ASIC v Rich [2005] NSWSC 650

New South Wales Supreme Court

CITATION : ASIC v Rich [2005] NSWSC 650

HEARING DATE(S) : 15, 16, 20, 21, 22 June 2005

JUDGMENT DATE : 8 July 2005

JURISDICTION : Equity

JUDGMENT OF : Austin J

DECISION : Some paragraphs allowed, others rejected, as particularised in the published reasons for judgment

CATCHWORDS : EVIDENCE - expert opinion evidence by forensic accountant - admissibility on "paragraph-by-paragraph" basis - discretionary considerations

LEGISLATION CITED : Evidence Act 1995 (NSW) ss 79, 135, 136

ASIC v Rich [2005] NSWCA 152 ASIC v Rich [2005] NSWSC 149 CASES CITED : ASIC v Rich [2005] NSWSC 256 ASIC v Rich [2005] NSWSC 417 Butera v Director of Public Prosecutions (Vic) (1987) 164 CLR 180

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 (P) COUNSEL : D L Williams SC with M J Steele (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

FRIDAY 8 JULY 2005

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: In ASIC v Rich [2005] NSWSC 149 ("my 7 March judgment") I held that a report by Paul Carter, a forensic accountant, dated 31 May 2002 ("the Carter Report" or "the Report") was inadmissible as a whole, and in the alternative, was to be excluded as a whole on discretionary grounds. The Court of Appeal has set aside my ruling: ASIC v Rich [2005] NSWCA 152 ("the 20 May judgment"). The result is not that the Carter Report is in evidence, but only that the principle of admissibility that I applied has been held to be incorrect, and my attempts to exercise my discretion to exclude the evidence on an overall basis have been held to be impermissible. Consequently it is necessary to consider objections to the Carter report on a paragraph-by-paragraph basis (see my 7 March judgment, para 4). 2 As will be seen, the result of the paragraph-by-paragraph analysis is that most of the Carter Report will be excluded, either because of my rulings set out below or because of concessions made by ASIC. I shall hear argument on whether I should, in the exercise of my discretion under s 135 of the Evidence Act, reject the remainder of the Report and Mr Carter's supplementary evidence. 3 Mr Carter has supplemented the Carter Report with some later affidavits and reports, most notably his affidavits of 23 July 2004 and 29 November 2004 and the accompanying reports (the full list is at AS 77). Notwithstanding a strong objection from the defendants, I have decided, for reasons given in the transcript (see T 4368), that the appropriate course is to take into account this additional material in determining whether to allow or reject Mr Carter's evidence. But any application by ASIC to read additional evidence from Mr Carter will have to be supported by strong reasons. 4 In making decisions on a paragraph-by-paragraph basis, the court's task is to apply the principles stated by the Court of Appeal in the 20 May judgment and, subject to that, to apply the law as to the admissibility of expert evidence and the exercise of the court's discretion, which I endeavoured to state in my 7 March judgment. Since the principles have been set out at length in those judgments, it is unnecessary to reiterate them. Before embarking on a detailed consideration of the Carter Report in submissions, I heard submissions from the parties as to what were said to be some uncertainties and unresolved matters consequent upon the 20 May judgment. With three exceptions, I do not intend to deal with those questions at large, but only as and when they arise in the paragraph-by-paragraph review. 5 The exceptional matters that require general comment are these. First, having regard to the Court of Appeal's judgment, it is necessary to consider, paragraph by paragraph, whether each opinion in the Carter Report is supported, on the face of the Report, by asserted reasons which present a chain of argument from proven or assumed facts which is capable of supporting Mr Carter's opinion. Where that is so, the fact that Mr Carter obtained extraneous information which assisted in him to develop his opinion will not necessarily provide a basis for excluding the opinion and reasoning on grounds of admissibility or discretion (20 May judgment, at [169]-[170]). Where, however, there are gaps in the reasoning process or it is otherwise faulty, and the court concludes that Mr Carter reached his opinion in reliance upon extraneous information, it is open to the court, consistently with the Court of Appeal's judgment, to conclude both that the probative value of the asserted reasoning and opinion is weak or non-existent and that there is a danger that the evidence might be unfairly prejudicial to the defendants, or be misleading or confusing, or cause or result in undue waste of time, for the purposes of s 135. 6 Secondly, in delivering the judgment of the Court of Appeal Spigelman CJ pointed out that some findings I had made about the four categories of documents that had been explored in the cross-examination of Mr Carter were matters relating to what the document was, rather than what it meant (at [35], [42], [47]). He said that Mr Carter could not give evidence of that character other than to say what each particular document purported to be on its face (at [50]), and therefore it was necessary for ASIC to establish what the documents were in some other fashion before Mr Carter's opinions would be established. Later his Honour said that where documents were not on their face self-explanatory, their significance would depend on the circumstances of their compilation, evidence of which would have to be given by someone other than Mr Carter (at [153)). Where the documents did not speak for themselves, Mr Carter's ability to give relevant evidence was, he said, in a narrow compass. He could give evidence, if based on his expertise rather than what he had been told, of a general practice, or evidence interpreting accounting records, or evidence about what a document meant rather than what it was (at [154]). 7 Frequently during the paragraph-by-paragraph analysis, senior counsel for the defendants referred to these propositions, saying that Mr Carter, when he sourced information (such as entries in tables of figures) in identified documents, was purporting, impermissibly, to give evidence about what the documents were. In my opinion these submissions reflected too broad a reading of Spigelman CJ's observations. Mr Carter was not in a position to give evidence about what obscure documents such as comparison.xls or the deferred payments listings were, or how they were compiled or what their significance was in One.Tel's financial affairs. But on a proper reading of the Court of Appeal's judgment, there is no obstacle to a person in Mr Carter's position extracting figures from a document which is whatever, on its face, it purports to be. For example, taking cash balance entries from the intranet cashflow spreadsheets does not contravene the Court of Appeal's principles, provided Mr Carter does not purport to provide some evidentiary gloss on the documents in the course of identifying them as sources. 8 Additionally, in my opinion it is consistent with the Court of Appeal's principles for Mr Carter to explain why he preferred to use one version of a document rather than another (for example, Ferrier Hodgson's March trial balance rather than the trial balance on the I:drive). This is not evidence about what a document is, but rather evidence of Mr Carter's process of reasoning applied to select a document as the source of his calculations and opinions. 9 The third matter requiring general comment relates to a frequently repeated submission by the defendants that in extracting and tabulating financial information in his Report, Mr Carter was not using his specialised expertise, and that the process in which he engaged was one that could have been undertaken by counsel in submissions. In my opinion the principles to be applied here are reasonably clear, but their application requires judgment and involves matters of degree. One aspect of the principles was enunciated by members of the High Court in Butera v Director of Public Prosecutions (Vic) (1987) 164 CLR 180. Just as it is appropriate for the court to receive a transcript as a means of assisting in the perception and understanding of the evidence in a tape recording (at 187 per Mason CJ, Brennan and Deane JJ), so it is appropriate to receive abstracts, schedules, tables or charts prepared by suitably qualified persons which explain complicated business transactions (at 190; see also at 195 per Dawson J). Another aspect of the principles is that an expert whose specialised knowledge extends to the interpretation and analysis of complex financial information, relating to the assessment of the financial health of a business enterprise, is permitted to give evidence assisting the court to understand the financial information before it, even though the evidence partly involves selecting and assembling information from documents which are in evidence before the court (see my 7 March judgment at [273]-[278]), and an accounting expert may also give direct evidence of mathematical calculations (7 March judgment at [269]-[272]). Further, an accounting expert can give evidence summarising books and records of the business enterprise without having to spell out every link between his or her opinions and specialised knowledge (7 March judgment, [311]). 10 In combination, these principles mean that the court should assess questions of admissibility and discretionary exclusion of forensic accounting evidence in a complex case pragmatically, taking into account (inter alia) whether the evidence will assist the court to make findings of fact. A forensic accountant may give the admissible evidence which involves extracting and distilling, from a mass of documents, information that he or she regards as significant, even where the documents are in evidence and theoretically, counsel and the court might be able to extract the same information without the expert's assistance. Such evidence is to be distinguished from evidence which is no more than the reproduction of information readily accessible in documents that can speak for themselves (with explication by counsel in submissions). 11 In a judgment delivered on 5 May 2005 (ASIC v Rich [2005] NSWC 417) I held that 10 categories of documents tendered by ASIC were admissible and should not be excluded on discretionary grounds. Dealing with discretion, I noted that where documents are ambiguous or obscure or there are several versions of them or reason to suspect that they may be drafts, issues arise as to probative value. But I held it would be unwise to conclude, before all the evidence had been heard, that any of the tendered categories of documents had slight or non-existent probative value, since there are interrelationships between the documents and the deficiencies of particular documents might be overcome by other evidence (at [381]). There is a similar difficulty about assessing the probative value of Mr Carter's evidence at this stage in the trial. According to the Court of Appeal's 20 May judgment, the trial court must analyse the probative value of the particular evidence to be given by the expert, before it is authorised to exclude his evidence under s 135. Given the desirability of establishing, at this stage in the trial, whether Mr Carter's evidence is or is not excluded, the court must do its best to analyse probative value, paragraph by paragraph, on the basis of such materials as are presently before it even though the analysis may well be altered by subsequent evidence. 12 Unfortunately the Carter Report does not systematically identify all the assumptions upon which Mr Carter's opinions are based, and frequently there are assertions which appear in their form to be statements of fact, but which, upon analysis, seemed to be or to involve assumptions. During the course of argument ASIC has invited me to treat as assumptions some propositions that do not of themselves appear to be assumptions. Frequently during the paragraph-by-paragraph argument, senior counsel for ASIC submitted that passages of the Report should be treated as assumptions. I have not always accepted that submission, though for the most part I have. I have decided that everything not rejected into evidence as an assumption is to be made subject to a s 136 order to the effect that the relevant statement is received only as an assumption for the purposes of the expression of expert opinions, and not as proof of the matters asserted. I have made this decision because, in my opinion, in the absence of such an order there would be a danger that Mr Carter's many statements now to be classified as assumptions might come to be used misleadingly, in the course of a long and complex trial, as evidence proving the facts asserted. 13 It is common practice for rulings to be made on the admissibility of challenged parts of expert evidence orally with only very brief reasons (which may amount to no more than accepting the submissions of one party in preference to the submissions of the other). I have decided that in the present case, it is appropriate to give brief reasons for my rulings, having regard to the importance of the issues and the nature and substance of the submissions. Additionally, I have in mind that, as the Court of Appeal has intervened in the trial process to overrule my decision to exclude evidence on an overall basis, any decisions taken by me to exclude parts of the same evidence on a more particular basis should be explained. Now that we are at the level of a paragraph by paragraph review to determine whether evidence should be admitted or rejected, I regard it as sufficient to state the essential reasons for my rulings, without responding to every submission. However, I have taken time, after conclusion of submissions, to review the transcript of argument closely, to ensure that nothing has been overlooked. Introduction (paras 1-12) 14 These paragraphs provide information relevant to the opinions contained in the Report and the structure of the Report. They are not rejected on that basis. 15 The same ruling extends to the paragraphs, occurring throughout the report, which provide "signposts" or outlines of subsequent material (namely, paras 28, 34, 43, 44, 48, 49, 156, 193, 290, the boxed paragraph above 301, 305, the boxed paragraph above 306, 313 and the boxed paragraph above it). Summary and conclusions (paras 13-27) 16 The fate of these paragraphs depends upon my rulings in respect of later parts of the Report. I have not found it easy to connect the summary opinions with specific subsequent paragraphs. Therefore, before ruling on paras 13-27 I shall ask counsel to assist me by providing brief notes as to what, in their submission, should be the outcome having regard to my rulings on later paragraphs. Background (paras 29-41) 17 This segment is essentially a summary of documents such as annual reports and ASIC company extracts, and some material from board papers and flash reports. ASIC submitted that paras 29-33, 35, 39 and 40 should be treated as assumptions (and para 41 is clearly an assumption), but paras 36 and 37 (and presumably 38) were expressions of expert opinion relevant to understanding the assumption stated in para 41 (T 4351-2). 18 In my view paras 36, 37 and 38 are, upon close examination, nothing more than descriptive summaries of some or all of the contents of the flash reports and board papers. ASIC has not submitted that I should treat them as assumptions. Either they are not statements of opinion in the requisite sense, in which case they are inadmissible and the documents (if proved) should be allowed to speak for themselves; or if they contain elements of opinion, they are not based on Mr Carter's specialised knowledge as a forensic accountant, and are inadmissible under the opinion rule. I shall therefore reject them. 19 I shall allow paragraphs 29-33, 35, 39, 40 and 41 only on the basis of ASIC's submission that they should be treated as assumptions, relevant as such to Mr Carter's reasoning process. They appear to have some general relevance to admissible opinions later in the Report. They will be subject to my proposed s 136 order. Chronology (para 42) 20 I shall treat para 42 as a series of assumptions subject to my s 136 order (see ASIC's submission at T 4355). Actual financial position of the Group (paras 43-47) 21 In light of the rulings explained below, the following parts of these paragraphs are rejected: · in para 43, the second part of the last sentence beginning ("and considered whether…"); · in para 46, the whole of subparagraph (a) (since para 204 is rejected), the words "failed to pay an increasing balance of overdue creditors so that" (explained below), the whole of subparagraph (d) (since paragraph 155 is rejected), and subparagraph (e) (since almost all of the debt or analysis in section 3.1 .2 of the report is rejected); · in para 47, subparagraph (a) (because paras 207-2 and 9 are rejected), and subparagraph (c) (because paras 54 and 234 are rejected). 22 Subparagraph 46(b) is not rejected because para 118 is not rejected, and most of subparagraph (c) is not rejected because para 133 is not rejected. The part of subparagraph (c) that is rejected is an assertion that there was a failure to pay the creditors identified as overdue, and that is rejected on the same grounds as I have rejected contentions that there was a systematic deferral and management of the creditor position. Subparagraph 47(b) is not rejected because para 122 is not rejected. Balance of available cash compared to forecast (paras 50-56) 23 Paragraphs 52 and 53 are not pressed, and ASIC submitted that the statement about cash pledged in para 51(a) should be admitted as an assumption in respect of the month-ends from 31 December 2000 to 30 April 2001, though the May month-end is in a different category (AS 79). ASIC submitted that footnote 1 to para 54 should also be treated as an assumption. My decision that paras 51 and 54 should be rejected makes it unnecessary for me to consider whether they contain assumptions. 24 Paragraphs 50 and 51 deal with Mr Carter's assertion that the cash balances reported to the board of One.Tel were based on actual bank account balances without regard to known commitments for that cash, represented by unpresented cheques and by security for other obligations; whereas unpresented cheques were deducted from the creditors ledger. In order to ascertain what he considered to be the available cash balance, he took "intranet" cash balances and deducted pledged amounts and unpresented cheques, presenting the result of the calculations, and comparing them with forecasts, in a table in para 54 and comments in paras 55-56. The intranet cash balances were kept in the Lotus Notes cashflow spreadsheets and were accessible to One.Tel management but were not provided to the board. 25 Mr Carter's reasoning process was supplemented by Appendix C to his affidavit made on 23 July 2004. There he presented three tables: the first compared intranet Group cash balances for the end of January, February and March 2001 to the amounts reported to the board in the 30 March 2001 board papers; the second deducted unpresented cheques from the intranet Australian cash balances for January, February, March and April 2001 and then compared the resulting figures with general ledger figures; and the third listed eight cheques and recorded whether they had been presented at 28 February and whether they were outstanding as per the creditors ledgers for 31 January and 28 February respectively. 26 In my view, the opinions, reasoning process and underlying documentary facts identified in paras 50, 51 and 54-56 as supplemented by Appendix C are of low probative value. It is consistent with the Court of Appeal's 20 May judgment (see [156]) to reach such a conclusion about evidence of this kind. 27 Paragraphs 50 and 51, dealing with unpresented cheques, contain three component propositions, each of which has the appearance of a statement of fact: · cash balances as reported to the board were based on One.Tel's actual bank account balance; · the cash balances as reported were not reduced by the amount of unpresented cheques as at the reporting date; · the creditors ledger was reduced to reflect payment of the amounts of unpresented cheques. 28 These propositions are important to Mr Carter's overall conclusions about the financial position and performance of One.Tel, and to ASIC's case against the defendants. Financial reporting which included the amount of unpresented cheques in the reported cash balance while removing the liabilities represented by the unpresented cheques from unpaid creditors, without identifying that the unpresented cheques had been treated in this manner, would create a falsely optimistic impression of the company's financial position with respect to cash and unpaid creditors. 29 Mr Carter's three propositions were put forward by him as propositions supported by a reasoning process in which they had the character of inferences from documentary facts. ASIC has not asked the court to treat them as assumptions, so far as they relate to unpresented cheques. They are to be treated as "intermediate" opinions notwithstanding that they appear to be statements of fact (see my 7 March judgment, at [268]). 30 As to the first of the three propositions, the first table in Appendix C showed variances between the intranet balance and the amount reported to the board for two of the three months for which full figures were given (January cash was $4 million higher in the board paper than in the intranet, and March cash was $8 million lower in the board papers than in the intranet). Mr Carter said he was not aware why there was a difference for January, and his only explanation for the difference in March was that the figure in the 30 March board paper was an estimate (something that would be unlikely to explain an $8 million difference when the estimate was made a few days before the end of the month). The degree and level of variances ex facie prevents any inference being made that the figures reported to the board were lifted without adjustment from the intranet, and also prevents any inference that if the intranet figures did not account for unpresented cheques the board papers likewise did not do so. Consequently, the first table in Appendix C does not support the first proposition. 31 As to the second proposition, the second table in Appendix C presented a comparison between intranet figures, adjusted for unpresented cheques, and bank account general ledger balances. According to Mr Carter in Appendix C, the general ledger amounts were derived from a bank reconciliation which accounted for unpresented cheques and other adjustments such as outstanding deposits. The comparison would be irrelevant unless the intranet cash balances were used in the preparation of the report to the board, a matter that does not appear to have been established by the first table or by any documentary evidence relied on by Mr Carter for this purpose. 32 Another problem with the second table is that if, as Mr Carter asserted, the figures reported to the board (or recorded in the intranet) were not adjusted for unpresented cheques, but the ledgers were adjusted when the cheques were drawn and before their presentation, one would expect Mr Carter's adjusted intranet figures to have some correlation with the general ledger figures, although a full reconciliation would entail taking account of other adjustments made in deriving the general ledger figures. 33 Mr Carter noted, in Appendix C, that the adjusted intranet balances were higher than the general ledger balances, and he said: "I note that although the amounts do not precisely reconcile, the adjusted intranet balance is closer to the general ledger balance than the unadjusted intranet balance. For example, the 28 February 2001 adjusted intranet balance of negative $0.2 million is almost equal to the general ledger cash balance of negative $0.6 million." 34 The differences for the other months are $12 million for January, $6 million for March and $2 million for April, very large differences when considered in proportion to the total figures. Even the difference of $400,000 for February is large in comparison with the net figures involved. To call the figures "almost equal" is, on the face of it, suggestive of an ex post facto rationalisation of a position reached on other grounds. 35 In my view, the fact that the adjusted intranet amounts were higher than the general ledger bank balances does not in any significant way support Mr Carter's opinion that the cash balances reported the board were not reduced by the amount of unpresented cheques. This is in circumstances where the figures for adjusted intranet balances were still substantially different from the general ledger balances, and the general ledger figures were the product of other adjustments. The probative value of the opinions contained in the first two propositions and the supporting reasoning process is therefore weak. 36 I agree with the defendants' submission (T 4381) that it is more likely than not that someone told Mr Carter that the figures reported to the board were not net of unpresented cheques, and consequently that the original source for his opinions was undisclosed hearsay. It is not necessary to identify the person who might have supplied that information, and the evidence presently before me does not allow me to do so, but I note that Mr Holmes' position would have put him in a position to know how unpresented cheques were accounted for (see Exhibit P28) and Ms Randall and perhaps Ms Nassif were involved in preparing some of the relevant documentation (see 12 0098). 37 I have reached this conclusion after considering closely, and with the benefit of full submissions, the relevant part of the Report itself and the supporting appendices on this subject; and after having listened over a period of some months to evidence concerning the extraneous influences to which Mr Carter and his team were exposed in the course of developing and stating the opinions found in the Report. I rely on the findings made in my 7 March judgment - including those at [74], [86], [94], [100], [111], [129], [130], [131], [137], [147], [158], [194], [205], [211], [213]), which show that there were ample occasions upon which Mr Carter or his staff might have received information from someone in a position to know about accounting for unpresented cheques; and those at [155], [156], [157], [158], [172], [175] [365], [367], [378], which indicate that Mr Carter was exposed to and took into account an enormous quantity of information over a period of months. It is relevant that the opinions concerning the use of unpresented cheques appeared in the 9 April draft of the Report and the reasoning process to support those opinions by reference to documents did not appear until the 23 July 2004 affidavit. 38 The Court of Appeal did not disagree with my findings of fact on these matters (see at [11]-[84], [170]), there being no appeal against my findings of fact. Spigelman CJ held that the impact of access to extraneous materials on a particular opinion could not be determined in the abstract (at [168]). Consistently with that holding, I now seek to use my factual determinations to assess the probative value of particular opinions. 39 The fact that the reasoning process supporting the first two propositions, as proferred in the Report, is weak supports the conclusion, which I have reached on the balance of probabilities, that the asserted reasoning process was part of a "backing and filling" operation engaged in by Mr Carter when he was told not to take into account the statements of witnesses (and therefore to disregard the true source for his opinions on this matter) and to rely only on documents. I do not find that there was any bad faith on Mr Carter's part. My conclusions are consistent with the view that he was not conscious of the influence of the extraneous information, which may have been brought to bear through his staff, and that he genuinely believed that his reasoning process, objectively weak though I have found it to be, supported his opinions. 40 As the Court of Appeal pointed out in the 20 May judgment (at [169]-[170]), an expert's asserted reasoning process, based on disclosed facts, may be of such logical force that the resulting opinions have probative value even though the expert also made use of excluded material in forming his or her views. But in my opinion, when the asserted reasoning process is weak, the court's conclusion that the opinion was based on unidentified hearsay information further undermines the probative value of the evidence. That is consistent with the Court of Appeal's reasoning (see at [142], [152], [167], [168], [169], [170]). 41 If Mr Carter's evidence in terms of the first two propositions were not excluded, there would be a danger that this evidence might unfairly prejudice the defendants in the following way. They would face the danger that this evidence might eventually be given weight (since my present view as to its weak probative value could be affected by the course of the hearing - for example, if other evidence explains the anomalies in the figures that Mr Carter was unable to explain). They would have to decide whether to take that risk or to embark, in cross-examination of Mr Carter and perhaps otherwise, on a process of seeking to expose Mr Carter's reliance on that information. That process might involve them putting before the court some potentially prejudicial material. 42 I accepted general submissions by the defendants to that effect in my 7 March judgment (at [ 421], [425]). The Court of Appeal did not disagree with the substance of those findings or with the fact that I had determined the risk of unfair prejudice on a general basis (at [151]). It seems to me that the danger I identified on a general basis applies in the particular circumstances relating to unpresented cheques, given the evidence noted below with respect to the reduction of the creditors ledger by the amount of unreleased cheques. 43 The findings in my 7 March judgment (at [422]), made on a general basis, about the danger of confusion and undue waste of time are reinforced by the particular circumstances concerning unpresented cheques. Extensive cross-examination of Mr Carter on this subject, comparable to his lengthy cross-examination with respect to the four example areas explored in my 7 March judgment, would be likely if the evidence were not rejected. As the Court of Appeal observed (at [178]), where documents speak for themselves or their meaning and significance is established by other evidence, the historical use of excluded material may be of little significance and cross-examination on that subject should not be not rejected. However, it is plain that where there are some real uncertainties about the documents and other facts relied on by the expert and about the expert's reasoning process, and the matters at stake are of central significance, procedural fairness demands that cross-examination be permitted. 44 For these reasons, I have decided that Mr Carter's first two propositions and the reasoning process surrounding them (comprising part of para 50, para 51(b) and the whole of Appendix C) should be excluded under s 135. 45 The third proposition is only part of the opinion put forward by Mr Carter, and does not stand independently of the first and second propositions. Since, for the reasons I have given, Mr Carter's first and second propositions are to be excluded, it seems to me that the third must consequently be excluded as well. Its probative value is weak in the absence of the other two propositions, and to retain it would give rise to a danger of confusion as well as the prospect of undue waste of time, and perhaps also a danger of unfair prejudice. 46 For the purpose of understanding the Group's cash position, Mr Carter deducted from the Group's bank balance the sum of $8.28 million for each of the months from December 2000 to May 2001, in order (he said) "to reflect bank guarantees or cash pledged to secure international lease liabilities which do not appear to have been available for payment of other obligations". He said that according to European accounting records, the bank guarantees were deducted from the closing bank balance to calculate funds available. In a footnote he referred to two documents. The first appears to be a projection of funds available in Europe on a daily basis from 1 June to 14 June 2001. That document does not provide evidence of the appropriateness of the deduction in the month ending 31 May. Further, the nature and purpose of the document are unclear and in particular, it is not clear that the document was prepared in order to calculate funds available for general purposes, as opposed (for example) to funds available to service some contemplated loan. The document does not indicate that the monthly $8.28 million is a limit on the availability of funds for general purposes, rather than simply a projected expense. The other document is Ernst & Young's report dated 28 May 2001, which calculates the "current free cash position" on a basis which, according to the report, excludes approximately $8 million of cash pledged "to secure various commitments (e.g. property leases)". Ernst & Young did not give any further explanation of the basis for making the deduction. The document does not indicate that any review of security documentation was undertaken, and other evidence concerning preparation of the Ernst & Young report indicates it is unlikely that such a review took place. 47 It would be unsafe to rely on these documents to conclude that $8.28 million of the Group's cash as at 31 May was not available, under the security arrangements for bank guarantees or international lease liabilities, for the Group's general purposes, especially when reliance on the documents ultimately leads to the proposition that the cash position reported to the board was false because of a failure to deduct that figure. Therefore Mr Carter's opinion in para 51(a) and the asserted reasoning process to support it are of weak probative value. That conclusion is reinforced by my finding (7 March judgment at [152]) that the opinion found in paras 51(a) and 54 of the final Report was developed by recourse to Mr Werner, whose reasoning process was not set out. My findings as to the danger of unfair prejudice, confusion and undue waste of time are the same in respect of para 51(a) as in respect of the opinion on unpresented cheques. Consequently para 51(a) should also be rejected. 48 There are general statements of accounting opinion implied in paras 50 and 51, broadly to the effect that when cash balances are reported, known commitments for cash represented by unpresented cheques and cash held as security for other obligations should be taken into account, and that a cash balance should not be reported without the deduction of the amount of unpresented cheques where the creditors ledger has been adjusted to reflect the payment of creditors by those cheques. But the text of Mr Carter's opinions is fact-oriented rather than general, and it is not clear from the Report whether he would wish to qualify or expand the suggested principles. In my opinion it would not be appropriate for the court to re-write the relevant passages so as to extract some admissible general statement of accounting opinion. 49 My decision to exclude paragraphs 50 and 51 leads to the consequence that paras 54-56 should also be excluded, because their purpose is to present the effect of Mr Carter's view that unpresented cheques and pledged amounts should be deducted from the intranet balances and then to compare the resulting figures with the Group forecast cash balances. Additionally, the figures for unpresented cheques are unreliable to a degree, for reasons acknowledged by Mr Carter in footnote (4) of para 54 and in Appendix O, and his analysis does not appear to reflect any distinction between unreleased cheques which cannot be presented for payment and released but unpresented cheques - matters which further weaken the probative value of para 54. Mr Carter's assertion, to be treated as an assumption according to ASIC's submission, that the "pledged" amount should be deducted in the calculation of the cash balances for the December-April months, should also be rejected because, once the opinions in paras 50-56 are rejected, the assumption has no point. In the result, paras 50-56 are rejected in their entirety. 50 ASIC has sought leave (in AS 79) to adduce further evidence from Mr Carter about footnote (2) to para 54. That application is denied, because para 54 and its footnotes are rejected as a whole for reasons that would be unaffected by further evidence of the kind envisaged by the application. Balance of available cash - January 2001 (paras 57-61) 51 Paras 57 and 58 are, except in one respect, merely a summary of information in the table at para 54, which I have rejected. The exception is that para 58(d) compared Mr Carter's figure for the available cash balance with the flash report for January 2001. I note that the shortfall identified in those subparagraphs was produced by Mr Carter's deduction of unpresented cheques and the pledged amount, based on a reasoning process that I have found to be of low probative value in the course of rejecting paras 50 and 51. Consequently paras 57 and 58 are rejected. 52 In paras 59-61 Mr Carter presented daily figures for bank statement balances and general ledger balances for the "main operating account" of the Australian operations. He said that the Australian operations had an overdraft facility with ANZ Bank, which allowed its main operating account to be overdrawn by up to $10 million as long as there were sufficient funds in other bank accounts to offset the overdrawn balance. Mr Carter said that while the Australian operations had sufficient funds on deposit in January 2001 to offset the overdraft, there was nevertheless a violation of the gross overdraft limit on 15 January, and there would also have been an excess on 16 and 17 January had all the unpresented cheques been presented. Mr Carter said that exceeding the overdraft limit was an indication of a potentially deteriorating cash position in the Australian operations. 53 ASIC submitted (T 4397) that the reference in para 59 to the Australian operations' "main operating account", and the statement in the same paragraph that the Australian operations exceeded their $10 million gross overdraft limit should be treated as assumptions. ASIC later submitted (T 4400) that the fact of the overdraft limit, as described in footnote 28, should likewise be treated as an assumption, and (T 4401) that the statement in para 61 that the overdraft limit would also have been exceeded on 16 and 17 January had unpresented cheques been presented should be treated as an assumption. Since I have decided to reject paras 59-61, it is unnecessary to decide whether to characterise any parts of those paragraphs as assumptions. 54 The last sentence of para 59 is irrelevant to the position in January 2001 and will be excluded for that reason (there being a separate discussion of February 2001 in paras 62-65). 55 Para 59 contained a statement of opinion, expressed in general terms, that exceeding an overdraft limit, an event assumed to have occurred on a single day, is an indication of a potentially deteriorating cash position notwithstanding the presence of sufficient funds on deposit to offset the overdraft. This statement of opinion is within Mr Carter's field of expertise, but it is of little or no probative value, because it takes no account of the variety of circumstances that might cause a company to exceed its gross overdraft limit on a particular day while having adequate funds to cover the shortfall (e.g. clerical error within the company, clerical error within the bank, a timing mismatch between incoming and outgoing funds etc). Such probative value as it may have is substantially outweighed by the danger that the evidence might cause or result in undue waste of time, because if it is not rejected, time is likely to be taken in cross-examining Mr Carter to expose the obvious deficiencies in the expression of opinion. 56 In para 60 Mr Carter set out evidence about a particular bank statement balance and compared it to the general ledger balance sourced in bank reconciliations contained on the I:drive. This involved some limited accounting skill in identifying the places in the documents where the relevant information was contained and distilling and organising that information, as ASIC submitted (AS 79), but the level of expert skill was very marginal given the nature of the information presented and its sources. A table like the one in para 60 could readily be provided to the court as a submission document based on the documentary evidence. In my opinion, the preferable course in this case is to allow the documentary evidence, explicated in submissions, to speak for itself. Allowing the matter to be addressed by expert evidence, rather than merely by submissions about the documents, would create the danger of undue waste of the court's time. 57 Once the expressions of opinion in paras 57-61 are rejected, there is no point in retaining the assumptions. The result is that paras 57-61 are wholly rejected. Balance of available cash - February 2001 (paras 62-65) 58 Paras 62 and 63 are rejected for the same reasons as I rejected paras 57 and 58. 59 Para 64 asserted that the cash balance of the Australian operations continued to deteriorate through February 2001, and presented a table to show the net balance of the Australian bank accounts from 19 to 28 February. The table extracted figures from bank statements for a particular account, the general ledger overdraft balance, and the Australian operations' total cash balance taken from the intranet. It then deducted the balance of the Lucent advance in order to show the effect on available cash of including or excluding the Lucent advance. The selection of this material and its assembly and presentation required some forensic accounting skill, for example in finding bank reconciliations on the I:drive. There was also skill involved in the mathematical calculations shown in the table. The table is probably of limited utility because it is confined to a period of 9 days in February 2001 and is incomplete, but it may have some use in the course of the hearing. I am not persuaded that allowing it into evidence would give rise to any of the discretionary concerns identified in s 135. I shall therefore allow the table and the accompanying notes into evidence. 60 The first sentence of para 64 seems to be intended to summarise part of the table, but the sentence is unclear, does not appear to correlate completely with the table, and is not otherwise supported by any reasoning process. Allowing such a statement into evidence would create the danger of confusion as well as the prospect of undue waste of time. The sentence is therefore rejected. 61 The last part of that sentence referred to the absence of an approved overdraft facility, and that reference was expanded by footnote 31. ASIC invited the court to treat the statement and footnote as an assumption (T 4403). It also submitted that the first sentence of para 65, which asserted that the gross overdraft limit was exceeded on each day from 19 to 22 February, was to be treated as an assumption (T 4404). These submissions arose after the defendants pointed out that the documents relied on by Mr Carter for the overdraft arrangements referred to other documents not in evidence, suggesting that the true overdraft arrangements in February 2001 may not have been as described by him. 62 The purpose of making an assumption about the overdraft arrangements is to permit Mr Carter to express the opinion, on the basis of the figures in the table, that the permissible overdraft was exceeded. Once the overdraft arrangements are proven (if they are), it should be a simple matter to compare the arrangements with the table without any need to have recourse to expert opinion. If the overdraft arrangements, when proven, make something relevant that is not in the table, any opinion expressed by Mr Carter on the basis of the table would be unhelpful. In the circumstances, it seems to me likely to minimise confusion and undue waste of time if Mr Carter's evidence about the content of the overdraft arrangements which seems to be based on a questionable reasoning process about the applicability of the documents, is simply rejected. 63 The second sentence of para 65, an assertion about the purpose of Lucent's cash advance, was not pressed (AS 79; T 4401). The third sentence is merely a narrative description of the impact on the figures of including or not including the Lucent advance, and is not rejected. 64 In the result, paras 62 and 63, the first sentence of para 64 and footnote 31, and the first two sentences of para 65, are excluded. The table in para 64 and the last sentence of paragraph 65 are not rejected. Balance of available cash - March 2001 (paras 66-68) 65 Paras 66 and 67 are to be rejected for the same reasons as I rejected paras 57, 58, 62 and 63. 66 The premise of para 68, namely that there was a difference between forecast and actual March available cash balances, refers back to other evidence that I have rejected. For that reason para 68 is rejected. Mr Carter's evidence about increases in overdue creditors is considered below. Balance of available cash - April 2001 (paras 69-71) 67 Paras 69 and 70 are to be rejected for the same reasons as I rejected paras 57, 58, 62, 63, 66 and 67. 68 Para 71 was not pressed (AS 79). Balance of available cash less creditor amounts (paras 72-73) 69 Para 72 amounts to an assertion of expert opinion to the effect that the decrease in the available cash balance does not show the full extent of the deterioration in the Group's financial position and needs to be supplemented by consideration of the Group's unpaid creditors and the growth in those liabilities. While the proposition that an assessment of the financial position of a company must include an examination of both its available cash and fluctuations in its level of unpaid creditors is an obvious one, para 72 satisfies s 79 and is admissible. 70 The first sentence of para 73 is a statement of Mr Carter's concluding opinion that the Group engaged in a "systematic process of selectively delaying payments to creditors" which led to artificially high cash levels. In Appendix C to his affidavit made on 23 July 2004, Mr Carter made a cross-reference to para 99 and part 3.1.1.5 of his Report. In my opinion there are deficiencies in the reasoning process set out in those later paragraphs, which I shall consider below, and consequently the first sentence of para 73 is to be rejected. 71 The second sentence of para 73 asserted that when overdue creditors were taken into account, it was apparent that from at least 28 February 2001 the Group's operations had insufficient cash to pay creditors the amounts that had passed the due date for payment. That assertion is a statement of expert accounting opinion rather than of assumed or proved fact, since it was purportedly the conclusion produced by reasoning and inferences from documentary material. It is a concluding opinion based on the table in para 74, which I shall allow into evidence. Therefore the statement of opinion in the second sentence of para 73 is not rejected. 72 In the first sentence of footnote 34 Mr Carter said, presumably with a view to identifying when an amount became "overdue", that the creditors ledgers classified creditors as not due, or overdue by up to 30, 60, 90 etc days. I shall allow that sentence, treating it as an explanation by Mr Carter of the meaning of the word "overdue". The sentence indicates that all debts listed under a "due by" column, where the given date has passed, are "overdue", according to Mr Carter's use that word. 73 The second sentence of footnote 34, which asserted that cash collections from debtors were required to meet current obligations and were insufficient to cover past due creditors, was not pressed, but ASIC sought leave to adduce further evidence from Mr Carter on this subject (AS 79). That would be evidence on a matter not addressed in the Report otherwise than in this sentence. In my view no sufficient case has been made out for introducing new evidence from Mr Carter on the subject, well after commencement of the final hearing. I shall not grant leave to do so. Balance of available cash less creditor amounts - Australian operations (paras 74-87) 74 Para 74 presents the cash deficit position of the Australian operations from the end of January to the end of May in tabular form, and asserts the conclusion that the Australian operations had insufficient cash to pay overdue creditors. There is some forensic accounting skill required in preparation and presentation of the table and identification of the required information in the documentary sources (for example, in the identification of the available cash balance by the selection of account numbers from the trial balances). I regard Mr Carter's evidence in para 74 as admissible under s 79. 75 As to discretion, the defendants have identified some grounds for concern about the probative value of the table but, in my opinion, the court is not in a position to conclude at the present time that the probative value of the table is weak. I shall return to this point below. Additionally, my view is that, when the sources for the figures in the table are consulted, there is a rational skein of argument presented in the materials, that is not diminished by Mr Carter's exposure to extraneous information. The absence of concern over "tainting" in this area is important, because it removes the "unfair prejudice" factor under s 135. I see no basis for concern about the evidence being confusing or misleading in any general or overall way, and as to the "undue waste of time" factor, the presence of a rational argument structure independently of "tainting" means that it may be appropriate to limit or exclude further cross-examination about the table (Court of Appeal's 20 May judgment, at [178]). 76 The defendants attacked the probative value of the table on several grounds. First, they said Mr Carter chose to use trial balances rather than intranet figures without any explanation, while using intranet figures for Group cash balances in the table at para 54 and using intranet figures for available cash balances in the international operations in the table at para 89. In one month (January) the intranet balance was almost twice as high as the figure taken from the trial balance, a difference which Mr Carter acknowledged he could not wholly explain. If the intranet balance had been used, available cash would have well exceeded overdue trade creditors. 77 It does not appear from the evidence before me now that Mr Carter's selection of trial balance rather than intranet figures has generally undermined the table or his opinions and reasoning process, although some uncertainty has been created with respect to the January figures. Mr Carter has identified in Appendix O the parts of the trial balances upon which he has relied, being those parts that identify balances in specified accounts. There is an implied assumption that he regards them as figures upon which it is appropriate to rely. It is open to the defendants to challenge that assumption at the hearing, by evidence, cross-examination or submissions. For the time being, it would be wrong for the court to conclude that the probative value of the table is weak because of the use of trial balance rather than intranet figures. 78 Secondly, the defendants noted the two versions of the trial balance for March 2001, one from the I:drive and one from Ferrier Hodgson. They submitted that Mr Carter selected one of them (the Ferrier Hodgson version) without any explanation in the Report for preferring it, or any indication of whether that choice affected the figures. 79 However, Mr Carter endeavoured to remedy this defect in para 2 of the report exhibited to his affidavit of 29 November 2004. I assume for the purposes of the present determination that the whole of this affidavit and report are in evidence, notwithstanding determinations that I made prior to the Court of Appeal's 20 May judgment (T 4412). It appears that the selection of one version of the March trial balance rather than the other has no material bearing on the available cash balance; and moreover, in light of the explanation in the 29 November report there appears to be a rational basis for the selection. But even if I were to disregard the 29 November affidavit, doubt about the selection of the correct trial balance documents for one month would not, in my view, destroy or undermine the probative value of the table and the underlying argument as a whole. 80 Thirdly, the defendants submitted, probably correctly, that Mr Carter's calculations should have but did not make allowance for disputed claims and claims that had not been met because One.Tel was awaiting receipt of credit notes (DS 69, p 53; T 4409). They referred, by way of example, to the aged creditors report for the end of January 2001. According to the summary figures in that report (6 0064), the total open position was $46.762 million of which $22.341 million was due after 31 January. The figure used by Mr Carter for "overdue" trade creditors at the end of January ($24 million to the nearest million) was presumably the net balance after deducting the latter figure from the former. As the defendants noted, the summary figures also showed that, out of the total open position (and therefore out of the net $24 million used by Mr Carter), $19.11 million had fallen due by 3 October 2000. That is, nearly three-quarters of the "overdue" creditors at the end of January had been outstanding for more the 120 days. In my opinion, it is appropriate to infer, especially bearing in mind that in early October 2000 One.Tel had approximately $250 million in bank account balances (9 0023), that a substantial proportion of the "overdue" creditor figure for the end of January (though not a quantifiable proportion on the evidence so far) represented disputed claims or claims no longer payable but not yet purged from the ledger (because, for example, they awaited the issue of credit notes). If that inference is made, the table cannot be relied on to show that the Australian operations had insufficient cash at the end of January to pay overdue creditors. 81 The same argument appears to be available for February, when $20.447 million out of the total overdue of $29 million had been due for 120 days (6 0143). But it is less compelling because on Mr Carter's figures, the available cash balance would be insufficient to pay the remaining $8.553 million even if all of the debts due for more than 120 days were treated as disputed claims and disregarded. There were also shortfalls in available cash for March ($16 million in available cash, $15.483 million due for more than 120 days out of a total overdue of $50 million: 6 0241), April (negative $3 million in available cash, and $15.82 million due to more than 120 days out of a total overdue of $54 million: 6 0318) and May ($3 million in available cash, and $19.104 million due for more than 120 days out of a total overdue of $77 million: 6 0340). In summary, the defendants' argument does not destroy or undermine the overall thrust of Mr Carter's argument for his view that the cash and deficit position after deducting overdue creditors deteriorated month by month. 82 Fourthly, footnotes 2 and 3 referred to the transfer of $26 million from the UK to the Australian operations. In Appendix O Mr Carter identified two United Kingdom bank statements (14 0002-3), the account holders being One.Tel plc and One.Tel Global Wireless Ltd. In each case the statement showed a debit to the account in favour of ANZ Banking Group in UK pounds on 28 February 2001. Mr Carter said the two amounts added up, after conversion, to A$26 million. To support the position that the transfers were not recorded as received in Australia until 1 March, Mr Carter identified a cashflow statement (11 0670) in which $26 million was credited as a bank transfer on 1 March. In my opinion it is plausible for someone in Mr Carter's position, using his forensic accounting expertise, to infer from these documents and his calculation of the probable exchange rate that the two UK transactions in favour of ANZ Banking Group had the effect of a transfer of A$26 million from the UK operations to the Australian operations of the One.Tel Group. A skein of argument is presented which does not depend on witness statements or affidavits that Mr Carter was told to exclude. 83 Fifthly, the defendants submitted that Mr Carter asserted that the trial balance figures that he had used were figures after accounting for unpresented cheques, but (they contended) he gave no explanation for that assertion. But if the trial balance figures did not take into account unpresented cheques, the net available cash to meet overdue creditors' claims would be even less than stated in the table, so in this case the assertion operated conservatively. That being so, on this occasion the probability that this assertion was based on hearsay information does not weaken Mr Carter's argument. 84 In the result, para 74 is not rejected. 85 Para 75 is not pressed (AS 79). In para 77, the second sentence and the words "As a result" at the beginning of the third sentence are not pressed (AS 79; T 4425). ASIC submitted that the word "overdue" in para 82 should be treated as an assumption (T 4423). It also submitted that the second sentence of para 83 and the accompanying footnote 45 and the opening words of the third sentence ("As a result"), and the first sentence of para 86 and the accompanying footnote 48, which referred to the spreadsheet "deferred.xls", should be treated as assumptions (AS 79; T 4424). 86 Paras 76 and 78 identified, for January and February respectively, the amounts owed to trade creditors by the Australian operations, but not overdue, taken from aged creditors reports, and the amount of additional accrued liabilities. The additional accrued liabilities for those months, comprising operational liabilities and carrier liabilities, were tabulated in Appendix I-4, where source documents were identified. Footnote 36 identified some of the larger accrued liabilities. 87 The defendants submitted that the assertions about additional accrued liabilities in para 76 and footnote 36 were not sourced, and in response, ASIC sought leave to adduce additional evidence from Mr Carter sourcing that material. It will not be necessary to hear from Mr Carter on this. It seems to me obvious that, although para 76 does not specifically refer to Appendix I-4 in the way that para 78 does, the statements about additional accrued liabilities in both paragraphs, and in later paragraphs for other months, are sourced in Appendix I-4 where further documentary sources are given. 88 Paras 76 and 78 and Appendix I-4 involved a process of drawing inferences from the identified documents and therefore have the status of intermediate opinions. Forensic accounting expertise was involved in identifying and assembling the information, even if much or all of it could be presented to the court, alternatively, in submissions. There is a rational chain of argument from the identified documents to Mr Carter's conclusions as to the amounts of debts not overdue and of accrued liabilities, and therefore the fact (if it be so) that Mr Carter relied on extraneous material from Mr Holmes or Ms Nassif in putting together the material will not lead to its exclusion. The two paragraphs and the appendix are not rejected. 89 The first sentence of para 77 makes an assertion about available cash which relies on para 54, a paragraph that I have rejected. Therefore it must also be rejected. What remains of the last sentence simply reiterates information in the table in para 74. It would be allowed into evidence as part of a rational chain of argument, if there were one, but the removal of the other parts of para 77 has the consequence that the last sentence is pointless, and it should therefore be rejected. 90 Para 79 set out the text of Mr Hodgson's e-mail to Mr Silbermann dated 27 February 2001 (14 0001). In para 80 Mr Carter gave an account of what he considered to be the conclusion reached in the e-mail. It seems to me that there, Mr Carter merely gave an interpretation of a document that is in evidence, without using forensic accounting expertise. Para 80 should be rejected and the e-mail should be allowed to speak for itself. That being so, there is no point in Mr Carter setting out the text of the e-mail in para 79 and so that paragraph should also be rejected. 91 In para 81 Mr Carter repeated the assertion that $26 million was transferred from the UK operations to the Australian operations on 28 February and was received by the Australian operations on 1 March 2001. The same assertions were contained in footnotes 2 and 3 of the table in para 74, and I have ruled them to be admissible expert opinion evidence. The assertion in para 82 that the transfer "enabled" the Australian operations to make payments totalling $26.3 million on 1 and 2 March was sourced to documents and involved interpretation and inference for Mr Carter, using some forensic accounting expertise. It should not be rejected. The specific reference in para 82 (reading the text as amended in the manner proposed by ASIC in AS 79) to $7.2 million said to have been paid on 1 March to "overdue" creditors with cheques that had been drawn on or prior to 28 February but not released, was sourced to Appendix I-3, which listed cheques and payments and referred to source documents. In my opinion there is a rational chain of argument there, based on identified documents, and consequently paragraph 82 should not be rejected. 92 However, the documents do not prove that the debts of creditors to whom the $7.2 million was paid on 1 March were "overdue", even in the sense explained by Mr Carter in footnote 34 and para 73. In my opinion the best course here is to reject the word "overdue" in paragraph 82, as it is not necessary to Mr Carter's argument and is not supported by the materials. It will still be open to ASIC to prove, if there is a point in doing so, that the debts paid on 1 March were overdue. 93 The first sentence of para 83 relied on rejected material from para 54, and should therefore itself be rejected. The second sentence and the words "As a result" in the third sentence, said by ASIC to be an assumption, should also be rejected, because it is an assertion about cash balances derived from rejected material. The only remaining part of para 83 is part of the last sentence, which merely restates information from the table in para 74, and this assertion has become pointless. The whole of para 83 should be rejected. Para 84 reiterates information in footnotes 2 and 3 of the table and is an addendum to para 83, rendered pointless by the rejection of that paragraph. Para 84 is rejected. Para 85 and Appendix I-4 are not rejected, on the same basis as paras 76 and 78. 94 The first sentence of para 86 relies on rejected material from para 54 and should itself be rejected, rather than being treated as an assumption. The second sentence merely restates information appearing in the table at paragraph 74 and is pointless. The whole of para 86 should be rejected. Para 87 and Appendix I-4 are not rejected, except for the word "Further", on the same basis as paras 76 and 78. Balance of available cash less creditor amounts - International operations (paras 88-98) 95 Paragraph 95 is not pressed (T 4431). ASIC submitted that the reference in footnote 1 to para 89 to the deduction of the $8 million pledge should be treated as an assumption (T 4432). 96 The first three sentences of para 88 are primary evidence by Mr Carter as to the sources available to him. The last sentence is a statement of opinion, though of a very obvious kind. Para 88 is not rejected. 97 Para 89 presents a table, relying on intranet figures for the international available cash balance and on Appendix I-6 for the UK liabilities overdue (the sources are specified in Appendix O). Currency conversions are explained in Appendix I-1. Appendix I-6 takes creditor figures from the UK creditors ledger, specifying the relevant documents, and then applies various contemporary exchange rates which are set out in tabular form, producing a table for aged UK creditors expressed in Australian dollars. An adjustment is then made for creditors greater than GBP300,000, as per a separate table, in a fashion explained in narrative form in the note to para 91. Although, to a degree, Appendix I-6 was composed by extracting figures from creditors ledgers in making mathematical calculations for exchange rates to Australian dollars, there is a degree of forensic skill involved in this process. The figures in the table in para 89 and in the appendices are, so far as I can see, sourced in identified documents and so there is a skein of rational argument to support the table, independently of any access to extraneous materials that Mr Carter may have had. 98 The table shows that Mr Carter deducted the "pledged" amount of $8 million from the cash balances for each month. It is appropriate to treat as an assumption, subject to my proposed s 136 order, the proposition that the pledged amount should be so deducted. 99 Like the table in para 74, the table in para 89 makes no allowance for disputed claims or claims awaiting offsetting credit notes. In their submissions the defendants referred the court to the UK aged creditors report as at 31 January 2001 (60346), according to which GBP 11.4 million out of total trade creditors of GBP 23.6 million were more than 120 days past "due dates", and the defendants asked me to infer that a substantial portion of those debts were unpaid because of disputes or for other good reasons. Making such an inference would render the UK operations cash positive at the end of January but the defendants' argument would not destroy the pattern of declining cash balances that the table demonstrates. It will be open to the defendants, if they wish, to bring out the significance of disputed claims to the overall figures during the hearing. Their argument does not, in my opinion, warrant exclusion of para 89. 100 Para 90 is a narrative statement of the effect of the table, followed by a reminder of the effect of the $26 million transfer to the Australian operations. I have already decided that the component parts of para 90 are admissible (in para 89 and in footnotes to the table at para 74, and also para 81), and consequently para 90 is not rejected. 101 Para 91 is a table based on that part of Appendix I-6 that presents the ageing profile of the UK creditors, converted into Australian dollars. The observations made about Appendix I-6 in my decision about para 89 are applicable to para 91 and the part of Appendix I-6 to which it relates. Para 91 is not rejected. 102 Paras 92 and 93 are observations based on a comparison and the tables at paras 89 and 91. The observations are expert opinion evidence based on a reasoning process supporting the tables. Paras 92 and 93 are not rejected. 103 Para 94 is Mr Carter's explanation of the effect of the transfer of $26 million on 28 February 2001. The component parts, namely the table at para 91 and the assertions in documents concerning the $26 million transfer, are not rejected for reasons already given, and the documents upon which they are based (including the Group's intranet at 9 0009) will be in evidence when ASIC makes its formal documentary tender. Para 94 is part of Mr Carter's argument and contains admissible expressions of opinion, standing coherently regardless of any access to extraneous information which Mr Carter may have received. Para 94 is therefore not rejected. 104 Paras 96 and 98 are not rejected for the same reasons as given for paras 92 and 93. Para 97 merely extracts information about creditors overdue for between 1 and 30 days from Appendix I-6, but there is an element of expertise and opinion involved in selecting that information for particular noting. It is not rejected. Balance of available cash less creditor amounts - Group operations (paras 99-100) 105 ASIC submitted that the table in para 99 contains or implies an assumption as to the appropriateness of deducting the pledged amount of $8 million (T 4446). I agree, subject to my proposed s 136 order. 106 In para 99 Mr Carter has set out a table deducting overdue Australian and UK creditors from the available cash balance for the Group on a monthly basis. The figures for available cash balances were, as in para 54, the Group intranet figures after deductions for pledged amounts and unpresented cheques. But this table is different from the table in para 54 because it makes no assertion about whether unpresented cheques were deducted from figures presented to the board. It simply proceeds on the basis that unpresented cheques needed to be deducted from the intranet balances in order to achieve an accurate figure for cash available. That is a matter about which Mr Carter is able to express an expert opinion (on which he can be cross-examined) and he has done so. 107 The overdue creditor figures (sourced in Appendix O) do not make any allowance for disputed and other non-payable claims, but again these matters can be raised by the defendants in the hearing, and the court will be able to make a judgment on all the evidence about the extent to which, if at all, the figures in the table need to be modified to take into account such matters. 108 There is some forensic skill involved in selecting and assembling the figures for the table in para 99, Appendix O. and Appendix I-6, and there is a sufficiently plausible chain of reasoning to justify allowing the evidence to be given notwithstanding the probability that Mr Carter obtained extraneous information. The table is not rejected, on the basis that it includes an assumption about the pledged amount. Para 100 simply drew some conclusions from the table, and is not rejected. Liquidity of the Australian operations (paras 101-104) 109 In para 101 Mr Carter expressed the opinion that in analysing a company's cash and creditor position, it was important to consider the overall liquidity of the company by taking into account, in addition to cash, other liquid assets such as trade debtors and accrued income, and also other operational liabilities in addition to creditors, such as accrued liabilities. Though a fairly obvious point, that is opinion evidence by an expert forensic accountant and is not rejected. 110 Para 102 then presented a table showing, month by month, the impact of these other factors on cash and creditors, accordingly calculating the net liquidity position of the Australian operations. The first thing to note is that the table was confined to the Australian operations of the Group, because (the Report explained) information for the international operations was not available to Mr Carter. As senior counsel for the defendants pointed out, the presentation of net liquidity calculations for the Australian operations without any figures for the international operations implied an assumption or opinion, apparently false, that the liquidity of the Australian operations was not affected by the international operations. In my opinion that does not destroy or undermine the net liquidity analysis offered by Mr Carter, but merely requires that the court bear in mind the possibility that tight liquidity in Australia in any given month might have been cured by ample or excess liquidity overseas, thus necessitating further inquiry. 111 The figures given in the table at para 101 were sourced in Appendix I-13. That Appendix tabulated figures for debtors, cash, accrued income, carrier claims, creditors and accruals, which were, in turn, sourced in trial balances identified by document numbers (with the exception of the cash figure for 31 December 2000 which was taken from the statutory accounts). It appears that the figures for cash, which correspond with those in the table in para 74, have deducted unpresented cheques. The only part of the table not coming from Appendix I-13 was the line of provisions for doubtful debts, which were sourced in paragraph 190 of the Report. I shall deal with the provision for doubtful debts when I reach that paragraph later in this judgment. 112 In my opinion the compilation and presentation of the table involved the exercise of forensic accounting skill, extending to the preparation in setting out of the information in Appendix I-13 and the mathematical calculations necessary for that purpose. Specialised knowledge was used in selecting the components relevant to a liquidity analysis. 113 The defendants were critical that, without explanation, Mr Carter used trial balance figures for cash in para 101, when on other occasions he sourced figures for cash in the intranet, and that he used trial balance figures for the trade debtors line whereas in para 158 he preferred trade debtors figures taken from collection profile summary documents. The absence of explanation for use of the trial balance figures is, in my view, a flaw in Mr Carter's reasoning process, which means that there is a gap in the logical skein of the argument. However, I do not regard it as appropriate to infer that his choice of a particular set of figures rather than some other set of figures was dictated by access to extraneous information such as information from Mr Holmes or Mr Basman. There is no particular reason for believing that they would have told him to use the trial balance figures in this table and other figures on other occasions. Further, I do not see a danger of unfair prejudice, confusion or undue waste of time in allowing this evidence and leaving it to the defendants to cross-examine Mr Carter, if they wish, as to his choice of documents. 114 In respect of the March figures, Mr Carter has used the trial balance provided by Ferrier Hodgson in preference to the trial balance in the I:drive, but in my view this is acceptable because (as noted above) there is an explanation for his doing so in para 2 of his 29 November report. Note (a) to the table refers to the transfer of $26 million from the UK operations to the Australian operations, and this is permissible for the reasons I have given. 115 My conclusion is that para 101 and Appendix I-13 are not rejected. Para 102 highlighted some of the information in the table and asserted that the net liquidity position deteriorated over the period from December 2000 to May 2001, despite receipt of the $26 million from the UK operations on 1 March. It is also not rejected. 116 The first sentence of para 103 referred back to the conclusion, expressed in para 94, that after the transfer of the $26 million the UK operations did not have sufficient available cash to pay creditors. I have not rejected para 94, and the first sentence of para 103 is not rejected, on the same basis. In the second sentence of para 103, Mr Carter said it was questionable whether significant further funds would have been available from international operations. In footnote 55, which related to that sentence, Mr Carter noted that the Australian operations had received additional funds from the international operations on five occasions in May 2001, which he listed, then noting that according to an e-mail of Mr Boaden which he identified, three transfers from the European operations were not additional funds to be retained. 117 The second sentence of para 103, which is an expression of expert opinion, is expressed to follow from the first sentence, which I have not rejected. Footnote 55 is not necessary to the reasoning and merely provides additional support. My view is that the second sentence should not be rejected, but footnote 55 should be rejected. The problem with footnote 55 is that, as explained below, Mr Carter's statements are not fully supported by the documents, suggesting that he reached his conclusions with the aid of extraneous information. 118 First, footnote 55 recorded a transfer from Hong Kong of $1.951 million on 2 May 2001 and a transfer from Hong Kong of $1.478 million on 3 May 2001. But the daily cashflow spreadsheet identified as one of the sources (11 0675) lists these figures as "receipt, interest and other" under the general heading "inflows from operations", without identifying Hong Kong. The other source (an intranet page, 9 0062) records only one cash transfer, on 3 May, of $3.645 million, a higher amount, and it does not specify the destination of the transfer. 119 Secondly, footnote 55 recorded three transfers on 10 May 2001, respectively from the Netherlands, the UK and Switzerland, for $1.423 million, $1.052 million and $1.206 million (totalling $3.681 million) and stated that Australia received $3,387,480 of these amounts on 10 May. But there is no explanation for the receipt being less than the total amount transferred. The daily cashflow spreadsheet that was identified as the source for receipt of the transfers (11 0678) shows only the figure of $3,387,480 (the amount which, according to Mr Carter, was received) but it is described as "income tax refund", and there is nothing to link it with the European operations. The intranet pages identified as sources record the three transfers in the amounts identified in footnote 55, but the transfers from the Netherlands and the UK are recorded for 9 May rather than 10 May, and there is nothing to show that the destination was Australia. 120 Thirdly, footnote 55 refers to an e-mail from Mr Boaden to Mr Cage, Mr Silbermann, Mr Weston and Mr Werner dated 8 May 2001, which said that the "transfers below" were being made on the understanding that, as promised, "you" will return the same within five working days, and that all the European offices would be at risk if that did not occur. Mr Carter said the e-mail indicated that the 10 May transfers to the Australian operations were not additional funds to be retained. Mr Carter made some inferences about the identity of the recipients of the e-mail (for example, that "mark" referred to Mr Silbermann), but I think they were reasonable inferences in the circumstances. He asserted that Mr Bowden was joint chief financial officer of the UK operations, something not stated in the e-mail. Mr Bowden's position was in extraneous information but the logical skein of argument concerning the e-mail is not disrupted by that information. A bigger problem with the e-mail is that it refers to the "transfers below" and there is an envelope symbol indicating that a document, "Transfers (753 bytes)" was attached, but the attachment is not in evidence and Mr Carter does not appear to have had access to it. He appears to have inferred without any explanation that the transfers were the three transfers made on 10 May. 121 In my opinion it is probable, given the nature of the subject matter, that information about the transfers from Hong Kong and Europe was supplied to Mr Carter or his staff by Mr Boaden or Mr Werner. Because of the gaps in the reasoning process in footnote 55 it is of low probative value, and the discretionary considerations that I analysed in rejecting paras 50 and 51 are equally applicable here. Therefore I shall reject footnote 55 under s 135. 122 Senior counsel for ASIC made several attempts (the most recent is at T 4524-4527) to supplement the references given by Mr Carter and thereby fill in the gaps in his reasoning process. It seems to me that the issue to be considered in light of the Court of Appeal's judgment is the probative value of the opinions and the reasoning set out in the Report, rather than the probative value of the expert's opinions supported by some reasoning steps that he did not take but which are now advanced by counsel. However, even if the matters identified by counsel are taken into account, my view is that the documents do not fully support Mr Carter's statements and the probability is that he took into account and relied on extraneous information. Net cashflow compared to forecast - Australian (ex Next Generation) operations (paras 105-111) 123 The first sentence of para 105 is merely a general summary of the effect of the tables at paras 106 and 118, assuming that there were no other forecasts in board papers than the ones specified in the tables. For the reasons set out below, para 105 and the tables are not rejected. The second sentence of para 105 is an admissible expression of expert opinion that the identified shortfalls between net cashflow and forecasts reflected either higher-than-expected cash usage or lower-than-expected cash inflows, or both. 124 The table in para 106 is very basic and does not involve any significant degree of expertise. It simply took the monthly actual net cashflow figures for January, February and March as reported to the board on 30 March (the figure for 31 March is an estimate), added them together for the quarterly figure, and compared them with the forecast figures in three earlier sets of board papers. Even so, in my opinion the table is not rejected because it assembles the information in a convenient and helpful fashion and is the basis for some expressions of expert opinion in the ensuing paragraphs. 125 Paras 107-111 are narrative summaries of some highlighted information taken from the table in para 106 and (in the case of para 111) the table in para 99. There is an exercise of judgment, based upon specialised knowledge, involved in deciding what to highlight. These paragraphs are not rejected. Net cashflow compared to forecast - Next Generation operations (paras 112-117) 126 Para 117 is not pressed (T 4516). 127 Para 112 presented, for the Next Generation operations, a table comparing actual net cashflow for the three months from January to March with forecasts of that net cashflow made in previous board papers. Then paras 113-115 gave narrative highlights of those figures. These paragraphs are not rejected into evidence on the same basis as paras 106-111. 128 In para 116 Mr Carter explained that he had not ascertained the source of the information about cashflow given to the board. He said that daily cashflow spreadsheets did not record cashflow for the Australian (ex Next Generation) and Next Generation operations separately, and that cash receipts from collection of trade debtors were recorded by the Australian (ex Next Generation) operations (a statement supported by footnote 57). This is admissible expert evidence based upon a forensic accountant's analysis of the source materials, and is not rejected. 129 The defendants challenged para 116 on the ground that Mr Carter was mistaken to say that cashflow records for the Australian and Next Generation operations were not maintained separately. They referred to the daily cashflow spreadsheet upon which Mr Carter had based his assertion (11 0663) and drew attention to the fact that on the following page GSM (i.e. Next Generation) revenue was recorded separately. The point of the submission was not to show that Mr Carter was wrong, but to show that Mr Carter's opinion about the recording of cash receipts must have come from extraneous information rather than from the documents. The defendants noted that in an earlier draft of the Carter Report the statement presently appearing in para 116 was attributed to Ms Randall rather than to the documents. 130 If the documents do, in fact, account separately for cash receipts for Next Generation, then not only was Mr Carter wrong but if Ms Randall told him, she was wrong as well. There is in this respect an inconsistency within the defendants' submission. Senior counsel for ASIC took me in some detail to the cashflow spreadsheet to show that when it was examined closely, Mr Carter's opinion was correct (T 4476-4482). I was left with the impression that Mr Carter's statement, on proper analysis, is probably consistent with the cashflow spreadsheet, because he referred specifically to cash receipts obtained from collection of trade debtors and that specific aspect of cashflow was apparently not recorded separately for Next Generation. At this stage, it would certainly be premature to conclude that he was wrong. He has not fully set out the reasoning process used to interpret the spreadsheet but in my opinion, there is a sufficient reasoning process to support his opinion, even if he originally formed that opinion because of information given to him by Ms Randall rather than his own analysis of the documents. My decision is that para 116 is not rejected. Net cashflow compared to forecast - Group operations (paras 118-124) 131 Para 118 presented figures on a Group basis for actual net cashflow as reported to the board on 30 March for January, February and March 2001, and forecast net cashflow for those months as per board papers of previous months. Paras 119, 121 and 122 extrapolated highlights from those figures. This material is not rejected, on the same basis as paras 106-111. 132 Paras 120 and 124 presented 8-month figures from July 2000 to February 2001 for net and actual net cash usage respectively, comparing those figures in each case with forecasts that had been presented to the board, and concluding that the actual results were substantially greater than as forecast. The source documents were identified and in my opinion, the extrapolation of the figures and the presentation of conclusions based upon them involved the application of specialised forensic accounting knowledge. Those paragraphs are not rejected. 133 In para 120 Mr Carter said the Group net cashflow for the eight-month period was negative $209 million (an average of negative $26 million per month) and that the $209 million figure included "non-trading cash receipts". The defendants concentrated on this assertion and claimed that it was not supported by the source documents. Without setting out every step here, my view is that if one refers to footnote 61, document 14 0016, para 280 and footnote 145 of the Report and the three-page document at 14 0013-14 0015, one can see the basis for Mr Carter asserting that the cashflow figures included two non-trading cash receipts, namely share options $5 million and sale and leaseback $16 million. 134 In expressing his conclusion about the non-trading cash receipts, Mr Carter made inferences not fully evident on the face of the documentary source and not articulated by him fully. It is plausible to contend, as the defendants do, that he had recourse to extraneous information explaining the figures. There is, however, a logical skein of argument by which one patches together the text of the Report, the footnotes and the documents. On balance, it appears to me that Mr Carter's treatment of the non-trading cash receipts is not an adequate ground for excluding para 120. 135 Para 123, like para 111 in relation to the Australian (ex Next Generation) operations, drew attention to the effect on leading cashflow figures of keeping overdue creditors constant between January and March instead of allowing the level of overdue creditors to increase. The figures for overdue creditors, for this purpose, were taken from para 99, by adding the Australian and UK overdue creditors (information for other overseas creditors not being available). The calculation was set out in footnote 63. Para 123 and footnote 63 are not rejected on the same basis as para 111. Deferral of payment of creditors (paras 125-127) 136 In paras 125-127 Mr Carter presented his general thesis that the Group systematically deferred payments to creditors (or "managed cash and creditors") from 31 December 2000 onwards, so that month-end cash balances were artificially high because creditors had not been paid in the ordinary course of business prior to month-end. In para 127 Mr Carter listed eight indicators of this phenomenon, and in the ensuing paragraphs he considered each indicator. Thus, the pattern of argument was to be that an overall adverse inference was to be drawn about the management of creditors on the basis of an analysis of eight indicators. 137 An expert cannot give admissible opinion evidence where the opinion is not based on the expert's specialised knowledge, or where the "opinion" is merely argument in support of a litigant's case (see my 7 March judgment, at [279]-[286]). In my opinion these principles are not attracted where a forensic accountant analyses financial records and transactions and identifies, on the basis of that analysis, indications of a pattern of systematic deferral of payment of creditors which produces artificially high a month-end figures. But it is important for the argument to be meticulous and rigorous and for the concluding opinions to be expressed with care and precision, because otherwise there is a high prospect of application of s 135. In particular, care needs to be taken about crossing over from propositions based on accounting evidence to the effect that a process was ordered and systematic on its face, to propositions about individuals or groups of people having an intention to mislead. Propositions of the latter kind are not likely to be warranted by inference from financial records alone, and may well go beyond the forensic accountant's expertise. 138 The status of paras 125-127 depends upon the status of the more detailed analysis in later paragraphs. The effect of ASIC's withdrawal of some matters and my rulings (set out below) is that · the analysis of daily cash balances (factor (a)) which shows a spiking of available cash at each month-end is not rejected, though not Mr Carter's claim about what it demonstrates; · the analysis of unreleased cheques (factor (b)) is rejected; · the analysis showing the growth in trade creditors overdue (factor (c)) is, for the most part, not rejected; · the analysis of the deferred payments lists (factor (d)) is treated as assumption rather than fact or opinion, and the opinion that these documents are an indication of a systematic process of deferring payment to creditors is not rejected subject to proof of the assumptions; · the comparison of daily cashflow forecasts to actual (factor (e)) is not rejected; · the discussions of comments within the daily cashflow spreadsheets, the separate agreement with Lucent, and internal correspondence describing delays in payments to creditors (factors (f), (g) and (h)) are not pressed. 139 Thus, Mr Carter's evidence of four of his eight indicators has gone, the significance of one of the indicators is suspended pending proof of assumptions, and only three of the indicators remain substantially intact. The result is that his expressions of opinion about systematic deferment of payment and management of creditors cannot remain, as they are based on premises most of which have been removed. Consequently the second and fourth sentences of para 125 and the whole of para 126 are rejected. Para 127 is not rejected as a statement of Mr Carter's reasoning process in this area, though I note that consideration of the eight factors collectively is no longer open to him and therefore the opinion expressed in that paragraph has no application. Deferral of payment of creditors - (a) Analysis of daily cash balance (paras 128-130) 140 The graph that appears after para 130 plotted daily Group cash balances from 1 January to 17 May 2001 as per the company's intranet, apparently with no deductions for unpresented cheques or pledged amounts. It also displayed the year-end cash balance forecast of $75 million that was announced to the market on 11 September 2000. The graph showed that the daily cash balances for part of January are above the forecast but for all later months they are below it. Finally, the graph showed month-end figures for the average daily cashflow during the preceding month. 141 In my opinion the graph is admissible as expert opinion evidence by a forensic accountant, and on the principle in the Butera case. The information is useful and relevant, it is derived from documents that will be in evidence, and it is helpful to present the information in the form of a graph. There is forensic accounting skill involved in extracting information from the documents and displaying it in an intelligible and clear fashion; there are mathematical calculations involved in the average monthly figures; and there is judgment involved in deciding what information is useful for the purpose of assessing the Group's financial position. The information shown in the graph was taken from primary documents and there is no room for the presentation to be influenced by extraneous information, even if Mr Carter developed his thesis about selective deferral of creditors from extraneous sources.some broad 142 The defendants referred the court to the draft report of 9 April 2002 (Exhibit P27, vol 5, p 10.40), which showed the pattern of cash balances and creditor payments going back to September 2000, and submitted that this information showed the same pattern even though at the earlier time, One.Tel had a bank balance of around $250 million. In my opinion that does not provide a basis for rejecting the analysis of the January-May period presented in the final Report. Such matters, which may affect the weight of Mr Carter's evidence, may be addressed in evidence (including cross-examination) and final submissions. 143 Therefore, subject to one matter, the graph is not rejected. The one matter that is excluded is the part of the heading that says "showing impact of selective deferral of payments to creditors". The information in the graph was put forward as an indicator of the systematic deferral thesis. Those words in the heading assumed the conclusion that Mr Carter wished the reader to draw. They amount to the expression of an opinion by Mr Carter about what the graph showed (as opposed to "indicated", as one of several factors), which is not supported by the information in the graph. The graph demonstrated that the cash balances at the end of each month were high relative to the days just before and just after the end of the month, but they were not the highest cash balances of the month except at the end of April, and in some months (January and February) they were close to the monthly average. The insertion of words claiming that the graph showed the impact of selective deferral of payments created a danger of confusion. The quoted words are rejected under s 135. 144 Para 128 is a narrative highlighting of matters which, in Mr Carter's opinion, are demonstrated by the analysis shown in the graph. When he spoke of a "recurring pattern" and a "build-up" of the cash balance and a subsequent sharp fall, I take him to have described facts rather than management intentions. On that basis, para 128 is not rejected as an expression of Mr Carter's expert opinion based on the figures. Para 129 simply explained the graph, and is not rejected. 145 Para 130 contained Mr Carter's admissible expert opinion that the average cash balance conveyed a better indication of the cash position than the end of month balance, given the patterns emerging from the graph. But there are added opinions which are problematic. He said in the first sentence that the end of month balance had been "artificially maintained by deferring payments to creditors until the following month". In the second sentence of footnote 67, having referred to the ordinary cycle of receipts and payments in many businesses, he referred to an apparently deliberate deferral of payments to creditors combined with reporting to the board of the peak month-end cash balance, which in his opinion conveyed an incomplete picture. As with the heading of the graph itself, these comments overlaid some broad conclusions, prejudicial to the defendants, on the presentation of merely one "indicator" which was put forward as part of a cumulative set of factors (see para 127). To draw ultimate conclusions from one of the indicators was premature and confusing. The indicator, considered in isolation from the other seven indicators, does not provide a rational skein of argument to support the broad and prejudicial conclusions. The conclusions therefore have low probative value, and to allow them into evidence would be to create a real danger of unfair prejudice as well as being misleading and confusing. I therefore exclude, under s 135, the words in the first sentence of para 130, "that has been artificially maintained by deferring payments to creditors until the following month". I also exclude the second sentence of footnote 67. Deferral of payment of creditors - (b) Analysis of unreleased cheques (paras 131-132) 146 In para 131 Mr Carter presented a table of information concerning unpresented and unreleased cheques for the Australian operations. There is some confusion in the paragraph about the distinction between "unpresented" and "unreleased" cheques. Footnote 68 explained that for the purposes of the Report, Mr Carter did not "distinguish" between unpresented and unreleased cheques. But in the table two of the lines are said to relate to unreleased cheques and the other is said to relate to unpresented cheques, and footnote 2 also seems to distinguish between the two concepts. Mr Carter described unreleased cheques as cheques that had been drawn but not released (that is, sent to the payee). His concept of unpresented cheques is less clear. It would be important, if the table were allowed into evidence, to be clear about Mr Carter's concepts and to know whether they correspond with the concepts employed by the authors of the documents. 147 The table presented an estimate of the average number of days unreleased cheques were outstanding at the end of each month. Appendix I-2 provided, at length and in detail, the calculations made to support the figures in the table. The table then set out the number of unpresented cheques at month-end, and the total amount of unreleased cheques at month-end, both sourced (according to Appendix O) in the unpresented cheques listings. 148 The sources of the information in the table were specified in footnote 1 to Appendix I-2. They are unreleased or unpresented cheques listings for each of the five months from January to May 2001 (January at 12 0028-12 0045; February at 12 0078-12 0098; March at 12 0109-12 0116; April at 12 0119-12 0128; May at 12 0131-12 0142). There is another document in the same format for 27 rather than 28 February (12 0056-12 0076). In each case the document lists particular cheques, providing information about the date of drawing and the amount. For January and February, the footers on the documents and the properties pages identify the documents as "Released Cheques" spreadsheets, and the documents have a column headed "Released" which indicates whether the cheque has or has not been released, as well as a column indicating the date of release. The documents for March, April and May are identified as "Unpresented Cheques" spreadsheets in the properties pages and they do not have a column headed "Released". The totals columns for the last three months are different from those for the first two months because they give figures for total unpresented cheques as well as total released cheques. In a case of each document, the properties page identifies the "author" as Ms Randall. 149 In my opinion, while Mr Carter would be able to give admissible evidence about the meaning of these documents, based on his specialised knowledge, in fact the information he seeks to extract from the documents cannot be derived from them without a substantial amount of guesswork. For example, the documents distinguish between unreleased cheques and unpresented cheques but they do not explain how those terms are used. The March, April and May documents do not expressly record whether cheques were or were not released but instead, a column entitled "Date Released" is completed with dates for some cheques but not for others. It would not be safe to infer from the absence of the date that the cheque had not been "released" (rather than, for example, the table not having been updated). 150 Ms Randall is available to give evidence about the nature of the documents, how they were prepared and how they were used. In my opinion, in the absence of such evidence inferences of the kind made by Mr Carter in para 131 cannot safely be made. The uncertainties surrounding the documents are reinforced by Mr Carter's three footnotes to the table. It is far from clear that the allocation of a nil value to specific cheques is "incorrect" (an assertion also found in footnote 5 to the table in para 54), and the use of the 27 February figures with a reconciliation rather than the 28 February figures is unexplained (the fact that Mr Carter was unable to locate an aged creditors report for 28 February (T 4509) does not seem to have any bearing on the table in para 131, as distinct from the table in para 54 and footnote 4 to that table, because the table in para 131 as supplemented by Appendix I-2 and Appendix O does not purport to rely on anything other than the unreleased/unpresented cheques listings). 151 It follows that the probative value of para 131 is low because of defects in the reasoning process. It seems to me likely, for the reasons given in my 7 March judgment, that Mr Carter and his team received assistance in the interpretation of the unreleased/unpresented cheques listings from Ms Randall, and that they have used extraneous information supplied by her in circumstances where the documents did not speak for themselves. For the reasons explained in respect of paras 50 and 51, there would be a danger (here a substantial danger, in view of the prejudicial nature of the conclusions Mr Carter seeks to draw from his indicators) of unfair prejudice in allowing this information into evidence, and to do so would also create dangers of confusion and of undue waste of time. 152 I have considered whether to treat para 131 as a set of assumptions which might be made good by the evidence of Ms Randall and perhaps other witnesses. I have decided not to do so. I was not asked by ASIC to treat para 131 as an assumption; it is not cast in the language of assumption but instead it purports to state matters "set out" in the unreleased/unpresented cheques listings; and on this occasion, to treat the contested paragraph as an assumption or series of assumptions would involve some considerable rewriting, including rewriting to identify precisely what the assumptions were to be. I think the better course is to reject para 131. It follows that para 132, which simply draws attention to some aspects of para 131, should also be rejected. 153 In DS 69 the defendants made various submissions designed to show that the probative value of the table in para 131 was slight or non-existent: for example, that a substantial number of the unreleased cheques were drawn well before 31 December 2000; that many of the cheques were for very small amounts; that in the February figures many of the cheques were drawn on 27 or 28 February; that the figure for January included a substantial amount for cheques listed as having been cancelled; that the figure for April included a single cheque for Optus of $9.85 million. It is unnecessary to deal with these matters since I have decided to exclude the table, but my view is that submissions of this kind go to weight rather than the exclusion of evidence. They do not expose gaps or deficiencies in the reasoning process, but rather they go to the strength of the inferences drawn in the course of the reasoning. Deferral of payment of creditors - (c) Growth in trade creditors overdue (paras 133-137) 154 Para 133 contained a table setting out Australian and UK overseas creditors for each month from December 2000 to May 2001 and in each case, calculating a percentage growth figure. The figures are the same (though expressed to the nearest tenths of millions rather than the nearest millions) as in the tables in paras 74 (Australian) and 89 (UK), which I have not rejected. The growth percentages are simply mathematical calculations. Therefore the table in para 133 is not rejected. 155 Mr Carter said in para 133 that the growth of overdue creditors, illustrated by the table, reflected the extent to which payments were being deferred. This presents the same problem as the heading of the graph that appears after para 130, that is, the statement confusingly treats a single one of the eight indicators as establishing the thesis about systematic deferral of creditors, rather than treating it merely as an indicator. The words "The extent to which payments were being deferred is also reflected in … as" are rejected. 156 Paras 134 and 135 presented narrative highlights of the table in para 133. They are not rejected. In para 136 Mr Carter endeavoured to explain why, in his view, the substantial fall in Australian overdue creditors from December 2000 to January 2001 was consistent with the thesis that there was, during this time, systematic deferral of creditors in order to manage the creditor position at month-end. It is permissible and appropriate for an expert to comment on and seek to explain any evidence that appears to be contrary to his or her principal expert opinion. The explanation given here is speculative, and may not be convincing, but there is no adequate basis for rejecting it. The defendants' criticisms go to weight. 157 Para 137 calculated, with the aid of the table, how the group net cash as reported to the board would need to be adjusted if overdue creditors were kept at a constant level in the three months from January to March 2001. All the component figures were taken from other paragraphs of the Report which I have not rejected. Consequently para 137 is also not rejected. Deferral of payment of creditors - (d) Deferred payment lists (paras 138-141) 158 ASIC submitted that paras 139, 140 and 141 should be treated as assumptions. I accept that submission, subject to applying my proposed s 136 order to those paragraphs, because the status of the deferred payment lists will depend on the evidence of Ms Randall, whose evidence is to be given in the week commencing 4 July 2005. Para 138 is admissible as a statement of expert opinion that the assumed matters constitute an indicator of the systematic process of deferral of creditors. Deferral of payment of creditors - (e) Comparison of daily cashflow forecast to actual (paras 142-144) 159 In para 142 Mr Carter described the recording of forecasts of daily cash receipts and payments in the daily cashflow spreadsheets. This paragraph is introductory to the table in para 143 and is an acceptable general statement about the system. It is not rejected. 160 In para 143 Mr Carter took the March 2001 forecast for the Australian operations from a daily cashflow spreadsheet entitled "20.02.xls" (11 0089), the forecast being for negative cashflow of approximately $28 million. He noted that according to the spreadsheet 2905.xls (11 0674), the actual cash balance as at 31 March 2001 for the Australian operations was $22.5 million, a positive net improvement over forecast of $46 million. He then set out a table which purported to identify the components of the $46 million improvement. The main items were the $26 million transfer from the UK operations and the deferment until after 31 March of various payments totalling $17.5 million. The deferred payments were calculated, according to Appendix O, by deducting the respective amounts in 20.02.xls from the corresponding amounts in 2905.xls. In my opinion para 143 involved the exercise of forensic accounting skill and it is not rejected. 161 ASIC submitted (AS 79) that in the first sentence of para 143 the word " the" in the phrase "the March 2001 forecast" should be treated as an assumption. I think that would be ungainly and unnecessary. It is plain enough from the sentence as a whole that Mr Carter did not intend to convey that 20.02.xls contained the one and only March 2001 forecast. For example, there were forecasts in board papers. It is enough to read the sentence in its proper sense. 162 The defendants contended that by using the documents in this way, Mr Carter was giving evidence about what they were without any basis. They specifically referred to treating 20.02.xls as the March 2001 forecast of the Australian operations. But it seems to me that is a plausible description of the document (especially at 11 0103), and I disagree with the submission that Mr Carter gave evidence contrary to the Court of Appeal's 20 May judgment at [154]. 163 In para 144 Mr Carter expressed an opinion, said to be derived from the table, about how the positive cash position for the end of March was achieved. That is admissible expert opinion evidence. He then noted that a more detailed summary of budgeted payments and comments, indicating the nature of deferments, was set out in Appendix E. Appendix E is headed "Analysis of various deferrals in payments to creditors". It lists information, taken from the daily cashflow spreadsheets in the Group's computer system, showing some 22 creditor accounts and comparing forecast payment times with dates actually paid, setting out any comments as to deferral in the documents, noting whether the creditor was included in a deferred payments listing, and recording the extent of deferment from the original forecast payment date. Note 2 in Appendix E describes the system of using daily cashflow spreadsheets. The description was one that could have been derived from the documents themselves, although it is probable that it was explained to Mr Carter or his staff by Ms Randall. Nevertheless, in my opinion these materials provide a logical skein of argument and should not be rejected. Deferral of payment of creditors - (f) Comments within the daily cashflow spreadsheet (paras 145-147); (g) Separate agreement with supplier (paras 148-153); (h) Internal correspondence describing delays in payments to creditors (para 154) 164 Paras 145-154 are not pressed (T 4522). Threats to supply (para 155) 165 The first part of the first sentence of para 155 ("Apparently as a consequence of the deteriorating cash and creditor position of the Group and its failure to pay creditors") is not pressed. What remains includes the statement that the Group received several "threats to supply" from certain creditors such as WorldCom, detailed in Appendix F. Appendix F tabulated information about creditor demands by reference to dates of "threats to supply", identity of creditor and service, and summaries (necessarily selective) of the relevant communications, all sourced to the documents. Mr Carter then said in para 155 that he saw no evidence that the threats were communicated to the board, and he expressed the opinion that the threats, and the actual cessation of supply in some instances, indicated that the extent of delaying payments to creditors was "beyond reasonable bounds, and unacceptable to suppliers". 166 Bearing in mind that the field of expertise of a forensic accountant investigating the financial position of a company is quite broad, as explained in my 7 March judgment, it nevertheless seems to me that para 155 and Appendix F are not based on any specialised knowledge of a forensic accountant. Appendix F set forth a selective summary of correspondence in which creditors made claims, requests, demands and threats of various kinds, which should be allowed to speak for itself. Mr Carter has no particular qualification to describe the correspondence generically as "threats to supply", nor to express the view that the extent of delaying payments to creditors was beyond "reasonable" bounds (the word "reasonable" apparently being used in quite a general way rather than by reference to any accounting or financial practice). Para 155 and Appendix F are rejected. Debtors - Composition of the ageing of debtors (paras 158-164) 167 Para 156 is a "signpost" paragraph and the first sentence of para 157 is background. They are not rejected. The second and third sentences of para 157 are not pressed (AS 79; T 4528). 168 The substantive debtor analysis begins in para 158 and extends to para 192. Para 158 makes various calculations with respect to aged debtors, based on information taken from what Mr Carter called "the Summary Debtors Ledger". As he explained at para 161, he used this label to refer to documents which were entitled "Collections Profile Summary" or "Profile Summary" (for convenience I shall use the description "collections profile summary" when I wish to refer to these documents as a whole). In para 161 Mr Carter claimed that these documents provided a summary analysis of all of the debtors in the Group's Australian operations. 169 I described the collections profile summaries in some detail in my judgment on business records, ASIC v Rich [2005] NSWC 417 (5 May 2005), at [77]-[79]. The documents have headings or footers or properties pages which identify them as "collections profile summaries" or "profile summaries", and they present aged debtor balances in various bands. Some of the documents bear the description "drilldown report" and some are described "360 day report". Most of them bear handwritten notes. I noted (at [144]) that some of the documents had file paths in the I:drive, some were produced by the solicitors for Mr Silbermann and Mr Beck as part of a file retained by Mr Silbermann, and some were produced by Ernst & Young from their business records. 170 In my 7 March judgment, I found (at [236]) that in using these documents for the purposes of his Report, Mr Carter had made assumptions that (a) the summaries recorded the totality of Australian trade creditors of One.Tel at the relevant date; and (b) the documents entitled "profile summary" were prepared on the same basis as, and were directly comparable to, the documents entitled "collection profile summary". 171 Those assumptions can be seen, for example, in the significance Mr Carter attributed to the collections profile summaries in para 161. ASIC did not press that paragraph (AS 79) but it is appropriate to refer to the paragraph in determining admissibility because the paragraph is illuminating of Mr Carter's approach to the documents. The assumptions were made notwithstanding some indications, explored in Mr Carter's cross-examination, that the documents were prepared with different parameters and contain different figures, making direct comparability impossible until the differences were explained by someone in a position to give direct evidence of the process by which the documents were compiled. 172 I noted (at [233]) that the total debtors figure in the profile summary as at 30 June 2000 was markedly different from the figure for total debtors in the auditors' reports to June and December 2000, and that there were at least three versions of the summary as at 30 June 2000, each of which had a different figure for total debtors. I held that the information assumed by Mr Carter could not have been inferred from the body of the documents alone and that, subject to any further evidence that Mr Carter might have given if permitted to do so, this information was probably obtained by Mr Carter from his discussions with Mr Basman (see also at [85]). 173 In his report dated 29 November 2004 Mr Carter responded to criticisms of his use of the collections profile summaries, that had emerged in cross-examination. In para 6 of the 29 November report he reviewed documents to which his attention had been drawn during his cross-examination and expressed some views about the documents he preferred to use and the materiality of differences. He also expressed some opinions about the differences between drilldown reports and 360 day reports and reported that he had located a document called "debtors profiles.xls" (attachment 6 to his affidavit). He explained which of the reports used for the purposes of his principal Report were drilldown reports and which were 360 day reports, and then considered whether the differences between the two styles of report had affected various steps in the reasoning process he had used in the principal Report, concluding that he had used the documents appropriately and there was no reason to change the substance of the opinions he had expressed. 174 In my opinion the November report has not overcome the problems about using the collections profile summaries that I identified in my 7 March judgment. First, the supplementary reasoning does not remove the concern that the whole debtor analysis is based on assumptions that the collections profile summaries provide reliable final figures with respect to total debtors. Senior counsel for the defendants pointed out (T 4542ff), and I agree, that the starting point of the debtor analysis, that is the identification of the figure for total debtors as at 30 June 2000, is of fundamental importance because recovery rates and therefore the appropriate provision are measured against that initial figure. The collections profile summaries list debtors, in various age bands, by reference to a range of classifications such as "dispute" and "final demand" (for example, see 8 0003). The "totals" columns appear to be totals of the various categories. It seems to me unclear from the reports themselves, and not capable of being made clear without extraneous explanation, whether they purport to deal with total debtors. The fact that the figures in the drilldown reports are higher than the figures in the 360 day reports does not imply that the drilldown reports reflect total trade debtors. Secondly, Mr Carter's views about the nature of drilldown reports and 360 day reports and his explanation of the probable differences in the outcomes in the two styles of document appear to be very speculative, if based on nothing but the documents themselves. The supplementary reasoning is an unconvincing addendum to the debtor analysis. It confirms that Mr Carter's use of the collections profile summaries in his principal Report was not based on the documents themselves and must have made use of extraneous information. 175 The Court of Appeal set out my findings on the collections profile summaries at [45]-[49], without criticism, noting (at [49]) that my findings about Mr Carter's assumptions centred on what the documents are rather than what they mean. 176 By using the collections profile summaries as the factual basis for an edifice of calculations and inferences, leading to the general conclusions that Australian trade creditors grew substantially during the period from December 2000 to the end of April 2001 and that inadequate provisioning was made for doubtful debts, Mr Carter presented a chain of argument that is flawed because of the assumptions he made with respect to the source information. This renders the probative value of his debtor analysis weak or non-existent. 177 The conclusions drawn by Mr Carter in reliance on the collections profile summaries are prejudicial to the defendants. To allow the debtor analysis into evidence and leave it to the defendants to expose the weaknesses of the analysis in cross-examination would be to create significant dangers of unfair prejudice, confusing evidence and undue waste of time, substantially outweighing such probative value as the debtor analysis in paras 158-192 may have, for the reasons that I gave in considering paras 50 and 51. ASIC does not propose to call direct evidence as to what the documents are and how they were used within One.Tel, or to explain the differences between drilldown reports and 360 day reports. Apart from the danger of unfair prejudice and confusion, Mr Carter's attempt in the November report to address the difficulties presented by his principal Report is bound to lead to undue waste of time, to the extent that the speculative opinions in the later report are tested in cross-examination. This is an area, in summary, where Mr Carter's exposure to extraneous inferences is the foundation of a compelling argument for exclusion, when the evidence is considered paragraph-by-paragraph. Consequently, in my view, the debtor analysis beginning in para 158 should be excluded from evidence wherever the analysis depends upon Mr Carter's use (involving, as it does, the assumptions I have identified) of the collections profile summaries. 178 Further, the evidence contained in the debtor analysis beginning at para 158, which relies on the collection profile summaries as source documents for the information presented, contains or implies evidence about what the collection profile documents are, evidence that Mr Carter is not able to give, according to the Court of Appeal's judgment (at [47], [50], [154]). This is also true of the evidence in para 6 of the November report. 179 Para 158 showed the composition of the trade debtors balances for the months from December 2000 to May 2001, separately presenting figures for debts in various bands, and tabulating the percentages that those various categories bear to the total. The information was sourced in the collections profile summaries. Para 158 is therefore rejected. 180 Paras 159 and 160(a) were not pressed (AS 79). In para 160(b) Mr Carter highlighted an aspect of the table in para 158 and expressed the opinion that the information suggested the Group was experiencing material problems with collectability of older debtors, problems that were growing over time. The opinion relied on the table in para 158 and therefore on the collections profile summaries, and so para 160(b) is rejected. 181 In paras 162-164 Mr Carter identified what he said was an error in the "Summary Debtors Ledger". It appears that he added up the debtors listed in the documents in respect of the months from December 2000 to May 2001 and found that for the months from February onwards, the total was different from the total amount stated in the document. He said he was unable to explain why the differences arose but the discrepancies were not of such magnitude as to affect his conclusions. It would be permissible for Mr Carter to take the collections profile summaries without making any assertions or assumptions about what they are, and then draw attention to some mathematical errors in them, if there were any point in doing so. But in para 162, where Mr Carter listed the errors, he treated the collections profile summaries as information about aged debtors, making the assumptions identified above. Paras 161-164 are therefore rejected. Provision for doubtful debts (paras 165-168) 182 Para 165 contained a summary of the reported provision for doubtful debts in the Australian operations for June 2000 and then for each month from December 2000 to May 2001, showing the figures in bands based on the age of the debts. The figures for provisions were taken from trial balances and they were compared with figures taken from the collections profile summaries (also appearing in the table at para 158) showing the amount of debts outstanding for more than 90 days, and then percentages were calculated. The table also showed amounts and percentages for debtors outstanding for more than 180 days and more than 330 days, again sourced in the collections profile summaries. A fuller explanation of the calculations was given in Appendix I-6. 183 The point of para 165 was to compare aged debtor information with provisions for doubtful debts. Since the aged debtor information was taken from the collections profile summaries on the basis of assumptions about what they are, para 165 is rejected. There is no point retaining a list of provisions if the comparison information is excluded. 184 In paras 166 and 167 Mr Carter drew some highlights from the table in para 165, and in para 168 he expressed the opinion that there was a general fall in the percentage provisioning that suggested a declining level of effective provisioning. Since the table in para 165 is excluded, the opinions based upon it in paras 166, 167 and 168 are also rejected. Historical collection of trade debtors (paras 169-175) 185 Para 169 contained a table purportedly setting out an historical analysis of the collection of trade debts outstanding, at the commencement point of the analysis, for greater than 90 days. The table set out, for June 2000 and the months from December 2000 to March 2001, the amount of debts outstanding for more than 90 days (information also given in the table at para 158), and compared that with the amount of debts of that age remaining outstanding in a specified later month (April 2001 in most cases), and then subtracted the latter figure from the former to ascertain the amount collected, which was then expressed as a percentage. 186 According to Appendix O, the information in the table came from the collections profile summaries. Para 169 is therefore rejected. 187 In para 170 Mr Carter expressed the opinion, on the basis of the historical analysis, that it would be appropriate to provide for at least 90% of the Group's trade creditors outstanding for greater than 90 days, but the actual provision was much less for doubtful debts between December 2000 and April 2001. Since the opinion was based upon the excluded table, para 170 is rejected. 188 In para 171 Mr Carter presented a table comparing the aged debtor balance outstanding at June 2000 with the corresponding balance still outstanding in January 2001, for debtors in specified age bands. The table purported to show the proportion of June debts in those bands collected by the end of January. According to Appendix O, the information in the table was taken from the collections profile summaries, and therefore para 171 is rejected. 189 In paras 172-174 Mr Carter highlighted some of the information in that table and also expressed opinions about it, to the general effect that the provisioning was inadequate, given that the older balances were less collectible than the newer balances. Since these opinions were based on the excluded table, paras 172-174 are rejected. 190 In para 175 Mr Carter explained that in the following paragraphs he would set out two alternative approaches to assessing an appropriate provision for doubtful debts for each of the months from December 2000 to May 2001, based on information available to management as at the end of January. I would allow that as a linking paragraph if there were any point in doing so, but since (as will appear) the substantive paragraphs are rejected, para 175 is also rejected. Assessment of appropriate provision for doubtful debts (Method 1) (para 176-184) 191 Method 1 was described in paras 176-184. It involved taking the collectability percentages from the table in para 171, applying those percentages to each aged debtor balance for the month-ends from December 2000 to May 2001, and then comparing the provision required according to that calculation with the actual provision. The required provisions according to Method 1 were set out in the table at para 176, and these were then compared with actual provisions in para 177. In para 178 Mr Carter concluded that on the basis of this calculation the provision for doubtful debts was significantly understated throughout the period from December 2000 to April 2001. 192 Mr Carter would be able to give expert forensic accounting evidence about the alternative methods that are available to assess the appropriate provision for doubtful debts. But in paras 176-178 he did not merely give general evidence about such accounting practice, but went on to apply "Method 1" to the One.Tel group, relying impermissibly on the collections profile summaries as source information for his calculation of required provisions. In my view it would not be appropriate to re-cast these paragraphs as a general opinion without any application to the figures from the collections profile summaries (and ASIC did not submit that I should do so), and therefore it seems to me that, since the collections profile summaries are relied on with the impermissible assumptions I have identified, the correct course is to reject paras 176-178 entirely. That conclusion is consistent with my 7 March judgment at [391]. 193 In para 179 Mr Carter purported to draw support for his conclusion from the liquidators' estimate of the amount of the accounts receivable balance as at 29 May 2001 that was recoverable, an estimate that required a write-off much higher than the actual provision at that stage, and higher than the under-provisioning calculated by Method 1. 194 In para 180 Mr Carter purported to draw further support for his conclusion by presenting a table comparing the balance of debtors that were still outstanding as at April 2001 with the required provision calculated according to Method 1. The table showed that the balances outstanding were quite close to the required provision calculated by Method 1. Mr Carter pointed this out in para 181, and then expressed the opinion that his calculation was reasonable, and based on assumptions as to collectability that could reasonably have been made prior to the 31 December 2000 statutory accounts being finalised. 195 The reasoning process in paras 179-181 was intended to support the conclusion derived from Method 1 by means of a reasoning process that I have excluded. In my opinion what is said in paras 179-181 depends upon and is ancillary to the excluded material, and therefore those paragraphs are also excluded. 196 Mr Carter explained in footnote 105 that accrued income is revenue earned from services provided but not yet billed to customers. In para 182 he expressed the opinion that it would be reasonable to expect that accrued revenue was as likely or unlikely to be collected as ordinary revenue, and accordingly it would have been appropriate to raise a provision in anticipation of the uncollected portion of accrued revenue. I regard this as permissible expert forensic accounting evidence. 197 In para 183 Mr Carter presented a table setting out accrued income for each month from December 2000 to May 2001, taken from trial balances, and expressed the opinion that the appropriate provision for doubtful debts was in the order of 10% of accrued income, based on Method 2 and Appendix G. He summarised the effect of the table in para 184. Paras 183 and 184 are an application of the Method 2 analysis that is in turn based upon the collections profile summaries and is rejected as noted below. Therefore paras 183 and 184 are also rejected. Assessment of appropriate provision for doubtful debts (Method 2) (paras 185-189) 198 Method 2, as explained by Mr Carter in paras 185-189, was based on an assessment set out in Appendix G. Para 3 of Appendix G was not pressed, save for the first sentence. In Appendix G Mr Carter considered three alternative methods of calculating the percentages of monthly revenue likely to be uncollectible. The three alternatives produced percentages of revenue likely to be uncollectible of 9%, 12% and (for the third alternative) a range between 5 and 15%. The first alternative relied on information from the collections profile summaries and should be excluded from evidence. The second alternative relied on information from paras 171 and 176 of the Report, paragraphs that I have excluded, and therefore it should also be excluded. The third alternative relied in part on information from the collections profile summaries and should also be excluded. 199 Based on these alternatives, Mr Carter decided it was not unreasonable to assume that approximately 10% of billings were uncollectible. That opinion is based upon the excluded evidence in Appendix G and therefore is rejected. In his November report Mr Carter said that the important comparability in respect of Method 2 was between the aged debtors breakdowns of 30 June 2000 and 31 January 2001, and that these reports were comparable. That partly addresses the second assumption identified in my 7 March judgment, but for reasons given above, it does not overcome the problems created by Mr Carter's use of the collections profile summaries. 200 According to trial balances, the provisions for doubtful debts were 3.3% of revenue in the period from January to April 2001, and in para 188 Mr Carter expressed the view that EBITDA was overstated to the extent that the doubtful debts expense was understated. He presented a table purporting to show the understatement of the doubtful debts expense by comparing the actual monthly doubtful debts expense taken from management accounts and the 10% of revenue that Mr Carter's method deemed appropriate. The last part of the table showed the corresponding overstatement of monthly EBITDA. The table compared information sourced in management accounts with figures calculated by applying Method 2. The reasoning process underlying Method 2 is rejected and therefore the table in para 188 and the accompanying opinions in that paragraph and in para 189 are rejected. Comparison of Methods 1 and 2 (paras 190-192) 201 A table in para 190 compared the provision that would result from Method 2 (10% of revenue) with the provision derived from Method 1. In para 191 Mr Carter concluded that the outcomes of applying the two methods were materially consistent, and consequently that it would not be unreasonable to use 10% of revenue as the method for calculating appropriate provision for doubtful debts. Paras 190-192 are rejected, because the component parts of the comparison are rejected. Analysis of earnings (paras 195-205) 202 Para 194 expresses conclusions about progressive deterioration in earnings and variations between earnings reported to the board and in the management accounts. The more detailed opinions and reasoning processes in both respects are rejected for reasons given below. Therefore para 194 is rejected. 203 Mr Carter's analysis in paras 195 and following was about an adjustment to "actual earnings" based on the management accounts. Plainly enough, Mr Carter proceeded on the basis that the management accounts provide information about "actual earnings" (he compared the adjusted management accounts and flash reports in Appendix H). The defendants submitted that in doing so, Mr Carter purported illegitimately to give evidence about what those documents are rather than what they mean. I disagree. He did not purport in his evidence to attribute to the figures in the management accounts a character that they do not bear on the face of the documents, but instead he took figures from the management accounts for what they are, and used them in a transparent way, footnoting his sources. The contrast between his use of the management accounts here and his use of the collections profile summaries in the debtor analysis is obvious. 204 Para 195 explained the adjustments that have been made to "actual earnings" and is not rejected. The first sentence of para 196 reiterated Mr Carter's opinion that the doubtful debts expense was understated in the Group's EBITDA during the period from December 2000 to April 2001. That statement of opinion is rejected for reasons given in my discussion of the debtor analysis. The second sentence of para 196, which explained the adjustment of actual earnings that Mr Carter made, is not rejected as an explanation of his calculations. 205 In paras 197-198 Mr Carter addressed what he said was an understatement of operating expenses in the Group's EBITDA arising because the digital and fixed wire business unit incurred operating expenses on behalf of Next Generation and on-charged Next Generation with an estimate of those costs, but Next Generation recorded a lower amount than had been on-charged. He sourced his opinion on that issue in the management accounts. The defendants submitted that he could not have derived these opinions from the documents themselves, but I disagree. Mr Carter presented a table in para 198 comparing the operating expense charged to Next Generation and the operating expense recorded by Next Generation, monthly from January to April 2001, reaching the view that a cumulative adjustment was required to EBITDA at the end of April in the sum of $4.8 million. In para 199 he noted that an adjustment was made in the half-year results to 31 December 2000 to the full amount of the operating expense allocated to Next Generation by the digital and fixed wire business (the allocation being explained in Appendix H), and therefore Mr Carter's adjustment began as from January. 206 In my view Mr Carter has presented expert opinions in paras 197-199 and Appendix H within his specialised knowledge as a forensic accountant, identifying the source of information and setting out his reasoning process. Those paragraphs are not rejected. 207 In paras 200 and 201 Mr Carter quoted an extract from the April 2001 flash report which said a review of the allocation of operating expenses was complete and that allocations had been correctly recorded. Mr Carter expressed opinions about that statement, to the effect that it made no reference to the discrepancy in charging and recognising Next Generation operating expenses. In my view the opinions are not based on Mr Carter's specialised knowledge as a forensic accountant but are simply an interpretation of the flash report of the kind that could be advanced by counsel in submissions. Paras 199 and 200 are rejected. 208 In paras 202-203 Mr Carter described the accounting that had been used for Next Generation's costs of acquisition of subscribers. He expressed the opinion that by first capitalising customer acquisition costs, and then writing them off over the life of the subscriber contracts (rather than recognising them as an ordinary expense), the costs were able to be excluded from EBITDA, even though the revenue to which the costs related (subscriber billings) was included as ordinary revenue and in EBITDA. Mr Carter said this was a "mismatch" which tended to overstate EBITDA. In my view these paragraphs presented Mr Carter's expert opinions as a forensic accountant, identifying source documents and his reasoning process. The opinions expressed by Mr Carter were, in my opinion, capable of being derived from the documents he identified, when those documents are considered as a whole. Paras 202-203 are not rejected. 209 In paras 204-205 Mr Carter provided a table and a graph showing monthly EBITDA from December 2000 to April 2001 after adjustments. One of the adjustments was for the mismatch between the Next Generation operating expense charged and recognised. The other was for an increase in the doubtful debts expense in the manner calculated in para 188. He did not adjust for the mismatch between revenue and amortisation of customer acquisition costs. In my opinion the table and graph and the associated commentary must be rejected. The figures depend in part on increasing the provision for doubtful debts on the basis of opinions expressed by Mr Carter in his debtor analysis that I have rejected. I have considered whether the table and graph might be partially saved by excluding only the component relating to the provision for doubtful debts, but I think that would be confusing and pointless. It would be pointless because para 198, which I have not rejected, provides a table making the adjustment for operating expenses without the adjustment for doubtful debts, so the information to the extent to which it is not rejected can be found there. Analysis of adjusted earnings compared to budget (paras 206-209) 210 Paras 206-209 present an analysis, including a table and graph, comparing the adjusted earnings calculated at para 204 with budgeted EBITDA as per the September 2000 business plan. The figures and the associated commentary are based on the adjusted EBITDA calculated, in part, by increasing the provision for doubtful debts in reliance on the figures set out in para 188. I have rejected para 188 and the table of adjustments to EBITDA in para 204. It follows that paras 206-209 must also be rejected. Cash deficiency (paras 210-235) 211 Para 210 is Mr Carter's conclusion that the Group required a cash injection of $270 million to meet current and reasonably foreseeable liabilities at 28 February, a figure that rose to $287 million at 31 March. That is rejected because the more detailed analysis is rejected. 212 The first sentence of para 211 asserted that the Group and individual operations had insufficient cash to pay overdue creditors. This reflected the second and third sentences of para 73, which I have not rejected. It is therefore not rejected. The second sentence of para 211 asserted that the cash deficiency reflected the progressively deteriorating financial position of the Group with respect to four matters. I have allowed Mr Carter's evidence in respect of three of those matters (cash balance, overdue creditors and the continued trading losses) to a sufficient degree that his reliance on them in para 211 is permissible. But his evidence as to the fourth matter, growth in trade creditors and uncollectible trade creditors, has been rejected. It follows that his opinion, based on composite factors an essential part of which is evidence that will not be before the court, is also rejected. 213 In para 212 Mr Carter outlined his methodology for assessing the cash deficiency and expressed an opinion as to the things that had to be taken into account in making such an assessment. That paragraph is not rejected, partly because it is an expression of expert forensic accounting opinion (though at a fairly obvious level) and partly as an introduction to later paragraphs. 214 Para 213 is a definition of "cash" from the purposes of a calculation and is not rejected. 215 The statement in para 214 that the matters to be considered may include prepayments and trade receivables is not rejected, because it is an (obvious) expression of expert accounting opinion. The remainder of the paragraph refers to prepaid advertising with PBL and News. Mr Carter's statement that the prepaid amounts were stated to be non-refundable is to be treated as an assumption, according to ASIC's submission. I shall do so, subject to the proposed s 136 order. The reasoning process which relies upon that statement to deduce that the prepayment should be excluded from the analysis is not compelling. Mr Carter appears to have thought that because the prepaid amounts were non-refundable, they could not be used in a manner that would affect the company's cash position, but the defendants submitted that this was not so. In my opinion the reasoning process is not so defective that I ought to intervene under s 135. It is no ground for excluding an expert's opinion that it appears to be wrong or is submitted to be wrong. 216 In para 215 Mr Carter explained his reasons for not including net trade debtors. It is a statement of expert accounting opinion about methodology and is not rejected. The assertion that the collection the net trade receivables will occur in the ordinary course of business may be open to challenge on the facts, but that is not a basis for excluding an explanation of methodology. Para 216 described an aspect of Mr Carter's method of calculation, and is not rejected. Para 217 cross-referred to para 89, which has not been rejected. It explained what European financial information was available to Mr Carter. It is not rejected. 217 Para 218 presented a table purporting to show the cash deficiency of the Australian operations and the Group at the end of February, March and April 2001. The first line in the table showed the available cash balance, which was said to equal the cash balance as per the intranet less unpresented cheques for the Australian operations and pledged funds for the international operations' bank guarantees. The corresponding calculations in paragraph 54 were rejected and the first line of the table in para 218 is rejected for the same reason. The second line of the table gives information for Australian overdue creditors, which was also set out in para 74 and not rejected. The third line gives information about UK overdue liabilities, also given in para 89 and not rejected there. The fourth line calculates "cash deficiency before carrier claims" and merely tallies up the figures presented in the other lines. The notes to the fifth line expressed Mr Carter's belief that the Australian operations may have received a $9 million credit through reductions to Telstra payments in late April. The source documents are noted in Appendix O. In my opinion this is a permissible expression of expert opinion based upon a reasoning process disclosed by reference to the documents. I would not reject it, considering it in isolation. The sixth line added in this possible carrier claim to produce conclusions as to "normal cash" for the Australian operations and the Group for each of the three months under consideration. 218 The problem with para 218 is that the calculations relied on excluded evidence concerning the available cash balance. Since the structure of the table and the conclusions depended upon that evidence, the table as a whole is rejected. Para 219, which highlighted some results of the calculations in para 218, is consequently rejected. 219 Para 220 is a linking paragraph containing an expression of expertise about the calculation of cash deficiency, and is not rejected. The table in para 221 presented a calculation of cash usage or "total cash outflow", ascertained by adding the capitalised cost of acquisition for handsets and lease costs to adjusted EBITDA loss. Adjusted EBITDA loss was derived from the management accounts, adjusted for doubtful debts. The method of adjustment for doubtful debts emerges by tracing the table back through Appendix O to Appendix H, which in turn referred to para 188. Para 188 has been rejected, as has the calculation of adjusted EBITDA loss on a Group basis in para 204. Therefore the presentation of the figures for the adjusted EBITDA loss for the Australian operation is also rejected. Since the rest of the table in para 221 depended upon the figures for adjusted EBITDA loss, the whole table is rejected. The first sentence of para 221 stated the conclusion taken from the table and is also rejected. The second sentence described Mr Carter's methodology in calculating monthly cash usage and is rejected, because the description led into and depended upon the table. 220 The first sentence of para 222 is a statement of expert accounting opinion and is not rejected. The second sentence and the table purport to be a calculation of total cash usage on the basis of adjusted budget cashflow, for March to June 2001 for the Australian operations. The budget figures are taken from the September 2000 business plan. Amongst the adjustments is a line for "growth in uncollectible trade debtors", calculated as 10% of budgeted revenue less the budgeted provision for doubtful debts (taken from Appendix I-9). The rationale for the 10% figure was not set out in the table or Appendix O, but it appears to be an application of Method 2 for calculating an appropriate provision for doubtful debts. Method 2 is based upon reasoning that ultimately relies on the collections profile summaries and has been rejected. Consequently the foundation for the adjustment for uncollectible trade debtors in para 222 has not been made out and the table and the second sentence of that paragraph are rejected. 221 The first sentence of para 223 and the word "Accordingly" at the beginning of the second sentence were based on the rejected table and are therefore also rejected. Mr Carter's statement of his assumption in the second sentence of para 223 is not rejected, but footnote 115 which purported to base the assumption on several matters including "the analysis contained in paragraph 223" (probably meaning to include the table in para 222, since there is no real "analysis" in para 223) is rejected because the reasoning in the footnote is based partly on rejected material. Additionally, subparagraph (c) of footnote 115 contained some assertions for which no source or basis was given. 222 In paras 224-232 Mr Carter considered the debt to Toronto Dominion of $50 million. In the second sentence of para 224 he set out the repayment schedule, sourced according to Appendix O in board minutes. That sentence is not rejected. ASIC submitted that the words in the first sentence of para 224, "as a result of loan covenant breaches", and the whole of paras 225 and 226 which described loan covenants to do with annualised EBITDA, should be treated as assumptions. I accept that submission, subject to the proposed s 136 order. 223 In para 227 Mr Carter provided a table summarising financial covenants and their required ratios, compared with the quarterly results that had been submitted to the lender for the quarter to 31 December 2000 and, where appropriate, an annualised extrapolation of those results, identifying the source documents in Appendix O. In my opinion Mr Carter did not out act outside his forensic accounting expertise in presenting that material and it is not rejected. In the first sentence of para 228 Mr Carter expressed the opinion that certain ratios had only just been achieved. It seems to me that this sentence should be rejected, as it expresses a conclusion is not based on specialised knowledge. In the remainder of para 228 Mr Carter referred to his opinion about under-provisioning for doubtful debts expense during the 6 months ended 31 December 2000 and said that if an adequate doubtful debts expense for the quarter had been recognised, the EBITDA loan covenant would have been breached. That reasoning depends upon rejected parts of the Report concerning provisioning for doubtful debts, and is rejected. So is para 229, which expands on the point. 224 Para 230 presented the financial covenants and figures for the quarter to 31 March 2001, corresponding to para 227 for the December quarter, and para 231 set out an analysis equivalent, for that quarter, to paras 228-229. For the reasons given in respect of paras 227-229, para 230 is not rejected but para 231 is rejected. To the extent that para 232 is evidence that the Toronto Dominion loan should have been recognised as repayable it is rejected, because the reasoning is based on rejected reasoning concerning the doubtful debts analysis. Therefore the first sentence of para 232 and the word "Accordingly" in the second sentence are rejected, but the remainder of the second sentence is not rejected. 225 Para 233 is a statement of Mr Carter's methodology with respect to the Lucent lease rentals, referring to documentary sources. It is not rejected. 226 Paras 234 and 235 present a summary in the form of a table of Mr Carter's calculations of current and reasonably foreseeable cash requirements. As I have explained in relation to other rejected paragraphs, the figures put together in the summary table depend in some important respects on evidence that I have rejected. Therefore paras 234 and 235 are rejected. Reasons for the state of affairs (paras 236-254) 227 There are frequent references in paras 236-254 to Appendix J, which presents calculations with respect to change in revenue, change in gross margin percentage, increase in operating expenses and growth in the uncollectability of revenue. The figures for those calculations are, by and large, sourced in Appendices I-10 ("actual") and I-9 (budget). In turn, Appendix I-10 refers to Appendix L. Appendix L is a comparison of reported earnings between flash reports and unadjusted management accounts. 228 In a judgment delivered on 22 March 2005 (ASIC v Rich [2005] NSWC 256), after I had ruled that the Carter Report should be rejected as a whole, I dealt with application by ASIC to tender certain parts of the Carter Report and its appendices as "scientific" evidence or evidence of analytical mathematical propositions, a category recognised in my 7 March judgment (at [272]). The judgment of 22 March dealt specifically with Appendix L. In my view that judgment is of no assistance to me in the task that I must now perform. Part of the reasoning (especially, at [27]) has not survived the Court of Appeal's 20 May judgment. The principal thrust of my reasoning was to say that Appendix L is not just a collection of mathematical calculations derived from identified sources, but is a document involving judgments and therefore expressions of expert opinion. That conclusion was important in circumstances where I had ruled that the whole body of Mr Carter's opinions should be rejected because they were "tainted" by exposure to extraneous information, an approach the Court of Appeal held that I was not entitled to take. In the present context, the fact that Appendix L contains some judgemental matters rather than simply calculations is not germane. 229 In the first three sentences of para 236 and footnote 124 Mr Carter purported to give evidence that the board decided to place the Group into administration in May 2001 because of its cash deficiency. This evidence does not rely upon forensic accounting expertise and the inference is a matter for the court. ASIC invited me (T 4593) to treat the first two sentences and the footnote as assumptions, but they are not cast as assumptions and it seems to me that the views Mr Carter went on to present were not dependent on these assertions. The better course is to reject the first three sentences of para 236 and footnote 124. 230 In the remainder of para 236 Mr Carter asserted, referring to Appendix J, that there were three primary reasons for the progressive deterioration of the Group's financial performance, relating to decreases in gross margin, increases in operating expenses and growth in uncollectible trade receivables. These opinions were given on the basis that the Group's financial performance progressively deteriorated, a matter addressed in previous parts of the Report. Although a substantial portion of the analysis has been rejected, it seems to me that what remains is sufficient to convey an understanding of what Mr Carter meant by "financial performance", and to show that in some respects at least, the Group's financial performance deteriorated over the period from January to May 2001. 231 The fourth sentence of para 236 (including the first part of each of subparagraphs (a), (b) and (c)) is a statement of expert forensic accounting opinion and is not rejected. The second sentence of each of subparagraph (a) and subparagraph (b), and the second and third sentences of subparagraph (c), are factual assertions in the nature of highlights of analyses set out subsequently, and their fate therefore depends upon whether those more detailed analyses are rejected. For the reasons given below in relation to para 239, the second sentence of each of subparagraphs 236(a) and (b) are not rejected, but the second and third sentences of subparagraphs 236(c) are rejected. 232 Paras 237 and 238 are not rejected, as they merely described Mr Carter's methodology. In the table at para 239 Mr Carter purported to analyse the difference between actual and budgeted financial performance for individual business units and the Group, in the period of four months from January to April 2001. There were four inputs to the table, each of which was explained in Appendix J. 233 The first input was a line showing the impact on the gross margin contribution of an increase or decrease in revenue over the four months period. The figures in that line were calculated in the manner shown in para 5 of Appendix J, which involved taking monthly revenue figures from the unadjusted management accounts via Appendix I-10, and budgeted monthly revenue figures from the September 2000 business plan, calculating four-month averages, calculating the difference between the budgeted and management account average figures, and then applying to that difference the average monthly growth margin percentage taken from the September 2000 business plan. The components in this calculation do not involve any rejected material. 234 The second input was a line showing the impact on the gross margin contribution of an increase or decrease in the gross margin percentage. The figures were produced by the calculation in para 11 of Appendix J, which involved working out the difference between the actual average monthly gross margin percentage (based on unadjusted management account figures) and the budgeted average monthly gross margin percentage (based on the September 2000 business plan), and then applying that difference in percentages to the actual average monthly revenue (based on unadjusted management account figures). Again, these calculations do not involve the use of rejected material. 235 The third input was the increase or decrease in operating expenses for each of the business units and the group over the four-month period. The calculation was made in para 20 of Appendix J, based on actual figures taken from the unadjusted management accounts via Appendix I-10, and budget figures taken from the September 2000 business plan via Appendix I-9. Again, the source information does not depend upon rejected material. 236 The fourth input was the additional doubtful debts expense calculated in para 29 of Appendix J. This was the difference between Mr Carter's estimate of the required average monthly doubtful debts expense, calculated in Appendix I-7, and the budgeted average monthly doubtful debts expense taken from Appendix I-9, which relied on the September 2000 business plan. Appendix I-7 gave revenue figures from management accounts and calculated the required doubtful debts expense as 10% of those revenue figures, using Method 2 as described in Appendix G. The evidence of the reasoning process leading to Method 2 has been rejected. 237 Thus, one of the four inputs to the table at para 239 is based on rejected material. The line of figures for "additional doubtful debts expense" and the concluding line of figures which is based on that line are therefore rejected. The lines of figures representing the first three inputs might be of some utility if considered in isolation. I shall therefore not reject the entire table, but only the last two lines of figures. As far as Appendix J is concerned, it is only the section dealing with growth in uncollectible revenue (paras 26-30) that is rejected. However, Appendix I-7, where the doubtful debts expense is integral to the analysis, is rejected in full. 238 Paras 240 and 241, which highlight conclusions from the table, are also rejected. The first sentence of para 242, referring to the discussion of the gross margin contribution in Appendix J, is not rejected. 239 ASIC submitted that the remainder of para 242, the whole of paras 243-246, all but the first sentence of para 247, and the whole of paras 248-249, should be treated as assumptions. In para 242 Mr Carter referred to the variation of revenue line in the table at para 239 and set out to explain the reasons for actual revenue being lower than budgeted revenue. He said the reduction in revenue resulted from a significantly lower than budgeted ARPU (average revenue per user) per month. He took the ARPU figures from the document, comparison.xls. Using that document, he made a calculation translating the fall in ARPU into a reduction in revenue per month for January and February 2001 (para 243), and calculated the impact on revenue of the variation between budget and actual subscribers shown in the document (para 244). In para 245 he observed that the figures so calculated were "not inconsistent" with his calculation of the reduction in gross margin contribution (table at para 239 and Appendix J). 240 The source document for paras 242-245 is comparison.xls, a document considered in my 7 March judgment. After reviewing the evidence, I concluded (at [206]) that Mr Carter had not been able to explain why comparison.xls should be regarded, on its face, as a final and authoritative document, and also that it was not clear from the document itself that it was correct to describe it, as Mr Carter did in his report in para 242, as "an analysis of the digital and fixed wire business unit's earnings". I said these conclusions were subject to any additional evidence Mr Carter might give. He addressed comparison.xls in his 29 November report. Rather than contending that Mr Carter's November report overcame the difficulties with comparison.xls identified in my 7 March judgment, ASIC has preferred to contend (T 4593) that Mr Carter's use of the document should be treated as an assumption, to be made good by other evidence. ASIC has decided to call Ms Ashley, who will give evidence on this subject. 241 In my view the opinions and reasoning in paras 242-245 would be allowable but for the assumptions Mr Carter made about comparison.xls, as found in my 7 March judgment. I agree with ASIC that the correct course is not to reject this material but to treat it as subject to those assumptions, to be proved by other evidence. Paras 242-245 will be subject to the proposed s 136 order. 242 In paras 246-249 Mr Carter used comparison.xls to explain the reduction in gross margin contribution for the digital and fixed wire business over the period from January to April 2001 (the reduction is identified in para 11 of Appendix J and summarised in the first sentence of para 247, material which is not rejected). Relying on comparison.xls, he said that a major cause for the reduction was a change in sales competition of the digital and fixed wire business, where a greater proportion of revenue was derived from low margin or even negative margin sales such as local calls, compared to higher margin products such as long-distance and international calls. He set out figures showing an increase in the weighting of sales of products supplied by Telstra (para 248) and said that the Telstra products were budgeted to be resold with a gross margin loss, which caused a significant fall in the gross margin distribution (para 249). Once again, ASIC submitted (T 4593) that this material (that is, paras 246-249, except for the first sentence of para 247) should be admitted subject to an assumption with respect to the use of comparison.xls. I agree, subject to the proposed s 136 order. 243 Para 250, which makes some summary statements with respect to operating expenses for the digital and fixed wire business, sourced in Appendices I-9 and I-10, is not rejected. In my opinion the first sentence of para 251, relating to alleged inability to collect revenue, should be rejected. It is not expressly sourced and the sources that Mr Carter probably had in mind, relating to the debtor analysis, have been rejected. Mr Carter returned to para 251 in his 29 November report but only to provide further support for the second sentence, not the first. ASIC does not press the second sentence of para 251 or footnote 130 (T 4593). 244 Para 252 is a summary of part of the table at para 239, relating to international operations. That part of the table has not been rejected and therefore para 252 is not rejected. 245 Paras 253 and 254 compare the Group's actual financial performance by reference to the four inputs identified in my discussion of para 239, with the historical financial performance based on historical average monthly revenue and historical average gross margin percentage. The calculations are set out in Appendix J, paras 8, 13, 23 and 29, which are sourced to Appendix I-10. My ruling on para 239 applies by analogy to this material. The lines of figures showing variations in revenue, gross margin percentage and operating expenses are not rejected, but the line of figures showing the reduction in uncollectible revenue is rejected because of its dependence on Method 2 and rejected debtor material, and consequently the concluding line of figures is also rejected. Para 254, which gives highlights based on the conclusions stated in the table, is likewise rejected. Reduction in net worth (paras 255-275) 246 Paras 255-275 and Appendix K provided Mr Carter's answers to the questions whether the Group incurred net liabilities and suffered a reduction in net worth between 28 February 2001 and 29 May 2001, and alternatively between 31 March 2001 and 29 May 2001, and if so, the amount of the reduction. Mr Carter answered these questions by making two calculations: first, a calculation of the change in net realisable value of the Group's assets in the two alternative periods; and secondly, a calculation of the net trading loss of the Group in the two alternative periods. 247 He calculated the change in net realisable value by taking the liquidators' estimates of net realisable value as at 29 May 2001, set out or adjusted in their reports dated 12 July 2001, 4 October 2001 and 14 November 2002. He assumed that the liquidators' figures were materially correct, though this was subject to some comments and adjustments, and he proceeded on the basis of some detailed assumptions set out in Appendix K-2. He then compared the liquidators' 29 May figures with figures for the book value of net assets taken from trial balances as at the end of February and (alternatively) the end of March 2001. 248 In my opinion there is no proper ground for rejecting any of this analysis. Although Mr Carter's analysis depends substantially on the liquidators' reports and trial balances, there is a clear element of forensic accounting expertise involved in reviewing the liquidators' reports, identifying all of the assumptions involved in using them, and making appropriate calculations. I disagree with the defendants' submission that as a forensic accountant, Mr Carter was precluded from expressing opinions which encompass matters of business valuation (see my 7 March judgment at [395], and note pages 5 and 6 of Mr Carter's curriculum vitae). The liquidators' reports and the trial balances will be allowed into evidence, having regard to my reasons for judgment delivered on 5 May 2005. The probative value of Mr Carter's analysis is affected by any limitations to the probative value of the underlying materials, but that does not mean that Mr Carter's analysis on these matters should be excluded from evidence. Paras 255-275 and Appendix K presented the structure of an argument which was capable of supporting the ultimate opinions reached by Mr Carter, as to the amount of reduction of net worth in the two alternative periods. As far as I can see, none of the steps in the reasoning process depends on excluded evidence. 249 ASIC made an application to adduce further evidence in relation to Mr Carter's statement in para 259 that it was reasonable to assume that the reduction in net worth occurred linearly. Since I have decided not to reject that assertion, there does not appear to be any need to adduce further evidence about it. 250 ASIC informed the court that the second sentence of para 264 was not pressed except as an explanation of material in Appendix K-2. In my opinion the sentence is not needed for that explanatory purpose and its retention on that limited basis would be confusing, and so, since it is not pressed, it should simply be excluded. The second sentence of para 275 was not pressed. Otherwise none of paras 255-275 or Appendix K is rejected. Market announcements (paras 276-289) 251 Paras 276-289 were not pressed (T 4610). Reporting to the board (paras 290-300) 252 Paras 290-292 explain Mr Carter's methodology and are not rejected. In para 293, the foundation for Mr Carter asserting in the first sentence that the flash reports and board papers were "the two primary sources of financial information provided to the Board" was not given and therefore the first sentence is rejected. Footnote 161 is not pressed (T 4611). I would not allow the remainder of para 293 or paras 294 and 295 if they were merely summaries of the flash reports and board papers, for reasons I gave when considering paras 36-38. However, the statements about the content of the documents serve as the foundation for the opinion expressed in para 296, namely that the information in the categories specified in paras 293-295 was not sufficient in terms of adequacy or accuracy to enable the board to carry out certain functions. I regard that opinion as falling within the specialised knowledge of a forensic accountant (see 7 March judgment at [402]) and therefore para 293 (except for the first sentence) and paras 294-296 are not rejected. 253 In para 297 Mr Carter asserted that the information provided to the board "as described above" (that is, as set out in his description of the board papers and flash reports) did not disclose certain specified categories of information. That is direct primary evidence of Mr Carter's observation of the documents, and is admissible as such. 254 Para 298 and the words "which was or should have been available to management" in para 299 are not pressed (T 4611). In the remainder of para 299 Mr Carter expressed his opinion that if certain categories of information had been provided to the board, it would have been better able to assess the deteriorating financial position and performance of the Group. That assertion clearly assumes that the financial position and performance of the Group deteriorated (presumably in the period from January to May 2001). Other parts of the Report which have not been excluded provide a foundation for that assumption, and so the assertion is not objectionable on that ground. Although it has the appearance of an expression of opinion, the assertion in para 299 implies an assumption that information in the categories set out was not in fact provided to the board. ASIC did not ask me to allow para 299 into evidence on the basis of such an assumption. The correct course is to reject the whole of the sentence above the table. Mr Carter's opinion that information in the stated categories is required by a board in order to perform its functions can be conveyed, without any implication of a "finding" by Mr Carter that the information was not supplied in this case, by allowing only the table in para 299 and then allowing the whole of para 300. I rule accordingly. Adequacy of cash reserves within the Group (paras 301-304) 255 In paras 301-304 Mr Carter purported to set out important information the board did not receive, concerning the cash and creditors position of the Group, which in his opinion rendered information provided to the board inadequate. The information not received was specified in para 303, and appears to overlap substantially with the list in para 299, although para 303 is more specific. Mr Carter would be able to give evidence by observation that the board papers and flash reports did not include the information listed in para 303. In my opinion evidence to that effect is implied in paras 301-303. But his assertion that the board did not receive the information listed in para 303 appears to be based, in addition, on an assumption (notwithstanding para 11) that the board did not receive any information (or any relevant information) other than the information provided with board papers and flash reports (see paras 293, 301, 302). There are also more specific assumptions, such as the assumption (dealt with in my discussion of paras 50 and 51) that the cash balance reported to the board did not take account of the amount of unpresented cheques, and the assumption that the $8 million "pledged" for international lease commitments should be taken out of available cash. There is also an assertion about deferral of creditor payments similar to the ones I rejected earlier in the Report. 256 In my opinion the absence of any reasoning process or expressly articulated assumption about the board's sources of information is a substantial defect in Mr Carter's reasoning process, and reduces the probative value of his opinion. ASIC did not submit that I should allow his opinion into evidence on the basis of such an assumption. It seems to me probable that Mr Carter was able to move from a review of the board papers and flash reports to the position that the board did not have information of the specified categories because he received and used extraneous information, probably from Mr Holmes. This give rise to the dangers of unfair prejudice, confusion and undue waste of time explained in my discussion of paras 50 and 51. In my opinion the probative value of para 303 is outweighed by those dangers. Para 303 (other than subparagraph (j), which is not pressed) is therefore rejected. Consequently paras 301 and 302, which lead up to para 303, and the second sentence in the box above para 301, are also rejected. 257 Mr Carter would be able to give an opinion to the effect that if the board was not given certain categories of financial information, it would not be able to do the things specified in the bold characters in subparagraphs (a), (b) and (c) of para 304. But he did not do so. Instead, he purported to say that the One.Tel board was unable to assess specific things because of the absence of the information listed in para 303. Being of that character, para 304 is rejected consequently upon the rejection of para 303. Actual compared to estimated financial position and performance - debtors (paras 306-312) 258 Paras 306 and 307 provided summaries of information given to the board during, respectively, the year ended 30 June 2001 and the period from June 1998 to March 2001. It is not rejected, on the basis that it does not make any claim to be an exclusive statement of information to which the board had access or recourse. In para 308 Mr Carter pointed out that no information in relation to debtors, other than the balance of the Group's provision for doubtful debts, was provided in the board papers for certain stated months. That is a statement of a "highlight" of the table in para 307 and is not rejected. However, the first sentence of para 308, claiming that the table in para 307 showed that the board papers contained progressively less debtor information, is rejected. It does not appear to me to correspond with the table, which can in any case speaks for itself in this respect, and it would be confusing if the first sentence were allowed into evidence. 259 Para 309 is rejected. The first sentence is ambiguous and on one view, does no more than reflect the information in the table of para 307. The second sentence is based upon material I have rejected with respect to the alleged increasing portion of debtors aged in excess of 6 months. 260 Para 310 expressed opinions about the adequacy of provisioning reported to the board which were based on the collections profile summaries. This paragraph is rejected on the same ground as I have rejected other parts of the debtor analysis. 261 In para 311 Mr Carter set out some information which, he said, would have assisted the board to assess the financial position with respect to debtors and the provision of the doubtful debts. It is rejected upon the same reasoning as para 303 was rejected. Here, some of the asserted information is based specifically on the collections profile summaries, and I made some findings in my 7 March judgment (at [85]) about Mr Carter's discussions with Mr Basman on relevant matters. Once para 311 is rejected, para 312 must also be rejected. Discrepancies in reported earnings between flash reports and management accounts (paras 314-336) 262 The following sentences and paragraphs are not pressed (T 4611-2; T 4619): the first, third and fourth sentences of 315; 316 except for last sentence and footnote 184 but not reading the word "However"; 317, 318, 319, 322, 323, 324, 329 and footnote 191, second half of 333 beginning "but note that they are …", 334, 335, 336. 263 Para 314 and footnote 180 (which is not evidence of understatement of the provision for doubtful debts or misreporting of operating expenses but merely an assertion that no adjustment was made for any such things), the first and second sentences of 315 and the last sentence of 316 other than the word "However" are descriptive background and are not rejected. Mr Carter gave some additional evidence on these matters in para 12 his affidavit of 8 September 2004 in para 14 of his affidavit of 14 April 2004, which appears to be within his expertise and adequately sourced to documents. 264 In para 320 Mr Carter set out a comparison of EBITDA figures taken from flash reports and EBITDA figures taken from management accounts on a monthly basis from December 2000 to April 2001. The figures were more fully presented in Appendix H. The table showed that the flash reports were lower than the EBITDA for each month, by figures ranging from small to very large discrepancies. In my opinion the table itself should not be rejected but there is a problem with the commentary. In view of the fact that para 317 is now not pressed, no basis is given for preferring the management accounts to the flash reports, and therefore Mr Carter is not in a position to say that the flash reports "understated" EBITDA or that they reported better performance than actually occurred. Consequently in the first sentence of para 320 the words "of the understatement of the flash reports' EBITDA loss (i.e. reporting a better performance than actually occurred)" are rejected. Likewise the descriptions used for the last two lines of the table, which contain the word "understatement", are rejected, but the figures themselves are not rejected. In para 321 the only part not rejected is the second sentence, but only down to "EBITDA loss of $112 million". 265 For the same reasons, in the first sentence of para 325, the words "understatement of EBITDA loss" are rejected, and in the table, the words "understatement/(overstatement) by flash reports" are rejected. Otherwise para 325 is not rejected. In the first sentence of para 326, the words "of the flash reports' understatement by these business units" are rejected. The second, third and fourth sentences of para 326 (that is, the remainder) are rejected. Para 327 is rejected except for the words at the end of it, "the flash reports not including any earnings (or losses as was the case) in relation to the international GWUK business unit". I shall read "not including" as "did not include". Para 328 is not rejected. 266 In paras 330-333 Mr Carter purported to identify some anomalies in the flash reports for March to April 2001. These paragraphs appear to be appropriately sourced and they involve the expression of forensic accounting opinions based on specialised knowledge. They are not rejected, except for the part of para 333 that is not pressed. Discrepancies in reported earnings between board papers and management accounts (paras 337-341) 267 In the first sentence of para 337 Mr Carter referred to "misreporting" of EBITDA in board papers. That sentence is rejected for the same reasons as I rejected assertions about "understatements" in the flash reports, namely that the underlying reasoning structure has not been pressed by ASIC. The second sentence, referring to a significant overstatement, is rejected for the same reason. The third and fourth sentences described what is sourced in the management accounts as the "actual" loss, and therefore those sentences are also rejected. 268 Paras 338-340 gave descriptive accounts of information taken from board papers. They are not rejected. Para 341 expressed an opinion as to whether the board was in a position to perform certain functions since it had been provided with "materially incorrect information as to the earnings of the Group's operations and the Group as a whole". Since the whole paragraph was based on that assertion, and the underlying reasoning process that might support that assertion is not pressed by ASIC, the whole of paragraph 341 is rejected. Key events and transactions (paras 342-348) 269 Para 342, which is not rejected, is important because it indicates that Mr Carter's subsequent assertions about information not provided to the board are assertions about whether information was provided to the board in the flash reports or board papers during the period from 1 January to 17 May 2001, rather than broader claims that information was not given to the board in any way. Mr Carter's expertise as an accountant extends to reviewing volumes of documents to ascertain whether certain financial information is contained in them. 270 Thus, when Mr Carter said in para 341 that no disclosure of the transfer of $26 million from the UK to the Australian operations was made to the board, he can be taken to have confined his assertion to disclosure in flash reports and board papers for the January-May period. On that basis, the first two sentences of para 343 are not rejected. The third and fourth sentences are rejected because they are assertions, not directly sourced to any documents, of very broad opinions going beyond Mr Carter's specialised knowledge. 271 In para 344 the words "as a result of the Group not paying its creditors when they fell due" are not pressed (T 4623). But I would reject the remainder of that paragraph in the whole of para 345. Those paragraphs refer back to para 155 dealing with threats to supply. Para 155 was rejected and paras 344 and 345 are rejected on the same basis. 272 Paras 346 and 347 are not pressed (T 4622). Para 348 expressed Mr Carter's opinion about whether the board was in a position to perform certain functions when it was "without sufficient accurate information in relation to each of these events and transactions". In other words, the opinion is given on the basis that the board lacked sufficient information about all of the matters identified by Mr Carter, namely the $26 million transfer, threats to supply and changes in arrangements for payment of Lucent. Mr Carter's evidence with respect to only one of these matters remains, and therefore para 348, expressing his concluding opinion expressed, is also rejected. Reporting systems (paras 349-387) 273 Paras 349-387 are not pressed (T 4610). Reporting systems - earnings (388-402) 274 Paras 388-402 are not pressed, except for the second paragraph of subparagraph 388(b) (T 4610) and for para 392 (T 4623). 275 Subparagraph 388(b) is Mr Carter's assertion that the management accounts for the digital and fixed wire business unit were not produced on a timely basis, giving examples from the February, March and April management accounts. I dealt with this issue at [189]-[196] and [391] of my 7 March judgment. I held that no satisfactory basis for these assertions had been identified in documentary sources, and in the absence of further explanation by Mr Carter, it was probable that the information came from a file note by Mr Holmes. 276 Mr Carter returned to this issue in his 29 November report. There he made some observations about some subdirectory entries on the I:drive showing a number of account reconciliations and consequent journal entries, some of them completed before 12 April 2001 and some after that date. He said that the preparation of reconciliations is the last substantive step for the finalisation of management accounts. He concluded that the February management accounts were probably finalised by 12 April even though there are subsequent reconciliations. He relied on the date on which the accounts were last printed, even though there was a "last modified" date of 7 May. He expressed the opinion that the March management accounts were not completed until after 18 May, relying on the fact that a trial balance including accrued revenue (an important component of monthly accounting) was last printed on 25 May. 277 In my opinion the reasoning in the 29 November report to support the views in the principal Report is speculative and unconvincing, in a manner not dependent on Mr Carter's specialised knowledge and expertise. Therefore the probative value of this subparagraph is weak or non-existent. The dangers of unfair prejudice, confusion and undue waste of time are substantial, for reasons given in my analysis of paras 50 and 51 and in my 7 March judgment (at [195]-[196]). Consequently the second paragraph of subparagraph 388(b) is rejected. 278 In para 392 Mr Carter made the assertion that if the board had received flash reports containing actual revenue and EBITDA as per the management accounts and other relevant financial data discussed in previous paragraphs, the information would have alerted the board to the adverse trends in business performance. His opinion was expressed to be based upon a view about what the board in fact received and was expressed vaguely in terms of "other relevant financial data discussed above", in circumstances where nearly all of the preceding paragraphs in this part of the Report have not been pressed. The first sentence of para 392 is therefore rejected. 279 In the remainder of para 392 Mr Carter set out a table comparing some statistics reported in the February 2001 flash reports with statistics that "would have been reported for February 2001 based on the management accounts" and. The words "For example" and "that would have been reported for February 2001" reflected the earlier rejected opinion and are themselves rejected, but the table comparing information in the flash reports and management accounts appears to me to be appropriately sourced and is not rejected. The rejected evidence of opinion is also reflected in footnote 213, and consequently the word "While" and everything from and including "in my opinion, once the management accounts …" to the end of the footnote are rejected. Conclusions 280 The effect of my rulings and ASIC's concessions is that more of the report has been rejected or not pressed than has been saved. I shall hear submissions as to whether there is any appropriate basis for discretionary exclusion of the remainder. I received submissions on some but not all of the paragraphs of the supplementary affidavits and reports of Mr Carter. Rulings on the supplementary materials will depend upon the rulings made in this judgment, and ASIC may decide, in the light of the rulings that I have made, not to press other materials. I shall direct ASIC to revise its submissions with respect to Mr Carter's supplementary affidavits and reports and give me a note indicating which paragraphs it wishes to press in light of my rulings on the principal Report.