ASIC v Rich [2005] NSWSC 1022

New South Wales Supreme Court

ASIC v Rich [2005] NSWSC 1022 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S) : 26 September 2005

JUDGMENT DATE : 11 October 2005

JURISDICTION : Equity

JUDGMENT OF : Austin J

DECISION : See under heading "Conclusions"

CATCHWORDS : EVIDENCE - admissibility of documents and discretionary exclusion - creditor communications - application of exclusionary criteria enunciated in ASIC v Rich [2005] NSWSC 491 - no issue of general principle

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

CASES CITED : ASIC v Rich [2005] NSWSC 491

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

TUESDAY 11 OCTOBER 2005

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: On 25 May 2005 I delivered a judgment (ASIC v Rich [2005] NSWSC 491) making rulings on the admissibility of "creditor communications" - that is, documents listed and summarised in AS 69 comprising communications between One.Tel and particular creditors about their claims. AS 69 was prepared by ASIC after I encouraged it to review the proposed tender of creditor communications and reduce the quantity of documents, so as to avoid the risk of multiple "mini-trials". AS 69 assembled the creditor communications in four categories: larger Australian creditors (23), larger overseas creditors (7), smaller Australian creditors (50) and smaller overseas creditors (9) - still a large amount of correspondence but closer to manageable proportions. 2 ASIC tendered the documents to show that One.Tel received threats to supply as a consequence of the deteriorating cash and creditor position of the Group and its failure to pay suppliers, and also received demands for payment from other creditors, with a view to supporting an inference that in the period from January to May 2001 One.Tel was unable to meet its obligations to its creditors (25 May judgment, at [2]). The tender was on the limited basis that they were to be used as evidence of the fact and nature of the communications but not of the truth of the matters asserted in them (T 4013). 3 I decided to admit into evidence, on the limited basis, the communications with larger Australian and overseas creditors, with the single exception of Singapore Telecom. The defendants urged me to reject on discretionary grounds certain documents identified in DS 68, relating to the Netherlands business, but I declined to do so. As to the small Australian and overseas creditors, the defendants conceded the admissibility of the communications relating to KPN, Star Telecom (including "Swiss Com") and Teleglobe (at T 4113). As to the remaining smaller creditors, I articulated some exclusionary criteria (25 May judgment, at [56]) to be applied, and encouraged the parties to do so, on the basis that they would draw to my attention any anomalies that arose. Subsequently ASIC produced a list (AS 75), a component of which was the smaller Australian and overseas creditors said by ASIC to be excluded by the criteria I had adopted in my judgment. 4 AS 75 has been revised and is now AS 91. It is a list of creditor communications in the Merged Tender Bundle and the Carter Exhibits that are not to be admitted into evidence. The list is subdivided into creditor communications not pressed by ASIC, and creditor communications excluded by the judgment of 25 May 2005. It appears from the lists that creditor communications in respect of 13 smaller Australian and overseas creditors were excluded by the judgment, and that substantial quantities of documents are not now pressed. Smaller overseas creditors 5 At the hearing on 11 August 2005, senior counsel for the defendants informed me (T 5635) that he had nothing more to put before the court with respect to the smaller international creditors. Upon the application of the reasoning set out in my 25 May judgment, and specifically the application of the criteria articulated at [56], my decision is that there is no adequate basis for excluding any of the smaller international creditor communications listed in AS 69, other than the one (BMC Software) listed in AS 75. Consequently they are received in evidence, on the limited basis. Smaller Australian creditors 6 Remaining for consideration are communications with those smaller Australian creditors still pressed by ASIC. The defendants have objected (in DS 70) to the communications with 12 creditors, namely: Alcatel, Kitson, Zali Steggall, On-line Trading Systems, Sapphire Technologies, Interspace Manufacturing, Melbourne IT, Perceptor, Link Communications, ECOM Computers, Michael Page, and Kay Marshall. Except for these 12, and the ones not pressed by ASIC as set out in AS 91 (and AS 88), the smaller Australian creditor communications listed in AS 69 are received in evidence, on the limited basis. 7 Argument about these 12 creditors was heard on 26 September 2005 (T 5746ff). The defendants submitted that, while the 12 sets of communications would not be excluded from evidence by the application of the exclusionary criteria stated at [56] of my 25 May judgment, it would be anomalous to allow them into evidence and they should therefore be excluded. Except for Alcatel, the debt claimed in each case is $50,000 or less, and the defendants submitted that the evidence would be of no more than slight probative value, outweighed by the danger of unfair prejudice, confusion and undue waste of time. 8 I dealt with this submission, to a degree, in my 25 May judgment (see, for example, the submissions set out at [26]). I held that there was sufficient substance in the defendants' submission to warrant the imposition of the exclusionary criteria that I articulated. I noted the argument advanced on behalf of ASIC that it wished to show that the creditor communications were a "mosaic", the cumulative effect of which was to provide evidence of the weak financial position of One.Tel (at [15]). I agreed with ASIC (at [61]) that evidence about how a debtor treats smaller creditors may be at least as significant, for the purpose of assessing its financial position, as evidence of its treatment of its major creditors, and therefore that creditor correspondence should not be excluded merely on the ground that the amount at stake was small. Essentially the defendants are now saying that the exclusionary criteria were not tight enough, and have let in some evidence which will have no practical utility. 9 I have reviewed the summaries of the disputed correspondence in AS 69 involving the 11 creditors other than Alcatel. I have decided that for the most part, the correspondence is relevant to ASIC's "mosaic" case, for it provides some evidence that smaller creditors were demanding payment of accounts that they alleged to be overdue (the evidence is not admitted to prove the fact of the debts). To exclude it pre-emptively would amount to preventing ASIC from presenting that case. There is a risk of undue waste of time but I think the process that has been followed has substantially reduced that risk by confining the classes of correspondence to a relatively manageable size. However, in two cases (Kitson and Interspace Manufacturing) the probative value of the evidence is so slight that it really would be a waste of the court's time to let it in and hear debate about it.