ASIC v Rich

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS

JUDGMENT 1 HIS HONOUR: This is an application by the first and fourth defendants (to whom I shall refer, for convenience, as "the defendants") to defer the commencement of the final hearing of the proceeding for three weeks. The final hearing was due to commence on 23 August 2004. The commencement of the hearing had already been deferred on earlier occasions, most recently from 2 August to 23 August on the defendants' application, after the plaintiff filed a late affidavit by an important lay witness, which seriously interfered with the defendants' preparation for the hearing and required them to revise their forensic strategy. The present application is unrelated to the previous one. 2 According to a schedule produced by the plaintiff, the presentation of its case is estimated to continue until 6 December 2004. It will not be necessary for the defendants to indicate, until the plaintiff closes its case, whether they will go into evidence. If they do, there will be further substantial hearing time in the first half of 2005. 3 There have already been many directions hearings and interlocutory applications. Pursuant to the court's directions, the plaintiff has given extensive discovery over a period of years. The plaintiff's solicitor, Ms Rees, verified a "second further list of discovered documents" on 6 August 2004. The list, which includes electronic documents, is voluminous. 4 One of the principal witnesses for the plaintiff will be Paul Carter, a partner of PricewaterhouseCoopers. Mr Carter is said to be an expert forensic accountant, and the plaintiff proposes that he will give evidence concerning the financial position of the One.Tel group in the period from 1 January 2001 to 17 May 2001. His proposed evidence will relate to such matters as the actual financial position of the One.Tel group in that period and the amount of any cash injection needed, whether the group incurred net liabilities between 28 February 2001 and 29 May 2001 or alternatively between 31 March and 29 May 2001, whether there was any reasonable factual basis for announcements made to the market on 27 February and 4 April 2001, and whether the board of directors was provided with adequate financial information to assess the financial position and performance of the group and material adverse developments during the period from 1 January to 17 May 2001. 5 Commencing on 2 July 2004, the defendants issued a series of subpoenas to PricewaterhouseCoopers and notices to produce to the plaintiff, directed, broadly speaking, to obtaining documents relevant to PwC's involvement in the investigation and proceedings, and also obtaining material which was relied upon or considered by PwC in that regard. There was then correspondence between the solicitors for the parties, in the course of which some documents were informally produced but extensive claims to privilege were made. 6 Thus, in a letter dated 19 July 2004, after some documents had been produced, Ms Rees wrote to the defendants' solicitor, Ms Kelly making a claim to litigation privilege for documents later than 4 December 2001 (after earlier claiming privilege for documents created after mid-October 2001), and to solicitor/client privilege in respect to specified categories of documents. Ms Rees asserted in her letter that the claim for production of certain PwC billing records and other documents was oppressive, because production would require a very extensive investigation of a very large quantity of documents brought into existence over a three-year period, on the part of both the plaintiff and PwC. Ms Kelly replied contesting some of Ms Rees' assertions and offering to narrow the ambit of some claims to production. The defendants also issued additional subpoenas and notices to produce. 7 By the time of a directions hearing on 9 August 2004, three notices to produce and three subpoenas had been issued, which had been partly answered informally. There remained substantial disputes between the parties as to · the adequacy of the responses by the plaintiff and PwC, · whether the plaintiff was entitled to claim solicitor/client privilege in respect of seven documents identified in a schedule to the affidavit of Ms Rees made on 4 August 2004, · whether it was oppressive for the defendants to require production of PwC's billing records and similar documents, · whether there was a valid claim to solicitor/client privilege in respect of material that had been masked from some of the documents provided to the defendants, and in respect of some documents produced to the court and referred to in Exhibit R1, and · whether the defendants were entitled to have PwC separately identify documents which Mr Carter considered, and documents upon which he relied, for the purpose of preparation of his report. 8 At the hearing on 9 August 2004, Ms Rees gave affidavit and oral evidence to support the plaintiff's application to set aside one of the subpoenas. Her evidence was incomplete at the conclusion of the hearing and was not continued when the matter was next before the court on 12 August, because by that time substantial progress had been made towards resolving the issues in contention. However she agreed, in cross-examination, that in hindsight a number of documents that had not been produced should have been produced in answer to orders previously made by the court. 9 At the resumption of the hearing on 12 August 2004, I was informed that additional documents had been produced by the plaintiff and PwC (including a substantial bundle on 6 August), and that some more documents were coming, which should be produced by 16 August. Some of the issues about solicitor/client privilege had been resolved - the defendants withdrew their demand to inspect some drafts of Mr Murdoch's affidavits after further explanation from the plaintiff, and the plaintiff produced the notebooks of its investigator, Mr Connor, without masking. The plaintiff agreed to waive its claim to privilege for some PwC documents in its possession (paragraphs 3(a) and (b) of Exhibit R1) and the defendants withdrew their demand for other documents for which privilege had been claimed. Other privilege issues were to be resolved by a brief application to the duty judge. The defendants withdrew their claim for separate delineation of documents considered and documents relied on by Mr Carter. 10 As to the question whether the requirement for production of PwC's billing records was oppressive, senior counsel for the plaintiff explained that while bills had been provided, it would be a lengthy and costly task to produce timesheets dealing only with this matter and protecting client confidentiality in respect of other PwC clients. Counsel suggested that a computer report could be produced, however, extracting all information from the timesheets relating only to this matter, and leaving out other clients' material. Evidence was tendered of a sample of such a computer report, which gave only very limited information as to the nature of the work undertaken. 11 I should say, out of chronological order, that this issue was pursued in later correspondence and eventually, by letter dated 20 August 2004, PwC's legal counsel explained that compliance with the subpoena would involve restoring backup tapes and then searching them, involving an estimated 3500 to 6840 person hours. At the hearing on 23 August senior counsel for the defendants indicated that an attempt would be made to narrow the scope of the production requirement in response to this explanation. 12 Thus, substantial progress had been made by the parties in sorting out their disputes over documents, and on their application I adjourned the hearing for another week until 19 August 2004. 13 Senior counsel for the defendants had raised another issue, of broader kind, during the hearing on 12 August 2004. He said that it had become clear during the course of the plaintiff's compliance with the notices to produce that there had been a very significant inadequacy in the discovery that the plaintiff had previously given. It had become plain, he said, both from the documents that had emerged and the evidence given by Ms Rees in cross-examination, that there were a significant number of important documents that had not previously been discovered by the plaintiff. He said his clients would submit, at an appropriate time, that this was causing them grave prejudice. He informed me that the insufficiency of the plaintiff's discovery had the potential to require postponement of the commencement of the hearing. 14 Senior counsel for the plaintiff informed me that his client accepted that in the circumstances it was appropriate to revisit the discovery it had made, in respect of the period prior to 4 December 2001. It would take until 18 August to complete that task, and, counsel anticipated, it was unlikely that there would be significant further material. He said that any application to postpone the commencement of the hearing should be made formally and supported by evidence, and would be strongly resisted. 15 When the matter returned to me on 19 August 2004, senior counsel for the defendants indicated that he would apply for the postponement of the commencement of the hearing for at least two weeks, confirming his view that the documents received suggested that discovery had been inadequate. I adjourned the proceeding until 23 August, to give the defendants time to prepare the evidence in support of their application for postponement, and in the interim I postponed the commencement of the hearing for two days from 23 to 25 August 2004. 16 On 23 August 2004 senior counsel for the defendants applied for postponement of the commencement of the hearing for three weeks, that is until 13 September 2004. In support of that application, he tendered a very large quantity of documents, including the documents that had been recently produced by the plaintiff. He took me through some of the more significant documents in the course of submissions, and I have taken the opportunity overnight and this morning to review the documents. 17 Amongst the documents that have been produced to the defendants by the plaintiff or PwC since the commencement of the process early in July, have been some that appear potentially to have real significance. There are documents of various kinds revealing the involvement that Mr Carter and PwC had with the plaintiff during the investigation stage prior to the commencement of the present proceeding. This has included a 90-page report from Mr Carter, dealing with some of the issues addressed in his later forensic report but also some other issues, and apparently prepared for a different purpose, namely to assist the plaintiff to decide whether to institute proceedings. There are documents indicating Mr Carter's substantial level of involvement in the investigatory process prior to the commencement of the proceeding. Additionally, there are s 19 interviews and transcripts of interviews with a number of key witnesses, statements and draft statements of various witnesses who are to be called in the proceeding, which appear to have been given to PwC before 4 December 2001, and a number of significant, lengthy financial reports and accounting reports prepared by the plaintiff's in-house accountants. 18 At the hearing on 23 August, senior counsel for the defendants handed me a document headed "documents discovered or produced to the defendants in the last two weeks", which lists some 15 items, including some apparently significant matters, relevant to Mr Carter's report, another 27 items relevant to various witnesses to be called by the plaintiff, and an additional 63 items of potential significance either in relation to persons interviewed by the plaintiff but not to be called or in some other way. There are 106 items in all. Having done my best to consider them in the limited time available, I do not say that they are all manifestly material, but it seems to me reasonable for the defendants' legal team to wish to consider and analyse them further, to assimilate them into its case. 19 Thus yesterday, the day when (until last Thursday) this long trial was scheduled to commence, the position was that the defendants had received over a period of a few weeks (and especially on 6 August 2004) a very substantial volume of documents, some of which may prove to have real significance for the defendants' case, which need to be analysed and considered by the defendants' legal team so that they are properly prepared to deal with the tender of the Carter report and the cross-examination of all of the plaintiff's witnesses. The question is whether a three-week postponement of the date of commencement of the hearing is justified. 20 It is unnecessary to explore the general principles governing the approach that the court must take to such matters. They are well known. I should mention, however, that senior counsel for the plaintiff drew my attention to Sali v SPC Ltd (1993) 67 ALJR 841, 843, where Brennan, Deane and McHugh JJ said (at 843-4): "In determining whether to grant an adjournment, the judge of a busy court is entitled to consider the effect of an adjournment on court resources and the competing claims by litigants in other cases awaiting hearing in the court as well as the interests of the parties. … What might be perceived as an injustice to a party when considered only in the context of an action between parties may not be so when considered in a context which includes the claims of other litigants and the public interest in achieving the most efficient use of court resources." 21 He submitted that these observations remain the law, after Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. 22 There may be cases where limits on the court's resources and the competing claims of litigants will be a weighty consideration. There is certainly a significant degree of inconvenience to the court as a whole when the availability of the judge, who has been allocated to hearing a long trial, to resume normal judicial duties is postponed, with the necessary consequence that lists must be re-worked and other litigants' expectations of hearing dates defeated. It seems to me, however, that in the present case considerations of this kind should not be given any governing significance. This is because the postponement that is sought is small compared with the overall length of the case; and moreover, the inconvenience to the court's overall planning caused by such a postponement pales into insignificance when compared to the inconvenience produced by the fact that, in this case, the defendants need not indicate whether they will go into evidence until after the plaintiff has closed its case. That substantial inconvenience is justified by the fact that this is a civil penalty proceeding, which might lead to orders for disqualification as well as for compensation. In such proceedings, the court should be circumspect about allowing considerations of judicial administration to interfere with ensuring procedural fairness to the defendants. 23 The defendants say that I should take into account the fact that the delay in production of these documents was the plaintiff's fault, in deciding whether to postpone commencement of the hearing (citing Bomanite Pty Ltd v Slatex Corp Aust Pty Ltd (1991) 32 FCR 379, 393 per French J). Although, to a degree, the production of documents in response to the notices to produce can be seen as a negotiated outcome which does not acknowledge the defendants' entitlements to production, and although in some lesser respects the defendants have withdrawn their demands for production, there remains a basis for criticising ASIC's approach to the production process, especially with respect to litigation privilege and solicitor/client privilege. 24 In saying so, I have borne in mind that the cross-examination of Ms Rees was not completed, and she was not re-examined. On the other hand, the plaintiff has offered no explanation for its change of position with respect to claims to privilege. Having previously asserted litigation privilege in respect of documents created from mid-October 2001 onwards, the plaintiff withdrew its claim for privilege to documents created up to 4 December 2001, after receiving the first notice to produce, thereby releasing a substantial quality of documents, and yet no explanation is given for this change of heart (or more precisely, why such a wide claim to privilege was made at the earlier stage). The plaintiff's withdrawal of claims for solicitor/client privilege has released some apparently important documents concerning Mr Carter's relationship with the plaintiff in the period from October to December 2001, including his report of 21 November 2001. Again, there is no explanation for the change of heart, although to my mind the cross-examination of Ms Rees laid the foundation for a concern that she, at least, might have misapprehended the proper scope of solicitor/client privilege. 25 It is not necessary for me to decide, on this application, whether the plaintiff has misapprehended its discovery obligation and if it has, what consequences might flow. Apart from matters of fact relating to the late production of the documents now before me on the application, there might be an issue of principle as to whether ASIC has properly made discovery of documents in the possession of PwC but under its control. 26 Senior counsel for the defendants raised the issue, at the hearing on 23 August (echoing views expressed by his instructing solicitor in a letter to the plaintiff dated 22 August) whether the plaintiff, in its position as a regulator with powers of investigation and in the context of civil penalty proceedings, might have a duty akin to a duty of prosecutorial fairness, which should have required it, inter alia, to provide the defendants with any information in its possession relevant to the reliability or credibility of witnesses, and not to refrain from calling witnesses by reference to tactical considerations. In ASIC v Adler (2003) 46 ACSR 504, 646-8, Giles JA expressed doubt as to whether the plaintiff in civil penalty proceedings has any such duty, but the matter might have to be reconsidered when the High Court publishes its reasons for allowing the appeal (on 22 April 2004) from the decision of the Court of Appeal in New South Wales in Rich v ASIC (2003) 48 ACSR 6. 27 As far as I can see, the only relevance of the questions of adequacy of discovery and prosecutorial fairness is that the plaintiff's failure to make adequate discovery and its delay in complying with the notices to produce have raised concerns that put these issues on the agenda, and the defendants need time to consider them. 28 Where it is shown, as here, that the defendants' predicament has arisen, to a significant degree, by the fault of the plaintiff which has had the consequence that a substantial volume of material documents that ought to have been discovered earlier has been produced just before the commencement of the hearing, the fact that the plaintiff is substantially at fault should lead the court to make sure that the defendants' prejudice is properly redressed. The fact that this is a civil penalty proceeding in which orders of a very serious kind, including disqualification orders, may be made against the defendants, serves to underline that conclusion. 29 Senior counsel for the defendants informed the court that his considered assessment, made in consultation with other members of the defendants' legal team, was that a postponement of commencement of the hearing of three weeks would be needed to review and assimilate the documents and assess their significance. He said that this was a "conservative" assessment, meaning that he had selected what he considered to be the minimum time for the task. Senior counsel for the plaintiff invited me to make an "objective" assessment of the extra time that would be needed in light of production of the additional documents, and indicated that the plaintiff would consent to an adjournment for one week. 30 The additional documents were placed before me in evidence on the application, so that I could gain an impression of their scope and content and the amount of work that would be required to assess and assimilate them. In the result, some 17 lever arch folders of documents (not confined to the documents recently produced) have been placed before me on the application. It was understood by the parties that I would not read all of them carefully, but I have endeavoured in the limited time available to gain an impression of the content and significance of the documents that have been recently produced, paying particular attention to those documents to which counsel took me at the hearing of the application yesterday. It is not appropriate to record in detail the contents of the documents or my comments on them. Suffice it to say that, having done my best to review the documents carefully in the time allowed, I see no basis for departing from the conscientious estimate made by senior counsel for the defendants of the amount of time that will be needed to deal with them. 31 I take into account, in reaching this conclusion, that there is no issue about the defendants having to respond to this new material, because the hearing that is due to commence is only the hearing of the plaintiff's case, and the defendants will not need to go into evidence until 2005. I also take into account that a significant part of the newly-produced material relates to statements or transcripts of interview of people who are not being called by the plaintiff to give evidence, and whose statements do not appear to have particular prominence or high degree of relevance, given the issues in the case. On the other hand, it seems to me from a perusal of material in this category that it will be necessary and appropriate for the defendants' legal team to correlate the statements and transcripts of these individuals with the affidavits and documents that are likely to be put into evidence, so as to test the consistency and plausibility of the evidence to which the court will be exposed. 32 Senior counsel for the plaintiff pointed out that a large proportion of the newly-produced documents have been in the defendants' hands for some time. Many of the most important documents were produced on 6 August, two-and-a-half weeks ago, although some (such as Mr Connor's notebooks) were produced later. But the estimate by senior counsel for the defendants took into account the fact that the documents had been received and work had been done on them - indeed, it is evident that already substantial work has been done. The estimate was directed towards the additional work still to be done. It is plain from the materials that that is considerable. In the circumstances, the fact that the material has been in the possession of the defendants for some time does not derogate from senior counsel's estimate of the additional work to be undertaken. 33 Senior counsel for the plaintiff also drew my attention to some affidavit evidence by the defendants' former solicitor which indicates that the first defendant himself has spent a substantial amount of time in the preparation of this case for hearing, and that the defendants have a substantial team with a great deal of knowledge of the case, who could be employed for the work still to be done. But there is nothing to suggest that senior counsel for the defendants omitted to take this into account in making his estimate. 34 There is, however, one consideration that I think it appropriate to take into account by way of qualification of the estimate of time given by senior counsel for the defendants. As I understand that estimate, it is an estimate that three weeks is the minimum amount of time needed to analyse and assimilate the newly produced documents. That estimate justifies an adjournment for three weeks only if it is true that the work should be completed before the hearing commences. The plaintiff's schedule for the hearing allows two weeks for the opening and various evidentiary matters, with the first witness commencing to give evidence on the Tuesday of the third week. Mr Carter is scheduled to give evidence on the Thursday of the third week. Senior counsel for the plaintiff informed me at the hearing that he did not propose to tender Mr Carter's evidence until just before Mr Carter enters the witness box. That seems to mean that there will be a period of roughly two weeks when, although senior counsel for the defendants will be fully committed to the hearing, others in the defendants' legal team could proceed with the work associated with the newly produced documents. 35 That consideration would suggest that a postponement of only one week would still allow the defendants' legal team to do the necessary work before evidence was given by the witnesses, and in particular, before the tender of the Carter evidence and the commencement of his oral evidence. It is appropriate, however, to allow some additional time to cater for the need, once the hearing commences, for the defendants' legal team to be engaged, as it were, on two fronts, reviewing the documents and attending to the hearing. Making such an allowance, I have decided that the appropriate course is to postpone the commencement of the hearing until Monday 6 September, and I shall make an order accordingly. 36 I shall appoint a time to hear the submissions of the parties with respect to the costs of the various applications before the court on 9, 12, 19 and 23 August, and to allow for any other application to be made with respect to costs consequent upon this decision.

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