9.4 Leadership Team Reports: Each month my team prepared documents which formed a package known as 'Leadership Team Reports', which were distributed to Mr Randall, Mr Jeyaraj, and others. I personally provided this document to Mr Randall or Mr Randall's secretary on each occasion because of the confidential nature of the reports. Included as part of each of the Leadership Team Reports was a whole range of financial data, including comparisons between the actual results in respect of the previous year, the actual results in respect of the current year, the forecast result in respect of the current year and the variation of those actual figures to the forecasts."
[Paragraph 9 of Mr Khin's statement of 16 October 2003]
Aristocrat's global operations
70 Mr Jeyaraj gave evidence that:
· globally, Aristocrat is divided as follows:
- the Americas, headquartered in Las Vegas;
- Europe, headquartered in the United Kingdom;
- Africa and the South East, headquartered in South Africa;
- Japan;
- New Zealand;
- Australia; and
- Asia Pacific.
· each region or country (as the case may be) has a chief financial officer or controller who reports to the country or region manager. Thereafter, the country or region manager reports directly to the chief executive officer in Sydney;
· each country or region is autonomous. It is responsible for preparing, having approved by the board of Aristocrat, and implementing a business plan for each financial year. Aristocrat's financial reporting year is the same as the calendar year;
· an annual field plan is also prepared by each country or regional manager based on the specific business environment. The field plans are based on stretched targets of each country or region and set the outer limits of the year's performance of Aristocrat;
· the annual budget for the financial year as approved by the board is extracted from the country business plans;
· each country or region provides monthly accounting reports to Aristocrat's head office in Sydney, through files and documents such as outlooks and flash reports. These reports are forwarded to the controller's department in Sydney which is responsible for monitoring Aristocrat's performance locally and internationally. The country or region's performance is monitored by the controller against the field plan, as well as against the budget approved by the board.
71 His further evidence was that the interpretation of monthly reporting from each region or country required to be seen in the context of Aristocrat's performance worldwide, the markets in which it was trading, and the idiosyncrasies of the markets. Without the inherent knowledge of the markets and Aristocrat's performance in those markets, the financial reporting was on his evidence, a limited tool for monitoring performance.
Aristocrat's sales patterns
72 Further evidence given by Mr Jeyaraj was:
· that in his experience, the business of Aristocrat and its performance against targets had its own idiosyncrasies. In particular, a high level of sales generally occurred in June prior to the close of the half yearly accounts. Sales in December were extremely high but in the months immediately preceding December, in particular September, sales were lower;
· that one reason for reduced sales in September and increased sales in December is that in September and October, each country or region prepares its financial plan for the following year. That plan is then submitted for approval by the board in late November. In preparing the plan, the countries and regions often hold back or do not 'book in' proposed sales. This lowers expectations for the following financial year. As sales are lower at the relevant time, the plan is also less onerous. Once the plan has been submitted and approved, sales are generally booked in for the last month of the year to ensure the year's targets are achieved as closely as possible;
· that in September each year in America, the annual gaming convention takes place. Sales in the months leading up to the convention are lower as customers wait for the convention to review new games prior to the peak season of New Year and Thanks Giving. The demand created as a result of the convention contributes to the high level sales in December;
· that these idiosyncrasies, particularly in the Americas, were further complicated by gaming legislation changes for each jurisdiction, new licences, new games hits, new alliances and acquisitions, and re-alignment of sales territories. These were a direct consequence of Aristocrat's acquisition of Casino Data Systems ["CDS"] in Las Vegas (being a company which specialises in technology driven products for the gaming industry) with significant merger activity and cost reduction programs being implemented at the same time.
73 Accordingly, it was the evidence given by Mr Jeyaraj that Aristocrat's final performance for the year against the field plan and budget could not be determined until the accounts for December had been audited accurately.
Financial reporting by Aristocrat Technologies Inc.
74 Mr Jeyaraj gave evidence that throughout his employment as chief financial officer, the various functional departments at Aristocrat's head office experienced problems with the poor quality of information, including financial reporting, being received from Aristocrat's American subsidiary Aristocrat Technologies Inc. ["ATI"]. These problems included inconsistent reporting from CDS' legacy systems and reports, and the need to continually question the accuracy of reporting provided by ATI. In due course and after months of discussions, this led to a change in the controller for Americas in December 2002.
75 His further evidence was that during the period from October 2002 to December 2002, head office continued to question the information being received from the American operations, with some help from himself as chief financial officer.
Timeline - the evidence
76 The convenient course is to treat with the sundry evidence which requires to be identified in timeline fashion.
77 In reciting portions of the evidence it should be made clear that all of the evidence has been taken into account in the findings to be found in this judgment. It is neither practicable nor possible to set out all of that evidence. The fundamental search and the critical findings concern the nature of the information received by Mr Randall [or of which he became aware], what he drew from that information and whether or not the pleaded breaches of contract have been proven [in terms of his suggested failure to take particular action in relation to that information and in terms of the allegation that he later played the or a central part in disseminating false or misleading or inaccurate information].
78 Initially a short reference to reliability of particular witnesses is in order.
Reliability of material witnesses
Mr Randall
79 Mr Randall cannot be regarded as a reliable witness save where his version of events is consistent with contemporaneous documents or with versions of events corroborated by witnesses who may be regarded as reliable. This is not to say that Mr Randall did not give a deal of evidence which was consistent with contemporaneous documents or with versions of events, or confirmed by other witnesses. The problem was that on many occasions Mr Randall clearly took the opportunity to press his own case: hence the extent to which an entirely partisan picture emerges from his evidence must always be kept in mind in weighing up the evidence. In certain areas his evidence is clearly rejected. The court's clear finding rejects his evidence that:
· he had not asked to see a copy of Mr Khin's draft e-mail prepared during the morning of 10 February 2003;
· that it was not until discovery that he had ever seen that e-mail or the draft announcement prepared by Mr Khin and Mr Jeyaraj.
80 These were important pieces of evidence. The significance of the unreliability of the evidence given by Mr Randall on these matters points up the need for very great care in assessing other evidence given by him.
81 There are a number of other examples of the unreliability of particular evidence given by Mr Randall. One only of those matters was Mr Randall's version of the boardroom meeting of 10 February 2003 where he asserts that he said to Mr Khin "You may have been aware of [particular information from the US] in part, but you did not report it to me." Mr Randall's contention before this court that it had not been his intent in this piece of evidence, to make the point that Mr Khin may have had information but Mr Randall did not have any information, is rejected.
82 As the judgment will make plain his further evidence as to his state of mind on certain matters in December 2002 and on some later dates is also rejected. One example is his evidence that he had not felt pressure before departing from Australia on 16 December 2002 believing that there were "no issues".
83 There is no doubt but that Mr Randall for obvious reasons feels extremely strongly about what he regards as the unconscionable conduct of Aristocrat in relation particularly to his dismissal. These high emotions no doubt play a considerable part probably in leading to a tendency, perhaps sometimes subliminal, to overstate the positives in his own case and to put a slant upon events which may assist the case of Aristocrat. It is a common experience of the courts to find that with the passage of time, witnesses and particularly litigants, will come to unconsciously believe that particular events were otherwise than are in fact proven by contemporaneous documents and reliable evidence given by other witnesses. This may have been a cause of some of the more unreliable evidence given by Mr Randall. The simple fact is that the events in issue cover a relatively small period in the life of his position as chief executive officer. And for an important part of the critical days from about 16 December 2002 he was very involved in the United States with the relocation of his family and no doubt can justifiably claim a substantial degree of disruption from daily routine in that regard.
Mr Jeyaraj
84 Broadly speaking the degree to which and reasons for which certain of the evidence given by Mr Jeyaraj cannot be accepted as reliable is set out in the judgment. It is unnecessary to go further presently except perhaps to point out that there is a significance in paying close attention to the form of draft announcement prepared by both Mr Jeyaraj and Mr Khin on 9 February 2003 [later closely examined in the judgment]. The part played by Mr Jeyaraj in that exercise substantiates the proposition that both men were, for good reason, not prepared to go along with the formal announcement which had been prepared for release where it had referred to sections of information not having been available prior to the 7 February announcement and had referred to information only received on the Friday. They had not been content with the reference to information received on the Friday having been "inconsistent with information previously provided". Barring exceptional circumstances it is usually not possible to move away from a contemporaneous document. And even though this was not the subject of cross-examination of Mr Jeyaraj, it is an example of why it is that the court relies upon all of the evidence in reaching findings and here in assessing reliability.
Mr Khin
85 Mr Khin is accepted by the court as having given reliable evidence. His evidence was consistent with contemporaneous documents. He had no difficulty in recalling the events which occurred. He had previously given evidence during the ASIC inquiry. His evidence before the court was consistent with that other evidence. On one occasion referred to below when he was particularly disturbed by what he regarded as a proposed ASX announcement which he saw as failing to state the truth, he took the significant precaution of preparing a draft e-mail to record where he stood on the issue. Although it was never sent it survived to see the light of day in the courtroom and bespeaks the reliability of the witness. He gave his evidence carefully and quietly. On an important issue as to whether or not the evidence given by Mr Khin or by Mr Randall should be accepted [the tearing up by Mr Randall of the draft e-mail prepared by Mr Khin] the evidence of Mr Khin is accepted as reliable and that of Mr Randall is rejected.
Mr Newburg
86 Mr Newburg had some difficulty in recalling a number of the events which were put to him. In some areas he appeared confused, as for example when a conversation was put to him as having occurred where it was suggested that he had said to Mr Jeyaraj and Mr Khin that there was no need to worry about the December flash report for various reasons. He responded that this discussion would have taken place in the first part of December and not at the end of December. However as the evidence disclosed, the first of the two flash reports for December was sent on 23 December. Subject to some particular matters, his evidence can only be accepted where it is consistent with contemporaneous documents or corroborated by the evidence of another witness who may be taken as reliable. The findings make clear where his evidence is accepted.
87 His evidence is accepted as reliable in relation to the conversation which he had with Mr Randall of 7 February 2003 [referred to below] where he was told by Mr Randall that even if Aristocrat had made the profit numbers its share price would still have been crucified because it did not tell anyone how much it had depended upon South America. The findings otherwise make clear where on some matters his evidence is accepted.
Evidence given by other witnesses
88 Evidence was given by a number of other witnesses, many of whom were not cross-examined. It has been unnecessary to chronicle that evidence but it has been taken into account where appropriate. Some of the evidence went to issues such as experiences in the gaming industry and knowledge of and dealings with Mr Randall. The evidence clearly establishes that Mr Randall had a strong record of encouragement of employees engaging in regular networking and for example participating in industry golf days where funds were donated to charities and similar. He had been a director of the Australian Gaming Council.
89 Other evidence adduced went to the relevant exchange rates as between the US and Australia at particular times and to matters such as costs of travel to and from the United States. Mr Jury had been the general manager, global communications, reporting to Mr Randall and gave evidence in relation to some of the material events which has been taken into account as necessary. His role had included managing communications with the media as well as internal communications. The judgment refers to his involvement in the preparation of the draft announcement in late December which was never ultimately released. Other evidence which he had given is taken into account in the findings, as for example where his evidence is held to be more reliable than that of Mr Randall in relation to a conversation which they had on 8 February 2003.
90 Other evidence was given relating to communications with the ASX, where for example in September 2002 Mr Greenslade was asked by the ASX to halt trading in Aristocrat's shares pending release of a particular announcement. Mr Carr-Gregg was the commercial manager of Aristocrat with duties including the preparation of drafts of the company's annual report and half yearly report. His evidence covered the steps taken leading to the preparation and then release of the 2002 annual report.
91 Other evidence dealt with conveyancing figures, relevant dates and matters concerning relocation costs and detail.
92 Mr Bush was the company secretary of all of the Australian companies in the group and a director of ATI. His evidence covered a number of matters including events which had taken place at board meetings and the extent of his responsibilities. His evidence included some detail with respect to the relocation arrangements and discussions. The judgment deals with the promissory note issue and communications. His evidence covers the drafting of the draft profit downgrade announcement in relation to which he had first [in his statement and in his sworn evidence before the ASIC inquiry] said that he could not recall whether he had drafted the original version or whether Mr Jury had drafted it. Under cross-examination he contended that it had been himself who had drafted the document. The matter is ultimately of small moment as it is obvious that he and Mr Jury were in close communication about the matter. His version of events was that Mr Jeyaraj had told him that the draft announcement was no longer required after Christmas Eve as "the Americas were confident they would meet their targets". He did have particular difficulty in answering questions relating to some disconformity as between his handwritten notes and what precisely had occurred at the board meeting on 17th February 2003 as compared to what had occurred at the later board meeting of 14 April 2003. It was put to him that the board had determined that the earlier minutes should be doctored and that the board minutes were doctored. It is unnecessary for present purposes to reach findings on these issues but it has to be said that Mr Bush clearly had had difficulties in recalling the events surrounding the drafting of announcement which was never released. The evidence of Mr Jury is accepted as the more reliable where inconsistent with that given by Mr Bush on this matter. The two men did work closely together. Clearly Mr Jeyaraj was also in close communication with each of them. It is not inconsistent with Mr Jury's evidence to find that the draft announcement was on Mr Bush's computer. It could easily have been on the computers of both gentlemen. Mr Jury gave evidence that he had deleted the draft announcement from his own computer system.
November 2001
93 The market expectation (established independently of the defendant) of the defendant's performance during 2002 is determined to be as follows:
· Revenue: $934 million
· Profit Before Tax $257.9 million
· Profit After Tax: $109 million
[DR 3/12/03 p188]
December 2001
94 The defendant commences litigation against International Gaming Technology [the "IGT litigation"].
February 2002
13 February 2002
95 The defendant's audit committee holds a meeting to discuss, inter alia, the report prepared by PriceWaterhouseCoopers ["PwC"] dated 11 February 2002. During that meeting, PwC acknowledge that approximately 56% of the group pre-tax result arose in the last month of the year, and substantial profit had been booked in December 2001. This is observed as a regular trend.
96 PwC also recommend that the defendant review its revenue recognition policies to reflect that some business now being done in South America, for example in Peru, had a higher risk profile than in the past. [Doc 37, Doc 38]
Three or four months before June 2002
97 Mr Randall's evidence was not altogether consistent in terms of precisely when he first learned of various South American prospects. His evidence appears to be that some three or four months prior to June 2002, board approval was given to Mr Newburg to endeavour to access South American markets. Mr Newburg had stated that there were two zones in South America which operated basically as free trade zones within each other and that it was necessary to open up both markets. On the evidence of Mr Randall, presumably reflecting what he had been informed by Mr Newburg, the key to the southern market was Colombia. Mr Newburg wanted to open up that market. The key to the northern market was Brazil which would be a master dealer. [Transcript 124]
April 2002
15 April 2002
98 The defendant holds a board meeting, during which reports are given by the plaintiff and the chief financial officer, Mr Jeyaraj, regarding the defendant's performance for the month of March 2002, the year to date results, and operational highlights.
May 2002
99 Negotiations between Mr Carlos Quintero and ATI commence for the sale of 12,000 units and a master distributorship in Columbia (the "Columbia Transaction").
100 Mr Randall acknowledged that from May 2002 his personal belief was that the market considered the United States of America to be "the growth engine" of Aristocrat. [Transcript 112] [cf the 13 August 2002 presentation to analysts referred to below]
Extent of direct communications between Mr Randall and Mr Newburg
101 Mr Newburg in his statement [14, 15] gave evidence, which in this respect is accepted as reliable, that he talked to Mr Randall on average at least three times a week from the commencement of his employment, in the main on most Sunday afternoons by telephone. Apart from those weekly telephone calls he and Mr Randall spoke a few times during the course of the week. Over 90 percent of the time his telephone calls with Mr Randall included a discussion about whether or not the American subsidiary would make its profit forecasts. From at least mid 2002 in his conversations with Mr Randall in which the topic arose of whether or not the American subsidiary would make its profit forecasts, he invariably said to Mr Randall words to the effect "whether we make the numbers will depend on whether we get the South American deals". Mr Randall accepted under cross-examination that in many conversations which he had with Mr Newburg during the second half of 2002, Mr Newburg had said words to that effect. [Transcript 117]
Chief executive report to the board - June 2002
102 Mr Randall in his June 2002 board reports [DX 611] provided preliminary financial results for May 2002 and in the course of providing other information included the following: