was in fact their general position with respect to MFI 151. By "not objecting" to the tender of specified documents in MFI 151 they intended to convey only that they accepted that the tender would succeed upon the application of the reasoning in my 5 May judgment (ASIC v Rich [2005] NSWSC 417) with respect to the business records provisions of the Evidence Act, reasoning that the court had adopted notwithstanding their submissions to the contrary.

Tender of MFI 151 documents under s 1305

6 The court returned to consider the tender of the documents in MFI 151 on 26, 27 and 28 September 2005. Senior counsel for ASIC informed the court that his client tendered the documents in MFI 151 both under the business records provisions of the Evidence Act and also (except as otherwise specified) under s 1305 of the Corporations Act. He specified that the following documents were not tendered under s 1305 but only under the business records provisions: pages 83-97 and the documents under Tabs 2, 3, 4, 6, 7, 8, 9 and 10 (T 5773.39-42). ASIC pressed the tender under s 1305 as well as under the business records provisions for two reasons: first, that a book kept by a body corporate and admissible under s 1305(1) is prima face evidence of any matter stated or recorded in the book; and secondly, rulings as to admissibility under s 1305 might provide some protection to ASIC if my judgment on the admissibility of business records were to be overturned on appeal.

7 Submissions proceeded on the basis that the defendants formally objected to the receipt into evidence of the tendered documents both under the business records provisions and (to the extent that it was relied upon by ASIC) s 1305; but the defendants accepted that in general, my rulings and the reasoning in my judgment of 5 May 2005 would lead to the admission of the documents in MFI 151, and that it would be up to them to make any particular submissions if they wished to assert that the tender was not governed by the 5 May judgment (T 5764.33-44; T 5765.20-22).

8 With one exception, the defendants did not make any particular submissions about the admissibility of the MFI 151 documents under the business records provisions of the Evidence Act. I confirm that, as anticipated by senior counsel for the defendants, my view (and my ruling) is that the documents in MFI 151 are admissible under the business records provisions of the Evidence Act for the reasons given in my 5 May judgment. The matter specifically addressed by the defendants and requiring special mention is page 234, which is admissible as a business record of Ernst & Young for the reasons given below.

9 The defendants challenged the application of s 1305 to various specified documents, by written submissions in DS 90 and oral submissions at the hearing on 27 September. During the course of the hearing on that day, I heard argument, made rulings and delivered ex tempore judgments in respect of the application of s 1305 to various particular documents. The outcomes were as follows:

· s 1305 was held to apply to the documents at pages 1-4 (T 5781.8-9);

· the defendants conceded that s 1305, as construed in my 5 May judgment, applied to the documents at pages 5-7, although they maintained their formal objection (T 5777.12);

· s 1305 was held not to apply to the tender of pages 8-12, and those pages were therefore admissible only under the business records provisions;

· s 1305 was held to apply to the tender of pages 13-34 (T 5792).

10 As to the other documents specifically mentioned in DS 90 and addressed orally by the defendants:

· ASIC did not press the application of s 1305 to the tender of pages 235-275 (T 5773.42, 5799.38);

· nor did ASIC press the application of s 1305 to the documents at pages 170-176, 177-183, 184-232, 234, 235, 276-300 and 301-322 (T 5800.3-41);

· I held that s 1305 applied to the document at 233 (T 5806.8-11).

Other rulings relating to MFI 151

11 It was conceded by ASIC that the creditor communications behind Tabs 2, 6 and 7 were tendered on the same limited basis as other creditor communications.

12 The defendants resisted the tender of the judgment by Dunford J in Regina v Adler [2005] NSWSC 274, on grounds set out in DS 91 and oral submissions at T 5843ff and T 5850ff. I ruled (T 5851.27-31) that Dunford J's judgment would be received but its use would be limited to proving the fact of the conviction of Mr Adler and the fact that Dunford J made the statements in paras 38, 39 and 40 of the judgment, but not to prove the truth of those assertions.

13 The material behind Tab 8, which includes a statement that I have been asked not to read at this stage, relates to Ms Kekalainen-Torvinen. I was informed on 27 September that there was an issue between the parties as to the adequacy of ASIC's response to a notice to produce which is relevant to this matter (T 5843). I agreed to defer the tender of this material. It remains outstanding.

Application under s 135 in respect of certain documents

14 In DS 90, para 6c, and in oral submissions on 27 September, the defendants contended that I should generally reject the tender of MFI 151, and specifically reject the tender of certain identified documents in MFI 151, under s 135 of the Evidence Act. The identified documents were pages 35-39, the documents behind Tab 4, and page 234. There was also an objection under s 135 to the documents at pages 99-105 of exhibit CRA-2 to Mr Allsopp's affidavit of 4 July 2005.

15 My judgment of 5 May addressed, at length, the admissibility of 10 categories of documents selected for argument from ASIC's tender. The judgment then considered the defendants' submissions that the documents or some of them should be excluded under s 135 of the Evidence Act (see [322]-[388]). The defendants' contentions on that occasion are similar to their present contentions about the documents in MFI 151, particularly in that they drew attention to some difficulties and uncertainties surrounding particular documents (including uncertainties about the purpose of documents and the circumstances of their preparation), and the fact that the authors of documents were not to be called to explain them (see DS 90, para 6c). While the whole of my 5 May judgment on s 135 has some relevance to the issues before me now, I draw particular attention my findings that:

· unfair prejudice did not arise out of the combination of the fact that the documents were rendered admissible by statute in circumstances that may have cast a forensic burden of explanation on the defendants, and the presence of some particular deficiencies in certain documents (which, however, did not render those documents inadmissible): at [382];

· while there were problems concerning certain documents which might make their assessment obscure and difficult, that did not establish a danger that the evidence might be misleading or confusing: at [385];

· it would be unwarranted and premature to make a judgment, prior to hearing all of ASIC's evidence, that the time taken up in dealing with the documents under challenge would be an undue waste of time: at [387].

16 On 27 September 2005 senior counsel for the defendants referred me again to Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 933, Roach v Page (No 11) [2003] NSWSC 907 and Young v Coupe [2004] NSWSC 546. But I considered these cases when preparing my 5 May judgment. The specific passages cited by senior counsel for the defendants on 27 September do not alter my analysis or conclusions, or the application of that reasoning to the documents presently under consideration.

The "Write Off Summary" at pages 35-39 of MFI 151

17 The document at pages 35-39 of MFI 151 is a three-page document headed "Write Off Summary". The first page gives some fairly general non-numerical information about various categories of collection profiles, such as "Fraud", "Un-contactable" and "Returned Mail". The third page gives some figures concerning the "Vectus Project", relating to team collections. The second page, which seems to be the most significant for ASIC's case, is a series of tables. The first is headed "Un-Collectable" and gives figures for various collections profiles adding up to $71.095 million. The second is headed "120+ days", totalling $25.799 million. The third gives the calculation for "Total Doubtful" in the sum of $112.237 million.

18 The properties pages for the document indicate that it was last saved by "markb" and was last modified on 31 May 2001 (see my judgment of 5 May at [13]-[17] summarising evidence before the court as to the significance of such entries in properties pages). According to a staff list for collections, which appears at page 39B, Mark Basman was one of four "collection managers" at One.Tel, as of 1 June 2001. I infer that Mr Basman was the person who last modified the Write Off Summary and that he did so on 31 May 2001, acting as a One.Tel collection manager. There is an indication on page 35 that Mr Basman was the "author", but I am not sure whether that can be taken at face value, for reasons given at [15]-[17] of my 5 May judgment. I infer that the document took its present form on 31 May 2001, after the appointment of the administrators to One.Tel.

19 In the course of finding that the document at pages 35-39 was admissible under s 1305 of the Corporations Act, I inferred that the document was an explanation and part of the recording of information about uncollectability of debtors, and that it was communicated to the company in administration by virtue of its recording in the I:\drive (T 5798.40-43).

20 The document is in some ways mysterious, even after these inferences have been made. The document is found in a directory of the I:\drive called DATA\Collections\New Folder, which (unlike some of the other file paths of documents considered in my 5 May judgment) gives no indication of its nature or purpose. The figures set out on page 37 do not exactly correspond to the figures in the collections profile summary at base date 31 May 2001, which is at page 41, the collections profile summary at base date 28 May 2001 (at 80015), or the two collections profile summary summaries at base date 18 May 2001 (CRA-2, pages 100-103), although the figures are fairly close to these other figures. The purpose of preparation of the document is not clear and the basis upon which it was prepared (for example, worst-case or best estimate) is not disclosed. ASIC does not propose to call Mr Basman so as to clear up these matters. If, at the end of ASIC's case, there is no further evidence to provide clarification, the document will have low or negligible probative value because of these uncertainties, but there is a possibility that other evidence will supplement and strengthen it.

21 I do not regard these deficiencies in the document at pages 35-39, or the circumstances surrounding the tender, as providing any point of distinction between this document and the various categories of documents received into evidence pursuant to my 5 May judgment. It is a matter of some significance that the deficiencies in the document, identified in the defendants' submissions as matters disadvantageous to them, will actually serve to reduce the probative value of the document and therefore any prospect of prejudice to the defendants, unless the deficiencies are overcome by other evidence. This distinguishes the document in the present case from the valuers' reports in Ringrow v BP Australia and Young v Coupe and the documents in Roach v Page. Therefore I reject the defendants' application to exclude the document under s 135.

Collections Profile Summaries in CRA-2, pages 99-105

22 The defendants invited me to apply s 135 to exclude two Collections Profile Summaries at base date 18 May 2001, which are at pages 99-105 of exhibit CRA-2 to Mr Allsopp's affidavit of 4 July 2005. They drew attention to some uncertainties and difficulties about the documents.

23 The documents appear to be alternative versions of a "Revised Debtors Summary 210501.xls". They are like other collections profile summaries that are in evidence (that is, the documents summarised at [77]-[78] of my 5 May judgment, and page 41 of MFI 151), except that there are additional columns for "Expected" and for a percentage. The percentage appears to be the "Expected" as a percentage of the "Total Open", for each horizontal line. The documents at pages 100-101 and 102-3 are very similar to one another except that the sequence of horizontal lines has been rearranged in the second document so as to show, with one exception, descending percentages, and also the totals in the "Expected" column are slightly different. The properties pages for the second document indicate that it was last modified on 25 May 2001 and they identify Mr Basman as the "author".

24 The figures given in the two documents at pages 100-103 are different from the figures in the other collections profile summaries for May (though not greatly so). They are also different from the figures in the table at page 37, one large difference being that in the document at pages 102-103 the horizontal line for SLB (Stoner Lee & Browning, a One.Tel collection agency) shows "Total Open" of $36.295 million, "Expected" of $25.406 million and a percentage of 70%, whereas on page 37 the sum of $21.045 million representing SLB 120+ days is written off entirely and 80% of SLB 0-120 days is written off ($15.343 million out of $19.179 million). It will be seen that on page 37, SLB is a substantial component of the "Total Doubtful".

25 These differences are not explained, and there is no explanation for the sourcing of the "Expected" columns on pages 101 and 103. It is not clear whether they represent statements of assumption or opinion or are derived from some other document. The criteria applied for the purpose of assessing what is "expected" are not disclosed. There is nothing to indicate why the documents were prepared or (in the very last days of One.Tel's existence prior to administration) what use was made of them.

26 In my opinion, however, these considerations are not sufficient to warrant the rejection of ASIC's tender of the documents. My reasoning here is the same as for pages 35-39. The deficiencies will render the probative value of the "Expected" and percentage columns low or negligible unless there is some supplementation in other evidence, but the court should not pre-empt ASIC from seeking to attach some weight to the documents in conjunction with other evidence. Senior counsel for ASIC indicated (T 5824-5) that his client will seek to show the court that the documents are related to the due diligence exercise that was being undertaken in May 2001 and investigations of Ernst & Young which culminated on 29 May. There is some evidence (MFI 151, page 184) that Mr Smith of Ernst & Young had discussions with Mr Basman about recoverability and provisioning for bad debts. Ernst & Young's figures were, in the end, a little different from the figures in the two documents (MFI 151, page 218). At this stage the connections that ASIC seeks to make do not appear to overcome the deficiencies in the documents, but this will be assessed when all the evidence has been adduced.

MFI 151, Tab 4 (pages 184ff)

27 This is a bundle of documents that appear to be working papers relating to the Ernst & Young Financial Position Review Report tabled at the One.Tel board meeting held on 29 May 2001. Senior counsel for the defendants submitted that it was inherently unlikely that all the work identified in these documents could have been prepared within the space of 24 hours given to Ernst & Young for the task, and that there was every reason for thinking that the documentation may have been prepared well after the presentation of the report on 29 May (T 5830). But these are matters going to the weight of the evidence and the defendants will have the opportunity to explore them in cross-examination of the authors of the report.

28 Senior counsel for the defendants noted that neither Mr Basman, nor Mr Smith of Ernst & Young, are to give evidence in the case, and there is nothing to explain how the documents were made up or what assumptions or opinions underlay the material. He also objected that the documents relate to matters (for example, under the heading " Current Cash Position" on page 184) affecting Ms Randall, tendered after her evidence had been completed (T 5834). Senior counsel for ASIC responded by offering to call Mr Smith, and by suggesting that if there were some further matters the defendants wish to put to Ms Randall, they could make an appropriate application (T 5836). In these circumstances it seems to me that the defendants' objections relating to the absence of Mr Smith and Ms Randall have no substance.

29 The defendants' submissions have not served to distinguish these documents from the documents that I declined to reject under s 135 in my judgment of 5 May, or the documents I declined to reject in my judgment of 18 May (ASIC v Rich [2005] NSWSC 471, especially at [52]). Unlike the other documents under objection, here the defendants will have the opportunity to cross-examine the authors of the report.

MFI 151, page 234

30 The document on page 234 of MFI 151 was produced by Ernst & Young, according to Mr Allsopp's affidavit of 11 August 2005. It is headed "Collections Profile Summary - Base Date: 20 May 2001". Senior counsel for ASIC informed the court (T 5838) that in about the middle of the page there is a line that says "88.8% collection%" (the figures are not entirely clear). ASIC will say that this is the conclusion of the document, supported by the calculations set out above that line, and ASIC will rely upon the document in connection with the "appropriate provision for bad debts" issue in the case. It appears that 88.8% is the percentage of the "average 10 months collections" figure of $45.431 million to the "average 10 months billings" figure of $51.183 million. Calculations for those two figures are shown in the document.

31 In May 2001 Ernst & Young were One.Tel's auditors and were engaged in the due diligence exercise concerning One.Tel (see MFI 151, page 229). The document, on its face, appears to relate to One.Tel. These matters are sufficient to support the inference that the document was kept by Ernst & Young in connection with the work it was doing for One.Tel, and is therefore admissible as a business record of Ernst & Young. The question then becomes whether it should be excluded under s 135.

32 The document, though headed "Collections Profile Summary", is not in the normal form of those documents. As in the case of other documents, the defendants drew attention to various aspects of page 234 that raised questions about its status and reliability. Thus the lines to the right of the page which say "check above" and "check below", and a line to the left of the page which says "Actual collections? Get data to test predictive model." There are references to May and June estimates. Senior counsel for the defendants submitted (T 5838) that the document appears to be incomplete and is obscure. It is not an I:\drive document and it is not apparent that was prepared on 20 May 2001, although it bears that date as a base date. The author is not identified.

33 As with the other documents I have considered, page 234 seems at present to have low or negligible probative value. But there is some prospect that its significance will be explained in other evidence, for example in the evidence of the authors of Ernst & Young's report. It is in no different position from the other documents, and I would not apply s 135 to exclude it.

Conclusions as to s 135

34 The defendants have not established any special characteristics of any of the documents to which submissions were addressed, or the circumstances of the tender, that would lead to my rejecting the tender of those documents under s 135. Nor is there any basis under s 135 for rejecting the tender of MFI 151 generally. I have not given comprehensive reasons for my decisions, because my full reasons (other than in respect of the special characteristics of individual documents) are to be found in my judgment of 5 May 2005.

Overall conclusions

35 The tender of the documents in MFI 151 under the business records provisions of the Evidence Act is successful, except for the material behind Tab 8, the tender of which has been deferred, and the material behind Tab 9, which is admissible on a different basis. The tender of the documents in MFI 151 under s 1305 of the Corporations Act is successful except for:

· pages 83-97, 170-232 and 234-323, which ASIC did not press under s 1305; and

· pages 8-12, which I have held to be admissible only under the business records provisions.

36 None of the documents in MFI 151, nor exhibit CRA-2 to Mr Allsopp’s affidavit of 4 July 2005, will be excluded from the tender under s 135. However the creditor communications behind Tabs 2, 6 and 7 are tendered on the same limited basis as other creditor communications, and the judgment of Dunford J in the Adler case which is behind Tab 9 is received on the limited basis explained at [12] above, and there will be s 136 orders accordingly.

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