ASIC v Rich [2004] NSWSC 951 | Case summary

That assumption proved to be incorrect, and in the early part of the trial a substantial amount of the court's time has been taken up by matters relating to the execution of the One.Tel search warrant. 3 The final hearing began on 6 September 2004. Since that time, the hearing days have been principally taken up with: · ASIC's opening; · contentions with respect to the defendants' notices to produce and subpoenas; · calls and responses to calls on the defendants' notices to produce (as of today have there have been 18 notices to produce issued by the defendants to ASIC); · some adjournments to allow the defendants to inspect documents produced by ASIC and consider ASIC's claims for client legal privilege; · several interlocutory issues with respect to privilege and waiver of privilege; · an attempt (eventually unsuccessful) to resolve issues about the obtaining of evidence on search warrant by hearing arguments on some articulated "preliminary issues"; · the reading of approximately 60 "provenance" affidavits by ASIC; · the hearing of oral evidence and cross-examination of three of the provenance witnesses (the only ones required for cross-examination) over a period of about six days; · the hearing of oral evidence and cross-examination of Ms Reynolds of PricewaterhouseCoopers, pursuant to a request by the defendants under s 167 of the Evidence Act 1995 (NSW), over a period of nine days. 4 Beginning early in July 2004, the defendants have issued what I have referred to in another judgment as "cascading" subpoenas and notices to produce, partly directed in part to ascertaining the role of PricewaterhouseCoopers in ASIC's investigation of One.Tel. The defendants say they were also, in part, directed to identifying the source of the documents now contained in the Carter exhibits and the tender bundle. ASIC disputes this and says it readily identified the source when the point was raised, without any need for compulsory process. It is not necessary, for present purposes, to resolve that dispute. 5 Substantial time has been taken up, especially in the early days of the hearing, with production of documents by ASIC and PricewaterhouseCoopers and the consideration of issues related to the subpoenas and notices to produce. It emerged during this process that a substantial quantity of documents that ASIC had identified as sourced from the liquidators (by reference to the "Ferriers I-drive") were in fact originally obtained by ASIC pursuant to the execution of search warrants at One.Tel's premises. 6 The defendants wish to challenge the admissibility of the expert reports and affidavits of Mr Carter of PricewaterhouseCoopers, the admissibility of the voluminous exhibits to Mr Carter's reports, and the admissibility of six substantial tender bundles of documents. They are likely to submit (perhaps among other things) that: · Mr Carter's reports and affidavits and most of the documents should be excluded from evidence for several reasons, including reasons going to the exercise of discretion under ss 135 and 138 of the Evidence Act 1995 (NSW); · Mr Carter's reports and affidavits should be rejected on grounds relating to his alleged lack of independence from ASIC; · Mr Carter's reports and exhibits and a large part of the tender bundle should be rejected on the grounds that the documents were obtained by ASIC improperly and in contravention of the Crimes Act 1914 (Cth) and in circumstances where ASIC was precluded from using them in connection with civil proceedings. 7 Cross-examination of the "provenance" witnesses and Ms Reynolds has been substantially directed to these issues. The cross-examination of these witnesses came to an end on 11 October. We have not yet commenced the oral evidence of any "substantive" witnesses. 8 On the hearing days just prior to 16 September, there was some debate as to whether the defendants' emerging contentions relating to unauthorised or illegal use of documents obtained through the execution of a search warrant at the premises of One.Tel might best be dealt by formulating and resolving some preliminary legal issues. Senior counsel for ASIC urged me to proceed in this manner on the ground that any unauthorised use by ASIC of materials obtained through the One.Tel search warrant was cured by the liquidators of One.Tel consenting to ASIC's use of that material in the civil proceedings, by a written instrument of consent dated 7 December 2001. Faced with the prospect of extensive cross-examination of "provenance" witnesses and Ms Reynolds, which might prove to have been unnecessary if ASIC's contentions of law as to the effect of the consent were correct, I formulated some preliminary issues and heard extensive argument on those issues on 16 September. The defendants provided me with a substantial written outline of submissions, which I marked "DS 6". 9 DS 6 was directed towards establishing that ASIC: · by using the documents obtained on the execution, on 1 June 2001 at One.Tel's premises, of a search warrant relating to suspicion of contravention of criminal laws for the purposes of an investigation into contraventions of civil laws and for the commencement of the present proceeding, had used, the documents in a manner not permitted by s 3F(5) of the Crimes Act 1914 (Cth) and therefore improperly or unlawfully; and · by retaining those documents for civil purposes when there was no longer any criminal prosecution in contemplation, ASIC had retained them improperly or unlawfully having regard to s 3ZV of the Crimes Act. 10 Since the oral evidence of the "provenance" witnesses had been scheduled to commence on 20 September, I gave my decision on the preliminary issues and published summary reasons for judgment on 17 September, so as to avoid delay. I intended to publish my full reasons for judgment when I had time to prepare them. I held that ASIC's use of the search warrant materials for civil purposes was not authorised by the search warrant but the problem was cured by the liquidators' consent on behalf of One.Tel on 7 December 2001, and that ASIC's conduct was not improper or unlawful at any time in any other sense. I also held that any unauthorised retention of the search warrant materials by ASIC in the period from June to December 2001 was cured by the liquidators' consent, and by virtue of that consent ASIC was entitled to retain the documents thereafter. I found that ASIC's retention of the documents was not improper or unlawful at any time in any other sense. 11 During cross-examination of Mr Henley, a "provenance" witness, on 20 September, senior counsel for the defendants explored some issues going beyond the question of unauthorised or illegal use of the search warrant material. Specifically, he asked questions about the copying of One.Tel's computer hard drive and the witness's basis for believing that there was authority under the search warrant for such copying to be made. He also asked questions which I ruled to be inadmissible on the basis of my determination of the preliminary issues. 12 On the evening of 21 September senior counsel for the defendants handed up a document entitled "Further submission of the Defendants in relation to rulings on the relevance of evidence relating to the manner in which ASIC came to obtain, use and retain the material obtained by search warrants executed on 1 June 2001". I marked this document "DS 7". 13 In DS 7 the defendants contended, in light of Mr Henley's evidence given on 20 September, that in executing the search warrant at One.Tel's premises on 1 June 2001, the Australian Federal Police, ASIC and PricewaterhouseCoopers had made electronic copies of One.Tel's computer I-drive and the hard drives of other computers in a manner not authorised by s 3L(2) of the Crimes Act and without any other authority or power. Consequently, it was submitted, it was wrong of the Australian Federal Police and ASIC to use the information stored on the unauthorised copies, and the unlawful and improper character of the conduct was not altered or cured by the consent signed on 7 December 2001. It was said that a contravention of the restrictions imposed by the Crimes Act on what might be done under a search warrant was a contravention of an Australian law, and was also improper, within the meaning of s 138 of the Evidence Act. 14 The defendants' submissions about search warrants were directed towards ASIC's use of the search warrant material in the period from 1 June to 7 December 2001. They made no contention about ASIC's conduct with respect to the search warrant materials at later times, although it was implied that the defendants would complain that ASIC had allowed Mr Carter to use the search warrant materials for preparation of his first report in this proceeding, dated 31 May 2002, and had allowed him to continue to use the search warrant materials for his later reports and affidavits until recent times. 15 When the hearing resumed on 22 September, senior counsel for ASIC drew my attention to the fact that the defendants' submissions had changed significantly in two respects, in the time between the hearing of the preliminary issues on 16 September and the further submissions in DS 7 on 21 September. First, the defendants' new submissions alleged that ASIC's use of the search warrant materials was improper and unlawful for the purposes of s 138 and not merely an impermissible and tortious use. Secondly, the new submissions alleged impropriety and unlawfulness not only because of unauthorised use of the search warrant materials but also because of deficiencies concerning the execution of the search warrant and specifically, the absence of any power to make copies of computer hard drives. 16 Senior counsel for ASIC referred to the defendants' written objections to evidence which had only specified impermissible use, and said that the allegation of unlawful copying was a new contention. He continued (Transcript at 637-8): Then one comes to the question of what is the way forward, but I preface that by saying that we do not see these defendants' points as going anywhere because even if there was some technical merit to them, ultimately it is a matter of discretion so far as the admission of evidence is concerned, and there are overwhelming considerations, such as the liquidators' consent and the fact that the documents are able, in respect of virtually all of them, to be sourced through means that don't bear this alleged taint. Nevertheless, what we see as the appropriate way forward, your Honour, is that in light of the expansion of the point, the defendants should be permitted to explore those points, because we are concerned about the integrity of the hearing, of course. 17 Later he said (Transcript at 639): The new points really cause considerable blurring of the lines of permissible exploration of the evidence, and the point that a mere tortious interference with rights, albeit of another person, is sufficient and can attract the provisions of section 138 is not a point that we could ask your Honour to strike out brevi manu. The practical way forward, as we see it, would be to lift that restriction, even in respect of the matter that was the subject of argument last week, by reason of the expansion now made by the defendants of the basis upon which they put the point. 18 In other words, senior counsel for ASIC invited me to withdraw my decision in his client's favour on the preliminary issues, so as to allow the defendants to re-agitate the matters raised in the argument on the preliminary issues, as well as the new matters raised in DS 7. His purpose in doing so was to preserve the "integrity of the hearing". He suggested that I should not publish my full reasons for judgment on the preliminary issues, but instead provide an addendum to my summary reasons for judgment indicating why they had become otiose. Senior counsel for the defendants did not object to this course. 19 I agreed with the proposal by senior counsel for ASIC. It seemed to me that the saving of time that I had hoped to achieve by determining preliminary issues had in fact not been achieved because senior counsel for the defendants had opened up new matters during Mr Henley's cross-examination. I published a further judgment in chambers on the 24 September 2004 in which I vacated the rulings I had made, on the basis of my determination of the preliminary issues, in rejecting questions put to Mr Henley during his cross-examination. I said I would treat my summary reasons for judgment as having no more significance than the expression of an indicative view, of the kind that a court occasionally proffers during the course of argument. I expressed the hope that counsel would remember, when the legal and discretionary issues of admissibility eventually came to be considered, that there had already been, on some points, extensive argument that need not be repeated. 20 In making his submissions on 22 September, senior counsel for ASIC proposed that withdrawal of the determination of the preliminary issues should be on the basis that his client should clearly know what points the defendants wish to make on the search warrant issues. He said (Transcript at 638): Points have been clearly articulated in the defendants' further written submissions provided last night, and we are content to accept those submissions as an articulation of further bases of objections. … We submit the defendants should be limited to the points articulated and if there are no other points to be raised, then they will only [be] able to be raised if your Honour's discretion permits them to be raised, and, of course, in a way that would protect our ability to deal with the points by evidence or otherwise. 21 I responded to this submission, without objection on the part of the defendants, by directing them to articulate in succinct form the grounds of objection which they wished to raise based on search warrant matters. I said (Transcript at 646): I don't propose to articulate any a priori limit on the subject matter of your cross-examination, but it will be open to Mr Macfarlan, when he obtains that document, to rise to his feet if he thinks you're cross-examining in an area which is not a matter which is the proper subject of ground for objection, so that might assist the process. 22 In response to my direction, on 23 September the defendants produced a two-page document headed "Defendants' objection in relation to the search warrant material", which I marked as "DS 8" . The document records that the defendants object to the proposed tender in evidence of documents obtained, or obtained from copies made, as a result of the execution of search warrants at One.Tel's premises and also at certain residential premises (including, as I understand the position, the premises of the defendants). It says that the basis of the objection is that the evidence has been obtained improperly or in contravention of an Australian law or in consequence of impropriety or contravention, within the meaning of s 138 of the Evidence Act. In the alternative, it says that the court should refuse to admit the evidence under s 135 on the basis that its probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to the defendants. 23 DS 8 makes two sets of observations about this ground for objection. First, it says that, in order to make good their objections, the defendants seek to explore in cross-examination of ASIC's witnesses: D. The circumstances in which the material came to be obtained by the Australian Federal Police and made available by the Australian Federal Police to ASIC and PwC; E. The circumstances in which the material came to be retained by ASIC and PwC after the reasons for it having been obtained pursuant to the warrants no longer existed; F. The nature and extent of the use made by ASIC and PwC of the material; G. Whether any consent was given by any person in relation to the above matters and, if so, the circumstances in which that consent came to be given; and H. Any other matters potentially relevant to the exercise by the Court of its discretion under s 138 and/or s 135 of the Evidence Act 1995 (NSW) including the matters listed in s 138(3) of that Act (e.g. whether the impropriety or contravention was deliberate or reckless). 24 Secondly, DS 8 says that on the basis of the defendants' present, necessarily incomplete, knowledge of the facts, the grounds upon which it may be put that the evidence falls within ss 138 and/or 135 are that it was obtained by or in consequence of the following improper and contravening conduct: "1. The taking of the copies of electronic records in a manner not authorised by either the terms of the warrants or the Act; 2. The making available of the material contained within those copies of electronic records to ASIC and PwC, outside the terms of the warrants and the Act; 3. The admitted retention of material obtained as a result of the execution of the warrants (including both copies of electronic records and hardcopy documents) for purposes other than that of investigating or prosecuting an offence; and 4. The admitted use by ASIC of the material obtained as a result of the execution of the warrants (including both copies of electronic records and hardcopy documents) for purposes other than investigating or prosecuting an offence, viz for the purpose of investigating, commencing and prosecuting these proceedings, including using them for the purpose of obtaining expert evidence from Mr Carter for use in these proceedings." 25 Wide though it is, DS 8 creates the impression that the focus of the defendants' attention in developing the search warrant objections will be what happened when the warrants were executed (and especially, how and in what circumstances copies of hard drives were made), and how the search warrant materials were used and retained until the time when Mr Carter was given access to them for the purpose of preparing his reports. DS 8 is consistent with the proposition that evidence relating to ASIC's continuing use of the search warrant materials after they were made available to Mr Carter is either irrelevant to the grounds for objection or of no material significance. 26 At the hearing on 23 September, senior counsel for ASIC was critical of DS 8. He said that ASIC would be content to accept, as a specification of the points that were being put by the defendants, what was in DS 7, together with the matters that had been previously notified (Transcript at 743). He said: If the defendants are allowed to do what is contemplated by this document, there will be a roving inquiry tantamount to a royal commission into the circumstances relating to these search warrants and what happened with the documents and the like. There is potential prejudice to us in that approach, your Honour. We don't know the case we have to meet in this respect. We are calling witnesses with the consequence that they are being cross-examined in such a way that an investigation is being done in the apparent hope that there will be a stumbling across of arguments which might support the defendants. That is not an appropriate way, in our submission, for a case such as this to be run and not a method of conducting the case that is conducive to keeping the case within proper bounds. We submit we are entitled to prior knowledge of the arguments proposed to be put, and the earlier written submission [DS 7] gave us that notice; this document completely puts the matter at large. 27 It was evident from his further submissions that senior counsel for ASIC particularly objected to paragraphs D-H set out above, which did not serve to confine the defendants to the points they had made about copying hard drives and taking equipment onto the premises for that purpose, and about the use of the search warrant materials for civil purposes. He said that ASIC would like to see arrangements in place under which its counsel would take objection to points going beyond what was raised in DS 7 and the earlier submissions. 28 The matter was left on the basis (see Transcript at 745) that it would be open to ASIC to object to points raised in cross-examination of witnesses going beyond DS 7. When an objection was raised on this basis, the court would hear argument as to whether the question raising an additional point should be permitted. The court would make a decision that would involve balancing its concern not to use cross-examination as a roving commission of inquiry, against the desire to allow cross-examination where there was a plausible basis for doing so. I said that we would have to proceed issue by issue, and that I did not wish to make "some absolute fiat" which would exclude the defendant from pursuing any new matters. Senior counsel for ASIC said he was content with that approach, and he acknowledged that it would always be in the Court's discretion to allow additional points to be raised. 29 There was further cross-examination of ASIC's "provenance" witnesses and Ms Reynolds in the period from 23 September to 8 October. On 11 October senior counsel for ASIC read, without objection, an affidavit by Jan Redfern made on 1 October 2004, and tendered the exhibits to that affidavit. Ms Redfern is the Executive Director of Enforcement at ASIC and is the solicitor on the record in the present proceeding. 30 She gave evidence that she had obtained legal advice with respect to the use, for civil purposes, of documents obtained upon the execution of a search warrant. She exhibited to her affidavit an opinion by Mr Bathurst QC and Mr Payne of counsel dated 3 October 2001, obtained in another matter, in which counsel advised, inter alia, that if material is seized under a search warrant for the purposes of a criminal investigation, it is not open to ASIC to use that material as evidence in a civil proceeding. An opinion to a similar effect had been given, in another matter, by Mr Whitney of counsel, on 22 June 2001. 31 Ms Redfern's evidence is that in October 2001 she decided that further advice should be obtained from counsel on the use of the search warrant material that had been obtained in the One.Tel case, and whether anything could be done "to unravel the Crimes Act problems". Counsel was briefed to settle the instrument of consent that was eventually signed by the liquidators. By their written advice dated 7 December 2001, Mr Brereton SC and Mr Stack of counsel advised, inter alia, that a properly informed owner of material obtained by the execution of a warrant under the Crimes Act could consent to that material being used in civil proceedings commenced by ASIC; and where such consent had been obtained, ASIC would be entitled to use that material in respect of a civil proceeding. The liquidators signed the instrument of consent on the same day. Ms Redfern said in her affidavit that: In light of counsels' advice, I took the view that this consent ensured that ASIC was entitled to use the documents in the civil proceedings then under contemplation. 32 It appears that Ms Redfern's evidence goes to establishing the state of knowledge and state of mind of the corporate body, ASIC, as she was the senior officer of ASIC involved in the conduct of this litigation. During his cross-examination of Ms Redfern on 12 October, senior counsel for the defendants asked her this question (Transcript at 1375): Q. Did you think it important to give the Court reference to all advices that ASIC had received in relation to the use of search warrant material since 1 June 2001? 33 It was made specifically clear that the question was intended to cover the period from 1 June 2001 up to the present time, and was not limited to the period from June to December 2001. 34 Senior counsel for ASIC objected to the question, initially on the ground that what might be the subject of advice in recent months of 2004 was irrelevant to the search warrant issues. Counsel's objection posed for the court a question of the kind contemplated during argument on 23 September: that is, whether the court should, balancing considerations of efficiency and fairness, allow the defendants to embark on a line of questioning going beyond DS 7. I heard full argument on the objection to the question, which seemed to me (and, I think, to counsel) to place the hearing at a crossroads and therefore to have potentially wide significance. 35 The submissions of the parties raise two questions: namely whether the answer to the question that has been asked would be relevant to any matter before the court for determination in this case; and whether the question should be rejected on discretionary grounds. Although, strictly speaking, only a single question is before me for consideration, argument was directed to the broader issue of whether a line of questioning (signified by the question under consideration) should be allowed. I regard it as appropriate to consider whether such a line of questioning should be allowed. 36 Although the line of questioning was not satisfactorily articulated during argument, it must relate to how any legal advice that ASIC may have obtained after receiving the advice of Mr Brereton SC and Mr Stack affected its corporate mind. I shall therefore formulate the line of questioning as questioning about any alterations, after December 2001, to ASIC's knowledge and understanding of the legal position regarding the circumstances relating to · the execution of the search warrants on 1 June 2001 (including circumstances relating to the copying of hard drives), and · the use of the search warrant materials in connection with ASIC's civil investigation in the period from June to December 2001, and in connection with the commencement of the present proceeding (including making the search warrant materials available to Mr Carter in connection with the preparation of his reports of November 2001 and his reports and affidavits from the purposes of this proceeding). 37 Senior counsel for the defendants submitted that his clients' concern was with an ongoing unlawful use of the search warrant materials, extending from June 2001 up to the present time, and continuing until ASIC seeks to tender the Carter reports and exhibits and its tender bundle. He said that if, after December 2001, ASIC had received further legal advice contradicting the opinion of Mr Brereton SC and Mr Stack, that would tend to establish that ASIC had come to know that its continuing use of the search warrant materials was unlawful. It therefore would be a relevant factor for the court to take into account in the exercise of discretion, because it would add to the gravity of ASIC's impropriety or contravention of the law. 38 He submitted that the court would be invited by ASIC to infer, from Ms Redfern's affidavit, that from the time of the advice given by Mr Brereton SC and Mr Stack until the present time, ASIC and its relevant officers have been of the belief that they were acting properly. He drew attention to Ms Redfern's statement that in light of the Brereton/Stack advice, she took the view that the liquidators' consent ensured that ASIC was entitled to use the documents in the civil proceedings then under contemplation. 39 He submitted that in those circumstances, a question about legal advice received by ASIC after December 2001 was relevant to the exercise of the court's discretion under s 135 or s 138. 40 As to s 135, the defendants will invite the court to refuse to admit the search warrant materials or evidence deriving from them on the ground that its probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to them. Senior counsel for the defendants said that the court should consider the question of unfair prejudice as at the time of tender of the material to which objection has been taken. That has not yet occurred. Therefore evidence going to the question of unfair prejudice at any time up to the present time, is relevant and should be heard, in their submission. 41 I regard it as reasonably clear, judging from ASIC's opening at the hearing, that if the Carter reports and exhibits and the tender bundle are admitted against them, the defendants will be prejudiced. The question is whether that prejudice would be unfair. I accept that the word "unfair" is a broad word and that matters going to unlawful or unauthorised use, and the state of knowledge of the tendering party about those matters, are relevant to be considered for the purpose of the court's discretionary decision under s 135. But on the facts of this case, the important components to be considered occurred in 2001. It seems to me unlikely that, given the contents of the Brereton/Stack advice, any evidence that ASIC received contrary advice in 2002 or subsequently, or that it became aware through Ms Redfern of legal opinion contrary to the opinion of Mr Brereton SC and Mr Stack, would have any material significance. There is only a possibility, not a likelihood, that evidence of that kind could become material. 42 As to s 138, senior counsel for the defendants noted the breadth of the issue for the court's consideration under subsection (1), which was whether the desirability of admitting the evidence outweighs the undesirability of doing so, and he noted that the list of matters to be taken into account, in subsection (3), was expressed to be without limiting the matters that the Court may take into account under subsection (1). As to the matters in subsection (3), he drew particular attention to the following subparagraphs: (d) the gravity of the impropriety or contravention; (e) whether the impropriety or contravention was deliberate or reckless; (f) whether the impropriety or contravention was contrary to or inconsistent with the right of a person recognised by the International Covenant on Civil and Political Rights; and (h) the difficulties (if any) of obtaining the evidence without impropriety or contravention of Australian law. 43 It seems to me that there is a risk of confusion unless the precise wording of s 138(1) is kept firmly in mind. The subject matter of s 138(1) is evidence that was obtained improperly or in contravention of an Australian law, or in consequence of such an impropriety or contravention. The subject matter of subsection (1) is not, in its terms, subsequent misuse of material that was improperly or unlawfully obtained. In the present case, the evidence that the defendants allege to have been obtained improperly or unlawfully is the material seized or copied upon the execution of the search warrants. Assume that the Australian Federal Police and ASIC obtained the search warrant materials improperly or unlawfully the purposes of s 138, because they had no power to copy computer hard drives. When subsections (1) and (3) refer to the impropriety or contravention, they are referring to that matter. For example, the reference in subparagraph (3)(d) to the gravity of the impropriety or contravention is a reference to the gravity of what occurred on 1 June 2001. I fail to see how even a deliberate and contumelious subsequent use of the unlawfully obtained material would go to "the gravity of the impropriety or contravention". Nor, on the same reasoning, would subsequent use be relevant to the matters identified in subparagraphs (3) (e) and (f). 44 This is not to say that evidence concerning ASIC's knowledge or state of mind in the period after December 2001, or evidence about its actual use of the search warrant materials on a continuing basis, is irrelevant to the discretionary decision under s 138. Evidence of that kind may bear on the desirability of admitting the evidence obtained through improper or unlawful copying. But if the question to which s 138 is directed is borne in mind, it can be seen that evidence about subsequent knowledge and use is of only marginal relevance. The Court's decision as to the admissibility of the search warrant materials will be much more directly influenced by other considerations (assuming, still, impropriety or unlawfulness), such as whether the Australian Federal Police and ASIC acted in accordance with legal advice when the search warrants were executed, whether the evidence is important in the proceeding, and whether the documents became available from other sources at a sufficiently early stage so as to minimise any advantage on the part of ASIC and any prejudice on the part of the defendants by virtue of their original source. 45 I have excluded from consideration the question whether the liquidators' consent has made it so likely that the defendants' contentions will fail that I should, for that reason, regard the evidence to be obtained from pursuing the line of questioning as irrelevant or immaterial. Senior counsel for ASIC invited me to take that matter into account, notwithstanding that the withdrawal of my determination of the preliminary issues has left the issue of effect of the consent open for further argument. I think it would be unfair to the defendants to let that issue creep back in by the back door, as it were, after I have postponed it for later consideration, and therefore I reject ASIC's submission on that point. 46 My conclusion as to relevance is that the answer to the question in contention, and the answers to questions in the same line of questioning, are relevant to the Court's discretionary decisions under ss 135 and 138. But I also conclude they are unlikely to be matters of any material significance when I come to decide whether to exclude the Carter reports and exhibits and the tender bundle documents on those statutory discretionary grounds. These conclusions would not normally cause the court to disallow a single question, as the court would recognise a possibility that the answer may be of assistance, unlikely though it may be. But here it is necessary to weigh up the marginal gain of allowing the question against the marginal cost of permitting it, and the line of questioning which it will initiate. 47 In his submissions, senior counsel for ASIC told the court that his client accepted that the defendants were entitled to investigate alleged impropriety in relation to the 2001 period (Transcript at 1395), but he contended that questions should be confined to the period up to December 2001. He asserted (Transcript at 1392) that this case, now in its sixth week, is "an enormous impost on the public purse", and said that the court should balance the rights of the defendants against other considerations, including the cost and length of the case. He urged the court to "take control" of the way the parties (presumably the defendants, in particular) were conducting the case. He said that "there is such a detailed consideration of matters that there is a loss of balance as to where they are going and whether ultimately there is any force or any arguable case for points to which they're going, and the court, in our submission, at some stage has to step in" (Transcript at 1395). 48 It hardly lies in the mouth of ASIC to complain about the direction of the hearing, when one bears in mind the history that I have narrated. The court acceded to ASIC's submission that the search warrant issues should be addressed by formulating and determining preliminary issues, and did so. The court accepted ASIC's later submission that the determination of the preliminary issues should be withdrawn so that all relevant legal and discretionary matters could be considered together, in the interests of the "integrity" of the hearing. Senior counsel for ASIC agreed when I said that I did not want to exclude lines of questioning by making an "absolute fiat", but instead, that ASIC should raise objections if it thought that a line of questioning went beyond what would legitimately be based on the search warrant issues. That is how the case has proceeded. The reality is that this case has been and will continue to be enormously costly, but the hearing until now it has followed a path to which ASIC has not objected. 49 Nevertheless, now that the matter has been squarely raised, I think it appropriate to take into account the additional time and therefore cost that would be consumed if the new line of questioning were permitted, as a factor to be weighed against the marginal utility of the evidence that would emerge if the line of questioning were permitted. To that limited extent, I accept ASIC's submission. Doing the best I can, my estimate is that the additional time that would be taken to pursue the line of questioning, as I have defined it, in Ms Redfern's cross-examination would run to some days, at least. There would be a possibility, the likelihood of which I cannot assess, that ASIC might wish to adduce some additional evidence in chief with respect to the subject matter of the line of questioning, and that could lead to some additional cross-examination. It therefore seems to me that a significant amount of time and cost would be taken up if I were to allow the question and the line of questioning. But, contrary to ASIC's submission, I do not see this process as an exercise that would in any way qualify the rights of the defendants (as opposed to a balancing of factors going to the exercise of my discretion). And my decision has nothing whatever to do with any notion of "taking control" of the way a party conducts its case. Sweeping and general submissions about cost and the conduct of the proceedings, ranging well beyond the issue at hand, are unhelpful. 50 Another factor to be weighed in the balance is the difficulty that would be presented for ASIC in knowing how to meet the evidence that would be adduced in answer to the instant question and similar questions, and in establishing some metes and bounds to the process of questioning. It would be unfair, in my opinion, to allow this question without seeking to circumscribe a line of questioning that would then be permitted, and it would be unfair to permit a line of questioning that would amount to a roving inquiry as to ASIC's investigations and involvement in the search warrant process. 51 Before the luncheon adjournment yesterday, I indicated that I was disposed to allow the defendants to ask the question on condition that at 2pm the defendants presented me with a statement defining the line of questions of which the instant question would form part, in a manner that would fairly indicate to ASIC the issues now raised for it to meet. After the luncheon adjournment, senior counsel for the defendants responded at some length. He referred to DS 8, which he then purported to add to and particularise. He maintained the broad propositions in items E, F and G, and added another point, namely whether ASIC at any time prior to or subsequent to the giving of the liquidators' consent thought that such consent may not be effective (Transcript at 1404). He provided particulars of item H by reference to ss 135 and 138. He said the line of questioning would go to the issue whether at each stage of use, whether directly or derivatively, ASIC had acted deliberately or recklessly, and the issue of the extent to which ASIC's use of the search warrant materials and documents obtained derivatively from them had informed its conduct of the case. 52 It became evident to me that his conception of the line of questioning was indeed very close to the kind of roving inquiry to which senior counsel for ASIC had referred. When I expressed concern that such a widely cast a definition of the line of questioning would have an adverse impact on my thinking on the issues for determination, senior counsel for the defendants offered another formulation of the line of questioning (Transcript at 1407-8), but it was no better and specifically, did not provide an indication to ASIC of the case it would have to meet. 53 If the issue were whether to allow a line of questioning as broadly defined and open-ended as was formulated by senior counsel for the defendants, my answer would be firmly in the negative. I have formulated a much more restricted line of questioning earlier in this judgment, because I think it was this line of questioning that counsel had in mind in the course of argument. The more narrowly expressed line of questioning would go towards addressing the question of procedural unfairness to ASIC. 54 On the basis that this more limited line of questioning is under consideration, I have decided, upon reflection, that I should not allow the instant question or other questions in the line of questioning that I have articulated. I have reached this conclusion on the discretionary ground, the components of which are elaborated more fully above, that to allow the question and the line of questioning would cause or result in an undue waste of time the purposes of s 135, having regard to · the amount of time that would be consumed if the line of questioning were pursued; · the unlikelihood that the evidence that would be adduced would have any material significance to the question of admissibility of the Carter reports and exhibits and the tender bundle. 55 Senior counsel for both parties made submissions about what should be done in "the normal case". But this is far from being a normal case. The court's task is to achieve procedural fairness in unique circumstances, outlined in some detail above. It would be equally wrong, in the unique circumstances that are presented to the Court, to draw an analogy between the defendants and a litigant proceeding by statement of claim, or to see the defendants' cross-examination as a cross-examination in the ordinary course. 56 In addition to his reliance on ss 135 and 138, senior counsel for the defendants sought to support the relevance of the question by saying that it tested ASIC's compliance with a notice to produce, and went to the credit of Ms Redfern. In my opinion the discretionary considerations to which I have referred should lead me to reject the question notwithstanding its relevance on these bases. 57 The result is that the question will be disallowed, and I shall not permit the defendants to ask questions about any alterations, after December 2001, to ASIC's knowledge and understanding of the legal position regarding the circumstances relating to · the execution of the search warrants on 1 June 2001 (including circumstances relating to the copying of hard drives), and · the use of the search warrant materials in connection with ASIC's civil investigation in the period from June to December 2001, and in connection with the commencement of the present proceeding (including making the search warrant materials available to Mr Carter in connection with the preparation of his reports of November 2001 and his reports and affidavits from the purposes of this proceeding). 58 A corollary is that I reject any contention, were it to be made, that Ms Redfern's evidence in her affidavit warrants an inference as to the continuing corporate state of mind of ASIC. It is evidence going only to her state of mind, and by inference the corporate state of mind of ASIC, in the period to which it relates. **********

ASIC v Rich

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (2)

Cited By (2)