Professional Documents
Culture Documents
Ch3 ASIC V Rich
Ch3 ASIC V Rich
Ch3 ASIC V Rich
325 The defendants have raised a number of issues of a preliminary kind, that
I have grouped together loosely under the heading "Issues of Evidence".
They are addressed by ASIC in its submissions in reply. They relate to the
following matters, which I shall consider in turn:
• "critical documents";
• "recurring themes";
• the onus of proof;
• the standard of proof;
• the rule in Blatch v Archer;
• the Jones v Dunkel inference;
• the rule in Browne v Dunn;
• the alleged special duty of fairness of ASIC.
326 During the course of opening ASIC's case on 8 September 2004, senior
counsel for ASIC handed up a summary document headed "References to
Some Significant One.Tel Records", which became AS 5. In that document
ASIC referred to the following documents, with evidentiary references
and references to its chronology:
Creditors
Australian Aged Creditors Report (28-2-01);
UK Aged Creditors Report (28-2-2001);
Deferred Payments Listings (9-1-01; 31-3-01; 30-4-01);
Debtors
Bill Runs Spreadsheet (actuals to 30-5-01)
Bill Run breakdown (sample)
Aust Collections Profile Summary (30-3-01)
Bell curve
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Earnings
Daily Cashflow Spreadsheet (actuals to 30-5-01)
March Cashflow Forecast
April Cashflow Forecast
MS, SH instructions
Billing
Ashley memorandum (29-3-01)
Butcher paper presentation re billing
Spreadsheet re Gross Margin
General
Budgets
Trial Balances
Management Accounts
Flash Reports
Board Papers
327 The defendants said that AS 5 was ASIC's record of the principal
documents and categories of documents upon which it relied for proof of
its case as to the financial position of One.Tel (DPS [151]). In my view that
is not an accurate description of AS 5. The document itself refers to "some"
significant One.Tel records. When handing it up, senior counsel for ASIC
described it as a short document that listed "some of the significant
One.Tel records", and "an overview" (T 171).
328 In fact ASIC came to rely on many documents not included in the list, or
only identified very broadly. To take just one example, the spreadsheet
2403C.xls came to be very important in cross-examination and
submissions, as were the worksheets relating to the New Feb Baseline, but
AS 5 gave no indication of the importance that would be attached to those
documents, the only relevant reference being the general reference to
March and April cash flow forecasts. Nevertheless, AS 5 certainly
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identified some of the significant documents upon which ASIC rested its
case.
329 The defendants have objected to the way ASIC used these documents in its
opening, during the trial and in final submissions. In particular, the
defendants objected that ASIC took the position that the documents
proved themselves, and that inferences about what they were, how they
were created, whether they were final versions, and their reliability,
should be drawn by the court, mostly in the absence of any witness to
explain them (DPS [152]). They submitted (DPS [155]) that the vast
majority of documents which are critical to ASIC's case, although they
have passed a low threshold for admissibility:
(a) have been shown to be unreliable in proving what ASIC asserted;
(b) have been shown to be documents about things different from what
ASIC asserted;
(c) are not capable of giving rise to the inferences that ASIC initially
(and subsequently) suggested should be drawn from them;
(d) remain of an unclear status; or
(e) for other reasons do not support the ASIC case.
330 The general proposition that ASIC has used its documentary evidence in
an objectionable way, by seeking to persuade the court to draw inferences
from unclear documents in the absence of explanation from witnesses, was
taken up and developed in the defendants' submissions, under the
heading "Recurring themes".
331 The defendants submitted that ASIC's case has a number of remarkable
features to which they object (DPS [72]). It is not entirely clear from their
submissions whether the "recurring themes" about which they speak are
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themes emerging from ASIC's case or themes that they develop in their
submissions in answer to ASIC's case. I shall proceed on the basis that the
recurring themes are themes developed by the defendants. They have to
do with:
• the risk that certain kinds of documents, which are susceptible to
misunderstanding for one reason or another, will be misconstrued
in the absence of proper explanation;
• the absence of witnesses to explain those documents; and
• the inherent improbability of ASIC's case about the defendants'
failure to disclose to the board.
332 According to the defendants (DPS [237]), there are many examples where
ASIC has tendered a document pursuant to the business records exception
to the hearsay rule without any proper identification of what the
document is: for example, who is its author, what level of seniority did its
author have, what was its purpose, what assumptions were made in the
course of its preparation, was its final or a draft, would its author have
relied upon it without adjustment, was it a report of sufficient reliability to
warrant placement before the board of directors? I agree with them that in
respect of some documents, some or even all of these matters are unclear.
The mere fact that documents have been held to be admissible as business
records or under s 1305 does not ensure clarity on these matters.
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"The reliance which may properly be placed upon a document
tendered under the circumstances we have described [as business
records] must depend largely upon the nature of the document.
On one extreme is a document whose nature and origin is
apparent on its face and which deals entirely with matters of fact,
for example, a factory's production records. Unless there is some
reason to doubt the authenticity or accuracy of the document, it
may be reasonable to place considerable weight upon the
document, even though there is no witness who worked at the
factory at the relevant time. By its very nature it is likely to be
reliable. To disregard it, simply because of the absence of a
witness, would be to spurn one of the major benefits of Part IIIA
[of the Evidence Act 1905 (Cth), dealing with business records].
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(ASR [237-41]), nevertheless the Full Federal Court's observations suggest
that no significant weight should be given to:
• computer-generated records, if there is significant doubt about
what inputs were made, what systems existed for the preparation of
the documents and what data inputting process was adopted;
• documents involving judgments, if there is significant doubt about
who made the judgment, what level of seniority that person had,
whether the author of the document regarded it as complete or a
work in progress, and whether it was based on assumptions or
"scenarios" that were not articulated;
• analyses, if there is significant doubt about the source of the
document, the methodology employed, whether the author
regarded the source materials and methodology as sound or having
some limitations, and if so, what those limitations were; and
• reports, if there is significant doubt about the level of seniority of
the personnel involved and how much time they had to prepare the
report.
335 ASIC submitted that to take such an approach would be to defeat the
purpose of the business records provisions (ASR [241]). That would be so
if, as the defendants' submissions seem to imply (DPS [241]), no weight
should be given to such documents unless there is positive evidence about
the listed matters. But I have reformulated the defendants' submissions so
as not to insist on "knowledge" about the listed matters in every case.
There will be some occasions where, for example, there is no reason for
concern about inputs to computer-generated records, or where the
authorship of a report or document involving a judgment can be inferred
from the document and evidence of surrounding circumstances, or even
where it is enough to infer that the document was prepared by someone of
seniority. Nevertheless I agree with the defendants to the extent that the
listed matters are matters to which the court should direct its attention,
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and where there is real doubt about them, the weight to be attached to the
document will be substantially reduced.
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338 The defendants have developed these themes by referring to three
examples of the kinds of documents they have in mind. I shall deal with
these examples in turn.
339 First, they referred to the management accounts for the fixed wire/service
provider business (DPS [84]-[85]). The management accounts for January,
February and March 2001 contained figures that are at odds with board
papers and flash reports. The defendants' evidence is that the documents
were drafts that were not completed due to difficulties in arriving at
proper revenue accruals, because of the disruption to the billing system in
early 2001. ASIC has not called any witness to attest to the status or
reliability of the documents, but it asks the court to infer that they were
final management accounts and therefore to conclude that the figures
contained in the board papers were incorrect, evidently to the knowledge
of all concerned.
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3.2.1.2 Profile summaries
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figure out of line with the figures reported to the March board meeting,
which showed cash generation of $5 million, $13 million and $17 million
respectively for April, May and June. At APS [657]-[659], [661]-[666], ASIC
relied on this document as evidence to show that the forecast cash flow
figures in the March board papers for the international businesses for
April, May and June 2001 did not have any proper basis (DPS [90]). Mr
Rich said in cross-examination that the document was a draft and was
incorrect (T 11621). The defendants submitted that although the document
was prepared by Mr Werner, he gave no evidence about it, and it was not
suggested to any of Mr Weston, Mr Boaden and Mr Werner by ASIC when
they gave oral evidence that the figures in the March board papers were
wrong or without a proper basis. I agree with this submission.
3.2.2 The risk that in the absence of proper explanation, documents will be
misconstrued
343 The defendants identified some occasions when, they submitted, ASIC or
others misunderstood documents. The submission was directed to
showing the inherent danger of the court drawing inferences from
financial documents without an explanation of what they are. Four
examples were given.
344 First, reference was made to the "to-be-billed reports" (DPS [92]). The
defendants said that when ASIC opened its case, it treated the to-be-billed
reports as a breakdown of the components of One.Tel's billing runs, and it
invited the court to infer that they showed a very high proportion of "local
calls", a matter which went to prove that the defendants should have
known about the "traffic mix" issue in the Australian fixed wire business
(an issue that emerged from the work of Ms Ashley in late April 2001), at a
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much earlier stage. In my view that is a correct summary account of the
relevant points made in ASIC's opening address (see T 117, T 3568). I
specifically asked senior counsel for ASIC at T 117 whether the to-be-billed
report at Ex CE 4 0021 was a record of every single account that was billed
in the relevant billing run and he answered in the affirmative.
346 In its submissions in reply, ASIC resisted the claim that the to-be-billed
reports had been misunderstood in the opening address. It referred to
some evidence of Ms Ashley in re-examination, to the effect that the
reason that the reports would be an unreliable tool to be used in margin
analysis was that they only represented a portion of the month’s billing,
and the margin analysis should be done for the whole of each month.
ASIC then submitted (ASR [92-3]) that the reports could be used to give an
indication of the level of local calls, because Mr Rich gave some evidence
having the effect that about half of the data referable to a month would be
in the to-be-billed report for that month, and since each report identifies,
by initials, the different types of calls and carriers, the percentage of local
calls for the month could be calculated.
347 In my view this submission misses the defendants' present point, which is
that ASIC misinterpreted the reports in the opening address by treating
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them as breakdowns of each month's billings. I think that mistake is
established. The argument seems to be that the reports could be used for
margin analysis by treating them as relating to half of the relevant month's
data, ascertaining the percentage of local calls for that half and then
treating that percentage as the overall percentage of local calls to total
billings for the month. But that argument makes various assumptions that
are unproven. For example, it assumes that the proportion of calls to be
billed that are local calls is the same as the proportion of local calls to total
calls for the month. It may be that local calls are a higher, or a lower,
proportion of unbilled and to be billed calls than the proportion of local
calls bear to the total calls for the month. For example, if the defendants'
evidence is accepted, Telstra was slow in supplying CDRs, and that may
have meant that a disproportionately high number of local calls was
unbilled and to be billed in a given month.
349 Second, the defendants submitted that Mr Carter mistakenly construed the
collection profile summaries and profile summaries that are in evidence
(DPS [94]). This is a matter I considered at some length in my judgment
on the admissibility of Mr Carter's evidence, ASIC v Rich [2005] NSWSC
149 (7 March 2005) at [227]-[236]. One of my conclusions was that in
preparing the part of his Principal Report that dealt with alleged under-
provisioning for doubtful debts (evidence that was rejected), Mr Carter
assumed that documents entitled "profile summaries" were prepared on
the same basis as, and were directly comparable to, documents entitled
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"collection profile summaries". I noted that there were at least three
versions of the profile summary document as at 30 June 2000, each of
which had different figures for "total" debtors, and that some of the
summaries were described on their face as "drilldown reports" and others
as "360 day reports", and that Mr Carter said in the witness box that he
was unaware of those differences and could not provide explanations.
The defendants submitted that Mr Carter fell into error by assuming that
the various documents were comparable.
350 My conclusion in the 7 March 2005 judgment (at [236]) was that Mr Carter
was probably led to assume that the documents were comparable by
information he was given in his discussions with Mr Basman, on which he
had unconsciously relied in the course of writing his forensic report.
Therefore, while this is an illustration of the utility of having someone
explain such documents, it is probably not an example of simple
misconstruction of documents.
351 Third, the defendants referred to Australian aged creditors reports (DPS
[95]). They submitted that although these documents have every
appearance of being straightforward business records, they were exposed
as unreliable by the evidence in cross-examination given by Ms Randall.
Ms Randall was being asked about an entry on one of her deferred
payments lists for Global.One, and she was taken to an Australian aged
creditors report for 27 February 2001 (Ex CE 6 0068). It was suggested that
the aged creditors report showed that a credit note had not been applied to
an invoice, and she said she never referred to this ledger because she was
told by the accounts payable manager, when she first started at One.Tel,
that it was not reliable because it contained anomalies, and she conceded
that old amounts that had been disputed and were no longer payable still
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remained in the ledger without being purged (T 5209-10). I agree with
defendants that this episode shows that the significance that one would
attribute to documents on their face may well be different from the
significance they actually were given by those who knew about them.
352 Fourth, the defendants questioned whether the court should infer that
every document containing figures relating to future periods should be
regarded as a considered and final forecast by some responsible manager
as to what was actually expected to happen (DPS [96]). The defendants
contended that in the absence of evidence from someone who prepared or
used the document, the proposition that figures about a future period
were a considered forecast could only be an assumption, as it is "a
commonplace aspect of modern business practice (facilitated by the ready
availability of spreadsheet programs allowing for the easy manipulation of
assumptions in forecasting) for companies to prepare any number of
documents which might appear to be 'forecasts' but which in fact can be
merely 'drafts' or 'scenarios' run on assumptions which may not at all
represent the operator's view as to what is actually likely to happen" (DPS
[98]). This, they said, was especially likely in the case of documents
forming part of the business planning process, where drafts often go
through numerous iterations in which the underlying assumptions are
debated and refined.
353 They referred to some evidence which, they said, tended to show that
One.Tel's business plans were no exception to this practice. Thus, in his
affidavit Mr Silbermann said that One.Tel's business plans were designed
to allow for easy adjustment to particular key business parameters and
assumptions, which would then be automatically reflected in
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recalculations of the financial figures (MS 155). The defendants referred to
some electronic documents, the titles of which suggested a process of
iteration, such as "updated", "real thing", "uplift-final", and a document
entitled "final" accompanied with a covering message saying "not yet
finalised" (DPS [101]). There is evidence that on 19 January, Mr
Silbermann, Mr Packer Jnr and Mr Kleemann met to review "the most
recent version" of the European business plans, and in the course of that
meeting they made various "downside" changes to the key variables such
as ARPU and subscriber numbers, in order to see what effect those
changes made to the financial outcomes, including EBITDA and cash flow
(MS 155; Mr Packer Jnr at T 9445, T 9446; Mr Kleemann at T 6221-2). It is
not suggested that ASIC made the claim that the revised figures produced
at that meeting were final figures, but the evidence does show that the
process of adjusting inputs to ascertain how they would affect outputs was
in place at One.Tel.
354 That does tend to cast some doubt on whether certain financial documents
containing projections should be regarded as final versions of considered
forecasts, or merely drafts. I note in particular the various spreadsheets
sent by e-mail by Mr Werner to Mr Silbermann during 2001, on which
ASIC placed substantial reliance in final submissions. In almost every
case, the covering e-mail gives no explanation of what the document is,
why it is being sent or the basis upon which it was prepared. The
evidence indicates that Mr Silbermann was in very frequent contact with
Mr Werner (see, for example, the evidence of Mr Weston at UK T 832), and
that opens up the real possibility that Mr Werner's spreadsheets may have
been, at least on some occasions, merely part of a dialogue with Mr
Silbermann rather than final figures (DPS [106]). For the most part Mr
Werner has not given evidence clarifying the status of the documents,
though Mr Silbermann and Mr Rich have done so. I shall assess that
evidence when dealing with each of the documents, but I shall do so in the
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overall context provided by the defendants' present submission, which I
accept.
355 In the "Recurring themes" part of their submissions, the defendants made
submissions about the absence of witnesses to explain documents, the
availability of such witnesses and the unfairness of ASIC inviting the court
to draw inferences from documents when the true position could have
been clarified if witnesses had been called. My understanding of these
submissions is that they were intended to summarise a "theme" of the
defendants' submissions as a whole, the substantive effect of which would
be through the application of the principles in Blatch v Archer and Jones v
Dunkel, considered below. As I understand the submissions, they are not
intended to establish any other substantive consequence.
357 I shall deal with the relevant "Recurring themes" submissions and ASIC's
responses here, but then I shall return to the significance of the absence of
witnesses (or the absence of relevant questions to witnesses) when I come
to deal with the application of the principles Blatch v Archer and Jones v
Dunkel.
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3.2.3.1 Documents in need of explanation
359 Nor is there any evidence from the One.Tel officers involved in the
preparation of the board papers and flash reports to explain differences
between the documents presented to the board and other documents such
as management accounts, Australian cash flow spreadsheets, and Mr
Werner's European spreadsheets. Three members of the senior
management team in Europe gave evidence, namely Mr Weston, Mr
Werner and Mr Boaden. They were the source of information about the
UK and European businesses contained in the board papers and flash
reports and each of them was well aware of what was contained in the
March board papers in relation to the international businesses. It was not
put to them that the information in the March board papers or any other
board papers lacked a proper basis (DPS [77]).
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3.2.3.2 One.Tel personnel who might have given evidence
360 The defendants submitted that according to the evidence, ASIC was
extensively assisted in its investigation and in the preparation of its case
for hearing by numerous members of One.Tel's senior and middle
management (DPS [81]). This submission is expressed in general terms
and does not identify the evidence to which it refers, but it seems likely
that the defendants had in mind the evidence to which I referred in my
judgment on the admissibility of documents, ASIC v Rich (2005) 53 ACSR
752; [2005] NSWSC 417, at [376]. That evidence indicates that ASIC was
assisted by Mr Holmes, Ms Nassif and Mr Basman (as well as Ms Ashley,
who later gave evidence), and that they would have been available to give
evidence if called. They presumably would have been able to shed light
on at least some of the documents, including the fixed wire/service
provider management accounts, profile summaries (in the case of Mr
Basman), board papers and the PBL reports presented to the board on 28
May (DPS [82a]).
361 ASIC's reply to the defendants' submissions on these matters (ASR [73-82])
seems to me curious and unconvincing. The curiosity is partly that ASIC
has chosen to bring before the court a very large evidentiary case, and now
it says that if it had brought forward all of the evidence that I might decide
to be needed to support such a case, the impact on the length of the
hearing would be extraordinary, and for that reason the court should not
hold against it the absence of witnesses to explain its documents. An
obvious way out of the dilemma, at an early stage, would have been to
bring a more focused and less extensive case.
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362 ASIC appealed to s 56 of the Civil Procedure Act, to support the
proposition that to call additional witnesses would conflict with the
statutory direction as to the "just, quick and cheap resolution" of
proceedings and the duty of the parties to assist in bringing about that
resolution. But it cannot be just to put unclear documents into evidence
and then urge the court to draw questionable inferences from them, in
circumstances where the true significance of the documents could readily
be cleared up by oral evidence. And given the amount of debate that is
bound to surround the drawing of questionable inferences from
ambiguous documents, it is unlikely to be quick and cheap to proceed in
that way in the absence of simple clarification by witnesses.
363 It is also curious that ASIC's submissions seem to downgrade the utility of
oral as opposed to documentary evidence. Oral evidence, said ASIC, is
dependent upon recollection, often generalised and conclusory. It cited
the well-known observations of McLelland CJ in Eq in Watson v Foxman
(2000) 49 NSWLR 315 at 318-9 (considered below), about the fallibility of
human memory, and similar observations by Ipp JA made extra-curially
("Problems with Fact Finding", (2006) 80 ALJ 667). It submitted that oral
evidence is particularly unsatisfactory when the key issue is the financial
position of a company in several months, involving details a witness
would not be expected to reliably recall. It referred, by way of illustration
of the weakness of oral evidence on financial matters, to the evidence of
Nichola Thomas, who accepted that her honestly given recollection was
wrong when a document contradicting it was put to her in cross-
examination (para 3 of her affidavit, and her cross-examination at T
10072).
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afterwards, then it is undeniable. But that proposition is inapplicable
where the document is ambiguous and of uncertain nature and status, and
the evidence of the witness is not evidence of the contents of the document
but evidence to explain what the document is, how it is used and whether
it is a draft. It is not a matter of choosing between documentary and oral
evidence, but of needing to have a witness give the court an assurance
about the significance (or lack of significance) to be attributed to the
document.
365 ASIC has added up the occasions when the defendants say that a person
should have been called by ASIC as a witness, and the total figure is 50, in
addition to the 20 witnesses in fact called by ASIC in its case in chief. For
reasons given during the course of this judgment, I am not persuaded that
all of the people identified in the defendants' submissions and by ASIC at
ASR [6358] should have been called by ASIC in support of its large
evidentiary case. But for reasons given at 3.7 below, it does seem to me
that oral evidence from some person or persons in the management or
finance teams of One.Tel (perhaps Mr Holmes, Mr Barnes, Ms Nassif or
Ms Joukhadar) was needed to explain the nature and status of the fixed
wire/service provider management accounts on the relationship between
board papers and flash reports and other documents including cash flow
spreadsheets, and a person such as Mr Basman was needed to explain the
profile summary documents and the process of provisioning for doubtful
debts. Additionally it seems to me there is a gap in ASIC's evidence about
May 2001 and in particular, the significance of the PBL report presented to
the board on 28 May and the circumstances surrounding what appears to
have been a substantial change in the Miller/Green analysis between
about 8 May and 28 May, of a kind that required explanation from a
witness such as Mr Miller, Mr Green or Mr Courtney.
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366 I have mentioned eight additional names but only three groups, and it
may be that one witness would suffice from each group. The argument
that the defendants' submissions would lead to an additional 50 witnesses
takes the defendants' position to the extreme, and is a kind of in terrorem
argument.
367 ASIC submitted that it would have been open to the defendants
themselves to call these witnesses, or in the alternative to make a request
under s 167 of the Evidence Act for the calling by ASIC of the persons who
were the authors of documents to give evidence. ASIC said this procedure
would overcome such disadvantage as there might have been to the
defendants in not being able to cross-examine witnesses who they
themselves called. It suggested that the court should infer, in the absence
of requests under s 167 (and bearing in mind that the section was utilised
by the defendants in relation to the liquidators and the authors of the Ernst
& Young report) that the defendants' Jones v Dunkel points do not arise out
of any genuine concern that the specified persons were not called (ASR
[244-257]). But in suggesting that the defendants should have been the
moving party in bringing these witnesses to court, ASIC's submission
overlooks the fact that ASIC bore the onus of proof, and the defendants'
contention is that it has failed to discharge the onus of proof by tendering
documents without proper explanation from witnesses who might have
given an explanation and who might have been called by ASIC. It is
beside the point to say that the defendants might themselves have called
these witnesses.
368 I have reached the conclusion that the defendants' submissions are right in
principle in their contention that ASIC should not have invited the court to
reach conclusions by inference from contentious documents without
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seeking to lead evidence to explain them. That general conclusion has
consequences in terms of the principles in Blatch v Archer and Jones v
Dunkel, considered below, and is a matter to be addressed throughout
these reasons for judgment.
3.2.3.5 Witnesses who gave evidence but were not asked about
uncertain documents
369 The defendants also complained that in some cases, ASIC called witnesses
who were in a position to speak about documents that have subsequently
been emphasised in ASIC's submissions, but it did not lead evidence from
them to support the inferences that it now seeks to draw from the
documents in submissions (DPS [83]). The defendants gave three
examples of this, in addition to the matters noted at 3.2.1 above (DPS [83]).
370 First, the defendants noted that ASIC invites the court to make certain
inferences from the documentary evidence about the relationship between
One.Tel and WorldCom in the period from February to May 2001, without
having led evidence from witnesses who could have given direct evidence.
The inferences identified by the defendants are that One.Tel was
withholding from WorldCom the payment of a large amount,
acknowledged internally at One.Tel to be "payable now"; that WorldCom
issued demands in April because One.Tel failed to make an agreed
payment; and that One.Tel breached its agreement with WorldCom in late
May. I accept that Mr Boaden was closely involved in the dealings with
WorldCom, a matter plain from the documents tendered by ASIC and also
confirmed by Mr Weston in his oral evidence (UK T 652, 653, 659-60, 673),
and so Mr Boaden was in a position to give evidence about these matters.
But he gave no evidence to support the inferences that ASIC asks the court
to draw from the documentary evidence. The defendants also alleged that
Mr Menozzi of WorldCom assisted ASIC in the preparation of a draft
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affidavit and was reportedly willing to come to Australia to give evidence,
but was not called.
371 I agree with the defendants that Mr Boaden might have been able to give
some relevant evidence, but on the question of the One.Tel/WorldCom
relationship it does seem to me appropriate for the court to make findings
on the basis of the documentary evidence, which is reasonably
straightforward. I do not regard the absence of evidence from Mr Boaden
or Mr Menozzi as a flaw in ASIC's case or as a reason for not making the
findings that the documents support. I shall return to the WorldCom
evidence in the body of this judgment.
372 Second, the defendants noted that ASIC has invited the court to infer that
there never was $40 million of unbilled called data, and that no substantial
quantity of such data was able to be identified, processed or billed during
April or May 2001. The defendants complained that none of the many
people who worked on the process of identifying the data, including Ms
Joukhadar, Mr Beck, Mr Hodgson or any member of the billing team, has
been called to give evidence. For reasons set out at 3.6 below, I think the
absence of evidence from Mr Beck and Mr Hodgson is explicable and
should not lead to a Jones v Dunkel inference, and as to Ms Joukhadar, I
think a Jones v Dunkel inference should be made but it is not damaging to
ASIC's case. I am not persuaded that any other member of the billing
team was familiar with the process on a sufficiently comprehensive basis
to have given useful evidence.
373 Third, the defendants noted that ASIC asked the court to infer that Mr
Miller and Mr Green, at the conclusion of their review in late April and
early May 2001, did not understand the true financial position of One.Tel
because they had been obstructed in getting to it by the defendants, and
that they suddenly came to realise the truth after 18 May. I think this is
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something of a distortion of ASIC's submissions, which I deal with in
detail later in these reasons for judgment. Be that as it may, the
defendants pointed to evidence that Mr Miller and Mr Green were
afforded open access to the financial records and management of One.Tel,
and that they put the results of their investigations forward on 8 and 17
May without any qualification as to their understanding of the company's
financial position, and they complained that neither Mr Miller nor Mr
Green was called as a witness by ASIC. For reasons set out at 3.6 below, I
have formed the view that the absence of any evidence from Mr Miller or
Mr Green is a serious gap in ASIC's case, which has certain consequences
for my assessment of the evidence.
374 Once again, these matters have substantive consequences in terms of the
principles in Blatch v Archer and Jones v Dunkel.
3.2.4 The inherent improbability of ASIC's case about the defendants' failure to
disclose to the board
375 The defendants submitted that company's board papers and flash reports
are business records of a kind that should, at least prima facie, be accorded
substantial authority. They said (DPS [75]) that the process of disclosure
to the board in board papers, flash reports and otherwise involved almost
the entire senior management and finance team of One.Tel, not merely the
defendants. According to the defendants, ASIC's case implies the
contention that there was a conspiracy between the defendants and almost
all of the finance and management teams at One.Tel to mislead the board
(see also DPS [108]). In this regard, there is evidence that on many
occasions the figures that went into board papers and flash reports were
arrived at by executives in the finance team, rather than by Mr Rich or Mr
Silbermann personally (1 JDR 725; and the spreadsheet at Ex JDR 6/1967,
which exposes file notes showing a variety of sources of figures).
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376 Further, the defendants submitted that, with the exception of Ms Randall,
ASIC had called no finance or management witness to say that the
information provided to the board in board papers and flash reports was
known to the witness to be false. There was no evidence at all given by Mr
Barnes or Mr Holmes or the company secretary and internal legal counsel,
who were responsible for co-ordinating the figures in the board papers.
The UK management witnesses (Mr Weston, Mr Werner and Mr Boaden),
who were familiar with the contents of board papers including the March
board papers, and had input into their preparation (see Mr Weston's
evidence at UK T 794; UK T 727; and Ex D 29; Ex D 30; Ex D 70), said
nothing at the time to suggest that the information contained in the board
papers was wrong in any respect.
377 In those circumstances the defendants submitted that the suggestion that
board papers and flash reports contained false and misleading information
was inherently improbable. It was inherently more likely, they said (DPS
[113]), that the information in the board papers and flash reports was put
forward by the finance and management teams as representing their
honest view as to the financial position of the business, and contained
financial figures that were diligently arrived at. Apparent inconsistencies
between the board papers and flash reports, on the one hand, and other
less authoritative documents relied upon by ASIC, were much more likely
to have arisen because the finance and management teams did not
consider those other documents to be accurate.
378 I do not agree that ASIC's case implies a conspiracy amongst One.Tel
management to mislead the board. It is not necessary for the purposes of
its case for ASIC to allege a conspiracy involving the complicity of a large
number of other One.Tel senior managers and employees, and it has not
done so (ASR [108-117]). The case is brought as a case about breach of the
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defendants' statutory duty of care and diligence. The focus of attention
has been the conduct by and omissions of the defendants. ASIC did not
undertake to prove, where One.Tel executives other than the defendants
prepared information for disclosure to the board that was objectively
wrong or misleading or without reasonable basis, that the executives were
deliberately attempting to mislead the board, but only that the defendants
either themselves knew that the information was wrong, or else they
should have been more careful and diligent in reviewing the information
and satisfying themselves that it was appropriate to go forward to the
board. According to ASIC's case on the second alternative, if the
defendants had been more careful and diligent, they would have
identified discrepancies between what was proposed to be reported to the
board, and other financial documents of One.Tel. They would then have
had to make an assessment of the true position, with the assistance of the
management and finance teams.
379 I do not accept the defendants' submission that ASIC's case is inherently
improbable because ASIC relies on documents less authoritative than the
board papers and flash reports. It seems to me that the court should
approach the issue without any presumption, and should assess ASIC's
individual allegations on their merits, weighing up all of the available
evidence as to the reliability of the documents. I do agree, however, that it
is often pertinent to that assessment to take into account that finance and
management executives who were available to give evidence to support
ASIC's case have not done so, and to apply Jones v Dunkel accordingly. I
also agree that the court should be very cautious about relying on
inferences from documents that are unexplained by the evidence of any
witness.
380 The defendants also contended that on ASIC's case, they were trying to
conceal the true financial position of One.Tel for its directors and major
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shareholders in the period from January to April 2001 (DPS [114]). That
led the defendants to set out evidence intended to show that they gave
those who legitimately sought information about the company free and
open access to the company's financial records and its managers, and
therefore that they were not engaged in concealment (DPS [116]). That
evidence related to inquiries made by Mr Howell-Davies, Mr Kleemann,
Mr Long, and Mr Miller and Mr Green.
383 Mr Long agreed in cross-examination that when Ernst & Young were
appointed auditors, he had an initial meeting with Mr Rich, in which Mr
Rich encouraged Ernst & Young to speak to whomever they wished. So
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far as Mr Long was concerned, during the course of the half-year review in
January and February 2001, he had access to the staff of One.Tel to whom
he needed to speak for the purposes of the review. He built up
relationships in the review process and felt able to pick up the phone and
speak directly to whomever he wished to speak at One.Tel (T 7183).
384 Mr Rich gave evidence that when Mr Miller and Mr Green commenced
their review, he told them that if they wanted any information all they had
to do was to ask (2 JDR 1146; see also MS 446). When Mr Miller and Mr
Green visited the UK office they were given free and unrestricted access to
whomever they wished to consult, according to Mr Weston, who said he
gave them his realistic views about the likely future performance of the
European businesses (UK T 722-727). Mr Boaden said he answered their
questions with openness and honesty (T 5308-9).
385 At one stage Mr Packer Jnr sought direct access to One.Tel's SAS system
and did not obtain it, but it emerged that access was prevented because of
a technical issue to do with the security firewalls in One.Tel and PBL's
computer systems (T 9440-2). No other witness for ASIC gave evidence of
any difficulty in obtaining access to One.Tel's information.
386 I accept all of this evidence, and also the conclusion that the individuals I
have named were given free and open access to the information they
wished to have about One.Tel. It seems to me, however, that this evidence
does not answer ASIC's case. It is a case about breach of the statutory
duty of care and diligence. There are allegations about deliberate conduct
on the defendants' part, to the effect that the defendants failed to provide
information to the board and withheld information and so misled the
board, but those allegations did not extend to withholding information
from the people I have identified.
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387 In the result, I have not approached ASIC's evidence with any
presumption or predisposition against ASIC's case, on the ground of
inherent improbability. I have tried to assess the evidence step by step, on
its merits, having regard to the onus of proof and the standard of proof.
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• if the tribunal of fact prefers the plaintiff's evidence to the
defendants' evidence on an issue, it must nevertheless consider
whether the evidence proves the plaintiff's case to the applicable
standard (adapting, to the civil context, observations in Liberato v R
(1985) 159 CLR 507; [1985] HCA 66, at 515, quoted in Cross on
Evidence, [7085]).
389 There was some contention between the parties about the meaning of s
1305(1) of the Corporations Act (DPS [169]-[182]; cf ASR [169-77]-[173-6]).
It provides that "a book kept by a body corporate under a requirement of
this Act is admissible in evidence in any proceeding and is prima facie
evidence of any matter stated or recorded in the book".
390 The defendants referred to the definition of the words "prima facie" in the
Macquarie Dictionary (2nd revised edn), as meaning "at first appearance;
at first view, before investigation". They compared that with the definition
of "prima facie evidence" as "evidence sufficient to establish a fact, or to
raise a presumption of fact, unless rebutted." They submitted that the
former meaning is the one intended in s 1305, and that the words "prima
facie" are not used in the sense that, absent some satisfactory contrary
evidence on the part of the defendants, the matters said to be recorded in
the books have been conclusively proved.
391 In my view the true meaning of the words "prima facie" lies between the
alternatives identified in the defendants' submission. The statement in s
1305(1) that the company's books are prima facie evidence of a matter
stated or recorded in them does more than merely to convey that they are
the starting point to proof or a "first view". All other things being equal,
the fact that a matter is stated in a book kept by a company is sufficient to
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prove that matter in civil proceedings. That does not reverse the onus of
proof in the proceedings in any general way, but it means that the
tendering of the book is evidence of the matter recorded in it, and that
matter will be thereby proven unless other evidence convinces the tribunal
of fact to the contrary, on the balance of probabilities.
392 Section 1305(1) does not make the company's books conclusive evidence of
the matters they contain, in the sense of requiring the tribunal of fact to
make a finding in terms of the content of the books in the absence of proof
to the contrary by the opposing party. The books are prima facie evidence
of the matters stated in them, but the weight of that evidence is to be
measured in accordance with the common sense of the tribunal of fact
(Phipson on Evidence, 16th edn (2005), at [7-17]).
393 In my view it would be open to the tribunal of fact to find that the prima
facie evidence constituted by the company's books is outweighed by other
evidence (including evidence adduced by the proponent of the books,
even if the opponent does not give evidence about them); or by some
quality or characteristic of the books themselves, even if there is no other
evidence. In particular, if a book has the appearance of a draft or (being
electronic) has a file title indicating that it is a draft, that alone may be
sufficient (all other things being equal) for the tribunal of fact to reject the
book as evidence of the matter stated in it, notwithstanding that the book
is prima facie evidence of that matter; a fortiori if, in addition to having the
appearance of a draft, the book contains inconsistencies or ambiguities or
the matter otherwise demands explanation.
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judgment on the admissibility of corporate records (ASIC v Rich (2005) 53
ACSR 752; [2005] NSWSC 417, at [225]), said:
"This is a new provision based on s-sec 156(3) of the Ontario
Business Corporations Act. It is an evidentiary provision that is
intended to expedite legal proceedings where books are to be
introduced in evidence. This provision obviates the need to call
witnesses to prove that books are books of the corporation when
this fact is not in question or to prove transactions recorded in
books when these matters are not in dispute."
396 It is relevant to note that, as these are civil penalty proceedings in which
ASIC seeks declarations of contravention, there is a statutory requirement
for the court to apply the rules of evidence and procedure for civil matters.
The current requirement is s 1317L of the Corporations Act 2001 (Cth),
which commenced on 15 July 2001. In the period from 10 March 2000, the
date of commencement of the relevant part of the Corporate Law
Economic Reform Program Act 1999 (Cth), which amended the
Corporations Law, up to the commencement of the Corporations Act,
there was an equivalent provision in the Corporations Law. Prior to that
- 176 -
time, there was a provision substantially to the same effect in s 1317ED(1)
of the Corporations Law. Given that substantially the same provision
applied when the acts complained of in these proceedings took place
(January-May 2001), when these proceedings commenced (December
2001), and at all times thereafter, I need not delve into the complexities of
transitional provisions.
397 The rules of evidence for civil matters in this court are governed by the
Evidence Act 1995 (NSW). Section 140 provides:
"140 (1) In a civil proceeding, the court must find the case of a
party proved if it is satisfied that the case has been proved on the
balance of probabilities.
(2) Without limiting the matters that the court may take into
account in deciding whether it is so satisfied, it is to take into
account:
(a) the nature of the cause of action or defence, and
(b) the nature of the subject-matter of the proceedings, and
(c) the gravity of the matters alleged."
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such matters 'reasonable satisfaction' should not be produced by
inexact proofs, indefinite testimony, or indirect inferences.”
(See also Helton v Allen (1940) 63 CLR 691 [1940] HCA 20, at 712.)
399 The standard of proof enunciated in s 140 and Briginshaw's case applies in
civil penalty proceedings under the Corporations Act and its predecessor,
the Corporations Law: Adler v ASIC (2003) 46 ACSR 504; [2003] NSWCA
131 at [142]-[148]; Whitlam v ASIC (2003) 57 NSWLR 559; 46 ACSR 1; [2003]
NSWCA 183 at [117]-[119]; ASIC v Vines (2005) 55 ACSR 617 at [1105];
[2005] NSWSC 738 (on appeal, Vines v ASIC [2007] NSWCA 75). The
definition of "civil proceeding" contained in the Dictionary to the Evidence
Act says it is simply a "proceeding other than a criminal proceeding". In
other words, there is no distinction in the definition between ordinary
inter partes civil proceedings and civil penalty proceedings brought
pursuant to statute. I agree with ASIC (ASR [183-[190]) that civil penalty
proceedings under the Corporations Law are distinguishable from CEO of
Customs v Labrador Liquor Wholesale (2003) 216 CLR 161; [2003] HCA 49,
where the main reason for the High Court's conclusion that the criminal
standard of proof applied was that Customs sought a "conviction" of the
defendant, and the conclusion may have been otherwise if different relief
had been sought (see Hayne J at [135], [138]).
400 In the Vines case I referred (at [1106]-[1107]) to some further explication of
the Briginshaw standard by Sir Anthony Mason NPJ, sitting as a member of
the Court of Final Appeal of Hong Kong in Hksar v Lee Ming Tee [2004] 1
HKLRD 513. I think some of the observations in that case are pertinent
here, although some differences between that case and the present one
need to be borne in mind. It seems to me that the following observations
of Lord Nicholls of Birkenhead in Re H (Minors) (Sexual Abuse: Standard of
Proof) [1996] AC 563 at 586, quoted with approval by Mason NPJ at [71],
are applicable in the present circumstances:
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"When assessing the probabilities the court will have in mind as a
factor, to whatever extent is appropriate in the particular case, that
the more serious the allegation the less likely it is that the event
occurred and, hence, the stronger should be the evidence before
the court concludes that the allegation is established on the
balance of probability."
402 However, Mason NPJ's observation (at [72]), that "it was for the
respondent to establish as a compelling inference that very senior officers
of the SFC had deliberately and improperly terminated the investigation
… for the ulterior purpose alleged", seems to me to be confined to the
nature of the case before him, in which the allegations against the
appellants, though in civil proceedings, were essentially criminal in
nature. In my view it would be setting the standard too high to say that,
in Australian civil penalty proceedings for breach of the statutory duty of
care and diligence of company directors and officers, the plaintiff's case
must be proved by "compelling" inferences (although that is probably true
in a case where the allegation is of a breach of the statutory duty of
honesty - as it was, against one of the defendants, in ASIC v Vines).
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403 The observations of Lord Nicholls were revisited by the House of Lords in
Re B (Children) (Sexual Abuse: Standard of Proof) [2008] 3 WLR 1; [2008]
UKHL 35. In particular, Lord Hoffmann (at 4) distinguished between
three kinds of cases in which observations are made that the standard of
proof varies with the gravity of the misconduct alleged or the seriousness
of the consequences for the person concerned. The first category is where
the court has for some purpose classified proceedings as civil, but
nevertheless has thought that because of the serious consequences of the
proceedings, the criminal standard of proof or something like it should be
applied. Australian civil penalty proceedings for breach of the statutory
duty of care and diligence are not in this category, but arguably Hksar v Lee
Ming Tee is an example of it. The third category is where judges are
simply confused about whether they are talking about the standard of
proof or about the role of inherent probabilities in deciding whether the
burden of proving a fact to a given standard has been discharged. That
could not be said of Dixon J in Briginshaw. That leaves the second
category, "cases in which it has been observed that when some event is
inherently improbable, strong evidence may be needed to persuade the
tribunal that it more probably happened than not". Briginshaw is in this
category, as are the quoted observations of Lord Nicholls in Re H.
405 It seems to me that these observations are in accordance with, and assist to
clarify, the New South Wales law arising out of s 140 and Briginshaw and
other Australian cases. Lord Nicholls' observations are in accordance with
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those of Mason CJ, Brennan, Deane and Gaudron JJ in Neat Holdings Pty
Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; [1992] HCA 66, at 171:
"[T]he strength of the evidence necessary to establish a fact or facts
on the balance of probabilities may vary according to the nature of
what it is sought to prove. Thus, authoritative statements have
often been made to the effect that clear or cogent or strict proof is
necessary 'where so serious a matter as fraud is to be found'.
Statements to that effect should not, however, be understood as
directed to the standard of proof. Rather, they should be
understood as merely reflecting a conventional perception that
members of our society do not ordinarily engage in fraudulent or
criminal conduct and a judicial approach that a court should not
lightly make a finding that, on the balance of probabilities, a party
to civil litigation has been guilty of such conduct."
406 In Vines v ASIC [2007] NSWCA 75, Ipp JA (with whom Spigelman CJ
agreed, at [539]) said that Briginshaw was of limited assistance in the case
before him (at [809]), noting that nothing in Briginshaw detracted from the
proposition that a serious allegation might be proved by "circumstantial
evidentiary facts" and "inference and circumstance" (at [811]). He applied
the quoted observations in Neat Holdings (at [812]), referring to his own
earlier observations (with which Tobias and Basten JJA agreed) in Palmer v
Dolman [2005] NSWCA 361, at [47], to the effect that there are "no hard and
fast rules by which serious allegations might be proved from
circumstantial evidence", and that the inquiry was, taking due account of
what was said in Neat Holdings, whether the allegation had been proven
on the balance of probabilities.
407 The defendants sought to draw an analogy between the standard of proof
in the present proceedings and the standard to be met in proceedings
alleging contravention of Part IV of the Trade Practices Act 1974 (Cth)
(DPS [186]-[189]). In proceedings of the latter kind Briginshaw is applied
(see JD Heydon and BG Donald, Trade Practices Law, Law Book Co
(looseleaf), Vol 2, [18.250] and cases there cited). The defendants quoted
from the judgment Goldberg J in Australian Competition and Consumer
Commission v Australian Safeway Shores Pty Ltd (2001) 119 FCR 1; [2001]
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FCA 1861, at [69]-[70]. It does not seem to me that the quoted passage says
anything more than that, while the standard of proof is on the balance of
probabilities, the strength of the evidence necessary to meet that standard
may vary according to the nature of what it is being sought to prove. That
is obvious. Nevertheless I agree with ASIC (ASR [183-190]) that Part IV
cases should be used with caution in other contexts. The Commission can
only bring civil penalty proceedings for contraventions of the anti-
competition, price exploitation and tax provisions of the Act, provisions
that were enacted as a means of prohibiting behaviour that may have a
significant impact upon industries as a whole and perhaps upon the
economic life of the nation, and some of which have a specific mental
element (e.g. s 46). The Commission cannot bring civil penalty
proceedings for contravention of the consumer protection provisions of
Part V of the Act, which provide a more relevant comparison to a
provision such as s 180 of the Corporations Act. Given the cases cited by
the defendants to the effect that Part IV contraventions, though not
formally criminal, are to be construed in the same way as a statute creating
a criminal offence (e.g. Trade Practices Commission v Legion Cabs (Trading)
Co-operative Society Ltd (1978) 35 FLR 372 at 381 per Franki J), it may be that
the Part IV cases are in Lord Hoffmann's first category.
408 Applying these general principles to the present case, I turn first to the
nature of the cause of action and the subject-matter of the proceedings (s
140(2)(a) and (b)). These are civil penalty proceedings in which ASIC
seeks disqualification orders and substantial compensation. Because
disqualification orders are sought, the proceedings are penal for the
purposes of the application of the penalty privilege (Rich v ASIC (2004) 220
CLR 129; [2004] HCA 42). But they are not criminal proceedings, and it
would be contrary to the legislative intention underlying the civil penalty
- 182 -
provisions to apply a de facto criminal standard of proof in such
proceedings. This is because the civil penalty provisions of the
Corporations Law were the outcome of recommendations by reformers
who thought that directors and others who contravene the corporations
legislation should not be branded as criminals unless they have acted
dishonestly (as my co-author Professor Ford wrote in RP Austin, HAJ Ford
and IM Ramsay, Company Directors: Principles of Law and Corporate
Governance (LexisNexis, 2005) at [18.71], summarising relevant law reform
material). What is required is to apply the civil standard of proof, not a de
facto criminal standard, while taking into account the matters specified in
s 140(2) and explained in the cases in assessing whether the court is
satisfied that the standard has been met.
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may have consequences as severe as any likely criminal sentence, save for
a term of imprisonment (at [143], per Spigelman CJ).
410 Here, ASIC seeks disqualification orders which have the level of
seriousness identified by Spigelman CJ. Additionally, ASIC's central
allegations, though allegations of contravention of the duty of care, are of
a particularly serious kind, which seemed to me to raise the level of
seriousness beyond what is implied in findings and disqualification orders
based on a breach of duty of care of a more "ordinary" kind. The
statement of claim alleges that the defendants failed to take reasonable
steps to ensure that the board was aware of the true financial position of
the company, and either withheld the true financial position from the
board thereby misleading it or, if they did not know the true financial
position, failed to take reasonable steps to apprise themselves of it. The
statement of claim also alleges that Mr Rich caused or permitted
announcements to be made to the ASX on 27 February and 4 April 2001
containing statements for which there was no reasonable factual basis, and
that he either knew there was no reasonable factual basis for the
statements or ought to have known. One of the alternatives pleaded
against the defendants (and Mr Rich in relation to the market
announcements) amounts to an allegation of intentional misleading
conduct, even though the cause of action is for breach of the duty of care
and diligence. That is a very serious allegation. In its submissions, ASIC
has invited the court to make findings against the defendants that amount
to findings of intentionally misleading conduct, amounting to dishonest
conduct.
411 While, therefore, the question is whether the court is reasonably satisfied
that the facts in issue have been proved to the civil standard, it must have
regard to the gravity of what is sought to be established, though not with
the degree of certainty indispensable to criminal proceedings.
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412 That is the general approach to be taken. I have some observations to
make about three applied matters, namely indirect inferences, conflicting
evidence about conversations, and documentary evidence.
413 The defendants' submitted that the court is not to make findings on the
basis of "indirect inferences". That proposition is taken from Dixon J's
judgment in Briginshaw. On the other hand, ASIC is entitled to establish
even serious allegations of wrongdoing or misconduct by the defendants
by "circumstantial evidentiary facts" or "inference and circumstance": Vines
v ASIC at [811], per Ipp JA (with whom Spigelman CJ agreed, at [539]).
Therefore a line has to be drawn, having regard to the gravity of the
contravention and its inherent probability, to separate those cases where
there are strong enough grounds for inference to satisfy the court that a
serious contravention should be found, from cases where the inference
that the court is asked to make is too indirect to warrant that conclusion.
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importance. I think that is generally true of ASIC's case, although it seems
to me that findings of fact about what was said, particularly by the
defendants to various directors, is of substantial importance to the
defendants' case. But whether the conflicting evidence of conversations is
central or subsidiary, it seems to me useful to consider how Briginshaw
applies to resolving such conflicts.
416 Although this is not a misleading conduct case, questions have arisen
about whether financial information supplied by the defendants
(particularly Mr Rich) to directors and shareholders (particularly Mr
Packer Jnr and his father) was misleading. Sometimes the differences in
evidence are subtle but substantial: for example, whether Mr Rich gave an
absolute, unqualified assurance that the company would reach a certain
target, or merely communicated a management forecast necessarily based
on many assumptions and qualifications. It seems to me that the
observations of McLelland CJ in Eq are applicable.
417 Having drawn attention to the manner in which the question, whether
spoken words were misleading, might depend upon relatively subtle
nuances, his Honour continued:
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"Furthermore, human memory of what was said in a conversation
is fallible for a variety of reasons, and ordinarily the degree of
fallibility increases with the passage of time, particularly where
disputes or litigation intervene, and the processes of memory are
overlaid, often subconsciously, by perceptions of self-interest as
well as conscious consideration of what should have been said or
could have been said. All too often what is actually remembered
is little more than an impression from which plausible details are
then, again often subconsciously, constructed. All this is a matter
of ordinary human experience. Each element of the cause of
action must be proved to the reasonable satisfaction of the court,
which means that the court 'must feel and actual persuasion of its
occurrence or existence'."
418 I have taken the view that it is appropriate to bear such matters in mind in
evaluating the conflicting evidence of conversations and meetings in the
present case. Sometimes I have been aided in reaching conclusions by
evidence of surrounding circumstances or context, but on a few occasions
there has been little more to assist me in choosing between conflicting
versions of conversations than my overall assessment of the credibility of
the witnesses, my assessment of the inherent plausibility of the respective
versions of what was said, and the general approach that the court should
take to such matters as explained by McLelland CJ in Eq. There is, of
course, danger in making assessments on the basis of inherent plausibility
alone, graphically illustrated by McClellan CJ at CL extra-curially in his
"Maralinga" example, in "Who is telling the truth? Psychology, common
sense and the law" (2006) 80 ALJ 655, 655-6, and by Ipp JA in his Governor-
General example in "Problems with fact-finding" (2006) 80 ALJ 667, 674.
But it seems to me that where the subject matter of the evidence is a
conversation and there are two competing versions, inherent plausibility
has some utility.
419 In their written submissions the parties urged me to take into account
some additional considerations when assessing conflicting evidence about
conversations and meetings.
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420 First, the defendants advanced various considerations as to why, they
said, the court should prefer their evidence to the evidence given by Mr
Packer Jnr and Mr Murdoch Jnr (DPS [196]ff). Obviously the defendants
had their own interests to protect in this litigation but, as they pointed out,
the PBL and News witnesses also had a very significant interest in the
outcome of the case and the court's findings along the way. Mr Packer Jnr
and Mr Murdoch Jnr claimed that they had been "profoundly misled" (cf
ASR [196] which does not quite meet the defendants' submission). I agree
with the defendants that their desire to defend that position resonates
through their evidence.
421 The defendants submitted that from a very early stage they focused their
minds on One.Tel's financial position in the period from January to May
2001 and the surrounding circumstances, because the events of May 2001
when the company collapsed were enormous events in their lives, and
they were followed immediately by allegations of the most serious kind
made against them by Mr Packer Jnr and Mr Murdoch Jnr, allegations
with which they were in violent disagreement. Indeed they considered
that there was a conspiracy between the Packer and Murdoch camps in
connection with the rights issue. The court should infer, they said, that in
these circumstances it stands to reason that they would preserve their
memory of the events affecting One.Tel's demise.
422 The defendants' affidavits were sworn on 27 March 2006. ASIC submitted
(ASR [197]) that the substantial time sought and obtained by the
defendants in early 2006 to prepare their affidavits (T 10451) should lead
the court to conclude that the affidavits were to a very significant extent
prepared on the basis of recollections five years after the events. However,
there is some evidence that Mr Rich's statement was "well progressed" by
September 2002 (Ex P24, Tab 12, para 103) and one can infer that the
progress made in preparing his statement would partly have involved
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preparing his answers to the evidence of Mr Packer Jnr and Mr Murdoch
Jnr, whose principal affidavits were sworn in May and June 2002, and
presumably served shortly afterwards. In these circumstances, the fact
that substantial additional time was needed to finalise the defendants'
affidavits after the close of ASIC's case does not mean that the defendants'
recollection of the conversations and meetings deposed to by Mr Packer
Jnr and Mr Murdoch Jnr was recorded 5 years after the events. The
affidavits, when they appeared, were comprehensive responses to ASIC's
case in chief, not merely to the affidavits served before the hearing began.
There were a few occasions, noted by ASIC at APS [2057] and [2066],
where the fact that matters in Mr Rich's affidavit were not put to ASIC's
witnesses suggests that the relevant parts of the affidavit were prepared
after the cross-examination of those witnesses. But that does not establish
that the bulk of the affidavit was prepared at that late stage.
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negligence cases, where it has been said that the tribunal of fact must be
vigilant in accepting self-interested assertions (Chappel v Hart (1998) 195
CLR 232; [1998] HCA 55, at 272-3; Rosenberg v Percival (2001) 205 CLR 434;
[2001] HCA 18, at 485, 504-5. I have tried to bear these considerations in
mind, and therefore to assess their evidence critically, but on many
occasions (as this judgment shows) I have reached the conclusion that the
internal logic of the defendants' evidence, particularly the evidence of Mr
Rich, is compelling and consistent with external circumstances. Therefore
for the most part is not been necessary for me to resolve conflicts of
evidence as to meetings in conversations by reference to considerations of
onus and standard of proof.
425 I shall return to the credibility of the defendants, Mr Packer Jnr and Mr
Murdoch Jnr in detail in Chapter 5. Here, it suffices to say that general
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considerations about the fallibility of human memory do not weigh
against the evidence of the defendants, for the reasons I have given,
although I have some concerns about the strength of recollection of Mr
Packer Jnr and Mr Murdoch Jnr.
426 The defendants urged the court to be cautious about accepting the
evidence of ASIC witnesses who had been interviewed by lawyers
representing PBL, which was seeking to gain evidence to shore up its
position and that of Mr Packer Jnr, some of whom were retained on paid
consultancies. The defendants' submission was that, without any lack of
propriety on the part of the lawyers involved, memories can readily be
corrupted by the power of suggestion in such an interview and/or the
desire to produce "facts" for the people conducting interviews or retaining
them (DPS [2002]). They referred to observations of Justice Ipp in the extra
curial writing to which I have referred ("Problems with fact-finding",
supra, at 668):
"Many experiments have shown that information provided to
witnesses after an event affects how they later remember it.
Studies have shown that persons who fall prey to misleading
information consciously remember witnessing things that they
have not seen. They hold these false memories with great
confidence."
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3.4.2.3 Evidence about documents
429 Section 140 and the Briginshaw line of cases apply as much to documentary
evidence as to oral evidence. On some occasions documents speak for
themselves, but that is only when the tribunal of fact is able to proceed, by
evidence or assumption, on a basis reflecting what the document is, how it
was created and whether it was a final version. In my view, on the
occasions when the court has some doubt, on the basis of the document
itself or surrounding circumstances, about the weight to be given to a
document because of concern about why it was created or how it was
used, or about the ambiguity of its contents or whether it was a draft, and
there is no witness giving evidence to remove that doubt, the court's
caution about the weight to be given to the documents will be enhanced
by the considerations enumerated in s 140(2).
430 The fact that the court has held that the documents in question are
admissible does not entail that they are to be given any particular weight
in ASIC's case, as I made plain in my judgment on the admissibility of
business records, ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at
[122]-[147], [381].
431 The defendants placed substantial reliance on what they called "the rule in
Blatch v Archer". Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 was an action
of debt against the Sheriff of Essex for the escape of a debtor called
Moody. The Sheriff issued a warrant for Moody's arrest on the application
of the plaintiff, to be executed by old Mr Fenton, the bailiff. In fact the
arrest was carried out by Mr Fenton's son, and it was authorised and
lawful only if old Mr Fenton was present at the time of the arrest. There
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was some evidence on this matter, but the plaintiff, who was asserting the
lawfulness of the arrest, did not call young Mr Fenton, who could have
cleared the matter up. In that context Lord Mansfield remarked that "it is
certainly a maxim that all evidence is to be weighed according to the proof
which was in the power of one side to have produced, and in the power of
the other to have contradicted". However, he did not apply that principle
against the plaintiff because he held that in the instant circumstances, it
would have been improper to have called the son, for the action was in
reality an action against his father, the bailiff.
432 Lord Mansfield's principle has been accepted and applied in modern
cases. For example, in Clayton Robard Management Ltd v Siu (1988) 6 ACLC
57, at 62, Kirby P considered what inferences should be drawn, if any,
from the failure of the appellants to call evidence. He said:
"In a rational procedure for the resolution of disputed issues of
fact, it would not be unreasonable to expect a party in the best
position to do so to place before the tribunal of fact the relevant
evidence in its possession, at least so far as such evidence was
relevant to the resolution of disputed questions."
Later his Honour referred (at 65) to the "overriding obligation, oft
repeated, to consider and weigh the evidence at the end of the trial
according to the respective powers of the parties to produce evidence",
and he said that principle, which supplemented the processes of reasoning
authorised in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, could be
traced to Lord Mansfield's judgment in Blatch v Archer. He noted that it
was endorsed by the High Court in Hampton Court Ltd v Crooks (1957) 97
CLR 367; [1957] HCA 28, at 371-2, and that it had been applied many
times, citing Apollo Shower Screens Pty Ltd v Building & Construction
Industry Long Service Payments Corporation (1985) 1 NSWLR 561, at 565.
433 The relationship between the principles enunciated in Blatch v Archer and
Jones v Dunkel was further explained by Hodgson JA (with whom Beazley
JA agreed) in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168. His
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Honour said (at [14]) that "in deciding facts according to the civil standard
of proof, the court is dealing with two questions: not just what are the
probabilities on the limited material which the court has, but also whether
that limited material is an appropriate basis on which to reach a
reasonable decision", and he referred to his extra-curial writing on the
subject ("The Scales of Justice, Probability and Proof in Legal Fact-finding"
(1995) 69 ALJ 731). He continued:
"[15] In considering the second question, it is important to have
regard to the ability of parties, particularly parties bearing the
onus of proof, to lead evidence on a particular matter, and the
extent to which they have in fact done so: cf 69 ALJ at 732-733, 736,
740. …
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have assisted that party's case, Blatch v Archer leads either to the drawing
of such an inference, or to some other assessment of the weight of
evidence, unfavourable to the party against whom the principle is applied.
In Shalhoub v Buchanan [2002] NSWSC 99 at [71], Campbell J explained the
point as follows:
"Failure to call all those witnesses still has a consequence, even
though I do not go through the process of drawing any Jones v
Dunkel inferences concerning them. I would infer that Mr
Shalhoub, Mr Atallah, one or more of the salespeople, and at least
some of the other people who attended the auction, were
available. I shall assume that all of these witnesses, apart from Mr
Shalhoub, were available to be called by either party. Even
making that assumption, failure of a party who bears an onus of
proof to call an available witness who could cast light on some
matter in dispute can be taken into account in deciding whether
that onus is discharged, in circumstances where such evidence as
has been called does not itself clearly discharge the onus. This is
an application of Lord Mansfield's maxim …".
436 The defendants have sought to invoke the principle in Blatch v Archer on
many occasions, arguing in each case that ASIC might have called a
witness who could have clarified an uncertain matter (especially as to the
status and meaning of a document) but has not done so (generally, DPS
[223]). ASIC made the general submission (ASR [218-223]) that the present
case is far removed from cases such as Ho v Powell. Ho v Powell concerned
a road accident in which there was a collision between the plaintiff cyclist
and a car driven by the defendant. The defendant claimed that the
plaintiff was guilty of contributory negligence. The claim failed. The
court regarded it as significant that the defendant had not himself given
evidence concerning the collision. ASIC submitted that in Ho v Powell, a
non-documentary case, the defendant's evidence was central, whereas in
the present case the evidence of the individuals identified by the
defendants as potential witnesses was "relatively peripheral".
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is wrong to say of any of them that their position and potential evidence
was relatively peripheral. For example, Timothy Holmes was group
financial controller of One.Tel Australia and was well placed to give
evidence about the fixed wire/service provider management accounts and
other financial documents concerning the Australian businesses, relating
to subjects of central significance to ASIC's case. Mr Basman was
collections manager at One.Tel Australia, and in a position to explain the
profile summaries and give evidence about the process of provisioning for
doubtful debts, matters which were again of very substantial importance
in ASIC's case. Mr Miller and Mr Green were the authors of the PBL
report presented to the board on 28 May as well as earlier reports, and
were obviously well placed to give evidence about PBL's attitude to
One.Tel in the period from late April to 29 May, a matter of some
importance for ASIC's case. In my view the principle in Blatch v Archer is
just as capable of applying to a documentary case where the documents
need explanation by witnesses, as it is to a non-documentary case about a
motor accident.
438 The principle in Blatch v Archer requires the court to identify the power of
the party to produce evidence. The defendants pointed out that as regards
the power to produce evidence from a witness, ASIC is in a far superior
position to most litigants, because of its power to administer examinations
under s 19 of the ASIC Act, and to issue notices under s 1317R of the
Corporations Act, as well as to issue subpoenas. In fact ASIC has obtained
statements from many of the persons who, according to the defendants,
should have been called to give evidence, and additionally it could have
used its powers to call witnesses to contradict the defendants' evidence.
Instead it has sought to rely on inferences from documents.
439 ASIC submitted that there is an important contrast between the breadth of
an investigation that ASIC conducts into suspected contraventions of the
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corporations legislation (which it described as "a roving investigation",
and the way in which ASIC must conduct itself once it is a party to a
judicial proceeding of a civil nature, at which time it must "focus on issues
and the fairest and most efficient way of proving them" (ASR [218-223]). I
accept that there is such a distinction, but nevertheless it seems to me clear
that it was in the power of ASIC to bring forward witnesses to clarify
financial documents, debtor documents and PBL reports in the manner
advocated by the defendants. As I shall note although when dealing with
Jones v Dunkel, there is evidence of significant assistance to ASIC on the
part of several potential witnesses, including Mr Holmes, Ms Nassif, Mr
Basman, Mr Miller and Mr Green. There is nothing to suggest that ASIC
could not have called any of these people, or Mr Barnes, Ms Joukhadar or
Mr Courtney, as witnesses in its case in chief.
440 ASIC also submitted that, as a result of the extensive discovery that has
occurred in these proceedings, the defendants have obtained access to all
of the possibly relevant available records of the company and all
information acquired by ASIC in the course of its investigation, including
transcripts of s 19 investigations (ASR [218-223]). They sought and were
granted considerable time to examine and deal with that material. ASIC
referred to what it called the "advantage" which the defendants had in
having someone as knowledgeable about the company as Mr Rich
working over the last five years on the defendants' defence of these
proceedings. It referred to evidence given by the defendants' solicitor, Mr
Johnston, by affidavit of 7 September 2002, as well as by Mr Rich himself
(T 10788), dealing with how hard Mr Rich has worked on the matter. It
referred to the assistance received by the defendants from former
employees of One.Tel in preparing their defences, referring again to Mr
Johnston's affidavit, as well as evidence from Mr Rich about the assistance
he received from Mr Hodgson (T 10799-10800), and assistance the
defendants received from accounting experts (T 10789-10795). In
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summary, ASIC submitted that the defendants have had the resources and
expertise available to them to investigate thoroughly and argue every
point capable of investigation and argument, and so there has been no
inequality of position between the parties regarding their ability to
conduct their cases, and every person who the defendants say ASIC
should have called as an additional witness could have been called as
easily by the defendants.
441 I think those allegations (apart from the last one) are correct but beside the
point. For the purposes of the principle in Blatch v Archer, ASIC had both
the onus of proving its case and the power to call witnesses to overcome
deficiencies about its documents, some of which were identified at a
relatively early stage (see my judgment on the admissibility of documents,
ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417). But it has not done
so, preferring instead to submit that the court should draw inferences from
the documents. The defendants had no onus or obligation to call evidence
about ASIC's documents. I made it clear in my judgment (at [381]-[382])
that my ruling on the admissibility of ASIC's documents left open the
possibility of the defendants challenging the probative value of the
documents having regard to the difficulties with the documents that the
judgment identified. It is hardly surprising that ASIC, not having called
witnesses to clarify uncertain matters about the documents, encounters
such a challenge now.
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survey the law generally, but there are some aspects of the principle that
need to be addressed.
443 Kitto J's formulation of the principle (Jones v Dunkel (1959) 101 CLR 298;
[1959] HCA 8, at 308) was that evidence might be more readily accepted
where it has been left uncontradicted, and that any inference favourable to
the proponent, for which there was ground in the evidence, might be more
confidently drawn when a person presumably able to put the true
complexion on the facts relied on as the ground for the inference has not
been called as a witness by the opponent, and the evidence provides no
sufficient explanation of the absence of that witness (see also at 312 per
Menzies J, and 320-1 per Windeyer J). The observations of Davies A-JA
(dissenting on the facts) in Ho v Powell, at [76], are a useful supplement:
"The rule permits evidence to be given greater weight and an
inference or inferences to be more readily drawn when the other
party who might have called evidence to the contrary has chosen
not to do so. In Commonwealth Australia v McLean (Court of
Appeal, 31 December 1996, unreported), Handley JA and Beazley
JA said: '… the rule typically applies to strengthen or weaken an
inference otherwise available on the evidence for the benefit of the
party not in default.'"
444 There are three conditions for the application of the principle:
(a) the missing witness would be expected to be called by one party
rather than the other (which implies that the witness must be
available to give evidence);
(b) his evidence would elucidate a particular matter, which is a live
matter at the trial; and
(c) his absence is unexplained (Payne v Parker [1976] 1 NSWLR 191, at
201-2 per Glass JA, dissenting; cited with approval by Campbell J,
with whom Beazley JA and Pearlman A-JA agreed, in Manly Council
v Byrne [2004] NSWCA 123 at [53]).
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445 Condition (a) is sometimes difficult to apply. Glass JA explained it as
follows, at 201-2 (I omit the citation to authorities):
"The first condition is also described as existing where it would be
natural for one party to produce the witness …, or the witness
would be expected to be available to one party rather than the
other …, or where the circumstances excuse one party from calling
the witness, but require the other party to call him …, or where he
might be regarded as in the camp of one party, so as to make it
unrealistic for the other party to call him …, or where the witness'
knowledge may be regarded as the knowledge of one party rather
than the other …, or where his absence should be regarded as
adverse to the case of one party rather than the other …. It has
been observed that the higher the missing witness stands in the
confidence of one party, the more reason there will be for thinking
that his knowledge is available to that party rather than to his
adversary …. If the witness is equally available to both parties, for
example, a police officer, the condition, generally speaking, stands
unsatisfied. There is, however, some judicial opinion that this is
not necessarily so …. Evidence capable of satisfying this condition
has been held to exist in relation to a party's foreman …; his safety
officer …; his accountant …; his treating doctor …."
446 Where the principle applies, two different types of result might follow,
according to Campbell J in Manly Council v Byrne, at [51]:
• the tribunal of fact might infer that the evidence of the absent
witness, if called, would not have assisted the party who failed to
call that witness;
• the tribunal of fact might draw with greater confidence any
inference unfavourable to the party who failed to call the witness, if
that witness seems to be in a position to cast light on whether that
inference should properly be drawn.
447 The principle applies both to failure to bring forward a witness and failure
to tender a document or other evidence (Jones v Dunkel, at 320 per
Windeyer J; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17, at
[134]).
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448 It also applies where a party fails to ask questions of a witness in chief on
some topic, the most natural inference from that circumstance being that
the party fears to do so: Commercial Union Assurance Co of Australia Ltd v
Ferrcom Pty Limited (1991) 22 NSWLR 389, at 418 per Handley JA. The
latter proposition is emphasised in Cross on Evidence (Australian edition by
D Byrne and JD Heydon, Butterworths, looseleaf), at [1215]:
"… the principles of Jones v Dunkel apply to the failure by a party
to ask a witness called by that party questions in chief, at least
where the most natural inference is that the party feared to do so
[citing Commercial Union v Ferrcom, and other cases]. Indeed it has
been said that the omission to ask questions of a friendly witness
is more significant than the failure to call the witness, and that the
presumption that the testimony would not have been favourable
to the party's case is stronger than the presumption arising from
the failure to call him [citing Milliman v Rochester Railway Co 39
NYS 274 at 276 (1896), approved in Commercial Union v Ferrcom, at
419]. A fortiori, inferences are not to be drawn in favour of a party
calling a witness who could have given direct evidence to that
effect, but did not [citing cases including Commercial Union v
Ferrcom]. The principle applies to a witness who, though called in
the plaintiff's case in chief, is not called in the case in reply to deal
with a fresh matter arising during the defendant's case [noting,
inter alia, the division within the Court of Appeal in Payne v
Parker]."
449 The principle in Jones v Dunkel does not apply where, in the circumstances,
it is not reasonable to infer that the party against whom the inference is
sought to be raised did not call the witness because of fear of what a
witness might say. That proposition was explained by Mahoney JA
(Priestley and Sheller JJA concurring), in Fabre v Arenales (1992) 27 NSWLR
437, at 449-50:
"The significance to be attributed to the fact that a witness did not
give evidence will in the end depend on whether, in the
circumstances, it is to be inferred that the reason why the witness
was not called was because the party expected to call him feared
to do so. But there are circumstances in which it has been
recognised that such an inference is not available or, if available, is
of little significance. The party may not be in a position to call the
witness. He may not be sufficiently aware of what the witness
would say to warrant the inference that, in the relevance sense, he
feared to call him. The reason why the witness is not called may
have no relevant relationship with the fact in issue: it may be
- 201 -
related to, for example, the fact that the party simply does not
know what the witness will say. A party is not, under pain of a
detrimental inference, required to call a witness 'blind'.
"… A Jones v Dunkel inference may not arise if, for example, the
witness has a reason for not telling the truth or refusing to assist
and the party who may well call him is aware of this. If the
Government Insurance Office had been the party and Mr Arenales
merely a witness, it is at least arguable that no inference would be
drawn from the fact that he was not called for the defendant. If
called he would have been asked in effect to admit a crime of some
seriousness. If he did, he might be liable to reimburse the
Government Insurance Office for or in respect of the amount
recovered by the plaintiff. And, perhaps, it might be doubted that
he would co-operate, by way of prior consultation, proof of
evidence, or the like. It may be that his character or criminal
record would affect these matters."
450 Other circumstances where the court might decline to draw a Jones v
Dunkel are where:
• the missing witnesses are merely giving evidence which is
comparatively unimportant, cumulative or inferior to that which
has already been obtained (Cubillo v Commonwealth (2000) 103 FCR
1; [2000] FCA 1084, at [360] per O’Loughlin J; Manly Council v Byrne,
at [60]-[66] per Campbell J);
• the party against whom an inference is sought to be raised already
has a strong case on other evidence to support a finding - that is, the
inference that the absent witness's evidence would not support the
finding does not prevent the finding from being made on the basis
of other evidence (Manly Council v Byrne, at [74] per Campbell J,
citing JPQS Pty Ltd v Cosmarnan Constructions Pty Ltd [2003]
NSWCA 66, at [24] per Meagher JA (with whom Beazley JA agreed,
and Mason P substantially agreed).
451 ASIC put forward the following additional proposition (APS 2111 (iv)):
"where the party's case is essentially a documentary one such that oral
supplementary or corroborative evidence would substantially add to the
length of the trial", the principle in Jones v Dunkel will not apply (citing
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ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [377-[378]). My
observations in that judgment were not intended to lay down some new
exception to the principle in Jones v Dunkel, and in my view it is not a
correct proposition, expressed in that way. If the case is a documentary
one, then the strength of the case depends upon the documents, and
supplementary or oral evidence is necessarily of lesser importance, and so
a Jones v Dunkel inference is unlikely to be made having regard to the two
principles stated in the preceding paragraph. But having now had the
benefit of hearing the whole of the evidence, I am not persuaded either
that ASIC's case is a strong one on the documents or that, having regard to
the difficulties surrounding the documents, it is to be described as a case
that is essentially documentary.
452 ASIC submitted (APS [2101]) and the defendants agreed (DPS [236]) that
the onus of establishing the unavailability of a witness, for the purposes of
the principle in Jones v Dunkel, rests on the party against whom the
principle would operate. The defendants cited a somewhat tentative
statement to that effect in Cross on Evidence, supra, at [1215], said to flow
from the majority judgment in Smith v Samuels (1976) 12 SASR 573. It
seems to me that the learned authors are correct.
453 The defendants submitted (DPS [235]) that "the so-called desire to keep the
trial within reasonable bounds does not mean that the principle ceases to
exist", and they cited some observations by Callinan J in Dyers v The Queen
(2002) 210 CLR 285; [2002] HCA 45, at [118]. The passage relied upon does
not support the submission. Callinan J was dealing with the obligation of
the prosecution in a criminal trial to call material witnesses, and he said
that "whilst counsel and judges should be vigilant to ensure that trials are
not needlessly prolonged, 'material' in this field of discourse should not be
given any narrow meaning". Those observations do not have any
application to civil proceedings.
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454 Finally, there was some contention in submissions as to whether Jones v
Dunkel inferences can be drawn against defendants in civil penalty
proceedings, such as the present proceedings, in which the defendants
have the benefit of the penalty privilege. It is rarely permissible to direct
the jury or make a comment about drawing a Jones v Dunkel inference from
the absence of evidence by the accused or by witnesses called by the
accused (Cross on Evidence, at [1220]), although it seems clear that if there is
any scope for Jones v Dunkel inferences at all, it is very much narrower in a
criminal trial than in a civil case. As to whether Jones v Dunkel inferences
can be made against the prosecutor, the leading modern case is Dyers v The
Queen, supra. In that case Gaudron and Hayne JJ (with whom Kirby J
agreed) held that a direction should not generally be given to a jury to the
effect that the prosecution would have been expected to call witnesses,
unless it is shown that the failure to call the witness was in breach of the
prosecutor's duty to call material witnesses: at [6], [17]. The question
addressed in submissions is whether the thinking underlying the criminal
cases has any application to civil penalty proceedings in which the penalty
privilege applies.
455 The matter was addressed by the Court of Appeal in Adler v ASIC (2003)
46 ACSR 504; [2003] NSWCA 131, at [652]-[661] per Giles JA, with whom
Mason P and Beazley JA agreed. That was a case in which, inter alia,
pecuniary penalty orders were made, and so the defendants were
protected by the penalty privilege, even before the High Court held in Rich
v ASIC (2004) 220 CLR 129; [2004] HCA 42 that the penalty privilege
extended to civil penalty proceedings seeking disqualification orders.
Giles JA considered whether the availability of the penalty privilege,
which he recognised to be an extension of the privilege against self-
incrimination, is inconsistent with the application of the Jones v Dunkel
principle. He concluded (at [661]):
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"In the end the argument must be that it would not be consistent
with this stance against self-incrimination for an inference adverse
to the person from whom a civil penalty is claimed to be drawn
because of the failure of the person to give evidence. That
reasoning did not find favour in RPS v R [(2000) 199 CLR 620;
[2004] HCA 3], in which the 'right to silence' was not thought to be
a useful basis for reasoning: at [22]. To say that a person cannot be
forced to give evidence against himself, by providing discovery or
answering interrogatories or, in a criminal context, making a
statement to the police, says little when it comes to the giving of
evidence in the person's own case. In ordinary civil proceedings
the defendant cannot be forced to give evidence in his own case.
Civil penalty proceedings are no different in that respect. In my
opinion it was open for Jones v Dunkel inferences to be drawn
against Mr Adler, Adler Corporation and Mr Williams in these
proceedings."
457 The Court of Appeal in Adler did not discuss Dyers v The Queen when
considering whether Jones v Dunkel inferences were available against the
defendants in civil penalty proceedings, although they referred to the case
later, when considering the argument that ASIC had a duty of
"prosecutorial fairness" (at [677]). The defendants contended (DPS [273]),
without further elaboration, that the consideration by Gaudron and Hayne
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JJ in that case (at [7]ff]) as to the three principal reasons for concluding that
a Jones v Dunkel direction should not have been given against the accused
made it questionable whether Jones v Dunkel inferences should, as a matter
of principle, be available against defendants to civil penalty proceedings.
But the reasoning of Gaudron and Hayne JJ was specifically directed
towards the circumstances of a criminal trial: the first criticism of the trial
judge was that the Jones v Dunkel direction did not give the jury sufficient
assistance; the second was that any conclusion about who would be
expected to call a person to give evidence must take into account the
obligations of the prosecution; and the third related to a direction that the
jury should not speculate about the evidence that might have been given
by those who were not called. To extend that reasoning to civil penalty
proceedings in which the defendant has the benefit of the penalty
privilege, whether because a pecuniary penalty or a disqualification order
is sought, would require the construction of a process of reasoning not
presented in the judgments in Dyers and contrary to Adler.
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examine persons (s 19) and the power to require production of documents
(s 30ff), and it also has the power to compel persons to assist under s
1317R of the Corporations Act. There is evidence that it has used these
powers in the One.Tel investigation and the preparation of these
proceedings. In the circumstances it was in the power of ASIC to have
produced former One.Tel executives as witnesses to explain the uncertain
documents that were part of its documentary tender.
460 ASIC submitted that the fact that it had obtained information pursuant to s
19 examinations from a number of witnesses, some of whom were not
called, is an irrelevant matter (APS [2113]). It contended that its regulatory
functions to inquire into a corporate collapse of the magnitude of the
One.Tel collapse might require it to engage in wide-ranging inquiries,
conducted not for the predominant purpose of building a case against
defendants but for the express purpose of investigating suspected
contraventions of the corporations legislation. I accept that ASIC's powers
of investigation are given for the purpose of investigating suspected
contraventions and that it conducted investigations in the present case for
that purpose. But the submission misses the point raised by the
defendants, which is that because of those statutory powers ASIC was in a
position to secure the co-operation of potential witnesses, and therefore
(absent evidence to the contrary) the court should infer that it was able to
bring to court the former One.Tel executives identified in the defendants'
submissions.
461 The defendants submitted that, while ASIC has called witnesses to give
"incriminatory" evidence (e.g. Messrs Weston, Werner, Boaden and
Thomas), it has consciously avoided calling witnesses "who could put to
rest the contentious inferences which it asks the court to draw (e.g.
Holmes and Nassif in relation to the financial position of One.Tel
Australia and the so-called management accounts in particular, Basman in
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relation to debtors, Courtney, Miller and Green in relation to One.Tel's
financial position post 17 May and the documents provided to the board
on 17 and 28 May in particular)" (DP [244]). In other parts of their
submissions they mention Mr Barnes and Ms Joukhadar as possible
witnesses on financial matters, in addition to or instead of Mr Holmes and
Ms Nassif.
463 According to the defendants, ASIC hinted at the proposition that it could
not call certain other One.Tel executives as witnesses because they were
"complicit" in putting false financial information before the board (DPS
[78]). The defendants submitted (DPS [78]) that ASIC's submission
implied that its case is really a case about deliberately and dishonestly
misleading the board, rather than about placing information before the
board that was honestly but carelessly prepared (DPS [78]). I do not agree
with that submission. It seems to me that a former One.Tel executive
might be reluctant to give evidence for fear of being seen as complicit in
financial disclosure that was not fraudulent but culpably careless.
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464 In ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, the defendants
unsuccessfully argued that ASIC's documents should be excluded from
the evidence on discretionary grounds. I expressed the obiter opinion (at
[377]) that there was no occasion to make a Jones v Dunkel inference
unfavourable to ASIC from its failure to call witnesses, in circumstances
where the case was essentially a documentary case, ASIC wished to have
the documents speak for themselves, and it plausibly submitted that oral
supplementary evidence would add considerably to the length of the trial.
Now that the trial is over, these matters have quite a different complexion.
ASIC has presented its case as essentially a documentary case in final
submissions, but the documents upon which it relies include some
important documents that do not speak for themselves in any clear way,
so that the absence of explanation by any witness is a serious impediment.
In submissions on the admissibility of documentary evidence, ASIC
contended that the former One.Tel executives who might have been called
by ASIC to prove the documents were potentially hostile witnesses: the
proceedings involved criticism of the accuracy and sufficiency of the
financial information supplied to One.Tel's board of directors, and in those
circumstances senior financial executives of One.Tel (such as Mr Holmes)
or those associated with the provision for doubtful debts (such as Mr
Basman) might fear that their conduct would be criticised, and that made
them potentially hostile witnesses. ASIC said that the defendants were
seeking to force it to call high-level employees of One.Tel with whom the
defendants were closely associated for many years, who could be expected
to be sympathetic to the defendants' interests. The fact that some of these
individuals supplied information voluntarily to ASIC should not be
treated as significant, in circumstances where ASIC have the power to
force them to do so (see [2005] NSWSC 417 at [369], [371]).
465 I held (at [378]) that ASIC's submissions on this matter were not supported
by evidence, and that such evidence as was available suggested a
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willingness on the part of Mr Holmes and Mr Basman to co-operate with
ASIC. I see no reason to vary that conclusion now. The evidence I
considered in my earlier judgment indicates that Mr Holmes and Mr
Basman would be expected to be called by ASIC in view of their record of
assistance to ASIC, and it is likely that their evidence would elucidate
particular matters: in the case of Mr Holmes the status of the fixed
wire/service provider management accounts and the relationship between
board papers and flash reports, on the one hand, and other documents
such as Australian cash flow spreadsheets on the other; in the case of Mr
Basman, the profile summaries and the process of provisioning for
doubtful debts. It seems to me the reasoning applied to Mr Holmes also
extends to Ms Nassif and Ms Joukhadar. Some matters of uncertainty
about the PBL report considered at the 28 May board meeting, and more
generally the thinking of Mr Miller and Mr Green concerning One.Tel's
financial condition during the course of their work from late April until 28
May, could have been elucidated if Mr Miller or Mr Green, or perhaps Mr
Courtney, had been called to give evidence, and they would be expected
to be called by ASIC rather than the defendants. Therefore the first two of
Glass JA's conditions for the application of Jones v Dunkel (Payne v Parker
[1976] 1 NSWLR 191, at 201-2) are satisfied.
466 ASIC resisted the proposition that the "missing" witnesses would be
expected to be called by it rather than the defendants, arguing that they
were equally accessible to both parties and that the defendants had
through discovery received ASIC's information about them (ASR [258-69]).
ASIC made the following submission (APS [2114]):
"Further, the information that it obtained pursuant to those
examinations [s 19 examinations] and other inquiries was made
available in response to discovery obligations and a series of
notices to produce pre-trial (see, for example, Ex P7-170 and ASIC
v Rich (2004) 50 ACSR 357; [2004] NSWSC 772). In other words, all
documentary information (including s 19 transcript and
statements) obtained or prepared by ASIC as part of its
investigation, whether subsequently tendered or relied upon or
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not, were also in the defendants' possession [sic]. It was at all
times open to the defendants to approach those examinees whose
examinations or statements or draft statements or notes from
interviews could conceivably assist with their defences, and call
them to give evidence for the defendants themselves. The
witnesses were equally available to ASIC and the defendants."
467 This is not, in my view, an answer to the Jones v Dunkel submissions made
by the defendants. Bearing in mind ASIC's onus of proof and its tender of
documents needing explanation, it seems to me that if a potential witness
has co-operated with ASIC by providing a statement or draft statement or
attending a voluntary interview, or has voluntarily assisted the
accountants engaged by ASIC in their investigations, that potential
witness would be "expected to be called" by ASIC rather than the
defendants for the purpose of Glass JA's first condition for the application
of Jones v Dunkel (in Payne v Parker, noted above), even if some or all of the
results of the co-operation have been provided to the defendants. That is
particularly so if the co-operation with ASIC related to the particular
matter to which a Jones v Dunkel inference is sought to be applied, and
there is a reasonably strong likelihood that the witness's evidence would
elucidate that matter.
468 As to Glass JA's third condition, that the absence of the witness is
unexplained, I have expressed the view that the onus of establishing the
unavailability of a witness is borne by the party seeking to avoid the Jones
v Dunkel inference. I have reached the view that ASIC has not discharged
the onus in respect of evidence from one of the finance team (Mr Holmes,
Mr Barnes, Ms Nassif or Ms Joukhadar), evidence from Mr Basman, and
evidence from one of Mr Miller, Mr Green and Mr Courtney. In my
judgment on the admissibility of documents (at [378]) I noted that there
was another reason advanced by ASIC for not calling additional witnesses,
namely ASIC's forensic decision to conduct its case in reliance on
documents rather than oral evidence, so far as possible, in an attempt to
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keep the hearing within reasonable bounds. Again, now that the trial is
over, I have a somewhat different perspective. It seems to me that the
calling of an additional three witnesses, perhaps Mr Holmes, Mr Basman
and Mr Miller or Mr Green, would have clarified ASIC's documents in
important ways. For reasons given in my judgment on the admissibility of
documents at [378], I do not accept the argument that there was no
obligation to call those witnesses because they were in the defendants'
"camp" or were otherwise potentially hostile to ASIC. While I accept that
ASIC wanted to limit the evidentiary case within reasonable bounds, it did
not hesitate to pursue Mr Werner's evidence notwithstanding his
reluctance to testify, and it was prepared to extend its evidentiary case in
other ways as well (such as by tendering the expert report of Mr Smith).
In those circumstances there is ground for inferring that the witnesses who
might have clarified the nature and status of key documents were not
called for fear that they would be cross-examined at large and out of
concern over what they would say.
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(d) under the principle of Jones v Dunkel, that the court should infer that
the evidence of the absent witnesses, if called, would not have
assisted ASIC's case (Manly Council v Byrne [2004] NSWCA 123 at
[51], cited above).
470 I have noted that Jones v Dunkel has a particularly strong application in a
case where a party fails to ask questions of a witness called by that party.
In my view that is the case with respect to ASIC's omission to ask:
• Ms Thomas, who was the accounts payable manager at One.Tel,
questions about management of creditors and deferral of payments
of creditors over month-end; and
• Mr Werner, joint chief financial officer of One.Tel Europe, questions
about his cash flow spreadsheets of March, April and May 2001,
which were at odds with information provided to the board.
In both cases it is appropriate for the court to infer that evidence the
witness would have given, if asked, would not have assisted ASIC's case,
and moreover, the absence of such questions enables the court to draw,
with greater confidence, inferences based on other evidence and
unfavourable to ASIC, though it is not permissible to draw inferences
damaging to ASIC's case from the omission of those questions.
471 ASIC submitted (ASR [258-69]) that it had no obligation to call further
evidence that would only have served to prolong the trial, and indeed, for
it to take such a course would put it in breach of its duty under s 56(3) of
the Civil Procedure Act to assist the court in facilitating the "just, quick
and cheap resolution of the real issues in the proceedings". But that
submission was made on the premise that ASIC had been able to prove its
case to the requisite standard by calling the evidence that it called. If that
premise is not correct, then the submission falls to the ground.
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3.8. Application of Jones v Dunkel to the defendants' failure to give
evidence explaining documents and to call a forensic accounting expert
472 ASIC invited the court to apply the Jones v Dunkel principle to the
defendants' case in two respects.
473 First (APS [2104]-[2105]), they pointed out that over the preceding four
years the defendants had extensive assistance in relation to the
proceedings from accounting experts, but no evidence from such a witness
was called by them. ASIC submitted that the court should draw the
inference that the defendants did not call such a witness because they
feared to do so. The defendants strenuously opposed this submission
(DPS [275]-[281]).
475 In a case such as this, where the key issues are about financial facts, expert
accounting evidence is somewhat different from other evidence, in that
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much of the accountant's work is available to be used in submissions and
cross-examination, although not given in evidence. I have no doubt that
many of ASIC's submissions, and lines of questioning in cross-
examination, were moulded from or assisted by the work of Mr Carter and
Mr Smith. Equally, I am confident that the defendants made considerable
use of their accountant's work in their principal submissions and cross-
examination. In the case of an expert accounting report, therefore, the
party commissioning the report has a forensic choice to make as to
whether to tender it or to use its contents in cross-examination and
submissions. In circumstances where the bulk of the tendered accounting
evidence against them was not received into evidence, I think the natural
inference to draw from the defendants' decision not to tender accounting
evidence is that their forensic choice was to use that evidence in other
ways. There is no room for an inference that they feared what their
accountant might say if he was called to give evidence.
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them, and have decided they need not put forward expert accounting
opinion evidence of their own, having regard to the limited extent to
which such opinion evidence has been received in ASIC's case. Glass JA's
third condition for the application of Jones v Dunkel is not satisfied.
477 Second, ASIC sought to apply the Jones v Dunkel principle to the
defendants' omission to call Mr Beck. There was evidence that Mr Beck
has had a long association with Mr Rich, dating back to 1985 when Mr
Beck joined Imagineering (1 JDR 614). Mr Silbermann accepted that Mr
Beck is a friend of his and they are in frequent contact (T 13778). Both
defendants accepted that Mr Beck has provided assistance to them in
relation to the proceedings (T 10801; T 13778).
478 ASIC submitted (at APS [2108]) that Mr Beck would have been able to
provide material evidence in relation to the following matters:
(a) the alleged $40 million of unbilled data, including Mr Beck's alleged
discovery of $28 million of this starter and communications
between him and others concerning this issue (citing 2 JDR 1230,
1282, 1283, 1330, 1341, 1455; MS 323-8, 358, 372-6, 432, 441);
(b) the claim against Telstra (2 JDR 1430);
(c) the damages claim against Lucent (1 JDR 1095, 1097, 2 JDR 1491-2);
(d) Mr Rich's alleged conversation with "Emma" from PwC about
progress of the PwC review of One.Tel's billing system, which
allegedly took place in the presence of Mr Beck (2 JDR 1570);
(e) the state of One.Tel's billing system, for which Mr Beck was
responsible, and the work done by PwC in relation to it (1 JDR 31,
458; 2 JDR 1283, 1298d, 1342, 1569 1691);
(f) the need to make provision in the cash requirements for repayment
to Toronto Dominion of $50 million, as Mr Beck was one of the
executives responsible for One.Tel's relationship with Toronto
Dominion (2 JDR 1738a);
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(g) the prospects of additional financing being made available to
One.Tel in May (T 12256; Ex MTB 1/331 (minutes of the 17 May
board meeting, at which Mr Beck reported on attempts by
executives to investigate alternatives for fund-raising); MS 548, 581);
(h) the meeting between management and Ernst & Young on the
evening of 28 May (MS 679-83);
(i) aspects of what transpired at the board meetings on 17, 28 and 29
May (2 JDR 1625-6; MS 573-6, 642, 647, 655, 721, 740, 756, 769).
479 I agree with ASIC that Mr Beck may have been able to provide evidence
on each of those matters. On the other hand, there was already evidence
tendered by the defendants about those matters, as specified in respect of
each of the above. While additional evidence from Mr Beck would not be
merely cumulative evidence, to which the principle in Jones v Dunkel does
not apply (see above, esp Cubillo v Commonwealth (2000) 103 FCR 1; [2000]
FCA 1084, at [360] per O’Loughlin J), it is not immediately obvious that
any of the formulations of the first condition for the application of the
principle given by Glass JA in Payne v Parker, above, is satisfied here. Not
only have the defendants tendered extensive evidence given by
themselves on the relevant subject matter, but in a substantial number of
the cases identified by ASIC in the above list (all except the first three, in
my opinion), it was not clear until the time of final submissions that the
issue would become so controversial as to be assisted by a further witness.
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would have been somewhat remarkable, in a case where proceedings were
brought against two executive directors for breaches of duty of care and
diligence, for them to call a third director who the evidence would suggest
was in no different position from them". In those circumstances the court
cannot infer from evidence of earlier friendship and assistance that Mr
Beck was in any sense aligned with the defendants and that he was a
person that the defendants rather than ASIC would be expected to call. A
witness with independent or separate interests to a party, which actually
or may potentially conflict with the party's interests, is not in the latter's
camp (Trevitt v NSW Tafe Commission [2001] NSWCA 363 at [45]; cf APS
[2112]) and those same considerations undermine the proposition that the
witness would be expected to be called by that party.
481 In these circumstances I have reached the conclusion that no Jones v Dunkel
inference should be drawn against the defendants through their omission
to call Mr Beck.
482 I note that ASIC has not invited the court to make a Jones v Dunkel
inference in relation to Mr Hodgson, even though was evidence that Mr
Rich developed a close working relationship with him at One.Tel, and that
Mr Hodgson helped Mr Rich in relation to the proceedings for about 12 to
18 months after Mr Rich first received the Carter report (T 10799). This
was because of evidence given by Mr Rich in re-examination, concerning
Mr Hodgson's difficult employment circumstances, matters that were
communicated to Mr Rich in late 2005 (T 12861-4). There was some
commercial confidentiality about Mr Hodgson's position, and in the
circumstances I need not explore the matter further, except to say that Mr
Hodgson was regarded by both parties as unavailable to give evidence.
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3.9.1 General principles
483 In Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1 at 16, Hunt J
formulated the rule in Browne v Dunn (1893) 6 R 67 as follows:
"It has in my experience always been a rule of professional practice
that, unless notice has already clearly been given of the cross-
examiner's intention to rely upon such matters, it is necessary to
put to an opponent's witness in cross-examination the nature of
the case upon which it is proposed to rely in contradiction of his
evidence, particularly where that case relies upon inferences to be
drawn from other evidence in the proceedings. Such a rule of
practice is necessary both to give the witness the opportunity to
deal with that other evidence, or the inferences to be drawn from
it, and to allow the other party the opportunity to call evidence
either to corroborate that explanation or to contradict the
inferences sought to be drawn."
485 In MWJ v The Queen (2005) 80 ALJR 329; [2005] HCA 74, at [41], Gummow,
Kirby and Callinan JJ held that the rule in Browne v Dunn may be
inapplicable in criminal proceedings. That raises the question whether the
rule is applicable in civil penalty proceedings in cases where the
defendants are protected by the penalty privilege, as in the present case
[286]-[293]. Section 1317L of the Corporations Act, according to which the
rules of evidence and procedure in civil proceedings are applicable in civil
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penalty proceedings, implies that Browne v Dunn has application in a case
such as the present. In my opinion, that conclusion is supported by the
reasoning of the Court of Appeal in Adler v ASIC (2003) 46 ACSR 504;
[2003] NSWCA 131. As previously noted, that was a case to which the
penalty privilege applied, and nevertheless the Court of Appeal held that
the principle in Jones v Dunkel was available against the defendants. In
Vines v ASIC (2007) 62 ACSR 1; [2007] NSWCA 75, a case where pecuniary
penalties were sought and the penalty privilege applied, the Court of
Appeal assumed that the rule in Browne v Dunn was applicable.
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488 Nevertheless it seems to me that there is some significance in the fact that
the defendants are protected by the penalty privilege, when it comes to the
application of the rule in Browne v Dunn to particular circumstances. I
shall return to this point when I consider the application of the rule to the
present case.
489 The consequences of failure to comply with the rule in Browne v Dunn
were addressed by the learned authors of Cross on Evidence at [17460]. The
following consequences, not exhaustive, are pertinent to the present case:
(a) if a witness is not cross-examined on a point, cross-examining
counsel may be taken to accept it and may not be permitted to
address in a fashion which asks the court not to accept it;
(b) if a witness has not been cross-examined on a particular matter, that
may be a very good reason for accepting that witness's evidence,
particularly if it is uncontradicted by other evidence;
(c) it would usually be unfair to reject evidence on which there has
been no cross-examination where the rule in Browne v Dunn has not
been complied with and where the witness has not otherwise been
given the opportunity to deal with the suggestion now made for the
first time in final address;
(d) where the party whose counsel has breached the rule in Browne v
Dunn subsequently calls evidence inconsistent with that of the
earlier witness, the party may be exposed to comment that the
inconsistent evidence is not in accordance with instructions to
counsel and should be disbelieved as a recent invention, though
caution should be exercised about drawing that inference (R v
Manunta (1989) 54 SASR 17, at 23 the King CJ; approved in R v Birks
(1990) 19 NSWLR 677, at 691 per Gleeson CJ).
490 In the Manunta case, King CJ in make the following comments about
proposition (d) above:
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"It is legitimate, of course, to draw appropriate conclusions from
counsel's failure to put in cross-examination some matter to which
his client or his witnesses subsequently deposed. It is a process of
reasoning, however, which is fraught with peril and should
therefore be used only with much caution and circumspection.
There may be many explanations of the omission which do not
reflect upon the credibility of the witnesses. Counsel may have
misunderstood his instructions. The witnesses may not have been
fully co-operative in providing statements. Forensic pressures
may have resulted in looseness or inexactitude in the framing of
questions. The matter might simply have been overlooked."
492 Of course, this is not an exhaustive list and the question must be assessed
as a matter of the plausibility of the inference of "recent invention" in the
instant circumstances.
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date. There were number of variables, including factual disputes
which needed to be resolved. A cross-examination which covered
every possible contingency was not only impractical, any attempt
to undertake such a task would have been oppressive."
494 ASIC invoked the rule in Browne v Dunn by submitting that, to the extent
that evidence from witnesses for ASIC went unchallenged:
• that evidence should be accepted (APS [2118], citing Knight v
Maclean [2002] NSWCA 314 at [34]-[35]); or at least
• the absence of a matter later deposed to by Mr Rich or Mr
Silbermann being put to witnesses called by ASIC should be
regarded as a significant factor in considering whether those
matters truly did occur, as it should be assumed (having particular
regards to the intense personal involvement of the defendants at the
hearing) that counsel acted on the defendants' instructions in
deciding what questions to ask.
495 The observations of Spigelman CJ, cited above, suggest that it would not
be wise for this court to accept the general proposition that Browne v Dunn
should be applied whenever the evidence of ASIC's witnesses was not
challenged. Instead the correct approach is to consider each particular
occasion upon which consequences are said to flow from failure to put a
matter to a witness, so as to take into account matters of "fact and degree".
496 There are, however, some general considerations that should influence
those particular assessments, in my opinion. First, in this case the
defendants had the benefit of the penalty privilege, and they made it clear
that they would not announce any decision as to whether they would go
into evidence until ASIC had closed its case in chief. It seems to me that
that fact alone affects the application of the rule to this case. This was not
a case in which the defendants were to be expected to have fully prepared
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their evidence before commencing to cross-examine the plaintiff's
witnesses.
497 Moreover, the presentation of ASIC's case in chief took very much longer
than anticipated by ASIC at the commencement of the hearing. The
hearing commenced on 6 September 2004 and ASIC's contemporary
timetable was for its evidence to be completed by December 2004. ASIC
did not close its case until 9 February 2006 (T 10431). The extended length
was for various reasons that I have canvassed in Chapter 1, including the
fact that additional witnesses were called, and the fact that some evidence
was taken in London. It seems to me that the extended length of the
plaintiff's case in chief, coupled with the very substantial size of the
documentary tender, and the inconvenience of having to take evidence
abroad, are factors tending to explain why Browne v Dunn may not have
been rigorously complied with on every occasion. These factors tend to
undermine the inference that might have been readily drawn in a more
straightforward case, that if a matter about which the defendants
subsequently give evidence has not been put to the plaintiff's witnesses,
then it is likely to have been a recent invention. They also tend to reduce
the weight that might be given, in a simpler case, to the fact that the
plaintiff's witness has not been challenged on a particular matter, when
the whole of the evidence on that matter is assessed.
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evidence only in answer to cross-examination about unpleaded
"evidentiary facts".
499 Finally, it needs to be borne in mind that on some of the occasions about
which ASIC makes Browne v Dunn submissions, senior counsel for the
defendants was evidently putting conversations to ASIC's witnesses about
which their evidence in chief had been silent or very limited, not for the
purpose of challenging their credibility but to put into evidence the
general nature of the defendants' case (DPS [301]; I do not regard the
cross-examination Mr Packer Jnr as falling into this category, having
regard to senior counsel for the defendants' statement of his objective at T
9401-2: see APS [2120]; AS [301]). I agree with the defendants that in these
circumstances, it was not necessary for their counsel to put before the
witnesses, explicitly, every word and every sentence of every conversation
later to be adduced by the defendants, particularly where the witness was
in disagreement with the thrust of a conversation being put to him or her.
The observation of Santow JA in the Adler case (cited above) about the risk
that over-scrupulous application of the rule in Browne v Dunn might
become oppressive, is particularly pertinent here.
500 Having regard to all these circumstances, while the application of the rule
in Browne v Dunn requires assessment incident by incident, there are some
features of this case that cause me to approach ASIC's individual Browne v
Dunn submissions with caution.
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501 The defendants made relatively lengthy submissions directed to
establishing that ASIC is subject to a special duty of fairness in the conduct
of civil penalty proceedings, at least in cases where the defendants are
protected by the penalty privilege (DPS [302]-[345]). They said ASIC's
duty is analogous to the duty of prosecutorial fairness in the criminal area
(DPS [307]). They contended that ASIC had failed to discharge this duty
in many ways detailed throughout the defendants' written submissions
(DPS [343]). They offered a few examples of breach (DPS [342]). The
principal remedy they sought to invoke was to have the court exclude and
not entertain any allegations made by ASIC in their final submissions that
exhibit its failure to discharge the duty of fairness (DPS [345]).
503 My decision on that occasion does not resolve the issue presented to me
now, which is about ASIC's conduct in the prosecution of the proceedings
as a whole (DPS [337]-[338]). There is, however, an important issue as to
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whether I am bound by the Adler decision to reject the defendants' present
submissions, just as I held myself bound to reject similar submissions in
my earlier judgment. I shall consider that question below, at 3.10.6.
504 In my earlier judgment (at [347]) I warned of the need to take care over
what is meant by "prosecutorial fairness" in this context. Equally, it seems
to me that it was important for the defendants, in making their final
submissions, to articulate with clarity precisely what duty or duties they
allege ASIC to be under, and to whom, and what constitutes breach.
Regrettably, they have not satisfactorily done so. I agree with ASIC that
the defendants' submissions on the subject were generally expressed in a
high plane of abstraction, with variations from time to time in the
language used to describe the duty (ASR [327]). Thus, the defendants'
submissions speak of an obligation to "act fairly" (DPS [316]), "ethical
obligations of fairness" (DPS [322]), and "usual obligations of utmost
fairness" (DPS [332]). There is also a tendency in the submissions to blur
the concepts of "prosecutorial fairness" and "procedural fairness", a
blurring that is even evident in the heading of this part of the defendants'
submissions, the heading being "Procedural and Prosecutorial Fairness".
505 The defendants' failure to give a clear statement of ASIC's alleged duty is
not fatal to their submission, but it has made the submission harder to
assess.
506 ASIC denied that it was subject to any special duty of fairness of the kind
alleged. It said (ASR [307,246]):
"ASIC is obliged, as is any civil litigant, to act appropriately and
fairly in the course of proceedings. ASIC denies that it has any
duties over and above that of the ordinary civil litigant, including
any duties analogous to those of prosecutorial fairness. ASIC also
denies that its role is one of a 'civil prosecutor'.
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"In civil penalty proceedings under the Corporations Act, ASIC is
not held to the requirements to which a prosecutor in criminal
proceedings is subject …."
507 ASIC said that its duty of fairness is owed to the court. Lawyers acting for
a litigant also have duties of fairness: see DA Ipp, "Lawyers' duties to the
court", (1998) 114 LQR 63.
509 On appeal, counsel for Mr Williams submitted that ASIC accepted that
rules akin to prosecutorial fairness applied. ASIC said that at the trial it
had not taken issue with some assertions made on a number of occasions
on behalf of the defendants that the character of the proceedings invoked
requirements for prosecutorial fairness, but it submitted that those
assertions had not been made in a context requiring determination by the
court as to whether the requirements for prosecutorial fairness applied in
their full rigour. In the Court of Appeal, Giles JA (with whom Mason P
and Beazley JA agreed) concluded that as the matter had not been shown
to have been clear at the trial, ASIC could not be held to the requirements
for criminal cases if not in law bound by them, and he went on to hold that
the law did not impose the requirement of prosecutorial fairness on ASIC
in civil penalty proceedings: Adler v ASIC (2003) 46 ACSR 504; [2003]
NSWCA 131, at [674]-[675]. However, he noted that ASIC accepted on
appeal that it had to act fairly in the conduct of the proceedings. That,
presumably, was a statement of the position that ASIC accepts in the
present case. There is no inconsistency.
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510 In ASIC v Loiterton [2004] NSWSC 172 at [38] Bergin J noted that ASIC
accepted that it had a duty of fairness in civil penalty proceedings. Later
(at [270]) she said the plaintiff accepted that "the proceedings attract an
obligation of 'prosecutorial fairness' although the content of that obligation
in civil penalty proceedings is submitted to be uncertain". Those were
proceedings in which two of the three defendants were not legally
represented and it does not appear that there was any contest about the
content or nature of ASIC's duty. There was no determination of the
question whether ASIC had such a duty, and the concession that it
apparently made, in a different forensic context, does not affect the law.
511 Since the defendants claim that ASIC is under a duty analogous to the
duty of prosecutorial fairness in criminal proceedings, it is appropriate to
deal briefly with the content of that duty.
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513 There are at least two reasons for the existence of the duty of prosecutorial
fairness. The first is that the Crown is the guardian of public good,
bringing penal proceedings not in its own private interest but in the public
interest. Thus according to Sir William Holdsworth, A History of English
Law, 4th edn (1936), Vol II, at 453:
"… a private person cannot sue civilly unless he can show a special
grievance, whereas the king can lay the charge generally; a suit by
a private person sounds in damages, whereas a suit by the king
ends in the punishment of the guilty party."
Similarly, in R v Lucas [1973] VR 693 at 705, Newton J and Norris AJ
observed:
"It is very well established that prosecuting counsel are ministers
of justice, who ought not struggle for a conviction nor be betrayed
by feelings of professional rivalry, and that it is their duty to assist
the court in the attainment of the purpose of criminal
prosecutions, namely, to make certain that justice is done as
between the subject and the State."
514 The second reason relates to the potential for oppression inherent in
criminal proceedings, because of the imbalance of resources between the
Crown and its subjects. That imbalance of resources is recognised in the
case law, which has ameliorated it by the obligation on the part of the
prosecution to make available material which may prove helpful to the
defence: R v Reardon (No 2) [2004] NSWCCA 197, per Hodgson JA at [46].
515 Amongst the specific consequences of the Crown's duty to act fairly as
prosecutor are the following:
(a) "Witnesses essential to the unfolding of the narratives on which the
prosecution is based must, of course, be called by the prosecution,
whether in the result the effect of their testimony is for or against
the prosecution" (Seneviratne v R [1936] 3 All ER 36, at 49 (Privy
Council), quoted with approval by Fullagar J in Ziems v The
Prothonotary (1957) 97 CLR 279; [1957] HCA 46, at 293; and see
Whitehorn v The Queen (1983) 152 CLR 657; [1983] HCA 42, at 663
per Deane J; 674 per Dawson J);
- 230 -
(b) the prosecutor must "refrain from deciding whether to call a
material witness by reference to tactical considerations" (Whitehorn
v The Queen, at 663 per Deane J), for as Smith ACJ observed in R v
Lucas at 697, "The Crown's duty to act with fairness, and with the
single aim of establishing the truth, denies to it the right to pick and
choose as between independent and apparently credible witnesses
for merely tactical reasons …";
(c) "... it is the duty of prosecuting counsel not to try to shut out any
evidence which the jury could reasonably regard as credible and
which could be of importance to the accused's case": R v Lucas, at
705 per Newton J and Norris AJ;
(d) "The prosecution should present its case completely and not split its
case by calling evidence in reply to the defence case where it could
have anticipated that the defence would raise such an issue, or by
introducing evidence during cross-examination in the defence case"
(Halsbury's Laws of Australia, para [130-13695]; Shaw v R (1952) 85
CLR 365; [1952] HCA 18, at 379-80 per Dixon, McTiernan, Webb
and Kitto JJ; R v Chin (1985) 157 CLR 671; [1985] HCA 35, at 676 per
Gibbs CJ and Wilson J; 684 per Dawson J), for while the court
possesses power to allow further evidence to be called, "it must be
exercised according to rule and the rule is against reopening the
Crown case unless the circumstances are most exceptional (Shaw v
R at 380 per Dixon, McTiernan, Webb and Kitto J).
- 231 -
the constraints of the adversarial nature of the proceedings. For example,
if the court is concerned that the Crown is not intending to call a potential
material witness, then at common law it may be obliged to inquire of the
prosecutor as to the reasons for that course, and advise the prosecutor to
do so; and if the witness is not called, the court may take the failure to call
the witness into account in considering its judgment, and in exceptional
cases, it can call witnesses itself: Whitehorn v The Queen (1983) 152 CLR 657;
[1983] HCA 42; The Queen v Apostilides (1984) 154 CLR 563; [1984] HCA 38.
517 In civil contexts the first reason for imposing a special standard of fairness
on a prosecutor (namely that the Crown must pursue the public interest
and make certain that justice is done) does not necessarily apply, but the
second reason (the potential for oppression inherent in the imbalance of
resources) invariably does. This has led to the articulation of a special
duty of fairness, to which the Crown is subject in civil litigation.
518 I referred at 2.3.1 to Scott v Handley [1999] FCA 404, at [45], where Spender,
Finn and Weinberg JJ said that an officer of the Commonwealth, who was
respondent to civil proceedings, was expected to adhere to the "standards
of fair dealing in the conduct of litigation" that the courts expect from the
Commonwealth and from its officers and agencies, and they referred to
duties to comply conscientiously with procedures designed to minimise
costs and delay, to assist the court to arrive at a proper and just result, and
not to take purely technical points of practice and procedure or unfairly to
impair the other party's capacity to defend itself. Those observations
apply to ASIC as an agency of the Commonwealth. The idea that the
Commonwealth and its agencies are under a special obligation to act fairly
in civil litigation is not new: Melbourne Steamship Co Ltd v Moorehead (1912)
15 CLR 333; [1912] HCA 69, at 342 per Griffith CJ.
- 232 -
519 On the authority of Scott v Handley, it seems to me that, in its submissions
in this case, ASIC has understated its duty of fairness in civil proceedings.
It has a higher duty than the duty owed by every civil litigant to the court
to act fairly and appropriately. The Commonwealth and its agencies,
including ASIC, are held to a standard of fair dealing which is higher than
the standard applicable to other litigants. Whether the duty is owed to the
court or to the other party to the litigation, the other party can complain to
the court at the hearing about non-compliance with the duty. Once the
matter has been raised, the court has the power deal with it in the
proceedings in an appropriate way, to ensure the just, quick and cheap
resolution of the real issues. The court's determination may well operate
for the benefit of the party who has complained.
- 233 -
rules. It also goes beyond the requirement for lawyers to act in
accordance with their ethical obligations" (part of Note 3).
522 Those restrictions prevent the defendants from raising the issue of non-
compliance with the directions, as such, but it seems to me that the notion
of Commonwealth agencies as "model litigants", the subject of the Legal
Services Directions, is a notion that also underlies the special duty of
fairness of Commonwealth agencies in civil litigation, as articulated in
Scott v Handley and other cases. In principle, therefore, the directions can
be referred to as an aid to understanding the content of the litigation duty,
notwithstanding s 55ZG(2) and (3).
523 That was probably the underlying process of reasoning that led the
Administrative Appeals Tribunal to say, in Re Moline and Comcare [2003]
AATA 827, at [11], that Notes 2 and 3 to the directions establish a standard
of ethical fairness, requiring an emanation of the Commonwealth who is a
respondent in a Tribunal proceeding to assist the Tribunal to make the
correct or preferable decision, rather than to win at all costs, and to apprise
the Tribunal of any material of which it is aware favourable to the
applicant's case though not known to the applicant's advisers. It is not
necessary for me to determine whether those precise duties are owed by
ASIC in civil proceedings, and I refer to the Tribunal decision only to show
how Legal Services Directions about the Commonwealth as a model
litigant may assist in the determination of the content of the duty of
fairness of a Commonwealth agency in litigation.
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524 In my judgment on the admissibility of ASIC's documentary tender, in the
course of resisting the defendants' submission that ASIC had a duty akin
to the duty of prosecutorial fairness, I accepted that "ASIC, charged with
the general responsibility of acting in the public interest, must act fairly
and with probity in pursuing relief in a civil penalty proceeding" (ASIC v
Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [347]). That is consistent
with the notion of ASIC's duty as a Commonwealth agency and a model
litigant, as generally expounded in such cases as Scott v Handley.
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526 In its report, Principled Regulation: Federal Civil & Administrative Penalties in
Australia (Report No 65, December 2002, at para 2.47), the Australian Law
Reform Commission observed:
"Civil penalty proceedings have been described as a hybrid
between the criminal and the civil law. They are clearly founded
on the notion of preventing or punishing public harm. The
contravention itself may be similar to a criminal offence (for
example, breaches of a director's duties or publishing misleading
material) and may involve the same or similar conduct, and the
purpose of imposing the penalty may be to punish the offender,
but the procedure by which the offender is sanctioned is based on
civil court processes."
527 There are some obvious and important differences between civil penalty
proceedings and criminal proceedings. In a criminal trial the defendant is
entitled to the presumption of innocence, the burden of proof is to a higher
standard, and in criminal proceedings, depending on the penalty, the
defendant may have had a right to trial by jury. In contrast, in civil
penalty proceedings proof is on the balance of probabilities without any
presumption of innocence, and the trial is by a judge alone. The criminal
trial procedure and the rules of evidence are different from those applying
in civil proceedings, and according to s 1317L the court is to apply the
rules of evidence and procedure for civil matters when hearing civil
penalty proceedings for a declaration of contravention or a pecuniary
penalty order.
528 The measure of similarity that civil penalty proceedings have to criminal
proceedings arises from the fact that civil penalty proceedings are
concerned with allegations of contravention of statute and the
protagonists are a Commonwealth agency and individual subjects of the
Crown. Successful prosecution of civil penalty proceedings leads to a
determination of contravention of a public law, and may lead to a
declaration of contravention which itself involves public opprobrium and
condemnation, and the imposition of a penalty by way of pecuniary
penalty or disqualification order. ASIC as plaintiff is acting as an agency
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of the Commonwealth and not as a private litigant, and like the prosecutor
in criminal proceedings, is the guardian of the public interest with a
responsibility to ensure that justice is done. There is the same kind of
imbalance of power and resources that one finds in criminal prosecution,
and in particular, in the preparation of its case, ASIC can take advantage
of the very substantial investigatory powers that it has under the ASIC
Act, as well as in voting the search warrant powers under the Crimes Act
1914 (Cth), and is right to require assistance under s 1317R.
529 Having regard to these matters, the defendants submitted that in civil
penalty proceedings which have the character of penal proceedings (that
is, civil penalty proceedings where pecuniary penalties or disqualification
orders are sought), ASIC is under ethical obligations of fairness that are
significantly greater than those that apply to it in an ordinary civil
proceeding (DPS [322]). This is because, they submitted (DPS [323]), the
rationale for the duty of prosecutorial fairness is applicable to ASIC in civil
penalty proceedings.
530 I agree with the defendants that both limbs of the rationale for imposing a
special duty of prosecutorial fairness in criminal proceedings, as outlined
above, apply to ASIC in civil penalty proceedings: in summary, ASIC
brings those proceedings in the public interest and there is an imbalance of
resources between it and the defendants. If there were no statutory or case
law impediment it might be open to me to conclude that, at least where
the penalty privilege applies, ASIC was to be treated as occupying the
same position, mutatis mutandis, as a criminal prosecutor, when it comes to
obligations of fairness. But standing against the defendants' submission
are s 1317L and the existing case law.
531 The duty of prosecutorial fairness is part of the law of evidence and
procedure in criminal matters. Section 1317L requires the court to apply
- 237 -
the rules of evidence and procedure for civil matters. That seems to me to
exclude the extension of prosecutorial fairness to civil penalty proceedings
including, expressly, proceedings for a pecuniary penalty order. The
significance of the express identification of proceedings for a pecuniary
penalty order is that, even before Rich v ASIC in the High Court,
proceedings for a pecuniary penalty order were recognised as proceedings
for the imposition of a penalty and therefore subject to the penalty
privilege. The fact that proceedings for a disqualification order have come
to be recognised as subject to the penalty privilege, by virtue of the High
Court's decision, does not create a qualification or exception to s 1317L,
because the section already had an express application to cases where the
penalty privilege applies.
532 The defendants sought to resist the application of s 1317L by arguing that
prosecutorial fairness was something more than a principle relating to the
rules of evidence and procedure. They referred to Kirby J's concurring
judgment in Chief Executive Officer of Customs v Labrador Liquor Wholesale
Pty Ltd (2004) 216 CLR 161; [2003] HCA 49. One of the questions in that
case was whether the standard of proof in a prosecution for contravention
of the Customs Act 1901 (Cth) was the civil or criminal standard, in
circumstances where the Act said that the prosecution could be brought
"in accordance with the usual practice and procedure of the Court in civil
cases". The provision under consideration in Labrador Liquor referred only
to the usual practice and procedure in civil cases, and did not expressly
mention the law of evidence, and the decision might well have been
different if (like s 1317L) it had done so.
533 It was held at the standard of proof was proof beyond reasonable doubt.
Kirby J (at [78]) regarded the criminal standard of proof as conferring a
"practical guarantee of fundamental rights" that as a "basic doctrine of the
law", more than "a mere rule of evidence law applicable in proceedings",
- 238 -
and consequently only clear legislative provisions could abrogate that
right. The defendants submitted that the defendant's right to prosecutorial
fairness is, like the right to be tried according to the criminal standard of
proof, "an aspect of the defendant's elementary common law right to a fair
trial" (citing R v Ward [1993] 1 WLR 619 at 645 (approved by the House of
Lords in R v Mills [1998] AC 382, at 399)).
534 There are two problems with this submission. The first is that, in my
respectful view, Kirby J was in error in denying that the criminal standard
of proof is part of the law of evidence, at least in jurisdictions governed by
the Evidence Acts of 1995. The principal cases to which Kirby J referred to
support his reasoning, Goldberg v Ng (1995) 185 CLR 83; [1995] HCA 39, at
121 per Gummow J (dissenting) and O'Reilly v State Bank of Victoria
Commissioners (1983) 153 CLR 1; [1983] HCA 12, were cases about legal
professional privilege, which are distinguishable because legal
professional privilege has been held to be a substantive right rather than a
rule of evidence (Baker v Campbell (1983) 153 CLR 52; [1983] HCA 39). The
Evidence Acts prescribe the criminal and civil standards of proof as part of
the law of evidence (ss 140 and 141). In Labrador Liquor, Hayne J
recognised the statutory treatment of the standard of proof and observed:
"Burden and standard of proof are commonly treated as aspects of the law
of evidence" (at [122]).
535 But even if the standard of proof, though prescribed by the Evidence Act,
were not part of the law of evidence and therefore outside s 1317L, it could
not be inferred that another set of principles which appear on their face to
be principles about evidence and procedure, namely the principles about
prosecutorial fairness, are also outside s 1317L. Although prosecutorial
fairness is part of the defendant 's elementary common law right to a fair
trial, as the English Court of Appeal said in R v Ward, the duties flowing
from prosecutorial fairness are manifested in matters of evidence and
- 239 -
procedure such as those identified at 3.10.3 above (including the duties to
call material witnesses and not to split the prosecution case). Conversely,
it appears to be recognised that the entitlement of a party freely to decide
which witnesses to call or not to call is a familiar incident of civil evidence
and procedure: Cross on Evidence, supra, at [17070]-[17080].
537 I have referred to the statement by Santow J that it was "common ground"
that proceedings of this kind invoke requirements of procedural fairness.
Those remarks were referred to in ASIC v Plymin (2003) 46 ACSR 126, and
it was submitted that the essentially criminal nature of the proceeding
dictated that the principles of prosecutorial fairness should apply (at
[544]). Mandie J responded (at [547]):
"Assuming without deciding that ASIC had a duty to act with
prosecutorial fairness, or at least in analogous duty having regard
to the nature of the proceeding, I am satisfied that ASIC did not
act in breach of such a duty."
The question whether there was such a duty was left open.
- 240 -
538 The Court of Appeal of New South Wales handed down its decision in the
Adler case (Adler v ASIC (2003) 46 ACSR 504; [2003] NSWCA 131) after
Plymin. One of the grounds of appeal was that the trial judge erred in not
taking account of the unexplained failure of ASIC to call a particular
witness, a failure that was alleged to amount to a breach of rules akin to
the rules of prosecutorial fairness (at [671]). Giles JA (with whom Mason P
and Beazley JA agreed) noted (at [677]) that in a criminal trial, the Crown
prosecutor should call all available material witnesses, not because of a
duty imposed by law but because this was part of the description of the
functions of the Crown prosecutor, who represents the state and must act
with fairness and detachment, with the objective of establishing the whole
truth. He continued (at [678]):
"However, it has not been suggested that when the State engages
in civil litigation as it frequently does, its representative's functions
have a similar content, or that failure to call a material witness can
lead to reversal of judgment in the State's favour because of
miscarriage of justice. The concepts have been developed in the
particular circumstances of criminal proceedings. By declaring
that these proceedings are to be conducted as civil proceedings,
the legislature has plainly declined to pick up the concepts. It was
no doubt for this reason that Mr Williams' submissions were in
terms of 'rules akin to those of procedural fairness', but once it is
recognised not only that the proceedings are not criminal
proceedings, but also that they are by prescription civil
proceedings, the basis for some analogous rules is hard to see. In
my opinion, Mr Williams' submission in this respect should not be
accepted."
- 241 -
incorrect to say that his Honour's decision that ASIC was not
subject to any obligation of procedural fairness somehow turned
on his finding that there was no unfairness in ASIC's conduct."
540 The defendants advanced several reasons for not treating the Court of
Appeal's decision in Adler as determining the question (DPS [328]). First,
they said that Giles JA's rejection of the prosecutorial fairness submission
was obiter dicta, as the judgment turned on his Honour's holding (at [681])
that even if rules analogous to the rules of prosecutorial fairness applied,
there was no unfairness or miscarriage of justice in that case. I disagree
with this submission. In my view the passage at [678] in his Honour's
judgment, quoted above, was pivotal to the reasoning that led to rejection
of the prosecutorial fairness submission. His statement, that "even if rules
analogous to the rules of prosecutorial fairness applied" there was on the
facts no unfairness or miscarriage of justice (at [681]), was presented in the
nature of an additional reason for rejecting the submission. I adhere to the
view I expressed in my earlier judgment (at [358]). I am bound to follow
the Court of Appeal's unanimous decision.
541 Second, the defendants said that the Court of Appeal judgment turned, at
least in part, on the failure of the defendant to have raised the matter
during the trial. It is true that this aspect was noted at [681], but in my
view it was referred to as a subsidiary point and was directed to the
question whether, if prosecutorial fairness applied, there was a duty to call
the particular witness at the trial. It did not detract from the centrality of
the reasoning at [678].
542 Third, they submitted that the decision was confined to its particular facts.
But what was said at [678] was not confined to the facts of the case, but
instead it was a holding that the concepts of prosecutorial fairness were
developed in the particular circumstances of criminal proceedings, and
that the legislature had declined to pick up those concepts because it
- 242 -
declared that civil penalty proceedings were to be conducted as civil
proceedings (presumably, by s 1317L).
543 Fourth, they submitted that the Court of Appeal's decision in Adler was
made at a time when courts were treating civil penalty proceedings as
protective rather than punitive, and "before their true character as
proceedings in which the State accused a citizen of a public wrong was
appreciated". It is true that Adler was decided before the High Court
decided Rich. It is not true that at the time of the Court of Appeal's
decision courts were treating civil penalty proceedings as protective. They
were not protective to the extent that they were proceedings for pecuniary
penalties, but until the High Court's decision in Rich was handed down,
the prevailing view was that a disqualification order was protective rather
than punitive. Adler itself was a case in which pecuniary penalties were
sought and the penalty privilege applied.
544 Fifth, the defendants urged the court to consider the substance of these
proceedings rather than their form, and they submitted that in substance
these are proceedings by the Crown against a subject for the infliction of a
penalty, and so there is no reason, in principle or policy, why the usual
obligations of utmost fairness ought not to apply (DPS [331]-[332]). But as
ASIC said, that is an unwarranted invitation to the court to disregard
authority (ASR [331-5].
545 Sixth, the defendants contended that the decision in Adler has been
overtaken by the later High Court decisions in Rich v ASIC and Labrador
Liquor.
546 In my view the defendants' reliance on the High Court's decision in Rich is
misplaced. In that case it was emphasised (at [19]-[20]) that s 1317L of the
Corporations Act picks up the body of general law relating to privileges,
- 243 -
including the penalty privilege. The penalty privilege is a rule of
evidence, forming part of the rules relating to civil actions, not a
substantive rule of law (at [24]; see also Daniels Corporation v ACCC (2002)
213 CLR 543; [2002] HCA 49, at [31]). The court decided that because of
the penalty privilege, the defendants were not obliged to give discovery or
serve affidavit evidence before the close of ASIC's case, but that decision
said nothing as to the question whether, contrary to the usual incidents of
civil evidence and procedure, ASIC had a duty to call material witnesses
(see ASR [329-30]).
547 In Adler v Director of Public Prosecutions (2004) 185 FLR 443; [2004]
NSWCCA 352, the question was whether an indictment for offences under
the Corporations Act was an abuse of process because of exposure to
double jeopardy, in light of the civil proceedings. Mason P (with whom
Grove and Barr JJ agreed) noted without demur (at [32]) that Giles JA had
rejected a submission that the principles of prosecutorial fairness had been
carried into the civil proceedings, and he also noted that the High Court
had refused special leave. Later he addressed the question whether the
trial judge, James J, had been wrong in saying that the civil causes action
and the criminal offences had different purposes, and he said (at [42]-[43]):
"The reasons of the High Court in Rich v ASIC cautioned strongly
against drawing conclusions based upon strict and mutually
exclusive dichotomies between protective (civil) and punitive
(criminal) notions (see per Gleeson CJ, Gummow, Hayne, Callinan
and Heydon JJ at [30]-[35], per McHugh J at [41], [56]-[58]). See
also Chief Executive Officer of Customs v Labrador Liquor Wholesale
Pty Ltd (2003) 216 CLR 161; [2003] HCA 49, at [14]). The context of
Rich was different to the present, but the warning is apt, especially
since the High Court has concluded that 'civil penalty
proceedings' that seek disqualification orders under the
Corporations Act are to be characterised as 'penal' for the purpose
of determining whether the defendant can claim the privilege
against exposure to penalties and forfeitures in response to an
application for discovery. A fortiori, civil proceedings resulting in
a penalty, as were the civil proceedings against the appellant.
Some of the reasoning of Santow J referable to his final orders
made reference to the public protective purpose of those orders
(see e.g., ASIC v Adler No 5, at 105 [80]).
- 244 -
"But nothing in Rich casts any doubt on the civil nature of the
proceedings brought against the appellant, as held by the Court of
Appeal (with special leave to appeal been refused by the High
Court). Nor is the correctness of the orders under appeal
undermined by James J's observations relating to the purposes of
the civil and criminal proceedings."
549 As to Labrador Liquor, the central submission by the defendants (DPS [329])
was that the reasoning of the High Court was inconsistent with the
reasoning of Giles JA in Adler, because Giles JA had reasoned from
characterising the proceedings as civil proceedings to the conclusion that
prosecutorial fairness did not apply.
550 Certainly the High Court rejected the idea that problems of this kind can
be solved by a simple, once and for all classification containing only two
classes, civil and criminal, or substantive and procedural (see Gummow J
at [29]; Kirby J at [52], [64], [66]-[67]; and Hayne J (with whom Gleeson CJ
and McHugh J agreed) at [113]-[114]). Such distinctions are, in the words
of Hayne J, "unstable", for proceedings may be classified one way for one
purpose and another way for another purpose, and is wrong to assume
that there are only two possibilities. Therefore it is essential to identify the
purpose for which classification is sought.
- 245 -
legislature had declined to pick up those concepts when it declared that
civil penalty proceedings were to be conducted as civil proceedings (that
is, I take it, when the legislature provided in s 1317L that the rules of
evidence and procedure in civil matters were to apply in civil penalty
proceedings). The reasoning is not simply that the duty to call material
witnesses arises in criminal proceedings and not in civil proceedings, and
therefore does not arise here. It is reasoning by reference to the nature of
the development of the criminal rule and the legislative purpose
underlying s 1317L. The Court of Criminal Appeal in Adler v DPP had no
difficulty in reaffirming the Court of Appeal's decision in Adler after
considering both Rich and Labrador Liquor, and manifestly on the basis that
Giles JA's reasoning is quite consistent with the approach of the High
Court.
553 The defendants made the general submission that in the many instances
where, in their written submissions, they criticised ASIC in respect of
unpleaded and unparticularised allegations, serious allegations made for
the first time in submissions, and building a case from inference as to
documents without calling witnesses, they were invoking ASIC's duty of
fairness in civil penalty proceedings as well as other principles to do with
unpleaded allegations, the Briginshaw standard of proof, Jones v Dunkel
and Browne v Dunn, all of which overlap with the duty of fairness
submissions.
- 246 -
554 Elsewhere in their submissions, the defendants submitted (DPS [244],
[246]) that by calling witnesses to give "incriminatory" evidence but
consciously avoiding the calling of witnesses whose evidence would be
"exculpatory", ASIC has breached rules of procedural fairness that, they
submitted, ought to be held applicable to civil prosecutors such as ASIC
prosecuting civil penalty proceedings: cf Adler v ASIC (2003) 46 ACSR 504
at [671]-[678]; ASIC v Rich (2005) 53 ACSR 752 at [358]-[359]. They said
that, while well over 100 witnesses have been called by ASIC (including
witnesses addressing only provenance and procedural matters), only four
have been employees of One.Tel in Australia, namely Ms Randall and Ms
Ashley, who gave evidence in chief, and Ms Thomas and Mr Spratt, who
gave very limited evidence in reply (DPS [248]).
555 My general response is as follows. For the reasons given above, ASIC
does have a special duty of fairness in all civil proceedings, including civil
penalty proceedings, but it is not enhanced by considerations of
prosecutorial fairness in civil penalty proceedings. As far as I can see, and
the defendants' submissions do not persuade me to the contrary, ASIC's
duty as a Commonwealth agency and model litigant, with respect to
unpleaded and unparticularised allegations, serious allegations made for
the first time in submissions, and building a case from inference as to
documents without calling witnesses, does not lead to any consequences
different from those that follow from treating submissions outside the
pleaded case as not matters for decision, and applying the correct the onus
and standard of proof and the principles in Jones v Dunkel and Browne v
Dunn in accordance with the authorities. Specifically, in the absence of
any duty akin to prosecutorial fairness, I do not regard ASIC as under a
duty in the civil proceedings to call any particular witnesses, although I
can and shall apply Blatch v Archer and Jones v Dunkel where I consider
them appropriate.
- 247 -
556 The defendants offered four specific examples of cases where they say
ASIC has failed to discharge its special duty of fairness.
557 The first relates to ASIC's allegations about the spreadsheet 2403C.xls and
misleading reporting to the March board, made without calling Mr
Hodgson as a witness or asking any of the director witnesses about
management's report to the March board and their understanding of
management's forecasts. I note in passing that the absence of Mr Hodgson
as a witness has been explained, and should be held against neither the
defendants nor ASIC (see 3.6.3). As to whether this is an example of
breach of a duty of fairness, my view is that the issue is adequately, and I
think completely, dealt with by analysing (as I have in Chapter 2) whether
ASIC's allegations stray outside its pleaded case to the prejudice of the
defendants. ASIC's duty as a model litigant in civil proceedings does not
seem to me to have any greater consequences than the consequences
flowing from the application of these other principles.
558 The second example is what the defendants call reliance upon contentious
management accounts without calling their authors and persons involved
in their preparation, such as Mr Holmes and Ms Nassif. In my opinion
this complaint is adequately addressed by the principles in Blatch v Archer
and Jones v Dunkel, and ASIC's duty of fairness does not take the matter
further.
559 The third example is what the defendants call the "cynical approach to
overseas creditors" demonstrated in an undated set of Observations to
Counsel (Ex DTB 10/3940). There, the instructing solicitor for ASIC
reported that draft affidavits had been prepared for all major overseas
creditors except Global Crossing, which had gone into bankruptcy in the
United States. She said all of the creditors raised issues about debts
classified as "past due", and that some of the debts, particularly those
- 248 -
falling into the 120 day plus category, were legitimately disputed. She
said all creditors conceded an apparent custom of delayed payment in the
industry and at least one creditor acknowledged the tightening of the
market in early April 2001. On the other hand, she noted that GTS
actually threatened supply in late March and that it was possible there was
further correspondence or real threats to supply from others in February
and March, and by late April the creditor position overseas was very
serious. She said it was clear from discussions with GTS that until April
2001, and perhaps later, most suppliers were driven by sales and revenue
rather than upsetting clients by aggressively chasing debt, and that from
April 2001, there was a dramatic drop in the Telco market on the
NASDAQ and this apparently had an effect on suppliers' attitude to bad
debt (a proposition supported by Ms Kekalainen-Torvinen).
560 These propositions in the observations support the defendants' case that
some of the older debt was legitimately disputed, that there was a custom
of delayed payment in the industry, and that this changed dramatically in
April 2001. The defendants refer to draft affidavits by Mr Menozzi of
WorldCom (Ex DTB 15/6133), Mr Rigby of GTS (Ex DTB 14/5967) and Mr
Bell of Optimal Communications (Ex P7 at 371), which also would provide
a measure of support for their case, if completed and put into evidence.
Presumably the "cynical approach" identified by the defendants has to do
with the fact that this potential evidence was available to ASIC and was
not called. The problem is in Blatch v Archer and Jones v Dunkel territory
and I do not see that a duty to act as a model litigant in civil proceedings
adds to the analysis.
561 Fourth, the defendants referred to what they called the "tactical decision"
by ASIC not to advance evidence of the $40 million missing billing but to
wait until after the defendants had cross-examined. ASIC's contention
that there never was any significant amount of unbilled data in existence
- 249 -
as at the end of March 2001 first arose in the cross-examination of Mr Rich,
and was not specifically pleaded. At 2.3.6.19 I have expressed the view
that it was permissible for ASIC to cross-examine about whether there
ever was a significant amount of data available to be backbilled, in support
of its pleaded case, but ASIC could not make a new case about inaccurate
statements to the March board based on this contention. The evidence
cited in support of the defendants' submission (Ex P27/7.360-363) is an
internal file note, apparently created in May 2002, relating to the $40
million of unbilled revenue, identifying five paragraphs of a draft report
by Mr Carter and stating that the paragraphs had been removed from the
report and were "to be dealt with in reply", and that Ms Ashley's affidavit
should be signed up but not served. In the absence of any disclosed
reasoning process as to why these decisions were taken, and having
regard to the fact that cross-examination on this subject was permitted
within the pleaded case, I would not conclude that the evidence reflects a
"deliberate and cynical tactical decision" to keep for reply ASIC's evidence
concerning the existence of $40 million of missing billing, in breach of its
duty of fairness (compare DPS [3467] with ASR [3467]).
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the same consequence would flow from failure by ASIC to comply, in
respect of a particular matter, with its duty of fairness as a model litigant
in civil proceedings.
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