ASIC v Rich [2005] NSWSC 1187

New South Wales Supreme Court

CITATION : ASIC v Rich [2005] NSWSC 1187

HEARING DATE(S) : 18 November 2005

JUDGMENT DATE : 23 November 2005

JURISDICTION : Equity

JUDGMENT OF : Austin J

DECISION : Application for leave to adduce new evidence granted

CATCHWORDS : PRACTICE AND PROCEDURE - civil penalty proceeding for compensation and disqualification orders - privilege against exposure to a penalty - application by plaintiff to adduce new evidence during presentation of its case in chief - where occasion for new evidence arose out of cross-examination, and defendants are protected by privilege from disclosure of their evidentiary case - discretionary considerations

ASIC v Rich [2005] NSWSC 706 CASES CITED : Re HIH Insurance Ltd; ASIC v Adler (2002) 41 ACSR 72 Rich v ASIC (2004) 78 ALJR 1354

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 23 NOVEMBER 2005

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: This judgment relates to an application by ASIC for leave to read the affidavit of Guy Jalland made on 10 November 2005. Mr Jalland is the group general counsel and company secretary of Publishing and Broadcasting Ltd, and in the year 2001 he was employed by Consolidated Press Holdings Ltd as a senior executive with legal training. 2 The present application is the most recent of a series of applications by ASIC for leave to adduce additional evidence, made during the course of presentation of its evidentiary case. Sometimes the applications have succeeded and at other times they have been rejected. The general principles by which the applications have been assessed were set out briefly in ASIC v Rich [2005] NSWSC 706. 3 While, in some of the applications, other discretionary considerations have been paramount, a matter that was influential to my decisions to grant ASIC's applications for leave in respect of the evidence of Mr Yates and Mr Long, and now influences me to grant the application with respect to Mr Jalland, is the following. As a result of the High Court's decision in Rich v ASIC (2004) 78 ALJR 1354, ASIC is necessarily conducting its case without direct knowledge of the nature and content of the evidence upon which the defendants will rely to make out the defences that they have filed and served. From time to time evidentiary issues are raised in cross-examination which, in the judgment of ASIC's legal team, should be addressed by further evidence. Senior counsel for ASIC has informed the court (T 3797; T 5704) that he perceives a measure of uncertainty as to the scope of permissible evidence in a case in reply, in a civil penalty proceeding (citing Re HIH Insurance Ltd; ASIC v Adler (2002) 41 ACSR 72, per Santow J). It is unnecessary, and inappropriate on the present application, for me to comment on the scope of the permissible case in reply (if any) for a plaintiff in a civil penalty proceeding in which the defendants have the protection of the penalty privilege. However, there is sufficient uncertainty about that matter to make it reasonable, in my view, for ASIC to seek to address substantial and material evidentiary questions that are raised during the cross-examination of its witnesses. If all other things were equal, I would regard this consideration as a compelling reason to grant leave to ASIC to do so. 4 There are, of course, other discretionary considerations to take into account. Some of these will outweigh the consideration in favour of granting leave, in some circumstances. The application by ASIC to rely on a new expert's report by a forensic accountant is an example where I decided that the balance of considerations was strongly against the application: ASIC v Rich [2005] NSWSC 706. In the case of Mr Jalland's evidence, however, my view is that on balance, the discretionary considerations that are appropriate to be considered favour the granting of the application. 5 The application was foreshadowed on 10 November 2005, when senior counsel for ASIC informed the court (T 7999) that his client proposed to rely on a short affidavit by Mr Jalland, dealing with matters raised in the course of the cross-examination of Mr Yates and Mr Long. Mr Yates gave evidence on 14, 17, 18, 19 and 21 October 2005. Mr Long gave evidence on 25, 26, 27 and 28 October 2005. I mention those dates to show that, although the application for leave to adduce Mr Jalland's evidence was made more than 14 months after the commencement of the hearing of ASIC's case, it was first foreshadowed not long after the giving of the evidence to which it responds. 6 The defendants sought to make something of the fact that, before the commencement of the hearing, ASIC proposed Mr Jalland as a provenance witness, but after the defendants indicated, in May 2004, that they would require him for cross-examination, ASIC decided (in July 2004, about two months before the commencement of the hearing) that it would not rely on his provenance affidavit (some relevant correspondence is in Exhibit DX-1 (18-11-05)). I do not regard this history as having any significance to the present application. The evidence which ASIC now proposes to adduce from Mr Jalland goes to matters of substance rather than provenance, and ASIC's present proposal for him to give evidence is therefore different in character from what was proposed last year. 7 In order to decide whether Mr Jalland's proposed evidence arises out of substantial issues raised in the cross-examination of other witnesses, it is necessary to consider the contents of his affidavit closely, by reference to the evidence of Mr Yates and Mr Long. By his affidavit, Mr Jalland will give evidence of essentially three matters. 8 First, in paras 5-7 of the affidavit, he will annex (as Annexure A) a copy of some handwritten notes which he will identify as his notes, made on 29 May 2001. He will give some evidence about the telephone conversations to which the notes refer, namely a conversation he and Mr James Packer had with Mr Rich, and a conversation he had with Mr Long. 9 The occasion for this evidence has arisen, initially, out of the evidence of Mr Yates. Mr Yates swore an affidavit on 27 September 2005. ASIC sought leave to adduce evidence from Mr Yates in response to the cross-examination of Mr Howell-Davies in the United Kingdom. Mr Yates was to give evidence to explain some calculations made in notes to the alternative strategy document about which Mr Howell-Davies had previously given evidence, and to explain notes about management's presentation to the board meeting on 29 May 2001. On 26 September 2005 I decided, after hearing submissions, to grant that leave (T 5713). 10 After Mr Yates had given his evidence in chief, senior counsel for the defendants cross-examined him about other relevant matters. During cross-examination on 18 October 2005, Mr Yates was shown a copy of some handwritten notes (the notes about which Mr Jalland now proposes to give evidence). Mr Yates was asked to assume that they were notes made by Mr Jalland. He was then cross-examined as to whether Mr Long had said to him anything of the kind recorded in the notes under the heading "Brian Long" (T 6790-2). That cross-examination raised potentially important questions about what management (including Mr Silbermann) had told Mr Long on the previous day, what views Mr Long had formed by the time that he spoke with Mr Jalland, and how Mr Long dealt with Mr Jalland in the course of finalising his report. 11 Mr Long also gave evidence about the handwritten notes. The circumstances in which he came to do so were as follows. On about 27 May 2004 the defendants served on ASIC a notice under Part 4.6 Division I of the Evidence Act requesting, inter alios, that Mr Long, Mr Simmonds and Mr Shear of Ernst & Young be called by ASIC as witnesses in respect of a specific document, namely the Ernst & Young Financial Position Review Report delivered to the One.Tel board on 29 May 2001. Thereafter preparations proceeded on the basis that Mr Long would be a witness for ASIC. 12 On 18 October 2005 ASIC's solicitor notified the defendants' solicitor that when Mr Long was called to give evidence, ASIC would seek to lead from him certain additional evidence, which the letter specified. The letter said there might be other matters arising out of the cross-examination of Mr Yates (AS 109). 13 ASIC's application for leave to adduce the additional evidence specified in the letter was opposed. After hearing submissions, I dealt with the matter on 20 October 2005, granting leave (T 7001-3). My decision at that time did not encompass matters arising out of the evidence of Mr Yates. On 25 October (after foreshadowing his intention to do so on 21 October (T 7101)) senior counsel for ASIC sought leave to file and read Mr Long's affidavit of that date, which covered matters not limited to those specified in the letter of 18 October. I granted leave to adduce that additional evidence, notwithstanding the defendants' opposition (T 7109). 14 One of the additional matters, said by ASIC to be in response to the cross-examination of Mr Yates, related to the handwritten notes. In para 6 of his affidavit of 25 October, Mr Long annexed a copy of the handwritten notes and gave some evidence about them. Part of that paragraph was rejected with leave, and was supplemented by oral evidence in chief (T 7129-30). Mr Long was cross-examined about the notes and his oral evidence in chief (T 7262-4). If his affidavit made on 10 November 2005 is permitted to be read, Mr Jalland will give his version of the conversations to which the notes relate. 15 This account of the background shows that the occasion for Mr Jalland to give evidence about the conversations to which the handwritten notes relate is the evidence of Mr Yates and Mr Long to which I have referred. 16 Secondly, in paras 8-11 and 14 of the affidavit, Mr Jalland will give evidence about whether he gave any "instruction" to Mr Long about the method of delivery of the Financial Position Review Report to One.Tel's board, and about Mr Long's and his own attendance at the board meeting on 29 May. 17 During his cross-examination, Mr Long gave evidence that late on the morning of 29 May he gave Mr Jalland a copy of his report and asked him what to do with it, and Mr Jalland told him to retain it for tabling at the board meeting that afternoon (T 7215; see also T 7230-40; 7503-4). This evidence led to extensive cross-examination designed to demonstrate that Mr Jalland and Mr Long acted in a manner that preferred the interests of PBL/CPH to the interests of One.Tel and its directors. The affidavit evidence that will be given by Mr Jalland is his account of whether he said anything to Mr Long about delivery of the report and whether he received a copy of it before the board meeting. It is clear that the occasion for Mr Jalland to deal with this topic, which appears to have become a matter of importance for the defendants, was the evidence given by Mr Long in his cross-examination, of which there was no advance notice. 18 Thirdly, in paras 12-13 of the affidavit, Mr Jalland will respond to a theme developed in the cross-examination of other witnesses, namely Mr Yates (T 6688-9; T 6726-8) and Mr Long (T 7250-1; T 7263; T 7276), alleging that · Mr Long took instructions from Mr Jalland, · the representatives of PBL (including Mr Jalland) wanted Ernst & Young to report that the Miller/Green schedules were substantially correct, · this was to provide a basis for the non-aligned directors of One.Tel to resolve that the $132 million rights issue would not be enough and should be withdrawn, · that would extract PBL from its alleged underwriting commitment, and · consequently, Mr Yates and Mr Long were in a position of conflict of interest and duty or conflict of duty and duty. 19 Mr Jalland will say that he would have been very happy for Ernst & Young to have concluded that the Miller/Green schedules were erroneous, and that he did not give any instructions to Mr Long or make any suggestions to him as to what Mr Long's report should say. While ASIC must have anticipated, early on, that PBL's attitude to the Miller/Green schedules and the work of Ernst & Young would be a matter for consideration, the specific focus of the allegations has emerged during the recent cross-examination of Mr Yates and Mr Long. Clearly it is a matter of importance to the defences. 20 In the circumstances I am persuaded that the occasion for Mr Jalland's affidavit has been provided by recent evidence in cross-examination on matters of some importance, and so the consideration that influenced me to grant the applications for leave in the case of Mr Yates and Mr Long is also present here. A consequence is that ASIC's application for leave to read the affidavit has not been unduly delayed. 21 There is an additional consideration which favours the granting of leave, as regards paras 8-11 and 14 of the affidavit. Mr Jalland is a lawyer. The cross-examination of Mr Long (T 7214-5; T 7230-40; 7503-4) implies a contention that Mr Jalland instructed Mr Long to act in a manner that prevented non-PBL directors of One.Tel from having access to Mr Long's report until after the commencement of the board meeting, so as to disadvantage those other directors and to prefer the interests of PBL. This amounts to an allegation of impropriety against a professional person. Mr Jalland should be given the opportunity to answer it, unless discretionary considerations to the contrary are very strong. 22 The granting of leave to ASIC to read Mr Jalland's affidavit will have some adverse consequences for the defendants and for the conduct of the trial. 23 First, the defendants have not had access to Mr Jalland's evidence when preparing for the cross-examination of other witnesses including Mr Howell-Davies, Mr Yates and Mr Long, particularly in relation to the handwritten notes of Mr Jalland's discussion with Mr Long on 29 May. They have not had the opportunity to cross-examine those witnesses about Mr Jalland's version of events. It is possible that they would have approached the cross-examination of the earlier witnesses differently if they knew what Mr Jalland would say. 24 This can be an important consideration in some circumstances, but in my opinion it is a matter of little significance on the present application. Once Mr Jalland is in the witness box, senior counsel for the defendants will be able to ask him questions about a wide range of matters that have been traversed in the evidence of other witnesses, but the evidence that Mr Jalland will give in his affidavit is of a very limited compass (indeed, senior counsel for the defendants himself went so far as to submit that it was "not that significant": T 8542). 25 Secondly, senior counsel for the defendants informed the court that his cross-examination of Mr Jalland will take a substantial time. He described Mr Jalland as "a Yates-plus type witness" (T 8541). Mr Yates was cross-examined for a period of nearly five days. He said that Mr Jalland's evidence would add something in the order of a week, if not a little more, to the hearing time, as well as a significant number of extra days of preparation and ultimately submissions (T 8541). I have no difficulty in accepting these estimates. Mr Jalland appears to have been involved in the affairs of One.Tel, in dealings with Mr Kleemann and otherwise, for a substantially longer period than Mr Yates. He appears to have participated in most of the crucial meetings during the period from 27 to 29 May 2001. 26 The fact that Mr Jalland's evidence will consume substantial preparation and hearing time has two main consequences. One is the addition of significant costs to the defendants, as well as consumption of their time, imposed notwithstanding their opposition. The burden of extra costs and time for the defendants is not to be underestimated, and was considered to be a matter of particular significance when ASIC proposed to rely on a substantial new report from a forensic accountant. Here, however, we are dealing with an additional 5-7 days of evidence in a trial that has so far extended for 133 days in Sydney, in addition to London sittings, in circumstances where the occasion for adducing the additional evidence was the defendants' own raising of issues in cross-examination. 27 The other consequence is to extend the presentation of ASIC's evidentiary case further into the year 2006. It has already become clear that it will be necessary to hear Mr Butcher's evidence in the new year. That is expected to occupy only a single sitting day. Now we are faced with the prospect of occupying almost all of the first two weeks of the new term with further ASIC evidence. 28 On several occasions I have been influenced, in the exercise of relevant discretions, by what I considered to be the high desirability of ASIC completing its evidentiary case before the Christmas vacation. I took this view because I anticipate that the defendants will require a significant amount of time (say, a month), after ASIC's case has been completed or substantially completed, to assess their position so as to decide whether to go into evidence and/or make some relevant application. I have taken the view that the defendants and their legal team will be able to use the period from 9 December 2005 to 30 January 2006 as their time for such preparation and reflection, notwithstanding that Mr Butcher's oral evidence will not have been given, because Mr Butcher's evidence is not so substantial or central that it cannot be slotted into their considerations swiftly after the evidence has been given. 29 Accommodating Mr Jalland's evidence will be a more substantial task for the defendants. But it seems to me that they will nevertheless be able to use the bulk of the December/January period for preparation and reflection, subject to subsequent adjustment to incorporate consideration of Mr Jalland's evidence. While they will need some additional time to make those adjustments after Mr Jalland's evidence has been given and ASIC has closed its case, I would not anticipate that the additional time for reflection will be very long (measured, I would think, in days rather than weeks). The situation is far from optimal, but in my view it should be possible for the defendants to proceed to their next step not long after the closing of ASIC's case. 30 The court's management of this case, in matters of timetabling and otherwise, has been rendered difficult by the introduction of additional evidence during the course of the hearing. The consequent uncertainty as to the duration of the case has interfered with listing arrangements in the Equity Division as a whole. But the applications in respect of Mr Yates, Mr Long and Mr Jalland are, as I have explained, consequential upon the defendants' penalty privilege, recognised by High Court. I can see no option for this court but to manage its business subject to the uncertainties flowing from the exercise of the privilege. It would be wrong to deny the present application because of the measure of inconvenience and disruption to the court caused by the expansion of ASIC's evidentiary case, given that there are, otherwise, strong grounds for granting leave.