Harris Scarfe Ltd (Receivers & Managers Appointed) (in Liq) v Ernst & Young (No 9)
[2006] SASC 323
•20 October 2006
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
HARRIS SCARFE LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQ) & ORS v ERNST & YOUNG & ORS (No 9)
[2006] SASC 323
Reasons for Ruling of The Honourable Justice Bleby
20 October 2006
EVIDENCE - PROHIBITION OF PUBLICATION OF EVIDENCE - IDENTIFICATION OF PERSONS
Application for a suppression order – Applicant former director of a plaintiff – Applicant facing possible criminal proceedings in District Court for breaches of Corporations Act 2001 (Cth) – Already substantial media publicity of allegations against applicant – Whether name of or any reference to the applicant should be suppressed in trial of civil action against auditors – Whether prejudice to the proper administration of justice is likely to occur – Application refused.
Evidence Act 1929 (SA) s 69A; Corporations Act 2001 (Cth); Federal Court of Australia Act 1976 (Cth) s 50, referred to.
Australian Broadcasting Commission v Parish (1980) 29 ALR 228; John Fairfax Group Pty Ltd (Receivers and Managers Appointed) v Local Court of New South Wales (1991) 26 NSWLR 131; R v Glennon (1992) 173 CLR 592, considered.
HARRIS SCARFE LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQ) & ORS v ERNST & YOUNG & ORS (No 9)
[2006] SASC 323
BLEBY J: At the time when this application was heard I was about to commence the trial of an action in which the plaintiffs claim damages from the defendants for negligence and related alleged breaches of duty to the plaintiffs. On the commencement of the trial I refused the application, for reasons to be published. These are those reasons.
The plaintiffs’ claim arises out of the conduct by the defendants of audits of the financial statements of the Harris Scarfe Group of Companies over a number of years. The first defendants were auditors of the Harris Scarfe Group for the relevant periods ending 31 July 1997. The second and third defendants were the auditors for the Group in subsequent relevant years.
The plaintiffs allege that certain financial officers of the Harris Scarfe Group were responsible for knowingly false accounts being prepared during the relevant accounting periods. It is alleged that those accounts caused the plaintiffs to hold certain mistaken beliefs as to the state of the Harris Scarfe Group’s accounts and that those mistaken beliefs in turn caused the companies to continue to trade as they had previously done in ignorance of the true and deteriorating financial position of the companies. It is alleged that the defendants failed in their duty to detect and report the inaccuracies.
Both sets of defendants have brought counterclaims against the plaintiffs alleging negligence, breaches of duty and misleading and deceptive conduct on the part of the plaintiffs and their directors.
The plaintiffs have settled their action against the first defendants and, by leave, have discontinued the action against them. The first defendants, also by leave, have discontinued their counterclaim against the plaintiffs. The second and third defendants have been given leave to join the first defendants as third parties.
Mr Adam Trescowthick has applied for an order pursuant to section 69A(1)(a) of the Evidence Act 1929 (SA) that until further order the name of Mr Trescowthick or any reference to his position as director, chairperson, executive chairman or officer of Harris Scarfe Holdings Limited or any member of the Harris Scarfe Group of Companies, or of any other material which may directly or indirectly tend to identify him, be forbidden from publication. None of the defendants sought to be heard on the application. The plaintiffs were represented by counsel who made no submissions. The application was opposed by a representative of “The Australian” newspaper. A representative of “The Advertiser” newspaper made submissions as to the revocation of an order if one were made.
Mr Trescowthick was, at various times during the relevant period, either a director, the chairman or executive chairman of the Board of Directors of Harris Scarfe Holdings Limited, the holding company of others in the Group and one of the plaintiffs. In that capacity he has been charged in the District Court of South Australia on the information of the Australian Securities and Investments Commission with a total of 26 counts of alleged breaches of the Corporations Act 2001 (Cth). In that capacity has pleaded not guilty to those charges. His trial was due to commence on 17 July 2006, but the trial was adjourned because of information placed before the Commonwealth Director of Public Prosecutions on which the Director has been invited to apply to enter a nolle prosequi. The trial is now listed for hearing on 7 May 2007, subject to the DPP favourably considering Mr Trescowthick’s application for a nolle prosequi. I am told that it is hoped that the DPP will have completed his further investigations and that the future of the prosecution will be known by the end of this year.
In the criminal proceedings it is alleged that Mr Trescowthick and other company officers made false or misleading public statements about the sales, profits and forecasts of the Harris Scarfe Group knowing that they were incorrect, that he is alleged to have required another company officer to achieve false or misleading profits and to have procured that officer to inflate falsely the profit levels of the consolidated accounts in order to be able to publish to the market a certain level of profit. In other words, it will be alleged that Mr Trescowthick was aware of the falsity of the accounts the subject of the proceedings in this action.
Mr Trescowthick was committed for trial in the District Court on 10 December 2004. At the time there was substantial media publicity of the allegations being made against him.
One of the Harris Scarfe officers concerned, a Mr Hodgson, was convicted on his plea of guilty of a number of charges concerning his role in falsifying the accounts of the Harris Scarfe Group. He received a sentence of imprisonment which was substantially reduced on the basis that he not only cooperated with the Australian Securities and Investments Commission but that he would give evidence against Mr Trescowthick and another employee of the companies. Those proceedings also received significant media publicity, including reference to the allegations that the present applicant had been complicit in the false accounting.
Another officer of the Harris Scarfe Group was charged with offences under the Corporations Act 2001. Mr Trescowthick successfully applied to the trial judge for an order suppressing his identity in respect of both trials which took place in February 2005 and February 2006. At neither trial was the jury able to reach a verdict, and the DPP subsequently determined not to proceed with the charges against that employee.
A class action was also brought under Part IVA of the Federal Court of Australia Act 1976 (Cth) on behalf of a number of beneficial owners of securities in Harris Scarfe Holdings Ltd against the directors from time to time, including Mr Trescowthick. In those proceedings it was alleged that the misleading and deceptive statements of Mr Hodgson were made “for and on behalf of” each of the respondents, and that the directors were therefore liable to compensate the class. An application for suppression of Mr Trescowthick’s identity was made before a judge of the Federal Court and was rejected on 8 June 2004. A further application was made to suppress publication by a third party of a letter in relation to a proposed settlement of the action which the applicant’s solicitors proposed to send to all members of the class. It was rejected by the Federal Court on 11 August 2006. Those proceedings have also been attended by substantial publicity of the proposed criminal proceedings against Mr Trescowthick.
The plaintiffs’ statement of claim in these proceedings does not raise any allegations as to Mr Trescowthick’s conduct. The plaintiffs’ claim is only concerned with the fact that the accounts, as prepared, were allegedly false and that the defendants did not detect the falsity in the conduct of their audits. The defence and counterclaim of the second and third defendants does allege that the directors, including Mr Trescowthick, were aware of and were instrumental in the false accounting. Detailed particulars of that appear in the pleadings of the second and third defendants.
The court is empowered to make a suppression order where it is satisfied that the order should be made “to prevent prejudice to the proper administration of justice”.[1] The only potential prejudice identified was that relating to the fairness of the possible impending trial of Mr Trescowthick.
[1] Section 69A(1)(a) Evidence Act 1929 (SA).
Subsection (2) of section 69A provides:
(2)Where the question of making a suppression order (other than an interim suppression order) is under consideration by a court-
(a) the public interest in publication of information related to court proceedings, and the consequential right of the news media to publish such information, must be recognised as considerations of substantial weight; and
(b) the court may only make the order if satisfied that the prejudice to the proper administration of justice, or the undue hardship, that would occur if the order were not made should be accorded greater weight than the considerations referred to above.
In this case I can only make an order if I am satisfied that the prejudice to the proper administration of justice, i.e. to the fair trial of Mr Trescowthick, if the order were not made should be accorded greater weight than the public interest in publication of information relating to the proceedings.
The collapse of the Harris Scarfe Group was a matter of substantial public interest. There is an obvious public interest in the reporting of civil proceedings where damages for that collapse are sought to be recovered from the auditors of the companies.
Section 69A(2) of the Evidence Act, whilst stressing the weight to be given to the public interest in publication of information related to court proceedings, gives statutory expression to that which has long been held by courts to be the relevant consideration. An example is what Deane J said in Australian Broadcasting Commission v Parish.[2] Speaking of section 50 of the Federal Court of Australia Act 1976 Dean J said:[3]
The provisions of s 50 neither require nor warrant the court’s abandoning, as its prima facie approach, the ordinary common law rule that justice should be administered in public and that there should be public access to the evidence placed before the court in public hearing. What the section (like s 17(4) which empowers the court to sit in camera) recognizes is that there are occasions where the administrative or interests of justice will make it desirable that there be a departure from the ordinary principle of the public administration of justice in open court.
[2] (1980) 29 ALR 228.
[3] Ibid at 253. See also John Fairfax Group Pty Ltd (Receivers and Managers Appointed) v Local Court of New South Wales (1991) 26 NSWLR 131, Kirby P at 142.
The suggested prejudice to the proper administration of justice in this case relates to potential jurors in Mr Trescowthick’s criminal trial learning of allegations made against him in the conduct of the affairs of the Harris Scarfe Group and the reporting of evidence, which may or may not be led, in support of allegations contained in the defence and counterclaim of the second and third defendants. In assessing such prejudice one must also bear in mind what was said by Mason CJ and Toohey J in R v Glennon:[4]
The possibility that a juror might acquire irrelevant and prejudicial information is inherent in a criminal trial. The law acknowledges the existence of that possibility but proceeds on the footing that the jury, acting in conformity with the instructions given to them by the trial judge, will render a true verdict in accordance with the evidence. As Toohey J observed in Hinch [v Attorney General (Vic) (1987) 164 CLR 15 at 74], in the past too little weight may have been given to the capacity of jurors to assess critically what they see and hear and their ability to reach their decisions by reference to the evidence before them.
[4] (1992) 173 CLR 592 at 603. See also Brennan J at 614-615.
In my experience, the media reporting of civil cases of this type is generally limited, at the initial stages, to reporting a portion of counsel’s opening addresses. After that, and until judgment, not surprisingly, the media shows little interest in the case.
What is likely to be reported in the near future (if anything) about Mr Trescowthick’s activities will consist only of allegations contained in counsel’s opening submissions. The plaintiffs’ opening is likely to occupy some days and will be followed by an opening from counsel for the second and third defendants. Any allegations concerning Mr Trescowthick, if made, and if reported, will be no more than that. They will be no more than is already in the public arena. If made, they are likely to be completed before the end of October, more than six months before the commencement of Mr Trescowthick’s possible trial. I say “possible” trial because, until the DPP decides whether to proceed, that is all it is. Any publicity of allegations concerning Mr Trescowthick, if it occurs, is unlikely to be prolonged.
Mr Trescowthick argues that a number of statements contained in depositions relating to his criminal trial contain inadmissible material, that agreement has been reached with the DPP that some of such material should not be led and that the admissibility of other material will be the subject of argument at trial. He argues that if such material is led in this trial and reported, the fairness of his trial will be seriously prejudiced. That may be so. However, no attempt has been made to identify before me the nature of the material to which objection has been or will be taken. It is not possible to tell whether such material would be led in this trial or whether it will be admissible in these proceedings.
It may become clearer from the openings of counsel just what evidence is likely to be led by all parties involving Mr Trescowthick’s conduct. This trial could well continue for many months. I accept that, if evidence is given in these proceedings of Mr Trescowthick’s conduct and reported in the media at the time of Mr Trecowthick’s trial or shortly before a jury is empanelled, serious prejudice to the administration of justice could ensue. A jury might find some difficulty in closing its eyes to reported evidence not led in the criminal trial or to evidence in conflict with or qualifying evidence led before the jury.
However, at this stage I cannot be satisfied that prejudice to the proper administration of justice is likely to occur if an order is not made by me. That is because of the uncertainties surrounding Mr Trescowthick’s criminal trial, the fact that, at this stage of the civil trial, it is uncertain what evidence will be led in respect of Mr Trescowthick and when, and because any mention of his activities, if reported, will be allegations by counsel already in the public domain and made many months before Mr Trescowthick’s trial, if it occurs, is due to commence. I therefore cannot be satisfied that such possible prejudice should be accorded greater weight than the public interest in publication of information related to these proceedings.
It may be that circumstances will change. The position may be clearer after the opening addresses and after the DPP has made his decision. It is always open to Mr Trescowthick to apply again if circumstances do change.
He complains, however, that he is not a party to these proceedings and that it is unreasonable to expect him to maintain a presence at this trial just in case circumstances should change. I accept that. He will, however, have access to transcript of the openings if he wishes. Rather than require him to make a further application dependent on circumstances of which he may not be immediately aware, I decided to refuse the application at this stage but to list it again for further consideration in the light of the circumstances as then known at the time the case is due to resume in 2007, on 29 January. The application will be listed for mention at 9.45am that day for Mr Trescowthick to indicate whether he wishes to renew his application in the light of circumstances then prevailing. In the meantime, the application is refused and the interim order I made pursuant to 69A(3) of the Evidence Act no longer has effect.
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