Supreme Court New South Wales Medium Neutral Citation: Osborne Metal Industries v Bullock (No.1) [2011] NSWSC 636 Hearing dates: 20/06/2011, 21/06/2011, 22/06/2011, 23/06/2011 and 24/06/2011 Decision date: 22 June 2011 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Tender rejected Catchwords: EVIDENCE - Admissibility - exceptions to the hearsay rule - exceptions to the credibility rule - proof of prior consistent statement - allegations of fabrication - ability to cross-examine the maker of the statement. Legislation Cited: Evidence Act 1995 (NSW) Cases Cited: Graham v The Queen (1998) 195 CLR 606 National Transport and General Insurance Company Limited v Edmondson (1961) 106 CLR 23 The Nominal Defendant v Clements (1960) 104 CLR 476 Category: Procedural and other rulings Parties: Osborne Metal Industries (NSW) Pty Ltd ACN 003 284 928 (First Plaintiff) Brooker Holdings Pty Limited ACN 003 912 258 (Second Plaintiff) Bullock MFG Pty Ltd ACN 001 199 677 (First Defendant) Roy James Jackson (Second Defendant) Rodney John Jackson (Third Defendant) Representation: D B Studdy SC / J H Stephenson (Plaintiffs) F C Corsaro SC / J J Young (Defendants) Watson Mangioni (Plaintiffs) Bundock / Palmer Lawyers (Defendants) File Number(s): 2009/298671 Judgment - (ex tempore) on objection to tender of document 1HIS HONOUR: One of the claims that the plaintiffs make against the defendants in these proceedings relates to what has been called the "net receivables" of the first plaintiff (Osborne) as at 30 June 2004. The amount in question has been agreed to be $574,592.00. 2The first defendant (Bullock) sold its shares in Osborne to the second plaintiff (Brooker). The sale was negotiated on 5 July and consummated by transfer on 14 July, 2004. Prior to the sale, Bullock had in effect collected Osborne's receivables as they were paid and banked them into its own account, and had paid amounts owing by Osborne. No doubt that was done as a matter of convenience because Osborne was at the time a wholly owned subsidiary of Bullock. 3The plaintiffs' case on this issue is that, one way or another, they are entitled to the net receivables collected by Bullock after 30 June 2004. They put this aspect of their case in differing ways. One way is based on an asserted agreement between the plaintiffs and Bullock to the effect that Bullock would collect the receivables, pay the relevant liabilities and account for the balance. Alternatively, the plaintiffs say, the net receivables were, as a matter of law, assets of Osborne in any event. 4The defendants seek to counter this by asserting that there was an agreement that the net receivables were to be excluded from the sale and that Bullock would retain them for its own benefit. 5One of the principal witnesses of fact for the plaintiffs is Mr Robert Borsak, who is amongst other things a director of each plaintiff and an accountant. In paragraph 43 of his affidavit sworn 13 August 2010, Mr Borsak gave evidence of a conversation in relation to the net receivables, which he said he had with Mr Roy Jackson (a director of Bullock, and clearly, I think, its controlling mind at all relevant times). 6Paragraph 43 reads as follows: Sometime in October or November 2004, I telephoned Roy Jackson and we had a conversation to the following effect: Borsak: "When can we expect the transfer of the net cash proceeds from the run off of the Osborne net debtors and staff provisions?" Jackson: "You are not getting it." Borsak: "You can't do that, on what basis are you keeping it?" Jackson: "I'll think of something." 7On 7 March 2007 the plaintiff's solicitors, Watson Mangioni Lawyers, wrote two letters to Mr Roy Jackson. One of those letters put a number of complaints that the plaintiffs had in relation to the sale of shares. It did not refer to the conversation that Mr Borsak said he had with Mr Roy Jackson in October or November 2004. In the course of a vigorous cross-examination in which Mr Borsak's credibility was clearly put in issue, Mr Corsaro SC, who appears with Mr Justin Young for the defendants, turned to the alleged conversation and the failure to refer to it in the letter of 7 March 2007. Mr Borsak agreed at T 76.14 that the letter in question was written on the instructions of himself and a fellow director of the plaintiffs (and the other principal witness of fact for them), Mr David Christie. 8The following passage then ensued (T 76.15-77.27): Q. At that stage had you made it known to Watson Mangioni that you had made an earlier demand of Mr Jackson and he refused payment; it is likely, isn't it, if that had happened? A. I must have, yes. Q. You would not have gone to your solicitors without mentioning that in October or November, the year after it was sold, you went and saw Mr Jackson and you asked him for the money and he said I'm not going to pay it and I'm going to think about something-- A. I didn't go to see him, I spoke to him on the phone. Q. You would not have gone to see your solicitor, would you? A. No, I wouldn't go to the solicitor under the circumstances. Q. I'm sorry? HIS HONOUR: Mr Corsaro, because you and Mr Borsak were talking at once, you each missed the point of what the other was saying. Stop and start again, if you wouldn't mind. CORSARO Q. You are not suggesting to his Honour, are you, that you went to Watson Mangioni without mentioning to them that you had made an earlier demand of Mr Jackson for the payment of these monies and he had refused to pay them? A. I went to see Watson Mangioni, and when David and I were instructing them this was one of the items that was outstanding in relation to the matters that were in the letter. Q. If the conversation that you give in paragraph 43 of your first affidavit had taken place, and I put to you it did not, you would have mentioned it to Watson Mangioni, wouldn't you? A. Yes. Q. Would you go to Watson Mangioni's letter of 7 March 2007 that you say was written on your instruction, Mr Christie's instruction; do you have it? A. Yes. Q. Agree with me that there is simply no mention in that letter of any suggestion that you had made an earlier demand on Mr Jackson for the payment of the net receivables? A. It is not written in there, no. Q. The reason that it is not written in there is because you did not tell Watson Mangioni that that happened either, do you agree? A. No. Q. You say that Watson Mangioni simply made no mention of it? A. No. I Watson Mangioni drafted the letter in the way they thought fit. Q. And was it not a significant matter in your mind that in Objection/November 2004 Mr Jackson had said to you that he was not paying the cash proceeds and was going to think of some reason to deny your entitlement; didn't you think that an important matter? A. Of course it is an important matter. Q. Would it not have occurred to you that it should have gone into the letter? A. No. Q. I will put it fairly. May I suggest to you the reason it is not in the Watson Mangioni letter is because you never told them either of the account of the conversation that you set out in your first paragraph? A. That is your construction of it. 9Mr Borsak was challenged on many other matters, and as I say, his credibility was clearly in issue. His cross-examination effectively concluded at the end of the day's proceedings on 20 June 2011. When proceedings resumed the next morning, Mr Studdy SC, who appears with Mr Jamie Stephenson of counsel for the plaintiffs, did not re-examine Mr Borsak. Mr Borsak was excused. 10Thereafter, the other evidence in the plaintiffs' case was adduced, and the defendants are now in their case. Mr Studdy had taken the course (with which Mr Corsaro agreed, and which was eminently sensible) of reserving some documentary tenders until a convenient point of been reached. That point was reached shortly before the luncheon adjournment today, and Mr Studdy tendered a number of documents. After the luncheon adjournment, Mr Studdy tendered a document which, on its face, is a printout of an email from Mr Borsak to Mr Simon Barnett of Watson Mangioni dated 4 March 2007 enclosing notes about the "non disclosure/fraud/oppression" to which Mr Borsak complained he and the plaintiffs had been subject through the actions of Mr Roy Jackson. 11Two of the bullet points in the attached notes deal, in a way, with the events that I have described. They read as follows (to the extent they are relevant): RJ failed to honestly deal with & complete the purchase agreement between Bullock Mfg PL (BM) & Brooker. In Sept 2004 DC on behalf of Brooker struck a deal with RJ to purchase all the issued capital of a BM subsidiary Osborne Metal Industries PL (OMI), for a cash price of $1.4 million (?). It was to be financed by the issue of ordinary shares in Brooker by converting the equivalent amount of long term 10 year preferences shares, issued to BM, into ordinary capital. This price was deemed excessive by Borsak who was forced to agree with the transaction by DC. Borsak voiced his strong disapproval of the deal at the time to DC & RJ, it was not a good deal for Brooker. Further, Borsak sought to put a written purchase agreement in place, this was also put aside by RJ. At this point Borsak sought to abort the transaction, DC instructed that it should proceed on RJ's instructions, he expressed the view that it was a good fit in the business and that 70% of the business was effectively supplied by Brooker, it would be a good addition. I responded that if we have such a large proportion of the business was owned by Brooker, that the price should be lower, not higher. This purchase required OMI to be acquired as to 1 st July 2004, & was based on the agreed balance sheet as the 30 th June 2004. Progressively from the date of acquisition BM delivered up the assets & certain staff liabilities of OMI, to Brooker. When Borsak enquired about the debtors & trade creditors, he was advised by RJ that BM would run off these items & Brooker was not to receive the benefit of these net assets, to the value of approx. $470,000 (?). When Borsak protested about this RJ said that he was varying the deal & keeping the cash. This had the effect of increasing the goodwill on the purchase by the same amount. ... 12Mr Corsaro objected to the tender of the email and the attachment (to the extent that they were tendered). 13Mr Studdy advanced a number of alternative bases to justify the tender. He relied on: (1)the common law position, in relation to what is frequently called "recent invention"; (2)s 60 of the Evidence Act 1995 (NSW); (3)s 64 of the Evidence Act ; and (4)s 108 of the Evidence Act 14The common law position in relation to re-establishing credibility after a suggestion of recent invention was stated succinctly by Dixon CJ in The Nominal Defendant v Clements (1960) 104 CLR 476 at 479. His Honour stated the rule as follows: The rule of evidence under which it was let in is well recognized and of long standing. If the credit of a witness is impugned as to some material fact to which he deposes upon the ground that his account is a late invention or has been lately devised or reconstructed, even though not with conscious dishonesty, that makes admissible a statement to the same effect as the account he gave as a witness if it was made by the witness contemporaneously with the event or at a time sufficiently early to be inconsistent with the suggestion that his account is a late invention or reconstruction. 15That statement of the rule was accepted as authoritative by the plurality (McTiernan, Taylor and Menzies JJ) in National Transport and General Insurance Company Limited v Edmondson (1961) 106 CLR 23 at 28. I shall not set out what their Honours said. 16It is only necessary to look at the way that Dixon CJ framed the rule to realise that (even if the common law has any continuing application, in the face of s108 of the Evidence Act - a matter on which I express no opinion), it is inapplicable. The rule applies where the credit of a witness is impugned by suggesting that something said by the witness is a late invention or has been lately devised or reconstructed. Where that happens, there becomes admissible a statement to the same effect made by the witness contemporaneously with the event, or at a time sufficiently early to be inconsistent with the suggestion of recent invention. 17In the present case, the conversation is said to have occurred in October or November 2004. The letter in which the conversation was not referred to (although it could be said that the conversation was relevant to the subject matter of the letter) was written some two years and six months or so later, on 7 March 2007. The e-mail upon which reliance was placed is dated some three days before the letter was written. 18In my view, even if the cross-examination could be construed as suggesting recent invention or fabrication (and I am not sure that it could) the temporal relationship between the event and the subsequent account of it is so distant as to take the matter outside the common law rule (if otherwise applicable). 19Further, it is at least arguable that the point of the cross-examination was not directed to recent fabrication. It is summed up, I think, in the very last question that I have extracted. What was put is that Watson Mangioni were not told, and that was the reason why the conversation was not referred to in the letter. That this is the thrust of the particular passage of cross-examination is apparent from other questions; it is unnecessary to set them out in detail. To my mind, that is quite different (and I suspect carefully different) from cross-examination on the basis that the account in paragraph 43 of the affidavit was fabricated at, or shortly before, the time when the affidavit was sworn, or at some time proximate thereto. But it is not necessary to express a concluded view on that point. 20I turn to the three sections of the Evidence Act on which reliance is placed, and preface what I am about to say by setting out the hearsay rule to which each of them is an exception. 21The hearsay rule is set out in s 59: The hearsay rule-exclusion of hearsay evidence (1) Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation. (2) Such a fact is in this Part referred to as an asserted fact . (2A) For the purposes of determining under subsection (1) whether it can reasonably be supposed that the person intended to assert a particular fact by the representation, the court may have regard to the circumstances in which the representation was made. (3) Subsection (1) does not apply to evidence of a representation contained in a certificate or other document given or made under regulations made under an Act other than this Act to the extent to which the regulations provide that the certificate or other document has evidentiary effect. 22Section 60 excepts from the operation of the hearsay rule in section 59 evidence admitted for some purpose other than proof of the asserted fact. It reads as follows: Exception: evidence relevant for a non-hearsay purpose (1) The hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of an asserted fact. (2) This section applies whether or not the person who made the representation had personal knowledge of the asserted fact (within the meaning of section 62 (2)). (3) However, this section does not apply in a criminal proceeding to evidence of an admission. 23That does not of itself make a document, such as that with which these reasons are concerned, admissible. On the contrary, it provides that if the document is otherwise admissible and admitted into evidence, then the hearsay rule does not apply to previous representations set out in the document. That means in turn that the document may be admitted as proof of the facts asserted in it, and it would have that effect unless an order were made limiting the use of the document (I speak of the 'document' because that is what I am concerned with here) under s 136. 24Section 64 reads as follows: Exception: civil proceedings if maker available (1) This section applies in a civil proceeding if a person who made a previous representation is available to give evidence about an asserted fact. (2) The hearsay rule does not apply to: (a) evidence of the representation that is given by a person who saw, heard or otherwise perceived the representation being made; or (b) a document so far as it contains the representation, or another representation to which it is reasonably necessary to refer in order to understand the representation; if it would cause undue expense or undue delay, or would not be reasonably practicable, to call the person who made the representation to give evidence. (3) If the person who made the representation has been or is to be called to give evidence, the hearsay rule does not apply to evidence of the representation that is given by: (a) that person; or (b) a person who saw, heard or otherwise perceived the representation being made. (4) A document containing a representation to which subsection (3) applies must not be tendered before the conclusion of the examination in chief of the person who made the representation, unless the court gives leave. 25There is no doubt that Mr Borsak was called to give evidence. However, he did not give evidence about the document, or about the representations contained in it. On the contrary, the tender is now made a day and a half after Mr Borsak completed his evidence and was excused from further attendance. There is no offer made to recall him. 26It will be observed from s 64 (1) that the area of its operation is that "a person who made a previous representation is available to give evidence about an asserted fact". In those circumstances, if the person is giving evidence (see subs 3 - "has been or is to be called"), the person can give evidence of the representation. In my view, when one reads subs 3, in conjunction with subs 1, it is clear that the exception is predicated upon the ability of the party against whom the document (and again, I will confine myself to documents) is tendered to cross-examine the person about the representation on which reliance is placed. That purpose is not met in circumstances such as the present. 27In any event, even if I were wrong in that construction, the fact that Mr Bosak is unavailable, and cannot be tested on the representations that are now relied upon to re-establish his credit, is a powerful - in my view dispositive - reason for refusing, in the exercise of the general discretion given by s 135, to admit the document. 28I should note that it was not suggested that the document was a business record for the purposes of s 69. That is clearly because the document was prepared in contemplation of litigation (although not, I think, the particular litigation with which I am now dealing). 29I turn to s 108. That section reads as follows: Exception: re-establishing credibility (1) The credibility rule does not apply to evidence adduced in re-examination of a witness. (2) (Repealed) (3) The credibility rule does not apply to evidence of a prior consistent statement of a witness if: (a) evidence of a prior inconsistent statement of the witness has been admitted, or (b) it is or will be suggested (either expressly or by implication) that evidence given by the witness has been fabricated or re-constructed (whether deliberately or otherwise) or is the result of a suggestion, and the court gives leave to adduce the evidence of the prior consistent statement. 30Section 108 is an exception to the credibility rule set out in s 102 of the Evidence Act . That section says, simply, that: "Credibility evidence about a witness is not admissible". It thus establishes a prima facie policy (reflective of the common law) against credibility evidence, reflecting I think the common law's desire to limit collateral issues. Section 102 is followed by a number of exceptions, including most notably s 103, dealing with cross-examination as to credibility. It is no doubt because of the general policy reflected in s 102 (and indeed restated by it) that leave is required to re-establish credibility pursuant to s 108. Although the discretion to grant leave is not controlled in any manner by the terms of the section, it does require attention to the particular attack on credibility that was made. That is apparent from the observations of the plurality (Gaudron, Gummow, and Hayne JJ) in Graham v The Queen (1998) 195 CLR 606 at 609. 31In the present case, as I have said, the thrust of the cross-examination was to suggest that Mr Borsak did not tell Watson Mangioni, at a time when it would have been appropriate to do so, of the conversation said to have occurred with Mr Roy Jackson in October or November 2004. I have no doubt that in due course Mr Corsaro will rely upon that, and other things, to support both an attack on Mr Borsak's credibility and a submission that I should find that the conversation in question did not occur. I thus accept that, in principle, s 108 has the capacity to operate. It may be noted that, unlike the common law (which is why I express some doubt as to whether the common law rule continues to apply), s 108 is not limited in suggestions of recent fabrication. 32However, in my view, the circumstances to which I have referred already lead inevitably to the conclusion that leave should not be given to adduce the evidence that is now sought to be adduced through the tender of the email to which I have referred. As I have said, it was not referred to in any way in Mr Borsak's evidence and he was not re-examined. There is no offer made to call him again. It was clearly written at a time when feelings between the parties were running high, and where (as is apparent from the terms of the email) Mr Borsak held very strong views about what he perceived to be the egregiously wrongful conduct of Mr Roy Jackson in relation to many issues. The document is written in terms that are emotive, and in my view it is difficult to accept it as a dispassionate and coherent narration of the relevant events. 33Further, it is to be noted that the document is prima facie one that would have been covered by the operation of client legal privilege. I do not know whether or not it was discovered, but presumably, if it had been discovered, there would have been a claim for privilege in any event. Regardless of whether or not that is so, if the document were to be admitted, and if some opportunity were to be given to test Mr Borsak on it, it would be necessary to consider, bearing in mind the terms of s 122(2) of the Evidence Act , what other documents and communications should be brought out into the open to enable the testing to be carried out in a thorough way. There has been no offer to open up the relevant communications in any way that would enable this to happen. 34None of those reasons can perhaps be regarded as dispositive. But in my view, as I have indicated, their cumulative effect is such to warrant the refusal of leave. 35Because s 108 is subject to the grant of leave, it does not seem to me to be necessary to go to s 135. That is because the questions with which s 135 might be concerned are in any event questions that require to be considered (as I have tried to consider them) in connection with the question of granting leave. But were there some residual room for the operation of s 135, I would in any event rely upon the discretion given by that section to refuse to admit the evidence, relying in essence upon the matters that I have stated already. 36I reject the tender of the document. It will be marked MFI 5. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 July 2011