ASIC v Rich [2006] NSWSC 643 | Case summary

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: Mr Rich, the first defendant, has given evidence in a very long affidavit, supported by a substantial documentary tender. During the course of his cross-examination of Mr Rich, Mr Macfarlan QC, senior counsel for ASIC, has proposed to cross-examine Mr Rich on some documents not currently in evidence, which ASIC does not propose to tender. He has informed the court that he will wish to cross-examine on such documents on several occasions. He has provided one such document to Mr Williams SC, senior counsel for the defendants. He has told the court that on some occasions, the document will be Mr Rich's own document, while on other occasions it will be someone else's document ("a third-party document"). 2 The procedure that Mr Macfarlan QC proposes, on each occasion, is as follows: (a) he will identify a particular part or parts of Mr Rich's evidence that is to be the subject of his further question; (b) he will provide a copy of the document to Mr Williams SC, but not to the court; (c) he will show the document to Mr Rich and give him time to examine its contents; (d) he will then ask Mr Rich whether, having examined the contents of the document, he stands by the evidence that he has given; (e) Mr Macfarlan QC will not identify the document or disclose any of its contents, and he will explain the procedure to Mr Rich before it is implemented, with a view to ensuring that Mr Rich does not identify the document or disclose its contents in his evidence; (f) the document will be marked for identification, but not provided to the court. 3 I shall refer to this procedure as "the R v Orton procedure". It will be seen that the procedure is in accordance with s 44(3) of the Evidence Act 1995 (NSW), so far as it relates to third-party documents, and follows s 44(3) by analogy where the document is Mr Rich's own document. 4 Mr Williams SC has informed the court that the defendants oppose Mr Macfarlan's proposed course of action. He has made an oral application on their behalf under s 26 of the Evidence Act, for directions that ASIC refrain from implementing Mr Macfarlan's proposal: (a) in the case of a third-party document, if the document is a transcript of an examination under s 19 of the Australian Securities and Investments Commission Act 1989 (Cth) ("ASIC Act") or under s 597 of the Corporations Act, or is a witness statement or affidavit or a draft witness statement or draft affidavit; and (b) in the case of a document containing representations by Mr Rich, if the document is a transcript of an examination under s 19 of the ASIC Act or under s 597 of the Corporations Act. 5 The present reasons for judgment relate to the defendants' application for these directions. The parties also disagree as to whether the court should prevent Mr Macfarlan QC from cross-examining Mr Rich on prior inconsistent representations alleged to have been made by him in a document under s 43 of the Evidence Act, where the document is the transcript of a s 19 or s 597 examination. Any application relevant to this question has yet to be heard. Statutory provisions 6 Section 44(1) of the Evidence Act states: "Except as provided by this section, a cross-examiner must not question a witness about a previous representation alleged had been made by a person other than the witness." 7 Subsection (2) states an exception where evidence of the representation has been admitted or the court is satisfied that it will be admitted. In the present case, argument proceeded on the basis that the documents that Mr Macfarlan QC wishes to use have not been admitted into evidence and will not be admitted into evidence. Subsection (3) states that "if … the representation is contained in a document, the document may only be used to question a witness" by following a procedure identical to the procedure proposed by Mr Macfarlan QC in this case. 8 By implication from the words "may only be used", s 44(3) prevents a third-party document that is not and will not be evidence from being used in the cross-examination of a witness otherwise than by following the strict procedure that the subsection sets out. Although the subsection uses the word "may", in my opinion it authorises the cross-examiner to follow the procedure that it sets out without first requiring the leave of the court. But the court is able to supervise the questioning of witnesses, including questioning in accordance with the procedure in s 44(3), by virtue of the powers conferred on it by s 26. Section 26 authorises the court to make such orders as it considers just in relation to a number of matters, including "(a) the way in which witnesses are to be questioned" and "(b) the production and use of documents and things in connection with the questioning of witnesses". 9 Although s 26 uses the word "orders" rather than "directions", in my opinion s 26 is subject to s 192. Section 192(1) says that if, because of the Evidence Act, a court may, inter alia, give any direction, the direction may be given on such terms as the court thinks fit. Then s 192(2) says: "Without limiting the matters that the court may take into account in deciding whether to give the … direction, it is to take into account: (a) the extent to which to do so would be likely to add unduly to, or to shorten, the length of the hearing; and (b) the extent to which to do so would be unfair to a party or to a witness; and (c) the importance of the evidence in relation to which the leave, permission or direction is sought; and (d) the nature of the proceeding; and (e) the power (if any) of the court to adjourn the hearing or to make another order or to give a direction in relation to the evidence." Consequently the court is required to take into account these five matters in deciding whether to give the direction proposed by the defendants. 10 Mr Williams SC also relied on s 135 of the Evidence Act, according to which the court may refuse to admit evidence if its probative value is substantially outweighed by, the danger that the evidence might be unfairly prejudicial to a party, misleading or confusing, or cause or result in undue waste of time. 11 The defendants' application for directions assumes that the documents upon which Mr Macfarlan QC proposes to cross-examine Mr Rich will include some s 19 and s 597 transcripts. That assumption has not been challenged by ASIC. The use to which s 19 transcripts may be put in evidence it affected by s 68 of the ASIC Act, which provides: "(1) For the purposes of this Part, of Division 3 of Part 10, and of Division 2 of Part 11, it is not a reasonable excuse for a person to refuse or fail: (a) to give information; or (b) to sign a record; or (c) to produce a book; in accordance with a requirement made of the person, that the information, signing the record or production of the book, as the case may be, might tend to incriminate the person or make the person liable to a penalty. (2). Subsection (3) applies where: (a) before: (i) making an oral statement giving information; or (ii) signing a record; pursuant to a requirement made under this Part, Division 3 of Part 10 or Division 2 of Part 11, a person (other than a body corporate) claims that the statement, or signing the record, as the case may be, might tend to incriminate the person or make the person liable to a penalty; and (b) the statement, or signing the record, as the case may be, might in fact tend to incriminate the person or make the person so liable. (3) The statement, or the fact that the person has signed the record, as the case may be, is not admissible in evidence against the person in: (a) a criminal proceeding; or (b) a proceeding for the imposition of a penalty; other than a proceeding in respect of: (c) in the case of the making of a statement - the falsity of the statement; or (d) in the case of the signing of a record - the falsity of any statement contained in the record." 12 Section 597 of the Corporations Act deals with the conduct of an examination pursuant to an examination summons issued on the application of an eligible applicant, such as a liquidator. Subsections 597(7), (12) and (12A), when read together, are to the same effect, with respect to an examination by an eligible applicant, as s 68 of the ASIC Act with respect to a s 19 examination. Mr Williams SC invited me to assume that any s 19 or s 597 transcripts that Mr Macfarlan QC might wish to use were all subject to the claim for privilege that the sections envisage. 13 It is necessary to give separate consideration to third-party documents and documents containing representations by Mr Rich, especially having regard to the protection that these sections offer to Mr Rich in respect of his own transcripts. Third-party documents 14 The procedure proposed by Mr Macfarlan QC will comply strictly with s 44(3) of the Evidence Act, and therefore he should be permitted to proceed unless there are grounds for the court to intervene, in the exercise of its discretion, by giving directions under s 26 in light of s 192, or by refusing to admit evidence that would be adduced by the cross-examination, under s 135. 15 In my opinion the court cannot make a determination under s 26 at the present stage. The court is not yet in a position to identify or assess all of the matters which, according to s 192(2), it must take into account in deciding whether to give a direction. In particular, Mr Macfarlan QC has not yet identified any particular evidence of Mr Rich, out of the large quantity of evidence he has given, that he wishes to challenge by implementing the R v Orton procedure. That, it seems to me, makes it impossible for the court yet to assess, in terms of subparagraph 192(2)(c), the importance of the evidence in relation to which the defendants seek a direction. Assuming ASIC wishes to continue with the R v Orton procedure, it will be necessary for Mr Macfarlan QC to identify each segment of evidence to be challenged by means of a third-party document, and then the court will be in a position to make a ruling on whether a direction should be given. 16 I think it would be helpful to set out some considerations that the court is likely to take into account under s 192(2), even though Mr Rich's particular evidence has not yet been identified. As to subparagraph (a), it seems to me unlikely that the implementation of the R v Orton procedure will unduly add to or shorten the length of the hearing. Implementation of the procedure will consume some time, but bearing in mind the extreme length of this trial, the additional time is unlikely to be "undue". As to subparagraph (c), Mr Rich's evidence (once identified) is likely to be important on many matters, where there are factual contests between the defendants' and ASIC's witnesses on issues going to the heart of ASIC's claims. As to subparagraph (d), it is relevant to take into account that this is a civil penalty proceeding subject to the civil rules of evidence but also subject to the privilege against exposure to a penalty. In my view this consideration affects the court's consideration of fairness. As to subparagraph (e), I cannot at present see that an adjournment or some other direction than the one sought by the defendants would be appropriate in the present case. 17 Subparagraph 192(2)(b) requires the court to consider the extent to which giving the direction sought by the defendants would be unfair to a party or to a witness. There is no question of unfairness to a witness because the relevant witness, Mr Rich, seeks the direction. The question is whether the direction would be unfair to ASIC. I take it that subparagraph (b) impliedly raises the question whether ASIC's proposed R v Orton procedure is itself fair. The defendants submitted that it is not. 18 The R v Orton procedure, now sanctified in statutory form in s 44(3), grew out of responses to The Queen's Case (1820) Brod & Bing 284 [129 ER 976], which concerned the trial of Queen Caroline for adultery, heard in the House of Lords. Lord Brougham, acting in her defence, sought to cross-examine a witness about a letter the witness had written. He was not permitted to do so. As MH McHugh QC pointed out, before his elevation to the Court of Appeal of New South Wales ("Cross-Examination on Documents" (1985) 1 Aust Bar Rev 51), their Lordships' decision is regarded as authority for the proposition that if a witness admits a letter to be in his or her handwriting, the witness cannot be cross-examined on particular statements in the letter, but the whole letter must be read in evidence. 19 That ruling, which was said to have effectively destroyed cross-examination, was overcome by legislation some decades later, which eventually became s 55 of the Evidence Act 1898 (NSW) and then ss 43 and 45 of the Evidence Act 1995. The legislation operated (inter alia), to allow counsel to cross-examine as to the witness's previous written statement without tendering the document. 20 That legislative reform did not apply to third-party documents. In a series of cases, the courts cautiously developed a procedure according to which a witness may be shown a document (even though the witness is not the author of the document, and whether or not the document is admissible) and asked whether, having read the document, the witness still adheres to earlier testimony. This procedure was held to be subject to the proviso that the document was not to be identified and (if the witness was not the author of it) nothing was to be suggested as to the nature of the document or its contents: see Darby v Ouseley (1856) 1 H & N 1 [156 ER 1093]; R v Seham Yousry (1914) 11 Cr App R 13; R v Banks [1916] 2 KB 621; R v Orton [1922] VLR 469; R v Gillespie (1967) 51 Cr App R 172; R v Bedington [1970] Qd R 353. As far as I can see, the cases do not explain how the procedure, as applied to third-party documents, is to be reconciled with the principle in The Queen's Case, which was overruled by legislation only in respect of the witness's own prior representations. 21 The procedure was not confined to criminal cases. It was applied in a civil context in, for example, Birchnall v Bullough [1896] 1 QB 325, although in that case the document was the witness's document. As the headnote succinctly explains: "In an action for money lent, an insufficiently stamped promissory note, purporting to be signed by the defendant and expressed to be given for money lent, was put into the defendant's hands by the plaintiffs' counsel for the purpose of refreshing his memory and obtaining from him an admission of the loan". It was held that the procedure was permissible notwithstanding that the Stamp Act 1891 (UK) said that an instrument not duly stamped was not to be "given in evidence or be available for any purpose whatever". 22 By the time Mr McHugh QC wrote the article to which I have referred, he was able to describe the R v Orton procedure as an established and permissible one both for third-party documents and documents of the witness. However, reservations have been expressed from time to time as to the fairness of the procedure, in its application to third-party documents. 23 In commenting on Mr McHugh QC's paper in the Australian Bar Review, Mr RV Gyles QC (as his Honour then was) said (1 Aust Bar Rev at 69): "I have always thought that the use of a document other than the document of the witness is always unfair unless the witness has seen the document before." His remarks in developing that theme indicate that in his view, the unfairness is a combination of factors. One is the element of surprise that arises in confronting a witness with a document not previously seen by the witness. Another is that, in the circumstances applying in cross-examination, a document of no inherent credibility might be given an undue aura of authenticity or weight. That leads to a third problem, namely that the procedure places great pressure on a witness to make an admission that he is really not bound to make (at 70). In responding to Mr Gyles QC's commentary, Mr McHugh QC agreed with the criticism of the procedure as applied to third-party documents, saying (at 72) it was very unfair "because … it has a psychological advantage over the witness". Both Mr Gyles QC and Mr McHugh QC said that the procedure applied to third-party documents was doubtful in law but had been followed in practice for many years in New South Wales. 24 It is easy to envisage situations in which the considerations of unfairness identified by Mr Gyles QC would be significant, especially in a trial by jury where members of the jury may be affected by the witness's reaction to a previously unseen document. But I do not regard them as weighty factors in the present case, as regards the categories of documents identified in the proposed directions. Here the element of surprise, if any, can be overcome by ensuring that Mr Rich is given adequate time to inspect the document before any question is put to him about it. Mr Rich can be given a direction not to make any assumptions about the authenticity or weight of the document showed to him. It is relevant, as Mr Macfarlan QC pointed out (T 11,111), that the witness appears to be "someone of a firm mind" who is able to speak his mind and "stick to his guns". If the document is inconsistent with Mr Rich's evidence, there would be some pressure on him to correct his evidence or make an admission, but no more so than when credit is tested in other circumstances. 25 In my view, however, there are other elements of unfairness which are matters of significance. They were identified in two later cases, R v Hawes (1994) 35 NSWLR 294 and Government Employees Superannuation Board v Martin (1997) 19 WAR 224. 26 Hawes was a criminal case in which an issue arose as to whether the trial judge had erred in refusing to allow counsel to place hospital records before a witness and ask whether, in light of them, he adhered to his testimony. In the Court of Criminal Appeal Hunt CJ at CL (with whom Simpson and Bruce JJ agreed) regarded the hospital records as only of tenuous relevance (at 303). But he rejected the appeal on a different basis. While he conceded that the R v Orton procedure was common practice in jury trials, he agreed with Mr McHugh QC's opinion that it was of doubtful authority, and he said (at 303): "It seems to me that, by whatever manner the document is produced and shown to the witness, the clearest implication in the question whether, having read it, the witness still adheres to his testimony is that the document asserts to the contrary of that testimony. As such, it is in clear conflict with the basic rule of evidence that, subject to the provisions of s 55 of the Evidence Act 1898 (which applies only where the witness is the author of the document in question), the contents of the document cannot be proved in this way: R v Jack (1894) 15 LR (NSW) 196 at 200; Coniglio v Compressed Yeast Co (NSW) Pty Ltd (1964) 82 WN (NSW) (Pt 1) 165 at 176." He said he was not satisfied that the document could have been shown to the witness without conveying the clear implication that it was a hospital record which asserted to the contrary of the witness's evidence. 27 Government Employees Superannuation Board v Martin was a civil case in which counsel showed a witness (Neville) an extract from a transcript of evidence given previously by some unidentified person (at 267). Counsel did not precisely follow the R v Orton procedure but was held to have taken an approach equivalent in substance to the procedure (at 268). The witness was persuaded to change his testimony by the unidentified document. Ipp J referred to an article by DK Malcolm QC, later Chief Justice of the Supreme Court of Western Australia, in (1986) 2 Aust Bar Rev 267. Like Mr McHugh QC, Mr Malcolm QC said that the basic fairness of the R v Orton procedure is open to question. Ipp J agreed (at 268), saying: "In the present circumstances, the weight to be attributed to Neville's reply when shown the unidentified document is largely dependent on the reliability of the material he was shown, and in particular whether he was shown his own evidence or the evidence of some other party, and if the latter, the identity of the witness concerned. This is all the more so in the light of my perception that Neville changed his testimony with hesitation and reluctance." He concluded that little confidence could be placed on the reliability of Neville's changed testimony. 28 In the present case, it may be that Mr Rich can be cautioned in such a way as to ensure that his evidence does not identify the document. It may be that the procedure will not expressly reveal whether the document is a third-party document or a document of Mr Rich. However, it has emerged from evidence in the case that ASIC has a body of witness statements or affidavits, or drafts, that have not been read or tendered, and that both ASIC and the liquidators of One.Tel have conducted compulsory examinations under their respective powers. In these circumstances, the very facts that a document, which is a witness statement or affidavit or draft statement or affidavit, or a s 19 or s 597 transcript, is shown to Mr Rich, after particular evidence given by him has been identified, and that he is asked whether he adheres to that evidence, are likely to suggest that the document belongs to one of those categories. At that point there is likely to be some ground for the court to draw the inference described by Hunt CJ at CL, namely that the document contains a statement that is contrary to the identified part of Mr Rich's evidence, though the document has not been tendered and may not be admissible. 29 That will leave the defendants in a very difficult and, in my view, unfair position. They will know the nature and contents of the document, because it will have been provided to them, but they will be left to speculate as to what the court might make of the implementation of the procedure. The court will be in the position described by Ipp J, uncertain about the weight to be attributed to Mr Rich's response to the document because it may not know the identity of the author of the document and will not know the full contents of the document or its reliability. The difficulty of the defendants' position, and the unfairness of the procedure to them, will be all the greater, the more important is the particular evidence of Mr Rich to which the document relates. 30 Therefore, although I am not in a position to make a decision until particular evidence of Mr Rich is identified, there is a likelihood, at this stage, that the direction sought by the defendants will be made, with respect to important evidence of Mr Rich. 31 The observations of Hunt CJ at CL and Ipp J were made in the context of the common law of evidence and in the absence of the express legislative confirmation of the R v Orton procedure found in s 44(3) of the Evidence Act 1995 (NSW). But I do not regard s 44(3) as overriding or discounting their Honours' observations. This is because s 26 gives the court certain supervisory discretions, to be exercised in accordance with s 192. In that context, s 44(3) confirms the common practice acknowledged in the cases, while ss 26 and 192 preserve the court's power to override the common practice where discretionary considerations require it to do so. 32 My observations are directed towards the discretions contained in ss 26 and 192. However, I should add that I regard s 135 as potentially available, in light of the probability that implementation of the R v Orton procedure will (for the reasons given) unfairly prejudice the defendants, once the particular evidence of Mr Rich to be challenged by the procedure is identified so that the court can assess its probative value. Prior written representations of the witness 33 As Mr McHugh QC pointed out in his 1985 paper, the R v Orton procedure was available at common law, whether the document was a third-party document or the witness's own document, though the trial judge retained a general discretion to require production of the document and its tender (citing, as to the discretion, s 55 of the Evidence Act 1898 (NSW), comparable to s 45 of the Evidence Act 1995 (NSW); Alchin v Commissioner for Railways (1935) 35 SR (NSW) 498 and Wood v Desmond (1958) 78 WN 65). 34 Section 44(3) of the 1995 Act superseded the common law with respect to third-party documents, but it did not apply to prior representations of the witness. According to s 9(1) of the Evidence Act 1995, the Act does not affect the operation of a principle or rule of common law in relation to evidence, except so far as it provides otherwise expressly or by necessary intendment. In my opinion, the Act has not expressly or by necessary intendment abrogated the R v Orton procedure with respect to prior representations of the witness, simply by enacting the procedure with respect to third-party documents. However, s 26 of the Act gives the court a general power to make orders about the way in which witnesses are to be questioned, and is therefore available to override the common law procedure where the court considers it just to do so. Since s 26 is available, s 192 applies, for the reasons I have given. 35 The criticisms of the procedure to which I have referred were developed in cases of third-party documents, and are to a degree inapplicable where the document is the witness's own document. But significant parts of the criticism extend to this situation. If a document, which is in fact a transcript of evidence given by Mr Rich under s 19 or s 597, is shown to him after senior counsel has identified particular evidence to be challenged, and Mr Rich changes his evidence, there may be room (depending on the circumstances) for inference that the document is such a document, and the court will be uncertain about the weight to be attached to Mr Rich's answer in the absence of direct evidence about the contents of the document. This would lead to unfair prejudice to the defendants. 36 There is an additional component of unfairness in a case where the representations are protected by statutory provisions reflecting the privilege against exposure to a penalty, as is the case with s 19 and s 597 transcripts. According to s 68(3) of the ASIC Act and s 597 (12A) of the Corporations Act, respectively, statements contained in the record of the examination are not admissible in evidence against the person making them in a proceeding for the imposition of a penalty. ASIC has not challenged the proposition that the present proceeding is a proceeding for the imposition of a penalty, having regard to the High Court's decision in Rich v ASIC (2004) 220 CLR 129. But it points out that the section only prevents the tender of the transcript, not its use, without tender, in the manner proposed. In Birchall v Bullough the proposed procedure was held to be available notwithstanding a statutory provision that not only prevented adducing the document in evidence but also said that the document was not to be "available for any purpose". 37 However, if one bears in mind the observations of Hunt CJ at CL to which I have referred, and applies them to Mr Macfarlan QC's proposed procedure, it can be seen that there is at least a significant risk that the court will be left in a position of being able to infer that the document shown to Mr Rich is a s 19 or s 597 transcript containing statements inconsistent with the particular evidence of Mr Rich that Mr Macfarlan QC has identified. That is tantamount to a loose and indirect form of proof of contents of the document, as Hunt CJ at CL pointed out in the passage I have quoted. It is inconsistent with the preservation of the privilege against exposure to a penalty by s 68(3) and s 597(12A). 38 In my opinion these considerations provide a sufficient basis for the court to intervene by giving a direction confined to the use of s 19 and s 597 documents, without waiting for senior counsel to identify the particular evidence of Mr Rich in respect of which a challenge is to be made by reference to an untendered document. However important or unimportant that particular evidence may be to ASIC's case, the paramount consideration is to ensure that the privilege against exposure to a penalty, which is expressly preserved by the statutory provisions that prevent tender of the document, is not circumvented by implementation of the R v Orton procedure. Conclusions 39 At the hearing on 22 June 2006, after the conclusion of argument on the defendants' application for directions, I made rulings on the basis that reasons would subsequently be published. I gave a direction to ASIC not to make use of any s 19 or s 597 transcript of Mr Rich in the procedure that senior counsel for ASIC had foreshadowed (T 11,136). In relation to third-party documents, I reached the conclusion that it was not appropriate to make a direction, at that stage, in the general terms sought by the defendants. My reasons for these conclusions are set out above. 40 As I made clear at the hearing (T 11,138), my rulings are confined to the proposed procedure put before the court by Mr Macfarlan QC, and do not directly address any implementation, in some other way, of the cross-examination procedure authorised by s 43 of the Evidence Act. After I had made my directions, the defendants applied for a direction of a similar nature in relation to any use of s 43(1). I told the parties that I was not satisfied that the overall application of the principles under consideration to s 43 had been fully researched, and the matter was left on the basis that the parties would prepare submissions if ASIC wished to proceed in some other way under s 43. **********

ASIC v Rich

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Judgment (11 paragraphs)

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Legislation Cited (5)

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