5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS
JUDGMENT
1 HIS HONOUR: This judgment relates to ASIC's application, made orally on 11 July 2005, for leave to file and read the affidavit of Murray Smith dated 10 June 2005, and to tender Mr Smith's report of the same date.
2 Mr Smith is a chartered accountant and a member of the McGrath Nicol + Partners, an advisory firm established on the spin-off of KPMG's Corporate Recovery division in July 2004. His report comprises 100 pages of detailed analysis, notes and instructions purporting to give answers to 18 questions addressed to him by ASIC. Broadly speaking (but subject to the important qualifications noted below), the questions cover the subject matter of Parts 3.1 to 3.4 of the Carter Report. That is, they deal with the financial position and performance of the One.Tel Group during the period from January to May 2001, addressing such matters as the cash position, cashflow, overdue creditors, doubtful debtors and provisioning, liquidity, earnings, and loss. The report is supported by three lever-arch volumes of documents, adjusted documents and tables. There are 67 tables. Each of the three volumes contains about 450 pages. The three volumes are divided into six "folders" described as "Cash", "Creditors", "Cashflow", "Debtors", "Earnings", and "Loss".
- Chronology
3 This proceeding commenced by originating process filed on 12 December 2001. It began after several interlocutory hearings in Proceeding No 3028 of 2001 (the asset preservation proceeding). Certain of the defendants in the asset preservation proceeding gave undertakings to the court not to transfer assets outside Australia without giving ASIC 14 days' written notice of their intention. As I understand the position, those undertakings remain in place.
4 From its commencement, the present proceeding was case-managed by me, and there were many directions hearings before the final hearing commenced on 6 September 2004. On 14 December 2001 the court directed ASIC to serve a draft tender bundle including transcripts of interviews by 4 February 2002. On 11 March 2002 ASIC was directed to file and serve all affidavits upon which it relied on or before 31 May 2002, including all expert reports, and to provide the defendants with access to all documents obtained by it pursuant to compulsory notices, except documents subject to a claim for privilege. On 17 June 2002 ASIC was directed to grant the defendants access to the One.Tel Group computer system and the material relied on by Mr Carter for the purposes of his report dated 31 May 2002, and to file and serve some foreshadowed further affidavits on or before 21 June 2002. On 16 December 2002 ASIC was ordered to provide the defendants with verified discovery by 20 December 2002.
5 Generally speaking, at the subsequent directions hearings ASIC agitated for the case to be set down for hearing, on the basis that it had filed and served most of its evidence by mid-2002. By early 2003 ASIC was pressing for hearing dates in September 2003, and there seemed to be some prospect of the hearing commencing in 2003. The defendants resisted the allocation of hearing dates at that time. For example, in her affidavit made on 21 March 2003, the defendants' solicitor outlined in very considerable detail some alleged problems of lack of access to the underlying financial records relating to One.Tel and said (at para 225) that it would be difficult to progress the briefing of expert accountants retained on behalf of the defendants until the problems were overcome.
6 By mid-2002 the defendants had been served with the principal Carter Report and affidavits by ASIC's principal witnesses. An affidavit sworn by their then solicitor on 7 September 2002 made it plain that they had embarked on a very substantial work program to come to grips with and meet ASIC's evidence, including, in particular, Mr Carter's evidence. That affidavit shows that the defendants had engaged expert assistance, including forensic accounting assistance, although the defendants' present forensic accountant, Mr Finney, was not engaged until later.
7 A dispute between the parties as to whether the defendants' privilege against exposure to a penalty enabled them to resist discovery, and the filing and serving of affidavits before the close of ASIC's case, was heard by me in March 2003 (ASIC v Rich (2003) 45 ACSR 305; [2003] NSWSC 328 - 17 April 2003), and subsequently by the Court of Appeal (Rich v ASIC (2003) 48 ACSR 6; [2003] NSWCA 342 - 26 November 2003) and the High Court (Rich v ASIC (2004) 78 ALJR 1354; [2004] HCA 42 - 22 April 2004 (decision); 9 September 2004 (reasons)). This necessarily delayed the commencement of the hearing and the preparation of the parties for it. Nevertheless preparatory work continued. On 11 June 2003 the defendants' solicitor wrote to ASIC's solicitor seeking confirmation that ASIC's evidence was complete and that there would be no application for leave to file further evidence. ASIC's solicitor replied on 13 June 2003 saying that ASIC believed its evidence in chief was complete and did not anticipate seeking leave to file any further evidence in chief, but it would not give an undertaking that there would be no such future application. On 29 September 2003 ASIC's solicitor wrote to the defendants' solicitor confirming that she believed its affidavit evidence in chief was complete, while foreshadowing that further affidavits might become necessary to overcome objections to the affidavits that had been filed. There was further correspondence as to whether ASIC's draft tender bundle was in final form.
8 During 2004, as the hearing date approached, and even after commencement of the hearing, ASIC served many additional affidavits. The defendants have provided me with two lists (DS 81 and DS 82, annotated by ASIC in AS 85) comprising, in all, 46 additional affidavits sworn during the period from July 2004 to July 2005 (excluding Mr Smith's affidavit). Many of the affidavits are "provenance affidavits", which do not raise new matters concerning the substantial issues in the case. There are, however, some affidavits raising new matters, including supplementary affidavits and reports by Mr Carter, supplementary affidavits by other principal witnesses for ASIC including Mr Packer, Mr Murdoch, Ms Randall, Mr Howell Davies and Mr Boaden, and affidavit evidence (including a new affidavit) by Ms Ashley. A matter which drew particular criticism from the defendants at the time was ASIC's service of an affidavit by Geoffrey Kleeman sworn on 26 July 2004. Attempts by the defendants to resist the tender of ASIC's further evidence have been unsuccessful.
9 The final hearing of the case began on 6 September 2004. ASIC's application to tender the Smith Report was made on the 93rd hearing day. ASIC had previously endeavoured to tender a number of reports by Paul Carter, a forensic accountant, including his principal report ("the Carter Report") dated 31 May 2002. The central importance of the Carter Report to ASIC's case was explained in my judgment on the admissibility of the Report dated 7 March 2005 (ASIC v Rich [2005] NSWSC 149). It is significant for present purposes that ASIC has sought to rely on Mr Carter's opinions and explanations of documents to prove significant portions of its case, rather than to call the authors of the documents or witnesses who could explain how they were created and used within the One.Tel organisation. As noted more fully below, I have recently rejected the tender of more than half of the paragraphs in the Carter Report (ASIC v Rich [2005] NSWSC 650).
10 Appendix B to the Carter Report listed the materials upon which Mr Carter relied for the purposes of his report, but no mention was made of the extensive involvement Mr Carter had in assisting ASIC in its investigation before he was retained as an expert witness in the proceeding. The nature and scope of his other role emerged only through the administration of subpoenas and notices to produce before and during the hearing, and through cross-examination of Mr Carter and Cassandra Reynolds, who assisted him in his work. Ms Reynolds was cross-examined for a period of 10 days beginning on 21 September 2004, and Mr Carter was cross-examined on the voir dire for seven days beginning on 12 November 2004.
11 On about 31 May 2004 the defendants provided written notes of their objections to the admissibility of the Carter Report (Exhibit P2). ASIC places some reliance on the limited scope of the notified objections, contrasting them with the defendants' final submissions on the paragraph-by-paragraph analysis of the Carter Report (DS 69, a 137 page document). But it must be remembered that when the initial objections were notified by the defendants, they had before them a document which gave no inkling of the extensive involvement Mr Carter had had throughout the One.Tel investigation, or of the fact that he was subsequently instructed by ASIC to disregard much of the information he had obtained through that involvement. The foundation of the defendants' ultimate objections to the Carter Report was their contention that Mr Carter's prior involvement, and his consequent exposure to information and explanations of the documents during that time, had the effect of "tainting" his evidence in a manner that should lead to its rejection. In my opinion the fact that the defendants' initial objections to the Carter Report were limited in scope is immaterial to the question I must decide now.
12 The process of exposure of Mr Carter's prior involvement in ASIC's investigation of the One.Tel group, through subpoenas and notices to produce and cross-examination, led eventually to extensive written and oral submissions being made relating to the admissibility of the Carter Report, in the period from 6 to 15 December 2004. That procedure ran concurrently with another major issue raised by the defendants through a similar process, which had the potential to overlap with the question of admissibility of the Carter Report. The other issue was whether the documents to be tendered by ASIC should be rejected on the ground that they were first obtained upon the execution of search warrants issued on specific criminal grounds but later used for the purposes of civil investigation and a civil proceeding.
13 I addressed those two issues in judgments delivered respectively on 16 February 2005 (ASIC v Rich (2005) 52 ACSR 374; [2005] NSWSC 62 - search warrants) and 7 March 2005 (ASIC v Rich [2005] NSWSC 149 - Carter Report). I held that the Carter Report was wholly inadmissible and in the alternative, that it was to be rejected by the court in the exercise of its discretion under s 135 of the Evidence Act 1995 (NSW).
14 ASIC decided to seek leave to appeal from my 7 March judgment. On 17 March 2005 it wrote to the defendants (AS 56) foreshadowing, for the first time, the possibility of a further expert's report if the projected appeal were unsuccessful, contemplating that this course would necessarily involve an adjournment of the hearing "to enable the defendants to have the opportunity to deal with that report". In fact, on 30 March 2005 Mr Smith was instructed by ASIC to prepare an expert's report as a matter of urgency. Further instructions were provided by ASIC on 20 April, 4 May, 24 May and 3 June 2005. The hearing in the Court of Appeal took place on 13 and 14 April 2005. Senior counsel for ASIC referred to the additional expert's report during the hearing before me on 11 May 2005 (T 3917) and on 17 May 2005 he informed me that his client was "well advanced" in relation to the additional expert's report and hoped to serve it in the week commencing 23 May (T 4057).
15 The Court of Appeal delivered its judgment on 20 May 2005, granting leave to appeal and, in effect, setting aside my rulings on inadmissibility and the exercise of discretion (ASIC v Rich [2005] NSWCA 152). On 27 May 2005 senior counsel for ASIC informed me in court that the additional expert's report was "very well advanced" but would not be served that week (T 4289).
16 The defendants have drawn attention to the fact that ASIC now seeks to rely on the Smith Report in circumstances where its appeal has been successful, and it has therefore altered its intention. As far as I can see, the only significance of that point is that it reinforces my conclusion, expressed below, that it was justifiable for the defendants not to incur substantial expenditure on a review of the Smith Report until the consequences of the Court of Appeal's decision became evident, as they did when I gave my rulings by a paragraph-by-paragraph analysis on 8 July.
17 In consequence of the Court of Appeal's decision, it was necessary to assess the admissibility of the Carter Report and the exercise of discretion in relation to it by a "paragraph-by-paragraph" analysis of objections, rather than by global disposition. The defendants served lengthy written submissions developing their paragraph-by-paragraph objections to the Report on 3 June 2005 (DS 69). On 7 June 2005 ASIC served on the defendants a partial draft of Mr Smith's report without the supporting documentation.
18 That was a busy time for the parties. An unsuccessful attempt to mediate the dispute took place before Sir Anthony Mason on 9 June, pursuant to orders I had made. The defendants made an application to the High Court for special leave to appeal from the decision of the Court of Appeal, and on 10 June they applied to the High Court for expedition of that application.
19 The completed Smith Report and supporting documentation was served on the defendants on 14 June 2005. On 8 July 2005 ASIC wrote to the defendants' solicitor informing her that it proposes to serve an additional report by Mr Smith correcting certain limited areas in the report of 10 June 2005 and providing some additional references and workings to support the contents of the report. The letter said that the additional report would not be finalised until Mr Smith returns from overseas on 20 July 2005. In response to a challenge by the defendants, ASIC informed the court on 12 July 2005 that if the Smith Report were received in evidence, it would seek leave to make a further amendment of its statement of claim with respect to non-UK overdue creditors (T 5010). Subject to that, senior counsel for ASIC said that receiving the Smith Report into evidence would not require amendment of the statement of claim. To the extent to which Mr Smith has in any respect provided a figure more adverse to the defendants' position than Mr Carter's figure, ASIC accepts that it would be restricted to the position in the statement of claim (T 5013).
20 ASIC makes the point that, in considering how much time the defendants need for the purpose of responding to the report, it is relevant to note that the defendants have already had the report for about four weeks. In my opinion it would not be fair to take that period into account for the purposes of any such assessment. The defendants have made it clear from the time an additional expert's report was mooted that they would oppose ASIC's application to tender it at this late stage in the hearing. It was reasonable for the defendants not to incur the expense of instructing counsel and their forensic accounting expert to consider the report until ASIC's contested application for leave to tender it was heard and determined. That conclusion is reinforced by the prospect that there will be an additional report. It is also reinforced, as I have said, by ASIC's statement of 17 March, which tied the tender of the Report to failure in the appeal.
21 It is relevant, too, that the defendants' legal team has been extensively engaged in other tasks. Argument on the paragraph-by-paragraph objections to the Carter Report commenced on 15 June and continued on 16, 20, 21 and 22 June, and ASIC served written submissions in three tranches during that process. The defendants' unsuccessful application for special leave to appeal to the High Court in respect of the Carter Report was heard on 17 June 2005. The defendants made an application for leave to appeal to the Court of Appeal from another judgment of mine, dealing with the admissibility of ASIC's documents (ASIC v Rich [2005] NSWSC 417) and filed their written submissions in the Court of Appeal on 23 June. That application, which was unsuccessful (Rich v ASIC [2005] NSWCA 233), was heard by the Court of Appeal on 29 June and 1 July 2005. The cross-examination of Samantha Randall, a witness for ASIC in the hearing, commenced on 4 July and continued on 5 July. On 7 July the defendants filed and served their evidence in connection with the present application and on 8 July I delivered my decision on the paragraph-by-paragraph analysis, and the cross-examination of Ms Randall continued.
22 ASIC has submitted that the Carter Report was not, on its face, clearly inadequate. Reference was made to the Court of Appeal's acceptance of my finding that the Report is a reasoned report that sets out the statements or assumptions of fact on which the opinions purport to be based, together with the process of reasoning by which Mr Carter said he had reached his opinions (ASIC v Rich [2005] NSWCA 152 at [53], [54], [94]; ASIC v Rich [2005] NSWSC 149 at [387], [389]-[391], [402]). However, I subsequently made findings implying that substantial parts of the Report are flawed. There are 360 paragraphs in the Carter Report, excluding the first 42 background and summary paragraphs. 205 paragraphs have been wholly excluded from evidence, or treated as assumptions to be proved by other evidence, as a result of ASIC's concessions or my rulings on 8 July, and a further 49 paragraphs have been partly affected. Each ruling is based on specific analysis of the paragraph in question, but it is plain from reading the judgment of 8 July as a whole that many of the rulings are referable to the same fundamental problem.
23 The problem arises from a combination of two things. First, Mr Carter and his staff were given liberal access to ASIC's information and witnesses over the period from June 2001 to early April 2002, by which time they had prepared a mature draft of the principal Report relying on that information as well as the documents themselves. Secondly, Mr Carter was subsequently instructed to disregard the s 19 transcripts and, later, other witness statements and information. The circumstances in which ASIC made decisions to retain Mr Carter notwithstanding his assistance in the investigatory phase, and then to instruct him to disregard substantial quantities of information, are recounted in my 7 March judgment. The significance of that problem to my rulings can be seen in [2005] NSWSC 650, for example at [5], [36]-[39], [47], [117], [120]-[122], [148]-[151], [171]-[178], [256], [275]. The problem was not the Mr Carter's assistance in the investigation and his consequent acquisition of a large amount of information disqualified him, per se, from giving expert opinion evidence (cf ASIC's submissions at T 4916). I held that some of his opinions were to be allowed even though they may have been formed by use of extraneous information. Nor was the problem simply one of gaps in the reasoning process or faulty reasoning (cf T 4917). The problem was that Mr Carter from time to time supported his opinions by reasoning that was weakened by treating documents as having a significance that could not be deduced merely from the face of the documents and was probably derived from his extraneous information, in circumstances where, if the evidence were permitted, there would be dangers for the defendants of unfair prejudice, confusing evidence and undue waste of time in exposing the problem through cross-examination.
24 This problem with Mr Carter's evidence was eventually identified, clearly and explicitly, by the defendants in their lengthy submissions challenging the admissibility of the Carter Report in December 2004. At that time the defendants invited the court to hold that the Carter Report was wholly inadmissible, or alternatively that it should be wholly excluded under s 135 of the Evidence Act. I acceded to those submissions in my judgment of 7 March 2005. The Court of Appeal's decision, allowing ASIC's appeal against my decision, did not deny the problem that I have identified above; rather it was to the effect that the problem did not lead to the exclusion of Mr Carter's opinion evidence if the asserted reasoning process supporting any particular opinion was capable of supporting the opinion: see ASIC v Rich [2005] NSWCA 152 at [169]-[170]; ASIC v Rich [2005] NSWSC 650 at [5].
25 ASIC has submitted (T 4917) that the problem was not apparent in the defendants' December submissions because those submissions were wrong, and held to be so by the Court of Appeal. According to ASIC, it was put on notice of the problem that led to my rejection of a large portion of the Carter Report on 8 July only when it received the defendants' submissions on the paragraph-by-paragraph analysis in June 2005.
26 The defendants have submitted that the true nature of their case for the rejection of the Carter Report emerged during pre-trial interlocutory hearings or, at the latest, in the early part of the trial. They have drawn my attention to the transcript of an interlocutory hearing in August 2004 where reference was made to questions about the admissibility of the Carter Report. They have referred to their solicitor's letter to ASIC's solicitor dated 3 September 2004, in which it was said that "the process by which Mr Carter's opinions were formed and his reports were written, including the information to which he had access and which he considered in writing those reports, is material to the admissibility of his reports and, if admitted, the weight which should be given to them by the Court".
27 In my view the statements made at the August interlocutory hearing and in the letter of 3 September 2004, and similar statements by senior counsel for the defendants in the early part of the hearing, did not unambiguously identify the precise problem that emerged, and were perceived by senior counsel for ASIC and by me, at that time, as an issue about "independence". The true nature of the problem emerged when Ms Reynolds informed the court in cross-examination (T 1009-1013) that ASIC instructed Mr Carter to disregard the s 19 transcripts after a mature draft of his report had been prepared in early April 2002, and instructed him some weeks later to disregard witness statements and affidavits (see also Mr Carter's evidence, to the effect that he recalled only one instruction: T 2317-8; T 2348-9).
28 ASIC has drawn my attention to some observations I made in a judgment I delivered on 10 November 2004. After setting out the contentions advanced by the defendants to justify their proposal to cross-examine Mr Carter on the voir dire, including the substance of the contentions made in the defendants' solicitor's letter of 3 September 2004 cited above, I dealt with a submission by ASIC that it was not appropriate at that stage to hear Mr Carter's evidence on the voir dire because the defendants had not with sufficient clarity specified the issues to be explored. I disagreed with that submission. Then I dealt with the question whether the search warrant issues, which were also relevant to Mr Carter's cross-examination, had been sufficiently specified. I did not expressly address the question whether there was sufficient specificity in the contention that Mr Carter's opinion had been formed on the basis of information to which he had access in writing his earlier reports, apart from setting out the contention and expressing the general conclusion (at [14]-[16]) that Mr Carter's evidence on the voir dire should be allowed to proceed on the basis of the specificity that had been derived from the course of events at the hearing. In my view that judgment is consistent with the proposition that the defendants had sufficiently specified their challenge to Mr Carter's evidence based on his access to information for the preparation of his November report and the facts (which had by that time emerged in the course of the hearing) relating to the instructions to disregard that information and consider only the documents.
29 If ASIC had acted promptly when the problem was exposed, it could have obtained expert accounting evidence by some time in January 2005. Although the tender of a new expert's report at the opening of the new Law Term at the end of January would have raised difficulties, they would not probably have been as acute as they are now, especially if the defendants' legal team had been given some time to consider the new report before the resumption of term.
30 There is, however, a more important underlying concern. The defendants were able to expose the problem only when they ascertained the relevant facts. ASIC was aware of the relevant facts as and when they occurred. In particular, it was ASIC who issued instructions to Mr Carter in April or May 2002 that he was to disregard the s 19 transcripts and the witness statements and affidavits. Doing my best to discount the clarity of perception given by hindsight, I believe that common sense should have indicated to the decision-makers in the ASIC team that, in view of the extensive involvement of Mr Carter and his team in the investigation phase, and the fact that they had prepared a mature draft report in reliance on the information they had gathered, it would be doubtful whether Mr Carter could effectively exclude from his mind all of the information and explanations of documents relevant to the formation of his opinions, and to rely only on the documents (some of which were ambiguous or even obscure on their face). I do not say that they should have anticipated the precise objections and outcomes that have occurred, but rather that, using common sense, the decision-makers should have realised that the circumstances would create a sufficient cloud over the probative value of Mr Carter's final opinions that it would be prudent to engage another expert to be ASIC's expert witness in the proceeding. In my view, ASIC's relevant decision-makers made a serious error of judgment in persisting with Mr Carter as the expert witness after they had decided that his report should be based only on the documents.
- Comparing the two reports
31 ASIC submitted that the defendants exaggerated the amount of work that would need to be done to prepare a response to the Smith Report, because the defendants had been able to work on the issues in the context of the Carter Report since 2002, and the conclusions of Mr Smith and Mr Carter are very similar and the number of additional documents relied on are very limited. I disagree with this submission.
32 I have read the Smith Report for the purposes of the application, and I have compared it with the Carter Report. While there are obviously some substantial areas of common subject matter and analysis, there are significant differences in terms of the issues raised, the documents considered, and the methodology and reasoning processes. The further one drills down into the details, the greater the differences seem to be. In particular, though I have not fully considered them, the 67 tables proffered in the supporting volumes to the Smith Report seem to me to include a substantial amount of material that is markedly different, in content and approach, from the detailed analysis in the Carter Report. In my opinion the thorough preparation of a response to the Smith Report would involve careful line-by-line analysis of his reasoning processes, methodology, tables and sources, essentially the same kind of work as would need to be undertaken by an expert starting afresh.
33 I have received evidence and heard submissions about the similarities of and differences between the two reports. ASIC provided a summary comparison of the reports (Exhibit A3 (11 July 2005)), which was intended to show that the numerical conclusions reached by the two experts were broadly similar. In my view such a comparison does not substantially assist the court to assess the similarities and differences, and hence to gauge the amount of work that would be required to respond to the new report. In the first place, many of the figures taken from the two reports are different from one another, sometimes by small amounts but occasionally by quite large amounts. Secondly, as senior counsel for the defendants demonstrated in submissions, in cases where figures are identical, that is sometimes because the two experts used the same source documents and the process of extracting the figures was straightforward. Thirdly, and most importantly, the summary comparison does not deal with differences in reasoning and methodology. The fact that the two reports may have reached the same numerical conclusion on a given issue does not mean that the introduction of the new evidence will impose no burden on the defendants, to the extent that the new report uses an entirely different methodology or reasoning process.
34 ASIC also tendered a schedule (Exhibit A1 (11 July 2005)) which lists documents referenced in the Smith Report but not included in the Carter Report. On my count 50 items are listed. Exhibit A2 (11 July 2005) is a table which includes the items listed in Exhibit A1 (11 July 2005), and also a much larger quantity of items which are referenced in both reports. In my opinion, while Exhibit A2 shows a substantial degree of common reference material (as one would expect), Exhibit A1 draws attention to a significant degree of variation between the two reports. That exhibit does not provide reassurance that the differences are within a limited compass and manageable. There is no exploration of how the documents are used in the new report and what significance is attached to each of them, and no evidence about the documents used in the Carter Report but not in the Smith Report. Moreover, it appears from the comments in Exhibit A2 that where the same items are referenced in both reports, they are often used differently or they are different in certain ways (for example, extra pages are sometimes identified in one of the reports or some information is missing in one but not the other report). Indeed, Exhibit A2 seems to me to underline the point that a great deal of meticulous work would be needed to assess the significance of the new report and the combined effect of the two reports considered together.
35 The defendants have provided the court with a list of "potentially significant new factual issues in relation to the international businesses raised by the Smith Report" (DS 77). Eleven matters were listed. Senior counsel for the defendants informed the court that because the Smith Report raised these new matters about the international businesses, it would be necessary to give proper attention to the Report before the cross-examination of Drew Boaden commenced. Mr Boaden was the joint chief financial officer for the European business and is based in Europe. He is travelling to Sydney on 15 July, apparently at some cost to ASIC, and is scheduled to give evidence here in the week beginning 25 July 2005. Consequently the tender of the Smith Report would, according to senior counsel for the defendants, substantially interfere with the course of the trial and necessitate postponement of Mr Boaden's evidence, in circumstances where he is about to travel to Australia to give it. Senior counsel for ASIC submitted, on this point, that I should allow the cross-examination Mr Boaden in Sydney to take place, and if the defendants decide, when they assimilate the Smith Report, that they wish to administer further cross-examination, Mr Boaden could be asked to present himself for further cross-examination in London while the court is there during the period from 24 August to 8 September 2005.
36 On 12 July senior counsel for ASIC informed the court (T 5010) that his client would not press any of the parts of the Smith Report identified in DS 77 except for item 3, the part of item 8 dealing with the transfer of $26 million from the UK operations to the Australian operations at the end of February/early March 2001, and item 9. Senior counsel for ASIC submitted that the international parts of the Smith Report remaining to be pressed by ASIC could be relatively quickly assimilated by the defendants' legal team. He said that:
· the general subject matter of item 3 had been addressed in Mr Carter's affidavit made on 8 September 2004, so it was not a new subject area;
· the transfer of the $26 million is an issue well canvassed in other evidence and it should not be difficult for the defendants' legal representatives to take Mr Smith's treatment of it into account;
· item 9 (which relates to Mr Smith's preparation of monthly consolidated profit and loss accounts and balance sheets based on management accounts) is not significantly different from calculations presented by Mr Carter.
37 ASIC's submissions on item 9 need to be further elaborated. ASIC submitted that Mr Carter had performed a similar exercise to Mr Smith's presentation of monthly Group profit and loss accounts. As to balance sheets, Mr Carter had provided trial balance amounts for Australia in para 264 of his principal Report, and he had presented international balance sheets in para 83 of his report of 16 December 2002. According to ASIC, Mr Smith has, with one minor exception that he identified in para 7.2.16(d), simply added up the Australian and international figures. Therefore, ASIC submitted, item 9 is not a matter of significance as regards preparation for the cross-examination of Mr Boaden.
38 The defendants responded by saying that while the transfer of the $26 million would not cause any problem for preparation of cross-examination, the other two matters would. Senior counsel for defendants produced photocopies of parts of the Smith Report (DS 83) marked up to show those parts of the report that are new documentation of new analyses in respect of international creditors, relevant to the cross-examination of Mr Boaden. Having reviewed that material, it seems to me that there would probably be a substantial amount of work for the defendants' counsel in preparing for cross-examination of Mr Boaden in relation to at least some of the matters highlighted. DS 83 also contains some highlighted pages of the Smith Report relating to the consolidation exercise identified in item 9. It seems to me that Mr Smith's work goes rather beyond duplication Mr Carter's work with some additional exercises in aggregation (see T 5109-5112). On balance, in my view it would be inappropriate to require the defendants to commence cross-examination Mr Boaden in the event that the remaining international parts of the Smith Report are received. An adjournment to permit proper preparation would create difficulties for rescheduling Mr Boaden's evidence.
39 The defendants also provided me with a document purporting to identify " new issues and analyses raised by the Smith Report other than in relation to the international businesses of One.Tel" (DS 78). This identifies 27 such issues or analyses. As far as I can see, DS 78 identifies some substantial areas, and also some less substantial ones. I am persuaded that a good deal of additional work would be needed before the defendants could reasonably be expected to be in a position to deal with these aspects of the Smith Report in cross-examination of ASIC's accounting experts.
40 On 13 July 2005 ASIC informed the court that it would not press those parts of the Smith Report dealing with the following numbered issues in DS 78: items 5, 6, 7 (not pressing the whole of Mr Smith's para 2.3), 8, 12, 13 (with a qualification that items 12 and 13 continue to be pressed in respect of Mr Smith's paras 3.1.22, 3.1.24, 3.1.25, 3.1.26, and 3.14), 14, 16, 17 and 24. It is difficult for me to make a precise assessment of the effect of these concessions on the workload of the defendants legal and accounting teams if the Smith Report were to be received, but doing the best I can, I have concluded that a significant burden of new issues or analyses would remain, in addition to the overall work in reviewing the reasoning, methodology, tables and supporting documents.
- Time and cost resulting from tender of the Smith Report at this stage
41 The defendants formally admitted that Warwick Finney, a chartered accountant who is a partner in the firm PKF Chartered Accountants, has been retained on their behalf for a considerable period of time and that he has prepared a draft report in response to those reports of Mr Carter that were served prior to the commencement of the hearing (T 4851). Their solicitor, Joanne Kelly, gave evidence that Mr Finney was first retained in October 2003 (T 4894).
42 Ms Kelly gave evidence on behalf of the defendants which is relevant to the issue of prejudice. In her affidavit made on 7 July 2005 she deposed that the tasks necessary to be undertaken to enable the defendants to meet the evidence introduced by the Smith Report would be as follows:
(a) first, it would be necessary for the defendants' legal representatives and accounting expert to undertake a detailed preliminary review of the Smith Report, comparing it with the Carter Report in terms of the conclusions reached, methodologies used, documents relied upon and assumptions made as the basis for the analysis undertaken by each expert; that review would include consideration of the impact of their reports upon the overall manner in which the defendants' case is to be presented, including the impact of the reports on the cross-examination of ASIC's witnesses including Mr Carter;
(b)(i) on completion of that review, it would then be necessary for the defendants' legal representatives to consider what inquiries should be made (including any searches for relevant documents) and what evidence should be prepared in response to the Smith Report;
(b)(ii) it would then be necessary for the legal representatives to formulate instructions to be provided to the defendants' accounting expert, including identification of the documents to be provided to the expert and any assumptions he might be asked to make;
(b)(iii) it would also be necessary to issue a subpoena for the production of Mr Smith's working papers so that a review of that material could be undertaken;
(c) it would be necessary for the defendants' accounting expert to investigate, review and analyse the Smith Report and prepare a report in response to it, in accordance with the precise instructions given to him;
(d) once a draft report had been prepared by the accounting expert, it would be necessary for the defendants' legal representatives to review it and provide any further necessary instructions to the expert so that his report could be brought to a stage of preparation sufficient to permit the preparation by counsel of the cross-examination of ASIC's two accounting experts;
(e) the expert would need time to take into account those further instructions and bring his report to the requisite stage of completion;
(f) the defendants' legal representatives would need to prepare in detail the cross-examination of Mr Smith and Mr Carter, involving a further close review and comparison of their reports in light of the defendants' accounting expert's investigations and report.
43 Ms Kelly gave evidence that after consulting counsel, her opinion was that:
· steps (a) and (b) would take three weeks of junior counsel's time and two weeks of senior counsel's time;
· steps (d) and (e) would take approximately 3-4 weeks in total, involving approximately two weeks of junior counsel's time and one week of senior counsel's time within that period;
· step (f) would take approximately four weeks and both junior and senior counsel's time.
44 Ms Kelly estimated that there would be at least four weeks of her own time involved in and incidental to the preparation of the response to the Smith Report and preparation for Mr Smith's cross-examination. She estimated that the cross-examination of Mr Smith would add approximately two weeks to the number of court days required to hear ASIC's case, together with a further period to deal with the presentation of any evidence of the defendants' accounting expert in response to the Smith Report. As to the latter, she assumed that the cross-examination of the defendants' expert in relation to the Smith Report would take a week. Her estimates did not include the additional time likely to be taken in dealing with objections to the Smith Report and in written and oral submissions on the Smith Report in final address.
45 As regards step (c), Ms Kelly annexed to her affidavit a letter dated 7 July 2005 from the defendants' accounting expert, Mr Finney. He had been provided with a copy of the Smith Report and the supporting volumes. He said that there were matters in the Smith Report that would require considerable investigative time to be spent. He noted that while the Smith Report covered most of the broad topics that were covered in the Carter Report, additional specific questions had been incorporated into the instructions given by ASIC. Based on his preliminary view, he estimated that it would take approximately two months to investigate and prepare a report in response to the Smith Report, followed by a further period of some weeks for liaising with the defendants' legal representatives.
46 Presumably some of the work estimated by Ms Kelly and Mr Finney would be carried out concurrently, although clearly some of it would have to be performed sequentially (for example, counsel's review of the Smith Report with a view to preparation of instructions to Mr Finney, which would precede Mr Finney's preparation of a draft report, which in turn would precede counsel's review of the draft with a view to any necessary revisions). Putting together the evidence of Ms Kelly and Mr Finney, on the defendants' case it would be necessary for their legal and accounting team to embark on a work program that would stretch over a period of about 4 1/2 months, before the defendants' counsel would be in a position to cross-examine Mr Smith. As to cost, Mr Finney's letter contains an estimate of $305,000 exclusive of GST, and Ms Kelly has calculated the overall cost (including Mr Finney's fees) at $736,000.
47 ASIC has submitted that the utility of Ms Kelly's evidence, and Mr Finney's estimate, is limited because the evidence is not based on any analysis of differences between the Smith and Carter Reports in terms of the material relied on, nor any examination of the ASIC schedules (Exhibits A1, A2 and A3) concerning comparative results. However, senior counsel for the defendants, who has carried out or supervised the comparative analysis leading to DS 77 and DS 78 and has considered the ASIC schedules, informed the court that he agreed with Ms Kelly's estimates. I regard that as a significant matter.
48 ASIC did not tender any direct evidence as to the defendants' prejudice, but Ms Kelly was cross-examined. Senior counsel for ASIC developed, in cross-examination and submissions, a case to the effect that Mr Finney could be told to commence his review of the Smith Report immediately (indeed, the submission was that this could have begun on 14 June, but as I have said, in my view it has been reasonable for the defendants not to incur expenditure of that kind until the hearing and determination of ASIC's application for leave to tender the Smith Report). In my opinion it would be reasonable and prudent for defendants in the position of the defendants in the present case, to have their legal representatives closely review such a report and prepare precise instructions for their accounting expert, rather than simply give the accounting expert a general instruction to review the new report. Indeed, ASIC itself took the approach of asking Mr Smith to answer a series of 14 precise questions, supplemented by an additional four questions, rather than simply to instruct him to review the position of One.Tel in terms of some broad categories. Although Ms Kelly frankly admitted (T 4898) that she relied to a considerable degree on the expertise of counsel and Mr Finney in forensic accounting matters, I found her evidence that such steps should be taken to be persuasive.
49 As to the overall estimate of the amount of time to be taken to respond to the Smith Report, there is no evidence to contradict Ms Kelly's evidence, which is not, in my opinion, inherently implausible. Mr Finney's estimate is broadly consistent with the fact that Mr Smith, though he was instructed to prepare his report as a matter of urgency, took nearly 2 1/2 months to prepare it. It is also consistent with the evidence given by Mr Carter, admittedly for another purpose, in his affidavit made on 27 March 2003, where he estimated that it would take a maximum of three months for a forensic accounting expert acting with reasonable diligence to carry out, in effect, the work of preparing a report in response to the Carter Report. As I have said, the additional legal work in connection with the review seems to me reasonable and prudent. There was no specific challenge mounted to the cost estimated by Ms Kelly, as opposed to the time periods. In the result, I accept her evidence that the additional cost to the defendants of responding to the Smith Report is in the order of $736,000, subject to one qualification.
50 The qualification is that, on 12 and 13 July 2005 (and therefore after Ms Kelly gave her evidence), senior counsel for ASIC informed the court that his client would not press certain parts of the Smith Report. Obviously that had the effect of reducing the amount of work that would need to be undertaken by the defendants' legal and accounting team in response to the Smith Report. It is necessary to give my decision on ASIC's application to tender the Smith Report as a matter of urgency, because the decision affects immediate planning for continuation of the hearing (including the proposed trip to the United Kingdom beginning on 22 August), and more specifically, the decision will affect the question whether to postpone (for the second time) the evidence of Mr Boaden. I therefore decided, at the close of argument on 13 July, not to give the defendants the opportunity to revise Ms Kelly's estimates in light of ASIC's concessions, so that I could announce my decision on ASIC's application on 14 July and publish my reasons today.
51 My own estimate, having considered the Smith Report and the matters ASIC will no longer press, is that the defendants' workload will thereby be reduced by no more than about 25%, and the reduction will probably be considerably less. But in any event, the concessions would not reduce the workload to anywhere near as much is half, and that conclusion is sufficient for my purposes, for reasons I shall explain. I should add that the foreshadowed additional report by Mr Smith, which is not yet available, would add to the defendants' workload to some degree.
52 In my opinion, based on Ms Kelly's evidence, if the Smith Report were allowed into evidence the length of the trial would be extended by the period of delay needed to provide a reasonable time for the defendants' legal and accounting team to prepare in response to the new evidence, and also the extra hearing time needed to deal with the matters identified by Ms Kelly. I have considered whether the hearing could continue while Mr Finney did his work, but I have reached the conclusion, on balance, that it would be unfairly prejudicial to the defendants to require their counsel to cross-examine even the lay witnesses before receiving the benefit of Mr Finney's advice on the accounting issues. The accounting issues are at the heart of this case and the receipt of the Smith Report would require a reassessment by the defendants' legal team of their entire forensic strategy, a reassessment best done with accounting input.
53 If, therefore, the Smith Report were received, I would order a substantial adjournment. It might not be for the full 4 1/2 months of Ms Kelly's estimate, but it could well be for 2 1/2 or 3 months. Such an adjournment would not be on the application of the defendants, unless they change their instructions to counsel, as senior counsel for the defendants has informed the court that his instructions are to keep going with the case and not to apply for any lengthy adjournment (T 4952). This illustrates the dilemma likely to arise for respondents to an application of this kind.
54 My estimate of the additional hearing time flowing from receipt of the Smith report, based on experience so far in this case, is that Mr Smith would be cross-examined for a period of at least two weeks and it would take close to two weeks to hear and deal with paragraph-by-paragraph objections to his Report, even allowing for ASIC's concessions. Roughly, therefore, a month would need to be added to ASIC's case. In combination, the adjournment and the additional hearing time would carry ASIC's case well into the New Year.
55 The defendants' case, if they go into evidence, would also be lengthened. Final submissions on behalf of ASIC would probably be shorter if the Smith Report were received than they would be if counsel for ASIC were left to address the gaps in what remains of the Carter Report in submissions without the benefit of the Smith Report. But I doubt that, overall, the time taken to hear final submissions would be shorter to any significant degree if the Smith Report were received, because its presence would add a component to the defendants' final submissions.
- Legal principles
56 Where a party applies to the court for leave to amend its pleadings or adduce new evidence at a late stage, the court has discretion whether or not to allow such a course. The paramount consideration in the exercise of that discretion is the attainment of justice: State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146, 154-155 per Dawson, Gaudron and McHugh JJ. However, this proposition does not mean "that in every case complete justice to the party in default is the paramount consideration": Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [63] per Heydon JA. Rather, as his Honour said at [64], "… while the ultimate obligation of the court is to seek to attain justice, the justice that is to be striven for is justice between the parties."
57 In exercising its discretion, the court may (perhaps must) take into consideration the fact that hearing time before a busy court such as this one is a scarce and expensive public resource:
"The view that the conduct of litigation is not merely a matter for the parties but is also one for the court and the need to avoid disruptions in the court's lists with consequent inconvenience to the court and prejudice to the interests of other litigants waiting to be heard are pressing concerns to which a court may have regard": Sali v SPC Ltd (1993) 67 ALJR 841 at 849 per Toohey and Gaudron JJ; see also JL Holdings at 171-2 per Kirby J.
58 The observations by Toohey and Gaudron JJ in Sali were not overruled in JL Holdings. But the majority observed (at 154) that nothing in Sali's case suggested that principles of case management might be employed, except perhaps in extreme circumstances, to shut a party out from litigating an issue which is fairly arguable, because case management is not an end in itself and cannot be used to supplant the aim of attainment of justice.
59 In exercising its discretion, it is appropriate for the court to take into account considerations of public interest. In Director of Public Prosecutions v West (2000) 48 NSWLR 647, the prosecution served a brief of evidence on the defendant to a criminal prosecution 11 days before the hearing, although the Justices Act 1902 (NSW) required that the brief be served at least 14 days before the hearing. The Act permitted an adjournment to be granted if the brief was not served. The magistrate dismissed the proceedings, but the Court of Appeal quashed his decision. Mason P observed (at 656-657) that the power to adjourn had been granted to ensure that the case could proceed after a suitable adjournment to overcome the prejudice flowing from non-compliance, and therefore that power fitted into the law explained in JL Holdings, and he added that "there is a legitimate public interest in the conviction of those guilty of crime so long as the fairness of the trial is not compromised". Where a public authority alleges serious contraventions of statutory company law and claims that those contraventions have led to a massive loss by a listed public company and indirectly its investors, and seeks statutory remedies designed for the protection of the public and in the interests of investors in public markets, there is a strong public interest involved in the proceedings. But, as Mason P pointed out, the fairness of the trial must not be compromised. The importance of the issues and the nature of the consequences to the defendants of the plaintiff's success tend to work against granting an application for leave to tender evidence at a late stage where the defence is likely to be disrupted to a substantial degree.
60 Where the application is to adduce new evidence, the importance of the evidence to the applicant's case is relevant, but even the most severe of consequences to the applicant will not necessarily lead to leave being granted. In Bomanite Pty Ltd v Slatex Corp Aust Pty Ltd (1991) 32 FCR 379 the primary judge denied an application by the claimants in a copyright case to adduce further evidence, made about 24 days before the trial was listed to commence. It was common ground that the applicants would fail in the proceeding unless leave were granted for them to adduce the further evidence. There had been many directions hearings and the case had been fixed for hearing on the express basis that the applicants were aware of deficiencies in their affidavit material but nevertheless wished to proceed to trial. The Full Federal Court, by majority, dismissed an appeal.
61 In Admar Computers Pty Ltd v Ezy Systems Pty Ltd (unreported, Federal Court of Australia, Goldberg J, 3 September 1997), a case about breach of copyright and misuse of confidential information, a witness admitted in cross examination at the final hearing that in preparing his expert evidence he had examined a particular source code. Cross-examining counsel then contended that the whole of the witness's evidence was irrelevant because the identified source code did not exist at times relevant to the facts of the case. Then counsel for the opposing party applied for leave to file additional affidavit evidence addressing the issue. Goldberg J held that the new evidence was critical to the proof of the case on misuse of confidential information. It would open up a new area of factual analysis not presently before the court and the respondents would need, and be entitled, to investigate the issue. If their work were to be carried out properly and adequately, there would have to be an adjournment and they should not be compelled to cross-examine the applicant's witnesses until they had completed their investigation. But further adjournment would cause the respondents substantial personal and commercial prejudice. There was evidence that the respondent's commercial viability was at issue in the proceeding and that the continuation of the proceeding was damaging the respondent's business. Goldberg J denied the application for leave to adduce further evidence.
62 Admar Computers was a case where, as in the present case, the application was made during the course of the trial and would, if it succeeded, lead to an adjournment. The general rule is that the hearing of a trial should be continuous. As the Full Court of the South Australian Supreme Court observed in Sarumic Bros Pty Ltd v AFG Insurances Ltd (unreported, at 12 March 1984, cited in Dawson v Deputy Commissioner of Taxation (1984) 56 ALR 367 at 369):
"When a case comes before the trial judge on the date fixed for trial, the parties are entitled to come to court with an assurance that the trial will commence and will proceed, so far as possible, without interruption, to its conclusion. The court, which is in this respect the protector of the public interest, is also entitled to that assurance. Judicial time is set aside for the trial. If the trial does not proceed, there may be loss of judicial time with a consequent effect upon the list of cases awaiting trial and detriment to those involved in them."
63 Those observations were made before JL Holdings, but JL Holdings did not make such considerations irrelevant. In my view they remain a factor, and a reasonably strong one where the case is a very long one and has been running for a substantial time, to be taken into account in the exercise of the court's discretion. It is also relevant to the exercise of the court's discretion that the proceeding has been case-managed up to the time of its commencement and directions have been given well before the commencement, for the plaintiff to file and serve all of the evidence upon which it would rely at the hearing.
64 An application for leave to amend a pleading or leave to adduce fresh evidence is not an occasion for punishing a party for its mistake or delay in making the application, save in so far as costs may be awarded against the party seeking the amendment (JL Holdings, at 155), for the object of the court is to decide the rights of the parties and not to punish them for mistakes made in the conduct of their cases by deciding otherwise than in accordance with their rights (Cropper v Smith (1884) 26 Ch D 700 at 710 per Bowen LJ). Nevertheless it is relevant to the exercise of the discretion to examine whether there are good reasons for the applicant's delay in seeking leave (JL Holdings, at 152; see also at 170-171 per Kirby J). This may lead the court to make observations about the nature of the applicant's mistake and whether it should have realised and acted to address the problem at an earlier stage.
65 In exercising its discretion the court will take into account the prejudice, if any, that the respondent to the application will suffer if the application succeeds. In JL Holdings, the application in question (an application to amend a defence) was made about six months before commencement of the hearing), the dispute was of a commercial nature, and the litigants were on the one side a developer and on the other side a government. It was held (at 155) that there was nothing to justify the conclusion that costs would not be an adequate remedy for prejudice caused by granting the application. But, as their Honours recognised (at 154-5), it is necessary to assess the nature of the respondent's prejudice, and to recognise that some kinds of prejudice cannot be addressed by an order for costs.
66 The courts recognise, as a factor relevant to the exercise of the discretion, non-financial prejudice arising out of the strain that litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, and consequently the anxiety occasioned by facing new issues, and the legitimate expectation that the trial will determine the matters in dispute in an expeditious way: Ketteman v Hansel Properties Ltd [1987] AC 189 at 220 per Lord Griffiths; see also JL Holdings at 154-155; and at 170 per Kirby J. It has been recognised that the strain of litigation may be particularly acute for a natural person where his adversary has the resources of the Commonwealth: Commonwealth v Verwayen (1990) 170 CLR 394 at 461-2 per Dawson J. That is all the more so where the proceedings involve serious allegations against the probity and competence of the defendants, and the plaintiff seeks compensation of a very large amount together with substantial period of disqualification that will affect the defendants' livelihood (Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at 887 (Court of Appeal of Supreme Court of Victoria)), and there is a degree of focus on the proceedings in the popular media which may involve public opprobrium.
67 Sometimes, but not always, the respondent's prejudice can be addressed by an appropriate order for costs. In the Bomanite case French J said (at 392):
"The liberality of the approach expounded by Bowen LJ in Cropper v Smith (supra) reflected his perception that '... there is one panacea which heals every sore in litigation and that his costs'. That may well have been so at one time, but it is no longer true today. As Samuels JA commented in the GSA Industries case [ GSA Industries Pty Ltd v NT Gas Ltd , unreported, Court of Appeal of NSW, 6 December 1990], '... the emollient effect of an order for costs as a panacea may now be consigned to the Aladdin's cave which Lord Reid rejected as one of the fairy tales in which we no longer believe'."
68 An order for "costs thrown away" as a result of a late change to a party's case may not be adequate to address financial prejudice, let alone prejudice of a non-financial kind, as McDougall J recognised in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219 at [49]-[65]. Considerable difficulties may be encountered in allocating costs incurred as between those "thrown away" and those which might have been incurred in any event, and such an order will, unless supplemented, leave the successful party out of pocket for months or even years before the costs can be recouped. Perhaps most importantly, reimbursement for costs thrown away will seldom address the whole of the financial prejudice suffered by a party whose preparations for trial are substantially disrupted by a late amendment to pleadings or the late filing of material evidence.
69 Where the application is for leave to serve a lengthy and complex report by an expert, the respondent's prejudice is likely to include not only the financial prejudice involved in the time and cost of responding to the new evidence, but also forensic prejudice. The expert's new evidence is likely to touch upon matters which affect not only other expert evidence in the case, but also lay evidence. For example, lay evidence may bear on the factual assumptions upon which the expert opinions are based. Thus, the introduction of such evidence is likely to add substantially to the cross-examiner's burden of preparation.
70 As Goldberg J recognised in the Admar Computers case, the respondents' prejudice includes putting them in the position of having to choose between accepting a disruption to the running of the trial in order to allow them to give full and proper consideration to the new evidence, and trying to deal with the new evidence "on the run" and expose themselves to the risks that their response to it (especially in the cross-examination of the applicant's witnesses) will not be adequate and that attention to the new evidence will divert them from other important tasks.
- Application to the present case
71 This case is readily distinguishable from the facts of the other principal authorities cited above. Whereas in JL Holdings and Ingot Capital the application was made well before the trial, and in the Bomanite case it was made 24 days before the trial, here (as in Admar Computers) the application was made well after the commencement of the trial. The facts before me are not analogous to the Bomanite or Admar Computers cases in some respects: this is not a case like Bomanite where a party had been warned of the inadequacy of its evidence and nevertheless sought a trial date, only to decide much later that the evidence should be supplemented; and here there is no evidence comparable to the evidence in Admar Computers that the commercial viability of the respondent was put at risk by the prolongation of the hearing. In fact, I find the cases to which I have been referred to be helpful only at the general level of principle.
72 The decision to be made in this case is a difficult one. There are three main discretionary considerations that might be thought to support the granting of leave.
73 First, there is a strong public interest at stake, suggesting that the court should be especially careful to ensure that the real legal and factual issues are exposed for decision during the hearing. While that consideration favours the granting of leave, here it is outweighed by the other considerations to which I shall refer.
74 Secondly, refusal of the application will make it more difficult for ASIC to prove its case, especially having regard to my rulings on the Carter Report. As senior counsel for ASIC put it, Mr Carter's evidence has been "severely cut down" and "doesn't serve the complete purpose that it was designed to do" (T 4928). Some of the evidence to be given by Mr Smith would, if received, cover the gaps in expert evidence created by my rulings. Even where Mr Smith's evidence would cover the same subject matter as a part of the Carter Report that has been allowed, it would assist ASIC, given the volume and complexity of the primary evidence, to have a second opinion reinforcing the first, perhaps reaching similar conclusions by a different methodological and analytical path.
75 However, unlike the Bomanite and Admar Computers cases, this is not a case where the new evidence is critical to the applicant's success. Here it is particularly significant, in my view, that senior counsel for ASIC has informed the court that his client will be able to make out its case without the Smith Report. He said (at T 4996):
"A very important consideration in response to what my learned friend has said is that this case is not going to go away because the Smith report is not there or only limited parts of the Carter report may be there. The documentary evidence is in and it will be dealt with in submission if not in evidence, and a practical way of looking at it is that the case is likely to take longer if the court is not assisted by comprehensive expert evidence, which may or may not be responded to by the defendants."
76 The lengthening of the trial by the absence of expert evidence is counterbalanced by the time that would be needed to deal with new expert evidence, in terms of objections to admissibility, cross-examination, evidence by the defendants' accountant if they go into evidence, and final submissions. I am not persuaded that there would be a large net difference. I should also note that the rejection of an accountant's expert opinion evidence does not prevent the tendering party from using the accountant's work for the purposes of submissions, so the cost of obtaining the report is not necessarily wasted.
77 Thirdly, ASIC has submitted that I made a serious finding about Mr Carter's credit in my judgment of 7 March 2005, by holding that Mr Carter had, perhaps unconsciously, taken into account extraneous material in the formation of his opinions. According to ASIC, the Court of Appeal found that this finding should not have been made, and in the result ASIC is left with a witness whose credit has been unjustifiably impugned (T 4926). Since the constitution of the court remains the same as when the original finding was made, fairness requires, in ASIC's submission, that it be given an opportunity to corroborate Mr Carter's evidence to dispel any adverse impression that may remain in the mind of the court.
78 I disagree with ASIC's contention that the Court of Appeal found that my finding had not been properly made, as I endeavoured to explain in my judgment of 8 July (at [38]). There was no appeal from my findings of fact. In his judgment in the Court of Appeal, Spigelman CJ (with whom Giles and Ipp JJA agreed) frequently referred to and quoted from my findings, including findings about what I said was Mr Carter's pervasive use of extraneous material, perhaps not consciously. ASIC points to para [168] of Spigelman CJ's judgment. There his Honour said:
"What, if any, impact the existence of access to material which is not otherwise before the Court may have had on the formation of an opinion cannot be determined in the abstract and requires a process of assessment, at the least, of the strength of the opinion based on the facts asserted to have been the underlying facts taken into account."
79 That was the task I endeavoured to carry out in the paragraph-by-paragraph analysis reflected in my judgment of 8 July. His Honour did not say I was in error in finding that Mr Carter had used the extraneous material, but only that I could not assess its impact (that is, its effect on the persuasive force or probative value of the reasoning) in the abstract. Later he referred to "the mere fact that there must have been use of some extraneous material, even of the extensive character identified by his Honour …" (at [170]).
80 Moreover, the effect of my rulings of 8 July is that what remains of the Carter Report has been subjected to the analysis contemplated by Spigelman CJ and has been found, for the purposes of evidentiary rulings, to have an asserted reasoning process capable of supporting the concluding opinions, of sufficient probative value even where extraneous information may have been used. That, it seems to me, is a significant protection to ASIC in respect of the concern implied by its submission.
81 The following four considerations, and two additional considerations that I shall note subsequently, point against granting leave.
82 First, the defendants will be exposed to financial prejudice if the Smith Report is received. There has not been time to receive evidence reassessing the time and cost that will be involved for the defendants' legal and accounting teams to respond to the new evidence in light of ASIC's decision not to press certain parts of the Smith Report. But it is plain that the defendants' direct financial prejudice will be substantial, involving some hundreds of thousands of dollars expenditure, on top of the costs already incurred in preparing for and conducting their defence in the hearing over the last nine months. It is relevant that the original estimate the length of ASIC's case was about 3 1/2 months, and it now appears that ASIC's evidentiary case will run for at least 15 months in total if the Smith Report is not received, after which the defendants may go into evidence and there will need to be substantial time for submissions. In contrast with the Admar Computers case, the defendants have not placed before the court any evidence of their financial resources. But in a case where the defendants are private individuals rather than corporations it is appropriate, in my view, to conclude that an additional financial expenditure of the kind necessitated by receipt of the Smith Report, in the context of an unexpectedly very long trial, would be a substantial burden regardless of the defendants' financial position.
83 Secondly, to this must be added the indirect financial prejudice involved in the adjournment that would be required if the Smith Report were received, and also the indirect financial prejudice of the extended operation of the undertakings in the asset preservation proceeding. There is some evidence that the continuation of this proceeding beyond its predicted length is interfering with Mr Rich's capacity to pursue his career. In 2002 his solicitor deposed that he was spending about 70 or 80% of his time on the case, evidence that is corroborated by my observation that he has been present in court for most of the 96 hearing days. Mr Silbermann has attended court less often, but in my opinion it is appropriate to infer in respect of both defendants that the very continuation of this widely publicised proceeding must be affecting their professional reputations and hence the pursuit of their careers pending its resolution. The extension of the hearing by at least another month to deal with the Smith Report, and the adjournment for at least 2 1/2 months to allow for necessary preparation, will prolong this prejudice correspondingly.
84 Thirdly, there is significant non-financial prejudice for the defendants of the kind described in Ketteman's case, made acute (as noted above) by the nature of the proceeding as a civil penalty proceeding and the publicity associated with it.
85 Fourthly, unless a substantial adjournment were granted, inflicting prejudice on the defendants in the ways just noted, they will also suffer forensic prejudice, because the receipt of the Smith Report is likely to affect their litigation strategy and their approach to the cross-examination of some lay witnesses as well as expert witnesses. This would be particularly problematic in the case of Mr Boaden, whose cross-examination is scheduled to commence on 25 July, unless his evidence were to be postponed.
86 This is a case where the dilemma of the respondent to an application to adduce new evidence, noted by Goldberg J in Admar Computers, is very evident. An adjournment to permit proper preparation would inflict serious prejudice, while dealing with the new evidence "on the run" would put the defendants at risk of not adequately dealing with it or not adequately presenting their case as a whole.
87 The prejudice that the defendants would suffer could not be completely addressed by an order for costs. The usual order for "costs thrown away" would have the disadvantages identified in the Ingot Capital case. The defendants submitted that if, contrary to their contention, the Smith Report were received, they should have the benefit of an order indemnifying them for the extra cost that would be occasioned by reason of having to deal with the new evidence (T 4995). Even an order of this kind would not address the non-financial prejudice arising out of the substantial extension of the hearing that would flow from receipt of the new evidence.
88 The considerations I have so far addressed would lead me, without more, to exercise my discretion against granting the application. However, there are two additional considerations, both of which reinforce that decision.
89 The first relates to the adequacy of the applicant's explanation for the late application. I have received full submissions from the parties on this question. For reasons I have given, my view is that the relevant decision-makers within ASIC made a serious error of judgment, when they persisted with the retainer of Mr Carter as their expert accounting witness after they decided that the report should be based on the documents alone and that Mr Carter should disregard the information and explanations he had received over many months from other sources. That was the fundamental problem leading to the rejection of substantial parts of the Carter Report in my judgment of 8 July 2005. I infer that the principal purpose of ASIC's application to tender the Smith Report is to overcome deficiencies in its evidentiary case arising from the rejection of parts of Mr Carter's evidence. But if the problem with the continued use of Mr Carter as an expert witness had been properly identified and dealt with when it arose in April or May 2002, fresh expert evidence could have been commissioned, prepared, served and dealt with well before the commencement of the hearing, and in all probability the court would have modified its directions for the filing of evidence to permit this to occur. ASIC's explanation for the lateness of its application, to the effect that the problem with the Carter Report emerged only when the defendants served their detailed paragraph-by-paragraph objections in June 2005, is therefore unsatisfactory.
90 The second matter relates to the efficient use and allocation of the court's resources. ASIC was directed to file and serve the evidence upon which it would rely at the hearing by June 2002, and in the later correspondence to which I have referred, it confirmed several times that it had done so. Hearing dates were allocated on the basis that ASIC's evidence was substantially complete, and the hearing time for ASIC's case was estimated on that basis. That estimate, of 3 1/2 months, has proved to be wildly wrong (through no fault attributable to either party). Without the Smith Report, there is a prospect that ASIC's evidentiary case will end this year, after a hearing of about 15 months, but if the Smith Report is received ASIC's case is likely to extend into 2006. Then the defendants may decide to go into evidence, and whether they do or not, substantial time will be consumed in preparing and presenting submissions. The consequences of this unanticipated and exceedingly long hearing time for the administration of the court's listing arrangements, and more importantly, for other litigants whose cases are waiting for trial, are severe. The delay involved in receiving the Smith Report would also have undesirable consequences in terms of the continuity of the trial, and would involve substantial adjustments to the schedule of witnesses in this country and possibly also in the United Kingdom. The public interest requires that those consequences should be avoided or minimised, unless there is a firm case, in terms of the attainment of justice, for granting the application.
- Conclusions
91 I have decided, after weighing up the relevant factors, to refuse ASIC's application to read Mr Smith's affidavit of 10 June 2005 and to tender his report and accompanying documents. Subject to two matters, the long period of contention over the admissibility of ASIC's documentary and expert evidence is over. The proposed witness timetable, including the arrangements for hearing evidence in the United Kingdom, is consequently now confirmed. The evidence of ASIC's first "substantive" witness, Samantha Randall, was completed on 14 July. It is of paramount importance that the court now proceeds to hear ASIC's other witnesses with all due expedition and without further interruption.
92 The first of the two remaining "preliminary" evidentiary matters relates to Mr Carter's evidence. There are three remaining issues in respect of Mr Carter:
(a) a small matter of deciding which of the summary paragraphs in his principal report should be rejected in light of my rulings on the substantive body of the report;
(b) rulings are to be made on the admissibility of Mr Carter's other affidavits and supplementary reports; and
(c) the defendants may wish to make an application for the rejection of the remainder of Mr Carter's principal report, and perhaps his other evidence, following the rulings that I have made.
93 On 14 July, after announcing my decision to refuse the tender of the Smith Report for reasons to be published today, I gave directions which are intended to permit me to reach decisions on these three matters on the basis of written submissions without taking up any further hearing time. As to (c), I said in court that at present, I think it unlikely that I would make rulings to exclude any further parts of the Carter Report, but I would give the defendants the opportunity to make an application if they wish.
94 The second matter that needs to be finalised is the tender, in final form, of ASIC's documents. That will involve some further consideration of the creditor correspondence, and perhaps other matters. It will be necessary to use hearing time for that purpose. I shall fix a time for that work as soon as the parties are ready, and in any event before the court's departure to take evidence in the United Kingdom.