Oztech Pty Ltd v Public Trustee of Queensland

1. Makes the ruling as to admissibility set out in [18] of the reasons for judgment published today as Oztech Pty Ltd v Public Trustee of Queensland (No 14) [2016] FCA 1162. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

YATES J: 1 The applicant objects to the tender by the respondent of a number of documents which may be described, broadly, as documents evidencing or concerning the PIF transaction. These documents were identified by the applicant in the course of submissions: see T1545 line 9 to T1547 line 6. 2 In general terms, the PIF transaction concerned the borrowing of funds by a company within the Octaviar Group, MFS Investment Management Ltd, as the responsible entity for a managed investment fund called the Premium Investment Fund (PIF). Part of the borrowed funds were used to pay part of the debt of another company in the Octaviar Group, MFS Investment Holdings No 17 Pty Ltd, which had been incurred under a short term loan facility referred to in the proceeding as the Fortress facility. 3 The documents to which objection is taken include intra-group correspondence and transactional documents that were created in what seems to have been an attempt to clothe the transaction as a legitimate arm's-length commercial transaction. The authenticity of the documents (as records created by officers of companies within the Octaviar Group) is not in dispute. 4 The context in which this objection is made is as follows. It is part of the applicant's case that the respondent, as trustee of the Octaviar Notes Trust, should have taken certain steps from about August 2007 which, if taken, would have led him to receive information that would have caused him, or ought to have caused him, to form the view, by about the end of January 2008, that certain Events of Default had occurred under the Terms of Issue. The applicant says that one Event of Default occurred on or about 16 January 2008 when OIN (the issuer of the notes) submitted a quarterly report that failed to disclose the making of a payment involved in the PIF transaction. The respondent denies these allegations, although he does not contest the fact that the PIF transaction occurred or the fact that the PIF transaction was not disclosed in the quarterly report. 5 In oral submissions, the applicant advanced three objections. The first objection is that the documents in question are not relevant because there is no fact in issue in the proceeding as to the occurrence of the PIF transaction or that the PIF transaction was not disclosed in the quarterly report. This objection is advanced notwithstanding that: the PIF transaction is pleaded by the applicant as a significant event of which the respondent ought to have been aware by no later than the end of January 2008; in opening its case, the applicant placed considerable reliance on this event for the same purpose; and the PIF transaction is discussed in considerable detail in the second report of the applicant's expert witness Mr Borrelli, which was tendered in the applicant's case in chief. 6 Having introduced the PIF transaction into the proceeding, and having led evidence on it (including Mr Borrelli's own factual analysis of the transaction), I cannot see how it can be cogently argued by the applicant that the documents in question are not relevant. They are evidence of the events and circumstances of the transaction. The fact that the respondent does not appear to dispute the fact that certain funds passed under the PIF transaction or that the PIF transaction was not disclosed in the quarterly report does not mean that the documents in question are not relevant to the ultimate fact in issue, which is whether the respondent breached his duties as trustee, as alleged in the further amended statement of claim. 7 The second objection is that the tender of the documents should be rejected under s 135 of the Evidence Act 1995 (Cth) (the Evidence Act). The applicant submits that it only received notice of the tender of these documents on 26 August 2016, pursuant to the Court's order made in that regard. The applicant argues that the documents in question are of limited probative value which is outweighed by the prejudice it would suffer if the documents are admitted into evidence. The asserted prejudice is twofold: the applicant says that it has not had an opportunity to respond to this evidence; further, there would be some unfairness if Mr Borrelli's narrative of the PIF transaction were to be challenged by reference to the documents. 8 I am not persuaded by either argument. The PIF transaction was investigated by Mr Borrelli and I can think of no basis on which, if there was any issue arising from the documents in question, they could not have been provided to Mr Borrelli for comment in light of his own findings of fact in relation to the transaction. Indeed, a number of the documents appear to be source documents on which part of Mr Borrelli's narrative of the transaction is based. If there was any issue about whether Mr Borrelli could be shown the documents at the time that he was conferring with Mr McCann for the purpose of producing their joint report (which was the argument advanced by the applicant), the matter could have been raised with the Court prior to Mr Borrelli giving evidence. The documents have probative value and the applicant has not established any proper basis for their discretionary rejection. 9 The third objection is based on the applicant's concern that the documents in question will be used as tendency evidence without compliance with s 97 of the Evidence Act. 10 Section 97(1) of the Evidence Act states the tendency rule as follows: Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person's character or otherwise) to act in a particular way, or to have a particular state of mind unless: (a) the party seeking to present the evidence gave reasonable notice in writing to each other party of the party's intention to adduce the evidence; and (b) the court thinks that the evidence will, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value. 11 Section 97 is not limited to the "character, reputation or conduct" of a person who is a party to the proceeding: Cubillo v Commonwealth (No 2) (2000) 103 FCR 1; [2000] FCA 1084 at [956]. Further, in Combined Insurance Company of America trading as Combined Insurance Company of Australia v Trifunovski (No 4) [2011] FCA 271, Perram J reasoned that the tendency rule could apply to the tendency of a corporation to act in a particular way or to have a particular state of mind. His Honour said (at [9]): I do not think that any of these concepts are necessarily inapposite to artificial persons such as corporations. Personal characteristics can be attributed to corporations for the purposes of civil and criminal liability, including knowledge and state of mind: Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170 per Lord Reid. I do not think that s 97(1) should be approached on the basis that they cannot. I accept, therefore, that corporations can have semi-anthropomorphic qualities such as reputation, character and tendency. This is, no doubt, because corporations consist of groups of people operating in an habitual way in a given corporate culture. For those reasons, I do not think that Combined's textual point is a sound one. 12 Section 95 of the Evidence Act is also important. It provides that: (1) Evidence that under this Part is not admissible to prove a particular matter must not be used to prove the matter even if it is relevant for another purpose. (2) Evidence that under this Part cannot be used against a party to prove a particular matter must not be used against the party to prove that matter even if it is relevant for another purpose. 13 It can be seen from this provision that s 97 of the Evidence Act concerns not only whether particular evidence should be admitted but, also, how admitted evidence may be used. In Odgers S, Uniform Evidence Law (12th ed, Thomson Reuters, 2016), the position is conveniently explained as follows (at [EA.97.60], p 668): … The applicable words are "is not admissible to prove that …". If the particular evidence is not adduced to prove the existence of some tendency to act or think in a particular way, it is not caught by s. 97. However, admission of the evidence for some other relevant use does not mean that s 97 no longer has any application. The fact that the evidence in question is admissible for another use and has been admitted into evidence, does not mean that s 97 has no work to do (because it only deals with admissibility). The point is put beyond doubt by s 95(1). If the evidence "is relevant for another purpose" (that is, relevant other than to prove a tendency to act or think in a particular way), the evidence "must not be used to prove that matter" (that is, must not be used to prove such a tendency) if the evidence is "not admissible to prove" such a tendency (that is, if the conditions of s 97 are not satisfied). 14 The requirement of notice in relation to the tendency rule is referred to further in s 99 of the Evidence Act, which provides: Notices given under section 97 or 98 are to be given in accordance with any regulation or rules of court made for the purposes of this section. 15 It is not in dispute that the notice required by s 99 has not been given by the respondent. In Allam v Aristocrat Technologies Australia Pty Ltd (2012) 95 IPR 242; [2012] FCAFC 34 at [242], the Full Court emphasised that the admissibility of tendency evidence is "tightly regulated" by Pt 3.6 of the Evidence Act. One requirement is the giving of a s 99 notice. Thus, in the absence of notice, but subject to s 97(2) of the Evidence Act or any other relevant exception (including dispensation under s 100), the respondent is not permitted to rely on the documents in question for a purpose that would run counter to the tendency rule. 16 In the course of submissions, senior counsel for the respondent stated that one purpose of the tender was to use the fact that "false documents" had been created to sustain an argument that it would be unreal to expect that an investigative accountant engaged by the respondent (in the circumstances posited by the applicant) would have been given either "candid information" or information that did not constitute either "prevarication or distraction". In short, the respondent wishes to advance an argument in closing submissions that, given that, apparently, the Octaviar Group had misled its auditors and its own corporate consultants, who had been engaged in January 2008, as to the nature of the PIF transaction, an investigative accountant engaged by the respondent would, similarly, have been misled if that person were to have inquired about the transaction in either late 2007 or early 2008. 17 The present question arises in unusual circumstances: the use of alleged tendency evidence to establish a hypothetical concerning a transaction in issue, where the tendency is said to arise from the very conduct involved in the transaction itself. My initial reaction, in the course of submissions, was that use of the documents in this way would not be use for a tendency purpose caught by s 97. On reflection, I accept that the applicant's position is at least arguable. However, I do not propose to reach a final view on that question now. I am satisfied that the documents in question are admissible as evidence of the primary facts and circumstances concerning the PIF transaction and, for that reason alone, are admissible. 18 Therefore, it seems to me that I should simply admit the documents in question. As this is a case in which findings of fact are to be made by the Court and not by a jury, and as no further evidence is to be tendered, the final use to which the documents can be put can await the making of closing submissions, which is the remaining step in this phase of the hearing of the proceeding. If the respondent wishes to pursue the use of the documents for the purpose identified in [16] above or for any analogous purpose, then, at the time of closing submissions, I will hear further argument on whether s 97 permits that use. 19 I note that the respondent argues that other evidence, already admitted, would allow that evidence to be also used for the purpose identified in [16] above. The same question arises. The evidence already admitted will be governed by the requirements and limitations of Pt 3.6 of the Evidence Act. So far as I can see, the applicant has not adduced that evidence for a tendency purpose: s 97(2)(b). Further, no direction under s 100 has been made in respect of that evidence: s 97(2)(a). Nevertheless, if it remains in dispute, I am prepared to hear further argument on that question at the time of closing submissions. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.