Australian Securities and Investments Commission v Macdonald [2008] NSWSC 1099 | Case summary

1490/07 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v PETER DONALD MACDONALD & ORS (NO 3) EX TEMPORE JUDGMENT 1 On 30 June 2008 I directed that the digital content of documents should be tendered as exhibits as they were identified by witnesses. The hearing has progressed in that fashion. The evidence of all but two lay witnesses has been received. 2 At this late stage in its case, the plaintiff, Australian Securities and Investments Commission (ASIC), wishes to tender the digital content of additional documents. 3 First, it seeks to tender a James Hardie explanatory memorandum of the 12th defendant, James Hardie Industries NV (JHINV), dated 12 December 2006 as a business record. This document was brought into existence long after the events that form the basis of ASIC's case. One such event was the meeting of the board of directors of James Hardie Industries Ltd (JHIL), now ABN 60 Pty Ltd, of 15 February 2001 and an announcement on 16 February 2001 of the formation of the Medical Research and Compensation Foundation Trust (MRCF Trust). And the last event upon which ASIC relies was the resolution of 14 March 2003 to cancel partly paid shares in JHIL. 4 ASIC submits that the explanatory memorandum, although brought into existence well after the events upon which it relies, is relevant because it identifies key risks that JHIL suffered, including government intervention, bans and boycotts and the risk of a commission of inquiry such as that conducted by the Honourable D F Jackson AM QC and the adverse publicity it attracted for the company and evidence concerning the materialisation of those risks in some form or another in subsequent years is relevant to whether those risks existed in 2001 and 2002. 5 ASIC relies upon Willis v The Commonwealth (1946) 73 CLR 105 at 109 as support for its submission. That was a case in which a widow brought proceedings under the Fatal Accidents Act 1846 (UK) as adopted in Western Australia for the death of her husband. She remarried and her second husband had a position and prospects at least equal to those of the deceased. The deceased also had a policy of insurance the proceeds of which largely passed to his widow. The High Court upheld the trial judge's conclusion that in view of her remarriage and the benefit of the insurance policy she had not suffered any pecuniary loss through the death of her first husband. At 109 Latham CJ rejected a submission that the trial judge should have considered a chance of remarriage rather than the fact of it. The Chief Justice said: "But, where actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best. Damages are awarded for injury actually suffered and for prospective injury. Prospective injury can only be estimated with more or less probability. But where the extent and character of what would at one time be described as prospective injury depends upon the happening or non-happening of a particular event and that event has in fact happened, it is unnecessary to speculate as to whether or not this event might happen and, if so, when. In such a case prospective damage (or diminution of damage) has become actual." 6 And at 116, Dixon J said the decided cases were almost uniformly against the proposition that probability rather than actuality must be taken into account in assessing damages. The principle to be drawn from the decisions was that where facts are available they are to be preferred to prophecies. 7 Thus in Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331 at 347, Deane J in discussing the secondary boycott provision in the Trade Practices Act 1974 (Cth), s 45D gave an instance of the use of hindsight in considering the future: "Section 45D(1) proscribes conduct only if it be engaged in for the purpose of causing loss or damage to the business of the relevant corporation. Even though conduct be engaged in for such a purpose it will be outside the proscription contained in the subsection unless it "would have or be likely to have" that effect. Plainly the reference to "would be likely to have" is meant to convey a lower degree of likelihood than the reference to "would have". In the case where conduct has not occurred, a court would be constrained to determine whether conduct "would have" the specified effect by reference to the ordinary standard of whether it was more likely than not that it would. In such a case, if "likely" is interpreted as meaning "more likely than not", it would add little to the practical scope of the section. On the other hand, if conduct had run its ordinary course and had not had the specified effect, it would be but rarely that a court would feel justified in disregarding the lesson of the event and finding that while the conduct did not have the specified effect it had been more likely than not that it would have that effect (see per Dixon J Willis v Commonwealth (1946) 73 CLR at p 116)." 8 But those were cases in which the task of the court was to conjure the future. They are no authority for the proposition that the benefit of hindsight may be used to conjure the past. And in this case the task of the court is to conjure the past - to determine whether or not the directors and senior executive officers of JHIL were delinquent in their duties. 9 Willis was considered by the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54, (2004) 217 CLR 640, another case of predicting the future. The plaintiff took advice from a valuer before purchasing an arcade of the likely effect on the arcade of the opening of a new shopping centre. The advice was that it was unlikely adversely to affect existing retail tenancy levels in the arcade. It did. The trial judge, in assessing damages, had regard to the actual effect of the opening on the value of the arcade up to the time a reasonable person in the plaintiff's position would have sold the arcade. The High Court concluded that in determining the true value of the arcade at the date of purchase regard might be had to subsequent events. The court said at [39]: "… in Kizbeau Pty Ltd v W G & B Pty Ltd ((1995) 184 CLR 281 at 291-296, per Brennan, Deane, Dawson, Gaudron and McHugh JJ) this Court pointed out that, in many fields of law, assessments of compensation or value at one date are commonly made taking account of all matters known by the later date when the court's assessment is being carried out. This has been so in relation to the remarriage of widows ( Willis v The Commonwealth (1946) 73 CLR 105; cf De Sales v Ingrilli (2002) 212 CLR 338), the termination of a dependency by early death after the date from which damages were to be assessed ( Williamson v John I Thornycroft & Co Ltd [1940] 2 KB 658), the death of a person having a claim for personal injuries which was unexpectedly early and unrelated to those injuries ( Jaksic v Cossar [1966] 2 NSWR 581), rises in wage rates ( The "Swynfleet" (1947) 81 Ll L Rep 116), assessing the value of reversionary life interests which never came into possession ( In re West; Denton v West [1921] 1 Ch 533 at 542-543, per Astbury J), valuing annuities ( In re Bradberry; National Provincial Bank Ltd v Bradberry [1943] Ch 35 at 42, per Uthwatt J ("Why should the court neglect known facts and put itself in the position of a prophet who, when he knows all the facts, projects himself to an earlier date and predicts as the span of life of a person known to be dead the length of life of the hypothetical person who lives his actuarial life?"), and assessing compensation for the acquisition or destruction of property rights ( Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426). The limpid words of Lord Macnaghten about the duty of an arbitrator in determining compensation are far too well known to escape repetition ( Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426 at 431): "Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?" The significance of Kizbeau Pty Ltd v W G & B Pty Ltd is that it endorsed that approach in relation to s 82 of the Act when the court is assessing damages by comparing the price and the real value of the asset at the date of the acquisition." 10 In Seven Network Ltd v News Ltd [2007] FCA 1062 at [2211]-[2212], Sackville J cited the above passage from Tillmanns and said that the reference to Willis did not mean that in assessing the likely effect of conduct at a given time the actual course of events necessarily determined the outcome of the assessment. That decision does not assist ASIC. 11 When it comes to considering past conduct, the benefit of hindsight ought not be used. Thus in Maloney v Commissioner for Railways (NSW) (1978) 52 ALJR 292, a case involving the question whether the Commissioner had failed to take reasonable care for the safety of the appellant as a juvenile passenger in the Commissioner's suburban electric railway service, Barwick CJ said at 292-293: "Perfection or the use of increased knowledge or experience embraced in hindsight after the event should form no part of the components of what is reasonable in all the circumstances. That matter must be judged in prospect and not in retrospect. The likelihood of the incapacitating occurrence, the likely extent of the injuries which the occurrence may cause, the nature and extent of the burden of providing a safeguard against the occurrence and the practicability of the specific safeguard which would do so are all indispensable considerations in determining what ought reasonably to be done." 12 The Chief Justice went on, in the same passage, to consider the extent to which evidence of those elements was essential. 13 The above passage was cited with approval by Kirby J in his dissenting judgment in State of New South Wales v Fahy [2007] HCA 20, (2007) 232 CLR 486 at [125]. 14 The further observation of Barwick CJ as to evidence in Maloney was cited by McHugh J in Swain v Waverley Municipal Council [2005] HCA 4, (2005) 220 CLR 517 at [44] and in Laybutt v Glover Gibbs Pty Ltd [2005] HCA 56, (2005) 79 ALJR 1808 at [10] without dissent from his Honour's earlier comments set out above. 15 In my view the tender of the explanatory memorandum as a business record is not justified by Willis or Tillmanns and should be rejected. They were cases of conjuring the future. When it comes to conjuring the past Maloney makes it clear that the benefit of hindsight should not intrude in the determination. Thus the explanatory memorandum lacks relevance to the issues in this case. 16 As well as the likelihood of risk of reputational damage, government intervention and other action, ASIC seeks to rely upon the explanatory memorandum for its discussion of the use and cancellation of the partly paid shares in JHIL and statements as to that company's potential asbestos liabilities. In my view, statements in the explanatory memorandum of another company brought into existence well after the events in question with the benefit of hindsight are too remote from the question whether the directors and senior executives of JHIL breached their duty for it to be admitted as a relevant business record. 17 In light of this conclusion, I need not deal with other arguments against its tender because of inexplicable lateness; the absence of reference to it in the fourth further amended statement of claim; the failure to give reasonable notice in accordance with the Uniform Civil Procedure Rules 2005, r 14.14(1); the failure to tender the evidence earlier when witnesses who might have been able to give evidence about the matters to which it relates were called; and its invitation to a wide ranging, time-consuming factual investigation. Nor do I need to reconsider my judgment in ASIC v MacDonald [2008] NSWSC 995 that the Evidence Act 1995, s 135 and s 136 should not be invoked. Nor do I need to consider the argument that ASIC has not sought to limit its tender to identified representations in the document of some 329 pages. Nor do I need to consider ASIC's failure to include the document in the tender bundle which was, in accordance with an order made by Young CJ in Eq on 29 August 2007, to include all documents upon which ASIC would rely at trial. Nor need I deal with the argument that I should not infer that the representations in the explanatory memorandum were made by a person who had, or might reasonably be supposed to have had, personal knowledge of the asserted facts or that the representation was made on the basis of information directly or indirectly supplied by a person who had, or might reasonably be supposed to have had, personal knowledge of the asserted facts in terms of the Evidence Act, s 69(2). 18 I must say, however, that those submissions contain powerful alternative bases for the rejection of the tender of the explanatory memorandum as a business record. 19 The explanatory memorandum was signed by the fourth defendant Mr Brown, the fifth defendant Mr Gillfillan and the sixth defendant Ms Hellicar. It was submitted that the explanatory memorandum is admissible as an admission of the above matters against the signatories. Since I am of the view that the above matters are irrelevant any admission with respect to them is equally irrelevant. 20 The explanatory memorandum states that the submissions of JHINV and JHIL are available on the James Hardie website. It was submitted that the explanatory memorandum was admissible as an admission against the signatories because the explanatory memorandum invited access to the James Hardie website and invited access on the James Hardie website to the JHINV and the JHIL submissions to the Jackson inquiry. 21 ASIC sought to tender the James Hardie website because of its connection in this way to the submissions. I ruled it inadmissible as too remote. The mere fact of a link from the website to the submissions does not constitute the website an admission. 22 Nor does the statement in the explanatory memorandum that the submissions are available at the James Hardie website, nor the link to the website contained in the explanatory memorandum make the explanatory memorandum an admission. 23 One of the issues in the proceedings is whether or not at the board meeting of 15 February 2001 a resolution was passed approving the 16 February 2001 announcement. ASIC submits that since the submissions of JHINV and JHIL stated that the terms of the announcement were considered and the subject of a resolution at a JHIL board meeting, the explanatory memorandum is admissible against its signatories as an admission of those facts. 24 In my view no admission in the submissions was made when the explanatory memorandum was signed. The mere invitation to go to the James Hardie website and to utilise the link to the submissions does not constitute the contents of the submissions as contents of the explanatory memorandum. 25 Furthermore, the submissions were made by counsel or solicitors retained by JHINV and JHIL. They were not made by the signatories to the explanatory memorandum and s 81 of the Evidence Act does not apply. 26 Nor does it seem to me that the representation in the submissions falls within s 87 of the Evidence Act. It is not reasonably open to find when the submissions were made that JHINV, JHIL or their counsel and solicitors had authority to make statements on behalf of the signatories to the explanatory memorandum, or that they had authority to act for the signatories, or that the submissions were made in furtherance of a common purpose that JHINV, JHIL or their counsel and their solicitors had with the signatories. 27 ASIC relied upon R v Delgado-Guerra [2001] QCA 266, (2002) 2 Qd R 384 in which it was held that evidence of submissions made in a criminal proceeding by an accused person's counsel in his presence was admissible in subsequent criminal proceedings. 28 That case is distinguishable. Counsel had authority from his client to make the submission. There is no proper basis for concluding that JHINV, JHIL or their counsel or solicitors had the authority of the signatories to the explanatory memorandum in terms of s 87 of the Evidence Act. 29 Reference was made to Lustre Hosiery Ltd v York (1935) 54 CLR 134 at 143: "This course of authority seems consistent with the view that words or conduct amount to an admission receivable in evidence against the party if they disclose an intention to affirm or acknowledge the existence of a fact whatever be the party's source of information or belief. In determining whether he intends to affirm or acknowledge a state of facts the party's knowledge or source of information may be material. For if he states that another person has told him of it, and it appears that he has additional sources of information to the like effect, it may be right to understand him as implying a belief in what he repeats. Or, again, a person who fails to contradict a statement concerning matters within his own knowledge may be understood as acquiescing in the statement if the circumstances are such as to make it unlikely that he would allow an erroneous statement to pass unchallenged. But, although the meaning of his words or conduct may depend upon the state of his knowledge, once that meaning appears and an intention is disclosed to assert or acknowledge the state of facts, its admissibility in evidence as an admission is independent of the party's actual knowledge of the true facts." 30 Reference was also made to Thomas v Hollier (1984) 156 CLR 152 at 157 where Gibbs CJ said: "The failure to answer a letter may amount to an admission if there are circumstances which render it more reasonably probable that a man who denied the assertions made against him in the letter would answer those assertions than that he would not." 31 The signing of the explanatory memorandum of JHINV did not constitute a failure to contradict statements in the submissions of JHINV and JHIL. A mere reference to the fact that the submissions were available through the James Hardie website did not call for any comment. 32 The tender of the explanatory memorandum as an admission by Mr Brown, Mr Gillfillan and Ms Hollicar is rejected. 33 ASIC seeks to tender the explanatory memorandum against JHINV on the basis that it constitutes an admission. In written submissions ASIC identifies a passage from the document that states in order to achieve a further separation of the James Hardie group from potential asbestos related liabilities, James Hardie offered to transfer ABN 60 to MRCF Trustee. That passage may constitute an admission but it does not justify the tender of the entire document. 34 The next group of documents that ASIC seeks to tender are emails forwarding draft and final submissions of JHINV and JHIL to the Jackson inquiry. It is submitted that they constitute admissions against the persons who received the emails by their silence in failing to contradict the statement that the announcement was considered and was the subject of a resolution at the JHIL board meeting on 15 February 2001. 35 For the reasons set out above I am of the view that the statements in the submissions were not made by the recipients of the emails and JHINV, JHIL and their counsel and solicitors lacked authority to make representations on behalf of the individuals and s 87 of the Evidence Act is not invoked. 36 Further, the emails did not invite scrutiny or observation of the submissions by the recipients. This was not an occasion when it could reasonably be supposed that a reasonable person in the position of the recipients would have contradicted the statements in the submissions. 37 ASIC has failed to establish that the recipients of the emails made admissions by silence. 38 The tender of the emails and portion of the submissions of JHINV and JHIL to the Jackson inquiry is rejected. 39 The next set of documents that ASIC seeks to tender as business records are emails to the eighth defendant, Mr O'Brien, forwarding board papers for the April 2001 meeting of directors of JHIL. They contain the draft minutes of the meeting of 15 February 2001 and a resolution confirming those minutes. The documents were produced by Mr O'Brien. 40 Objection is taken to the tender on the basis that they post-date events the subject of the pleading and that ASIC has failed to establish the relevance of them. 41 In my opinion the documents should be admitted. They tend to prove what happened at the meeting of 15 February 2001 and their authentication as business records for the purpose of s 69(2) of the Evidence Act flows from the fact that they were produced by Mr O'Brien and as a matter of inference from the documents themselves. 42 The tender of an email from the second defendant, Mr Shafron, to Mr Robb, a solicitor for JHIL, forwarding a draft set of minutes of the meeting of 15 February 2001 is rejected. The mere fact that the draft minutes were sent to the solicitor is not a relevant issue. 43 The final group of documents sought to be tendered are the remainder of the April 2001 board papers. 44 ASIC has not identified the relevance of these documents. They post-date the 15 February 2001 board meeting and deliberations beyond the confirmation of the minutes of that meeting are, in my view, irrelevant to the issues in this case. Furthermore, they were not sought to be tendered while witnesses who might have thrown some light on the proceedings of that meeting were in the witness box. Some of the documents in this group upon which ASIC relied were tendered through these witnesses. 45 In particular ASIC seeks to rely upon a handwritten observation on a presentation headed "Project Green Key Outstanding Issues". If that is regarded by ASIC as a significant matter it ought to have tendered the evidence through one of the lay witnesses who could shed some light on the topic. 46 In my view the lack of specification of relevance, the fact that many of the documents are in evidence in any event and the lateness of the tender lead me to the conclusion that this group of documents should be rejected. 47 I order that the digital content of documents numbered OBRG.002.001.0039, OBRG.002.001.0040 and OBRG.002.001.0083 within OBRG.002.001.0041 to 0178 be admitted as exhibits by entry in the court record database. 48 I order that the digital content of these reasons for judgment, when entered in Caselaw, be entered in the court record database. **********

Australian Securities and Investments Commission v Macdonald

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