Australian Securities Commission v Zarro, P

[1992] FCA 197

JUDGMENT No. . .!.?.?./.!?_?_

IN THE FEDERAL COURT OF AUSTRALIA )	NO. QG 3018 of 1991
QUEENSLAND 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

I have upheld a claim by the Australian Securities documents held by the Commission. The Respondents now apply

Commission to public interest immunlty with respect to certain

to stay the trial of the issue raised by amended particular number 30 on the ground that, since the Respondents have been denied access to these documents, their task in answering the whole of the allegations in amended particular 30 is made much more difficult than it would be if the Respondents had access to the documents. Implicit in that proposition is the notion which cannot necessarily be assumed that the documents would assist the Respondents in advancing their case.

The Commission says that there were a number of instances in which various of the natural Respondents bought time for companies in the Witan group other than the corporate Respondents, by representing to lenders to those companies that sales of company property from which the debts would be repaid, or re-financing agreements with new financiers, were on the point of consummation. The Commission alleges these representations were made either fraudulently by the natural Respondents, or negligently by them. Only some of the representations were made in reliance upon alleged purchases

with Pacific Commerce Finance Ltd.. by Pacific Commerce Finance Ltd., or re-financing agreements

If the trial of so much of the issues raised by amended particular 30, as relate to alleged representations with respect to Pacific Commerce Finance Ltd. was stayed, the Commission could still run the key allegation. There would be excluded evidence with respect to four properties, namely the Coolangatta Shopping Resort Stage 2, the Greenslopes Shopping Centre, the Park Ridge Estate and the Surfers Paradise Returned Services League building. If this course were followed by me, that is, if I were to exclude only that part of amended particular 30 which relates to representations concerning Pacific Commerce Finance Ltd., the Commission would be left with evidence from financiers called by it that, for a time at least, those financiers were prepared to delay enforcing their securities in reliance upon those representations.

The Commission opposes the stay on a number of Firstlv, it says that, because of the inter- relationship between the allegation that in making those representations the natural Respondents breached S. 232 of the Cor~orations Law and the rights to relief claimed against the corporate Respondents under ss. 1323 and 1324 that are said by the Commission to flow from the breaches by the natural	grounds.
Respondents, the application should be rejected.

This argument was not further developed by the Commission. In particular, no attempt was made to suggest how the excision from the trial of so much of amended particular 30 as relates to Pacific Commerce Finance Ltd. would put the Commission in any different position from a party who has had ruled to be inadmissible some of the evidence upon which it wished to rely to prove an issue.

Nor was any attempt made to show how the excision of all of new particular 3 0 , or that part of it relating to Pacific Commerce Finance Ltd., would have any more impact than that upon the core case the Commission seeks to make out here, namely, that moneys belonging to Witan companies that were in serious financial difficulties, were diverted improperly by the natural Respondents to the corporate Respondents. Moreover, despite what is said by the Commission as to this inter-relationship between the S. 232 allegations against the natural Respondents, and the claims for relief against the corporate Respondents, under ss. 1 3 2 3 and 1 3 2 4 , so far as those claims which are based on matters raised by amended particular 3 0 are concerned, it is not at all clear how conduct in making representations on the part of the natural Respondents, who were not connected with the corporate Respondents at the relevant times, can expose the corporate Respondents to the relief claimed against the latter. I have not yet ruled on this part of the case, having decided it is necessary to hear the evidence before doing so.

Secondlv, the Commission submits that the issue in relation to Pacific Commerce Finance Ltd. is not the objective question, whether Pacific Commerce Finance Ltd. was a genuine financier: rather, the question relating to Pacific Commerce Finance Ltd. is the subjective issue as to what the Respondents believed the position relating to Pacific Commerce Flnance Ltd. to be. This submission focuses upon the state of mind of the natural Respondents, and in view of what senior counsel for the Commission had to say, perhaps also upon the state of mind of the corporate Respondents.

Senior counsel for the Respondents confirms that the natural Respondents do not intend to glve evidence, as is to be inferred from the absence of any affidavits by them in the materlal filed by the Respondents in compliance with directions given by Spender J late last year. Senior counsel for the Respondents indicated that his case, so far as the Pacific Commerce Finance Ltd. representations sought to be raised by amended particular 30 are concerned, will be that the Respondents honestly believed the statements made to them by Pacific Commerce Finance Ltd. that funding would be available and that purchases would occur, and that all contracts entered into on behalf of any of the Witan Group companies with Pacific Commerce Finance Ltd. were genuine transactions.

It is difficult, but not impossible, to make out Respondents and, in this regard, counsel referred to evidence such a defence in the absence of evidence from the natural

which it is intended to lead on behalf of the Respondents from a Mr. Gardlner, an employee of one of the financiers who were pressing various of the Witan companies for repayment. Before being told that by counsel for the Respondents I ruled, in effect, that the documents the subject of the immunity claim, were relevant. This was really not disputed by the Commission. But in upholding the claim for immunity I ruled that they should not be disclosed.

If the documents the subject of the ruling tended to show that false letters were given to others unconnected with the Witan Group on the one hand they would be relevant to the Commission's case. But still in view of the immunity established, they would not be disclosed. On the other hand, if they tended to show that others unconnected with the Witan Group believed that Pacific Commerce Finance Ltd. could arrange loans, the documents would be relevant to the Respondents' foreshadowed defence.

But a key question is whether evidence of either sort of situation would be admissible, if that particular situation was unknown to the natural Respondents. In other words, would evidence of such a situation be admissible either in the form of the documents themselves or in the form of evidence that might be gathered as a result of access to the

documents.

If there was evidence that such a situation was known to the natural Respondents, then if it told against them it might be expected that the Commission would have sought to lead it, subject, of course, to feeling obliged to take a claim of public interest immunity which, if successful, would deprive the Commission of useful evidence. If, on the other hand, such a situation was known to the natural Respondents but told in their favour, it is to be expected that they would lead that evidence.

Mr. Griffin made this second submission without reference to any decision other than the High Court case of O'Leanr v The Kinq (1946) 73 C.L.R. 566 (which does not take the matter any further). Mr. Couper referred to a decision of the Victorian Full Court in _R v Gibb and McKenzie [l9831 2 V.R. 155.

In that case Gibb and McKenzie and one Claridge were jointly charged with murder. The Crown alleged the victim was shot by Gibb while McKenzie and Claridge were present as aiders and abetters. Gibb's defence was alibi. While both McKenzie and Claridge conceded that they were present at the scene of the killing, they claimed that they had acted under duress brought about against them by Gibb. Both McKenzie and Claridge implicated Gibb as the principal offender in the course of records of interview conducted with the police and

confirmed the truth of the contents of those records of interview in unsworn statements from the dock.

Furthermore, each of them, through cross-examination of Crown witnesses, and in their statements from the dock, conveyed to the jury that Gibb was a person of violent disposition.

McKenzie's appeal against conviction was allowed, and it was held that the trial judge had erred in preventing McKenzie from eliciting in cross-examination of a Crown witness certain evidence of Gibb's propensity and reputation for violence and the fear in which that witness held Gibb. The Full Court held that such evidence was admissible in support of McKenzie's defence of duress irrespective of whether such matters had been communicated to McKenzie by the witness from whom it was sought to lead the evidence prior to the occasion of the killing. Such evidence would tend to make it more probable that Gibb had made the threat alleged and therefore was relevant to the issue between the Crown and McKenzie. The relevant statements by the Full Court, in which this conclusion was reached, appear at pages 170 to 171 of the report.

The decision would have been the same, it seems to
me, even if Gibb had not been on trial with McKenzie and
Claridge, if, for example, he had died before trial. That

Gibb was tried with McKenzie and Claridge was not relevant to the decision. The case is therefore authority for the

proposition, it seems to me, that where the state of mind of a party that a stranger to the proceedings possesses a certain attribute is relevant to an issue, evidence of events unknown to the party, which tend to prove that the stranger to the action did possess that attribute, is admissible as making it more likely that the party's claim that his state of mind was as he said it was, is true.

Evidence of the experience of others with Pacific Commerce Finance Ltd. not known to the Respondents, but which either tend to prove the Commission's case that the Respondents knew the offers made by Pacific Commerce Finance Ltd. were not genuine, or were not likely to be made good, or

Coram: 

Drummond J

Date: 

16 March, 1992

Place 

: Brisbane

RULING

, which on the other hand tend to prove what has been foreshadowed as the Respondents' case, that Pacific Commerce Finance Ltd. were believed by others to be genuine, would therefore, it seems to me, be admissible in this case

Senior counsel for the Commission submits that without access to the documents the Respondents can make their own inquiries and gather any evidence of relevance to their case which, if it exists, and is in their favour, could be tendered without any harm to the public interest. That is no doubt so, but quite obviously access to the documents, if they do tend to favour the Respondents, would quite plainly be of great assistance to their case.

The third argument that was advanced against acceding to the Respondents' application was based upon the ruling I made in favour of immunity. In so ruling, I applied a statement by Gibbs CJ, in Alister v The Oueen (1984) 154 C.L.R. 404. At page 412 Gibbs CJ said:

"Sankey v Whitlam establishes that when one party to litigation seeks the production of documents, and objection is taken that it would be against the public interest to produce them, the court is required to consider two conflicting aspects of the public interest, namely, whether harm would be done by the production of the documents, and whether the administration of justice would be frustrated or impaired if the documents were withheld, and to decide which of those aspects predominates. The final step in this process - the balancing exercise - can only be taken when it appears that both aspects of the public interest do require consideration - i.e., when it appears, on the one hand, that damage would be done to the public interest by producing the documents sought or documents of that class, and, on the other hand, that there are or are likely to be documents which contain material evidence."

The situation that has arisen here could not arise in a criminal case where a claim of public interest immunity is raised because the authorities still seem to recognize that there is an exception which will preclude documents otherwise entitled to public interest immunity from that immun~ty if the documents can be seen to disclose evidence which would tend to prove the innocence of the accused.

However, that does not solve the present problem for
me. I think that the nature of the exercise that I have

carried out already in upholding the claim to immunity, is the

decisive consideration. To uphold a claim to immunity after	performing the balancing exercise necessarily involves the
proposition that the court has found that documents contain or are likely to contain material evidence, i.e., evidence that would tell for or against a party in a material way, but the public interest in non-disclosure overcomes the public interest in having all the material evidence before the court.
The history of the slow emergence of the issues in amended particular 30 indicates that it is not critical to the Commission's case. It was not mentioned in 'various earlier versions of the Commission's statement of factual and legal basis which I directed the Commission to file, the first such statement being filed in response to my direction given in mid-December 1991. Exclusion of the issues in amended particular 30 or of those issues which only involve Pacific Commerce Finance Ltd. would not by any means destroy the Commission's case.
That might be thought to be a consideration that favours granting the Respondents' application, but it is a consideration which I think is really two-edged. It tells against the Respondents, in that the upholding of a claim to immunity can only ever be made in circumstances in which material evidence is excluded, which may either be evidence of assistance to the Respondent or evidence of assistance to the Applicant for the claim to immunity who nevertheless feels
compelled to take the claim in order to protect the public interest. If the material excluded would assist the
Respondent, that is the inevitable consequence of a finding that the documents are immune from disclosure.
What is said by the Respondents here is that, on an issue that is not the core issue in the Commission's case, the Respondents may, by my ruling upholding the claim to immunity, be deprived of material that would assist the Respondents to meet certain of the issues that are raised against it. I do not think that this case involves any special circumstances of hardship to a party in a civil action resulting from the upholding of a claim to immunity beyond the hardship always and necessarily included when immunity is held to attach to
.	documents which would assist a party if they were disclosed; which would justify my denying the Applicant the opportunity of seeking to prove an issue or group of issues with respect to which the Respondents are concerned that they may not have access to all material evidence in the possession of the Commission. I therefore reject the application.

I certify that this and the eleven

preceding pages are a true copy of
the ruling herein of the Honourable
Mr. Justice Drummond.

Associate: 

Date:  16 March, 1992