The Bell Group Ltd (In Liq) v Westpac Banking Corporation - [2001] WASC 317

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: THE BELL GROUP LTD (In Liq) & ORS -v- WESTPAC BANKING CORPORATION & ORS [2001] WASC 317

CORAM: OWEN J

HEARD: 27 SEPTEMBER 2001

DELIVERED : 19 NOVEMBER 2001

FILE NO/S: CIV 1464 of 2000

BETWEEN: THE BELL GROUP LTD (In Liq) (ACN 008 666 993)
First Plaintiff
THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR DOLFINNE PTY LTD (In Liq)
THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR INDUSTRIAL SECURITIES PTY LTD
THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR MARANOA TRANSPORT PTY LTD
THE BELL GROUP LTD (In Liq) AS TRUSTEE FOR NEOMA INVESTMENTS PTY LTD
Second Plaintiffs
BELL GROUP FINANCE (In Liq) (RECEIVER AND MANAGER APPOINTED)
Third Plaintiff
BELL GROUP (UK) HOLDINGS LTD (In Liq) (IN ADMINISTRATIVE RECEIVERSHIP)
Fourth Plaintiff
BELL PUBLISHING GROUP PTY LTD (In Liq)
Fifth Plaintiff
BELL GROUP NV (In Liq)
Sixth Plaintiff
AMBASSADOR NOMINEES PTY LTD (In Liq) and OTHERS
Seventh Plaintiffs
GEOFFREY FRANK TOTTERDELL AS LIQUIDATOR OF FIRST PLAINTIFF AND OF FIRST, SECOND, THIRD, FIFTH, NINTH, TENTH, ELEVENTH, THIRTEENTH, FOURTEENTH, SIXTEENTH, SEVENTEENTH AND NINETEENTH NAMED SEVENTH PLAINTIFFS
Eighth Plaintiff
ANTONY LESLIE JOHN WOODINGS AS LIQUIDATOR OF THE THIRD PLAINTIFF, FIFTH PLAINTIFF AND OF THE FOURTH, SIXTH, SEVENTH, EIGHTH, TWELFTH, FIFTEENTH, EIGHTEENTH NAMED SEVENTH PLAINTIFFS
Ninth Plaintiff
GARRY JOHN TREVOR AS LIQUIDATOR OF THE SIXTH PLAINTIFF
Tenth Plaintiff
AND
WESTPAC BANKING CORPORATION (ACN 007 457 141)
First Defendant
SOCIETE GENERALE AUSTRALIA LTD
NATIONAL AUSTRALIA BANK LTD
HONGKONGBANK OF AUSTRALIA LTD
STANDARD CHARTERED BANK AUSTRALIA LTD
COMMONWEALTH BANK OF AUSTRALIA
Second Defendants
LLOYDS BANK PLC
BANCO ESPIRITO SANTO E COMERCIAL DE LISBOA
BANK FUR GEMEINWIRTSCHAFT AG
THE GOVERNOR AND COMPANYOF THE BANK OF SCOTLAND
CAISSE NATIONALE DE CREDIT AGRICOLE
CREDITANSTALT-BANKVEREIN
CREDIT LYONNAIS
DRESDNER BANK AG
KREDIETBANK NV
SKOPBANK
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
THE GULF BANK KSC
GENTRA LTD (FORMERLY ROYAL TRUST BANK)
BANQUE INDOSEUZ
Third Defendants
EQUITY TRUST (CURACAO) NV
Fourth Defendant

Catchwords:

Practice and procedure - Application for taking of evidence before trial - Turns on own facts

Legislation:

Nil

Result:

Directions given

Category: B

Representation:

Counsel:

Plaintiffs:     Mr T K Tobin QC & Ms E A Cheeseman
First Defendant             :     Mr D E J Ryan SC & Mr P R Whitford
Second Defendants     :     Mr D E J Ryan SC & Mr P R Whitford
Third Defendants     :     Mr D E J Ryan SC & Mr P R Whitford

Solicitors:

Plaintiffs:     Blake Dawson Waldron
First Defendant             :     Freehills
Second Defendants       :     Freehills
Third Defendants          :     Freehills

Case(s) referred to in judgment(s):

Bannon v The Queen (1995) 185 CLR 1
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 2 WLR 896
LMI v Baulderstone [2001] NSWSC 688
Pollitt v The Queen (1992) 174 CLR 558
Subramanian v The Public Prosecutor [1956] 1WLR 965
Walton v The Queen (1989) 166 CLR 283
Wright v The Queen (1985) 19 A Crim R 17

Case(s) also cited:

Allstate Life Insurance Co v Australian and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73
Australian Securities Commission v McLeod (2000) 22 WAR 255
Hughes Aircraft Systems International v Airservices Australia (1997) 80 FCR 276
LMI Australia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 688
Sydney Electricity v Giles (1993) NSW CCR 700
Transport Publishing Co Pty Ltd v The Literature Board of Review [1958] 99 CLR 111

OWEN J: This is an application for the examination of a witness under s 110 of the Evidence Act 1906 (WA).

Background

On 18 December 1995 the plaintiffs commenced these proceedings by application in the Federal Court. By a course which need not now concern us, the proceedings were transferred to this Court last year. The pleadings have not closed. Significant amendments, both to the statement of claim and to the defence and counterclaim, remain in issue.
The plaintiffs are numerous companies within the Bell Group of companies. Most of them are in liquidation. Others of the plaintiffs are the liquidators of one or more of the companies. The defendants are (with one exception that is not material for present purposes) syndicates of Banks that loaned moneys to the plaintiff companies or some of them.
The case involves a transaction by which control of assets of the Bell Group of companies was granted to certain Banks which were unsecured creditors of three companies only in the Group. Those companies were The Bell Group Ltd ("TBGL") and Bell Group Finance Pty Ltd ("BGF") and Bell Group (UK) Holdings Ltd. Another company in the group was Bell Group NV ("BGNV"), which acted as a financier to other group members. Yet another company in the group was Bell Resources Ltd (which later changed its name to Australian Consolidated Investments Ltd, but which I will call "BRL"). The plaintiffs say that the transaction was entered into when TBGL and BGF were unable to repay loans owed to the Banks and that the Banks knew they were obtaining an advantage at the expense of other unsecured creditors. The plaintiffs also say that the directors effected the transaction in breach of their duties to companies within the Group at the expense of the other unsecured creditors and in the interest of the ultimate shareholder of the Group, Bond Corporation Holdings Ltd ("BCH"). It is alleged that the banks knowingly participated or assisted in the breaches of duties by the directors. I will return to this transaction in a moment.
Until about May 1988 the Bell Group of companies was under the control of one Robert Holmes a Court. In the period December 1985 to July 1987 companies in the Group raised money through five separate bond issues. In two of the issues (December 1985 and May 1987) TGBL and BGF respectively raised capital through what have been termed "local" interests associated with Holmes a Court. In three of them (entered into in December 1985, May 1987 and July 1987 respectively) BGNV raised moneys from the public. The moneys which the issuers raised were on‑loaned to other companies in the group. Between May 1988 and August 1988, BCH acquired a majority shareholding in TBGL and gained effective control of the Group, including BRL. At the time BRL had significant cash reserves. It is alleged that the BCH group was in a poor financial condition and that directors of companies in the Group set about to gain access to BRL's cash assets to benefit BCH rather than BRL or companies directly associated with it. The group (in its broadest sense) eventually collapsed. The Banks acted on their security arrangements and took control of, and eventually realised, many of the major assets of the group. Liquidators were appointed. This litigation revolves around attempts by the liquidators of the companies to set aside the transactions by which the Banks took security and to recover the value of assets realised by or for the benefit of the Banks.
The critical transactions by which the Banks took security over the assets of the various companies occurred in January 1990. It will be convenient for me, at this point, to set out the text of par 19A of the proposed amended statement of claim because it sets out the essence of what this litigation is all about:
"The Banks and [companies in the Bell Group] were parties to a scheme (hereafter called the "Scheme") constituted by a series of transactions (each, a "Transaction") entered into during the period from about 8 January 1990 to about 31 July 1990 (the "Scheme Period"), effected by or required by the instruments pleaded in [nominated paragraphs] whereby all significant and worthwhile assets of [companies in the Bell Group] were made available to the Banks for repayment of the debts owed to the Banks by BGF and BG(UK) in priority to the claims of all other creditors and future creditors of [companies in the Bell Group] (save for certain immaterial exceptions)."
At the risk of oversimplifying the matter, the plaintiffs' financial case is that the Bell Group companies were insolvent at the time the Scheme was entered into, with the consequences that flow from that. One factor in the assessment of the financial position of the companies is the status of the inter‑company indebtedness. In par 13 of the statement of claim the plaintiffs set out what they say was the financial position of various companies in the Bell Group as at the time when the Scheme was entered into. In pars 13(d) and (e) they plead that BGNV was a creditor of BGF and TBGL in specified amounts. It is part of the plaintiffs case that this arose from the on‑loans and that the indebtedness was not subordinated. In their defence, the Banks admit the indebtedness but say that "the borrowing was at all material times a non‑current subordinated liability of [BGF or TBGL] to BGNV". The Banks then raise what is referred to as "the 13A defence". It is the subject of a section of the defence commencing with par 13A. It is (in part) as follows:
"13AIn further answer to the allegation in paragraphs 13(e) and (d) of the statement of claim that BGNV lent money to TBGL and BGF the Banks say that for the reasons, and to the extent set out, in paragraphs 13B to 13N below the said loans were, or should be treated as having been, at all material times subordinated to the debts of all other creditors of TBGL and BGF for one or more of the following reasons:
(1)       there were contracts or contractual terms between TBGL and BGNV, and BGF and BGNV to the effect that the loans were subordinated to the extent pleaded below;
(2)       if there were no such contracts or contractual terms there was an estoppel between TBGL, BGF and BGNV to the same effect;
(3)       there were contracts for the first two of such loans, between TBGL, BGNV and [certain other companies in the Group], on the one hand, and various of the Banks, on the other hand, to the effect that the liabilities of TBGL and BGF respectively to BGNV pursuant to those loans would, on a liquidation of TBGL and BGF, be subordinated to the same effect;
(4)       in any event, in respect of all three loans, the applicants are estopped as against the Banks from denying that the said loans were subordinated to the same effect.
13AAThe total amount for which BGNV was a creditor of TBGL and BGF represents the sum balance of 3 fund raising arrangements effected by TBGL through BGNV in December 1985, May 1987 and July 1987, … ."
I do not, at this stage, need to describe pars 13B to 13N or to give any further detail of the 13A defence as it appears sufficiently from what I have set out. I should also mention the counterclaim, in which the Banks call in aid s 52 of the Trade Practices Act 1974 (C'th). They say that between 1985 and 1989 TGBL, BGNV and BGF represented to them that their liabilities arising from the bond issues were subordinated to, and ranked behind, the indebtedness of the companies in the group to the Banks. If, as is alleged by the plaintiffs in the statement of claim, the on‑loans were not subordinated, the representations were misleading and deceptive. Further, if the Scheme documents are liable to be set aside because of the unsubordinated status of the on‑loans the Banks have suffered loss and damage as a result of the misleading conduct. There are other issues raised in the defence and counterclaim but what I have just set out is sufficient for present purposes.
From this brief summary it can be seen that the status of the on‑loans arising from the various bond issues is a critical issue in the proceedings.

The Position of Studdy

John Bradbridge Studdy ("Studdy") was a director of TBGL from 6 July 1983 to 26 August 1988. He was an associate (I use that term in a non‑technical sense) of Holmes a Court and ceased to hold office with the Group when BCH assumed control. Studdy is a resident of New South Wales. It is common ground that Studdy is in ill‑health and may not be in a position to give evidence when these proceedings come to trial. The Banks took out an application the effect of which was that Studdy examined and cross‑examined before me in Sydney as soon as possible and that the visual recording and transcript of the examination be transferred to the custody of the Principal Registrar of the Court.
By arrangement between the parties an affidavit was produced and sworn by Studdy. When the application came on before me it was, in effect, for orders that:
(a)the affidavit stand as the evidence in chief for the purposes of the examination;
(b)Studdy be examined and re-examined;
(c)the trial of the proceedings be deemed to have commenced with the visual recording and transcript of the examination being tendered as evidence in the action.
The plaintiffs indicated that in their view such orders were premature. As I understand it, the plaintiffs do not take issue with the proposition that Studdy should give evidence before trial and are quite prepared to accommodate him and the Banks. However, they have questioned whether the contents of the affidavit are admissible at all.
It is not surprising given the complexity of these proceedings but there was a marked difference of approach between the parties to the application which eventually came on for hearing. The Banks appeared to apprehend that the main objection taken by the plaintiffs was whether Studdy's proposed evidence was relevant to a fact in issue. While the plaintiffs did not, I think, concede the question of relevance that was not their main concern. They contended that the affidavit was inadmissible because of the form in which it had been structured. Counsel for the plaintiffs indicated that the solicitors had been "dealing with Studdy's evidence since sometime last year" and it could be assumed that it was "as exhaustive a statement as they're going to get from [him]". Counsel characterised the affidavit as revealing that Studdy's efforts to recollect and record these events cast doubt whether he could ever give probative evidence on the myriad of issues that had been canvassed. Thus it was, counsel submitted, that the identification of relevant pleading issues were not the problem. But "relevance as an evidentiary category [can not] trump form". Evidence which is inadmissible on grounds of form can not be elevated to an admissible status by reference to relevance. I have no difficulty in accepting the proposition that the identification of a relevant issue to which evidence might go will not cure fundamental problems of form. However, I am not sure that questions of relevance can be sidelined in quite so easy a manner. Nor, without understanding the issues in contention, is it easy to identify the true problems of form in their application to the facts with which I am called on to deal.
I can appreciate the position in which the parties find themselves. The Banks require certainty as to whether the evidence of Studdy is or is not to be part of the proceedings when they eventually come on for substantive hearing. If some technical (or even more substantive) objection is made of a type that could be cured by recalling the witness or adducing other material from him at a time when he is not able to give further evidence, there will be further and perhaps irreparable prejudice. On the other hand, the pleadings have not yet closed and questions, some of which might be of quite fundamental materiality, may take on a different hue depending on the way in which the issues have developed.
At the conclusion of these reasons I will set out in detail what I think should happen in relation to Studdy's evidence. In the meantime, I will give a preliminary indication on the broad question of relevance. I do so acknowledging that the matter was not fully argued. However, it seems to me that to argue about form without having identified the substantive issue to which the evidence would go is not feasible. There is another point. I would not wish to put Studdy to the inconvenience and worry of preparing further material and, perhaps, having to undergo cross-examination if I felt that on no view of it could he assist the Court with relevant testimony. Having done so, I will move to the objections of form.

Relevance – The Issues Joined on the Pleadings

I need to say something more about the defence, particularly par 13B. In general terms the companies in the Group had not given security for their borrowings. However, many of the companies (called "the Negative Pledge Group") entered into negative pledge agreements in a standard form. Among the obligations was that the companies were required to maintain a ratio of not more than 65 per cent between total liabilities and total tangible assets (as defined). Failure to do so would be a default entitling the banks to call up their loans. It is part of the Banks' case that characterisation of the on‑loans as subordinated or unsubordinated could be a factor which the Banks would have taken into account in determining compliance with the ratios. It is pleaded that the purpose of the bond raising was to inject funds into TGBL or into the companies in the negative pledge group and that the proceeds were to be provided to the companies on a subordinated basis. It is also pleaded that the BGNV was no more than a conduit and was interposed so that the bond issues would operate in a tax effective fashion. Then in par 13B(71) the following appears:
"Each of TBGL, BGNV (from about late 1985) and BGF (from February 1986) being the parties to the 1985 and two 1987 onloans and the other members of the Negative Pledge Group (from the date of each becoming a member of that Group) believed and intended through their directors and the executive officers of the Bell Group in office from late 1985 to July 1988, the following:
(a)that the proceeds of the Euro markets issue in 1985 would be, and had been, immediately placed at the disposal of TBGL for the purposes of the Bell Group;
(b)that the proceeds of the two Euro markets issues in 1987 would be, and had been, immediately placed at the disposal of BGF for the purposes of the Bell Group;
(c)that BGNV would be, was being, and had been, employed in the 1985 and 1987 Euro markets issues as a vehicle or conduit for the passage of funds from bondholders, via each capital raising and its machinery, to TBGL and BGF, for the purposes of the Bell Group;
(d)that a Netherlands Antilles company (that is, BGNV) would be, was being, and had been, used to ensure the tax effectiveness of the arrangements under Australian tax law;
(e)that BGNV was not, and had not been, an Indemnifying Subsidiary or Australian Subsidiary and thus was not, and had not been, a company within the Negative Pledge Group;
(f)that capital raising on a subordinated basis, in terms of the issues, would allow, and had allowed, the companies in the Negative Pledge Group, to raise finance which ranked behind any bank borrowings of companies in the Negative Pledge Group;
(g)that they would conduct, and had conducted, themselves, with their bankers and future bankers, on the basis that the bondholder debt was subordinated to and ranked behind any bank borrowings of companies in the Negative Pledge Group;
(h)(in late 1985) that, in relation to the 1985 Bonds, by reason of the subordinated nature of the capital raising and the consequential ranking of the bondholder debt behind the bank borrowings, it was likely that the banks lending under the terms of the Negative Pledge Agreement would agree, if asked, to exclude the bondholder debt (prior to any conversion) from the calculation of "Total Liabilities" for the purposes of the said 65% ratio referred to in subparagraph 13B(6) above;
(i)(in late 1985) that, in relation to the 1985 Bonds the purposes of the capital raising, on a subordinated basis, relevantly included the maximisation of the likelihood of the banks, which were lending under the Negative Pledge Agreement, agreeing to exclude funds raised from the subordinated convertible bond issues from the calculation of "Total Liabilities", for the purposes of the said 65% ratio, referred to above, and thereby increase the flexibility of TBGL and the Bell Group through the Negative Pledge Group, in raising capital and debt, for the purpose of carrying on the business of the Bell Group;
(j)(in 1987) that, in relation to the First 1987 Bonds and the Second 1987 Bonds, by reason of the subordinated nature of the capital raising and the consequential ranking of the bondholder debt behind the bank borrowings, it was likely that the banks lending under the terms of the Negative Pledge Agreement or the Guarantee would agree to continue to exclude the bondholder debt (prior to any conversion) from the calculation of "Total Liabilities" for the purposes of the 65% ratio referred to in subparagraph 13B(6) above;
(k)(in 1987) that, in relation to the First 1987 Bonds and the Second 1987 Bonds, the purpose of the capital raising, on a subordinated basis relevantly included the maximisation of the likelihood of the banks, which were lending under the Negative Pledge Agreement or the Guarantee, agreeing to continue to exclude funds raised from the convertible subordinated bond issues from the calculation of "Total Liabilities", for the purposes of the said 65% ratio referred to above, and thereby increase the flexibility of TBGL and the Negative Pledge Group, in raising capital and debt, for the purpose of the carrying on of the business of the Bell Group;
(l)that after agreement by the various banks to treat the convertible subordinated bonds as equity for the purposes of gearing calculations under the Negative Pledge Agreements the Banks would be and were lending to the relevant borrowing companies in the Group on the basis that the bondholder debt was subordinated to and ranked behind existing and future bank borrowings of the Negative Pledge Group; and
(m)that the convertible subordinated bond issues of 1985 and 1987 were subordinated and were postponed to the claims of all other creditors of the Group outstanding at the commencement thereof and that the debt raised by BGNV under and pursuant to the various convertible subordinated bond issues in 1985 and 1987 and the indebtedness of companies in the Group arising from the deployment of such funds were similarly subordinated to and ranked behind the indebtedness of the Group and the companies in the Group to the Banks,
and did not believe, and did not intend, that the use of an off-shore finance subsidiary, BGNV, would make any difference to the subordinated position concerning the subordination of the liabilities to bondholders in respect of the Euro markets capital raisings, compared to the subordinated capital raisings made locally from the interests associated with Mr Holmes à Court."

In essence then, it is said that TGBL, BGF, BGNV and the companies in the Negative Pledge Group "believed and intended through their directors and executive officers" that (among other things) the indebtedness of BGNV to the bondholders and the indebtedness arising from the passing on by BGNV of the moneys raised by the bond issues was subordinated to and ranked behind the indebtedness of companies in the Negative Pledge Group to the Banks. It is also asserted the two capital raisings that were arranged through local interests associated with Holmes a Court were subordinated. The Banks have pleaded a negative intention or belief, namely, that the companies (through their directors and executive officers) did not believe and did not intend that the use of BGNV for the other three issues would make any difference to the subordinated position of the bondholders.
The Banks have given further and better particulars of the grounds from which the belief and intention of the parties is said to arise. Counsel for the Banks also pointed out that in the reply and defence to counterclaim there is an allegation by the plaintiffs that the express terms of the arrangements between BGNV and BGF was such that the on‑lending was "ordinary unsecured, unsubordinated lending". There is also a denial that there was an intention on the part of the companies that the on‑loans be subordinated. I do not think I need to delve further into the particulars or the reply and defence to counterclaim.
It seems, then, that among the myriad of issues that these proceedings will raise, the following are alive on the pleadings to which I have referred:
(a)the terms of the various bond issues, including (as a matter of contract) whether the claims of the bond holders were to be subordinated behind the other indebtedness of the issuer (including the indebtedness to the Banks);
(b)the terms on the on‑lending by BGNV to the other companies in the group, including (as a matter of contract) the question whether the indebtedness of the recipients to BGNV was to be subordinated behind the other indebtedness of the recipient companies (including the indebtedness to the Banks);
(c)the reasons for the interposition of BGNV in the three issues;
(d)the similarities and differences between the three BGNV bond issues and the "local" capital raisings;
(e)the belief and intention of the relevant companies as to these matters;
(f)if, as a matter of contract, the relevant indebtedness is unsubordinated, whether the plaintiffs are now estopped (as against the Banks) from denying that the loans were subordinated.
It is trite to say that a corporate body can only act through its directors and officers. The intention or belief of a corporate body is the intention or belief of those whose task it is to govern and manage the body. In its broadest sense, it seems to me that where the belief or intention with which a person or entity acted is a material element of a cause of action it must be relevant to hear from a person who was a director at the material time. Similarly, where an estoppel is alleged, what the directors believed (and how that belief was engendered) must likewise be relevant.
Accordingly, and for the purposes of this application only, I am satisfied that there is sufficient basis on which it could be said that Studdy is capable of giving evidence that is relevant to the matters raised on the pleadings, particularly the 13A defence. But it is important to have an eye to the precise issues that are raised by the various paragraphs to which I have referred. I think it is important to assess the objections based on form against the precise issue enunciated in the pleadings to which the evidence might go.
I will now turn to the objections to individual paragraphs of the affidavit sworn by Studdy on 7 September 2001.

Paragraph 3

In par 3 Studdy says that at some time prior to the initial bond issue in 1985 he recalls hearing reports that TGBL was discussing with a Swiss Bank the possibility of issuing subordinated bonds. He then refers to a board minute to that effect. He says:
"I have no recollection now of this particular meeting, nor of the minutes themselves, however, the report in relation to subordinated bonds … accords with my recollection of hearing reports about such discussions at about that time."
The first question is the basis on which evidence of reports of discussions about subordinated lending from a Swiss bank become admissible. I accept that it could be relevant to the mental state and intention of the directors. Counsel for the Banks submitted that it went to the mental state and not to the truth or otherwise of the fact that discussions had been held between TGBL and the Swiss bank. In other words it was evidence of a communication rather than of the truth of the contents of the communication: Subramanian v The Public Prosecutor [1956] 1WLR 965 at 970. I accept that submission.
For sake of completeness, I should make a comment on the alternative submission, namely, that it was part of the res gestae and admissible accordingly. Counsel submitted that the "res" was the entire transaction, from the initial decision to raise the money, through its implementation and the on‑loan to the recipient companies. Almost all of the decisions cited in support of this proposition come from the criminal law. While I am not suggesting the res gestae doctrine could not be utilised in a commercial context, the manner of its application would have to be approached with some caution. There are at least two reasons that spring to mind.
First, it would make significant inroads into the rule against hearsay. Comments have been made from time to time to the effect that the rule should not be applied in an inflexible fashion: see, for example Pollitt v The Queen (1992) 174 CLR 558 per Mason CJ at 566. However, the rule remains a fundamental precept of the law of evidence. For example, in Bannon v The Queen (1995) 185 CLR 1 the High Court declined to rule that there was a general exception to the hearsay rule based on the perceived reliability and probative value of the contested evidence. Such an exception has been recognised in some other common law jurisdictions but most members of the Court found it unnecessary on the facts of the case to follow suit here. However, Brennan CJ referred to earlier authority in which it had been held that a trial Judge's opinion as to the reliability of the evidence does not make hearsay admissible: see, for example, Walton v The Queen (1989) 166 CLR 283. It seems to me that unless and until the High Court revisits the matter, this must be taken to be the state of the law in Australia.
The second reason why I would hesitate to apply the res gestae doctrine relates to the rules concerning the construction of contracts. As can be seen from the recitation of the pleadings, that will be an issue in this case. The extrinsic evidence rule restricts the admissibility of evidence of surrounding circumstances as an aid to construction: CodelfaConstruction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352. A more relaxed approach to the admissibility of extrinsic evidence came in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 2 WLR 896. However, even there Lord Hoffman reiterated that the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. Evidence of the directors state of mind may well be relevant for some purposes but not to the construction of documents said to have contractual effect. There is nothing particularly novel about evidence being admissible for one purpose but not another. An action for the construction of a contract which also includes a suit for rectification is a classic example. But the effect of the res gestae principle on such a situation would need careful thought.
One of the objections to par 3 is that it is the deponent giving evidence about the contents of the document. I do not think that is correct. The board minutes would themselves be admissible as documents of the company. It is unobjectionable to put to a witness a proposition arising from a document to ascertain whether the witness agrees or disagrees with it. The minute records Studdy as having been present at the meeting. He cannot now recall being present at the meeting but says that the notation in it accords with his memory of other reports. I cannot see anything objectionable on that account.
Another problem is the fact that he does not purport to recount in direct speech the "reports" to which he refers. In this respect both counsel referred to LMI v Baulderstone [2001] NSWSC 688 in which Barrett J at [8] said:
"There is no rule of law, …, which makes inadmissible evidence of a conversation given in indirect speech, but there are obviously very good reasons why courts have., over the years, been astute to regard the direct speech form as the best form."
In Wright v The Queen (1985) 19 A Crim R 17 the Court said at 18-19:
" … an admission by an accused person given in evidence at a criminal trial, by a witness who heard it made, would not be properly admitted if all that the witness said in evidence was that he had received an 'impression' of a matter in the course of a conversation with the accused. … There is no doubt that a witness may properly give in evidence the effect or purport or substance of what was said to him even though unable to recollect the precise verbiage used."
It is not surprising that Studdy cannot give a "word for word" recitation of the reports to which he refers. Sixteen years has passed. In my view he is entitled to do the best he can by giving evidence as to the effect or purport or substance of the reports. I believe that is what he has done.
However, I am concerned about the phrase that the minute accords with his recollection of hearing reports at the time. In my view it could not be led in that form if he were giving oral evidence. In the circumstances of this case, and bearing in mind the likely course the trial will follow and the use to which the evidence will be put, I do not think the fact that it is being adduced in affidavit form should lead to a different result. It is not clear to me whether this is to be taken as the deponent having refreshed his memory from the minutes, or that he is adopting the statement in the minutes that reports had been made (again, not the truth of the reports but the fact the reports had been made), or whether he is passing an opinion on the conclusions to be drawn from the minute. If the latter, it is clearly inadmissible. It may be admissible if it is either of the former possibilities. The plaintiffs should not be left to guess at what the deponent means. Nor should it be left to cross‑examination.
The first sentence of par 3 is admissible. The lack of specificity about the source, timing and content of the reports may well go to the weight which is ascribed to the evidence but it does not affect its fundamental admissibility. The remainder of the paragraph is objectionable due to form. However, the problems may be capable of rectification. If so, the deponent should be afforded the opportunity to recast the material.
Much of what I have said in this section will apply to the objections made to other paragraphs of the affidavit.

Paragraphs 4 and 5

Paragraph 4 is in these terms:
"While I have no recollection now as to dates, my recollection is that the early discussions in connection with the subordinated bond issues, which took place prior to the making of the bond issues themselves, coincided with a general desire within the board to de-gear the Bell Group balance sheet."
Paragraph 5 refers to the maintenance of rations of liabilities to assets nd it concludes with the sentence: "I regarded the adherence by TGBL and the Bell Group with those ratio requirements as very important, as, from my observations, did other members of the Board".
In my view (again as a matter of form) these statements are objectionable. There is nothing wrong with the deponent saying what his desire was, whether it be in relation to the de-gearing of the balance sheet or the adherence to ratio requirements. However, he purports to go further. His statements are not confined to what the board did or resolved at meetings. The evidence as to a "general desire" is either a conclusion to be drawn from objective facts or is hearsay evidence of what he was told by others. That sort of evidence may be adduced provided it is based on a proper foundation of objective facts from which the court may draw appropriate inferences.
Once again, the problems may be capable of rectification. If so, the deponent should be afforded the opportunity to recast the material.
I wish to make one other comment about the reference to a "general desire" of the corporate body. There is a danger of confusing admissibility with weight or probative value. The difficulty with making an assessment of the probative value that an individual piece of evidence may have is that it may not stand alone. To adopt the analogy so often used in this area a single strand of fibre may be quite weak but when and woven into a rope takes on a different character. Nonetheless, there is a danger that a bland statement that there was a "general desire" without condescending to a detailed foundation for the statement might eventually be found to be devoid of real probative value.

Paragraphs 6

The deponent speaks of the importance of the companies maintaining good relationships with their bankers. It concludes with the words: "… and in my observation did so successfully during my time as a director. The successful maintenance of these relationships was, I thought, dependent on the Bell Group maintaining a reputation for integrity in its business dealings".
I can see nothing wrong with this paragraph. I read the first part as saying no more than that the deponent, himself, had (and has) no reason to believe that the relationship between the Group and the bankers was otherwise than he had indicated. The last sentence is confined to his own state of mind. It does not suffer from the vice that it purports to comment on a state of mind shared by the directors generally.

Paragraph 7

In par 7 the deponent refers to his concerns about the Group's reliance on borrowed funds and how that coloured his approach to fund raising. Again, as this evidence is relevant to the state of mind of the company (through its directors) and is confined to his own understanding I do not think it is objectionable.
The last sentence lacks specificity but, again, this may go more to weight than admissibility.

Paragraph 8

I can see nothing wrong with this paragraph. It refers to a board minute (which would be admissible in any event) and concludes with a statement of the deponent's understanding of which of the bond issues was the subject of the minute.

Paragraph 9

The last sentence cannot be led in that form. No basis is given for the statement (presumably arising from the management practices of this organisation at the time) that most financing proposals were "worked over " by Holmes a Court and Griffiths. The statement that the working over was done "in meticulous detail" is a conclusion the basis of which has not been disclosed.

Paragraphs 11 and 12

Much of the force of pars 11 and 12 depends on acceptance of this deponent's knowledge of the management practices of the Group at the time. It ties in with pa 10 (to which no objection was made) and may be supported by the last sentence of par 9 (if it can be re-cast in a satisfactory way).
In relation to par 12 I do not see how the deponent can give evidence that Holmes a Court was "always across the detail of every proposal which came to the Board" or that he "never spoke about anything he couldn't ensure was correct". The deponent may, for example, be able to say the he cannot recall a single occasion on which Holmes a Court was unable to answer a request he made (or which was made by someone else in his presence) for detail of a proposal but I doubt he could go further. He could not give evidence about something that Holmes a Court "would never speak about".

Paragraph 13

This is clearly a conclusion. It is not probative of the fact to which it purports to go and is inadmissible.

Paragraph 15

I do not see much wrong with par 15. Admittedly it lacks specificity and does not condescend to detail of the conversations. However, that, it seems to me, may go to weight rather than admissibility. Counsel for the plaintiffs submitted that it was also objectionable because it did not say what his "understanding" was. However, it seems to me that this must be read as the "understanding" which he is relating in the affidavit.

Paragraph 16

This seems to me to go no further than saying that, from the deponent's memory of management practice he "would not be surprised" (my words, not those of the deponent) if Griffiths had attended the relevant board meeting. This stands for what it says and no more. I do not find it objectionable.

Paragraph 19

The sentence "BGNV was introduced into the bonds issue for tax reasons" looks like a conclusion about the activities of a company of which the deponent was not a director. However, it cannot be divorced from the preceding sentences which note that BGNV was a subsidiary of TGBL and that he is relating his recollection about the affairs of the subsidiary. It is limited in that way and can stand.
The last sentence contains a negative proposition. The deponent says that no one suggested to him that the BGNV issue would be different to the "local" issue. Counsel for the plaintiffs referred to Wigmore Vol 2 par 664 that such evidence is admissible provided "the witness [had been] so situated that in the ordinary course of events he would have heard or seen the fact had it occurred".
In my view it would be inappropriate to rule now on the management structure and practices of the Group at the time. This sentence may or may not run foul of the proposition enunciated in Wigmore. But in the peculiar circumstances of this application it would be unfair to deny the Banks the opportunity to present it through Studdy. If it later turns out to be inadmissible because the foundation has not been laid, it will be ignored.

Paragraph 20 and 23

This paragraph refers to an assumption made by the deponent that the relevant bond issues were as represented in diagrams annexed to the affidavit.
Counsel for the plaintiffs submitted that this was objectionable because it did not say with any specificity or particularity what the deponent believes the diagrams mean. I think that is correct. The deponent should say what he is taking or assuming from the diagrams. It should not be a difficult task as the diagrams seem to be confined to the flow of money and instruments.

Paragraph 21 and 24

The witness says he has no recollection of seeing the letters which are annexed to the affidavit or that the banks were approached accordingly. He "makes the assumption" that it was sent and says that the letter is consistent with his recollection of the corporate purposes to which he refers.
For the reasons given in relation to pars 3 and 4, this is objectionable and cannot stand in that form.

Paragraph 22

In the second sentence the deponent says he recalls the structure and purpose of the subsequent bond issues being the same as the 1985 issue. Again, if he is referring to his own state of mind it is acceptable. If it purports to say what the corporation intended, through the composite decision making process of the board, the foundation should be laid.

Paragraph 25 to 31

I will deal with these paragraphs together. They start with the deponent making an assumption (contrary to the purport of his evidence) that the on‑loans were unsubordinated. He then gives his account of the ramifications for the companies and how he would have reacted had it been known at the time.

I acknowledge that it is in part argumentative and, from time to time, comes perilously close to being opinion evidence. I acknowledge also that the deponent seems to be taking account of subsequent events to transport himself back to 1985 and 1987 to ascertain what is state of mind and likely course of action would have been at the time.
It is an unusual situation but, on balance, I have come to the view that the deponent ought to be allowed to give evidence in that way. However, it suffers from some of the vices to which reference has already been made. In the first sentence of par 28 there is reference to what Holmes a Court would have done. That should not be led. In par 29 he can give evidence of his view but not (as is done in the first line) attributing it to TBGL without laying a proper foundation. The same objection applies to the last sentence of par 29. The first sentence is inadmissible as opinion evidence. It could go no further (if it be the case) than that, to the deponent's knowledge, the purpose behind the interposition of BGNV was to make it tax effective and that no person ever suggested any other purpose. This would then be evidence of a negative stipulation and would be treated in the way I have mentioned in relation to par 19.
Counsel for the plaintiffs submitted that references to what the deponent would have "wanted" or what he would not have "tolerated" were objectionable because they did not specify what the deponent would actually have done. I think the meaning is clear and I would not have ruled against the evidence on that basis alone. However, if it is to be revisited, the deponent might take those comments into account.

Paragraph 32

The comments that I have made in relation to the final sentence of par 19 apply to this paragraph. I would allow the paragraph to stand.

Conclusion

I have not dealt, expressly, with the submissions going to the juridical underpinning of the "ultimate issue" principle. This is because I think the evidentiary problems go more to form than substance. As a general statement, the mental state of the corporate entity falls to be determined objectively. Studdy can give evidence as to his state of mind and this is one of the factors that goes to determining the ultimate issue. But if he wishes to go further and attribute a common state of mind to others in the corporate structure he must lay the foundation in a way that contributes to the proper assessment that the court will have to make.
Similarly, I have not entered the debate whether in the civil jurisdiction there is a discretion to exclude evidence that would otherwise be admissible. Whether that power is equated to the discretion that exists in criminal cases or whether it relates to a determination of "sufficient relevance" as an indicia of admissibility is not something I need to examine. Because this application is being heard before the pleadings have closed and in light of the uncertainty whether Studdy could be called when the trial takes place, it is a discretion I would be reluctant to exercise. However, (and this does permeate some of the discussion) the opportunity ought to avoid a situation where evidence, although technically relevant, is unlikely to be probative in a practical sense because of difficulties of form.
I think the plaintiffs are anxious to avoid imposing any unnecessary burden on Studdy. One way of doing so may be for the Banks to arrange for the preparation of a revised affidavit in accordance with these reasons. It could then be submitted in draft to the plaintiffs. They might then see fit (if they still have concerns) to raise issues that they feel need to be amplified or clarified. If those requests were met, wholly or in part, the need for cross-examination would be removed or reduced. If no accommodation can be reached, further directions would be necessary. I put this forward as a suggestion only and it should not be taken as direction to that effect.
I had come to the view that the proper course for this litigation generally is to approach the pleadings sequentially. I have reconsidered this view in the light of the submission by counsel for the Banks that the plaintiffs should be required to file a defence and counterclaim in answer to the defence dated 11 March 1999 or a draft pleading in response to the whole or parts of the foreshadowed amended defence. I can see how that would be helpful in narrowing the issues to which Studdy's evidence might go. However, I remain of the view that a logical and efficient outcome will best be achieved by a sequential approach. In other words, we should concentrate on the statement of claim, then on the defence and then on the reply and defence to counterclaim.
There is no need for me, at this stage, to comment further on the minute of proposed orders dated 26 September.