ASIC v Vines

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3138/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V GEOFFREY WILLIAM VINES & 2 ORS JUDGMENT (revised, 31 October 2003) 1 HIS HONOUR: This is a proceeding brought by ASIC against three former executive officers in the GIO Group, relating to a profit forecast of $80 million for the reinsurance division for the year to 30 June 1999. The profit forecast was made by GIO Australia Holdings Ltd in its Part B Statement in response to a takeover bid by an AMP subsidiary in 1998. 2 The plaintiff contends that all three defendants failed to discharge their statutory duties of care and diligence, contrary to a provision equivalent to s 232(4) of the Corporations Law, and that the third defendant failed to act honestly, contrary to a provision equivalent to s 232(2). The plaintiff contends that the three defendants were involved in the preparation of the profit forecast, and that many of the facts upon which it relies apply equally to its case against each defendant. But the plaintiff's pleading carefully differentiates the positions of the three defendants and makes separate assertions and claims against each of them. 3 The plaintiff seeks remedies under the "civil penalties" provisions of statutory company law, and therefore the proceeding has "both civil and criminal characteristics": Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49 (5 September 2003), at [114] per Hayne J. Part 9.4B of the Corporations Act authorises the Court to make a declaration of contravention, and pecuniary penalty and compensation orders, and s 206C permits the Court to disqualify a person from managing corporations. The plaintiff seeks declarations of contravention, pecuniary penalties, and disqualification orders against each of the defendants, and compensation orders against the first and third defendants. 4 There were similar provisions in the Corporations Law in force in 1998. The transitional provisions of the Corporations Act, Part 10.1, have the approximate effect that the Corporations Act applies to events that occurred before its enactment, but in a manner modified so as to correspond with the Corporations Law in force at that time. It is unnecessary to explore the transitional provisions further in the present context, because the Corporations Law as in force in 1998 and the current Corporations Act contain substantially the same provision with respect to the rules of evidence. Section 1317L of the present Act, corresponding with s 1317ED of the Corporations Law, states that the Court must apply the rules of evidence and procedure for civil matters when hearing proceedings of this kind. 5 The present judgment relates to a question of evidence, namely whether certain documentary evidence, said by the plaintiff to be relevant in its cases against the second and third defendants but not its case against the first defendant, should be admitted into evidence in a manner that makes it clear that it is evidence against the second and third defendants but not the first defendant. 6 On Day 5 of an anticipated six-weeks hearing (27 October 2003), while judge and counsel were plowing through the plaintiff's 18 volume tender bundle to resolve questions of admissibility, an issue of general principle arose. A document at page 2239-2240 of the tender bundle was objected to by the first and second defendants on the ground that it was irrelevant. The plaintiff's amended statement of claim complained of conduct by the defendants up to 7 December 1998, when the Part B Statement was published, and paragraph 139 of the pleading alleged that the second defendant failed, after the date of publication of the Part B Statement and before the end of the period in which the takeover bid remained open, to have any (or any adequate) regard to the available evidence concerning whether it was likely that the reinsurance division would achieve its $80 million profit forecast. The offer period ended on 4 January 1999. The document was an e-mail written by the second defendant to GIO's chief executive on 7 January 1999. 7 Senior counsel for the plaintiff sought to justify the tender of the document on two grounds. First, he referred to the last paragraph of the e-mail, which is in the following terms: "However, attainment of the planned Reinsurance result without changes of accounting and reserving policies may not be possible if we do not have in place the expected new retrocession arrangements, with retrospective effect for the full year. Geoff Vines is familiar with the issues involved. I will have much better information on the subject by the time we come to release our half-year numbers." 8 He submitted that this paragraph constituted an admission against the second defendant. I expressed doubt as to whether this paragraph could be characterised as an admission of any relevant fact by the second defendant, as opposed to a forward-looking statement made outside the period relevant to the proceeding, and expressed in terms of possibility. 9 He then submitted that the e-mail was relevant as evidence that the second defendant, although he ceased to be the executive director of GIO Insurance Ltd early in November 1998, continued to have an executive involvement with respect to the profit forecast for the reinsurance division. I said I had greater sympathy with this ground of admissibility, but nevertheless objection was taken on behalf of first and second defendants, who insisted that either the document was inadmissible, or that it should be admitted for only limited purposes. 10 Counsel for the first defendant submitted that the document ought not to be admitted on any basis against his client, and urged the Court either to make an order under s 136 of the Evidence Act limiting the use of the evidence to this effect, or simply to order that the document be admitted only against the other defendants. He pointed out that the document post-dated the close of the offer, there was no allegation against the first defendant that would make it relevant to the case against him, it was not a document created by the first defendant, and it made some assertions that appeared to be the second defendant's conclusions about what the first defendant might or might not think. He said that it therefore contained material that might unfairly prejudice the first defendant, if admitted into evidence. 11 Later, senior counsel for the first defendant amplified the submission as follows (Transcript page 349-350): "If a particular piece of evidence cannot be demonstrated as admissible on grounds of relevance against a particular defendant, in our respectable submission, the course that the Court should take is to reject that piece of evidence as being evidence against that defendant rather than … leave it in evidence in the case against all defendants so that if at any time during the trial the plaintiff can see some way it may be relevant - including, I suppose, during closing address - they can use it in that way. "The defendants, and particularly in a case like this, are entitled to know the case which is made out against them and, if evidence is admitted against them, which your Honour's rulings in effect make the evidence admissible against them, the defendants shouldn't be put in the position of trying to speculate as to how the evidence might ultimately be used, if used at all, against them. They ought to be entitled to conduct their trial on the basis of knowing either the evidence is in, and if so why, or knowing that it is not in.… The Court needs to consider, in our respectable submission, the admissibility of the document against each defendant, and the plaintiff should not, because of the efficiency in running the one action against three different defendants, get some procedural advantage in being able to tender evidence." 12 Senior counsel for the second defendant submitted that if the document were to be admitted into evidence, it should be subject to an order under s 136 limiting the use to which it would be put to proof of the second defendant's continuing executive involvement in the profit forecast for the reinsurance division. He said that it would be unfair for the document to be in evidence for all purposes when its only relevance was as to a peripheral issue. He contended that the introduction of evidence post-dating the close of the offer period had the potential to open up a significant forensic avenue of inquiry and add substantially to the evidence with which the Court would have to deal, unless a restriction were placed upon it under s 136. He said (Transcript page 331): "If this document goes in for all purposes and there is no undertaking about the way in which it will be used, from a forensic point of view Mr Robertson will have to consider chasing up events well after those alleged against him, looking at the underlying facts in relation to that, and cross-examining on them." 13 That, he said, would not only result in an undue waste of time, but would be unfairly prejudicial to the second defendant, because it would force him to be involved in an inquiry as to his state of mind and the reasonableness of it a month after the happening of the principal events upon which the plaintiff's case had been based, and would tend to distract from the inquiry as to the reasonableness or otherwise of the actions of the second defendant and the other two defendants up to 7 December 1998. In that way, it would tend to mislead or confuse the Court. Consequently an order limiting the evidence would be justified by both limbs of s 136. 14 In reply, senior counsel for the plaintiff submitted that the document was relevant in the manner he had indicated, and should therefore simply be admitted into evidence without any limitation. He said (Transcript page 348): "I have said that the evidence is not relevant to the case against Mr Vines, and unless I in some permissible way withdraw from that, that is what I am going to say at the end of the day." 15 Upon conclusion of submissions on the admissibility of the document, I ruled that the document be admitted into evidence without any limitation under s 136. I said (Transcript page 333): "I am satisfied that the document is relevant. I would not have been satisfied to admit it if it were tendered purely as an admission, but there may be some scope for argument on the question of admission if this document is combined with some other evidence against Mr Robertson. It may have relevance to admissions without itself constituting an admission in terms. On the question of relevance, the position is that paragraph 139 of the proposed second amended statement of claim makes an allegation with respect to Mr Robertson up to the end of the takeover period, 4 January 1999, and this document is tendered to show that Mr Robertson remained in an executive position involved in the superintendence of the profit forecast on 7 January 1999. "It seems to me that, once a document of this kind is admitted into evidence against a defendant, it should, except in the circumstances specifically identified in section 136, be admitted for all purposes. I am not satisfied that, so far as Mr Robertson is concerned, the admission of the document would be unfairly prejudicial. So far as Mr Vines is concerned, it is said that there should be a limitation under section 136 because the document is not tendered to prove anything against Mr Vines. Again, it seems to me that a document of this kind, once established to be relevant, should be allowed into evidence without any restriction under section 136 unless the Court believes there is a danger that the evidence might be used in a manner unfairly prejudicial or be misleading or confusing. I do not regard this as a case where there is a danger of unfair prejudice to Mr Vines by the admission of this document." 16 We then continued to work through the plaintiff's tender bundle, and I made rulings on admissibility whenever a document was the subject of an objection. It became clear to me, during this process, that the point that I had resolved in favour of the plaintiff regarding the document at pp 2239-2230 was an issue applicable to other documents. Because the issue was potentially a recurring one, I decided to give it further consideration. Upon doing so, I became concerned that my ruling may have been incorrect, at least as regards the first defendant, and that perhaps I should have admitted the document into evidence in a manner that excluded it from the evidence against the first defendant. 17 Therefore, later on Day 5 I informed the parties that I was reconsidering the matter, and I invited them to make written submissions by 10am on 28 October 2003. There was a further brief discussion, during which senior counsel for the plaintiff warned me of the practical difficulties that might arise if I adopted a principle that would require me to classify every item of evidence according to whether it was admitted against all, two or only one defendant. On 28 October 2003 counsel for the first defendant produced a written submission in response to my invitation. The other parties did not seek to add to the submissions made orally on 27 October. 18 It appears that, prior to the commencement of the Evidence Act 1995 (NSW), there was a widespread practice in both civil and criminal proceedings in this Court, including civil proceedings in the Equity Division, to order (generally in response to an application by the affected party) that evidence be received in the case against one party but not in the case against another. Occasion to do so might arise where the proceeding included a cross-claim or third-party action, but the practice was not limited to such a case. It appears to have flowed from the Court's recognition that questions of evidence extend beyond the strict admission of evidence to consideration of the proper use to which admitted evidence may be put: BRS v The Queen (1997) 191 CLR 275. 19 The question before me now is whether the old practice was excluded or modified by provisions of the Evidence Act. The Evidence Act is not a code replacing the whole of the law of evidence previously in place. Section 9(1) provides that the Act does not affect the operation of a principle or rule of common law or equity, except so far as the Act provides otherwise expressly or by necessary intendment. As the editors of Cross on Evidence (loose-leaf, paragraph [1750]) have observed, evaluating just when a provision of the Act repeals the previous law by necessary intendment can be difficult in practice, for "in many particular fields the NSW Act would appear intended to squeeze out any anterior rules …". 20 In Idoport Pty Ltd v National Australia Bank Ltd [2000) 50 NSWLR 640 Einstein J considered the admissibility of evidence by experts on foreign law, where their evidence purported not merely to state the foreign law as a fact but also to express opinions on the application of the foreign law to the facts of the case. There was a reasonably clear body of law on this subject prior to the commencement of the Evidence Act, and the question for his Honour was whether the Evidence Act had modified it. He referred to ss 55 and 56 (relevance) and s 80 (the "ultimate issue" rule). After noting that the Evidence Act is not a code, he said (at 652): "Nonetheless, to say that the Evidence Act is not a code is not to be used as a means to retain aspects of the common law of evidence which are inconsistent with the operation of the Act. Full effect must be given to the provisions of the Act. In particular full effect must be given to s 56 …. In the light of s 56 it is not legitimate by reference to principles which are extraneous to the Act, to exclude evidence which is relevant under the test provided for in s 55, not otherwise made inadmissible by the provisions of the Act and not the proper subject of an exercise of the discretions contained in s 135 and s 136. The effect of this conclusion is that the principles which govern the admission of evidence as to foreign law at common law must now accommodate themselves within the provisions of the Act …." 21 Section 55(1) of the Act provides that the evidence that is relevant in a proceeding is evidence that could rationally affect the assessment of the probability of the existence of a fact in issue in the proceeding. Section 56, which has been described as a "pivotal provision" of the Evidence Act (Telstra Corporation v Australis Media Holdings Pty Ltd [No 2] (1997) 41 NSWLR 346, 349 per McLelland CJ in Eq), is in the following terms: "56 (1) Except as otherwise provided by this Act, evidence that is relevant in a proceeding is admissible in the proceeding. (2) Evidence that is not relevant in the proceeding is not admissible." 22 It is notable that both s 55 and s 56 address the question whether evidence is admissible in a proceeding. Where a plaintiff seeks to make out separate cases against several defendants in a single proceeding, the question to which the Evidence Act provides an answer is whether evidence is admissible in the proceeding, not whether evidence is admissible to prove the plaintiff's case against a particular defendant. The answer it gives is that if the evidence is relevant, it is admissible. Once it is admitted, it is evidence in the proceeding, and therefore available to be used for any purpose, unless one of the exclusionary rules of the Act or any surviving general law exclusionary rule applies, or the Court makes use of its statutory discretions to exclude admissible evidence or limit its use. 23 The Court has a discretion to limit the use to which evidence may be put, under s 136, which is in the following terms: "136. The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might: (8) be unfairly prejudicial to a party; or (b) be misleading or confusing." 24 Section 136 provides a statutory basis for continuation of the old practice of treating admissible evidence as evidence against one party but not another. But it is available only whether Court forms the view that in the absence of a limitation, there is a danger that the evidence might unfairly prejudice a party or would be misleading or confusing. In my opinion, the simple fact that evidence relevant to the plaintiff's case against defendant A is not relevant to the plaintiff's case against defendant B is not sufficient to establish a danger that defendant B might be unfairly prejudiced if the evidence were ruled admissible without limitation. The very fact that the evidence is irrelevant as far as defendant B is concerned points to the lack of prejudice. If, as in this case, the plaintiff has explicitly conceded that the evidence is not relevant (while preserving the prospect of adopting a different view when all the evidence is in), defendant B has such protection as the transcript of those remarks affords. 25 I do not accept the submission that, unless the evidence under review in the present case is excluded from the case against the first defendant, it will be necessary for him to embark on any major new forensic line of inquiry, or that he will be placed in difficulty in conducting cross-examination of the plaintiff's witnesses. The opening address by senior counsel for the plaintiff was a detailed presentation of the plaintiff's case against all three defendants, extending over the first three days of the hearing. Having listened to the opening and having heard senior counsel for plaintiff explain the relevance of the document presently under review, counsel for the defendants are in quite a good position to assess whether there is any risk that circumstances might change in a manner that would alter the relevance of the document, and thereby require some different forensic response. 26 In the circumstances of the present case, no additional consideration arises out of the fact that this is a civil penalty proceeding. I say this not because of s 1317L, but because the defendants have had the benefit of the extensive opening of the plaintiff's case, leaving little or no room for doubt as to the evidentiary foundations upon which the plaintiff wishes to rely. The case does not fall foul of the principle, if there is one, that in a civil penalty proceeding the defendants are entitled to be told the evidentiary case against them with special precision. 27 On the question whether there is a danger that the evidence would be misleading or confusing without limitation, the position in the present case is the reverse of what is contemplated by s 136. Here they will be a lengthy trial with a huge quantity of documentary evidence. Although I have been assured that the question of limited admission of evidence will not arise frequently, it could well be an issue with respect to all or many of the documents created after 4 January 1999, if the first defendant were to succeed with respect to the document presently under review. It would be potentially very confusing for the Court, and the objective observer, if it were necessary to classify all such documents according to whether they are admitted generally, or against only two of the defendants, or against only one of them. 28 Not surprisingly in view of the practical and interlocutory nature of the question, there is very little case law on the point. However, two decisions support the opinion I have reached. In Sylvia v Commissioner of Taxation [2001] NSWSC 562 (4 July 2001) the plaintiff liquidator sought to set aside payments to the defendant Commissioner of Taxation as unfair preferences, and the Commissioner cross-claimed against the directors of the companies in liquidation, seeking to enforce their statutory obligation to indemnify him in the event that the payment were to be set aside. At issue in the proceeding and the cross-claim were statutory questions as to the solvency of the companies at the time of the transaction, but they were different questions, the liquidator's case depending upon whether a reasonable person would have grounds for suspecting insolvency, and the liability of the directors depending upon whether they had reasonable grounds to expect insolvency. The plaintiff objected to the evidence of a cross-defendant being read against him. The objection was taken on the basis that the affidavit in question was irrelevant to the liquidator's claim against the defendant. The liquidator submitted that unless the evidence was admitted on a limited basis, he would not know whether to cross-examine the cross-defendants' witnesses, because he would not be aware to what extent it might subsequently be suggested that their evidence had some bearing on his claim against the defendant. 29 Having concluded that the parties to the claim and cross-claim were parties to a single proceeding, Hamilton J referred to ss 55 and 56 of the Evidence Act and said (at paragraphs [6]-[7]): "In my view, that means that once evidence is relevant to an issue in the proceeding, it is admissible and will be admitted, subject to other material considerations, in the proceeding. Mr Odgers is correct when, in the fourth edition of his Uniform Evidence Law , he states in [56.2] that the effect of the EA is to sever the issues of the admissibility and the use of evidence. In this regard compare also the terms of s 56 and s 136 as to admissibility and use. … This means that the old practice under the common law whereby evidence was declared to be admitted or not admitted as against one party or another in a multi-party suit has been superseded. The discretion to limit the use of evidence has been conferred by s 136 …." 30 His Honour relied on the decision of RD Nicholson J in Maritime Union of Australia v Geraldton Port Authority [1999] FCA 685 (21 May 1999). In that case the question was whether a party tendering an affidavit could do so on the basis that certain identified annexures to it would not be introduced into evidence against specified other parties. In a reserved judgment, his Honour held that the qualification to the tender of the evidence was not effective. He observed (at paragraph [15]) that the affidavit had been introduced into evidence in "the proceeding", and continued: "Having become part of the proceeding, that affidavit may be used in the proceeding and the only principle by which its use may be limited as against another party is where there is in existence a principle, such as the Ahern principle [ Ahern v R (1988) 165 CLR 87] limiting the use of evidence already admitted in the proceeding." 31 Having rejected the attempt of a party to limit the tender of evidence, Nicholson J then turned to consider specific objections to evidence on grounds including relevance and hearsay. As to the relevance objections, he noted that many of the objections he had received related to the interests of the objecting party, and that objections on that ground would not be sufficient to prevent the evidence from being relevant in the proceeding. He then said (at [26]): "Admission in the proceeding will make the document potentially relevant to all parties but it may have no weight against a particular party precisely because of the reasons which have led to an objection by that party to the relevance of [the] document as against that party." 32 In their written submission, counsel for the first defendant were critical of this passage in Nicholson J's reasoning. If his Honour intended to say that material which is irrelevant can be made potentially relevant by the court's decision to admit it into evidence, I would respectfully disagree. The Evidence Act "will not make relevant what is intrinsically irrelevant": Marks v GIO Australia Ltd (1996) 63 FCR 304 at 316E, per Einfeld J. In my opinion, however, his honour did not assert any such proposition. His point was that, once evidence is admitted as evidence relevant in a proceeding under s 56, it is evidence in the proceeding available to be used against any party, and in that sense alone it is "potentially relevant to all parties". So understood, his Honour's observation is unobjectionable. 33 In summary, while it remains open to a judge at the hearing of a civil proceeding under the Evidence Act to make an order having the effect that specified evidence is admitted against one party and not another, it is necessary for the party seeking the order to establish grounds under s 136. In the present case those grounds have not been established by the first defendant. Therefore my decision, not to admit the document on the limited basis that it would not be evidence against the first defendant, was correct and my order does not need to be revisited. **********

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