New South Wales Supreme Court CITATION : ASIC v Rich [2005] NSWSC 296 HEARING DATE(S) : 5, 6 April 2005 JUDGMENT DATE : 7 April 2005 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : Reasoning reviewed CATCHWORDS : EVIDENCE - expert opinion evidence - reasoning in ASIC v Rich [2005] NSWSC 256 reviewed ASIC v Rich [2005] NSWSC 149 CASES CITED : ASIC v Rich [2005] NSWSC 256 Makita (Australia) Pty Limited v Sprowles (2001) 52 NSWLR 705 Australian Securities and Investments Commission (P) PARTIES : John David Rich (D1) Mark Alan Silbermann (D4) FILE NUMBER(S) : SC 5934/01 R B S Macfarlan QC with J P A Durack SC, N J Beaumont and J E O'Sullivan (P) COUNSEL : D L Williams SC with M J Steele and S A Goodman (D1, D4) Georgina Hayden, Solicitor for Australian Securities and Investments Commission (P) SOLICITORS : Joanne Kelly, Solicitor (D1, D4) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J THURSDAY 7 APRIL 2005 5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: On 22 March 2005 I delivered ex tempore reasons for judgment (ASIC v Rich [2005] NSWSC 256 - "my 22 March judgment") rejecting ASIC's application for a ruling on the admissibility of evidence. As outlined in a document which I numbered "AS 56", ASIC had applied for a ruling to the effect that appendix L to the Carter Report was composed of "analytical facts" not involving elements of inference, opinion or judgment, and therefore admissible on the principles set out in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, notwithstanding my decision (ASIC v Rich [2005] NSWSC 149 - "my 7 March judgment") that the Carter Report (including its appendices) was generally inadmissible on Makita grounds. 2 On 5 April 2005 ASIC, by leave, drew my attention to what it said were some errors of fact in my judgment of 22 March, relating respectively to paragraphs [21]-[24] and paragraphs [25]-[26]. It did so without seeking to "gainsay" my conclusion: T 3827.39. Its concern was to remove any express or implied finding that Mr Carter had not identified, in his Report, the source of the contents of appendix L to the Report. I was told that ASIC wanted to have these matters corrected before argument of the appeal against my 7 March judgment, which has been set down for hearing on 13 and 14 April. 3 In paragraphs [21]-[24] of my 22 March judgment I identified what I described as the "second difficulty" with ASIC's proposed tender of appendix L. This was the difficulty that in some cases the identification of the source material for information in appendix L involved matters of inference and judgment, including matters of inference and judgment of quite controversial kinds. 4 I expressed my view as follows: "22. In some cases the notes refer in a precise and unobjectionable way to materials which are, in turn, sourced in documents for which the provenance is reasonably well established. I have in mind documents located according to ASIC's provenance evidence in a version of the I:drive of One.Tel. 23. In other cases, however, documents are sourced according to the notes in various places where the identification of the source appears, to me, to involve matters of inference and judgment; indeed, in some cases, inference and judgment of quite controversial kinds." 5 I then referred, by transcript references, to submissions made by senior counsel for the defendants, in which he gave examples of the phenomenon that concerned me, and I said that each of the examples was a correct illustration of the point. It is plain from the transcript identified in paragraph [24] that senior counsel for the defendants was concerned to identify cases in which, in the course of providing sources for information stated in appendix L, Mr Carter or his staff had exercised an element of judgment. Senior counsel for ASIC has suggested that senior counsel for the defendants (and also the court, which accepted the defendants' submissions) did not properly understand that in appendix L, the detailed sources of information are given in the notes stated in round brackets rather than in the notes stated in square brackets. Having re-read T 3653-3658, I cannot detect any such error. 6 The juxtaposition of paragraphs [22] and [23] might be taken to imply that, while in some cases the notes refer in a precise and unobjectionable way to materials sourced in documents for which the provenance is reasonably well established, in other cases this is not so. I did not intend to make a finding to that effect. I was endeavouring to say that while, in some cases, the source and provenance were identified, the process of doing so had in some cases involved matters of inference and judgment, and that appendix L was objectionable on Makita principles because of this latter characteristic. 7 ASIC invited me to make a finding that the information in appendix L was, indeed, precisely sourced in documents of which the provenance was well established. I am not in a position to make such a sweeping finding, but I do think it fair to remove any ambiguity from the relevant paragraphs. So as to make the matter as clear as possible, I say now that paragraphs [22] and [23] should be read as if corrections were made to them as follows: "22. In at least some cases the notes refer in a precise and unobjectionable way to materials which are, in turn, sourced in documents for which the provenance is reasonably well established. I have in mind documents located according to ASIC's provenance evidence in a version of the I:drive of One.Tel. ASIC submitted that all the information in appendix L was properly sourced in this fashion, but I am not in a position to make a broad finding of that kind. 23. In other some cases, however, documents are sourced according to the notes in various places where the identification of the source appears, to me, to involve matters of inference and judgment; indeed, in some cases, inference and judgment of quite controversial kinds." 8 ASIC has also drawn my attention to paragraphs [25] and [26] of my 22 March judgment, which are as follows: "25. Note 41 on page 12 deserves special mention because it was referred to by both sides. It identifies paragraph 335 of the substantial report relating to additional unbudgeted prepaid marketing and, in addition, a reference to an exhibit in the Carter exhibits relating to operational expenses. When one turns to paragraph 335 one sees the following statement: 'The flash reports do not state whether the additional unbudgeted prepaid marketing related specifically to one or more of the group's operations. However, based on the Group's source documentation used to prepare the flash reports, I have identified the break down of the expense for the months February to April 2001 as follows: [and there follow some tables]'. 26. What is worthy of note is that when one seeks to trace the source for matters stated in appendix L, one finds in the end an assertion said to be 'based on the Group's source documentation used to prepare the flash reports', with no other specification." 9 These paragraphs respond to a submission by senior counsel for the defendants. He took the court to some examples (referred to in paragraph [24] of my 22 March judgment) where the identification of sources of information involved, according to his submission, the exercise of judgment by Mr Carter or his staff, particularly (but not only) as to selecting which of alternative forms of documents should be used. As to note 41 and paragraph 335 of the Carter Report, senior counsel for the defendants drew attention to Mr Carter's statement that his break down of the unbudgeted pre-paid marketing expense was "based on the Group's source documentation used to prepare the flash reports". The submission (T 3658.7) was: "One is not told in terms at least what is the source of the information that follows. The use of the expression 'based on' seems to suggest some element of judgment that is going on there." 10 Counsel and the court were well aware of the structure of the Carter Report, and in particular the fact that the tables set out in the body of the Report are replicated in appendix O, where they are supplemented by notes identifying sources of figures contained in the tables. Pages 73 and 74 of appendix O replicate, with notes, the table in paragraph 335 of the body of the Report. The notes on pages 73 and 74 refer, in part, to the flash reports as sources for some figures. They set out a calculation (note (4)) supporting the figures given in the main table for additional unbudgeted pre-paid marketing. According to the notes to note (4), some of the figures in note (4) are derived from specified pages of the Carter exhibits which are described as "flash report support schedules". 11 I was mistaken to say in paragraph [26] of my 22 March judgment that the assertion in paragraph 335, that the break down of the marketing expense was "based on the Group's source documentation used to prepare the flash reports", was not further specified. There is further specification on pages 73 and 74 of appendix O. However, it seems to me that note 41 is still an illustration of the way matters of inference and judgment creep into mathematical analysis in the Report and its appendices. There is inference and judgment involved in treating specified pages of the Carter exhibits as "flash report support schedules" and in the overall structure and presentation of the table at paragraph 335. To identify paragraph 335 as a source of information in appendix L is therefore to rely on a process of inference and judgment. I reach this conclusion recognising, as senior counsel for ASIC reminded me (T3832 and 3844), that there is a provenance path linking the flash reports with the documents noted on page 74, which limits the field of inference and judgment while not eliminating it. 12 The mistake that I made in paragraph [26] was not the result of my overlooking an express submission by ASIC. The submissions in reply by senior counsel for ASIC (T 3661-3664) concentrated on the contention that appendix L, if allowed into evidence, would be evidence of nothing more than mathematically correct calculations, and not evidence of any opinion, express or implied, by Mr Carter that the documents identified in the notes were the correct documents to be used. In my 22 March judgment I rejected this submission, holding (at [16]-[17]) that the tender of appendix L was for the purpose of establishing not only the accuracy of calculations but also that the figures in the tables in appendix L were sourced in the documents identified in the notes, and that the latter aspect involved questions of inference and judgment. The submission in reply did not specifically respond to the defendants' submission about note 41 to appendix L and paragraph 335 of the Report. 13 On 6 April senior counsel for ASIC drew my attention to an earlier part of the transcript (T 3609), where he had referred to note 41 (incorrectly described in the transcript as "paragraph 41"), in order to amend the list of the parts of the appendices that ASIC wished to tender as "analytical facts". The amendment he made was to include in the list pages 73 and 74 of appendix O, which had been expressly excluded. That did not have a direct bearing on the matters I addressed in paragraphs [25] and [26] of my 22 March judgment. 14 I accept that I should have recalled, although unassisted by counsel, that appendix O contained something that would qualify the broad assertion I made in paragraph [26]. Obviously, my mistake did not bear on my essential reasoning or decision. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.