ASIC v Adler & 4 Ors

INTRODUCTION 1 The issue to be resolved is whether the affidavit of Mr Roderick Cameron dated 26 September 2001 should be admitted into evidence, under the exception from the hearsay rule for expert opinion in s79 of the Evidence Act. This is with the excision of paragraphs 16 and 17, which are only pressed as reasons in relation to the statement in paragraph 11.

RESOLUTION OF ISSUE 2 The First Defendant supported by the Third Defendant, contends that the affidavit should be excluded from admission as failing to satisfy the exception contained in s79 of the Evidence Act. That section is in these terms "79. If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge." 3 The Defendants have not put their submission on the basis that the opinion goes impermissibly to an ultimate issue, accepting s80(a) of that Act would preclude such submission. That forecloses any debate about whether a statement by an expert otherwise admissible should be excluded on the basis that it usurps the judicial function by asserting a conclusion on the very matter ultimately to be determined. Thus I do not have to consider whether the specific statements pertaining to what a reasonably careful and diligent director or officer would do, or could do, are excluded under whatever may be left of the ultimate issue principle. In my opinion that was a concession properly made. 4 The essential thrust of the Defendants' attack can be expressed this way. Mr Cameron purports to have "specialised knowledge" of the kind referred to in s79 by reason of the experience set out in his resume (Annexure A). that resume describes his experience. It was first as an audit partner of the firm then known as Coopers & Lybrand between 1947 and 1985. In latter years he took a senior managerial role within the firm though continued to act as senior engagement partner for a number of the firm's large public company clients. 5 Then from 1985 he embarked on a career of public and other company directorships which include those set out below: " Directorships Australian Guarantee Corporation 1985 - 1992 Westpac Banking Corporation 1987 - 1992 Australian Post (Deputy Chairman 1989 - 1995 Pioneer International Limited 1988 - 2000 Colonial State Bank 1994 - 2000 Zurich Financial Services (Aust) (Chairman) 1989 (continuing) Polartechnics Limited 1995 (continuing) The Smith Family 1987 (continuing)" 6 It is then said that notwithstanding his extensive directorial experience and, insofar as he was a leading chartered accountant, audit qualifications and experience, Mr Cameron fails to relate each opinion he expresses in such a way as to enable the reader to identify whether the opinion so expressed "is wholly or substantially based on specialised knowledge based on training, study or experience"; see H G v R (1999) 197 CLR 414 at [39] per Gleeson CJ. That is to say, the opinion in each case is such as to fail to satisfy the "normal" requirement of "demonstrating the reasoning process by which the opinion was reached" … so as to "expose the reasonings of its author in a way that would demonstrate that the opinion is based on particular specialised knowledge."; see Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd ([2000] FCA 1463, 27 November 2000, unreported) per Black CJ, Cooper and Emmett JJ at para 23. 7 I should observe in relation to para 23 of Ocean Marine (supra) quoted above, that the reference to demonstrating the reasoning process, is introduced by words which indicate that this would "normally" be satisfied in that way. That suggests that this is not a universal talisman of admissible expert evidence though it be the normal way of satisfying s79. 8 Finally it is said that when specific reference is made to the matters the subject of the supposedly expert opinion, there is no express identification of how the conclusions there stated derive from the relevant experience, as is necessary to show that the necessary specialised knowledge has been brought to bear. 9 The Plaintiff for its part relies upon decisions which have held that evidence could be admitted of opinion as to what a reasonably careful and competent solicitor would or should do in specified circumstances. It seeks to apply that by analogy to the statements in this affidavit concerning "a reasonably careful and diligent director or officer of HIH or HIHC". 10 It is convenient that I quote from the judgment of Bryson J in Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404 at 449. There he usefully states what may be taken to be now settled propositions regarding the admissibility of such evidence: "[380] It is well established that evidence of the existence of relevant practices among solicitors of good repute is admissible and can be established by expert knowledge, but that the expert's evidence of what he himself would have done is not permissible. See Permanent Trustee Australia Ltd v Boulton (1994) 33 NSWLR 735 at 738 (Young J), and his Honour's reference as Young AJA, to Permanent Trustee Australia Ltd v Boulton and other authorities in the Court of Appeal in MacIndoe v Parbery (1994) Aust Torts Reports 61,535. In my view this does not exhaust the scope of expert evidence which may be given about solicitors' practice; Young AJA did not express the view that the means that were referred to were exhaustive. In MB v Protective Commissioner [2000] NSWSC 718; bc200004097, IN A RULING ON THE ADMISSIBILITY OF EVIDENCE, Hodgson CJ in Eq referred to his Honour's holding in Rabelais Pty Ltd v Cameron (unreported, SC(NSW), Hodgson J, No. 3168/91, 8 February 1993, BC9302077), that evidence could be admitted of opinion as to what a reasonably careful and competent solicitor would or should do in specified circumstances. His Honour referred to Permanent Trustee Australia Ltd v Boulton and to O'Brien v Gillespie (1996) 41 NSWLR 549 but adhered to his earlier view. In paras 4-10 his Honour reviewed the forms of evidence which might be offered, but concluded at para 10: … I do remain of the view that, so long as the evidence is not directed at the legal standard to be applied, so long as it is based on fully stated hypothetical facts, and so long as the witness is properly qualified, then an opinion can be given as to what a competent and careful professional would do in those stated hypothetical circumstance." 11 What is the manner in which s79 is satisfied when demonstrating specialised knowledge in relation to a company director or an accountant with specialised audit experience of such companies? Clearly that manner must take account of the particular nature of that "specialised knowledge". 12 A solicitor asked for an expert opinion on conveyancing practice or a scientist asked for a particular opinion on a matter of scientific fact or practice is in a distinct field of discourse from that of a company director. Expertise as a company director is acquired customarily by experience rather than some specific qualification as might for example apply in a learned profession. That does not mean that a company director leaves behind the training that that director may have acquired in another sphere. What it does mean is that the characteristics of a "reasonably careful and diligent director" are to be observed from the practical experience of serving on public (or private) company boards. 13 It is self evident when one has regard to Mr Cameron's resume that his experience is precisely of the kind that should make him familiar with what a reasonably careful and diligent director of a company would do in particular circumstances. This is no less so where these are the particular circumstances of HIH or HIHC (described by reference to the assumptions in paragraph (b) of the affidavit and in the affidavit itself) or more generally the workings of public (and private) companies. After all, the matters to which Mr Cameron's evidence is related have to do with a public company and its subsidiary. That relates HIH and HIHC to the wider genus of public companies and their subsidiaries in considering what is good (or bad) corporate practice. 14 Clearly that evidence has to relate that practice to the circumstance of HIH and HIHC. It has not been put at this point that the assumptions are in such disconformity with the likely admissible evidence or the evidence so far admitted, that the expert opinion should be rejected on that ground. I say this noting that the material under question 4 in the affidavit (paras 16 and 17) is not pressed save as reasons in relation to paragraph 11, to which I will return shortly. 15 Turning then to the specific paragraphs of the affidavit, these can be illustrated by taking question 1 and the material that follows "Question 1 Would a reasonably careful and diligent director or officer of HIH or HIHC in the position of Mr Adler have caused or procured the payment on 15 June 2000 of $10 million by HIHC to PEE? 4. My answer is no. 5. Mr Adler had a conflict of interest because he was to benefit from the transaction, at least by obtaining control of $10 million which he could use in any way he wanted. Also, there was a potential benefit from a 10 per cent share of profits. 6. In my view, a reasonably careful and diligent director or officer of HIH or HIHC in Mr Adler's position would have taken the view that the proposed transaction was quite contrary to HIH and HIHC's interests as it was to involve the payment of a large sum of money to a company controlled by a director, for investment completely at the discretion of the director, without security and without adequate documentation of appropriate arrangements including arrangements as to interest and/or profit share. 7. At the very least, a reasonably careful and diligent director or officer of HIH or HIHC in the position of Mr Adler would in my view at least have sought approval of the proposed transaction from the Board of HIH and from its Investment committee and would have made full disclosure of all of the proposed terms and the use to which the funds were to be put." 16 It is said by the Defendants that each answer is a mere ipse dixit, that is, bare assertion with nothing to indicate how it derives from Mr Cameron's specialised knowledge. There is said to be no linking to any study or experience of Mr Cameron, nor to his observations either as auditor or on the boards upon which he has sat. 17 It should be observed from Ocean Marine (supra) that there needs to be a demonstration, at least normally, of the reasoning process by which the opinion was reached exposing the reasoning in such a way as to demonstrate particular specialised knowledge. However, when one looks at the specific paragraphs they clearly enough are derived from the experience Mr Cameron has as a public company director or auditor and do expose his reasoning process. One may in that regard draw the reasonable inference from the statement of his experience that it informs his stated reasons. Moreover those reasons clearly enough pertain to what a reasonably careful and diligent director in the relevant position would do. One does not need to indulge in some mechanical, formalistic process of cross-referencing particular board experience to each specific reason, in such circumstances. 18 It may be argued that greater weight could have been attributed to that expert evidence had it been more extensively elaborated, or amplified by specific examples of experience, of the kind that the Defendants contend is absent here. But even if correct, that goes to weight not admissibility. 19 I consider question 1 and the paragraphs that follow are sufficiently illustrative of the remaining paragraphs for me to conclude as follows in relation to each. The requirements of s79 have been satisfied so as to permit Mr Cameron's evidence to be admitted. This is as they apply to the particular field of discourse here in question, namely the experience of a company director and auditor in the context of the questions dealt with in the affidavit. In particular I consider that so applied, it meets the requirements for admission set out by Heydon JA in Makita (Australia) Pty Ltd v Sprowles ([2001] NSWCA 305, 14 September 2001, unreported) at para 85. For convenience I quote those requirements from his judgment: "85 In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it inadmissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v R (1999) 197 CLR 414, on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise" (at [41])" 20 Specifically, one would not conclude that the matters of opinion in the way here stated warrant the adverse description given by Gleeson CJ of the psychologist's evidence (as quoted by Heydon JA above). Ultimate weight is a matter for further testing, but it is not at such a low level as to warrant exclusion or rejection at the outset. 21 I should now revert to paragraph 11 of the affidavit. I do not consider that the cross-reference to paragraph 17(c) should be allowed which for convenience I quote below. "(c) the investment in HIH shares was a speculative investment which resulted in substantial losses. I have been referred to press publicity at around the time of the transaction, in a context of a declining share price for HIH, concerning the need for HIH to raise very substantial additional capital (see press articles in Annexure C to this Affidavit). If such publicity was accurate then it was not a time for the company to be applying any of its surplus funds to such a speculative investment." 22 That particular paragraph is my opinion, not properly admissible either in relation to question 4 (where it is not pressed) or, on the current state of the evidence, in support of paragraph 11. 23 It follows that the proper course is for the Plaintiff in examination in chief to put to the witness whether, without the support of paragraph 17(c), he still wishes to maintain the opinion stated in paragraph 11. 24 I should finally note that the Plaintiff has foreshadowed that it will seek to put in admissible form the material excluded in paragraph 17(c). It may then wish to put further questions to the witness which may or may not lead to the witness seeking to maintain the opinion stated in paragraph 11. In noting this, I do not wish in any way to preclude the Defendants from raising such objection at that time as may seem to them proper and express no view at this point as to the ultimate fate of paragraph 11.