ASIC v Rich [2005] NSWSC 491 | Case summary

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: As I mentioned in my reasons for judgment delivered on 18 May 2005 (ASIC v Rich [2005] NSWSC 471), at [1], an issue remaining to be resolved with respect to ASIC's documentary tender concerns the admissibility of communications between One.Tel and creditors. There is a great deal of this correspondence in ASIC's six volume "merged tender bundle" (MTB), and some in the Carter Exhibits. 2 ASIC wishes to tender the creditor communications to support its case that One.Tel received threats to supply as a consequence of deteriorating cash and creditor position of the group and its failure to pay suppliers (T 3998), as well as demands for payment from other creditors (T 3999), for the purpose of supporting an inference that in the period from January to May 2001 One.Tel was unable to meet its obligations to its creditors. The tender is of more than 250 separate communications from over 100 creditors during the period from June 2000 to June 2001. 3 It is appropriate, especially when considering the discretions to exclude evidence or limit its use, to bear in mind the scale of One.Tel's business. It appears from a "Creditor Reconciliation with June01 Balances", sent by Natasha Nassif of One.Tel to Ferrier Hodgson on 15 August 2001 (Exhibit DX 3), that, for example, in March 2001 invoices raised were for $119 million, payments by electronic funds transfer were $42.9 million and cheques were drawn for $40.067 million. Credit notes of $24 million were issued in that month. 4 It was not suggested that the creditor correspondence is admissible under s 1305 of the Corporations Act 2001 (Cth). ASIC made its tender under the Evidence Act. Senior counsel for ASIC stated that if the Court were to decide, for case management reasons, that a lot of specific material should be omitted from the tender, ASIC would obviously abide by that ruling, and would not complain if the Court did not issue a formal judgment and dealt with the matter very short form. Tempting though it is to handle the matter that way, I have decided it is necessary to provide reasons in response to the substantial argument that I have heard, especially since, to a degree, I shall be finding against the defendants. 5 The defendants contended that the correspondence should not be allowed into evidence on two principal grounds. 6 First, the defendants submitted that the evidence was inadmissible, because it was tendered for the hearsay purpose of proving the truth of the creditors' assertions of indebtedness, defaults and other matters. The defendants contended that the business records exception to the hearsay rule (Evidence Act 1995 (NSW), s 69) does not apply to the creditor communications, because a representation in a letter from A to B found in the files of B is not admissible as a business record of B made in the course of or for the purpose of B's business, merely because it was filed and kept by B: see Trade Practices Commission v TNT Management Pty Ltd (1984) 56 ALR 647, at 659; Karmot Auto Spares Pty Ltd v Dominelli Ford (Hurstville) Pty Ltd (1992) 35 FCR 560; The Tubby Trout Pty Ltd v Sailbay Pty Ltd (1992) 42 FCR 595; Prentice v Cummins [2002] FCA 1172. 7 Secondly, the defendants submitted that, if the creditor correspondence is admissible, it ought to be excluded by the court in the exercise of its discretion under s 135 of the Evidence Act, on grounds asserting dangers of unfair prejudice, misleading or confusing evidence and undue waste of time. A central part of the submission on discretion was that, according to the defendants' case, many of the creditor claims were disputed, and the court would not be in a position to assess whether the creditor communications were evidence tending to prove that One.Tel was "managing" overdue creditors whilst insolvent without first forming a view (after a multitude of "mini-trials", some of which would be lengthy) of the validity of One.Tel's grounds for resisting payment. 8 After the defendants began to develop their submissions by reference to particular documents, it appeared to me that there were some documents included in the tender which would have only slight probative value, even when considered in conjunction with all the other evidence (T 4022, T4026). As a matter of case management, I encouraged ASIC to review the contents of the proposed tender, preferably in a fashion that would substantially reduce the risk of "mini-trials". I had in mind that, upon reconsidering its position, ASIC might conclude that its point about creditor demands could be adequately made by adducing evidence of demands made in respect of the larger debts, and demands made during the crucial period from January to the end of April 2001, excluding disputed debts and demands for smaller debts made outside the crucial period. 9 ASIC reviewed the position and informed the Court that it would limit the tender of creditor correspondence to lists of four categories of documents, relating to larger Australian creditors, smaller Australian creditors, larger overseas creditors, and smaller overseas creditors, and it provided to the Court some documents identifying, and summarising, the correspondence which it wished to tender. These were marked together as AS 69. ASIC has subsequently agreed to revise and correct the summary descriptions of the correspondence in AS 69, and has done so for the larger Australian creditors. The defendants do not concede that the descriptions in AS 69 are accurate. There are some 89 creditors listed in AS 69, including 22 larger Australian creditors and 8 larger overseas creditors. 10 Importantly for present purposes, ASIC informed the court that the creditor communications identified in AS 69 constitute all of the creditor communication documents that ASIC seeks to tender (T 4033), although there is a possibility that other "bits and pieces" might be identified (T 4043). ASIC will provide a list identifying the documents in the merged tender bundle that it no longer wishes to tender. AS 69 also identifies some internal communications of One.Tel, which ASIC seeks to tender to prove the truth of the representations they contain. The present judgment is confined to the creditor communications, and will not address the admissibility of the internal One.Tel documents. 11 In addition, on 17 May 2005 (T 4013) ASIC informed the Court that it would revise and limit the basis of the tender. It said that it would tender the communications from creditors to One.Tel as evidence of the fact and nature of the communications, but not as evidence of the truth of the matters asserted in the communications. The defendants then submitted, and I agreed, that the limited purpose of the tender should be reflected in an order made under s 136 of the Evidence Act, applying to the tendered communications from and to creditors. Subsequently a form of order was settled (it is at AS 70, except that the order will specify the documents to which it relates as the communications between creditors and One.Tel Group companies identified in AS 69). 12 An effect of this revised basis of tender has been to remove the defendants' hearsay objection to the creditor communications and to eliminate the need for the Court to decide whether the business records exception to the hearsay rule is applicable. The defendants object to the tender of all third-party communications (where the third party is not related to One.Tel), not merely creditor communications. ASIC is checking to identify communications in this category (T 4063). The present judgment does not address the admissibility of third-party communications other than the creditor communications specified in AS 69. 13 The defendants formally submitted that, to the extent that the correspondence contains expressions of opinion, they are subject to the opinion rule in s 76 of the Evidence Act and ought to be excluded to the extent that there is no compliance with s 78 or s 79 (T 4145). However, they accepted that the reasoning in ASIC v Rich [2005] NSWSC 417 (5 May 2005), at [205]ff, would lead to the conclusion that the opinion rule applies only to evidence of opinions given by witnesses in court, and therefore would not apply to opinions contained in the creditor correspondence. I agree that this is the correct construction of my reasoning at paragraphs [205]-[222] of my 5 May judgment, which I now apply, so as to reject the defendants' submission of inadmissibility for failure to comply with the opinion rule. 14 That being so, the documents are admissible if they are relevant (bearing in mind that the use of the evidence will be limited in terms of AS 70), and if they are admissible they should be received in evidence unless excluded under s 135. Relevance 15 ASIC informed the court (T 4017) that the creditor communications provide evidence of the weak financial position of One.Tel, to be considered as part of a large body of evidence ("a mosaic", according to senior counsel for ASIC) which also includes internal documents of One.Tel and other evidence as to the cash and liquidity position of the company. ASIC contended that, considered as a whole, this body of evidence points to One.Tel having a dire shortage of cash at the relevant time, reflected in steps taken on behalf of the company to engage in a systematic process of "management" of cash and creditors. ASIC contended that the extent to which claims and demands were made upon the company by creditors, and the extent to which cash and creditors were "managed", are important matters because, if it is shown that they occurred to an overwhelming extent, there are strong grounds for inferring knowledge and, indeed, participation by the defendants in the process. 16 In my opinion ASIC's submissions are sufficient to establish the general relevance of the creditor communications, considered as a group. As I pointed out in my 5 May judgment (at [131]), the statutory test of relevance (s 55) is broad one, directing attention to whether the evidence, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue. Considered in isolation, a single document proving the fact of communication of a creditor demand could not rationally affect the court's determination of One.Tel's cash position or the defendants' knowledge of it, but if there is a multitude of such documents and also evidence of "management" of the creditors in internal communications within One.Tel, the creditor evidence as a whole would be likely, considered with the other evidence, to affect the court's assessment of the company's cash position and the defendants' knowledge of it. On that basis, it would be relevant to facts in issue. ASIC gave an indication of the evidence upon which it will seek to rely with respect to internal One.Tel communications: for example, a voicemail message by Mr Silbermann at MTB 856, some e-mail correspondence of Mr Holmes at MTB 916 and 843, Mr Boaden's e-mail at 1353, and the affidavits of Ms Randall, Mr Weston, Mr Werner and Mr Boaden. 17 Evidence of creditor communications is relevant if it shows the making of claims or demands by creditors for payment of money owing to them, or threats to withdraw supply or services if payment is not made. If, in a particular case, the correspondence did not expressly or impliedly indicate any such claim, demand or threat (either in its own terms or as part of a chain of correspondence), then that correspondence would be irrelevant and inadmissible. 18 Fortunately it is unnecessary for the court to make a determination of the relevance of each creditor communication, one by one. The defendants conceded (T 4103; T 4144) that the court may wish to receive the bulk of the evidence with respect to the larger Australia and overseas creditors, except (a) American Express, Contractors, Diners Club, Prolec, Singapore Telecom and Steadycom; and (b) documents affected by ASIC's failure to give the defendants access to adequate information (such as aged creditors reports or electronic creditors' ledgers) regarding the Netherlands business. I take this to be a concession both that the larger creditor communications other than those in (a) and (b) are relevant and that they ought not to be excluded in the exercise of the Court's discretion. 19 Rather than submitting that communications from smaller creditors are entirely irrelevant, the defendants submitted that the probative value of this material is very low (T 4092); and therefore that the best way to deal with the smaller Australian and overseas creditors is to exclude documents affected by the difficulties in the Netherlands, and as for the rest, to adopt criteria of exclusion (proposed by them in DS 67) which could then be applied by the parties, on the basis that documents not excluded would be allowed into evidence. The defendants' submissions as to the s 135 discretion 20 The defendants submitted that the court should exercise its discretion under s 135 of the Evidence Act to exclude · the specific creditor communication documents which remain in contention, as itemised above; · smaller creditor communications by reference to exclusionary criteria; and · documents affected by the difficulties that have emerged in relation to the Netherlands business. 21 The defendants' contention was that in each of these areas, the documents in question were of no or little probative value, and that such probative value as they may have would be substantially outweighed by the danger that the evidence might be unfairly prejudicial to the defendants, or be misleading or confusing, or cause or result in undue waste of time. Although some emphasis was placed on the "undue waste of time" criterion, supported by the submission that receiving the evidence would lead to a series of mini-trials of creditor disputes, the defendants relied on each of the three criteria specified in s 135. 22 The defendants submitted that they would be unfairly prejudiced in three ways. First, they submitted that there had been a process of selection with respect to the overseas documents, first by Minter Ellison and Mr Elliott when they obtained documents overseas, and then by ASIC's representatives when they decided which documents to obtain from Minter Ellison and Mr Elliott, after inspecting the documents in Melbourne. According to the defendants, the criteria of selection have not been disclosed to them. Secondly, related to this but specifically as to the Netherlands problem, they submitted that they were prejudiced by their inability to garner the material to meet the case that would be put against them by ASIC (T 4118). I shall consider these two submissions later. 23 Thirdly, as to the contested creditor communication documents as a whole, the defendants raised the general issue of oppression. They took the court to the tendered communications in respect of some creditors to illustrate what they said were their difficulties, and also to show how slight was the probative value of the evidence examined. I was taken to evidence about the following creditors: Colt at T 4001ff, KPN at 4024ff, Alcatel at T 4069ff, Avenue Design & Construction (T 4075ff), Baker & McKenzie (T 4081ff), Candle Australia (T 4086-7), Cap Gemini (T 4088), Computershare (T 4088), Concurrent Reality (T 4089), CX Computers (T 4090), Henkell Bros (T 4090), Interspace Manufacturing (T 4091), Global Communications (T 4096ff); Optus (T 4098ff), Steadycom (T 4102ff), BMC Software (T 4104-5), Energis T 4107), and Harvard Public Relations (T 4108)). 24 It is sufficient for me, having considered these individual cases, to set out my conclusions in general terms. In some cases the tendered communications refer to other communications, which are not tendered. Sometimes what is tendered is one-sided, in the sense that the material placed before the Court is the creditor's correspondence without any answer by One.Tel. In some cases, there is correspondence asking for payment, but it would be an exaggeration to describe it as making demands or issuing threats, sometimes because the existence of a dispute and the attempts by both sides to resolve it has been acknowledged in the correspondence. The correspondence is tendered in chronological sequence without being placed in context, sometimes without reaching a conclusion as to the fate of the creditor's claim. Sometimes, the correspondence suggests a reason for One.Tel's non-payment of the claimed debt, for example that there is a dispute between the parties as to whether the supply or service for which the creditor has charged was satisfactory, or the creditor has asked for payment before the time for payment has arrived. 25 I was taken to less than a quarter of the creditor communications that remain in contest. The parties agreed with me that to go through every case would consume an unjustifiably large amount of hearing time. It is enough for present purposes to say that the defendants have shown me that at least in some cases, without attempting to quantify them, problems of these kinds have arisen, such that it would be reasonable for the defendants to explore the creditor communications in the course of their hearing preparation and to challenge the weight of particular evidence; and, if they go into evidence at all, themselves to adduce evidence to show, in particular cases, that the creditor communications are not proof of ASIC's case. 26 The defendants contended that it would be oppressive for them to have to "chase all these rabbits down all these warrens" (T 4118) by being forced to undertake such a task in respect of so many documents. They also contended that there was a danger, having regard to what they had shown the Court about the documents, that ASIC's tendered documents would be misleading or confusing if received into evidence, and they said it would be unfair to leave it to the defendants to clear up confusion which was not of their own making. The likelihood that the evidence will be misleading or confusing is reinforced by the fact that creditors' files are no longer available for perusal (T 4119). They said the receipt of the tendered documents would result in undue waste of time because even a relatively expeditious process of dealing with the issues would involve, on average, half a day per creditor (in addition to the forensic inquiry lying behind the hearing) and therefore many weeks of hearing time if 56 creditor tenders remain contested, disproportionate to the probative value of the evidence (T 4118). There would be confusion and undue waste of time because of the incomplete and unorganised way that the material had been placed before the Court. 27 I have decided that the defendants' submissions, assessed in the light of the evidence, do not warrant the exclusion of the documents relating to the Netherlands business, which have been identified in DS 68. I do not regard the defendants' submissions as sufficient to exclude any of the individual disputed large creditor communications, except in the single case of Singapore Telecom. However, in my view there is substance to the submissions dealing with confusion and undue waste of time (coupled, in each case, with lack of probative value), sufficient to justify the imposition of exclusionary criteria in the case of the smaller Australian and overseas creditors. It is unnecessary to rely on the "oppression" submission, or any other aspect of unfair prejudice, to justify the exclusionary criteria. I shall explain my reasons for these conclusions in the remainder of this judgment. Allegations of selectivity and lack of information about the Netherlands business 28 The defendants submitted that there had been a measure of selectivity in ASIC's recovery of copies of overseas documents, both because documents were obtained from overseas sources by Mr Elliott of counsel and Minter Ellison, acting for PBL/CPH, and because ASIC then applied a process of selection when they reviewed and obtained copies of some of the Minter Ellison documents. Additionally, the defendants said they are disadvantaged because the information they have been given about the Netherlands business is inadequate to enable them to respond to the tender. 29 In DS 68 the defendants identified, by reference to AS 69, some 47 documents to which they had objected on grounds relating to the connection with One.Tel's Netherlands business. As finally formulated, the defendants' submission was that they were disadvantaged in respect of the Netherlands documents in the following specific ways (T 4148ff): (a) the defendants sought but did not obtain access to the e-mail boxes of the Netherlands management team who were prominent in communications with creditors, and therefore they have inspected only the limited number of e-mails that were discovered in hard copy; (b) they sought but did not obtain access to the electronic database in which the full transaction histories of dealings with the Netherlands creditors were stored; (c) therefore, the defendants have not been able to ascertain whether any particular creditor's invoice was paid, or to see the payment history of dealings between One.Tel and the Netherlands creditors, in order to establish (for instance) whether they were, or were not, typically paid on 30 day terms or (say) 120 day terms or some other terms; (d) only very limited information on creditor aging has been made available in respect of the Netherlands, in the form of the aged creditors reports exhibited to Mr Carter's affidavit of 8 September 2004, including only a summary version of the report for 28 February and the last pages only of the reports for January and March 2001; (e) there is only a partial picture of correspondence between One.Tel and Netherlands creditors because of the absence of anything for the Netherlands business equivalent to the I:/Drive, and because ASIC has obtained that information selectively from Minter Ellison. 30 The evidence to which I shall refer seems consistent with these five assertions. The question is whether the limitations on the defendants' access to information about the Netherlands business should lead the Court to exercise its discretion to exclude any of the tendered documents. 31 In the case of the Australian business, the defendants have access to aged creditors' reports which contain sufficient detail to enable them to work out the due dates and payment of particular invoices, and they have electronic access to creditors' ledgers. In the case of the Netherlands, there is a "Netherlands Aged Creditors Bundle" exhibited to Mr Carter's affidavit of 8 September 2004, but it is in a summary form without any breakdown giving information with respect to particular invoices. Information about when particular invoices were rendered and paid might be extracted from the electronic version of the creditors' ledger but that has not been made available to the defendants for the Netherlands. 32 There is evidence that a very substantial volume of documents was obtained overseas by Mr Elliott of counsel and the law firm Minter Ellison on behalf of PBL/CPH. It appears that Centrica, the company that took over the UK operations of One.Tel, and Scarlet BV, the company that took over part of the Netherlands operations, supplied financial documents concerning One.Tel's UK and European operations to Minter Ellison and Mr Elliott. Those documents, contained in some 50 boxes, were kept in Mr Elliott's chambers in Melbourne. Ms Reynolds gave evidence that representatives of ASIC inspected those documents on three occasions, and obtained copies of documents they selected for copying. Jennifer Devitt, a solicitor employed by ASIC, visited the offices of Scarlet BV in June 2004 and inspected some documents which were in archive boxes. She compared copies of particular creditor demands in the merged tender bundle with documents in the archive boxes and confirmed, in her affidavit made on 5 August 2004, that the copies in the merged tender bundle were true copies of documents in the archive boxes. 33 ASIC has given discovery of the documents it has obtained. But the defendants complain that they do not know the criteria upon which selection was made. 34 If there were nothing except evidence showing that a large volume of documents was obtained from the purchasers of One.Tel's businesses by solicitors acting for an interested party, and then the plaintiff in the proceeding obtained documents (and ultimately made them available to the defendants through the discovery process) by selectively reviewing the solicitors' storage files, there would be a basis for concern about selectivity. But here there is other evidence indicating that ASIC made efforts to obtain (and therefore make amenable to discovery) documents with respect to the overseas business from other sources. As far as the Netherlands business is concerned, the evidence indicates that ASIC responded to specific requests by the defendants' solicitor for information by seeking information overseas in various ways, but with only limited success. 35 Evidence about ASIC's attempts to obtain documentary evidence concerning the UK and European operations of One.Tel may be found in Exhibits P 30 and DX 9. ASIC and its London lawyers were directly in touch with Centrica and its lawyers in February and March 2002 seeking documents of One.Tel UK, in conjunction with Ferrier Hodgson. In May 2002 the United Kingdom Department of Trade and Industry took steps under the UK Companies Act 1989 to exercise powers of investigation in respect of One.Tel at the request of ASIC. They required Centrica to produce various documents including e-mail correspondence relating to pressure upon One.Tel for payment and threats to One.Tel of withdrawal of supply of goods and services, and information about financial statements and other matters. Centrica's replies indicated that some categories of documents had not been retained. 36 On 8 April 2003 this Court made extensive orders requiring ASIC to provide further information to the defendants and to make supplementary discovery. One of the directions was for ASIC to use its best endeavours to obtain from Minter Ellison and Mr Elliott, and their clients, inter alios, all of the business records (electronic or hardcopy) of One.Tel or any of its subsidiaries that might be in the possession of those persons. Another direction was for ASIC to use its best endeavours to obtain from the owners and managers of the businesses formerly conducted by One.Tel subsidiaries in the United Kingdom, electronic copies of the month-end creditors' ledgers of the One.Tel international subsidiaries in the United Kingdom and the Netherlands, and also correspondence and documentation relating to disputes between those subsidiaries and certain specified carriers and suppliers. 37 On 23 April 2003 ASIC issued a s 1317R notice to Minter Ellison requiring production of "all business records, whether electronic or hard copy, of One.Tel Ltd and its subsidiaries", and in response to that notice, ASIC received a consignment of documents on about 2 June (affidavit of Jane Williams made on 30 August 2004, para 32). ASIC later issued a "request for information" to Minter Ellison on 30 August 2004 (Exhibit DX 4). ASIC's request recorded its belief that documents listed in an attachment to the request (an extensive list) were ultimately sourced from Centrica or Scarlet BV, and that the documents were supplied by those companies to Minter Ellison. ASIC sought information identifying the people at Minter Ellison who obtained the documents and the people who sent the documents to Minter Ellison. 38 ASIC wrote to Centrica 123 April 2003 referring to the court's orders requiring additional information including an electronic copy of creditors' ledgers in the United Kingdom and the Netherlands and documentation relating to disputes with various specified carriers and suppliers. Centrica replied, saying that it had already provided assistance in response to the Department of Trade and Industry's notice. The defendants' solicitor made a further demand for information on 19 May 2004, after the defendants were served with Mr Carter's affidavit of 14 April 2004 in which he referred to "threats to supply" and "demands for payment", seeking copies of correspondence and other documents including an electronic copy of the creditors' ledger for One.Tel Netherlands. ASIC replied on the same day, agreeing to seek the specified information and make discovery. 39 On 26 May 2004 ASIC's London agents wrote to Centrica and Scarlet BV seeking information of various kinds including copies of the common drives of the computer systems of One.Tel UK and One.Tel Netherlands. Then there was correspondence between the solicitors for the parties concerning the steps ASIC had taken to respond to the defendants' request for further information. On 18 June 2004 ASIC wrote to the defendants' solicitor saying, inter alia, that its London agents had obtained a large volume of documents from Scarlet BV which were being sent to Australia and would be made available for inspection (subsequently they were made available), but that they were unable to obtain any electronic records for One.Tel Netherlands or any additional documents or electronic records from Centrica. The London agents also made requests to 20 separate creditors/suppliers, and there is evidence of the relatively slow process of the London agents attempting to extract information, without complete success, from those creditors. 40 It is evident from a perusal of the creditor communications tendered by ASIC that there are some gaps in the information provided, and it is apparent that the defendants' access to information such as creditors' ledgers for One.Tel Netherlands has been insufficient to enable them to track down due dates and payment dates in respect of particular invoices. On the other hand, the evidence which I have summarised indicates that ASIC has made a bona fide and substantial effort not only to comply with the Court's orders but also to respond to subsequent demands for information by the defendants' solicitor. Deficiencies in the information supplied to the defendants appear to be attributable to difficulties encountered by ASIC in extracting information located overseas. There appears to have been some selection process in reviewing the Minter Ellison documents, but ASIC also sought to obtain information, based on disclosed criteria, by directly approaching the overseas sources, and it required general production from Minter Ellison. 41 Such deficiencies as remain in the evidence may well go to its weight, but in my opinion they do not provide a basis for excluding it. Limitations on the defendants' ability to check the evidence by reference to the financial records of One.Tel Netherlands, because electronic copies of creditors' ledgers and other information have not been obtained by ASIC after what appear to have been substantial efforts to obtain it, do not provide a basis for preventing ASIC from tendering evidence that it has gathered and has decided to tender. The larger creditors singled out for objection 42 Argument was specifically directed to the five larger Australian creditors that the defendants singled out for objection. In the case of American Express, two pieces of correspondence are tendered (see T 4094-5). The first is a communication from One.Tel to American Express dated 23 February 2001 notifying a payment of over $458,000 and asking that the relevant cards (held by the two defendants, Mr Beck and Mr Keeling) be kept alive while payment was being processed. The second is an internal One.Tel memorandum dated 30 May 2001, which shows that over $1 million was outstanding on American Express corporate cards for the two defendants, Mr Beck and Mr Keeling. There is no suggestion on the face of the documents that they are linked, nor any express suggestion that at any time the account was overdue. 43 In the case of "Contractors", there is an internal e-mail from Mr Holmes dated 1 May 2001 attaching a file which details the "contractors" who are individuals and therefore, according to Mr Holmes, similar to employees. Mr Holmes remarked that they therefore need to be paid like employees. There is also an internal e-mail dated 26 May 2001, in which the author requested that cleaners be paid because they had not been paid since March and were threatening to withdraw services, and a reply on the same date in which the author expresses confidence that the cleaner can "sneak on the on-time payments list". 44 In the case of Diners Club, there is an invoice dated 2 February 2001 noting that full payment had not been received and reminding One.Tel that the Diners Club terms and conditions required full payment on receipt of a statement, and that a liquidated damages charge would be applied to the overdue balance, which was in excess of $800,000. Then there is an internal One.Tel e-mail dated 30 May 2001 showing that over $600,000 was outstanding on corporate cards for the two defendants, Mr Beck and Mr Keeling. 45 It seems to me that the evidence relating to American Express, Contractors and Diners Club should not be excluded. While the evidence does not indicate that particular pressure was being applied by the creditors, it does show that claims were being made and is some evidence of the phenomenon of "management" of One.Tel's creditors. The documents do not appear to indicate any dispute about these creditors' claims, raising a risk of "mini-trials". Although the American Express evidence does not indicate that the debt was overdue in February or May, it shows that the debt was for a substantial amount and the fact that One.Tel asked that the account be kept active may have some significance, when assessed with the remainder of ASIC's evidence about the "management" of creditors. 46 In the case of Prolec, there is an internal One.Tel e-mail exchange raising the question when Prolec would be paid invoices dating from early April totalling about $32,000. On 22 May 2001 Mr Robson wrote an internal e-mail listing invoices from Prolec totalling over $139,000 for the period March/April for cabling services, noting that Prolec currently performed "often critical" cabling work and that there was a long relationship in which One.Tel ensured that Prolec was paid on time because their costs were kept at a minimum. There is another internal memorandum dated 24 May 2001 in which the author said there were issues with Prolec, and a later exchange in which a query was raised as to whether Prolec's early April invoices could be paid and a negative answer was given. 47 In my opinion this evidence should not be excluded. It tends to show some process of "management" of the Prolec account and implies a slowing down of payment arrangements from April 2001. The correspondence does not indicate any dispute to be resolved by a "mini-trial". 48 As to Singapore Telecom, the only document tendered is dated 31 May 2001 and indicates that invoices amounting to over $548,000 remained unpaid, and that service would cease if payment was not made within five days. This demand was made after the appointment of voluntary administrators and the document does not indicate the age or composition of the debt. It seems to me to have very little probative value, even when matched with other evidence of the kind referred to by senior counsel for ASIC in submissions. I think the document should be excluded under the "undue waste of time" component of s 135. 49 As to Steadycom, the only documents tendered are an internal e-mail exchange between One.Tel's Netherlands and Australian offices on 28 February 2001. Mr DeBree of One.Tel Netherlands wrote to Mr Beck concerning a "Steadycom support payment", noting that it was a very serious matter for them if they had no support and asking the Sydney office to chase it up. The probative value of this evidence is very weak, when it is considered in isolation. But, it seems to me, there is a reasonable prospect that it will fit into a mosaic concerning the relationship between the European and Australian parts of the One.Tel business and, especially, their respective cash positions. It is not suggested that receiving this evidence would lead to a "mini-trial". I would not exclude it. The smaller Australian and overseas creditors 50 The only concessions made by the defendants are with respect to the smaller creditors related to KPN, Star Telecom (including "Swiss Com") and Teleglobe (at T 4113). Communication about their claims will be received in evidence even if they come within the exclusionary criteria which I shall enunciate. 51 In my view, it is necessary for the court to adopt a pragmatic approach as to the remainder of the smaller creditors. There are 55 other creditors, after the conceded cases are removed. If it were necessary, in the case of each creditor, to hear full submissions and make an individual assessment of the matters to which s 135 directs attention, a substantial amount of time would be taken up, in an already over-lengthy trial, in a way that would be unproductive. Indeed, ASIC conceded that it would be impossible to deal with all of the creditor communications at a "micro-level" (T 4129). 52 It seems to me that a proper assessment of probative value and the matters identified in subparagraphs (a), (b) and (c) of s 135 can be made by considering the smaller creditors as a class, and segregating from that class the creditors whose communications are unlikely to have probative value and likely to attract one of the subparagraphs of s 135. I was encouraged to do so by the defendants and ASIC did not submit, in the context of the pragmatic difficulties that the Court is confronting, that this approach is impermissible per se. I have accordingly decided that the correct course is to exercise my discretion under s 135 by adopting exclusionary criteria. 53 In reaching this conclusion, I have considered carefully the judgment of the Court of Appeal in ASIC v Rich [2005] NSWCA 152. In that case the Court of Appeal held that I had failed to express an assessment of the probative value of the Carter Report, because I had not set out an examination or analysis of the overall and intermediate opinions contained in the Report (at [157], [161]). In their Honours' view, the legislature has set for judges who come to consider s 135 the task of weighing "essentially incommensurable factors" (at [164]). That task could not be performed, they reasoned, by my taking the overall view that Mr Carter's access to extraneous material meant that whatever the probative value of his opinions may have been, they were substantially outweighed by the danger that his evidence might be unfairly prejudicial to the defendants, or confusing or productive of undue waste of time. If it is impermissible to decide to exercise the discretion on the basis of an overall assessment of probative value, it must be equally impermissible to decide, on that basis, not to do so when party invites the court to exercise the discretion. 54 Probative value is not only "incommensurable" with the three factors enumerated in s 135, it is also very difficult to assess early in the trial, before all the evidence has been heard. Nevertheless, in my opinion the Court of Appeal's decision, requiring that the probative value of the evidence be analysed before the discretion is exercised, does not prevent a trial judge from applying s 135 when making rulings on evidence before hearing the substantive evidence of the parties. If it were necessary for the trial judge to defer the exercise of the discretion until final submissions, there would be a risk that "the parties would be confronted by an ever-changing sea in which items of evidence slither about indecisively with questions of ultimate admissibility hanging over their heads", leading to uncertainty and confusion: Rhoden v Wingate [2002] NSWCA 165 at [60], per Heydon JA. This is especially so in the present case, given the volume and complexity of the evidence. It is highly desirable that rulings be made now, and a measure of certainty thereby achieved, as to whether particular creditor communications are excluded from evidence. 55 Nor does the Court of Appeal's reasoning imply that it is never permissible to make a decision under s 135 in a manner that assesses the factors to which the section is directed for a category of documentary evidence, rather than for each individual document. It was impermissible to approach the Carter Report on an overall basis because, in their Honours' view, the opinions and reasoning of Mr Carter on particular matters might have probative value notwithstanding his access to extraneous material or the risk that he might have such access. Here, however, one can make decisions about probative value in the case of the smaller Australian and overseas creditors by adopting criteria directed both to probative value (or lack of it) and the matters stated in sub-paragraphs (a), (b) and (c) of s 135. 56 In my view, the exclusionary criteria which are to be applied to communications relating to smaller Australian and overseas creditors should be the following: (1) where the tendered correspondence, or other evidence, indicates a dispute in relation to the whole of the asserted debt; (2) where no claim or demand for payment has been made during the period from January to mid-May 2001; (3) where the tendered correspondence does not contain, expressly or by implication, any claim or demand for payment (please note that I have added the words "expressly or by implication", for clarity, since reading out the criteria in court on 20 May); (4) where there is no express or implied claim that the debt has fallen due for payment. 57 To avoid distortion and minimise further dispute, the criteria should be applied to the whole body of communications in respect of each of the smaller creditors listed in AS 69, without any further subdivision. For example, the fact that some of the evidence for Colt relates to a communication in June 2000 should not lead to the exclusion of that particular evidence if the body of evidence for Colt, considered as a whole, escapes the application of the exclusionary criteria. If any of the criteria applies in the case of a particular creditor, then prima facie I would exercise my discretion under s 135 to exclude that evidence. However, I shall give ASIC and the defendants the opportunity to draw to my attention any case in which the application of the criteria leads to a result which they consider to be anomalous. 58 As to criterion (1), the fact that a creditor's claim was wholly or partly disputed by One.Tel does not, per se, prevent that claim from supporting ASIC's case. Conceivably a debtor in dire straits might manufacture a dispute so as to forestall recovery. But if the dispute relates to the whole of the debt and appears to have some substance to it, the making of the creditor's claim for payment does not establish anything about One.Tel's financial position or its "management" of creditors' claims, and this lack of probative value would be very clearly outweighed by the danger of confusion and undue waste of time. In DS 67, para 1, the defendants advocated the exclusion of evidence where it appeared that there was any dispute in relation to the asserted debt, but I think the criterion should be confined to the case of a dispute about the whole debt. My reservation of "anomalies" will enable ASIC to raise any particular case where it contends that a dispute has been "manufactured". 59 As to criterion (2), I suggested during argument that the period should be January to the end of April, but on reflection, claims made up to mid-May (i.e., claims likely to have been received and absorbed by One.Tel's management before the board meeting of 17 May) seem to me to warrant admission. The claims might be for debts incurred during the January-May period, or for debts incurred earlier. The criterion implies that claims made before January 2001 have no, or only slight, probative value, substantially outweighed by the risk of confusion and undue waste of time. The same is true of claims made after the commencement of voluntary administration, or made too late to be taken into account for the purposes of the assessments made in the period from 17 to 29 May. In DS 67, para 2, the defendants suggested that claims relating to a period other than January-April 2001 should be excluded, but in my view the important issue is whether the claim was made during the crucial period, rather than whether the debt was incurred during that period. I mean to include in claims made during the period, the reiteration or continuation during the period of claims earlier made, and also claims expressed in the more polite language of requests. 60 Criteria (3) and (4) are self-explanatory. Together they do the work of the proposed criteria in DS 67, paras 3, 6, 7 and 8, to the extent that this work needs to be done. 61 I have decided not to prescribe criteria relating to the size of the debt or the assertion of an amount owing (cf DS 67, paras 4 and 5). I agree with ASIC that evidence about how a debtor treats smaller creditors may be at least as significant, for the purpose of assessing its financial position, as evidence of its treatment of its major creditors. Conclusions 62 The position is as follows: (1) those creditor communications specified in AS 69 which are to be received in evidence will be received subject to a s 136 order along the lines of AS 70; (2) the larger Australian and overseas creditor communications listed in AS 69 will be received in evidence, except for Singapore Telecom where the communications will be excluded; (3) communications for KPN, Star Telecom (including "Swiss Com") and Teleglobe will be received in evidence; (4) as to the remainder of the communications for smaller Australian and overseas creditors, the exclusionary criteria set out above will be applied, and the parties will be given the opportunity to draw the court's attention to any alleged anomalies. 63 I shall expect the parties to endeavour to reach agreement as to the application of the exclusionary criteria, and report to me if there are any matters to be resolved. It will be necessary to clean up the tender of the merged tender bundle and Carter exhibits by reference to this decision and its outcome, before the tender is formally made and received.

ASIC v Rich

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