Michael Wilson and Partners Limited v Robert Colin Nicholls & Ors

Australian Securities and Investment Commission v Rich & Ors (2005) 218 ALR 764 CASES CITED : Australian Competition and Consumer Commission v Australian Safeway Stores [1999] FCA 1269 Ordukaya v Hicks [2000] NSWCA 180 R v BD (1997) 94 A Crim R 131

Australian Law Reform Commission, Evidence, Report No 26 (Interim), (1985), vol 1, para 644 TEXTS CITED : Judicial Review (2006) 7 TRJ 431 Odgers, Uniform Evidence Law 3rd ed (1998)

Michael Wilson & Partners (Plaintiff) Robert Colin Nicholls (First Defendant) David Ross Slater (Second Defendant) PARTIES : Temujin Services Limited (Third Defendant) Temujin International Limited (Fourth Defendant) Temujin International FZE (Fifth Defendant) Shaikenov & Partners, LLP (Sixth Defendant) Scoulton Holdings Limited (Seventh Defendant)

Mr M Walton SC, Mr J Carney (Plaintiff) COUNSEL : Mr G McGrath, Mr A Fox (First Defendants) Mr G Lindsay SC, Mr A Fox, Mr S Adair (Second to Fifth Defendants)

SOLICITORS : Clayton Utz (Plaintiff) Henry Davis York (First to Fifth Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Thursday 10 August 2009 ex tempore Revised 11 August 2009

50151/06 Michael Wilson & Partners Limited v Robert Colin Nicholls & Ors

The late discovery by the plaintiffs of approximately 37,000 pages of documents 1 The current state of these proceedings is that the plaintiff continues to present its case. 2 An issue has arisen in under the rubric 'objections to evidence'. The issue concerns an objection to the plaintiffs being entitled to rely upon what are said to be expert opinions of three witnesses: Mr Schilling, Mr Gibson and Mr McGrane. The burden of the objections is that by reason of the plaintiffs' late discovery of approximately 37,000 pages of documents, the defendants have been and remain unable to deal with these experts reports and that the problem can only be resolved by the court rejecting the records accordingly. In each case the objection is said to be based upon section 135 (a) of the Evidence Act 1995 the heading of which reads:

"the Court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might: (a) be unfairly prejudicial to a party".] 3 For completeness it should be added that subsections (b) and (c) set the integers whereby the evidence may be rejected if the probative value of that evidence is substantially outweighed by the danger that the evidence might:

(c) cause or result in an undue waste of time." 4 In the decision of the Court of Appeal in Australian Securities and Investment Commission v Rich & Ors (2005) 218 ALR 764, attention was given to inter alia the parameters critical to the balancing exercise provided for in section 135. In an article seeking to explain the Court of Appeal's approach to the discretionary exclusion, the following observations were made by the author [Judicial Review (2006) 7 TRJ 431 at 444 - 445]:

The gravamen of the reasons given in ASIC v Rich by the Chief Justice was that the trial judge's focus on the risk that Mr Carter had relied on excluded material appeared to be based on the use of the word 'might' in s 135. The Chief Justice held at 151 that this was to focus on only one half of the balancing exercise for which 135 called. 'Whether Mr Carter took into account excluded material either as a fact or at the level of risk - is a matter that would impinge on the other half of the balancing exercise, that is the issue of probative value.'"

The holding at 163 to 165 was that, "[I]t was a fundamental error not to conduct any systematic analysis of the probative value of the evidence.

There is an inherent difficulty in the application of the discretion in s 135 because it involves the weighing of essentially incommensurate factors. Nevertheless, that is the task that the legislature has set." Unfair prejudice 5 The Court of Appeal has previously had occasion to deal with the term unfair prejudice in s 135 of the Act: Ordukaya v Hicks [2000] NSWCA 180, Sheller JA, with whose reasons Meagher JA agreed, making the important point that the term prejudice in s 135(a) was qualified by the term unfair:

"The admission of a document of probative value against a party involves prejudice to that party. However, it is not prejudice but unfair prejudice which must be weighed against the probative value of the representation." 6 Mason P said at 427,

"At common law, it is doubtful whether otherwise admissible evidence could be rejected on the ground of prejudice in proceedings other than criminal proceedings. Sections 135 and 136 of the Evidence Act have now introduced such a rule conferring a very wide discretion upon trial judges. Having regard to the likely common law position and the broad language of those sections, the notion that evidence might be unfairly prejudicial to a party should not be confined beyond that which emerges on a fair reading of the sections in context.

Part of that context is the significant qualification of the hearsay rule in the Evidence Act itself. In light of this McHugh J has cautioned against failure to give sufficient weight to the change that the Act has brought about in making hearsay evidence available to prove facts in issue… 7 In referring to the Australian Law Reform Commission, Evidence, Report No 26 (Interim), (1985), vol 1, paragraph 644, it was observed by Mason P that it conceived of unfair prejudice as:

"...the danger that the fact-finder may use the evidence to make a decision on an improper, perhaps emotional basis, that is, on a basis logically unconnected with the issues in the case." 8 Mason P continued:

In my view this danger identifies the core notion of unfair prejudice and the purpose of the discretion to exclude evidence on that basis. In R v BD (1997) 94 A Crim R 131, Hunt CJ at common law referred to evidence as unfairly prejudicial if there is a real risk that the evidence will be misused by the jury in some way. Mason P, citing this, pointed out that the author of Odgers, Uniform Evidence Law 3 rd ed (1998) states at p 443: "Plainly it is likely that this danger will usually only have significance in a jury trial. Where the trial is by judge without a jury it will be an unusual judge or magistrate who is prepared to concede that a danger exists that he or she might be unfairly prejudiced by evidence. On the other hand the provision is not limited to misuse of the evidence by the tribunal of fact. Unfair prejudice may arise from procedural considerations. Thus an opposing party may be significantly prejudiced by hearsay evidence if unable to cross-examine on a crucial issue in the litigation. Alternatively, the opposing party may be unfairly prejudiced by evidence if prevented from properly challenging its reliability." 9 Mason P added:

I agree: see Australian Competition and Consumer Commission v Australian Safeway Stores [1999] FCA 1269.

It is unnecessary to consider whether unfair prejudice extends to substantive unfairness in the obtaining of the evidence as suggested by the primary judge in the present case. If it extends that far it is certainly not confined to that category of case. Indeed, that category is outside the core category of situations to which the discretion is primarily addressed as I have endeavoured to show. 10 In the result, in my view, subject to complying with the dictates of the section, s 135(a) may in appropriate circumstances be utilised by the court to refuse to admit evidence the probative value of which is substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party. 11 Of course, there is another and more simple route to the court dealing with the situation which is said to presently obtain where the burden of the complaint or objection to the evidence is simply, although importantly, that the defendants have not yet had an opportunity to consider documents produced out of time. The party seeking to place the evidence before the court is usually required to comply with directions as to the date and time by which the evidence may be filed. Absent such compliance there is simply no entitlement in a party to [otherwise than by later], leave rely upon late materials. Turning to the position which obtains. 12 The position which obtains has been carefully examined in an affidavit made by Mr Hawkins, the defendant's solicitor, on 5 August 2009. Aside from annexures the affidavit is to the following effect:

Plaintiff's late discovery of approximately 37,000 pages of documents

1. The Plaintiff has served the following affidavits sworn by Messrs Gibson, Schilling and McGrane and these affidavits were served on the date they were sworn or shortly thereafter:

(a) Mr Gibson sworn 30.10.08; (b) Mr Gibson sworn 19.12.08; (c) Mr Gibson sworn 19.12.08; (d) Mr Schilling sworn 17.10.08; and (e) Mr McGrane sworn 21.11.08. 2. I have reviewed the transcript from day 19 of the UK Arbitration between the Plaintiff and Mr Emmott and have extracted below some sections of that transcript which records part of the cross-examination of Mr Gibson during the UK Arbitration: (a) T-87 (lines 1-18) 1 MS DAVIES: So what in fact were you looking at?

4 A. Everything that should have been or would have been in

6 backwards and forwards, which had been reconstituted, if

7 you like. You must have heard evidence about how that

8 was done and those files were then put back together,

9 together with anything that existed. Where there were

10 draft documents, for instance, they would have been in

12 I looked at 120-odd files altogether. I couldn't

14 reconstituted emails in it and which of them had

15 original draft documents, but I was given 400 boxes of

16 lever arch files, which were either the original files

17 which had been left in the offices or they had been

18 reconstituted from wherever these things come from. (b) T-93 (lines 10-13) 10 LORD MILLETT: Are these the files that I think

12 A. I don't recall who reconstituted them. They were given

13 to me in a room full of boxes. 3. For the purpose of preparing this affidavit, I have reviewed a number of large lever arch folders and note that one large lever arch folder holds approximately 300 A4 pages.

4. I have not caused all of the Further Discovered Documents to be printed out at this stage, due to the time and expense associated with taking this step in circumstances where I and the Defendants' counsel have not had the time to review those documents.

5. If the Further Discovered Documents were to be printed out they would occupy approximately 123 lever arch folders. At least four printed sets of the Further Discovered Documents would have to be produced (being a copy for HDY and one copy for each of the Defendants' barristers).

6. I have briefly reviewed the Further Discovered Documents and they appear to be divided into categories according to the particular client and/or file to which they relate. The plaintiff has not served an index which identifies each of the documents contained in the Further Discovered Documents.

7. I have not yet been able to undertake a meaningful review of the Further Discovered Documents because the vast majority of my time over the last two months has been spent undertaking the usual preparation for: (a) the trial of these proceedings;

(b) the numerous interlocutory applications that have been agitated by the parties over the last two months; and

(c) instructing counsel at the final hearing which commenced on 15 June 2009. I have also been required to review the voluminous UK Arbitration materials that were served on the Defendants over the period 12-15 June 2009. These documents include inter alia all of the transcripts from the hearing (which exceeded three weeks), the parties documentary and affidavit evidence and the arbitrators orders and awards. 13 During submissions Mr McGrath explained the position in the following way:

Mr McGrath: This affidavit of Mr Hawkins if I can just talk your Honour through it briefly, deals with the 37,000 pages of documents which were provided in support of the expert statements or affidavits of Mr Gibson and Mr Schilling and Mr McGrane. Mr Hawkins has gone through the transcript of the UK arbitration relating to Mr Gibson's cross-examination and your Honour will see at para 10 on the second page of that affidavit an extract of the transcript where Mr Gibson describes looking at 120 odd files altogether, that's on the next page, p 3 about the fourth line, and then describing them as 400 boxes of lever-arch files. The documents that were handed to us your Honour or provided to us in May and June were as your Honour probably recalls on a DVD. And Mr Hawkins has estimated that if they were to be printed out, in para 13 of his affidavit - that there would be a 123 lever-arch folders of the larger size so that if your Honour just wants a potted summary of the documentary case that's been provided to the defendants in May, June and July, it's the 50 original lever-arch volumes of evidence, 45 of which roughly were abandoned on the first day of trial.

There was an additional 37 folders of evidence produced after that which has already been the subject of a judgment of your Honour's, and in addition to those documents for the defendants to read, assimilate and to take instructions on there are another 120 odd to 123 files. Mr Radosavljevic said that there were in the order of about 150 when he saw them, it's difficult to give your Honour an exact estimate of how many files there are because they're in electronic format but it's something like - over a 120 lever-arch folders of the larger type on anyone's estimate and the defendants simply haven't had the opportunity of dealing with those.

If it assists your Honour and if there's any doubt about it I hand up a copy of the transcript of Mr Gibson's cross-examination in the UK arbitration, but Mr Gibson says he himself took 13 weeks to read and deal with this material and if that be the case, although he had to prepare a report on it, the defendants haven't had 13 yet since they were given this material and there is no real way they can deal with it in the course of this case that's running. 14 Subject to dealing carefully with sections of the evidence of these three witnesses which cannot be said to be infected by the so called 37,000 page problem, it seems quite plain that are only two modes by which the problem may be dealt with. The first is to vacate the balance of the hearing and to stand the proceedings over for probably many months and arguably into next year [and perhaps well into next year]. The second is to reject the entirety of the evidence of these witnesses with the exception of so much of the evidence as is not infected by the 37,000 page problem. 15 To my mind the latter is the principled approach which will be adopted. In short, where there is no infection, the evidence is to be permitted, where there is infection, the evidence is not to be permitted. 16 Concentrating next on which sections not reliant on MWP's client files are the subject of objection, I accept as correct the following positions put by the plaintiffs which serve to explain the position:

1. Gibson: (1) 30 October 2008 affidavit (main report) at 27, volume 3 "Expert Evidence" is entirely reliant on the MWP Client Files; (a) Mr. Gibson gives evidence in paragraph 25.3 at page 12 that the invoices MWP could reasonably have billed in relation to various matters the subject matter of this proceeding against MWP actual buildings was US $8,084,896 in fees only and a further $8,703,421 in fees and office disbursements.

(b) this evidence is based on a review of physical files in Kazakhstan at MWP's offices (paragraph 8 at page 3 and 12 at page 5). This evidence will be disallowed (2) 19 December 2008 affidavit at tab 28, volume 3 "Expert Evidence" is not reliant at all on the MWP Client Files (a) Mr. Gibson gives evidence in relation to Temujin client files which in paragraph 4 are incorrectly referenced to the previous affidavit and shall be references to paragraph 9.5 "there has been no disclosure of the TIL client files" and references to those files and paragraphs 16.4-16.6;

(b) Mr. Gibson then gives evidence that he inspected a large number of files (138 files) at paragraph 6 and seven and provides estimates of what the total fees and disbursements which he would reasonably expect to be built that each of the projects disclosed in those files which are referred to as the "Temujin client files"

(c) his evidence in paragraph 13.2 on page 4 is that those matters would have amounted to US $2,018,386.66 and €3,383,669.52; (i) the 37,000 documents relate to documents added to the "MWP client files" the certain projects and transactions which were discovered as part of MWP's discovery in May 2007 and therefore do not relate to the documents looked for the purposes of this affidavit (Evans, paragraph 6) This evidence will be allowed (3) Gibson, supplementary affidavit also sworn 19 December 2008 (at tab 29, volume 3) is not reliant at all on the MWP Client Files: (a) this affidavit supplemented the evidence of the affidavit of 19 December to say that additional invoices of euro 188,813 had been added as a result of additional Temujin files being inspected. This evidence will be allowed. B. Schilling -- affidavit 17 October 2008 at tab 32 2. At page 1, second paragraph under heading "Materials upon which this Report is based" Mr Schilling explains that:

"For the purposes of preparing this Report I attended the offices of MWP in Almaty during the week the 30 June 2008 to conduct a limited review MWP's files in respect of the clients and projects which are listed in paragraph 3.4 of the Letter of Instruction."

Question 1 3. Question 1 is reliant on the MWP Client Files. 4. Question 1 is dealt with in paragraph 3.1 beginning at page 8 of the Report at and continuing to the table at page 23 of the Report. Mr. Schilling has made use of the MWP client files containing the 37,000 documents in answering this question. Mr. Schilling importantly in paragraph 3.3 explains the limited use that he has been able to make of the client files in the following terms: "In the case at hand, the review has been further complicated by the lack of information which survives in the MWP Client files in some cases with almost a total absence of information in a file. The most extreme case involved an MWP Client file with a single sheet a paper. My limited review of the MWP Client files has led me to the conclusion that substantial parts of those files were either never maintained properly or were destroyed such that almost no minutes or notes of telephone conversations or meetings with or on behalf of clients survive, few mark­ups of draft legal documents survive and very few indications survive as to the whereabouts of individual fee earners involved in those MWP Client matters during the projects to which those files relate and that this is particularly true of Messrs Emmott, Nicholls and Slater who seem to have travelled outside of the Region frequently.

Accordingly, I have found it necessary to approach what survives in the reconstructed MWP Client files as evidence of the minimum of the legal services provided and that it is necessary to include the legal work implied by the transactions outlined in the Transaction Summaries even where there were no MWP Client files opened or where no evidence of such work survives in the extant MWP Client files. This evidence will be disallowed. Question 2 5. Mr. Schilling has made limited use of the MWP client files containing the 37,000 documents in some of his answers to question 2, which commences at paragraph 4.1 at page 24 of the report and continues to page 28. He has made no use of the MWP client files in answer to other answers.

6. The limited use is explained in the following paragraphs:

In the case at hand, the review has been further complicated by the lack of information which survives in the MWP Client files in some cases with almost a total absence of information in a file. The most extreme case involved an MWP Client file with a single sheet a paper. My limited review of the MWP Client files has led me to the conclusion that substantial parts of those files were either never maintained properly or were destroyed such that almost no minutes or notes of telephone conversations or meetings with or on behalf of clients survive, few mark­ups of draft legal documents survive and very few indications survive as to the whereabouts of individual fee earners involved in those MWP Client matters during the projects to which those files relate and that this is particularly true of Messrs Emmott, Nicholls and Slater who seem to have travelled outside of the Region frequently.

Accordingly, I have found it necessary to approach what survives in the reconstructed MWP Client files as evidence of the minimum of the legal services provided and that it is necessary to include the legal work implied by the transactions outlined in the Transaction Summaries even where there were no MWP Client files opened or where no evidence of such work survives in the extant MWP Client files. (2) In paragraph 4.8 (a) in relation to the Sokol/Urals Gold Deposit Project/Maminskoye project Mr. Schilling notes that:

"While there was considerable work going on from March 2005, the intensity rose in the first six months of 2006 and probably peaked in July 2006. Given what appeared to be going on according to the correspondence in the reconstructed •MWP Client file I have trouble understanding why Messrs Slater and Nicholls did not record more time that month. As if to demonstrate, I note that Mr Emmott charged more time to the TIL matter In July (bearing in mind his last day at MWP was 20 July 2006) than Messrs Slater and Nicholls combined". (3) In paragraph 4.8 (c) in relation to the Sokol/Chilisai Phosphor Project

The five remaining invoices tell me more about what was - not billed by MWP in this matter than what they say about the work done by Temujin. My reading of the correspondence in the MWP Client file indicates that the Intensity of the work in this matter was highest in the period up to June 2006 which is reflected in the parallel billing by Temujin. In the period from January through March 2006 Mr Slater apparently recorded 132 hours to this matter.

(4) In paragraph 4.8 (d) in relation to the Pinegrove/Karamandybas Project Mr. Schilling has only made use of the MWP client files containing the 37,000 pages so as to avoid double counting in his estimate. He explains this in the following terms: This is an apparent case of the continuation of a project begun with MWP which continued with Temujin and by necessity I have tried to divide the assessment of legal fees as between the two firms to avoid double counting. While I am comfortable with the estimate for overall legal fees in this matter, the split between the two firms can only be guessed as the information available is unclear as to the actual timing of much of the legal work during 2006.

7. In answering question 2 in paragraphs 4.8(b) in respect of Frontier/Project Ablai, 4.8 (e) in respect of Kangiamut Seafood and 4.8(f) in respect of KKM Operating Group/Maersk Oil Joint Venture no use has been made of the MWP client files containing the 37,000 pages. This evidence will be allowed. Question 3

8. In answering question 3, no use has been made of the MWP client files containing the 37,000 pages. This evidence will be allowed. C. David McGrane

9. In relation to the affidavit of David McGrane sworn 21 November 2008 annexing a report of the same date, the report deals entirely with those parts of Mr. Gibson's 30 October 2008 affidavit and Mr. Schilling's report which are reliant on the MWP client files containing the 37,000 pages of documents. This evidence will be disallowed. *******

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