Australian Securities Commission v Zarro

[1992] FCA 605

JUDGMENT No. ..h..wl 0 s " J L

IN THE FEDERAL COURT OF AUSTRALIA	)	NO. QG 3018 of 1991
9UEENSLAND DISTRICT REGISTRY	1
GENERAL DIVISION	)

BETWEEN:  AUSTRALIAN SECURITIES COMMISSION

Applicant

AND:  PASOUAL ZARRO

First Respondent

AND:  MICHELLE GAY ZARRO

Second Respondent

AND:  DOUGLAS CHALMERS BURGESS

Third Respondent

AND :  HAROLD WALLACE WOODS

Fourth Respondent

AND:  SPRING COIL PTY. LTD.

Fifth Respondent

AND:  TRENGATE PTY. LTD.

Sixth Respondent

AND:  POINTBLANK PTY. LTD.

Seventh Respondent

AND:  WESTPAC BANKING CORPORATION

Eighth Respondent

1992, for leave to adduce further evidence from either of

MINUTES OF ORDERS

JUDGE MAKING ORDER:	Drummond J
DATE OF ORDER:	3 August, 1
WHERE ?WE:	Brisbane
THE COURT ORDERS THAT:

1.   The application by the applicant, argued on 27 July,

i

Messrs. Goody or Duus on the issue of whether the books

of those of the Witan companies which the applicant says	1..
are entitled to various moneys reveal any explanation for	l .
the	disbursement or diversion of those moneys to any of
the corporate respondents, is dismissed.	i

2.   The applicant pay the respondents' taxed costs of and incidental to the application referred to in order 1.

THE COURT DIRECTS THAT:

I

l

1. The respondents have liberty to apply for access to

further funds, at the rates proposed by the respondents	l ;
in the material put before the court on 3 August, 1992, at some time in the week commencing Monday, 24 August, 1992.
i

NOTE :	Settlement and entry of orders is dealt with in	l
Order 36 of the Federal Court Rules.	I

IN THE FEDERAL COURT OF AUSTRALIA )	NO. QG 3018 of 1991
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	1

BETWEEN:  AUSTRALIAN SECURITIES COMMISSION

Applicant

AND:  PASOUAZ, ZARRO

First Respondent

AND :  MICHELLE GAY ZARRO

Second Respondent

AND :  DOUGLAS CHALMERS BURGESS

Third Respondent

AND :  HAROLD WALLACE WOODS

Fourth Respondent

AND:  SPRING COIL PTY. LTD.

Fifth Respondent

AND:  TRENGATE PTY. LTD.

Sixth Respondent

AND :  POINTBLANK PTY. LTD.

Seventh Respondent

AND:  WESTPAC BANKING CORPORATION

Eighth Respondent

Corm:	Drummond J
Date:	3 August, 1992

Place: Brisbane

EX TEMPORE REASONS FOR JUDGMENT

On 27 July last the Australian Securities Commission ("Commission") applied on notice to the respondents for leave to adduce additional evidence at the hearing of these proceedings when they resume on 17 August next.

The application is necessary because on 20 March last I gave a number of directions in an attempt to ensure that the proceedings would, from at least that time, be dealt with in an efficient and expeditious manner, an attempt that has not been wholly successful. I then directed that on 15 May 1992 the Commission was to confirm at the directions hearing appointed for that day that copies of all additional affidavits and witness statements, if any, upon which it wished to rely at the adjourned hearing (appointed to resume on 1 June, 1992) had been identified to the Court and that copies had been given to the respondents. I gave a direction imposing similar obligations on the respondents. I also directed that the parties would not be permitted to lead any additional evidence without leave.

A major issue in the litigation concerns what the Commission alleges to be improper disbursements and diversions	of funds of various companies in the Witan Group, which were
in grave financial difficulty, to one or other of the three corporate respondents which were debt free.
In the course of brief cross-examination of Mr. Goody, the main Commission witness, on 2 June last on this point, Mr. Goody acknowledged that he had, as a matter of general approach, confined his investigations of the documentary material available to him to an examination of how the receipt of these funds was dealt with in the books of the corporate respondents. He had not made any attempt to check how a particular disbursement or diversion of funds was dealt with in the books of the debt-laden company to whom the Commission alleges the funds in question belonged.
On the basis that the matter had been fully opened up in cross-examination, the Commission attempted, in re- examination of Mr. Goody, on 4 June last, to elicit detailed evidence as to how the disbursements were treated in those of the books which were available to the Commission of the debt- laden companies making the payments. I declined to allow such a course to be followed in re-examination and said that, if the Commission wanted to go into evidence on this topic, it would have to provide the respondents with an appropriate witness statement in accordance with the directions I had given and attain leave to adduce such evidence.
that Mr. Goody had, at his request, on the evening of 3 June responsibility for the conduct of the case on its behalf, said W. Bull, the Commission officer with overall
last, conducted an analysis of all the financial records of the companies from which funds were paid, or diverted, into accounts of the various corporate respondents to ascertain whether there was any legitimate reason for the payment, or diversion of such moneys, recorded in the books of the companies to whom the funds in question are alleged to belong.
Mr. Bull also said that Mr. Goody was in a position to give this evidence.
However, it emerged that no attempt had been made to obtain a statement from Mr. Goody setting out the evidence he 'is able to give in this regard, or to inform the respondents of the details of the evidence Mr. Goody is able to give about this matter. Perhaps because of the Commission's failure to proof Mr. Goody on the point, its initial application was confined to an application for leave to adduce the evidence from Mr. Duus, which is set out in a long letter, sent by Mr. Duus to the Commission, dated 13 July, 1992.

Mr Duus is the liquidator of four of the Witan

companies.

The Commission long ago indicated to the respondents
that it would be calling Mr. Duus to give evidence on certain

matters, but those matters did not include those now of

concern. Mr. Duus has not yet given evidence, but because of	the directions I have given, to which I have already referred,
he will not be allowed to give evidence on the matters now of concern, without leave first being obtained.
Objection is taken to my granting leave to allow the Commission to adduce evidence from Mr. Duus of the matters outlined in his letter of 13 July (as amended by his letter of 15 July). It is apparent from Mr. Bull's letter to Mr. Duus of 26 June that m. uuus was only commissioned to ascertain whether there is anything in those of the books of the Witan companies available to him that indicated that any of the disbursements or diversions may have been repayments by those Witan companies of earlier loans made to them by the various corporate respondents.
It is also apparent from Mr. Duus' letter of 13 July that he has conducted a limited examination only and that it was solely directed to meet the particular query put to him by Mr. Bull. It is difficult to see why Mr. Duus' commission was limited in this way by Mr. Bull, when Mr. Bull says, in his own affidavit setting out his discussions with Mr. Goody, that he was well aware of the need to check the books of the debt- laden Witan companies to see if there was anything recorded in those books that suggested that there might be some legitimate reason for those companies making the payments in question, or allowing the diversion of funds, which they were entitled to receive, to various of the corporate respondents.
The uncontradicted evidence of Mr. Woods, the fourth respondent, and of Mr. King, the respondentsr solicitor, is that evidence on this topic will, of necessity, be quite extensive and it would be necessary, if the job were to be done properly, for Mr. Goody and Mr. Duus to examine a range of records of the respondents Trengate Pty. Ltd. and Pointblank Pty. Ltd. and records of at least six of the companies in the Witan Group of which neither the Commission nor the liquidator has yet taken possession.
The respondents accordingly object to leave being granted for the Commission to adduce the evidence from Mr. Duus, outlined in his letter of 13 July, since it will cover only part of the exercise that needs to be done, i.f the Commission is to prove that no legitimate reason for the disbursements and diversions is recorded in the books of the debt-laden Nitan companies said to be entitled to the funds in question. Faced with the problem that no statement has yet been taken from Mr. Goody covering this issue and the problem that Mr. Duus only partly deals with the matter in his letter of 13 July, counsel for the Commission then asked for leave to call Mr. Duus to give evidence of whether the books of any of the Witan companies revealed any legitimate reason for any of the disbursements or diversions in favour of any of the corporate respondents.
The respondents object to this course being followed. I decided not to grant leave for a number of reasons.
Firstly, the Commission has long been aware of the importance of this particular issue. It is expressly raised, by the Commission, in the detailed statement of factual and legal basis of its claims, which I required it to deliver in early February last. For example, the complaint the Commission makes of the payment of $82,000.00 made by the first respondent, Mr. Zarro, on 15 August 1990, from the funds of the debt-laden Witan Investments (Qld.) Pty. Ltd., to the corporate respondent, Trengate Pty. Ltd., contains the following allegation:

"Documentation of Witan Investments (Qld.) Pty. Ltd. was delivered into the possession of the applicant, pursuant to service upon that company, of a notice pursuant to section 30 of the ASC Act and/or search warrant. No document so procured evidenced any contract between Witan Investments (Qld.) Pty. Ltd. and Trengate Pty. Ltd. justifying the payment to Trengate of the sum of $82,000 on 15 August 1990."

It was apparent from Mr. Bull's oral evidence be£ ore

me that he had forgotten that the Commission was making just
this sort of assertion as far back as February last.

Secondly, although according to Mr. Bullts affidavit he recognised the necessity for putting this evidence before the court in the course of M r . Goody's cross-examination and that he attempted to ensure that Mr. Goody would be in a

position to give the necessary evidence in re-examination on 4	June, no attempt has been made to proof Mr. Goody and to give
the respondents a copy of such proof, nor was any attempt made to involve Mr. Duus, even to the limited extent that he has been brought into the matter of present concern, until mid- July. No notice was given to the respondents of the Commission's intention to seek leave to adduce evidence from Mr. Duus on this topic until a few days before the matter came before me on 27 July.
There is no point in giving the Commission leave to adduce the evidence from Mr. Duus, outlined in his letter of
13 July, because it covers only part of the evidence that the
Commission will need to lead on the issue. Nor should general leave now be given to the Commission to adduce further evidence, presumably from Mr. Duus, to cover the whole issue. Mr. Duus is absent from Brisbane and counsel for the Commission could not give any satisfactory indication when a statement might be obtained from Mr. Duus for delivery to the respondents, covering the whole of the evidence that the Commission will want to lead from him about this particular matter.
It is apparent, from the uncontradicted evidence of Mr. Woods, that neither Mr. Goody nor Mr. Duus can give full evidence on this topic, in any event, until the Commission obtains further documents of the corporate respondents and of various of the other Witan Group Companies which are in existence. Some of these documents are set out in a list
exhibited to Mr. King's affidavit, filed by leave on 27 July last. Notices issued under S. 30 of the Australian Securities
Commission Act 1989 fCth). were served on various of the Witan companies on 7 August, 1991, requiring production by 8 August, 1991 of a range of documents which would have included those referred to by Mr. Woods.
The evidence of Mr. Eriksson, the Commission investigator charged with gathering up the documents, shows that a large volume of material was involved; that protests were made on behalf of the recipients of the notices as to the lack of time to comply with the demands and that a few days after the notices were served and after Mr Eriksson formed a view that what was initially produced in response to the notices was not the totality of the documentation required, search warrants were obtained and executed.
It appears that the Commission thereafter confined its attention to gathering the documentation that it wanted in reliance on the search warrants and did not further follow up the notices, even though the Commission officers were well aware that they had not collected all the material covered by the notices. It was also submitted that the documents in question should have been delivered up to Mr. Duus, he being the liquidator of the various companies. However, Mr. Duus is the liquidator of only four of the range of Witan Group companies from whom funds were either allegedly improperly diverted or disbursed to the corporate respondents, as appears from one of the affidavits of Mr. King read before me.
Counsel for the Commission submitted that Mr. Duus should be allowed to give evidence, on the topic of present concern, by reference to the limited range of documentation available to him and to the Commission, and that the respondents could, if they wished, demonstrate inaccuracies and omissions in Mr. Duus's evidence on the topic. It is not, however, very appealing to be told that a particular matter is sufficiently important to warrant the grant of leave to adduce evidence relating to it, but that the Commission should be allowed to lead part only of the evidence on the topic that it could lead if it were to gather in all the necessary accounting records to do the job properly. I am not prepared to accept that the Commission should have leave to adduce evidence from I4r . Duus and perhaps, also, from Mr. Goody on the basis of the limited financial information concerning the debt-laden Witan companies in question which is available to them.
If the Commission wishes to adduce such evidence, it must obtain all relevant documentation that is available to it by subpoena or other appropriate process. In this regard, I note that Mr. King, solicitor for the respondents, indicates that the respondents' co-operation will be forthcoming. The court can be expected to meet the needs of the Commission so far as fixing early return dates for such subpoenas is concerned, if that is the procedure the Commission decides to
the respondents would co-operate in relation to provision of follow. While Mr. King has, as I have said, indicated that
this range of material so far as they have control of it, he does not act for all the Witan companies and, in particular,, for those companies from whom funds are said to have been wrongly disbursed or diverted, none of which companies is a party to these present proceedings.
I also take into account the fact that the hearing of this action has been under way now for many months and that the Commission has failed to give what I regard as the necessary minimum attention to the need to prepare its case so it can be presented as expeditiously as possible. I regard the onus on the Commission in this regard as a significant one, given that these proceedings began with the Commission obtaining orders freezing the funds of the various respondents and given that those funds continue to be depleted as the action runs on as a result of orders made giving the respondents access to the funds for the purpose of defending the Commission's claims.

I, therefore, propose to dismiss the Commission's

application.

If the Commission wishes to make a further application for leave to adduce evidence on the topic, it can do so at any time, but it will need to have done the job of proofing the relevant witnesses before any such application is

made. Given that the respondents will be entitled to a	reasonable opportunity to prepare to deal with such an issue,
whether the Commission obtains leave will also depend upon how promptly it moves since the hearing is due to resume and, hopefully, conclude in the four weeks that have been set aside commencing Monday, 17 August, 1992.
I should mention that it was submitted for the respondents that Mr. Bull could not be believed in respect of what he has to say in his affidavit read before me. Mr. Bull deposed to his being long aware of the necessity for Mr. Goody to be in a position to give this evidence. He refers to several discussions with Mr. Goody in which he, senior counsel and junior counsel all at various times over the past six months impressed on Mr. Goody the need for him to be in a position to cover this matter in his evidence, yet it appears that Mr. Goody ignored these exhortations and Mr. Bull did not follow them up. Although Mr. Bull's evidence in this regard was somewhat surprising, it is clear from the Commission's statement of factual and legal basis that the Commission has always been alert, as Mr. Bull says, to the need to cover this matter in its evidence.
I reject the respondents' submission that Mr. Bull in his affidavit has attempted to mislead the court. I accept what he has to say in evidence and think that although from
evidence on this matter, he ultimately overlooked following time to time he gave consideration to the need to call things up effectively with Mr. Goody, no doubt due to the
pressure of work upon him.
I certify that this and the eleven
preceding pages is a true copy of the reasons for judgment herein of the Honourable Mr. Justice Drummond. ,
Associate:
Date:  3 ~ugusto992 W