Reported Decision : 54 ACSR 28 New South Wales Supreme Court CITATION : ASIC v Rich [2005] NSWSC 471 HEARING DATE(S) : 16 May 2005 JUDGMENT DATE : 18 May 2005 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : All documents admitted into evidence without limitation CATCHWORDS : EVIDENCE - admissibility of documents - admissibility under s 1305 of Corporations Act - admissibility as business records under s 69 of Evidence Act - discretionary considerations under ss 135 and 136 of Evidence Act - application of ASIC v Rich [2005] NSWSC 417 to additional categories of documents Corporations Act 2001 (Cth) s 1305 LEGISLATION CITED : Evidence Act 1995 (NSW) ss 55, 69, 135, 136 ASIC v Rich [2005] NSWSC 417 ASIC v Vines (2003) 48 ACSR 282 CASES CITED : Kriewaldt v Independent Direction Ltd (1986) 14 ACLC 73 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Manning v Cory & Summer [1974] WAR 60 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 WEDNESDAY 18 MAY 2005 5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: My reasons for judgment in ASIC v Rich [2005] NSWSC 417 ("my 5 May judgment") gave my decisions on some questions of principle which, it was hoped, would have application to the admissibility of the vast bulk of ASIC's documentary tender. Since then, the parties have corresponded about the remaining issues of documentary admissibility (the main correspondence has been marked "DS 63"). There is a major issue to be resolved concerning the admissibility of correspondence between One.Tel and creditors, which is currently part-heard and will be addressed in a separate judgment. The present judgment deals with some other matters that remain in contention. They relate to: · the admissibility of four pages of tables referred to in argument as "the Miller & Green Report", and (if they are admissible) whether they should be excluded under s 135 or their use, and the use of board minutes to the extent that they give an account of the report, limited under s 136 of the Evidence Act 1995 (NSW); · the admissibility of a document referred to in argument as "the Ernst & Young Report", and the possible use of ss 135 or 136 in respect of the report and board minutes giving an account of it; · the admissibility of e-mail correspondence between Mr Weston and Mr Howell-Davies regarding the financial position of the One.Tel Group, and whether (if the correspondence is admissible) it should be excluded under s 135 of the Evidence Act. The Miller & Green Report 2 These four pages may be found in several places: Carter Exhibits vol J pages 16 0051-16 0054; MTB vol 1 page 00344-00347; Carter Exhibits vol K pages 23 0010-23 0013 (the only fully legible copy). 3 The first of the four pages is headed "Current Normalised Cash Flows". Figures in $millions are presented in four vertical columns, for "April Actual", "May Act/Fcst", "Normalised Month Low" and "Normalised Month High". The horizontal lines of figures relate to Australian inflows and outflows excluding Next Generation, and inflows and outflows for the Next Generation Network (broken down into subcategories, in each case), and then opening and closing cash balances (opening $14.6 and closing $6.6 for April, and opening $6.5 and closing $(11.1) for May). Then there are two lines with May figures, as follows: "adjusted closing (draft 2 May including some creditor catch-up) (21.5) adjusted end June cash position (full creditor catch-up) (88.4)". 4 The second page is headed "Major Items Beyond Normal Credit Terms - as at 21 May 2001". There are vertical columns headed "Gross $'m" and "In Dispute $'m", and horizontal lines identifying various creditors for the Australian Operations, Europe, Next Generation and Hong Kong, showing a "gross" total of 106 and an "in dispute" total of 23.5. 5 The third page is headed "June Cashflow Forecast", and is presented in $millions. It shows cash movements of (65.5), payments to bring major items back to normal credit terms of (49.0), net cash flow of (16.5) and various adjustments producing an underlying net cash flow of (18.3). 6 The fourth page is headed "Monthly Cash Flow Analysis Based on Management Accounts". Figures in $millions are presented for "YTD Average", "Latest" and "Est Running Rate", for various business segments and other matters, and a "Net Monthly Cash Flow" of (25.3) is shown. The Ernst & Young Report 7 The Report was dated 28 May 2001, and was entitled "Financial Position Review Report". Under the heading "Scope of Review", it referred to the Miller & Green Report (a copy of which is attached to the Ernst & Young Report) and noted that the board asked Ernst & Young to carry out an urgent review of that report for the purpose of identifying fatal flaws in it, and to report back within 24 hours as to the implications that the content of the document had for One.Tel's cash requirements. It was noted that Ernst & Young had agreed with the board that, given the limited time available for the review, the procedures would be limited to · discussion with Messrs Miller and Green as to the processes followed by them in compiling their report and the logic used and the judgments implicit in the report; · discussion with key One.Tel staff who assisted Messrs Miller and Green in generating the report, specifically the key individuals involved in the following functions: Ø accounts payable Ø accounts receivable Ø in-house legal Ø financial accounting and reporting Ø fixed wire operations in Australia Ø Next Generation operations; · discussion with PricewaterhouseCoopers in respect of the review of the billing system; and · discussion with senior One.Tel executives (Messrs Beck, Silbermann, Hodgson and Savvas) for the purpose of identifying any fatal flaw in either the financial information or the logic of the CPH/PBL document. 8 Ernst & Young said that, necessarily, the work largely comprised discussion with key people, with very limited examination of documents. It concentrated on the cash position of the Australian operations, and was based on the information contained in the Miller & Green Report. It did not amount to a forecast or audit or review opinion. 9 Ernst & Young reviewed: · the current cash position, drawing attention to urgent cash requirements; · major overdue or near overdue creditors, identifying $125 million owed to major creditors either beyond current terms or soon-to-be beyond terms, and noting that that One.Tel had a log of disputed claims against creditors amounting to approximately $46 million but the timing of the resolution of disputes and the amount of cash that would flow upon resolution was uncertain; · requirements of cash to extinguish overdue and near overdue creditors, pointing out that they had assumed that the One.Tel Group required a cash infusion sufficient to extinguish all overdue creditors; · the Toronto Dominion term debt of $50 million, noting that the facility had financial performance covenants and there was a definite risk of those covenants being breached on or about 30 June 2001, and that it would be unwise to assume that Toronto Dominion would waive its rights, so there was a "serious risk" that it would be necessary to pay out the entire facility some time after 30 June; · the immediate cash requirement, which they calculated at $167 million; · the cash requirement for ongoing operations, which they estimated to be in the order of $120-150 million, on the basis of a monthly cash burn rate of approximately $20-25 million; · accounts receivable, which they noted at $177 million with a doubtful debts reserve of $60 million which was "significantly inadequate", and they estimated $65 million per month of cash collections; · litigation and contingencies, identifying $11.7 million of claims against One.Tel and legal and insurance claims made by One.Tel in the United Kingdom and the Netherlands of $13 million, concluding that no potential cashflows (either inward or outward) should be taken into account in assessing One.Tel's immediate or ongoing cash requirements; · initiatives to generate cash, noting that the lead time for initiatives relating to sale of assets or changes in the business model was difficult to predict. 10 Ernst & Young concluded that unless the One.Tel Group were immediately assured of a cash infusion of equity and/or long-term debt or the proceeds of sale of assets, or a combination of these things, the Group would not be able to meet all its current obligations. The amount of cash required would be in the order of $170 million if the Toronto Dominion facility were required to be refinanced and $120 million if Toronto Dominion were to waive their rights under the expected covenant breaches. Additionally, Ernst & Young said that once current cash obligations were covered, there was a serious risk that One.Tel might not be able to meet new obligations unless cash requirements for future operations were immediately assured. The amount of cash required for this purpose might be in the order of $120-150 million over the next six months. Board minutes of 17, 28 and 29 May 2001 11 To explain how the Miller & Green Report and the Ernst & Young Report came to be prepared and were used, senior counsel for ASIC first took the court to the minutes of the One.Tel board meeting held on 17 May 2001 (MTB vol 1 pages 00330-00336). It appears from the minutes that Mr Rich spoke to the item, "Cash Update", reporting that the cash levels of the company were lower than expected and citing several contributing factors. The minutes noted that directors had in front of them "schedules prepared by PBL", and recorded that James Packer had said that PBL had put forward what they believed to be the position. There was then a discussion about a proposed $132 million renounceable rights issue, and a bridging loan from PBL, and the board resolved to proceed with the implementation of the rights issue. After further discussion regarding the company's cash position, it was agreed, according to the minutes, that "the directors would ask their advisors [sic] to prepare a report for the board regarding the cash position of the Company". Subsequently Mr Rich and Mr Keeling tendered their resignations, which were accepted, and the board confirmed that Mr Silbermann would continue on as chief operating officer. 12 The court was then taken to the minutes for the board meeting of 28 May 2001 (MTB vol 1 pages 00337-00347). On this occasion Mr Green and Mr Miller were in attendance, together with many advisers. Under the heading "Cash and Financial Position Update", the minutes recorded that "the directors received a report from Martin Green and Darren Miller from CPH/PBL of the results of the initial financial due diligence conducted in relation to the proposed rights issue". A copy of the written report was attached as Annexure A to the minutes. 13 The defendants submitted that there was no evidence that the report annexed to these minutes was the one referred to as a report regarding the cash position of the company in the directors' resolution at the meeting on 17 May. I disagree, and regard it as appropriate to infer from the minutes themselves, and the evidence in the Ernst & Young Report that Mr Miller and Mr Green were CPH/PBL executives, that the Miller & Green Report annexed to the minutes of 28 May and discussed at that meeting was a report contemplated by the resolution on 17 May. It follows that, although Mr Miller and Mr Green were not executives of One.Tel, their report was not merely a report prepared by CPH/PBL for their own purposes in connection with the proposed underwriting of the rights issue, but was a report used by the directors of One.Tel in their consideration of the company's cash position. 14 The minutes recorded that there was an oral presentation which "included details of the procedure undertaken in performing the review, the One.Tel personnel consulted as part of the review and the assumptions made in arriving at the results of the review". A director, Peter Yates, summarised the major points of the report and asked for comments, and sought the views of Mr Silbermann, inter alios. Mr Silbermann is recorded as having made several points. Eventually Mr Green and Mr Miller commented that in their view the cash requirements of the company were significantly in excess of $132 million and that it would be a couple more days before a more definitive view would be given. Mr Sherman of Ferrier Hodgson was in attendance and advised the directors that it was crucial that the cash position of the company be determined as a matter of priority over the next two days. Brian Long of Ernst & Young outlined a proposal for that firm to conduct a review of financial matters, at a high level. 15 The board resolved that Ernst & Young were to carry out the review as explained by Mr Long. They also resolved to instruct the company's management to report on initiatives that could be undertaken in the short term to improve the company's cash position. It was decided that the board would meet on the next day to consider the Ernst & Young Report and the report from management. 16 The minutes of the board meeting of 28 May 2001 record that: "Brian Long was asked to comment on the review it [sic] was to undertake of the Company's financial position: · E & Y would start by reviewing the work done to date by CPH/PBL. · E & Y's advice, in the time available, will be at a high level and would deal with the following matters: Ø amount of cash available in the Company; Ø the level of creditors which are out of terms; Ø the level of creditors that can be tolerated as being out of terms; Ø the normalised monthly cash burn rate; Ø a reconciliation of cash movements from December 2000 to the present; and Ø how long cash would last if the rights issue of $132 million were conducted." 17 According to the minutes of the One.Tel board meeting held on the evening of 29 May 2001 (MTB vol 1 pages 00348-00357), Mr Long tabled the report by Ernst & Young, as annexed to the minutes as Annexure B. However, ASIC has not located a copy of the minutes with the Ernst & Young Report physically annexed. 18 The minutes said that Mr Long outlined Ernst & Young's methodology in preparing the report, including discussions with PBL, CPH and One.Tel staff, and summarised the major findings. They included overdue creditors of $125 million and cash requirements for ongoing operations (excluding the cost of any future initiatives) of $120 million to $150 million for the next six months. The conclusion was said to be that the company's immediate cash requirements were in the order of $290 million to $320 million if the Toronto Dominion debt were required to be refinanced, and $240 million to $270 million if Toronto Dominion were to waive their rights under expected breaches of covenant. 19 There was then a discussion during which Mr Silbermann referred to the $50 million Toronto Dominion facility and questioned what work had been done by Ernst & Young to assess the risk of breach of covenant. The minutes noted other comments by Mr Silbermann, including the comment that he did not expect $37 million EBITDA to be met in the fourth quarter of 2001. Mr Long was asked whether the $132 million that had been proposed to be raised in the rights issue would be sufficient to allow the company to meet its debts as and when they fell due, and he replied that in his opinion it was not sufficient. It was noted that representatives of the company's management had given board representatives and others a report on the company's financial position and it was concluded that the numbers in the management report led to a similar result to the Ernst & Young Report, namely that the company required $220 million to $250 million (excluding asset sales). The minutes noted that "Mr Silbermann confirmed the analysis". The defendants said Mr Silbermann's confirmation related to the analysis presented by management, but ASIC contended that his confirmation related to the "similar result" reached by both management and the Ernst & Young Report, to the effect that the company required $220 million to $250 million (excluding asset sales). The text of the minutes seems to me to be ambiguous. 20 The board thanked Ernst & Young for the preparation of their report on such short notice. After hearing a management report and a discussion on the proposed rights issue, the board unanimously resolved (by all directors not associated with CPH/PBL or News Ltd), taking into consideration the advice received from Ernst & Young and management, that the company not proceed with the rights issue of $132 million on the basis that the company would be or would be likely to become insolvent, even after raising $132 million. After further discussion of available corporate actions, the board unanimously passed resolutions for the appointment of Mr Sherman and Mr Walker as joint administrators. 21 The three sets of minutes indicate the purpose for which the two reports were obtained, and they establish that the reports were submitted to and considered by the One.Tel board. The minutes show that the reports were discussed at length at board meetings and that, in effect, they were acted upon by the board resolving to appoint administrators, implicitly accepting the bleak account of the company's financial position presented in the reports. ASIC will also rely on the evidence of Lachlan Murdoch in his affidavit of 24 May 2002 and James Packer in his affidavit of 18 June 2002 concerning the discussion of the reports at the 29 May meeting. The e-mail correspondence between Mr Weston and Mr Howell-Davies 22 Mr Howell-Davies was at the relevant times a non-executive director of One.Tel Ltd, resident in the United Kingdom. In his affidavit made on 29 May 2002, which ASIC proposes to read, Mr Howell-Davies said that on 14 May 2001 he received by e-mail a note from Chris Weston following their conversation on the evening of Friday 11 May 2001. A copy of the note was exhibited to his affidavit. He said he responded by e-mail on 14 May 2001, and exhibited a copy of that e-mail. 23 The two exhibits to the affidavit comprise a document addressed to "Peter" without the usual e-mail heading, and Mr Howell Davies' e-mail to Mr Weston dated 14 May 2001. At the time Mr Weston was Chief Operating Officer for One.Tel Europe. 24 In his e-mail Mr Weston referred to their conversation on Friday night and purported to state his understanding of the causes of the "cash crisis" by setting out and answering a series of questions. The statements in the e-mail are, for the most part, expressions of opinion, relating to the One.Tel Group as a whole. For example, Mr Weston said his understanding was that revenue had been accrued as per the business plan rather than in any more conservative way, and that this was a very aggressive means for accruing revenue and could mask the problem from the relevant people (i.e. the board). He said that a proper cash flow statement would have indicated the problem but cash flow statements were not generally supplied or even produced and there was more focus on the P & L. He said that UK creditors were not paid and the money was sent back to Australia to fund the Australian business, undermining the credibility of the UK and European business and management and the European directors. 25 Mr Howell-Davies' e-mail of 14 May 2001, headed "Private and Confidential", thanked Mr Weston for "input" and said he had spoken to "Brad" (presumably Mr Keeling) and they would speak again before the board meeting on the coming Thursday to discuss the issues, and that "Pirjo" (another One.Tel director, Pirjo Kekalainen-Torvinen) supported Mr Howell-Davies' analysis. Relevance 26 ASIC submitted that the two reports are relevant as "original evidence", and also as evidence of the truth of their contents. There are several subcategories of relevance as original evidence: · first, the reports show the basis upon which the directors acted in May, a matter important in enabling the court to draw inferences as to how the directors would have acted in earlier months if they had been given the information that was available to them in May; · secondly, the conduct of the directors in responding to the reports by appointing administrators is some evidence of the financial position of the company, particularly given that executive directors such as Mr Silbermann voted in favour of the appointment of administrators; · thirdly, the reports are relevant to the assessment of the seriousness of the breaches alleged by ASIC against the defendants, because (when put in the context of the minutes) they show the importance of facts which, according to ASIC's case, the non-executive directors did not become aware of until May 2001, that they should have been informed of some months earlier; · fourthly, the reports indicate the information that was available to the defendants within the company, and ASIC will contend that if Ernst & Young and Messrs Miller and Green could ascertain the matters set out in their reports, the inference is available that the defendants could also have done so. 27 In addition to their "original" and "hearsay" relevance, the reports and the associated minutes are relevant, according to ASIC, because they record conduct of Mr Silbermann that amounted to an implied admission by him that the financial position of the company was substantially as recorded in the reports. ASIC will submit that if the reports and minutes are admissible as admissions against Mr Silbermann, they are admissible in the proceeding: ASIC v Vines (2003) 48 ACSR 282. 28 In my opinion ASIC has made out, by these submissions, that the reports have the degree of relevance necessary to satisfy s 55 of the Evidence Act. It is not necessary, for the purpose of determining relevance or otherwise, for me to decide whether the minutes, when read with the reports, establish any implied admission by Mr Silbermann. 29 As to the e-mails between Mr Howell-Davies and Mr Weston, it appears that ASIC wishes to tender the documents as evidence of the truth of the representations contained in them. ASIC's submissions were not specifically directed to relevance, but relevance as such was not put in issue by the defendants. It is not difficult to establish the relevance, for the purposes of s 55, of a statement by a senior executive of the One.Tel Group to a non-executive director of the parent company, expressing opinions as to aspects of the Group's cash flow difficulties as at 14 May 2001, just two weeks before the appointment of the voluntary administrators. Provenance 30 The provenance of the two reports was addressed in an affidavit by Craig Allsopp made on 13 May 2005. He located the documents by their ASIC barcodes in ASIC's computerised litigation support system. By interrogating that system, he was able to ascertain the identified sources of the documents. It is unnecessary to go through the steps taken for that purpose. The conclusion of the investigation was that: · a copy of the signed minutes of the meeting of 28 May annexing the Miller & Green Report was produced by Mr Silbermann in answer to a notice under s 33 of the ASIC Law; · Mr Silbermann also produced, under s 33 notice, a copy of the Ernst & Young Report annexing the Miller & Green Report; · another copy of the signed minutes of the 28 May meeting annexing a copy of the Miller & Green Report was produced by Mr Walker of Ferrier Hodgson in response to a notice under s 1317R of the Corporations Act; · a copy of the signed minutes of the 29 May meeting was produced by Ferrier Hodgson voluntarily; · another copy of the Ernst & Young Report, without the Miller & Green Report attached, was produced by Ferrier Hodgson under a s 1317R notice, and copies of each of the four pages of the Miller & Green Report were also produced by Ferrier Hodgson under that notice. 31 The provenance of the correspondence between Mr Howell-Davies and Mr Weston is addressed to Mr Howell-Davies' affidavit made on 29 May 2002, summarised above. Admissibility (apart from relevance) 32 The principles of admissibility relevant to these three categories of documents were addressed in my 5 May judgment and I shall not repeat them. It is indisputable that the documents contain hearsay representations and ASIC has informed the court that it tenders them, inter alia, for the "hearsay" purpose of proving the truth of those representations. The key issues are whether the documents are admissible under s 1305 of the Corporations Act and/or s 69 of the Evidence Act. Since I have decided, for the reasons given below, that the documents are admissible notwithstanding their hearsay representations, under one or both of the statutory provisions, it is unnecessary for me to consider whether they should be admitted directly as "original" evidence and if so, whether that limited basis of their admission would need to be reflected in a s 136 order. 33 ASIC submitted that the two reports constitute books kept by One.Tel under a requirement of the Corporations Act, and are therefore admissible under s 1305 of the Corporations Act. I agree with the submission. 34 The two reports are "books" as defined, and they were "kept" by One.Tel. The Miller & Green Report was attached to board minutes of One.Tel, and was consequently part of One.Tel's corporate records. It cannot be shown that the Ernst & Young Report was attached to board minutes. However, the board minutes of the meeting of 29 May indicated an intention to attach the Report, it is clear from the minutes that the Report was presented to the board and was the subject of extensive discussion at the board meeting, and a copy of the Report was produced by Mr Silbermann, who (I infer) retained it in his capacity as a director of the company. In the circumstances, I infer that after the board meeting the Report was retained by the company and therefore "kept" in the broader sense, and also "kept" in the narrower sense because it was part of One.Tel's records of matters considered at board meetings. 35 The reports are written financial records recording and explaining One.Tel's financial position and were required to be kept under s 286, which requires that a company's financial records should be sufficient to enable one to say at any point of time where, in a financial sense, the company is: Manning v Cory & Summer [1974] WAR 60, at 62 per Burt J, considered in my 5 May judgment at [286]ff. The minutes indicate that the directors chose to obtain and use the reports to elucidate the financial position of the company. As I said in my 5 May judgment (at [299]), s 286 leaves it open to a company to select the most efficacious system of recording and explaining its particular circumstances. 36 ASIC also sought to rely on s 1305(2) to support the admissibility of the reports. I agree, as regards the Ernst & Young Report and the copy of the Miller & Green Report that is attached to it. The Ernst & Young Report is a document which, on its face, purports to be a book kept by a body corporate. The Report sets out the circumstances of its commissioning by the board of directors to assist them to ascertain whether there were fatal flaws in the Miller & Green Report. 37 The Miller & Green Report is more difficult to characterise as "a document purporting to be a book kept by a body corporate". There is nothing on the face of each page to connect it to the other pages and so it is necessary, I think, to consider each page separately. The "Current Normalised Cash Flows" page contains an indication of the identity of the company in the reference to Next Generation, a part of the One.Tel business, but that is probably not enough, considered in isolation, to satisfy s 1305(2). As to the page headed "June Cashflow Forecast", there is nothing on the page to indicate the identity of the company. The page "Major Items Beyond Normal Credit Terms" gives sufficient information to identify the company, because the note at the bottom of the page specifically identifies One.Tel, and additionally the page refers to "Oneshop" and "Next Generation". The page headed "Monthly Cash Flow Analysis Based on Management Accounts" is borderline, referring to "One-Net" and "Next Generation". However, in my view, doubts are removed in respect of all four pages by virtue of the fact that the Ernst & Young Report annexes and, in effect, incorporates a copy of the Miller & Green Report and reviews that document, thereby making it plain that the Miller & Green Report, considered as part of the Ernst & Young Report, is a document purporting to be a book kept by One.Tel. 38 Consequently, in my opinion, s 1305(2) applies to both reports, although in both cases the presumption created by the subsection is not needed, because s 1305(1) is directly satisfied. 39 Section 1305 does not apply to the correspondence between Mr Howell-Davies and Mr Weston. I infer, because Mr Howell-Davies said in his affidavit that he received the note from Mr Weston by e-mail, and the documents were exhibited to his affidavit, and they are relevant to the One.Tel business of which he was a non-executive director, that they were documents kept by him in his capacity as director. But that does not mean they were kept by him on behalf of the company as its agent. Documents kept by a company director for the purpose of performing his or her functions and discharging his or her duties as director are not, by virtue of those facts alone, documents belonging to the company: cf Kriewaldt v Independent Direction Ltd (1986) 14 ACLC 73. On the other hand, it is not correct to infer that they were kept by Mr Howell-Davies for his own personal, private purposes, given that their subject is a matter upon which a prudent director could be expected to make inquiries. There is no evidence that the communications or copies of them were kept by any body corporate. Further, there is no requirement of the Corporations Act that would oblige a body corporate to keep "private and confidential" correspondence between a director, acting as such, and an executive officer. 40 ASIC sought to rely on s 69 of the Evidence Act, both in respect of the two reports and the correspondence between Mr Howell-Davies and Mr Weston. In my opinion the two reports form part of One.Tel's records kept by it in the course of its business, and therefore satisfy s 69(1)(a). They both contain previous representations and the evidence enables me to conclude that those representations were made for the purposes of One.Tel's business. The evidence upon which I rely comprises the minutes of the three board meetings to which I have referred, and the text of the Ernst & Young Report itself, dealing with the circumstances in which Ernst & Young were retained and their instructions. Therefore s 69(1)(b) is also satisfied. 41 As to s 69(2), the evidence contained in the minutes of the three board meetings and the text of the Ernst & Young Report indicates that the representations of fact contained in the Ernst & Young Report fell within s 69(2)(b), as they were made on the basis of interviews with One.Tel staff in various specified work areas, and therefore made on the basis of information supplied by persons who might reasonably be supposed to have had personal knowledge of the asserted facts. The evidence is less straightforward in the case of the Miller & Green Report, but the minutes of 28 May indicate that the Report followed "initial financial due diligence" and there was an oral presentation which identified the One.Tel personnel who were consulted. I think that evidence, considered in context (the context of being that Mr Miller and Mr Green were executives of CPH/PBL and therefore they represented a substantial shareholder which was considering underwriting a rights issue and had been monitoring One.Tel's financial position), is sufficient to support the inference that the representations of fact in the Miller & Green Report were made on the basis of information supplied by persons who might reasonably be supposed to have had personal knowledge of the asserted facts. To the extent that the reports contained representations of opinion falling within s 69, in the manner discussed under heading 16 of my 5 May judgment, they fell within s 69(2)(a) because they were representations made by the authors of the reports who were persons who had or might reasonably be supposed to have had personal knowledge of their own opinions. 42 As regards the correspondence between Mr Howell-Davies and Mr Weston, I infer (as previously explained) that these documents were or formed part of records belonging to or kept by Mr Howell-Davies, in his capacity as a director of One.Tel. Because he kept them in that capacity and their subject matter was the company's cash position, they were records kept by him in the course of or for the purposes of One.Tel's business, rather than for his personal, private use. I do not regard the heading "Private and Confidential" in the e-mail as meaning that the communications were private as opposed to communications relating to the business of One.Tel. Rather they were "private and confidential" in the sense that they were not to be disseminated. 43 The communications were "records" kept by Mr Howell-Davies in the sense explained at [180]ff of my 5 May judgment. The note contained previous representations about One.Tel's business by an executive officer of One.Tel Europe, and therefore I infer that they were representations made in the course of One.Tel's business. 44 It follows that s 69(1) is satisfied even though the person who kept the documents (Mr Howell-Davies) was not the person who conducted the business, which was conducted by One.Tel. The evidence of Mr Howell-Davies is that he received the note from Mr Weston following a conversation they had on the previous Friday. I infer, on the basis of that evidence, that Mr Weston was the author of the note. Having regard to his experience and his senior position in One.Tel Europe and therefore in the One.Tel Group, and indications in his note and his affidavit of his contact with senior Australian executives, he might reasonably be supposed to have had personal knowledge of the facts and opinions asserted in the note (compare paras [191] and [305] of my 5 May judgment), and therefore s 69(2)(a) is satisfied. 45 My conclusion is that the two reports and the correspondence between Mr Howell-Davies and Mr Weston are all admissible under s 69. In the case of the reports, that conclusion reinforces my finding under s 1305. Discretion 46 The legal principles governing the court's exercise of the discretions under ss 135 and 136 of the Evidence Act, on the ground of unfair prejudice, were considered in my 5 May judgment and I shall not repeat that discussion. 47 It is relevant to the exercise of the discretions that the authors of the Ernst & Young Report and Mr Howell-Davies will be made available for cross-examination. It is also relevant that ASIC does not propose to call Mr Miller or Mr Green. 48 As far as s 135 is concerned, part of the balancing exercise that the section entails has regard to the probative value of the evidence in question. Although s 136 does not expressly say so, that consideration is also impliedly relevant given that the discretion under s 136 involves a decision limiting the use of the evidence in question. 49 The two reports may prove to be evidence of high significance because of the circumstances of their preparation and the way in which they were used and discussed at crucial board meetings. The weight of the Ernst & Young Report is enhanced by the fact that Ernst & Young had become the auditors of One.Tel for the current financial year (MTB vol 2 page 768B) and had reviewed the half-year results to 31 December 2000. The Ernst & Young Report was based on discussions with senior One.Tel executives including Mr Silbermann and Mr Beck and opinions formed on that basis could not be replicated by oral evidence based on memory, after the passage of substantial time. 50 The probative value of the reports is limited, however, to the extent that the Ernst & Young Report has elements of second-hand and more remote hearsay without any specific identification of source, other than interviews with named One.Tel executives. It is a review of the Miller & Green Report and is based on the information contained in the latter, and the Miller & Green Report appears to contain, in large measure, expressions of opinion without any identification of sources of information or assumptions or any reasoning process, and is ambiguous in some ways. Moreover, the Ernst & Young Report was prepared within a 24 hour period and was based on interviews of One.Tel staff with very little consideration of documents. 51 The defendants submitted that, having regard to these deficiencies, they will suffer unfair prejudice, if the reports are allowed into evidence, because they will be forced to elect whether to cross-examine the authors of the Ernst & Young Report "in the dark" so as to expose the deficiencies of the reports, at risk that their questions will adduce otherwise inadmissible evidence detrimental to them, and they will not be given any opportunity to cross-examine Mr Miller or Mr Green. 52 In my opinion, however, the prejudice that the defendants will suffer by virtue of my allowing the two reports into evidence will not be "unfair", and therefore the "unfair prejudice" ground is not available as a basis for excluding the evidence under s 135 or limiting its use under s 136. The criticisms that the defendants have directed against the two reports are quite significant matters going to the probative value that the court will ultimately assign to this evidence, when it is considered in the light of all other evidence at the conclusion of the final hearing. Some of the deficiencies may be made good by other evidence. For example, there may well be other evidence supporting Ernst & Young's view as to One.Tel's immediate cash needs or its likely cash flow position over the ensuing six months. If there is no other supporting evidence, the defendants' submissions as to lack of probative value may emerge as compelling considerations. To the extent that the fact that these are civil penalty proceedings may affect the civil standard of proof, that fact may be taken into account at the time of assessment of the evidence as a whole. But there is no justification here for excluding the reports from evidence at the final hearing, or limiting their use in a manner that would prevent them from bearing on the key issues concerning One.Tel's present and prospective cash flow position in May 2001. 53 Obviously the defendants will have to consider carefully how they approach the cross-examination of the Ernst & Young witnesses, exposed as they will be to all of the perils confronting the cross-examiner. But in my opinion the position in which they are placed is not the same as the position of a party to litigation facing the task of cross-examining an expert witness whose report has been prepared for the purposes of the litigation, where there is a greater likelihood that the prejudice described by Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [80]-[86] may arise. Here the reports are admissible as corporate and business records, rather than as expert evidence specifically prepared for the litigation, and have only such weight as they bear on their face and in the circumstances of such evidence as there may be of their creation and use. They come to be admissible because of the breadth of the statutory provisions dealing with corporate and business records, reflecting particular legislative policies which prefer such records to oral testimony, notwithstanding their hearsay and opinion contents (see my 5 May judgment at, for example, [116] and [262]ff), and a judge sitting without a jury is able to bear that in mind when addressing their probative value. The unavailability of Mr Miller and Mr Green may not be of disadvantage to the defendants, after all the evidence has been heard, given the limited nature of the four pages attributed to them and the lack of attention to sources and assumptions. But it is appropriate for the court to take into account, in exercising its discretions under ss 135 and 136, the possibility that other evidence, including evidence given by the authors of the Ernst & Young Report, might add to the probative value of these four pages. 54 As to the communications between Mr Howell-Davies and Mr Weston, both of them will be available for cross-examination, but the defendants complained that as Mr Weston has said nothing about the contents of his note to Mr Howell-Davies, they will have to cross-examine him "in the dark". They also drew attention to the fact that his note is full of opinions based on surmise, conjecture, second-hand hearsay and the like. 55 In my opinion the reasoning that has led me to conclude that there is no proper basis for using the discretions in ss 135 and 136 in respect of either of the two reports leads to the same conclusion here. The defendants' criticisms of Mr Weston's note go to weight rather than unfair prejudice. It is premature to decide at this stage that Mr Weston's note is of negligible or low probative value because of the opinions and conjecture in it. When coupled with other evidence, these opinions by one of the senior executives in the United Kingdom, speaking at the critically important time of mid-May 2001, could be of substantial significance, but the other evidence has not yet been heard. It is not unfair, in my opinion, to allow these communications into evidence and leave the defendants in the position of having to decide whether to cross-examine Mr Weston or Mr Howell-Davies about them. Conclusion 56 My decision is that all three categories of documents considered in this judgment are admissible, and I shall not exercise my discretions under ss 135 and 136 of the Evidence Act in respect of any of them. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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