Re Blockchain Tech Pty Ltd
[2022] VSC 564
•14 October 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 02711
IN THE MATTER OF BLOCKCHAIN TECH PTY LTD
(ACN 623 201 945)
BETWEEN:
| JIN CHEN & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| WEI ZHAO & ORS (according to the attached Schedule) | Defendants |
BY COUNTERCLAIM:
| WEI ZHAO & ORS (according to the attached Schedule) | Plaintiffs by Counterclaim |
| v | |
| JIN CHEN & ANOR (according to the attached Schedule) | Defendants by Counterclaim |
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JUDGE: | ATTIWILL J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 19, 30 September 2022 and 6 October 2022 |
DATE OF RULING: | 14 October 2022 |
CASE MAY BE CITED AS: | Re Blockchain Tech Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 564 |
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EXPERT EVIDENCE – Expert appointed by agreement of the parties pursuant to orders of the Court to prepare a report into the financial position and affairs of the second plaintiff and the third to seventh defendants - Completion of expert report – Plaintiffs’ solicitors subsequently unilaterally engaged the expert without the agreement of the defendants – Expert accepted the plaintiffs’ retainer and performed work – Objection by the defendants – Plaintiffs acknowledged that their conduct in engaging the expert was a ‘mistake’ and ‘inappropriate’ - Defendants applied to vacate or revoke the appointment of the expert – Plaintiffs applied pursuant to ss 47 and 48 of the Civil Procedure Act 2010 (Vic) for orders to compel the defendants to confer on further questions for the expert – Court refused both parties’ applications – Court held that the expert’s appointment concluded upon the completion of the expert report – Court held that it was not satisfied that it was appropriate to order the defendants to confer on further questions for the expert in the circumstances.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C Hibbard | KCL Law |
| For the First and Second Defendants | Mr L E P Magowan | Christopher James Lawyers |
| For Mr Mark Bailey (non-party) on 19 and 30 September 2022 | Mr K Tay, solicitor | Sladen Legal |
HIS HONOUR:
INTRODUCTION
There are two summonses before the Court concerning a forensic accountant expert named Mr Mark Bailey of Hall Chadwick.
By a summons filed 25 August 2022, the first and second defendants (the Zhao Parties) applied for the following substantive orders:
1.A direction pursuant to s 65K(1) of the Civil Procedure Act 2010 (“the Act”) and/or the Court’s inherent and accrued jurisdiction:
(a)Vacating the joint appointment of Mark Bailey pursuant to the orders of his Honour Justice Sifris of 25 October 2019;
(b)Mr Bailey’s purported joint expert report filed 12 October 2022 (“Bailey Report”) be treated as an expert report filed by the plaintiffs; and
(c)Directing that the plaintiffs and Mr Bailey pay the first defendant’s and second defendant’s costs of and incidental to the preparation of the Bailey Report, including but not limited to disbursements of $35,787.68, such costs to be paid on an indemnity basis, and to be paid immediately upon taxation by the Costs Court, or by agreement (with the disbursements immediately payable).
2.In the alternative to order 1, a direction pursuant to s 65K(1) of the Civil Procedure Act 2010 (“the Act”) and/or the Court’s inherent and accrued jurisdiction:
(a)Revoking the joint appointment of Mr Bailey made pursuant to the orders of his Honour Justice Sifris on 25 October 2019;
(b) That the Bailey Report be removed from the Court file; and
(c)Directing that the plaintiffs and Mr Bailey pay the first defendant’s and second defendant’s costs of and incidental to the preparation of the Bailey Report, including but not limited to disbursements of $35,787.68, such costs to be paid on an indemnity basis, and to be paid immediately upon taxation by the Costs Court, or by agreement (with the disbursements immediately payable).
By an amended summons filed 29 September 2022, the plaintiffs applied for the following orders:
1.By 4.00 pm on 7 October 2022, the plaintiffs and Zhao Parties confer as to any supplementary questions to be put to Mr Bailey.
2.By 4.00 pm on 14 October 2022, the plaintiffs and the Zhao Parties file a single joint document setting out any proposed joint supplementary questions, or any questions sought by only the plaintiffs or the Zhao Parties, to be put to Mr Bailey.
3.The matter be listed for mention on a date convenient to the Court after 14 October 2022.
4. Costs reserved.
5. Such other orders as this Honourable Court deems appropriate.
The Zhao Parties relied upon an affidavit of Mr Andreou, the Zhao Parties’ solicitor, sworn 30 August 2022, and submissions filed 13 and 14 September 2022 and 3 October 2022.
The plaintiffs relied upon an affidavit re-made of Mr Weinberger, the plaintiffs’ solicitor, on 19 September 2022. The original affidavit of 7 September 2022 was purportedly both affirmed and sworn. It has become a common occurrence for matters before me to have affidavits that have been made irregularly. An affidavit is a solemn step. It is a statement made on oath or affirmation. It is important for the administration of justice that solicitors making and taking affidavits do so correctly. The plaintiffs also relied upon an affidavit of Mr Weinberger of 26 September 2022 and submissions filed 13 September 2022 and 3 October 2022.
Counsel for the parties made submissions at the hearings on 19, 30 September 2022 and 6 October 2022.
At the hearing on 19 September 2022, the Court gave leave to Mr Tay, a solicitor, to appear for Mr Bailey. No party objected. The Zhao Parties subsequently abandoned their application, that Mr Bailey pay their costs in relation to his original report, at the hearing on 19 September 2022. Mr Tay did not make any submissions on the parties’ applications and informed the Court that Mr Bailey only wished to be heard on the question of costs. Mr Bailey made an affidavit on 27 September 2022.
BACKGROUND
On 25 October 2019, the Honourable Justice Sifris J made orders (the Court Orders), relevantly, as follows:
Appointment of independent forensic accountant
5.Mark Bailey of Hall Chadwick Melbourne be appointed as an independent forensic accountant to prepare a report in respect of the financial position and the affairs of the Second Plaintiff and the Third to Seventh Defendants by 29 November 2019, such report to include:
a.An account of all funds paid to those parties (or any of them) by the Plaintiffs (or either of them) or the Defendants (or any of them) over time, whether by way of loan or otherwise;
b.An account of all amounts paid by any of those parties to, or for the benefit of, the First Plaintiff or the First or Second Defendants in respect of personal expenses or expenses unrelated to the Blockchain Business (or such expenses of any party related to them).
6.By no later than 14 days after the appointment of the independent forensic accountant referred to in order 5, the parties provide submissions to the independent forensic accountant about matters relevant to the investigation to be carried out and report to be prepared, including about:
a.the contributions made by either of the Plaintiffs and any of the Defendants to the Blockchain Business over time; and
b.how any such contributions have been accounted for in the books and records of the Second Plaintiff and the Defendants.
7. To give effect to the previous orders:
a.Each of the parties do all things necessary in order to provide the information requested by the independent forensic accountant in order to prepare their report, including by providing any information requested promptly.
b.Any information or documents provided by a party to the independent forensic accountant should also be provided to the other parties in this proceeding.
c.Upon receipt of the independent forensic accountant’s report, the Plaintiffs shall arrange for it to be filed with the Court.
8.The costs of the preparation of the report referred to in order 5 above be paid by the First Plaintiff and the First Defendant to this proceeding, in equal shares.
The transcript of the hearing before Sifris J evidences that his Honour was told that the parties agreed to Mr Bailey’s appointment. No party made any application for the Court to appoint him pursuant to any particular Act or rule. None are identified in the order. Paragraph 6 of his Honour’s order provided for submissions ’14 days after the appointment’. There is evidence that the parties then took steps to engage Mr Bailey and, as part of that process, obtained fee estimates from him. I refer to an earlier affidavit of Mr Weinberger of 23 July 2020 at [4]-[6] (part of exhibit DW-2 to Mr Weinbergers’ affidavit of 19 September 2022).
On 12 October 2020, Mr Bailey completed his report (Mr Bailey’s report). The parties subsequently paid his fees.
Mr Weinberger gave evidence about the history of the retainer of Mr Bailey. Mr Weinberger gave evidence that:
The Zhao parties did not provide all relevant information to Mr Bailey. After obtaining additional information the Plaintiffs are seeking a further report to fill in the gaps caused by incomplete information when the report was initially prepared.
On 7 December 2021, the plaintiffs filed a summons to, inter alia, require the first defendant to transfer forthwith the subscription for Galaxy Crowdfunding Pty Ltd on the Xero accounting platform to the first plaintiff. On 17 June 2022, the Court ordered, inter alia, that the summons is adjourned to a date to be fixed.
On 26 July 2022, the plaintiffs sent an email attaching a further letter of instruction to Mr Bailey (plaintiffs’ letter of instructions). The Zhao Parties’ solicitors were not copied into this email. The plaintiffs’ letter of instructions was not sent to Mr Bailey pursuant to any request made by him for further instructions. The plaintiffs’ solicitors did not consult with the Zhao Parties’ solicitors prior to sending the plaintiffs’ letter of instructions.
The plaintiffs’ letter of instructions referred to the plaintiffs seeking Mr Bailey’s independent opinion. It referred to further questions for his opinion under a heading ‘Adjustments to the Expert Witness Report’. It annexed an ‘Attachment A’ that set out references to Mr Bailey’s report and then provided ‘The plaintiffs’ conclusions’ on those parts of Mr Bailey’s report.
On 27 July 2022, Mr Bailey telephoned Mr Weinberger of the plaintiffs’ solicitors and asked whether he could send a copy of the plaintiffs’ letter of instructions to Mr Andreou of the Zhao Parties’ solicitors. Mr Weinberger agreed that he could do so and said words to the effect that ‘he was an independent expert, but was being engaged in this instance by the Plaintiffs’.
On 28 July 2022, Mr Bailey responded to the plaintiffs’ letter of instructions by email in which he stated ‘Thank you Mr Liu for your instructions for a supplementary report. We will respond shortly.’ He addressed the email to both the plaintiffs’ solicitors and Mr Andreou of the Zhao Parties’ solicitors. At 9:51am, the Zhao Parties’ solicitors requested the plaintiffs’ solicitors provide the correspondence sent by them to Mr Bailey.
At about 10.00am on 28 July 2022, the proceeding came on for mention before the Court.
At 10.01am on 28 July 2022, the plaintiffs’ solicitors provided the plaintiffs’ letter of instructions to the Zhao Parties’ solicitors.
At the mention, counsel for the plaintiffs said that a further letter of instruction had been provided to Mr Bailey asking him some further questions and that a copy had been provided to the Zhao Parties that morning.
The Zhao Parties made no objection before the Court in relation to this course. Mr Andreou gave evidence that he was not present and did not participate at the mention and that counsel for the Zhao Parties was instructed by a Mr Christos Stathopoulos of his office.
On 28 July 2022, the plaintiffs’ solicitors provided further instructions by email to Mr Bailey. On this occasion, they copied in the Zhao Parties’ solicitors. This again included a section titled ‘The plaintiffs’ conclusions’ which set out the plaintiffs conclusions on parts of Mr Bailey’s report.
On 29 July 2022, Mr Bailey texted Mr Weinberger enquiring about an extension of time for the filing of the plaintiffs’ expert report. Mr Weinberger responded and confirmed the new deadline.
On 29 July 2022, Mr Bailey sent an email to the plaintiffs’ solicitors, copied to the Zhao Parties’ solicitors, seeking confirmation on whether the extension was for the supplementary report requested pursuant to the plaintiffs’ letter of instructions.
On 2 August 2022, Mr Bailey’s firm sent an email to the plaintiffs’ and Zhao parties’ solicitors and stated: ‘Is it possible to confirm this morning that we can proceed and for a copy of any Orders relevant to this engagement to be provided’. The plaintiffs’ solicitors responded by providing the order and stated that ‘Paragraph 7(b) of the Order directs the plaintiffs to file and serve any expert reports in respect of liability and quantum by 4pm on 12 August 2022’ (emphasis added).
On 2 August 2022, the plaintiffs’ solicitors provided further instructions to Mr Bailey’s firm by way of emails, copied to the Zhao Parties’ solicitors.
On 2 August 2022, Mr Bailey’s firm requested an update on when they will ‘have access to Galaxy Crowdfunding’s Xero account (in order to answer Question 1 at paragraph 12 in your letter of 26 July 2022)’. On 3 August 2022, the plaintiffs’ solicitors responded by asking them to request the first defendant to provide access.
On 3 August 2022, Mr Bailey sent an email to the plaintiffs’ solicitors, copied to the Zhao Parties’ solicitors, in which he noted that ‘We have commenced undertaking the verification procedures to comply with the reporting time frame’ and attached a letter addressed to Mr Weinberger. The letter provided an estimate of fees and noted that ‘work has commenced on this assignment’ and that Mr Bailey would ‘endeavour to provide my report to you no later than close of business 11 August 2022’. Mr Weinberger, on 4 August 2022, confirmed the fee estimate as proposed.
By 4 August 2022, Mr Bailey had made progress with respect to the first question in the plaintiffs’ letter of instructions.
On 4 August 2022, Mr Bailey’s firm sent an email to the plaintiffs’ solicitors, copied to the Zhao Parties’ solicitors, requesting the password to access bank statements provided to them. The plaintiffs’ solicitors’ immediate response was that they did not have the password and to tell Mr Bailey to request this password from the first defendant.
On 4 August 2022, Mr Bailey wrote to the Zhao Parties’ solicitors requesting access to company accounting files (Galaxy Crowdfunding – Xero and Digital Silo – Quickbooks) for a certain period as he had been requested to provide a supplementary opinion ‘in respect to certain transactions, to be completed 11 August 2022.’
On 5 August 2022, the Zhao Parties’ solicitors sent a letter to the plaintiffs’ solicitors in which they set out their objections to the plaintiffs’ letter of instructions and further engagement of Mr Bailey. The Zhao Parties’ solicitors also requested that ‘Mr Bailey should immediately cease to act on instructions from the plaintiffs and should provide a written undertaking to this effect’.
At no time prior to 5 August 2022 did the Zhao Parties communicate any objection to the plaintiffs or Mr Bailey, in relation to his engagement pursuant to the plaintiffs’ letter of instructions.
Later that day, the plaintiffs’ solicitors sent an email to the Zhao Parties’ solicitors in which they stated, inter alia:
Dear Victor,
I confirm receipt of the letter and your decision not to discuss the issue of access to Xero with me earlier today when I called you.
It would have been helpful to raise these issues at the last hearing and your letter indicates that the real reason for the objection is not Mr Bailey being engaged, since it is clear he is still independent and you have known about his engagement for over a week, but rather his request for access to Galaxy Crowdfunding’s Xero account. That access was as you know part of the plaintiffs proposed orders sought at the last hearing. You objected. The judge wants us to confer, so please let me know when you are free on Monday morning and in the interim it will assist if you respond to our letter sent to you on 26 July 2022 (copy attached).
Please also respond to our the attached proposed amended letter to Chin Communications.
We prefer not to have to approach His Honour about these matters and ask for your cooperation.
On 8 August 2022, the Zhao Parties’ solicitors responded to the plaintiffs’ solicitors and sought confirmation that Mr Bailey had ceased to act on instructions from the plaintiffs.
On 9 August 2022, the plaintiffs’ solicitors sent an email to the Zhao Parties’ solicitors in which they stated:
Dear Victor,
I refer to your letter delivered to us on Friday, 5 August 2022, and my email sent to you that day. I also refer to the email you sent to me this morning demanding an undertaking.
We do not agree that an undertaking is required. We also do not agree with your assertions in relation to Mr Bailey. His evidence will be that of an independent expert governed by Order 44.
Moreover, we informed the judge in open court that we were engaging Mr Bailey as an expert witness to deal with some issues in the First Plaintiff’s Witness Statement . We also provided the letter of instructions to you. No objection was taken to the plaintiffs retaining Mr Bailey for the limited purpose at that time, and we are concerned about the belated demand for an undertaking being made with no explanation proffered for your clients’ delay.
It is for the court to determine the expert’s independence, not for the Zhao parties. If you disagree, then it is incumbent upon the Zhao parties to ask His Honour to rule on the issue. In that regard, please note:-
(a)I departed to the United States of America yesterday, and am still en route to my destination;
(b) Ian Liu is on leave this week; and
(c)Chris Hibbard is unavailable until the afternoon of Tuesday the 16th of August 2022.
In light of a, b, and c above, we’d ask that any hearing before Justice Attiwill be listed next week preferably after the 16th of August, 2022 so that Mr Hibbard can appear and be instructed by Mr Liu. I also, again, invite you to confer with me to see if we can resolve your ongoing objections including as to Chin Communications being retained as the independent translation expert.
Mr Weinberger gave evidence that Mr Andreou failed to confer with him and that the Zhao Parties proceeded to subsequently issue their summons.
On 18 August 2022, the plaintiffs’ solicitors provided further information, by way of email, to Mr Bailey. This was copied to the Zhao Parties’ solicitors.
On 18 August 2022, Mr Weinberger sent an email to Mr Bailey in which he asked him to finalise and send the report. Mr Weinberger did not copy in the Zhao Parties.
On 22 August 2022, the Zhao Parties’ solicitors sent a letter to Mr Bailey in which they stated:
We refer to our email to the Court on even date.
It is apparent there are matters raised in our correspondence to the Court that involve you. We have previously raised our clients’ concerns with the Plaintiffs but chose not to involve you in those communications. We are not aware if the Plaintiffs have raised these matters with you.
As we have now approached the Court, we respectfully suggest you refrain from acting pursuant, but not limited to, the Plaintiffs’ instructions to you by letter dated 26 July 2022 (however, these are ultimately matters between the Plaintiffs and you).
Mr Bailey gave evidence that all work ceased following the receipt of this letter except for some work performed in connection with the departure of an employee from Mr Bailey’s firm. This involved the employee completing the transaction verification works.
In the period from 28 July 2022 to 6 September 2022, Mr Bailey’s firm, including Mr Bailey, performed work with respect to the plaintiffs’ retainer. This is detailed in exhibit ‘MAB-1’ to Mr Bailey’s affidavit of 27 September 2022.
Mr Weinberger gave evidence that Sifris J did not make any orders requiring communications with the independent forensic expert accountant be joint communications, nor did he require the parties to confer in respect of those communications.
Mr Weinberger further deposed that:
(a)he did not, nor does he believe any legal practitioner acting for the plaintiffs intend, to try and influence Mr Bailey’s opinion;
(b)he accepted that it was a ‘mistake’ not to confer with Mr Andreou before sending the plaintiffs’ letter of instructions;
(c)the plaintiffs did not further retain Mr Bailey to gain access to Galaxy Crowdfunding’s Xero account and in any event, the issue is the refusal by the Zhao Parties to provide access to that account, access to the Sage account and other documents.
SUBMISSIONS
In summary, the Zhao Parties made the following key submissions:
(a)The underlying assumption of the Zhao Parties’ summons is that Mr Bailey was to be the court appointed expert and to give evidence at trial.
(b)Mr Bailey was a ‘court appointed expert’ within the meaning of s 65M of the Civil Procedure Act. Mr Bailey was appointed pursuant to the ‘rules of the Court’. The Zhao Parties did not identify any applicable rule.
(c)The appointment was temporary and for a limited purpose.
(d)The plaintiffs’ solicitors have approached Mr Bailey on behalf of the plaintiffs to ask him to answer questions and vary his previous joint report on the basis that the plaintiffs would pay his fees and the report would be subject to privilege and confidentiality in the hands of the plaintiffs.
(e)This is in clear breach of paragraph 7(b) of the orders made by Sifris J on 25 October 2019. It was also a breach of s 65N(1) of the Civil Procedure Act. The plaintiffs have also breached ss 20 and 25 of the Civil Procedure Act.
(f)The criticism is principally directed at the plaintiffs rather than Mr Bailey. The plaintiffs have put Mr Bailey in an unsatisfactory position and from the Zhao Parties’ point of view, Mr Bailey is ‘now in their camp’.
(g)Mr Bailey’s ability to sit impartially between the parties has been compromised. Mr Bailey’s ability to be a court appointed expert depended upon him retaining his independence from the parties and not being an expert for one of the parties.
(h)Mr Bailey has been clearly happy to accept the unilateral appointment without turning his mind as to whether this was lawful, ethical and/or in compliance with the Court orders. Notwithstanding, it was Mr Bailey who drew to the attention of the Zhao Parties’ solicitors that he had been retained again.
(i)Mr Bailey has accepted the instructions to prepare a supplementary report and began work for the supplementary report.
(j)Mr Bailey and his firm continued to perform work after he knew of the Zhao Parties’ objection on 22 August 2022.
(k)The entire purpose of the joint retainer of Mr Bailey has been frustrated. Mr Bailey is now in the ‘Plaintiffs’ camp’ and he cannot be seen as an ‘impartial third party independent expert’. This cannot be unwound.
(l)The Zhao Parties do not seek, in the first instance, to waste the work of Mr Bailey. Mr Bailey should be the plaintiffs’ partisan expert both in relation to the initial report and the supplementary report. The Zhao Parties want to treat Mr Bailey as a partisan expert and cross-examine him accordingly. The plaintiffs should pay Mr Bailey’s bills, including his previous bills as the Zhao Parties would not have agreed to his appointment if it was known that Mr Bailey would become the plaintiffs’ expert.
(m)Mr Bailey should not produce any further reports as a court appointed expert.
(n)Mr Bailey is now represented and it is hard to see that Mr Bailey will not be seen to be actually or subconsciously hostile to the Zhao Parties’ interests.
(o)Mr Bailey has already done his work. The Zhao Parties are in a sense the victims of this. This was brought upon by them. The form of the relief in the Zhao Parties’ summons could have been framed in a number of ways. The vice that the Zhao Parties seek to address in the form of relief in their summons is that Mr Bailey has moved to be in the ‘plaintiffs’ camp’.
(p)The Zhao Parties would not have agreed to a consent order appointing Mr Bailey if they knew he would be subsequently engaged by the plaintiffs.
(q)The court has to come up with a solution which practically does justice between the parties.
In summary, the plaintiffs made the following key submissions:
(a)Mr Bailey was appointed by Sifris J by consent of the parties. He was not appointed as a ‘court appointed expert’ within the meaning of the Civil Procedure Act. His appointment came to an end upon the completion of his report. As a result, they did not breach s 65N of the Civil Procedure Act or the orders of Sifris J. They have not breached any other provisions of the Civil Procedure Act.
(b)It was ‘inappropriate’, a ‘mistake’ and an ‘error’ to send the plaintiffs’ letter of instructions. They should have endeavoured to confer with the Zhao Parties on the further written instructions to be provided to Mr Bailey and the facts and assumptions of fact on which his report was to be based. They accepted that they should not have retained Mr Bailey as their own expert.
(c)The plaintiffs’ application is made pursuant to ss 47 and 48 of the Civil Procedure Act. Once the questions are finalised then there would be an application for Mr Bailey’s appointment under s 65M of the Civil Procedure Act. A further report from Mr Bailey would further the overarching purpose, because it would be a single report by a single expert, with a limited cost associated with that and the benefit he has from his previous experience as an expert in this matter.
(d)The plaintiffs accepted that it is important for parties to have confidence in a court appointed expert.
(e)The Court also needs to engage in a balancing exercise between what prejudice there is to the interests of the Zhao Parties and the prejudice of losing Mr Bailey as a court appointed expert.
(f)The plaintiffs’ letter of instructions does not compromise the independence of Mr Bailey. The plaintiffs’ letter of instructions seeks to preserve the independence of Mr Bailey and provide an independent expert opinion. It also provides him with the Expert Witness Code of Conduct. The plaintiffs’ letter of instructions does not present some skewed version of evidence that is incomplete or is given on assumptions that particularly favour one party over the other. The open communications between the plaintiffs and Mr Bailey have not prejudiced Mr Bailey.
(g)The plaintiffs did not contravene the orders made by Sifris J. The orders do not prohibit any further communications of any kind. The plaintiffs submitted that it is of no consequence to the application whether the order was breached.
(h)The plaintiffs intended for Mr Bailey to be their expert to address discreet questions put to him by them and for Mr Bailey to be the court appointed expert to give independent opinions in his ordinary capacity.
(i)The plaintiffs did not intend to frustrate the integrity of Mr Bailey’s report rather to, ‘ensure that someone with the authority that Mr Bailey provided could provide an opinion on matters that had developed in the proceeding subsequent to him making the report’.
(j)The plaintiffs’ letter of instructions does not undermine the independence of Mr Bailey’s evidence.
(k)The bulk of the work performed pursuant to the plaintiffs’ letter of instructions appears to have been done by Ms Larissa-Ann Sura of Mr Bailey’s firm.
(l)There is no basis for the Court to grant the relief in the Zhao Parties’ summons which relies on an assumption that the integrity of Mr Bailey’s evidence has somehow been affected by receiving the letter of instructions.
(m)There is no basis upon which to question the integrity of Mr Bailey’s evidence. The plaintiffs’ open correspondence has done nothing to alter his independence.
(n)Taking the Zhao Parties’ argument at its highest, an actual or perceived lack of independence, impartiality or objectivity of an expert witness goes to weight, not admissibility.
(o)The test to be applied is for the Court to determine, on an objective basis, whether a fair-minded lay observer might reasonably consider that the conduct of Mr Bailey is such that he might not bring an impartial mind to the role of an ‘independent forensic accountant’. The plaintiffs submitted that given Mr Bailey’s professional role and his obligations under the expert code of conduct, the limited scope of any interactions between the plaintiffs and Mr Bailey and Mr Bailey’s willingness to take a further joint appointment the matters identified by the Zhao Parties against his further appointment do not meet the test.
(p)It is misconceived of the Zhao Parties to rely upon s 65K(1) of the Act or the Court’s inherent and accrued jurisdiction as the bases for the Court to vacate the joint appointment of Mr Bailey and to grant the other relief in the Zhao Parties’ summons. Section 65K(1) does not confer a power on the Court to vacate the appointment of a joint expert before trial.
(q)The Court will be assisted in having an updated report of Mr Bailey and in an ideal outcome that would be as the Court appointed expert.
(r)The plaintiffs will not suffer any prejudice if the appointment of Mr Bailey is vacated and they continue to instruct Mr Bailey pursuant to the plaintiffs’ letter of instructions.
(s)The Zhao Parties can reserve their rights to make an application for the costs incurred on Mr Bailey’s report at trial.
APPLICABLE LAW
It is convenient to set out the principal provisions of the Civil Procedure Act referred to by the parties.
Section 20 provides:
A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.
Section 25 provides:
For the purpose of ensuring the prompt conduct of a civil proceeding, a person to whom the overarching obligations apply must use reasonable endeavours in connection with the civil proceeding to—
(a) act promptly; and
(b) minimise delay.
Section 47(1) provides:
Without limiting any other power of a court, for the purposes of ensuring that a civil proceeding is managed and conducted in accordance with the overarching purpose, the court may give any direction or make any order it considers appropriate, including any directions given or orders made—
(a) in the interests of the administration of justice; or
(b) in the public interest.
Section 48(1) provides:
In addition to any other power a court may have, a court may make any order or give any direction it considers appropriate to further the overarching purpose in relation to pre-trial procedures.
Section 65K(1) provides:
(1)A court may give any direction it considers appropriate in relation to the giving of evidence by any expert witness at trial.
Section 65M provides:
(1) A court may make an order appointing an expert—
(a) to assist the court; and
(b) to inquire into and report on any issue in a proceeding.
(2)The court may make an order appointing a court appointed expert at any stage of the proceeding.
(3)In making an order to appoint a court appointed expert, the court must consider—
(a)whether the appointment of a court appointed expert would be disproportionate to –
(i)the complexity or importance of the issues in dispute; and
(ii) the amount in dispute in the proceeding;
(b)whether the issue falls within a substantially established area of knowledge;
(c)whether it is necessary for the court to have a range of expert opinion;
(d)the likelihood of the appointment expediting or delaying the trial;
(e) any other relevant consideration.
(4)A person must not be appointed as a court appointed expert unless he or she consents to the appointment.
The term ‘court appointed expert’ is defined by s 3 to mean:
court appointed expert means an expert witness appointed by a court in accordance with an order under section 65M or under rules of court;
Section 65N provides:
(1)If a single joint expert is engaged or a court appointed expert is appointed in a proceeding, the parties to the proceeding must endeavour to agree on—
(a)written instructions to be provided to the single joint expert or the court appointed expert concerning the issues arising for the expert’s opinion; and
(b)the facts and assumptions of fact on which the expert’s report is to be based.
(2)If the parties cannot agree on any of the matters referred to in subsection (1), the parties must seek directions from the court.
ANALYSIS
Scope of Mr Bailey’s appointment
The scope of Mr Bailey’s appointment was defined by the orders made by Sifris J. This concerned the preparation of a report, including considering the information and submissions provided to him by the parties. Mr Bailey’s appointment came to an end upon the preparation of his report. Subject to agreement of the parties or further order, Mr Bailey had no other role or function to perform in this proceeding. Any party was, and remains, at liberty to call Mr Bailey as a witness at the trial.
Plaintiffs’ further retainer of Mr Bailey
The plaintiffs subsequently engaged Mr Bailey as their own expert pursuant to the plaintiffs’ letter of instructions. The plaintiffs unilaterally instructed Mr Bailey to answer further questions set by them and upon the basis of observations and material provided by them. They told him that he was being engaged by them. They took responsibility for the payment of his fees. They asked him to, inter alia, consider adjusting his report to account for, among other things, the ‘plaintiffs’ conclusions’. They sought to do so without the consent of the Zhao parties and without informing them that they intended to do this.
Mr Bailey accepted the retainer. I infer he knew that he was being retained by the plaintiffs. This is clear from the plaintiffs’ letter of instructions. Mr Weinberger also gave evidence that he told Mr Bailey that he was being engaged ‘by the plaintiffs’. I accept that Mr Bailey was entitled to assume that there was no objection by the Zhao Parties to his retainer as the Zhao parties’ solicitors did not initially object despite having the letter of instruction on 28 July 2022, the matter being raised at the mention on 28 July 2022 and Mr Bailey specifically seeking confirmation whether he could proceed on 2 August 2022. Mr Bailey received notice of the Zhao Parties’ objection on 22 August 2022.
The plaintiffs accept that their retainer of Mr Bailey was inappropriate, a mistake and that they should have conferred with the Zhao Parties upon the further written instructions to be provided to Mr Bailey and the facts and assumptions of fact on which his report was based. In my opinion, the plaintiffs never should have unilaterally engaged Mr Bailey. It should have been obvious to the plaintiffs that it was inappropriate for them to do so. Mr Bailey’s original appointment was by agreement of the parties pursuant to an order of the Court. In those circumstances, the plaintiffs should have conferred with the Zhao Parties before taking any step to ask any further questions of Mr Bailey. It is important that parties take care when dealing with experts appointed by the Court, or engaged jointly by the parties, to ensure that they act appropriately at all times in dealing with such experts.
There is no evidence that the plaintiffs’ retainer of Mr Bailey has been terminated. The plaintiffs informed the Court that they will pay Mr Bailey’s costs to date with respect to their retainer of him pursuant to the plaintiffs’ letter of instructions (excluding the costs incurred with respect to these applications).
Nature of Mr Bailey’s retainer by the plaintiffs
The plaintiffs’ retainer of Mr Bailey is fundamentally different to his previous appointment pursuant to the orders made by Sifris J to prepare a report.
As the plaintiffs’ expert, the plaintiffs determined what instructions to provide to Mr Bailey and the facts and assumptions of fact on which is report was to be based. This is, in fact, the course they took. The Court and the Zhao Parties were not involved in this process. Mr Bailey, in his capacity as the plaintiffs’ expert, and persons at his firm, had conferences with the plaintiffs’ solicitors without reference to the Zhao Parties’ solicitors. For example, on 18 August 2022, Mr Bailey had a telephone conference with Mr Liu of the plaintiffs’ solicitors.
The scope of Mr Bailey’s earlier appointment was defined by the orders of Sifris J and any information or documents provided to Mr Bailey had to be provided to the other parties in the proceeding.
Should the Court grant the relief sought by the plaintiffs?
The plaintiffs’ application is made on the basis that Mr Bailey will cease to be the plaintiffs’ expert and once supplementary questions are formulated by the parties or the Court the plaintiffs will make an application to appoint Mr Bailey as an expert pursuant to s 65M of the Civil Procedure Act to consider those questions.
I am not satisfied that it is appropriate for the Court to grant the plaintiffs the relief set out in their amended summons pursuant to ss 47 and 48 of the Civil Procedure Act. This relief is directed to, in effect, compelling the Zhao Parties to confer with the plaintiffs on supplementary questions for Mr Bailey.
First, the plaintiffs have treated Mr Bailey as their own expert and Mr Bailey has acted as the plaintiffs’ expert.
The plaintiffs instructed him without any consultation with the Zhao Parties. The plaintiffs’ letter of instructions posed questions under the heading ‘Adjustments to the Expert Witness Report’ and provided Mr Bailey with the ‘plaintiffs’ conclusions’ on his report. The plaintiffs did not instruct him to confer with the Zhao Parties. The plaintiffs directed that all communications between them and Mr Bailey were privileged and any document produced by him should be marked ‘Privileged and Confidential’. The plaintiffs asked him for a fee estimate.
Mr Bailey accepted the retainer and embarked upon his retainer as the plaintiffs’ expert, including obtaining information and instructions from the plaintiffs’ solicitors. This included having conferences with the plaintiffs’ solicitors. Mr Bailey did not provide a report as he ceased to perform work prior to its completion. Mr Bailey made no attempt to obtain the Zhao Parties’ comments on the matters raised in the plaintiffs’ letter of instructions, including responses to the ‘the plaintiffs’ conclusions’. This was not part of his role as the plaintiffs’ expert.
Secondly, Sifris J originally made the orders for Mr Bailey’s appointment by the parties based upon the agreement of the Zhao Parties. The Zhao Parties oppose the plaintiffs’ application. The basis for Mr Bailey’s original appointment is not present. In the event that the Court granted the plaintiffs’ application, it would compel the Zhao Parties, against their wishes, to be involved in formulating supplementary questions for Mr Bailey, a person who has acted as the plaintiffs’ expert.
Thirdly, I accept the Zhao Parties’ submissions that Mr Bailey’s ability to sit impartially between the parties has been compromised. Mr Bailey’s impartiality, in that sense, depended upon him retaining his independence from the parties and not being an expert for only one of the parties.
Fourthly, adopting the test formulated by the plaintiffs, I am of the opinion that a fair-minded lay observer might reasonably consider that the conduct of Mr Bailey is such that he might not bring an impartial mind to the role of an ‘independent forensic accountant’. This is because of the following matters:
(a)Mr Bailey accepted the appointment as the plaintiffs’ expert.
(b)Mr Bailey made no attempt to obtain the Zhao Parties’ comments on the matters raised in the plaintiffs’ letter of instructions, including responses to ‘the plaintiffs’ conclusions’. I accept that this was not part of his role as the plaintiffs’ expert but it is fundamentally different to his previous conduct pursuant to the orders of Sifris J.
(c)The plaintiffs’ letter of instructions referred to ‘Adjustments to the Expert Witness Report’ and attached an ‘Attachment A’ that referred to ‘the plaintiffs conclusions’. Mr Bailey accepted the plaintiffs’ letter of instructions.
(d)Mr Bailey, together with his team at Hall Chadwick, worked on the matters set out in the plaintiffs’ letter of instructions for almost a month. Mr Bailey commenced working on a ‘supplementary report’. Mr Bailey’s team at Hall Chadwick prepared summary tables detailing a ‘change in opinion’. Exhibit ‘MAB-1’ to Mr Bailey’s affidavit evidences that this work included:
(i)forensic reviews of Attachment A to the plaintiffs’ letter of instruction (containing ‘the plaintiffs conclusions’) (e.g. Ms Sura’s entries 4, 5 and 8 August 2022);
(ii)progressing and preparing a ‘Supplementary Report’ (e.g. Ms Sura entry, 22 August 2022);
(iii)‘preparation of summary tables detailing change in opinion’ (Ms Sura entry, 5 August 2022) (emphasis added).
(e)I reject the plaintiffs’ submission that there was a ‘limited scope of any interactions between the plaintiffs and Mr Bailey’. Exhibit ‘MAB-1’ to Mr Bailey’s affidavit evidences a number of interactions. Further, one of the interactions concerned a discussion regarding instructions and the position of a single expert versus ‘adversarial instructions’. For example, exhibit ‘MAB-1’ evidences the following:
(i)28 July 2022: telephone conference between Mr Bailey and Mr Weinberger;
(ii)28 July 2022: telephone conversation between Ms Sura (Hall Chadwick) and Mr Weinberger;
(iii)2 August 2022: telephone conversation between Ms Sura and Mr Liu (plaintiffs’ solicitors);
(iv)4 August 2022: telephone conversation between Mr Bailey, Ms Sura and Mr Weinberger. This is recorded in the exhibit for Ms Sura’s work as follows: ‘regarding instructions and position re single expert vs adversarial instructions’. (emphasis added);
(v)8 August 2022: telephone conference between Ms Sura and Mr Weinberger;
(vi)18 August 2022: telephone conference between Mr Bailey and Mr Liu.
Fifthly, I have considered the potential benefits of obtaining a further report from Mr Bailey upon the joint instructions of the parties or the Court, with the limited costs associated with that and the benefit he has from his previous experience as an expert in this matter. In my opinion, this factor does not outweigh the factors against this course that I have already addressed in this ruling.
Finally, the plaintiffs submitted that if the Court did not grant them their relief they would not suffer any prejudice. This is because the Zhao Parties do not object to the plaintiffs continuing to engage Mr Bailey to prepare a supplementary report. The plaintiffs informed the Court that they will pay the costs of Mr Bailey for the supplementary report pursuant to the plaintiffs’ letter of instructions.
In the circumstances, I will refuse the plaintiffs’ application and dismiss their amended summons.
Finally, as a result of my findings above, it is not necessary for the Court to determine whether the plaintiffs contravened s 65N, or any other provision, of the Civil Procedure Act or the orders made by Sifris J. As I have earlier stated in these reasons, the plaintiffs should have conferred with the Zhao Parties before taking any step to ask any further questions of Mr Bailey.
Should the Court grant the relief sought by the Zhao Parties?
The Zhao Parties accepted that, if the Court was of the opinion that Mr Bailey’s appointment concluded upon the completion of his report, that there would be no basis for their relief in paragraphs 1(a), (b), 2(a) and (b) of their summons. For the reasons I have already given I am of the opinion that Mr Bailey’s appointment concluded upon the completion of his report. The relief set out in paragraphs 1(c) and 2(c) is ancillary to the relief set out in paragraphs 1(a), (b), 2(a) and (b).
The plaintiffs accepted that the dismissal of the Zhao Parties’ summons would not prejudice the Zhao Parties from making any further application for the costs incurred by them with respect to the report of Mr Bailey pursuant to the orders made by Sifris J at the trial of this proceeding.
As a result, I will refuse the Zhao Parties’ application and dismiss their summons.
CONCLUSION
In conclusion, for the reasons I have given, I will dismiss the Zhao Parties’ summons and the plaintiffs’ amended summons.
In my preliminary view, each party should bear their own costs of the applications and pay 50% of Mr Bailey’s costs incurred with respect to the hearings on 19 and 30 September 2022 and of Mr Bailey’s affidavit. Mr Tay, Mr Bailey’s solicitor, informed the Court that he wished to be heard on the question of costs.
I direct the parties to confer on the precise form of orders, including with Mr Tay, on behalf of Mr Bailey, on Mr Bailey’s costs, and provide a draft form of agreed order, or in the absence of agreement, their own form of order, by 4pm on 18 October 2022.
SCHEDULE OF PARTIES
| BY ORIGINAL PROCEEDING | |
| JIN CHEN | First Plaintiff |
| BLOCKCHAIN TECH PTY LTD (ACN 623 201 945) | Second Plaintiff |
| - and - | |
| WEI ZHAO | First Defendant |
| BIYANG HU | Second Defendant |
| DASHBOARD MANAGEMENT PTY LTD (ACN 623 566 487) | Third Defendant |
| COIN LOOP PTY LTD (ACN 625 460 773) | Fourth Defendant |
| DIGITAL GALAXY PTY LTD (ACN 625 459 814) | Fifth Defendant |
| DIGITAL SILO PTY LTD (ACN 626 208 393) | Sixth Defendant |
| GALAXY CROWDFUNDING PTY LTD (ACN 622 444 142) | Seventh Defendant |
| MORNING SHINE PTY LTD (ACN 617 270 425) | Eighth Defendant |
| MARKET ST INVESTMENTS PTY LTD (ACN 629 138 361) | Ninth Defendant |
| APEX LEGENDARY CONSULTING PTY LTD (ACN 141 117 455) | Tenth Defendant |
| BY COUNTERCLAIM | |
| WEI ZHAO | First Plaintiff by Counterclaim |
| BIYANG HU | Second Plaintiff by Counterclaim |
| GALAXY CROWDFUNDING PTY LTD (ACN 622 444 142) | Third Plaintiff by Counterclaim |
| - and - | |
| JIN CHEN | First Defendant by Counterclaim |
| BLOCKCHAIN TECH PTY LTD (ACN 623 201 945) | Second Defendant by Counterclaim |
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