Australian Securities and Investments Commission v Scholz

[2022] FCA 1188

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Scholz [2022] FCA 1188

File number(s):

QUD 426 of 2021

Judgment of:

DOWNES J

Date of judgment:

5 October 2022

Catchwords:

EVIDENCE – evidence relating to meaning of technical and colloquial terms used in social media posts and messages – evidence failed to establish that witness had specialised knowledge within meaning of s 79 Evidence Act 1995 (Cth) – connection between opinions expressed and specialised knowledge not demonstrated – evidence rejected pursuant to s 76 Evidence Act 1995 (Cth)

Legislation:

Corporations Act 2001 (Cth) s 911A

Evidence Act 1995 (Cth) ss 76, 79(1)

Division:

General Division

Registry:

Queensland

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

15

Date of hearing:

4 October 2022

Counsel for the Plaintiff:

Ms S Callan SC w/ Mr M Steele

Solicitor for the Plaintiff:

Corrs Chambers Westgarth

Counsel for the Defendant:

Mr RA Dick SC w/ Ms S Palaniappan

Solicitor for the Defendant:

Horton Rhodes Lawyers

REASONS FOR JUDGMENT

BETWEEN:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND:	TYSON ROBERT SCHOLZ Defendant

DOWNES J:

1. These proceedings concern allegations by the plaintiff (ASIC) that the defendant, from at least early 2020, carried on a financial services business by providing financial product advice in relation to trading in shares on the Australian Securities Exchange, without holding an Australian Financial Services Licence, contrary to s 911A of the Corporations Act 2001 (Cth).

2. On the first day of the hearing, a number of rulings concerning the admissibility of evidence were made.  One of those rulings related to the rejection of an affidavit of Mr Paul Denis Kavanagh affirmed on 12 August 2022 and filed on 16 August 2022 insofar as it purports to contain expert evidence of the meaning of terms used in social media posts and messages.  These are the reasons for the ruling that this evidence should not be admitted.  Mr Kavanagh is yet to be called as a witness at the hearing.

3. In his affidavit, Mr Kavanagh gives the following evidence:

   I am employed by ASIC as a Senior Investigator in ASIC’s Enforcement WA team as part of the Office of Enforcement.

   …

   I have been employed within Enforcement at ASIC for 16 years.  During this period, I have been involved in a number of investigations involving or related to the trading of securities on the Australian Securities Exchange.  A portion of this work has required me to query, research and understand security trading terminology of both a technical and colloquial nature.  I have interviewed numerous share trading individuals, share trading brokers, share market participants and share market experts.  I have also reviewed security trading communications including security research reports and chat websites such as HotCopper which describes itself as “Australia’s largest stock trading and investment forum”.  Based on this experience, I have developed a strong working knowledge of security trading terminology of both a technical and colloquial nature.

4. Mr Kavanagh’s affidavit refers to screenshots of Instagram posts and stories posted on an Instagram account as well as screenshots of Discord chats which are exhibited to two earlier affidavits affirmed by him in this proceeding.  Mr Kavanagh deposes that:

   Based on my experience as set out [above], I consider these screenshots include share trading terminology and shorthand references to share trading terminology.

   Annexed to this Affidavit and marked “A” is a true copy of a table created by me that sets out the share trading terminology and shorthand terms which appear in these screenshots, and my view as to what the shorthand and terminology means, which is based on my experience as set out [above].

   …

   Annexed to this Affidavit and marked “B” is a true copy of a table created by me that sets out the share trading terminology and shorthand terms which appear in these screenshots and my view as to what the shorthand and terminology means, which is based on my experience as set out [above].

5. The relevant annexures identify the “shorthand term” and Mr Kavanagh’s “description”.  For example, Mr Kavanagh refers to “SP” and states that this means “Share Price”.

6. On occasion, Mr Kavanagh also identifies what he considers that the shorthand term is meant to depict and then provides a meaning for the term which he considers was intended.  For example, in relation to “Leed Gen/ Leeds”, Mr Kavanagh states that “I believe [this] should be ‘Lead’.  It refers to likely stocks the Black Wolf Channel users can identify from the ASX Penny page to buy/sell.”

7. Objection was taken by the defendant to this evidence on 9 September 2022 in the following terms:

   Kavanagh not [sic] an expert. He has never (or he does not give evidence of it) worked in finance or share trading. He says he is qualified to give this evidence because he has interviewed and spoken to unnamed people who he thinks knows about these things. Section 76: opinion evidence.

8. Following receipt of submissions from ASIC which confirmed that this evidence was relied upon as being expert evidence, the defendant confirmed his objection to [6]–[12] and Annexures A and B of this affidavit on the basis of s 76 of the Evidence Act 1995 (Cth) by his submissions filed on 28 September 2022. Section 76 relevantly provides:

   Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.

9. ASIC relies upon s 79(1) of that Act which provides that:

   If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.

10. ASIC submits that Mr Kavanagh has the required specialised knowledge because of his evidence as referred to in paragraph 3 above.  It submits that Mr Kavanagh has acquired knowledge based on his “considerable experience”.

11. However, as submitted by the defendant, the limited evidence identified in paragraph 3 above is insufficient for this Court to determine and test whether Mr Kavanagh has the requisite specialised knowledge.  That is because, in essence, Mr Kavanagh gives evidence about what both technical terms mean as well as the meaning of slang or colloquial terms in the share trading industry, which evidence is said to be based upon his knowledge derived from information obtained by him from a range of different sources, which sources may or may not be reliable and without identification (for example) of whether those sources would themselves have the relevant expertise to know the technical meaning of any particular terms.

12. ASIC also submits that Mr Kavanagh’s “specialised knowledge is not ‘common knowledge’ – Mr Kavanagh’s experience as outlined above has resulted in the acquisition of knowledge in the subject matter: namely, share trading terminology of both a technical and colloquial nature”.

13. However, there is no evidence which supports a submission that the terms referred to in the annexures are not common knowledge.  Nor is there any differentiation in Mr Kavanagh’s affidavit between the terms which are “technical” and those which are of a “colloquial nature”.  Further, the basis upon which Mr Kavanagh can depose to what was meant to be written as opposed to what was written in the posts or messages is not identified.

14. For these reasons, the factual basis for the opinions expressed by Mr Kavanagh, and the connection between those opinions and his professed specialised knowledge based on his experience, has not been demonstrated.

15. For all of these reasons, s 79(1) Evidence Act has not been satisfied and the evidence is excluded by reason of s 76(1) of that Act.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes.

Associate:

Dated:       5 October 2022