3.

ISSUES ABOUT EVIDENCE

325

The defendants have raised a number of issues of a preliminary kind, that I have grouped together loosely under the heading "Issues of Evidence". They are addressed by ASIC in its submissions in reply. They relate to the following matters, which I shall consider in turn: • • • • • • • • "critical documents"; "recurring themes"; the onus of proof; the standard of proof; the rule in Blatch v Archer; the Jones v Dunkel inference; the rule in Browne v Dunn; the alleged special duty of fairness of ASIC.

3.1 "Critical documents"

326

During the course of opening ASIC's case on 8 September 2004, senior counsel for ASIC handed up a summary document headed "References to Some Significant One.Tel Records", which became AS 5. In that document ASIC referred to the following documents, with evidentiary references and references to its chronology: Creditors Australian Aged Creditors Report (28-2-01); UK Aged Creditors Report (28-2-2001); Deferred Payments Listings (9-1-01; 31-3-01; 30-4-01); Debtors Bill Runs Spreadsheet (actuals to 30-5-01) Bill Run breakdown (sample) Aust Collections Profile Summary (30-3-01) Bell curve

- 145 -

Earnings Daily Cashflow Spreadsheet (actuals to 30-5-01) March Cashflow Forecast April Cashflow Forecast MS, SH instructions Billing Ashley memorandum (29-3-01) Butcher paper presentation re billing Spreadsheet re Gross Margin General Budgets Trial Balances Management Accounts Flash Reports Board Papers

327

The defendants said that AS 5 was ASIC's record of the principal documents and categories of documents upon which it relied for proof of its case as to the financial position of One.Tel (DPS [151]). In my view that is not an accurate description of AS 5. The document itself refers to "some" significant One.Tel records. When handing it up, senior counsel for ASIC described it as a short document that listed "some of the significant One.Tel records", and "an overview" (T 171).

328

In fact ASIC came to rely on many documents not included in the list, or only identified very broadly. To take just one example, the spreadsheet 2403C.xls came to be very important in cross-examination and submissions, as were the worksheets relating to the New Feb Baseline, but AS 5 gave no indication of the importance that would be attached to those documents, the only relevant reference being the general reference to March and April cash flow forecasts. Nevertheless, AS 5 certainly

- 146 -

identified some of the significant documents upon which ASIC rested its case.

329

The defendants have objected to the way ASIC used these documents in its opening, during the trial and in final submissions. In particular, the

defendants objected that ASIC took the position that the documents proved themselves, and that inferences about what they were, how they were created, whether they were final versions, and their reliability, should be drawn by the court, mostly in the absence of any witness to explain them (DPS [152]). They submitted (DPS [155]) that the vast

majority of documents which are critical to ASIC's case, although they have passed a low threshold for admissibility: (a) (b) have been shown to be unreliable in proving what ASIC asserted; have been shown to be documents about things different from what ASIC asserted; (c) are not capable of giving rise to the inferences that ASIC initially (and subsequently) suggested should be drawn from them; (d) (e) remain of an unclear status; or for other reasons do not support the ASIC case.

330

The general proposition that ASIC has used its documentary evidence in an objectionable way, by seeking to persuade the court to draw inferences from unclear documents in the absence of explanation from witnesses, was taken up and developed in the defendants' submissions, under the heading "Recurring themes".

3.2 "Recurring themes"

331

The defendants submitted that ASIC's case has a number of remarkable features to which they object (DPS [72]). It is not entirely clear from their submissions whether the "recurring themes" about which they speak are

- 147 -

themes emerging from ASIC's case or themes that they develop in their submissions in answer to ASIC's case. I shall proceed on the basis that the recurring themes are themes developed by the defendants. They have to do with: • the risk that certain kinds of documents, which are susceptible to misunderstanding for one reason or another, will be misconstrued in the absence of proper explanation; • • the absence of witnesses to explain those documents; and the inherent improbability of ASIC's case about the defendants' failure to disclose to the board.

3.2.1 Documents susceptible to misunderstanding

332

According to the defendants (DPS [237]), there are many examples where ASIC has tendered a document pursuant to the business records exception to the hearsay rule without any proper identification of what the document is: for example, who is its author, what level of seniority did its author have, what was its purpose, what assumptions were made in the course of its preparation, was its final or a draft, would its author have relied upon it without adjustment, was it a report of sufficient reliability to warrant placement before the board of directors? I agree with them that in respect of some documents, some or even all of these matters are unclear. The mere fact that documents have been held to be admissible as business records or under s 1305 does not ensure clarity on these matters.

333

The differences in degree of reliability of business records were graphically described by Lockhart, Wilcox and Gummow JJ in Arnotts Ltd v Trade Practices Commission (1990) 97 ALR 555, at 601. Their Honours were dealing with a submission that, though various documents ("the Weston documents") were admissible as business records, it was dangerous to give them any weight. They said:

- 148 -

"The reliance which may properly be placed upon a document tendered under the circumstances we have described [as business records] must depend largely upon the nature of the document. On one extreme is a document whose nature and origin is apparent on its face and which deals entirely with matters of fact, for example, a factory's production records. Unless there is some reason to doubt the authenticity or accuracy of the document, it may be reasonable to place considerable weight upon the document, even though there is no witness who worked at the factory at the relevant time. By its very nature it is likely to be reliable. To disregard it, simply because of the absence of a witness, would be to spurn one of the major benefits of Part IIIA [of the Evidence Act 1905 (Cth), dealing with business records]. "On the other extreme may be a document whose origin is proved, in the sense that it is shown to come from a particular organisation, but whose status is obscure. Beaumont J [at first instance] had this situation in mind when, in argument, he commented that some particular documents 'could be a draft, they could be an interim report that was rejected by the board'. It may be dangerous to give weight to a document of this nature - for example, one containing plans for the future or comments about policy, as distinct from precise information - without knowing its status and author. "The only Weston documents upon which Beaumont J placed reliance in his reasons were a letter written by the company secretary and the Weston Business Plan. There was no issue about the identity or status of the author of the first document, although there was some argument as to the inferences which should be drawn from its terms. As to the business plan, this is a lengthy document, obviously prepared at a senior level; but the identity of the author is not disclosed by either the evidence or the document itself. Although the document contains some factual information, about which one might have more confidence, the passages used by his Honour were comments containing subjective evaluations of the positions of market participants. Without knowledge of the identity of the author of the document, we would not place any significant weight upon these comments."

334

I respectfully accept these observations, and I regard them as potentially applicable to many of the documents upon which ASIC has rested its case. While I accept that the weight to be given to the various documents tendered by ASIC needs to be considered on a case-by-case basis in relation to the particular documents or types of document in question

- 149 -

(ASR [237-41]), nevertheless the Full Federal Court's observations suggest that no significant weight should be given to: • computer-generated records, if there is significant doubt about what inputs were made, what systems existed for the preparation of the documents and what data inputting process was adopted; • documents involving judgments, if there is significant doubt about who made the judgment, what level of seniority that person had, whether the author of the document regarded it as complete or a work in progress, and whether it was based on assumptions or "scenarios" that were not articulated; • analyses, if there is significant doubt about the source of the document, the methodology employed, whether the author regarded the source materials and methodology as sound or having some limitations, and if so, what those limitations were; and • reports, if there is significant doubt about the level of seniority of the personnel involved and how much time they had to prepare the report.

335

ASIC submitted that to take such an approach would be to defeat the purpose of the business records provisions (ASR [241]). That would be so if, as the defendants' submissions seem to imply (DPS [241]), no weight should be given to such documents unless there is positive evidence about the listed matters. But I have reformulated the defendants' submissions so as not to insist on "knowledge" about the listed matters in every case. There will be some occasions where, for example, there is no reason for concern about inputs to computer-generated records, or where the authorship of a report or document involving a judgment can be inferred from the document and evidence of surrounding circumstances, or even where it is enough to infer that the document was prepared by someone of seniority. Nevertheless I agree with the defendants to the extent that the listed matters are matters to which the court should direct its attention,

- 150 -

and where there is real doubt about them, the weight to be attached to the document will be substantially reduced.

336

Correspondence is in a different position because it is often appropriate to make inferences from the face of the documents. In the Arnotts case the court noted that Beaumont J had placed reliance on a letter written by the company secretary and there was no issue about the identity or status of the author. Provided the correspondence makes clear who the author was, and there is evidence about the capacity and authority of that person, it is normally possible to reached conclusions about the significance of the document from the text itself. The defendants' submissions about

correspondence (DPS [241]) were exaggerated, but I have adopted their submissions about computer-generated records, documents involving judgments, analyses and reports.

337

The defendants are concerned about documents relied on by ASIC as "authoritative" in some way, which are not traditional business records like board papers or ledgers (DPS [73]). The documents to which they address "recurring themes" submissions at DPS [73]-[117] are said to have special characteristics, identified in the defendants' submissions (DPS [73]) as follows: (i) they often have the appearance of drafts or scenarios or rough working papers; (ii) they are contentious as to their nature, meaning and underlying methodology; (iii) they are not accompanied by any notes or other descriptive material indicating how they were prepared, for what purpose and on what basis; (iv) there is uncertainty as to what, if any, use was made of them internally at One.Tel; (v) ASIC has not called any witness to explain the documents.

- 151 -

338

The defendants have developed these themes by referring to three examples of the kinds of documents they have in mind. I shall deal with these examples in turn.

3.2.1.1 Management accounts for the fixed wire/service provider business

339

First, they referred to the management accounts for the fixed wire/service provider business (DPS [84]-[85]). The management accounts for January, February and March 2001 contained figures that are at odds with board papers and flash reports. The defendants' evidence is that the documents were drafts that were not completed due to difficulties in arriving at proper revenue accruals, because of the disruption to the billing system in early 2001. ASIC has not called any witness to attest to the status or reliability of the documents, but it asks the court to infer that they were final management accounts and therefore to conclude that the figures contained in the board papers were incorrect, evidently to the knowledge of all concerned.

340

In my opinion, the defendants' submission is substantially correct.

I

consider the management accounts in detail in Chapter 20, and there I reach the conclusion that ASIC has not shown that the documents it invites the court to treat as the January, February and March management accounts for the fixed wire/service provider business were final management accounts for that business. The status of the documents

could have been clarified if evidence had been given by one of the company's finance executives responsible for the preparation of those accounts, such as Mr Holmes or Ms Nassif, but they were not called.

- 152 -

3.2.1.2 Profile summaries

341

Second, they referred to collection profile summaries and profile summaries, and other documents relating to debtors and provisioning (DPS [86]-[89]). In my judgment on the admissibility of Mr Carter's

evidence, ASIC v Rich [2005] NSWSC 149 (7 March 2005), at [85], I noted that the profile summary documents were in some respects not selfexplanatory, and that Mr Carter interviewed Mr Basman, actively asking him questions, on 20 November 2001 in the course of preparing his report to assist ASIC to decide on the initiation of proceedings. The topics of the interview included credit checks and credit limits of customers, the process by which One.Tel checked adherence to credit limits, the percentage of collections of debts more than 90 days old and Mr Basman's belief as to the percentage of debts that was collectible. Mr Basman later provided a statement ([2005] NSWSC 149 at [147(p)]), and Ex D 22 indicates that Mr Basman gave further assistance to ASIC in April/May 2005, June 2005 and April 2006. Yet he was not called as a witness, and ASIC invited the court to draw conclusions from the documents without the benefit of the explanation that he could have provided. The

defendants submitted that in some respects the profile summary documents remain obscure (DPS [94]). submissions. I agree with the defendants'

3.2.1.3 European Consolidated Accounts Wireline

342

Third, the defendants referred to a spreadsheet headed "European Consolidated Accounts Wireline" which is Annexure C to Mr Boaden's affidavit of 13 October 2004 (also at Ex CE S7 0001 and Ex JDR 4/1560), and is considered at 12.5.3 below. The document was prepared by Mr Werner late in March 2001 and purports to show cash usage for the consolidated European wireline businesses for April 2001 of $22,965,236, a

- 153 -

figure out of line with the figures reported to the March board meeting, which showed cash generation of $5 million, $13 million and $17 million respectively for April, May and June. At APS [657]-[659], [661]-[666], ASIC relied on this document as evidence to show that the forecast cash flow figures in the March board papers for the international businesses for April, May and June 2001 did not have any proper basis (DPS [90]). Mr Rich said in cross-examination that the document was a draft and was incorrect (T 11621). The defendants submitted that although the document was prepared by Mr Werner, he gave no evidence about it, and it was not suggested to any of Mr Weston, Mr Boaden and Mr Werner by ASIC when they gave oral evidence that the figures in the March board papers were wrong or without a proper basis. I agree with this submission.

3.2.2 The risk that in the absence of proper explanation, documents will be misconstrued

343

The defendants identified some occasions when, they submitted, ASIC or others misunderstood documents. The submission was directed to

showing the inherent danger of the court drawing inferences from financial documents without an explanation of what they are. examples were given. Four

3.2.2.1 ASIC's interpretation of "to-be-billed" reports

344

First, reference was made to the "to-be-billed reports" (DPS [92]). The defendants said that when ASIC opened its case, it treated the to-be-billed reports as a breakdown of the components of One.Tel's billing runs, and it invited the court to infer that they showed a very high proportion of "local calls", a matter which went to prove that the defendants should have known about the "traffic mix" issue in the Australian fixed wire business (an issue that emerged from the work of Ms Ashley in late April 2001), at a

- 154 -

much earlier stage. In my view that is a correct summary account of the relevant points made in ASIC's opening address (see T 117, T 3568). I specifically asked senior counsel for ASIC at T 117 whether the to-be-billed report at Ex CE 4 0021 was a record of every single account that was billed in the relevant billing run and he answered in the affirmative.

345

In her cross-examination 11 months later, Ms Ashley gave evidence that the to-be-billed reports were not reports of all of the calls to be billed in the relevant months, but instead they dealt only with calls, referable to the relevant month, that had at the time of the report been identified as not having been billed in that month; thus the reports were relevant to assisting the accruals process so as to arrive at a monthly revenue figure (T 5528). It follows from this evidence that the to-be-billed reports were not reports about the breakdown of the whole of each billing run into component parts, such as local calls.

346

In its submissions in reply, ASIC resisted the claim that the to-be-billed reports had been misunderstood in the opening address. It referred to some evidence of Ms Ashley in re-examination, to the effect that the reason that the reports would be an unreliable tool to be used in margin analysis was that they only represented a portion of the month’s billing, and the margin analysis should be done for the whole of each month. ASIC then submitted (ASR [92-3]) that the reports could be used to give an indication of the level of local calls, because Mr Rich gave some evidence having the effect that about half of the data referable to a month would be in the to-be-billed report for that month, and since each report identifies, by initials, the different types of calls and carriers, the percentage of local calls for the month could be calculated.

347

In my view this submission misses the defendants' present point, which is that ASIC misinterpreted the reports in the opening address by treating

- 155 -

them as breakdowns of each month's billings. I think that mistake is established. The argument seems to be that the reports could be used for margin analysis by treating them as relating to half of the relevant month's data, ascertaining the percentage of local calls for that half and then treating that percentage as the overall percentage of local calls to total billings for the month. But that argument makes various assumptions that are unproven. For example, it assumes that the proportion of calls to be billed that are local calls is the same as the proportion of local calls to total calls for the month. It may be that local calls are a higher, or a lower, proportion of unbilled and to be billed calls than the proportion of local calls bear to the total calls for the month. For example, if the defendants' evidence is accepted, Telstra was slow in supplying CDRs, and that may have meant that a disproportionately high number of local calls was unbilled and to be billed in a given month.

348

In my opinion the defendants' submission is correct, and it indicates that ASIC fundamentally misconstrued this documentary evidence, the true significance of which had to be explained by a One.Tel officer who was aware of how the documents were used.

3.2.2.2 Mr Carter's interpretation of profile summaries

349

Second, the defendants submitted that Mr Carter mistakenly construed the collection profile summaries and profile summaries that are in evidence (DPS [94]). This is a matter I considered at some length in my judgment on the admissibility of Mr Carter's evidence, ASIC v Rich [2005] NSWSC 149 (7 March 2005) at [227]-[236]. One of my conclusions was that in preparing the part of his Principal Report that dealt with alleged underprovisioning for doubtful debts (evidence that was rejected), Mr Carter assumed that documents entitled "profile summaries" were prepared on the same basis as, and were directly comparable to, documents entitled

- 156 -

"collection profile summaries".

I noted that there were at least three

versions of the profile summary document as at 30 June 2000, each of which had different figures for "total" debtors, and that some of the summaries were described on their face as "drilldown reports" and others as "360 day reports", and that Mr Carter said in the witness box that he was unaware of those differences and could not provide explanations. The defendants submitted that Mr Carter fell into error by assuming that the various documents were comparable.

350

My conclusion in the 7 March 2005 judgment (at [236]) was that Mr Carter was probably led to assume that the documents were comparable by information he was given in his discussions with Mr Basman, on which he had unconsciously relied in the course of writing his forensic report. Therefore, while this is an illustration of the utility of having someone explain such documents, it is probably not an example of simple misconstruction of documents.

3.2.2.3 ASIC's reliance on Australian aged creditors reports

351

Third, the defendants referred to Australian aged creditors reports (DPS [95]). They submitted that although these documents have every

appearance of being straightforward business records, they were exposed as unreliable by the evidence in cross-examination given by Ms Randall. Ms Randall was being asked about an entry on one of her deferred payments lists for Global.One, and she was taken to an Australian aged creditors report for 27 February 2001 (Ex CE 6 0068). It was suggested that the aged creditors report showed that a credit note had not been applied to an invoice, and she said she never referred to this ledger because she was told by the accounts payable manager, when she first started at One.Tel, that it was not reliable because it contained anomalies, and she conceded that old amounts that had been disputed and were no longer payable still

- 157 -

remained in the ledger without being purged (T 5209-10). I agree with defendants that this episode shows that the significance that one would attribute to documents on their face may well be different from the significance they actually were given by those who knew about them.

3.2.2.4 ASIC's treatment of figures for future periods as considered forecasts

352

Fourth, the defendants questioned whether the court should infer that every document containing figures relating to future periods should be regarded as a considered and final forecast by some responsible manager as to what was actually expected to happen (DPS [96]). The defendants contended that in the absence of evidence from someone who prepared or used the document, the proposition that figures about a future period were a considered forecast could only be an assumption, as it is "a commonplace aspect of modern business practice (facilitated by the ready availability of spreadsheet programs allowing for the easy manipulation of assumptions in forecasting) for companies to prepare any number of documents which might appear to be 'forecasts' but which in fact can be merely 'drafts' or 'scenarios' run on assumptions which may not at all represent the operator's view as to what is actually likely to happen" (DPS [98]). This, they said, was especially likely in the case of documents

forming part of the business planning process, where drafts often go through numerous iterations in which the underlying assumptions are debated and refined.

353

They referred to some evidence which, they said, tended to show that One.Tel's business plans were no exception to this practice. Thus, in his affidavit Mr Silbermann said that One.Tel's business plans were designed to allow for easy adjustment to particular key business parameters and assumptions, which would then be automatically reflected in

- 158 -

recalculations of the financial figures (MS 155). The defendants referred to some electronic documents, the titles of which suggested a process of iteration, such as "updated", "real thing", "uplift-final", and a document entitled "final" accompanied with a covering message saying "not yet finalised" (DPS [101]). There is evidence that on 19 January, Mr

Silbermann, Mr Packer Jnr and Mr Kleemann met to review "the most recent version" of the European business plans, and in the course of that meeting they made various "downside" changes to the key variables such as ARPU and subscriber numbers, in order to see what effect those changes made to the financial outcomes, including EBITDA and cash flow (MS 155; Mr Packer Jnr at T 9445, T 9446; Mr Kleemann at T 6221-2). It is not suggested that ASIC made the claim that the revised figures produced at that meeting were final figures, but the evidence does show that the process of adjusting inputs to ascertain how they would affect outputs was in place at One.Tel.

354

That does tend to cast some doubt on whether certain financial documents containing projections should be regarded as final versions of considered forecasts, or merely drafts. I note in particular the various spreadsheets sent by e-mail by Mr Werner to Mr Silbermann during 2001, on which ASIC placed substantial reliance in final submissions. In almost every case, the covering e-mail gives no explanation of what the document is, why it is being sent or the basis upon which it was prepared. The

evidence indicates that Mr Silbermann was in very frequent contact with Mr Werner (see, for example, the evidence of Mr Weston at UK T 832), and that opens up the real possibility that Mr Werner's spreadsheets may have been, at least on some occasions, merely part of a dialogue with Mr Silbermann rather than final figures (DPS [106]). For the most part Mr Werner has not given evidence clarifying the status of the documents, though Mr Silbermann and Mr Rich have done so. I shall assess that evidence when dealing with each of the documents, but I shall do so in the

- 159 -

overall context provided by the defendants' present submission, which I accept.

3.2.3 The absence of witnesses to explain documents relied upon by ASIC

355

In the "Recurring themes" part of their submissions, the defendants made submissions about the absence of witnesses to explain documents, the availability of such witnesses and the unfairness of ASIC inviting the court to draw inferences from documents when the true position could have been clarified if witnesses had been called. My understanding of these submissions is that they were intended to summarise a "theme" of the defendants' submissions as a whole, the substantive effect of which would be through the application of the principles in Blatch v Archer and Jones v Dunkel, considered below. As I understand the submissions, they are not intended to establish any other substantive consequence.

356

Similar arguments were advanced to persuade the court to exclude or limit the use of ASIC's documentary evidence under s 135 or s 136 of the Evidence Act, but I declined to exclude or limit the evidence, although I warned that it would remain open to the defendants to attack the weight of the documentary evidence in final submissions, if the evidence at the trial did not overcome the difficulties that surrounded the documents: ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [381]-[382].

357

I shall deal with the relevant "Recurring themes" submissions and ASIC's responses here, but then I shall return to the significance of the absence of witnesses (or the absence of relevant questions to witnesses) when I come to deal with the application of the principles Blatch v Archer and Jones v Dunkel.

- 160 -

3.2.3.1 Documents in need of explanation

358

Some of the documents identified in AS 5 have been addressed in the evidence of Ms Randall and Ms Ashley, including the "to-be-billed" reports, deferred payments listings and comparison.xls. There remain, however, some documents that on their face raise doubts about their authority, nature, meaning, purpose, methodology or the use made of them, for example: • • • • the management accounts for January-March for the fixed wire/service provider business; the profile summaries and collection profile summaries; various documents containing forecasts including cash flow spreadsheets and the "Funding Requirement" documents; and Mr Werner's European cash flow spreadsheets sent to Mr Silbermann (in this last case, not because of the absence of a witness but because the witness was not asked questions in chief about these documents).

359

Nor is there any evidence from the One.Tel officers involved in the preparation of the board papers and flash reports to explain differences between the documents presented to the board and other documents such as management accounts, Australian cash flow spreadsheets, and Mr Werner's European spreadsheets. Three members of the senior

management team in Europe gave evidence, namely Mr Weston, Mr Werner and Mr Boaden. They were the source of information about the UK and European businesses contained in the board papers and flash reports and each of them was well aware of what was contained in the March board papers in relation to the international businesses. It was not put to them that the information in the March board papers or any other board papers lacked a proper basis (DPS [77]).

- 161 -

3.2.3.2 One.Tel personnel who might have given evidence

360

The defendants submitted that according to the evidence, ASIC was extensively assisted in its investigation and in the preparation of its case for hearing by numerous members of One.Tel's senior and middle management (DPS [81]). This submission is expressed in general terms and does not identify the evidence to which it refers, but it seems likely that the defendants had in mind the evidence to which I referred in my judgment on the admissibility of documents, ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [376]. That evidence indicates that ASIC was assisted by Mr Holmes, Ms Nassif and Mr Basman (as well as Ms Ashley, who later gave evidence), and that they would have been available to give evidence if called. They presumably would have been able to shed light on at least some of the documents, including the fixed wire/service provider management accounts, profile summaries (in the case of Mr Basman), board papers and the PBL reports presented to the board on 28 May (DPS [82a]).

3.2.3.3 ASIC's response

361

ASIC's reply to the defendants' submissions on these matters (ASR [73-82]) seems to me curious and unconvincing. The curiosity is partly that ASIC has chosen to bring before the court a very large evidentiary case, and now it says that if it had brought forward all of the evidence that I might decide to be needed to support such a case, the impact on the length of the hearing would be extraordinary, and for that reason the court should not hold against it the absence of witnesses to explain its documents. An obvious way out of the dilemma, at an early stage, would have been to bring a more focused and less extensive case.

- 162 -

362

ASIC appealed to s 56 of the Civil Procedure Act, to support the proposition that to call additional witnesses would conflict with the statutory direction as to the "just, quick and cheap resolution" of proceedings and the duty of the parties to assist in bringing about that resolution. But it cannot be just to put unclear documents into evidence and then urge the court to draw questionable inferences from them, in circumstances where the true significance of the documents could readily be cleared up by oral evidence. And given the amount of debate that is bound to surround the drawing of questionable inferences from ambiguous documents, it is unlikely to be quick and cheap to proceed in that way in the absence of simple clarification by witnesses.

363

It is also curious that ASIC's submissions seem to downgrade the utility of oral as opposed to documentary evidence. Oral evidence, said ASIC, is dependent upon recollection, often generalised and conclusory. It cited the well-known observations of McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315 at 318-9 (considered below), about the fallibility of human memory, and similar observations by Ipp JA made extra-curially ("Problems with Fact Finding", (2006) 80 ALJ 667). It submitted that oral evidence is particularly unsatisfactory when the key issue is the financial position of a company in several months, involving details a witness would not be expected to reliably recall. It referred, by way of illustration of the weakness of oral evidence on financial matters, to the evidence of Nichola Thomas, who accepted that her honestly given recollection was wrong when a document contradicting it was put to her in crossexamination (para 3 of her affidavit, and her cross-examination at T 10072).

364

If this submission simply means that clear documentary evidence of complex financial facts contained in the financial records of a company is to be preferred to oral evidence of recollection of those facts years

- 163 -

afterwards, then it is undeniable.

But that proposition is inapplicable

where the document is ambiguous and of uncertain nature and status, and the evidence of the witness is not evidence of the contents of the document but evidence to explain what the document is, how it is used and whether it is a draft. It is not a matter of choosing between documentary and oral evidence, but of needing to have a witness give the court an assurance about the significance (or lack of significance) to be attributed to the document.

365

ASIC has added up the occasions when the defendants say that a person should have been called by ASIC as a witness, and the total figure is 50, in addition to the 20 witnesses in fact called by ASIC in its case in chief. For reasons given during the course of this judgment, I am not persuaded that all of the people identified in the defendants' submissions and by ASIC at ASR [6358] should have been called by ASIC in support of its large evidentiary case. But for reasons given at 3.7 below, it does seem to me that oral evidence from some person or persons in the management or finance teams of One.Tel (perhaps Mr Holmes, Mr Barnes, Ms Nassif or Ms Joukhadar) was needed to explain the nature and status of the fixed wire/service provider management accounts on the relationship between board papers and flash reports and other documents including cash flow spreadsheets, and a person such as Mr Basman was needed to explain the profile summary documents and the process of provisioning for doubtful debts. Additionally it seems to me there is a gap in ASIC's evidence about May 2001 and in particular, the significance of the PBL report presented to the board on 28 May and the circumstances surrounding what appears to have been a substantial change in the Miller/Green analysis between about 8 May and 28 May, of a kind that required explanation from a witness such as Mr Miller, Mr Green or Mr Courtney.

- 164 -

366

I have mentioned eight additional names but only three groups, and it may be that one witness would suffice from each group. The argument that the defendants' submissions would lead to an additional 50 witnesses takes the defendants' position to the extreme, and is a kind of in terrorem argument.

367

ASIC submitted that it would have been open to the defendants themselves to call these witnesses, or in the alternative to make a request under s 167 of the Evidence Act for the calling by ASIC of the persons who were the authors of documents to give evidence. ASIC said this procedure would overcome such disadvantage as there might have been to the defendants in not being able to cross-examine witnesses who they themselves called. It suggested that the court should infer, in the absence of requests under s 167 (and bearing in mind that the section was utilised by the defendants in relation to the liquidators and the authors of the Ernst & Young report) that the defendants' Jones v Dunkel points do not arise out of any genuine concern that the specified persons were not called (ASR [244-257]). But in suggesting that the defendants should have been the moving party in bringing these witnesses to court, ASIC's submission overlooks the fact that ASIC bore the onus of proof, and the defendants' contention is that it has failed to discharge the onus of proof by tendering documents without proper explanation from witnesses who might have given an explanation and who might have been called by ASIC. It is beside the point to say that the defendants might themselves have called these witnesses.

3.2.3.4 General conclusion as to absence of witnesses

368

I have reached the conclusion that the defendants' submissions are right in principle in their contention that ASIC should not have invited the court to reach conclusions by inference from contentious documents without

- 165 -

seeking to lead evidence to explain them. That general conclusion has consequences in terms of the principles in Blatch v Archer and Jones v Dunkel, considered below, and is a matter to be addressed throughout these reasons for judgment.

3.2.3.5 Witnesses who gave evidence but were not asked about uncertain documents

369

The defendants also complained that in some cases, ASIC called witnesses who were in a position to speak about documents that have subsequently been emphasised in ASIC's submissions, but it did not lead evidence from them to support the inferences that it now seeks to draw from the documents in submissions (DPS [83]). The defendants gave three

examples of this, in addition to the matters noted at 3.2.1 above (DPS [83]).

370

First, the defendants noted that ASIC invites the court to make certain inferences from the documentary evidence about the relationship between One.Tel and WorldCom in the period from February to May 2001, without having led evidence from witnesses who could have given direct evidence. The inferences identified by the defendants are that One.Tel was withholding from WorldCom the payment of a large amount, acknowledged internally at One.Tel to be "payable now"; that WorldCom issued demands in April because One.Tel failed to make an agreed payment; and that One.Tel breached its agreement with WorldCom in late May. I accept that Mr Boaden was closely involved in the dealings with WorldCom, a matter plain from the documents tendered by ASIC and also confirmed by Mr Weston in his oral evidence (UK T 652, 653, 659-60, 673), and so Mr Boaden was in a position to give evidence about these matters. But he gave no evidence to support the inferences that ASIC asks the court to draw from the documentary evidence. The defendants also alleged that Mr Menozzi of WorldCom assisted ASIC in the preparation of a draft

- 166 -

affidavit and was reportedly willing to come to Australia to give evidence, but was not called.

371

I agree with the defendants that Mr Boaden might have been able to give some relevant evidence, but on the question of the One.Tel/WorldCom relationship it does seem to me appropriate for the court to make findings on the basis of the documentary evidence, which is reasonably straightforward. I do not regard the absence of evidence from Mr Boaden or Mr Menozzi as a flaw in ASIC's case or as a reason for not making the findings that the documents support. I shall return to the WorldCom evidence in the body of this judgment.

372

Second, the defendants noted that ASIC has invited the court to infer that there never was $40 million of unbilled called data, and that no substantial quantity of such data was able to be identified, processed or billed during April or May 2001. The defendants complained that none of the many people who worked on the process of identifying the data, including Ms Joukhadar, Mr Beck, Mr Hodgson or any member of the billing team, has been called to give evidence. For reasons set out at 3.6 below, I think the absence of evidence from Mr Beck and Mr Hodgson is explicable and should not lead to a Jones v Dunkel inference, and as to Ms Joukhadar, I think a Jones v Dunkel inference should be made but it is not damaging to ASIC's case. I am not persuaded that any other member of the billing team was familiar with the process on a sufficiently comprehensive basis to have given useful evidence.

373

Third, the defendants noted that ASIC asked the court to infer that Mr Miller and Mr Green, at the conclusion of their review in late April and early May 2001, did not understand the true financial position of One.Tel because they had been obstructed in getting to it by the defendants, and that they suddenly came to realise the truth after 18 May. I think this is

- 167 -

something of a distortion of ASIC's submissions, which I deal with in detail later in these reasons for judgment. Be that as it may, the

defendants pointed to evidence that Mr Miller and Mr Green were afforded open access to the financial records and management of One.Tel, and that they put the results of their investigations forward on 8 and 17 May without any qualification as to their understanding of the company's financial position, and they complained that neither Mr Miller nor Mr Green was called as a witness by ASIC. For reasons set out at 3.6 below, I have formed the view that the absence of any evidence from Mr Miller or Mr Green is a serious gap in ASIC's case, which has certain consequences for my assessment of the evidence.

374

Once again, these matters have substantive consequences in terms of the principles in Blatch v Archer and Jones v Dunkel.

3.2.4 The inherent improbability of ASIC's case about the defendants' failure to disclose to the board

375

The defendants submitted that company's board papers and flash reports are business records of a kind that should, at least prima facie, be accorded substantial authority. They said (DPS [75]) that the process of disclosure to the board in board papers, flash reports and otherwise involved almost the entire senior management and finance team of One.Tel, not merely the defendants. According to the defendants, ASIC's case implies the

contention that there was a conspiracy between the defendants and almost all of the finance and management teams at One.Tel to mislead the board (see also DPS [108]). In this regard, there is evidence that on many

occasions the figures that went into board papers and flash reports were arrived at by executives in the finance team, rather than by Mr Rich or Mr Silbermann personally (1 JDR 725; and the spreadsheet at Ex JDR 6/1967, which exposes file notes showing a variety of sources of figures).

- 168 -

376

Further, the defendants submitted that, with the exception of Ms Randall, ASIC had called no finance or management witness to say that the information provided to the board in board papers and flash reports was known to the witness to be false. There was no evidence at all given by Mr Barnes or Mr Holmes or the company secretary and internal legal counsel, who were responsible for co-ordinating the figures in the board papers. The UK management witnesses (Mr Weston, Mr Werner and Mr Boaden), who were familiar with the contents of board papers including the March board papers, and had input into their preparation (see Mr Weston's evidence at UK T 794; UK T 727; and Ex D 29; Ex D 30; Ex D 70), said nothing at the time to suggest that the information contained in the board papers was wrong in any respect.

377

In those circumstances the defendants submitted that the suggestion that board papers and flash reports contained false and misleading information was inherently improbable. It was inherently more likely, they said (DPS [113]), that the information in the board papers and flash reports was put forward by the finance and management teams as representing their honest view as to the financial position of the business, and contained financial figures that were diligently arrived at. Apparent inconsistencies between the board papers and flash reports, on the one hand, and other less authoritative documents relied upon by ASIC, were much more likely to have arisen because the finance and management teams did not consider those other documents to be accurate.

378

I do not agree that ASIC's case implies a conspiracy amongst One.Tel management to mislead the board. It is not necessary for the purposes of its case for ASIC to allege a conspiracy involving the complicity of a large number of other One.Tel senior managers and employees, and it has not done so (ASR [108-117]). The case is brought as a case about breach of the

- 169 -

defendants' statutory duty of care and diligence. The focus of attention has been the conduct by and omissions of the defendants. ASIC did not undertake to prove, where One.Tel executives other than the defendants prepared information for disclosure to the board that was objectively wrong or misleading or without reasonable basis, that the executives were deliberately attempting to mislead the board, but only that the defendants either themselves knew that the information was wrong, or else they should have been more careful and diligent in reviewing the information and satisfying themselves that it was appropriate to go forward to the board. According to ASIC's case on the second alternative, if the

defendants had been more careful and diligent, they would have identified discrepancies between what was proposed to be reported to the board, and other financial documents of One.Tel. They would then have had to make an assessment of the true position, with the assistance of the management and finance teams.

379

I do not accept the defendants' submission that ASIC's case is inherently improbable because ASIC relies on documents less authoritative than the board papers and flash reports. It seems to me that the court should approach the issue without any presumption, and should assess ASIC's individual allegations on their merits, weighing up all of the available evidence as to the reliability of the documents. I do agree, however, that it is often pertinent to that assessment to take into account that finance and management executives who were available to give evidence to support ASIC's case have not done so, and to apply Jones v Dunkel accordingly. I also agree that the court should be very cautious about relying on inferences from documents that are unexplained by the evidence of any witness.

380

The defendants also contended that on ASIC's case, they were trying to conceal the true financial position of One.Tel for its directors and major

- 170 -

shareholders in the period from January to April 2001 (DPS [114]). That led the defendants to set out evidence intended to show that they gave those who legitimately sought information about the company free and open access to the company's financial records and its managers, and therefore that they were not engaged in concealment (DPS [116]). That evidence related to inquiries made by Mr Howell-Davies, Mr Kleemann, Mr Long, and Mr Miller and Mr Green.

381

Mr

Howell-Davies

conducted

"due

diligence"

of

One.Tel

in

February/March 2001 before he accepted the offer of a board appointment. He was given free rein to speak to all of the managers of the European businesses (UK T 54). He made a number of unaccompanied visits to the UK and European businesses and found the managers to be very responsive to his requests for information (UK T 53). He spent

considerable time with Mr Weston (for whom he was something of a mentor), during which Mr Weston answered his questions about One.Tel honestly and openly (UK T 73). He encountered no suggestion by anyone that One.Tel was having issues with creditors (UK T 58).

382

Mr Kleemann agreed in cross-examination that when he was given his task, in late 2000, of reviewing and monitoring the One.Tel business, he was assured by Mr Rich that he could have free access to any staff members of One.Tel he wished to speak to, and that if he wanted any information he only had to ask (T 6056). His spoke to everyone to whom he wanted to speak, saw every document that he wanted to see, and looked at every part of the management information systems that he wanted to see (T 6057).

383

Mr Long agreed in cross-examination that when Ernst & Young were appointed auditors, he had an initial meeting with Mr Rich, in which Mr Rich encouraged Ernst & Young to speak to whomever they wished. So

- 171 -

far as Mr Long was concerned, during the course of the half-year review in January and February 2001, he had access to the staff of One.Tel to whom he needed to speak for the purposes of the review. He built up

relationships in the review process and felt able to pick up the phone and speak directly to whomever he wished to speak at One.Tel (T 7183).

384

Mr Rich gave evidence that when Mr Miller and Mr Green commenced their review, he told them that if they wanted any information all they had to do was to ask (2 JDR 1146; see also MS 446). When Mr Miller and Mr Green visited the UK office they were given free and unrestricted access to whomever they wished to consult, according to Mr Weston, who said he gave them his realistic views about the likely future performance of the European businesses (UK T 722-727). Mr Boaden said he answered their questions with openness and honesty (T 5308-9).

385

At one stage Mr Packer Jnr sought direct access to One.Tel's SAS system and did not obtain it, but it emerged that access was prevented because of a technical issue to do with the security firewalls in One.Tel and PBL's computer systems (T 9440-2). No other witness for ASIC gave evidence of any difficulty in obtaining access to One.Tel's information.

386

I accept all of this evidence, and also the conclusion that the individuals I have named were given free and open access to the information they wished to have about One.Tel. It seems to me, however, that this evidence does not answer ASIC's case. It is a case about breach of the statutory duty of care and diligence. There are allegations about deliberate conduct on the defendants' part, to the effect that the defendants failed to provide information to the board and withheld information and so misled the board, but those allegations did not extend to withholding information from the people I have identified.

- 172 -

387

In the result, I have not approached ASIC's evidence with any presumption or predisposition against ASIC's case, on the ground of inherent improbability. I have tried to assess the evidence step by step, on its merits, having regard to the onus of proof and the standard of proof.

3.3 The onus of proof - legal principles

3.3.1 Some general principles

388

The defendants provided the court with an elementary textbook exposition of the distinction between the legal and evidential burdens of proof (DPS [159]-[168]), which was not challenged by ASIC. It is

unnecessary to deal with all of their submissions, but some generally pertinent points are: • the evidential burden is the obligation to show, if called upon to do so, that there is sufficient evidence to raise an issue as to the existence or non-existence of a fact in issue, due regard being given to the standard of proof demanded of the party under such obligation (JD Heydon, Cross on Evidence, Australian edn, Butterworths (looseleaf), [7015]); • where an accused person relies by way of defence upon an honest belief on reasonable grounds in the existence of a state of affairs which, had it existed, would have made the acts innocent, the accused person bears only an evidential burden (Cross on Evidence, [7030], citing He Kaw Teh v R (1985) 157 CLR 523; [1985] HCA 43); • the legal burden of proving all facts essential to its claim normally rests upon the plaintiff in a civil suit (Cross on Evidence, [7060]); however I note that there is an issue (discussed in Chapter 23) as to who bears the onus of proving the presence or absence of the elements of the business judgment defence in s 180(2) of the Corporations Act; and

- 173 -

if the tribunal of fact prefers the plaintiff's evidence to the defendants' evidence on an issue, it must nevertheless consider whether the evidence proves the plaintiff's case to the applicable standard (adapting, to the civil context, observations in Liberato v R (1985) 159 CLR 507; [1985] HCA 66, at 515, quoted in Cross on Evidence, [7085]).

3.3.2 A company's books as prima facie evidence: s 1305

389

There was some contention between the parties about the meaning of s 1305(1) of the Corporations Act (DPS [169]-[182]; cf ASR [169-77]-[173-6]). It provides that "a book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book".

390

The defendants referred to the definition of the words "prima facie" in the Macquarie Dictionary (2nd revised edn), as meaning "at first appearance; at first view, before investigation". They compared that with the definition of "prima facie evidence" as "evidence sufficient to establish a fact, or to raise a presumption of fact, unless rebutted." They submitted that the former meaning is the one intended in s 1305, and that the words "prima facie" are not used in the sense that, absent some satisfactory contrary evidence on the part of the defendants, the matters said to be recorded in the books have been conclusively proved.

391

In my view the true meaning of the words "prima facie" lies between the alternatives identified in the defendants' submission. The statement in s 1305(1) that the company's books are prima facie evidence of a matter stated or recorded in them does more than merely to convey that they are the starting point to proof or a "first view". All other things being equal, the fact that a matter is stated in a book kept by a company is sufficient to

- 174 -

prove that matter in civil proceedings. That does not reverse the onus of proof in the proceedings in any general way, but it means that the tendering of the book is evidence of the matter recorded in it, and that matter will be thereby proven unless other evidence convinces the tribunal of fact to the contrary, on the balance of probabilities.

392

Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact (Phipson on Evidence, 16th edn (2005), at [7-17]).

393

In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.

394

My view as to the meaning of the subsection is consistent with the explanatory memorandum to the Companies Bill 1981, which introduced the provision. The explanatory memorandum, which I also quoted in my

- 175 -

judgment on the admissibility of corporate records (ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [225]), said:
"This is a new provision based on s-sec 156(3) of the Ontario Business Corporations Act. It is an evidentiary provision that is intended to expedite legal proceedings where books are to be introduced in evidence. This provision obviates the need to call witnesses to prove that books are books of the corporation when this fact is not in question or to prove transactions recorded in books when these matters are not in dispute."

395

Therefore s 1305(1) allows a company's books to be introduced into evidence as they are, without any "authenticating" evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is "recorded" in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem.

3.4 The standard of proof

3.4.1 Some general principles

396

It is relevant to note that, as these are civil penalty proceedings in which ASIC seeks declarations of contravention, there is a statutory requirement for the court to apply the rules of evidence and procedure for civil matters. The current requirement is s 1317L of the Corporations Act 2001 (Cth), which commenced on 15 July 2001. In the period from 10 March 2000, the date of commencement of the relevant part of the Corporate Law Economic Reform Program Act 1999 (Cth), which amended the Corporations Law, up to the commencement of the Corporations Act, there was an equivalent provision in the Corporations Law. Prior to that

- 176 -

time, there was a provision substantially to the same effect in s 1317ED(1) of the Corporations Law. Given that substantially the same provision applied when the acts complained of in these proceedings took place (January-May 2001), when these proceedings commenced (December 2001), and at all times thereafter, I need not delve into the complexities of transitional provisions.

397

The rules of evidence for civil matters in this court are governed by the Evidence Act 1995 (NSW). Section 140 provides:
"140 (1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. (2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account: (a) the nature of the cause of action or defence, and
(b) the nature of the subject-matter of the proceedings, and

(c) the gravity of the matters alleged."

398

Subsection 140(2) reflects the observations of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, at 361-2, where his Honour said:
"The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding, are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In

- 177 -

such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences.”

(See also Helton v Allen (1940) 63 CLR 691 [1940] HCA 20, at 712.)

399

The standard of proof enunciated in s 140 and Briginshaw's case applies in civil penalty proceedings under the Corporations Act and its predecessor, the Corporations Law: Adler v ASIC (2003) 46 ACSR 504; [2003] NSWCA 131 at [142]-[148]; Whitlam v ASIC (2003) 57 NSWLR 559; 46 ACSR 1; [2003] NSWCA 183 at [117]-[119]; ASIC v Vines (2005) 55 ACSR 617 at [1105]; [2005] NSWSC 738 (on appeal, Vines v ASIC [2007] NSWCA 75). The definition of "civil proceeding" contained in the Dictionary to the Evidence Act says it is simply a "proceeding other than a criminal proceeding". In other words, there is no distinction in the definition between ordinary inter partes civil proceedings and civil penalty proceedings brought pursuant to statute. I agree with ASIC (ASR [183-[190]) that civil penalty proceedings under the Corporations Law are distinguishable from CEO of Customs v Labrador Liquor Wholesale (2003) 216 CLR 161; [2003] HCA 49, where the main reason for the High Court's conclusion that the criminal standard of proof applied was that Customs sought a "conviction" of the defendant, and the conclusion may have been otherwise if different relief had been sought (see Hayne J at [135], [138]).

400

In the Vines case I referred (at [1106]-[1107]) to some further explication of the Briginshaw standard by Sir Anthony Mason NPJ, sitting as a member of the Court of Final Appeal of Hong Kong in Hksar v Lee Ming Tee [2004] 1 HKLRD 513. I think some of the observations in that case are pertinent here, although some differences between that case and the present one need to be borne in mind. It seems to me that the following observations of Lord Nicholls of Birkenhead in Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 at 586, quoted with approval by Mason NPJ at [71], are applicable in the present circumstances:

- 178 -

"When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability."

401

It is useful to complete the quotation of the observations of Lord Nicholls, who continued:
"Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A stepfather is usually less likely to have repeatedly raped and had non-consensual oral sex with his underage stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established."

402

However, Mason NPJ's observation (at [72]), that "it was for the respondent to establish as a compelling inference that very senior officers of the SFC had deliberately and improperly terminated the investigation … for the ulterior purpose alleged", seems to me to be confined to the nature of the case before him, in which the allegations against the appellants, though in civil proceedings, were essentially criminal in nature. In my view it would be setting the standard too high to say that, in Australian civil penalty proceedings for breach of the statutory duty of care and diligence of company directors and officers, the plaintiff's case must be proved by "compelling" inferences (although that is probably true in a case where the allegation is of a breach of the statutory duty of honesty - as it was, against one of the defendants, in ASIC v Vines).

- 179 -

403

The observations of Lord Nicholls were revisited by the House of Lords in Re B (Children) (Sexual Abuse: Standard of Proof) [2008] 3 WLR 1; [2008] UKHL 35. In particular, Lord Hoffmann (at 4) distinguished between three kinds of cases in which observations are made that the standard of proof varies with the gravity of the misconduct alleged or the seriousness of the consequences for the person concerned. The first category is where the court has for some purpose classified proceedings as civil, but nevertheless has thought that because of the serious consequences of the proceedings, the criminal standard of proof or something like it should be applied. Australian civil penalty proceedings for breach of the statutory duty of care and diligence are not in this category, but arguably Hksar v Lee Ming Tee is an example of it. The third category is where judges are simply confused about whether they are talking about the standard of proof or about the role of inherent probabilities in deciding whether the burden of proving a fact to a given standard has been discharged. That could not be said of Dixon J in Briginshaw. That leaves the second

category, "cases in which it has been observed that when some event is inherently improbable, strong evidence may be needed to persuade the tribunal that it more probably happened than not". Briginshaw is in this category, as are the quoted observations of Lord Nicholls in Re H.

404

Lord Hoffmann approved of the observations of Lord Nicholls but he emphasised (at 8) that Lord Nicholls was not laying down any rule of law. He continued:
"There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities."

405

It seems to me that these observations are in accordance with, and assist to clarify, the New South Wales law arising out of s 140 and Briginshaw and other Australian cases. Lord Nicholls' observations are in accordance with

- 180 -

those of Mason CJ, Brennan, Deane and Gaudron JJ in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; [1992] HCA 66, at 171:
"[T]he strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct."

406

In Vines v ASIC [2007] NSWCA 75, Ipp JA (with whom Spigelman CJ agreed, at [539]) said that Briginshaw was of limited assistance in the case before him (at [809]), noting that nothing in Briginshaw detracted from the proposition that a serious allegation might be proved by "circumstantial evidentiary facts" and "inference and circumstance" (at [811]). He applied the quoted observations in Neat Holdings (at [812]), referring to his own earlier observations (with which Tobias and Basten JJA agreed) in Palmer v Dolman [2005] NSWCA 361, at [47], to the effect that there are "no hard and fast rules by which serious allegations might be proved from circumstantial evidence", and that the inquiry was, taking due account of what was said in Neat Holdings, whether the allegation had been proven on the balance of probabilities.

407

The defendants sought to draw an analogy between the standard of proof in the present proceedings and the standard to be met in proceedings alleging contravention of Part IV of the Trade Practices Act 1974 (Cth) (DPS [186]-[189]). In proceedings of the latter kind Briginshaw is applied (see JD Heydon and BG Donald, Trade Practices Law, Law Book Co (looseleaf), Vol 2, [18.250] and cases there cited). The defendants quoted from the judgment Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Shores Pty Ltd (2001) 119 FCR 1; [2001]

- 181 -

FCA 1861, at [69]-[70]. It does not seem to me that the quoted passage says anything more than that, while the standard of proof is on the balance of probabilities, the strength of the evidence necessary to meet that standard may vary according to the nature of what it is being sought to prove. That is obvious. Nevertheless I agree with ASIC (ASR [183-190]) that Part IV cases should be used with caution in other contexts. The Commission can only bring civil penalty proceedings for contraventions of the anticompetition, price exploitation and tax provisions of the Act, provisions that were enacted as a means of prohibiting behaviour that may have a significant impact upon industries as a whole and perhaps upon the economic life of the nation, and some of which have a specific mental element (e.g. s 46). The Commission cannot bring civil penalty

proceedings for contravention of the consumer protection provisions of Part V of the Act, which provide a more relevant comparison to a provision such as s 180 of the Corporations Act. Given the cases cited by the defendants to the effect that Part IV contraventions, though not formally criminal, are to be construed in the same way as a statute creating a criminal offence (e.g. Trade Practices Commission v Legion Cabs (Trading) Co-operative Society Ltd (1978) 35 FLR 372 at 381 per Franki J), it may be that the Part IV cases are in Lord Hoffmann's first category.

3.4.2 Application to the present case

408

Applying these general principles to the present case, I turn first to the nature of the cause of action and the subject-matter of the proceedings (s 140(2)(a) and (b)). These are civil penalty proceedings in which ASIC seeks disqualification orders and substantial compensation. Because

disqualification orders are sought, the proceedings are penal for the purposes of the application of the penalty privilege (Rich v ASIC (2004) 220 CLR 129; [2004] HCA 42). But they are not criminal proceedings, and it would be contrary to the legislative intention underlying the civil penalty

- 182 -

provisions to apply a de facto criminal standard of proof in such proceedings. This is because the civil penalty provisions of the

Corporations Law were the outcome of recommendations by reformers who thought that directors and others who contravene the corporations legislation should not be branded as criminals unless they have acted dishonestly (as my co-author Professor Ford wrote in RP Austin, HAJ Ford and IM Ramsay, Company Directors: Principles of Law and Corporate Governance (LexisNexis, 2005) at [18.71], summarising relevant law reform material). What is required is to apply the civil standard of proof, not a de facto criminal standard, while taking into account the matters specified in s 140(2) and explained in the cases in assessing whether the court is satisfied that the standard has been met.

409

As to the seriousness or gravity of the allegations made (s 140(2)(c)), the only contraventions alleged are contraventions of the statutory duty of care and diligence in s 180 of the Corporations Law. In Vines v ASIC (2007) 62 ACSR 1; [2007] NSWCA 75 it was held that the standard of care under s 180(1) is the same as in the tort of negligence ([142], [151] per Spigelman CJ, with whom Ipp JA agreed, at [805]; [587] per Santow JA). However, the consequences of breach of the statutory standard may be different from and more serious than breach of the duty of care at common law. First, a declaration of contravention carries of itself a "significant sting", perhaps somewhat higher than a finding of breach of the common law duty (at [144], per Spigelman CJ). Second, a finding of contravention can have a significant effect on the reputation of the defendant, with considerable commercial consequences, though not qualitatively different from a finding of negligence in a professional negligence case (at [144][145] per Spigelman CJ). The making of any further order, such as a pecuniary penalty order or a disqualification order, requires the court to be satisfied of additional statutory criteria relating to the seriousness of the matter; and if made, a pecuniary penalty order or a disqualification order

- 183 -

may have consequences as severe as any likely criminal sentence, save for a term of imprisonment (at [143], per Spigelman CJ).

410

Here, ASIC seeks disqualification orders which have the level of seriousness identified by Spigelman CJ. Additionally, ASIC's central

allegations, though allegations of contravention of the duty of care, are of a particularly serious kind, which seemed to me to raise the level of seriousness beyond what is implied in findings and disqualification orders based on a breach of duty of care of a more "ordinary" kind. The

statement of claim alleges that the defendants failed to take reasonable steps to ensure that the board was aware of the true financial position of the company, and either withheld the true financial position from the board thereby misleading it or, if they did not know the true financial position, failed to take reasonable steps to apprise themselves of it. The statement of claim also alleges that Mr Rich caused or permitted announcements to be made to the ASX on 27 February and 4 April 2001 containing statements for which there was no reasonable factual basis, and that he either knew there was no reasonable factual basis for the statements or ought to have known. One of the alternatives pleaded

against the defendants (and Mr Rich in relation to the market announcements) amounts to an allegation of intentional misleading conduct, even though the cause of action is for breach of the duty of care and diligence. That is a very serious allegation. In its submissions, ASIC has invited the court to make findings against the defendants that amount to findings of intentionally misleading conduct, amounting to dishonest conduct.

411

While, therefore, the question is whether the court is reasonably satisfied that the facts in issue have been proved to the civil standard, it must have regard to the gravity of what is sought to be established, though not with the degree of certainty indispensable to criminal proceedings.

- 184 -

412

That is the general approach to be taken. I have some observations to make about three applied matters, namely indirect inferences, conflicting evidence about conversations, and documentary evidence.

3.4.2.1 Indirect inferences

413

The defendants' submitted that the court is not to make findings on the basis of "indirect inferences". That proposition is taken from Dixon J's judgment in Briginshaw. On the other hand, ASIC is entitled to establish even serious allegations of wrongdoing or misconduct by the defendants by "circumstantial evidentiary facts" or "inference and circumstance": Vines v ASIC at [811], per Ipp JA (with whom Spigelman CJ agreed, at [539]). Therefore a line has to be drawn, having regard to the gravity of the contravention and its inherent probability, to separate those cases where there are strong enough grounds for inference to satisfy the court that a serious contravention should be found, from cases where the inference that the court is asked to make is too indirect to warrant that conclusion.

3.4.2.2 Evidence about the meetings and conversations

414

In my judgment at first instance ASIC v Vines, at [1109]-[1111], I made some observations as to how the application of the standard of proof on the balance of probabilities, interpreted in Briginshaw, would apply to findings of fact about meetings and conversations where the testimony of witnesses was conflicting. The Court of Appeal did not deal in terms with this matter, but their Honours' observations about Briginshaw were, I think, consistent with what I said. Resolving to such conflicting evidence was a centrally important aspect of that case. ASIC submitted that in the present case, though there are some conflicts of evidence as to what was said, they are of subsidiary importance, and in some cases of little

- 185 -

importance. I think that is generally true of ASIC's case, although it seems to me that findings of fact about what was said, particularly by the defendants to various directors, is of substantial importance to the defendants' case. But whether the conflicting evidence of conversations is central or subsidiary, it seems to me useful to consider how Briginshaw applies to resolving such conflicts.

415

In ASIC v Vines I adopted some remarks of McLelland CJ in Eq in a misleading conduct case, Watson v Foxman (2000) 49 NSWLR 315 at 318-19. His Honour said:
"Where the conduct is a speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether the spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition."

416

Although this is not a misleading conduct case, questions have arisen about whether financial information supplied by the defendants (particularly Mr Rich) to directors and shareholders (particularly Mr Packer Jnr and his father) was misleading. Sometimes the differences in evidence are subtle but substantial: for example, whether Mr Rich gave an absolute, unqualified assurance that the company would reach a certain target, or merely communicated a management forecast necessarily based on many assumptions and qualifications. It seems to me that the

observations of McLelland CJ in Eq are applicable.

417

Having drawn attention to the manner in which the question, whether spoken words were misleading, might depend upon relatively subtle nuances, his Honour continued:

- 186 -

"Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court 'must feel and actual persuasion of its occurrence or existence'."

418

I have taken the view that it is appropriate to bear such matters in mind in evaluating the conflicting evidence of conversations and meetings in the present case. Sometimes I have been aided in reaching conclusions by evidence of surrounding circumstances or context, but on a few occasions there has been little more to assist me in choosing between conflicting versions of conversations than my overall assessment of the credibility of the witnesses, my assessment of the inherent plausibility of the respective versions of what was said, and the general approach that the court should take to such matters as explained by McLelland CJ in Eq. There is, of course, danger in making assessments on the basis of inherent plausibility alone, graphically illustrated by McClellan CJ at CL extra-curially in his "Maralinga" example, in "Who is telling the truth? Psychology, common sense and the law" (2006) 80 ALJ 655, 655-6, and by Ipp JA in his GovernorGeneral example in "Problems with fact-finding" (2006) 80 ALJ 667, 674. But it seems to me that where the subject matter of the evidence is a conversation and there are two competing versions, inherent plausibility has some utility.

419

In their written submissions the parties urged me to take into account some additional considerations when assessing conflicting evidence about conversations and meetings.

- 187 -

420

First, the defendants advanced various considerations as to why, they said, the court should prefer their evidence to the evidence given by Mr Packer Jnr and Mr Murdoch Jnr (DPS [196]ff). Obviously the defendants had their own interests to protect in this litigation but, as they pointed out, the PBL and News witnesses also had a very significant interest in the outcome of the case and the court's findings along the way. Mr Packer Jnr and Mr Murdoch Jnr claimed that they had been "profoundly misled" (cf ASR [196] which does not quite meet the defendants' submission). I agree with the defendants that their desire to defend that position resonates through their evidence.

421

The defendants submitted that from a very early stage they focused their minds on One.Tel's financial position in the period from January to May 2001 and the surrounding circumstances, because the events of May 2001 when the company collapsed were enormous events in their lives, and they were followed immediately by allegations of the most serious kind made against them by Mr Packer Jnr and Mr Murdoch Jnr, allegations with which they were in violent disagreement. Indeed they considered that there was a conspiracy between the Packer and Murdoch camps in connection with the rights issue. The court should infer, they said, that in these circumstances it stands to reason that they would preserve their memory of the events affecting One.Tel's demise.

422

The defendants' affidavits were sworn on 27 March 2006. ASIC submitted (ASR [197]) that the substantial time sought and obtained by the defendants in early 2006 to prepare their affidavits (T 10451) should lead the court to conclude that the affidavits were to a very significant extent prepared on the basis of recollections five years after the events. However, there is some evidence that Mr Rich's statement was "well progressed" by September 2002 (Ex P24, Tab 12, para 103) and one can infer that the progress made in preparing his statement would partly have involved

- 188 -

preparing his answers to the evidence of Mr Packer Jnr and Mr Murdoch Jnr, whose principal affidavits were sworn in May and June 2002, and presumably served shortly afterwards. In these circumstances, the fact that substantial additional time was needed to finalise the defendants' affidavits after the close of ASIC's case does not mean that the defendants' recollection of the conversations and meetings deposed to by Mr Packer Jnr and Mr Murdoch Jnr was recorded 5 years after the events. The

affidavits, when they appeared, were comprehensive responses to ASIC's case in chief, not merely to the affidavits served before the hearing began. There were a few occasions, noted by ASIC at APS [2057] and [2066], where the fact that matters in Mr Rich's affidavit were not put to ASIC's witnesses suggests that the relevant parts of the affidavit were prepared after the cross-examination of those witnesses. But that does not establish that the bulk of the affidavit was prepared at that late stage.

423

My overall conclusion is that in the circumstances described in their submissions, it is likely that the defendants' recollection of the key events, particularly of May 2001, is likely to have been quite sharp when they began to prepare their statements, and probably remained so. There was nothing in their evidence in cross-examination to suggest other than reasonably clear recollection of the events to which they deposed in their affidavits. My main concern about the evidence has not been lack of contemporaneity of recollection, but the effects of their obvious selfinterest. It is "common for a witness' thoughts to bend in a direction that would be self-advantageous" (E Loftus and J Doyle, Eyewitness Testimony: Civil and Criminal (New York, 1987), p 83, cited by Justice McClellan in his article, "Who is telling the truth? Psychology, common sense and the law", supra, at 665). Obviously concern about the distorting effect of self-

interest must be heightened when the witness is a defendant, in proceedings which challenge his competence and reputation as a corporate executive. ASIC drew an analogy with patients in medical

- 189 -

negligence cases, where it has been said that the tribunal of fact must be vigilant in accepting self-interested assertions (Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55, at 272-3; Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18, at 485, 504-5. I have tried to bear these considerations in mind, and therefore to assess their evidence critically, but on many occasions (as this judgment shows) I have reached the conclusion that the internal logic of the defendants' evidence, particularly the evidence of Mr Rich, is compelling and consistent with external circumstances. Therefore for the most part is not been necessary for me to resolve conflicts of evidence as to meetings in conversations by reference to considerations of onus and standard of proof.

424

Some considerations about the strength of recollection of two of ASIC's key witnesses, Mr Packer Jnr and Mr Murdoch Jnr, weigh against accepting their evidence. Mr Packer Jnr described the critical period

between 18 and 25 May 2001 as being "very difficult for me to recall" (affidavit of 23 July 2004, para 21), even though that was the crucial period during which PBL and News withdrew their support for the rights issue and the company consequently was placed in voluntary administration. He agreed in cross-examination that after One.Tel went into

administration, it was "in a general sense … relatively fair" to say that he deliberately tried to forget the events that had occurred in the preceding six months (T 9684), although not long afterwards he prepared a document with Mr Elliott of counsel seeking to recount what he remembered of the relevant events, and he was examined by ASIC in September 2001 and by the liquidators of One.Tel in about May 2002 (T 9684, 9918-9). It was evident from Mr Murdoch Jnr's evidence that his recollection had abandoned him on many matters.

425

I shall return to the credibility of the defendants, Mr Packer Jnr and Mr Murdoch Jnr in detail in Chapter 5. Here, it suffices to say that general

- 190 -

considerations about the fallibility of human memory do not weigh against the evidence of the defendants, for the reasons I have given, although I have some concerns about the strength of recollection of Mr Packer Jnr and Mr Murdoch Jnr.

426

The defendants urged the court to be cautious about accepting the evidence of ASIC witnesses who had been interviewed by lawyers representing PBL, which was seeking to gain evidence to shore up its position and that of Mr Packer Jnr, some of whom were retained on paid consultancies. The defendants' submission was that, without any lack of propriety on the part of the lawyers involved, memories can readily be corrupted by the power of suggestion in such an interview and/or the desire to produce "facts" for the people conducting interviews or retaining them (DPS [2002]). They referred to observations of Justice Ipp in the extra curial writing to which I have referred ("Problems with fact-finding", supra, at 668):
"Many experiments have shown that information provided to witnesses after an event affects how they later remember it. Studies have shown that persons who fall prey to misleading information consciously remember witnessing things that they have not seen. They hold these false memories with great confidence."

427

Similarly Justice McClellan ("Who is telling the truth?

Psychology,

common sense and the law", supra, at 664, 665) said that "from a judicial perspective, it is particularly important to recognise the susceptibility of memory to suggestion", and later he remarked that "the most troubling aspect of memory – be it a child's memory or an adult's – may be its vulnerability to suggestion".

428

I think those observations have a potential application to the evidence of ASIC witnesses who were interviewed by lawyers on behalf of PBL, and a fortiori, to those who received paid consultancies.

- 191 -

3.4.2.3 Evidence about documents

429

Section 140 and the Briginshaw line of cases apply as much to documentary evidence as to oral evidence. On some occasions documents speak for themselves, but that is only when the tribunal of fact is able to proceed, by evidence or assumption, on a basis reflecting what the document is, how it was created and whether it was a final version. In my view, on the

occasions when the court has some doubt, on the basis of the document itself or surrounding circumstances, about the weight to be given to a document because of concern about why it was created or how it was used, or about the ambiguity of its contents or whether it was a draft, and there is no witness giving evidence to remove that doubt, the court's caution about the weight to be given to the documents will be enhanced by the considerations enumerated in s 140(2).

430

The fact that the court has held that the documents in question are admissible does not entail that they are to be given any particular weight in ASIC's case, as I made plain in my judgment on the admissibility of business records, ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [122]-[147], [381].

3.5 The principle in Blatch v Archer

431

The defendants placed substantial reliance on what they called "the rule in Blatch v Archer". Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 was an action of debt against the Sheriff of Essex for the escape of a debtor called Moody. The Sheriff issued a warrant for Moody's arrest on the application of the plaintiff, to be executed by old Mr Fenton, the bailiff. In fact the arrest was carried out by Mr Fenton's son, and it was authorised and lawful only if old Mr Fenton was present at the time of the arrest. There

- 192 -

was some evidence on this matter, but the plaintiff, who was asserting the lawfulness of the arrest, did not call young Mr Fenton, who could have cleared the matter up. In that context Lord Mansfield remarked that "it is certainly a maxim that all evidence is to be weighed according to the proof which was in the power of one side to have produced, and in the power of the other to have contradicted". However, he did not apply that principle against the plaintiff because he held that in the instant circumstances, it would have been improper to have called the son, for the action was in reality an action against his father, the bailiff.

432

Lord Mansfield's principle has been accepted and applied in modern cases. For example, in Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57, at 62, Kirby P considered what inferences should be drawn, if any, from the failure of the appellants to call evidence. He said:
"In a rational procedure for the resolution of disputed issues of fact, it would not be unreasonable to expect a party in the best position to do so to place before the tribunal of fact the relevant evidence in its possession, at least so far as such evidence was relevant to the resolution of disputed questions."

Later his Honour referred (at 65) to the "overriding obligation, oft repeated, to consider and weigh the evidence at the end of the trial according to the respective powers of the parties to produce evidence", and he said that principle, which supplemented the processes of reasoning authorised in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, could be traced to Lord Mansfield's judgment in Blatch v Archer. He noted that it was endorsed by the High Court in Hampton Court Ltd v Crooks (1957) 97 CLR 367; [1957] HCA 28, at 371-2, and that it had been applied many times, citing Apollo Shower Screens Pty Ltd v Building & Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561, at 565.

433

The relationship between the principles enunciated in Blatch v Archer and Jones v Dunkel was further explained by Hodgson JA (with whom Beazley JA agreed) in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168. His

- 193 -

Honour said (at [14]) that "in deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision", and he referred to his extra-curial writing on the subject ("The Scales of Justice, Probability and Proof in Legal Fact-finding" (1995) 69 ALJ 731). He continued:
"[15] In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so: cf 69 ALJ at 732-733, 736, 740. … "[16] The case of Jones v Dunkel (1959) 11 CLR 298 is a particular application of this principle. That case itself related to a situation where there was evidence supporting an inference against a party, and that party did not give or call evidence, which that party was plainly in a position to have given or called, in order to explain or contradict the material presented. In my opinion, a similar principle applies where a person bearing the onus of proof does not give or call evidence which that person is plainly in a position to give or call; and unless some explanation is given of this failure, the tribunal of fact is entitled to infer that this evidence would not have assisted that person's case: cf Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389."

434

Presumably Jones v Dunkel is a "particular application" of Blatch v Archer, in the sense that the reason why the court can be confident about drawing inferences against a party who has chosen not to give evidence is that it was within the power of the party to produce evidence on that matter. Blatch v Archer is a wider principle because it is also available against the person bearing the onus of proof, where that person does not adduce evidence that he or she was plainly in a position to adduce.

435

There is another respect in which Jones v Dunkel is a particular application of Blatch v Archer, again indicating that the latter has a wider operation. Whereas Jones v Dunkel reinforces an inference drawn against the party who has not called evidence, to the effect that the evidence would not

- 194 -

have assisted that party's case, Blatch v Archer leads either to the drawing of such an inference, or to some other assessment of the weight of evidence, unfavourable to the party against whom the principle is applied. In Shalhoub v Buchanan [2002] NSWSC 99 at [71], Campbell J explained the point as follows:
"Failure to call all those witnesses still has a consequence, even though I do not go through the process of drawing any Jones v Dunkel inferences concerning them. I would infer that Mr Shalhoub, Mr Atallah, one or more of the salespeople, and at least some of the other people who attended the auction, were available. I shall assume that all of these witnesses, apart from Mr Shalhoub, were available to be called by either party. Even making that assumption, failure of a party who bears an onus of proof to call an available witness who could cast light on some matter in dispute can be taken into account in deciding whether that onus is discharged, in circumstances where such evidence as has been called does not itself clearly discharge the onus. This is an application of Lord Mansfield's maxim …".

436

The defendants have sought to invoke the principle in Blatch v Archer on many occasions, arguing in each case that ASIC might have called a witness who could have clarified an uncertain matter (especially as to the status and meaning of a document) but has not done so (generally, DPS [223]). ASIC made the general submission (ASR [218-223]) that the present case is far removed from cases such as Ho v Powell. Ho v Powell concerned a road accident in which there was a collision between the plaintiff cyclist and a car driven by the defendant. The defendant claimed that the

plaintiff was guilty of contributory negligence. The claim failed. The court regarded it as significant that the defendant had not himself given evidence concerning the collision. ASIC submitted that in Ho v Powell, a non-documentary case, the defendant's evidence was central, whereas in the present case the evidence of the individuals identified by the defendants as potential witnesses was "relatively peripheral".

437

In my view, while none of the individuals identified in the defendants' submissions was in so central a position as the defendant in Ho v Powell, it

- 195 -

is wrong to say of any of them that their position and potential evidence was relatively peripheral. For example, Timothy Holmes was group

financial controller of One.Tel Australia and was well placed to give evidence about the fixed wire/service provider management accounts and other financial documents concerning the Australian businesses, relating to subjects of central significance to ASIC's case. Mr Basman was

collections manager at One.Tel Australia, and in a position to explain the profile summaries and give evidence about the process of provisioning for doubtful debts, matters which were again of very substantial importance in ASIC's case. Mr Miller and Mr Green were the authors of the PBL report presented to the board on 28 May as well as earlier reports, and were obviously well placed to give evidence about PBL's attitude to One.Tel in the period from late April to 29 May, a matter of some importance for ASIC's case. In my view the principle in Blatch v Archer is just as capable of applying to a documentary case where the documents need explanation by witnesses, as it is to a non-documentary case about a motor accident.

438

The principle in Blatch v Archer requires the court to identify the power of the party to produce evidence. The defendants pointed out that as regards the power to produce evidence from a witness, ASIC is in a far superior position to most litigants, because of its power to administer examinations under s 19 of the ASIC Act, and to issue notices under s 1317R of the Corporations Act, as well as to issue subpoenas. In fact ASIC has obtained statements from many of the persons who, according to the defendants, should have been called to give evidence, and additionally it could have used its powers to call witnesses to contradict the defendants' evidence. Instead it has sought to rely on inferences from documents.

439

ASIC submitted that there is an important contrast between the breadth of an investigation that ASIC conducts into suspected contraventions of the

- 196 -

corporations legislation (which it described as "a roving investigation", and the way in which ASIC must conduct itself once it is a party to a judicial proceeding of a civil nature, at which time it must "focus on issues and the fairest and most efficient way of proving them" (ASR [218-223]). I accept that there is such a distinction, but nevertheless it seems to me clear that it was in the power of ASIC to bring forward witnesses to clarify financial documents, debtor documents and PBL reports in the manner advocated by the defendants. As I shall note although when dealing with Jones v Dunkel, there is evidence of significant assistance to ASIC on the part of several potential witnesses, including Mr Holmes, Ms Nassif, Mr Basman, Mr Miller and Mr Green. There is nothing to suggest that ASIC could not have called any of these people, or Mr Barnes, Ms Joukhadar or Mr Courtney, as witnesses in its case in chief.

440

ASIC also submitted that, as a result of the extensive discovery that has occurred in these proceedings, the defendants have obtained access to all of the possibly relevant available records of the company and all information acquired by ASIC in the course of its investigation, including transcripts of s 19 investigations (ASR [218-223]). They sought and were granted considerable time to examine and deal with that material. ASIC referred to what it called the "advantage" which the defendants had in having someone as knowledgeable about the company as Mr Rich working over the last five years on the defendants' defence of these proceedings. It referred to evidence given by the defendants' solicitor, Mr Johnston, by affidavit of 7 September 2002, as well as by Mr Rich himself (T 10788), dealing with how hard Mr Rich has worked on the matter. It referred to the assistance received by the defendants from former employees of One.Tel in preparing their defences, referring again to Mr Johnston's affidavit, as well as evidence from Mr Rich about the assistance he received from Mr Hodgson (T 10799-10800), and assistance the defendants received from accounting experts (T 10789-10795). In

- 197 -

summary, ASIC submitted that the defendants have had the resources and expertise available to them to investigate thoroughly and argue every point capable of investigation and argument, and so there has been no inequality of position between the parties regarding their ability to conduct their cases, and every person who the defendants say ASIC should have called as an additional witness could have been called as easily by the defendants.

441

I think those allegations (apart from the last one) are correct but beside the point. For the purposes of the principle in Blatch v Archer, ASIC had both the onus of proving its case and the power to call witnesses to overcome deficiencies about its documents, some of which were identified at a relatively early stage (see my judgment on the admissibility of documents, ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417). But it has not done so, preferring instead to submit that the court should draw inferences from the documents. The defendants had no onus or obligation to call evidence about ASIC's documents. I made it clear in my judgment (at [381]-[382]) that my ruling on the admissibility of ASIC's documents left open the possibility of the defendants challenging the probative value of the documents having regard to the difficulties with the documents that the judgment identified. It is hardly surprising that ASIC, not having called witnesses to clarify uncertain matters about the documents, encounters such a challenge now.

3.6 The Jones v Dunkel principle

442

I received extensive submissions on Jones v Dunkel. Both parties wished to take advantage of the principle in respect of what they alleged to be failure on the part of the other party to call certain witnesses or to ask witnesses certain questions. It is not necessary, in these reasons for judgment, to

- 198 -

survey the law generally, but there are some aspects of the principle that need to be addressed.

443

Kitto J's formulation of the principle (Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, at 308) was that evidence might be more readily accepted where it has been left uncontradicted, and that any inference favourable to the proponent, for which there was ground in the evidence, might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the opponent, and the evidence provides no sufficient explanation of the absence of that witness (see also at 312 per Menzies J, and 320-1 per Windeyer J). The observations of Davies A-JA (dissenting on the facts) in Ho v Powell, at [76], are a useful supplement:
"The rule permits evidence to be given greater weight and an inference or inferences to be more readily drawn when the other party who might have called evidence to the contrary has chosen not to do so. In Commonwealth Australia v McLean (Court of Appeal, 31 December 1996, unreported), Handley JA and Beazley JA said: '… the rule typically applies to strengthen or weaken an inference otherwise available on the evidence for the benefit of the party not in default.'"

444

There are three conditions for the application of the principle: (a) the missing witness would be expected to be called by one party rather than the other (which implies that the witness must be available to give evidence); (b) his evidence would elucidate a particular matter, which is a live matter at the trial; and (c) his absence is unexplained (Payne v Parker [1976] 1 NSWLR 191, at 201-2 per Glass JA, dissenting; cited with approval by Campbell J, with whom Beazley JA and Pearlman A-JA agreed, in Manly Council v Byrne [2004] NSWCA 123 at [53]).

- 199 -

445

Condition (a) is sometimes difficult to apply. Glass JA explained it as follows, at 201-2 (I omit the citation to authorities):
"The first condition is also described as existing where it would be natural for one party to produce the witness …, or the witness would be expected to be available to one party rather than the other …, or where the circumstances excuse one party from calling the witness, but require the other party to call him …, or where he might be regarded as in the camp of one party, so as to make it unrealistic for the other party to call him …, or where the witness' knowledge may be regarded as the knowledge of one party rather than the other …, or where his absence should be regarded as adverse to the case of one party rather than the other …. It has been observed that the higher the missing witness stands in the confidence of one party, the more reason there will be for thinking that his knowledge is available to that party rather than to his adversary …. If the witness is equally available to both parties, for example, a police officer, the condition, generally speaking, stands unsatisfied. There is, however, some judicial opinion that this is not necessarily so …. Evidence capable of satisfying this condition has been held to exist in relation to a party's foreman …; his safety officer …; his accountant …; his treating doctor …."

446

Where the principle applies, two different types of result might follow, according to Campbell J in Manly Council v Byrne, at [51]: • the tribunal of fact might infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call that witness; • the tribunal of fact might draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn.

447

The principle applies both to failure to bring forward a witness and failure to tender a document or other evidence (Jones v Dunkel, at 320 per Windeyer J; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17, at [134]).

- 200 -

448

It also applies where a party fails to ask questions of a witness in chief on some topic, the most natural inference from that circumstance being that the party fears to do so: Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Limited (1991) 22 NSWLR 389, at 418 per Handley JA. The latter proposition is emphasised in Cross on Evidence (Australian edition by D Byrne and JD Heydon, Butterworths, looseleaf), at [1215]:
"… the principles of Jones v Dunkel apply to the failure by a party to ask a witness called by that party questions in chief, at least where the most natural inference is that the party feared to do so [citing Commercial Union v Ferrcom, and other cases]. Indeed it has been said that the omission to ask questions of a friendly witness is more significant than the failure to call the witness, and that the presumption that the testimony would not have been favourable to the party's case is stronger than the presumption arising from the failure to call him [citing Milliman v Rochester Railway Co 39 NYS 274 at 276 (1896), approved in Commercial Union v Ferrcom, at 419]. A fortiori, inferences are not to be drawn in favour of a party calling a witness who could have given direct evidence to that effect, but did not [citing cases including Commercial Union v Ferrcom]. The principle applies to a witness who, though called in the plaintiff's case in chief, is not called in the case in reply to deal with a fresh matter arising during the defendant's case [noting, inter alia, the division within the Court of Appeal in Payne v Parker]."

449

The principle in Jones v Dunkel does not apply where, in the circumstances, it is not reasonable to infer that the party against whom the inference is sought to be raised did not call the witness because of fear of what a witness might say. That proposition was explained by Mahoney JA

(Priestley and Sheller JJA concurring), in Fabre v Arenales (1992) 27 NSWLR 437, at 449-50:
"The significance to be attributed to the fact that a witness did not give evidence will in the end depend on whether, in the circumstances, it is to be inferred that the reason why the witness was not called was because the party expected to call him feared to do so. But there are circumstances in which it has been recognised that such an inference is not available or, if available, is of little significance. The party may not be in a position to call the witness. He may not be sufficiently aware of what the witness would say to warrant the inference that, in the relevance sense, he feared to call him. The reason why the witness is not called may have no relevant relationship with the fact in issue: it may be

- 201 -

related to, for example, the fact that the party simply does not know what the witness will say. A party is not, under pain of a detrimental inference, required to call a witness 'blind'. "… A Jones v Dunkel inference may not arise if, for example, the witness has a reason for not telling the truth or refusing to assist and the party who may well call him is aware of this. If the Government Insurance Office had been the party and Mr Arenales merely a witness, it is at least arguable that no inference would be drawn from the fact that he was not called for the defendant. If called he would have been asked in effect to admit a crime of some seriousness. If he did, he might be liable to reimburse the Government Insurance Office for or in respect of the amount recovered by the plaintiff. And, perhaps, it might be doubted that he would co-operate, by way of prior consultation, proof of evidence, or the like. It may be that his character or criminal record would affect these matters."

450

Other circumstances where the court might decline to draw a Jones v Dunkel are where: • the missing witnesses are merely giving evidence which is comparatively unimportant, cumulative or inferior to that which has already been obtained (Cubillo v Commonwealth (2000) 103 FCR 1; [2000] FCA 1084, at [360] per O’Loughlin J; Manly Council v Byrne, at [60]-[66] per Campbell J); • the party against whom an inference is sought to be raised already has a strong case on other evidence to support a finding - that is, the inference that the absent witness's evidence would not support the finding does not prevent the finding from being made on the basis of other evidence (Manly Council v Byrne, at [74] per Campbell J, citing JPQS Pty Ltd v Cosmarnan Constructions Pty Ltd [2003] NSWCA 66, at [24] per Meagher JA (with whom Beazley JA agreed, and Mason P substantially agreed).

451

ASIC put forward the following additional proposition (APS 2111 (iv)): "where the party's case is essentially a documentary one such that oral supplementary or corroborative evidence would substantially add to the length of the trial", the principle in Jones v Dunkel will not apply (citing
- 202 -

ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [377-[378]). My observations in that judgment were not intended to lay down some new exception to the principle in Jones v Dunkel, and in my view it is not a correct proposition, expressed in that way. If the case is a documentary one, then the strength of the case depends upon the documents, and supplementary or oral evidence is necessarily of lesser importance, and so a Jones v Dunkel inference is unlikely to be made having regard to the two principles stated in the preceding paragraph. But having now had the benefit of hearing the whole of the evidence, I am not persuaded either that ASIC's case is a strong one on the documents or that, having regard to the difficulties surrounding the documents, it is to be described as a case that is essentially documentary.

452

ASIC submitted (APS [2101]) and the defendants agreed (DPS [236]) that the onus of establishing the unavailability of a witness, for the purposes of the principle in Jones v Dunkel, rests on the party against whom the principle would operate. The defendants cited a somewhat tentative

statement to that effect in Cross on Evidence, supra, at [1215], said to flow from the majority judgment in Smith v Samuels (1976) 12 SASR 573. It seems to me that the learned authors are correct.

453

The defendants submitted (DPS [235]) that "the so-called desire to keep the trial within reasonable bounds does not mean that the principle ceases to exist", and they cited some observations by Callinan J in Dyers v The Queen (2002) 210 CLR 285; [2002] HCA 45, at [118]. The passage relied upon does not support the submission. Callinan J was dealing with the obligation of the prosecution in a criminal trial to call material witnesses, and he said that "whilst counsel and judges should be vigilant to ensure that trials are not needlessly prolonged, 'material' in this field of discourse should not be given any narrow meaning". application to civil proceedings. Those observations do not have any

- 203 -

454

Finally, there was some contention in submissions as to whether Jones v Dunkel inferences can be drawn against defendants in civil penalty proceedings, such as the present proceedings, in which the defendants have the benefit of the penalty privilege. It is rarely permissible to direct the jury or make a comment about drawing a Jones v Dunkel inference from the absence of evidence by the accused or by witnesses called by the accused (Cross on Evidence, at [1220]), although it seems clear that if there is any scope for Jones v Dunkel inferences at all, it is very much narrower in a criminal trial than in a civil case. As to whether Jones v Dunkel inferences can be made against the prosecutor, the leading modern case is Dyers v The Queen, supra. In that case Gaudron and Hayne JJ (with whom Kirby J agreed) held that a direction should not generally be given to a jury to the effect that the prosecution would have been expected to call witnesses, unless it is shown that the failure to call the witness was in breach of the prosecutor's duty to call material witnesses: at [6], [17]. The question addressed in submissions is whether the thinking underlying the criminal cases has any application to civil penalty proceedings in which the penalty privilege applies.

455

The matter was addressed by the Court of Appeal in Adler v ASIC (2003) 46 ACSR 504; [2003] NSWCA 131, at [652]-[661] per Giles JA, with whom Mason P and Beazley JA agreed. That was a case in which, inter alia, pecuniary penalty orders were made, and so the defendants were protected by the penalty privilege, even before the High Court held in Rich v ASIC (2004) 220 CLR 129; [2004] HCA 42 that the penalty privilege extended to civil penalty proceedings seeking disqualification orders. Giles JA considered whether the availability of the penalty privilege, which he recognised to be an extension of the privilege against selfincrimination, is inconsistent with the application of the Jones v Dunkel principle. He concluded (at [661]):

- 204 -

"In the end the argument must be that it would not be consistent with this stance against self-incrimination for an inference adverse to the person from whom a civil penalty is claimed to be drawn because of the failure of the person to give evidence. That reasoning did not find favour in RPS v R [(2000) 199 CLR 620; [2004] HCA 3], in which the 'right to silence' was not thought to be a useful basis for reasoning: at [22]. To say that a person cannot be forced to give evidence against himself, by providing discovery or answering interrogatories or, in a criminal context, making a statement to the police, says little when it comes to the giving of evidence in the person's own case. In ordinary civil proceedings the defendant cannot be forced to give evidence in his own case. Civil penalty proceedings are no different in that respect. In my opinion it was open for Jones v Dunkel inferences to be drawn against Mr Adler, Adler Corporation and Mr Williams in these proceedings."

456

In my opinion that reasoning, developed in a case to which the penalty privilege applied, is not affected by the High Court's decision in Rich, which recognised the availability of the penalty privilege in other circumstances (cf DPS [271]). I do not agree with the defendants that part of the reasoning in Adler depended upon a since discredited dichotomy between punitive and protective civil penalty orders. Adler was a case in which pecuniary penalties were sought and the penalty privilege clearly applied, even before the High Court held that the privilege was available in proceedings for a disqualification order. It is true that Giles JA referred (at [659]) to "a disqualification order made not punitively but protectively", but as McColl JA observed in Rich v ASIC [2003] NSWCA 342, at [335] (on which the defendants mistakenly relied), that observation was not critical to the decision on the point under consideration in Adler.

457

The Court of Appeal in Adler did not discuss Dyers v The Queen when considering whether Jones v Dunkel inferences were available against the defendants in civil penalty proceedings, although they referred to the case later, when considering the argument that ASIC had a duty of "prosecutorial fairness" (at [677]). The defendants contended (DPS [273]), without further elaboration, that the consideration by Gaudron and Hayne

- 205 -

JJ in that case (at [7]ff]) as to the three principal reasons for concluding that a Jones v Dunkel direction should not have been given against the accused made it questionable whether Jones v Dunkel inferences should, as a matter of principle, be available against defendants to civil penalty proceedings. But the reasoning of Gaudron and Hayne JJ was specifically directed towards the circumstances of a criminal trial: the first criticism of the trial judge was that the Jones v Dunkel direction did not give the jury sufficient assistance; the second was that any conclusion about who would be expected to call a person to give evidence must take into account the obligations of the prosecution; and the third related to a direction that the jury should not speculate about the evidence that might have been given by those who were not called. To extend that reasoning to civil penalty proceedings in which the defendant has the benefit of the penalty privilege, whether because a pecuniary penalty or a disqualification order is sought, would require the construction of a process of reasoning not presented in the judgments in Dyers and contrary to Adler.

458

The application of Jones v Dunkel is reinforced by s 1317L of the Corporations Act, which requires the court to apply the rules of procedure and evidence applicable to civil proceedings. The principle in Jones v Dunkel is as much a part of the law of evidence applicable to civil proceedings as is the privilege against exposure to a civil penalty (see APS [2099]). My conclusion is that the principle in Jones v Dunkel is applicable against either party to civil penalty proceedings.

3.7

Application of Blatch v Archer and Jones v Dunkel to ASIC's

omission to call witnesses and ask questions

459

As previously noted, ASIC has extensive statutory powers to assist in gathering material for presentation in civil penalty proceedings, including its information-gathering powers in the ASIC Act, especially the power to

- 206 -

examine persons (s 19) and the power to require production of documents (s 30ff), and it also has the power to compel persons to assist under s 1317R of the Corporations Act. There is evidence that it has used these powers in the One.Tel investigation and the preparation of these proceedings. In the circumstances it was in the power of ASIC to have produced former One.Tel executives as witnesses to explain the uncertain documents that were part of its documentary tender.

460

ASIC submitted that the fact that it had obtained information pursuant to s 19 examinations from a number of witnesses, some of whom were not called, is an irrelevant matter (APS [2113]). It contended that its regulatory functions to inquire into a corporate collapse of the magnitude of the One.Tel collapse might require it to engage in wide-ranging inquiries, conducted not for the predominant purpose of building a case against defendants but for the express purpose of investigating suspected contraventions of the corporations legislation. I accept that ASIC's powers of investigation are given for the purpose of investigating suspected contraventions and that it conducted investigations in the present case for that purpose. But the submission misses the point raised by the

defendants, which is that because of those statutory powers ASIC was in a position to secure the co-operation of potential witnesses, and therefore (absent evidence to the contrary) the court should infer that it was able to bring to court the former One.Tel executives identified in the defendants' submissions.

461

The defendants submitted that, while ASIC has called witnesses to give "incriminatory" evidence (e.g. Messrs Weston, Werner, Boaden and Thomas), it has consciously avoided calling witnesses "who could put to rest the contentious inferences which it asks the court to draw (e.g. Holmes and Nassif in relation to the financial position of One.Tel Australia and the so-called management accounts in particular, Basman in

- 207 -

relation to debtors, Courtney, Miller and Green in relation to One.Tel's financial position post 17 May and the documents provided to the board on 17 and 28 May in particular)" (DP [244]). In other parts of their

submissions they mention Mr Barnes and Ms Joukhadar as possible witnesses on financial matters, in addition to or instead of Mr Holmes and Ms Nassif.

462

They were particularly critical of two matters: • ASIC's omission to ask Ms Thomas, who was an accounts payable manager, any questions about creditors, in circumstances where ASIC has sought to establish by inference that there was a practice of managing and deferring creditors (DPS [249]); and • ASIC's omission to call any members of the Australian finance team (such as Mr Holmes, Mr Barnes, Ms Nassif and Ms Joukhadar), even though the financial position of the Australian fixed wire/service provider business was central to ASIC's case, and most of these individuals were demonstrated to be available, some having worked for the liquidator and some having co-operated with ASIC in the course of its investigations (DPS [250]).

463

According to the defendants, ASIC hinted at the proposition that it could not call certain other One.Tel executives as witnesses because they were "complicit" in putting false financial information before the board (DPS [78]). The defendants submitted (DPS [78]) that ASIC's submission

implied that its case is really a case about deliberately and dishonestly misleading the board, rather than about placing information before the board that was honestly but carelessly prepared (DPS [78]). I do not agree with that submission. It seems to me that a former One.Tel executive might be reluctant to give evidence for fear of being seen as complicit in financial disclosure that was not fraudulent but culpably careless.

- 208 -

464

In ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, the defendants unsuccessfully argued that ASIC's documents should be excluded from the evidence on discretionary grounds. I expressed the obiter opinion (at [377]) that there was no occasion to make a Jones v Dunkel inference unfavourable to ASIC from its failure to call witnesses, in circumstances where the case was essentially a documentary case, ASIC wished to have the documents speak for themselves, and it plausibly submitted that oral supplementary evidence would add considerably to the length of the trial. Now that the trial is over, these matters have quite a different complexion. ASIC has presented its case as essentially a documentary case in final submissions, but the documents upon which it relies include some important documents that do not speak for themselves in any clear way, so that the absence of explanation by any witness is a serious impediment. In submissions on the admissibility of documentary evidence, ASIC contended that the former One.Tel executives who might have been called by ASIC to prove the documents were potentially hostile witnesses: the proceedings involved criticism of the accuracy and sufficiency of the financial information supplied to One.Tel's board of directors, and in those circumstances senior financial executives of One.Tel (such as Mr Holmes) or those associated with the provision for doubtful debts (such as Mr Basman) might fear that their conduct would be criticised, and that made them potentially hostile witnesses. ASIC said that the defendants were seeking to force it to call high-level employees of One.Tel with whom the defendants were closely associated for many years, who could be expected to be sympathetic to the defendants' interests. The fact that some of these individuals supplied information voluntarily to ASIC should not be treated as significant, in circumstances where ASIC have the power to force them to do so (see [2005] NSWSC 417 at [369], [371]).

465

I held (at [378]) that ASIC's submissions on this matter were not supported by evidence, and that such evidence as was available suggested a

- 209 -

willingness on the part of Mr Holmes and Mr Basman to co-operate with ASIC. I see no reason to vary that conclusion now. The evidence I

considered in my earlier judgment indicates that Mr Holmes and Mr Basman would be expected to be called by ASIC in view of their record of assistance to ASIC, and it is likely that their evidence would elucidate particular matters: in the case of Mr Holmes the status of the fixed wire/service provider management accounts and the relationship between board papers and flash reports, on the one hand, and other documents such as Australian cash flow spreadsheets on the other; in the case of Mr Basman, the profile summaries and the process of provisioning for doubtful debts. It seems to me the reasoning applied to Mr Holmes also extends to Ms Nassif and Ms Joukhadar. Some matters of uncertainty about the PBL report considered at the 28 May board meeting, and more generally the thinking of Mr Miller and Mr Green concerning One.Tel's financial condition during the course of their work from late April until 28 May, could have been elucidated if Mr Miller or Mr Green, or perhaps Mr Courtney, had been called to give evidence, and they would be expected to be called by ASIC rather than the defendants. Therefore the first two of Glass JA's conditions for the application of Jones v Dunkel (Payne v Parker [1976] 1 NSWLR 191, at 201-2) are satisfied.

466

ASIC resisted the proposition that the "missing" witnesses would be expected to be called by it rather than the defendants, arguing that they were equally accessible to both parties and that the defendants had through discovery received ASIC's information about them (ASR [258-69]). ASIC made the following submission (APS [2114]):
"Further, the information that it obtained pursuant to those examinations [s 19 examinations] and other inquiries was made available in response to discovery obligations and a series of notices to produce pre-trial (see, for example, Ex P7-170 and ASIC v Rich (2004) 50 ACSR 357; [2004] NSWSC 772). In other words, all documentary information (including s 19 transcript and statements) obtained or prepared by ASIC as part of its investigation, whether subsequently tendered or relied upon or

- 210 -

not, were also in the defendants' possession [sic]. It was at all times open to the defendants to approach those examinees whose examinations or statements or draft statements or notes from interviews could conceivably assist with their defences, and call them to give evidence for the defendants themselves. The witnesses were equally available to ASIC and the defendants."

467

This is not, in my view, an answer to the Jones v Dunkel submissions made by the defendants. Bearing in mind ASIC's onus of proof and its tender of documents needing explanation, it seems to me that if a potential witness has co-operated with ASIC by providing a statement or draft statement or attending a voluntary interview, or has voluntarily assisted the accountants engaged by ASIC in their investigations, that potential witness would be "expected to be called" by ASIC rather than the defendants for the purpose of Glass JA's first condition for the application of Jones v Dunkel (in Payne v Parker, noted above), even if some or all of the results of the co-operation have been provided to the defendants. That is particularly so if the co-operation with ASIC related to the particular matter to which a Jones v Dunkel inference is sought to be applied, and there is a reasonably strong likelihood that the witness's evidence would elucidate that matter.

468

As to Glass JA's third condition, that the absence of the witness is unexplained, I have expressed the view that the onus of establishing the unavailability of a witness is borne by the party seeking to avoid the Jones v Dunkel inference. I have reached the view that ASIC has not discharged the onus in respect of evidence from one of the finance team (Mr Holmes, Mr Barnes, Ms Nassif or Ms Joukhadar), evidence from Mr Basman, and evidence from one of Mr Miller, Mr Green and Mr Courtney. In my judgment on the admissibility of documents (at [378]) I noted that there was another reason advanced by ASIC for not calling additional witnesses, namely ASIC's forensic decision to conduct its case in reliance on documents rather than oral evidence, so far as possible, in an attempt to

- 211 -

keep the hearing within reasonable bounds. Again, now that the trial is over, I have a somewhat different perspective. It seems to me that the calling of an additional three witnesses, perhaps Mr Holmes, Mr Basman and Mr Miller or Mr Green, would have clarified ASIC's documents in important ways. For reasons given in my judgment on the admissibility of documents at [378], I do not accept the argument that there was no obligation to call those witnesses because they were in the defendants' "camp" or were otherwise potentially hostile to ASIC. While I accept that ASIC wanted to limit the evidentiary case within reasonable bounds, it did not hesitate to pursue Mr Werner's evidence notwithstanding his reluctance to testify, and it was prepared to extend its evidentiary case in other ways as well (such as by tendering the expert report of Mr Smith). In those circumstances there is ground for inferring that the witnesses who might have clarified the nature and status of key documents were not called for fear that they would be cross-examined at large and out of concern over what they would say.

469

It therefore seems to me that the absence of One.Tel management witnesses: (a) to explain management accounts and the relationship between board papers and flash reports and other financial documents including cash flow spreadsheets; and (b) to explain the profile summaries and the process of provisioning for doubtful debts; has the consequences: (c) under the principle of Blatch v Archer, that ASIC's failure to call those witnesses can be taken into account in deciding whether it has discharged its onus of proof with respect to the facts in issue to which the documents relate (see Shalhoub v Buchanan [2002] NSWSC 99 at [71], cited above); and

- 212 -

(d)

under the principle of Jones v Dunkel, that the court should infer that the evidence of the absent witnesses, if called, would not have assisted ASIC's case (Manly Council v Byrne [2004] NSWCA 123 at [51], cited above).

470

I have noted that Jones v Dunkel has a particularly strong application in a case where a party fails to ask questions of a witness called by that party. In my view that is the case with respect to ASIC's omission to ask: • Ms Thomas, who was the accounts payable manager at One.Tel, questions about management of creditors and deferral of payments of creditors over month-end; and • Mr Werner, joint chief financial officer of One.Tel Europe, questions about his cash flow spreadsheets of March, April and May 2001, which were at odds with information provided to the board. In both cases it is appropriate for the court to infer that evidence the witness would have given, if asked, would not have assisted ASIC's case, and moreover, the absence of such questions enables the court to draw, with greater confidence, inferences based on other evidence and unfavourable to ASIC, though it is not permissible to draw inferences damaging to ASIC's case from the omission of those questions.

471

ASIC submitted (ASR [258-69]) that it had no obligation to call further evidence that would only have served to prolong the trial, and indeed, for it to take such a course would put it in breach of its duty under s 56(3) of the Civil Procedure Act to assist the court in facilitating the "just, quick and cheap resolution of the real issues in the proceedings". But that

submission was made on the premise that ASIC had been able to prove its case to the requisite standard by calling the evidence that it called. If that premise is not correct, then the submission falls to the ground.

- 213 -

3.8. Application of Jones v Dunkel to the defendants' failure to give evidence explaining documents and to call a forensic accounting expert

472

ASIC invited the court to apply the Jones v Dunkel principle to the defendants' case in two respects.

473

First (APS [2104]-[2105]), they pointed out that over the preceding four years the defendants had extensive assistance in relation to the proceedings from accounting experts, but no evidence from such a witness was called by them. ASIC submitted that the court should draw the

inference that the defendants did not call such a witness because they feared to do so. The defendants strenuously opposed this submission (DPS [275]-[281]).

474

I disagree with ASIC's submissions, although I think the defendants' submissions are overstated (especially at DPS [278]). At the time of

commencement of the hearing it was evident that ASIC intended to place great reliance on the expert accounting evidence of Mr Carter, who had prepared an extensive report with multi-volume exhibits, on the basis of a very large amount of work. I have no doubt that if Mr Carter's evidence had been received in full, the defendants would have tendered expert accounting evidence in response. But as I explained in Chapter 1,

substantially more than half of Mr Carter's evidence was excluded by evidentiary rulings, and a fair proportion of what remained was allowed into evidence only as assumption. The part of Mr Carter's evidence that survived was of very limited significance to ASIC's case, as demonstrated by the fact that ASIC's written submissions in chief place very little reliance on Mr Carter's evidence.

475

In a case such as this, where the key issues are about financial facts, expert accounting evidence is somewhat different from other evidence, in that

- 214 -

much of the accountant's work is available to be used in submissions and cross-examination, although not given in evidence. I have no doubt that many of ASIC's submissions, and lines of questioning in crossexamination, were moulded from or assisted by the work of Mr Carter and Mr Smith. Equally, I am confident that the defendants made considerable use of their accountant's work in their principal submissions and crossexamination. In the case of an expert accounting report, therefore, the party commissioning the report has a forensic choice to make as to whether to tender it or to use its contents in cross-examination and submissions. In circumstances where the bulk of the tendered accounting evidence against them was not received into evidence, I think the natural inference to draw from the defendants' decision not to tender accounting evidence is that their forensic choice was to use that evidence in other ways. There is no room for an inference that they feared what their

accountant might say if he was called to give evidence.

476

ASIC propounded a case that One.Tel was in a disastrous financial position during the period from January to April 2001. The defendants recognised in opening their case that the principal issue in the proceedings is the financial position of One.Tel (T 10532; T 10636). They had the

benefit of substantial assistance in the proceedings from accounting experts. They have not called their accounting expert to give expert

opinion evidence, and the only financial evidence given by them (apart from extensive documents and the limited evidence of Mr Maizels) was the evidence of Mr Rich and Mr Silbermann themselves, which they must have known might be given limited weight on financial issues because of their interest in the outcome of the proceedings. Do those facts alone warrant a Jones v Dunkel inference about their accounting expert, as ASIC claimed (ASR [275-81])? I think not. They were entitled to take the view that ASIC should be held to proof of its case. They have made an

assessment of the strength of the accounting opinion evidence against

- 215 -

them, and have decided they need not put forward expert accounting opinion evidence of their own, having regard to the limited extent to which such opinion evidence has been received in ASIC's case. Glass JA's third condition for the application of Jones v Dunkel is not satisfied.

477

Second, ASIC sought to apply the Jones v Dunkel principle to the defendants' omission to call Mr Beck. There was evidence that Mr Beck has had a long association with Mr Rich, dating back to 1985 when Mr Beck joined Imagineering (1 JDR 614). Mr Silbermann accepted that Mr Beck is a friend of his and they are in frequent contact (T 13778). Both defendants accepted that Mr Beck has provided assistance to them in relation to the proceedings (T 10801; T 13778).

478

ASIC submitted (at APS [2108]) that Mr Beck would have been able to provide material evidence in relation to the following matters: (a) the alleged $40 million of unbilled data, including Mr Beck's alleged discovery of $28 million of this starter and communications between him and others concerning this issue (citing 2 JDR 1230, 1282, 1283, 1330, 1341, 1455; MS 323-8, 358, 372-6, 432, 441); (b) (c) (d) the claim against Telstra (2 JDR 1430); the damages claim against Lucent (1 JDR 1095, 1097, 2 JDR 1491-2); Mr Rich's alleged conversation with "Emma" from PwC about progress of the PwC review of One.Tel's billing system, which allegedly took place in the presence of Mr Beck (2 JDR 1570); (e) the state of One.Tel's billing system, for which Mr Beck was responsible, and the work done by PwC in relation to it (1 JDR 31, 458; 2 JDR 1283, 1298d, 1342, 1569 1691); (f) the need to make provision in the cash requirements for repayment to Toronto Dominion of $50 million, as Mr Beck was one of the executives responsible for One.Tel's relationship with Toronto Dominion (2 JDR 1738a);

- 216 -

(g)

the prospects of additional financing being made available to One.Tel in May (T 12256; Ex MTB 1/331 (minutes of the 17 May board meeting, at which Mr Beck reported on attempts by executives to investigate alternatives for fund-raising); MS 548, 581);

(h)

the meeting between management and Ernst & Young on the evening of 28 May (MS 679-83);

(i)

aspects of what transpired at the board meetings on 17, 28 and 29 May (2 JDR 1625-6; MS 573-6, 642, 647, 655, 721, 740, 756, 769).

479

I agree with ASIC that Mr Beck may have been able to provide evidence on each of those matters. On the other hand, there was already evidence tendered by the defendants about those matters, as specified in respect of each of the above. While additional evidence from Mr Beck would not be merely cumulative evidence, to which the principle in Jones v Dunkel does not apply (see above, esp Cubillo v Commonwealth (2000) 103 FCR 1; [2000] FCA 1084, at [360] per O’Loughlin J), it is not immediately obvious that any of the formulations of the first condition for the application of the principle given by Glass JA in Payne v Parker, above, is satisfied here. Not only have the defendants tendered extensive evidence given by themselves on the relevant subject matter, but in a substantial number of the cases identified by ASIC in the above list (all except the first three, in my opinion), it was not clear until the time of final submissions that the issue would become so controversial as to be assisted by a further witness.

480

There is an additional matter that goes to explaining the absence of Mr Beck. He was an executive director of One.Tel. Even if the non-executive directors should not have been defendants, it is not entirely clear why Mr Beck was not joined as a defendant in the proceedings. He was involved at least to some degree in many of the matters that are the subject of pleaded allegations against the defendants, although the pleaded issues did not directly mention him. As the defendants said (DPS [282]), "it

- 217 -

would have been somewhat remarkable, in a case where proceedings were brought against two executive directors for breaches of duty of care and diligence, for them to call a third director who the evidence would suggest was in no different position from them". In those circumstances the court cannot infer from evidence of earlier friendship and assistance that Mr Beck was in any sense aligned with the defendants and that he was a person that the defendants rather than ASIC would be expected to call. A witness with independent or separate interests to a party, which actually or may potentially conflict with the party's interests, is not in the latter's camp (Trevitt v NSW Tafe Commission [2001] NSWCA 363 at [45]; cf APS [2112]) and those same considerations undermine the proposition that the witness would be expected to be called by that party.

481

In these circumstances I have reached the conclusion that no Jones v Dunkel inference should be drawn against the defendants through their omission to call Mr Beck.

482

I note that ASIC has not invited the court to make a Jones v Dunkel inference in relation to Mr Hodgson, even though was evidence that Mr Rich developed a close working relationship with him at One.Tel, and that Mr Hodgson helped Mr Rich in relation to the proceedings for about 12 to 18 months after Mr Rich first received the Carter report (T 10799). This was because of evidence given by Mr Rich in re-examination, concerning Mr Hodgson's difficult employment circumstances, matters that were communicated to Mr Rich in late 2005 (T 12861-4). There was some

commercial confidentiality about Mr Hodgson's position, and in the circumstances I need not explore the matter further, except to say that Mr Hodgson was regarded by both parties as unavailable to give evidence.

3.9 The rule in Browne v Dunn

- 218 -

3.9.1 General principles

483

In Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1 at 16, Hunt J formulated the rule in Browne v Dunn (1893) 6 R 67 as follows:
"It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the crossexaminer's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inferences sought to be drawn."

484

Additionally, if the court is to be invited to disbelieve a witness, the grounds upon which the evidence is to be disbelieved should be put to the witness in cross-examination so that the witness may have the opportunity to offer an explanation (Cross on Evidence, supra, at [17435]). The reason for the rule of practice is procedural fairness: it is unfair to a witness to deny the opportunity of making any explanation open to the witness if a later invitation to disbelieve or criticise the witness is to be made; and it is unfair to the party calling the witness if the opportunity for the witness to proffer an available explanation is denied (Cross on Evidence, ibid). The rule also assists the trial judge by bringing into direct opposition the evidence of the parties: Reid v Kerr (1974) 9 SASR 367, at 373-4 per Wells J.

485

In MWJ v The Queen (2005) 80 ALJR 329; [2005] HCA 74, at [41], Gummow, Kirby and Callinan JJ held that the rule in Browne v Dunn may be inapplicable in criminal proceedings. That raises the question whether the rule is applicable in civil penalty proceedings in cases where the defendants are protected by the penalty privilege, as in the present case [286]-[293]. Section 1317L of the Corporations Act, according to which the rules of evidence and procedure in civil proceedings are applicable in civil

- 219 -

penalty proceedings, implies that Browne v Dunn has application in a case such as the present. In my opinion, that conclusion is supported by the reasoning of the Court of Appeal in Adler v ASIC (2003) 46 ACSR 504; [2003] NSWCA 131. As previously noted, that was a case to which the penalty privilege applied, and nevertheless the Court of Appeal held that the principle in Jones v Dunkel was available against the defendants. In Vines v ASIC (2007) 62 ACSR 1; [2007] NSWCA 75, a case where pecuniary penalties were sought and the penalty privilege applied, the Court of Appeal assumed that the rule in Browne v Dunn was applicable.

486

The defendants relied on some observations by McColl JA in Rich v ASIC [2003] NSWCA 342 at [379]. Her Honour's judgment was a dissenting judgment but the Court Appeal's decision was reversed by the High Court on appeal. McColl JA referred to the statutory scheme of which the power to impose a disqualification order formed part, and she said:
"Although structured as a civil case both in terms of the procedures to be applied (s 1317L) and the onus of proof (s 1332), the proceedings are, in effect, brought by the State and 'accuse' the defendant of a contravention of a public law - just as, in the criminal context, the defendant is accused of a breach of statute. The civil penalty regime pivots around the declaration of contravention which operates in the same sense as a finding of guilt and leads, in turn, to the imposition of one or other of the available civil penalty orders. It is not a suit which is purely of a civil nature."

487

Those remarks were of made to support the conclusion that a disqualification order imposes a penalty, and so the penalty privilege should be attracted to proceedings in which that relief is sought. In my opinion they do not provide a mandate to disregard the statutory direction in s 1317L that the civil rules of evidence are to be applied in civil penalty proceedings, a direction expressed in general terms that apply both to civil penalty proceedings where a penalty is sought and civil penalty proceedings where only compensation is sought.

- 220 -

488

Nevertheless it seems to me that there is some significance in the fact that the defendants are protected by the penalty privilege, when it comes to the application of the rule in Browne v Dunn to particular circumstances. I shall return to this point when I consider the application of the rule to the present case.

489

The consequences of failure to comply with the rule in Browne v Dunn were addressed by the learned authors of Cross on Evidence at [17460]. The following consequences, not exhaustive, are pertinent to the present case: (a) if a witness is not cross-examined on a point, cross-examining counsel may be taken to accept it and may not be permitted to address in a fashion which asks the court not to accept it; (b) if a witness has not been cross-examined on a particular matter, that may be a very good reason for accepting that witness's evidence, particularly if it is uncontradicted by other evidence; (c) it would usually be unfair to reject evidence on which there has been no cross-examination where the rule in Browne v Dunn has not been complied with and where the witness has not otherwise been given the opportunity to deal with the suggestion now made for the first time in final address; (d) where the party whose counsel has breached the rule in Browne v Dunn subsequently calls evidence inconsistent with that of the earlier witness, the party may be exposed to comment that the inconsistent evidence is not in accordance with instructions to counsel and should be disbelieved as a recent invention, though caution should be exercised about drawing that inference (R v Manunta (1989) 54 SASR 17, at 23 the King CJ; approved in R v Birks (1990) 19 NSWLR 677, at 691 per Gleeson CJ).

490

In the Manunta case, King CJ in make the following comments about proposition (d) above:

- 221 -

"It is legitimate, of course, to draw appropriate conclusions from counsel's failure to put in cross-examination some matter to which his client or his witnesses subsequently deposed. It is a process of reasoning, however, which is fraught with peril and should therefore be used only with much caution and circumspection. There may be many explanations of the omission which do not reflect upon the credibility of the witnesses. Counsel may have misunderstood his instructions. The witnesses may not have been fully co-operative in providing statements. Forensic pressures may have resulted in looseness or inexactitude in the framing of questions. The matter might simply have been overlooked."

491

ASIC noted some other explanations (ASR [299(e)]): • • the matter might not have occurred to the accused or his counsel at that stage; the accused may only have realised the matter when he himself was cross-examined.

492

Of course, this is not an exhaustive list and the question must be assessed as a matter of the plausibility of the inference of "recent invention" in the instant circumstances.

493

The rule in Browne v Dunn is a rule of practice designed to achieve procedural fairness, and therefore when it is claimed that the rule has been departed from and that consequences should follow, the first

consideration to be considered by the court is whether there has been some procedural fairness that needs to be addressed. That requires the assessment of "matters of fact and degree": Vines v ASIC (2007) 62 ACSR 1; [2007] NSWCA 75, at [62] per Spigelman CJ. The assessment may be affected by whether the matter not put to the witness was simply one of number of variables. In the Vines case, Santow JA, dissenting (though not on this point), rejected a submission based on Browne v Dunn in the context of a lengthy and complex trial, saying (at [409]):
"Procedural fairness did not require that the cross-examination put, in the alternative, that should the ASIC case be rejected in some respects, that the position had changed as at a particular

- 222 -

date. There were number of variables, including factual disputes which needed to be resolved. A cross-examination which covered every possible contingency was not only impractical, any attempt to undertake such a task would have been oppressive."

3.9.2 The present case

494

ASIC invoked the rule in Browne v Dunn by submitting that, to the extent that evidence from witnesses for ASIC went unchallenged: • • that evidence should be accepted (APS [2118], citing Knight v Maclean [2002] NSWCA 314 at [34]-[35]); or at least the absence of a matter later deposed to by Mr Rich or Mr Silbermann being put to witnesses called by ASIC should be regarded as a significant factor in considering whether those matters truly did occur, as it should be assumed (having particular regards to the intense personal involvement of the defendants at the hearing) that counsel acted on the defendants' instructions in deciding what questions to ask.

495

The observations of Spigelman CJ, cited above, suggest that it would not be wise for this court to accept the general proposition that Browne v Dunn should be applied whenever the evidence of ASIC's witnesses was not challenged. Instead the correct approach is to consider each particular occasion upon which consequences are said to flow from failure to put a matter to a witness, so as to take into account matters of "fact and degree".

496

There are, however, some general considerations that should influence those particular assessments, in my opinion. First, in this case the

defendants had the benefit of the penalty privilege, and they made it clear that they would not announce any decision as to whether they would go into evidence until ASIC had closed its case in chief. It seems to me that that fact alone affects the application of the rule to this case. This was not a case in which the defendants were to be expected to have fully prepared
- 223 -

their evidence before commencing to cross-examine the plaintiff's witnesses.

497

Moreover, the presentation of ASIC's case in chief took very much longer than anticipated by ASIC at the commencement of the hearing. The

hearing commenced on 6 September 2004 and ASIC's contemporary timetable was for its evidence to be completed by December 2004. ASIC did not close its case until 9 February 2006 (T 10431). The extended length was for various reasons that I have canvassed in Chapter 1, including the fact that additional witnesses were called, and the fact that some evidence was taken in London. It seems to me that the extended length of the plaintiff's case in chief, coupled with the very substantial size of the documentary tender, and the inconvenience of having to take evidence abroad, are factors tending to explain why Browne v Dunn may not have been rigorously complied with on every occasion. These factors tend to undermine the inference that might have been readily drawn in a more straightforward case, that if a matter about which the defendants subsequently give evidence has not been put to the plaintiff's witnesses, then it is likely to have been a recent invention. They also tend to reduce the weight that might be given, in a simpler case, to the fact that the plaintiff's witness has not been challenged on a particular matter, when the whole of the evidence on that matter is assessed.

498

There is another factor to be borne in mind when considering noncompliance with Browne v Dunn. In this case ASIC has relied, to a very considerable extent, on "evidentiary facts" that are not pleaded. I have considered this phenomenon extensively in Chapter 2. To a considerable degree, ASIC's reliance on evidentiary facts became evident only during its cross-examination of the defendants. It may well be unfair, depending on the precise circumstances, to attribute adverse consequences to the defendants' failure to put to ASIC's witnesses matters of which they gave

- 224 -

evidence only in answer to cross-examination about unpleaded "evidentiary facts".

499

Finally, it needs to be borne in mind that on some of the occasions about which ASIC makes Browne v Dunn submissions, senior counsel for the defendants was evidently putting conversations to ASIC's witnesses about which their evidence in chief had been silent or very limited, not for the purpose of challenging their credibility but to put into evidence the general nature of the defendants' case (DPS [301]; I do not regard the cross-examination Mr Packer Jnr as falling into this category, having regard to senior counsel for the defendants' statement of his objective at T 9401-2: see APS [2120]; AS [301]). I agree with the defendants that in these circumstances, it was not necessary for their counsel to put before the witnesses, explicitly, every word and every sentence of every conversation later to be adduced by the defendants, particularly where the witness was in disagreement with the thrust of a conversation being put to him or her. The observation of Santow JA in the Adler case (cited above) about the risk that over-scrupulous application of the rule in Browne v Dunn might become oppressive, is particularly pertinent here.

500

Having regard to all these circumstances, while the application of the rule in Browne v Dunn requires assessment incident by incident, there are some features of this case that cause me to approach ASIC's individual Browne v Dunn submissions with caution.

3.10 The alleged special duty of fairness of ASIC in conducting the proceedings

3.10.1 The defendants' claim

- 225 -

501

The defendants made relatively lengthy submissions directed to establishing that ASIC is subject to a special duty of fairness in the conduct of civil penalty proceedings, at least in cases where the defendants are protected by the penalty privilege (DPS [302]-[345]). They said ASIC's duty is analogous to the duty of prosecutorial fairness in the criminal area (DPS [307]). They contended that ASIC had failed to discharge this duty in many ways detailed throughout the defendants' written submissions (DPS [343]). They offered a few examples of breach (DPS [342]). The principal remedy they sought to invoke was to have the court exclude and not entertain any allegations made by ASIC in their final submissions that exhibit its failure to discharge the duty of fairness (DPS [345]).

502

The defendants made similar submissions in the context of the admissibility of ASIC's documentary tender. I dealt with those

submissions in my judgment, ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [344]-[368]. The issue for consideration was not the same as the one before me now: there I was considering the admissibility of ASIC's documents and in particular, whether I should exclude documents on discretionary grounds under s 135 of the Evidence Act, or limit their use under s 136. I decided not to exercise the statutory discretions to exclude or limit the use of ASIC's documentary evidence. In the course of reaching that decision, I rejected the defendants' contention that ASIC is subject to a duty of fairness akin to prosecutorial fairness, on the ground that this proposition had been rejected by the Court of Appeal in Adler v ASIC (2003) 46 ACSR 504 at [671]-[678] per Giles JA (with whom Mason P and Beazley JA agreed), as part of the ratio decidendi of its decision (ASIC v Rich, at [358]).

503

My decision on that occasion does not resolve the issue presented to me now, which is about ASIC's conduct in the prosecution of the proceedings as a whole (DPS [337]-[338]). There is, however, an important issue as to

- 226 -

whether I am bound by the Adler decision to reject the defendants' present submissions, just as I held myself bound to reject similar submissions in my earlier judgment. I shall consider that question below, at 3.10.6.

504

In my earlier judgment (at [347]) I warned of the need to take care over what is meant by "prosecutorial fairness" in this context. Equally, it seems to me that it was important for the defendants, in making their final submissions, to articulate with clarity precisely what duty or duties they allege ASIC to be under, and to whom, and what constitutes breach. Regrettably, they have not satisfactorily done so. I agree with ASIC that the defendants' submissions on the subject were generally expressed in a high plane of abstraction, with variations from time to time in the language used to describe the duty (ASR [327]). Thus, the defendants' submissions speak of an obligation to "act fairly" (DPS [316]), "ethical obligations of fairness" (DPS [322]), and "usual obligations of utmost fairness" (DPS [332]). There is also a tendency in the submissions to blur the concepts of "prosecutorial fairness" and "procedural fairness", a blurring that is even evident in the heading of this part of the defendants' submissions, the heading being "Procedural and Prosecutorial Fairness".

505

The defendants' failure to give a clear statement of ASIC's alleged duty is not fatal to their submission, but it has made the submission harder to assess.

3.10.2 ASIC's position

506

ASIC denied that it was subject to any special duty of fairness of the kind alleged. It said (ASR [307,246]):
"ASIC is obliged, as is any civil litigant, to act appropriately and fairly in the course of proceedings. ASIC denies that it has any duties over and above that of the ordinary civil litigant, including any duties analogous to those of prosecutorial fairness. ASIC also denies that its role is one of a 'civil prosecutor'.

- 227 -

"In civil penalty proceedings under the Corporations Act, ASIC is not held to the requirements to which a prosecutor in criminal proceedings is subject …."

507

ASIC said that its duty of fairness is owed to the court. Lawyers acting for a litigant also have duties of fairness: see DA Ipp, "Lawyers' duties to the court", (1998) 114 LQR 63.

508

There is a question whether this approach is inconsistent with ASIC's approach in earlier civil penalty proceedings. In ASIC v Adler (2002) 41 ACSR 72; [2002] NSWSC 171, at [1], the trial judge, Santow J, outlined the nature of the civil penalty proceedings before him and said:
"Though not therefore criminal proceedings it has been common ground that proceedings of this character invoke requirements for prosecutorial fairness and a standard of proof commensurate with the gravity of the allegations."

509

On appeal, counsel for Mr Williams submitted that ASIC accepted that rules akin to prosecutorial fairness applied. ASIC said that at the trial it had not taken issue with some assertions made on a number of occasions on behalf of the defendants that the character of the proceedings invoked requirements for prosecutorial fairness, but it submitted that those assertions had not been made in a context requiring determination by the court as to whether the requirements for prosecutorial fairness applied in their full rigour. In the Court of Appeal, Giles JA (with whom Mason P and Beazley JA agreed) concluded that as the matter had not been shown to have been clear at the trial, ASIC could not be held to the requirements for criminal cases if not in law bound by them, and he went on to hold that the law did not impose the requirement of prosecutorial fairness on ASIC in civil penalty proceedings: Adler v ASIC (2003) 46 ACSR 504; [2003] NSWCA 131, at [674]-[675]. However, he noted that ASIC accepted on appeal that it had to act fairly in the conduct of the proceedings. That, presumably, was a statement of the position that ASIC accepts in the present case. There is no inconsistency.

- 228 -

510

In ASIC v Loiterton [2004] NSWSC 172 at [38] Bergin J noted that ASIC accepted that it had a duty of fairness in civil penalty proceedings. Later (at [270]) she said the plaintiff accepted that "the proceedings attract an obligation of 'prosecutorial fairness' although the content of that obligation in civil penalty proceedings is submitted to be uncertain". Those were proceedings in which two of the three defendants were not legally represented and it does not appear that there was any contest about the content or nature of ASIC's duty. There was no determination of the question whether ASIC had such a duty, and the concession that it apparently made, in a different forensic context, does not affect the law.

3.10.3 Prosecutorial fairness in criminal proceedings

511

Since the defendants claim that ASIC is under a duty analogous to the duty of prosecutorial fairness in criminal proceedings, it is appropriate to deal briefly with the content of that duty.

512

The overriding duty of a prosecutor was explained by Deane J in Whitehorn v The Queen (1983) 152 CLR 657; [1983] HCA 42, at 663-4, as follows:
"Prosecuting counsel in a criminal trial represents the State. The accused, the court and the community are entitled to expect that, in performing his function of presenting the case against an accused, he will act with fairness and detachment and always with the objectives of establishing the whole truth in accordance with the procedures and standards which the law requires to be observed and of helping to ensure that the accused's trial is fair one."

Dawson J observed in the same case (at 675) that the function of the prosecutor "is ultimately to assist in the attainment of justice between the Crown and the accused".

- 229 -

513

There are at least two reasons for the existence of the duty of prosecutorial fairness. The first is that the Crown is the guardian of public good,

bringing penal proceedings not in its own private interest but in the public interest. Thus according to Sir William Holdsworth, A History of English Law, 4th edn (1936), Vol II, at 453:
"… a private person cannot sue civilly unless he can show a special grievance, whereas the king can lay the charge generally; a suit by a private person sounds in damages, whereas a suit by the king ends in the punishment of the guilty party."

Similarly, in R v Lucas [1973] VR 693 at 705, Newton J and Norris AJ observed:
"It is very well established that prosecuting counsel are ministers of justice, who ought not struggle for a conviction nor be betrayed by feelings of professional rivalry, and that it is their duty to assist the court in the attainment of the purpose of criminal prosecutions, namely, to make certain that justice is done as between the subject and the State."

514

The second reason relates to the potential for oppression inherent in criminal proceedings, because of the imbalance of resources between the Crown and its subjects. That imbalance of resources is recognised in the case law, which has ameliorated it by the obligation on the part of the prosecution to make available material which may prove helpful to the defence: R v Reardon (No 2) [2004] NSWCCA 197, per Hodgson JA at [46].

515

Amongst the specific consequences of the Crown's duty to act fairly as prosecutor are the following: (a) "Witnesses essential to the unfolding of the narratives on which the prosecution is based must, of course, be called by the prosecution, whether in the result the effect of their testimony is for or against the prosecution" (Seneviratne v R [1936] 3 All ER 36, at 49 (Privy Council), quoted with approval by Fullagar J in Ziems v The Prothonotary (1957) 97 CLR 279; [1957] HCA 46, at 293; and see Whitehorn v The Queen (1983) 152 CLR 657; [1983] HCA 42, at 663 per Deane J; 674 per Dawson J);

- 230 -

(b)

the prosecutor must "refrain from deciding whether to call a material witness by reference to tactical considerations" (Whitehorn v The Queen, at 663 per Deane J), for as Smith ACJ observed in R v Lucas at 697, "The Crown's duty to act with fairness, and with the single aim of establishing the truth, denies to it the right to pick and choose as between independent and apparently credible witnesses for merely tactical reasons …";

(c)

"... it is the duty of prosecuting counsel not to try to shut out any evidence which the jury could reasonably regard as credible and which could be of importance to the accused's case": R v Lucas, at 705 per Newton J and Norris AJ;

(d)

"The prosecution should present its case completely and not split its case by calling evidence in reply to the defence case where it could have anticipated that the defence would raise such an issue, or by introducing evidence during cross-examination in the defence case" (Halsbury's Laws of Australia, para [130-13695]; Shaw v R (1952) 85 CLR 365; [1952] HCA 18, at 379-80 per Dixon, McTiernan, Webb and Kitto JJ; R v Chin (1985) 157 CLR 671; [1985] HCA 35, at 676 per Gibbs CJ and Wilson J; 684 per Dawson J), for while the court possesses power to allow further evidence to be called, "it must be exercised according to rule and the rule is against reopening the Crown case unless the circumstances are most exceptional (Shaw v R at 380 per Dixon, McTiernan, Webb and Kitto J).

516

Failure by a prosecutor to fulfil these duties may amount to a denial of natural justice, and may result in a miscarriage of justice, rendering the judgment in the proceedings likely to be set aside on appeal: Clarkson v DPP [1990] VR 745, at 755 per Murphy J; R v Leyland Justices; ex parte Hawthorn [1979] QB 283. If an apparent failure of the prosecution's duty comes to the attention of the court, at common law the court has a responsibility to act to prevent any miscarriage of justice, though within

- 231 -

the constraints of the adversarial nature of the proceedings. For example, if the court is concerned that the Crown is not intending to call a potential material witness, then at common law it may be obliged to inquire of the prosecutor as to the reasons for that course, and advise the prosecutor to do so; and if the witness is not called, the court may take the failure to call the witness into account in considering its judgment, and in exceptional cases, it can call witnesses itself: Whitehorn v The Queen (1983) 152 CLR 657; [1983] HCA 42; The Queen v Apostilides (1984) 154 CLR 563; [1984] HCA 38.

3.10.4 Duty of fairness of Commonwealth agencies in civil proceedings

517

In civil contexts the first reason for imposing a special standard of fairness on a prosecutor (namely that the Crown must pursue the public interest and make certain that justice is done) does not necessarily apply, but the second reason (the potential for oppression inherent in the imbalance of resources) invariably does. This has led to the articulation of a special duty of fairness, to which the Crown is subject in civil litigation.

518

I referred at 2.3.1 to Scott v Handley [1999] FCA 404, at [45], where Spender, Finn and Weinberg JJ said that an officer of the Commonwealth, who was respondent to civil proceedings, was expected to adhere to the "standards of fair dealing in the conduct of litigation" that the courts expect from the Commonwealth and from its officers and agencies, and they referred to duties to comply conscientiously with procedures designed to minimise costs and delay, to assist the court to arrive at a proper and just result, and not to take purely technical points of practice and procedure or unfairly to impair the other party's capacity to defend itself. Those observations

apply to ASIC as an agency of the Commonwealth. The idea that the Commonwealth and its agencies are under a special obligation to act fairly in civil litigation is not new: Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333; [1912] HCA 69, at 342 per Griffith CJ.

- 232 -

519

On the authority of Scott v Handley, it seems to me that, in its submissions in this case, ASIC has understated its duty of fairness in civil proceedings. It has a higher duty than the duty owed by every civil litigant to the court to act fairly and appropriately. The Commonwealth and its agencies,

including ASIC, are held to a standard of fair dealing which is higher than the standard applicable to other litigants. Whether the duty is owed to the court or to the other party to the litigation, the other party can complain to the court at the hearing about non-compliance with the duty. Once the matter has been raised, the court has the power deal with it in the proceedings in an appropriate way, to ensure the just, quick and cheap resolution of the real issues. The court's determination may well operate for the benefit of the party who has complained.

520

In

the

context

of

civil

litigation,

the

Attorney-General of

the

Commonwealth has issued Legal Services Directions in accordance with s 55ZF of the Judiciary Act 1903 (Cth). The directions require the

Commonwealth and its agencies to act in litigation as a "model litigant". The directions specify the nature of the obligation at some length. The specifications include such matters as keeping the cost of litigation to a minimum, for example by not requiring the other party to prove a matter that the Commonwealth or the agency knows to be true; not contesting liability if the Commonwealth or the agency knows the dispute is really about quantum; and not relying on technical defences unless the Commonwealth's or the agency's interests would be prejudiced by the failure to comply with a particular requirement. The notes to the policy say in part:
"In essence, being a model litigant requires that the Commonwealth and its agencies, as parties to litigation, act with complete propriety, fairly and in accordance with the highest professional standards" (part of Note 2); "The obligation to act as a model litigant may require more than merely acting honestly and in accordance with the law and court

- 233 -

rules. It also goes beyond the requirement for lawyers to act in accordance with their ethical obligations" (part of Note 3).

521

ASIC is obliged by s 55ZG(1)(a) and s 55N(1)(d) to comply with Legal Services Directions. However, compliance with those directions is not enforceable except by, or upon the application of, the Attorney-General (s 55ZG(2)), and the issue of non-compliance with such a direction may not be raised in any proceeding except by, or on behalf of, the Commonwealth (s 55ZG(3)).

522

Those restrictions prevent the defendants from raising the issue of noncompliance with the directions, as such, but it seems to me that the notion of Commonwealth agencies as "model litigants", the subject of the Legal Services Directions, is a notion that also underlies the special duty of fairness of Commonwealth agencies in civil litigation, as articulated in Scott v Handley and other cases. In principle, therefore, the directions can be referred to as an aid to understanding the content of the litigation duty, notwithstanding s 55ZG(2) and (3).

523

That was probably the underlying process of reasoning that led the Administrative Appeals Tribunal to say, in Re Moline and Comcare [2003] AATA 827, at [11], that Notes 2 and 3 to the directions establish a standard of ethical fairness, requiring an emanation of the Commonwealth who is a respondent in a Tribunal proceeding to assist the Tribunal to make the correct or preferable decision, rather than to win at all costs, and to apprise the Tribunal of any material of which it is aware favourable to the applicant's case though not known to the applicant's advisers. It is not necessary for me to determine whether those precise duties are owed by ASIC in civil proceedings, and I refer to the Tribunal decision only to show how Legal Services Directions about the Commonwealth as a model litigant may assist in the determination of the content of the duty of fairness of a Commonwealth agency in litigation.

- 234 -

524

In my judgment on the admissibility of ASIC's documentary tender, in the course of resisting the defendants' submission that ASIC had a duty akin to the duty of prosecutorial fairness, I accepted that "ASIC, charged with the general responsibility of acting in the public interest, must act fairly and with probity in pursuing relief in a civil penalty proceeding" (ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, at [347]). That is consistent with the notion of ASIC's duty as a Commonwealth agency and a model litigant, as generally expounded in such cases as Scott v Handley.

525

My conclusion is that when it is a party, or intervenes, in civil proceedings, ASIC as an emanation of the Commonwealth has a duty of probity and fairness to act as a model litigant, which is higher than the duty of fairness owed to the court by civil litigants generally. That conclusion is generally reinforced by cases about the duty of fairness of the Commonwealth in commercial dealings (Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1, at 40-42 per Finn J; SCI Operations Pty Ltd v Commonwealth (1996) 69 FCR 346, at 367-8 per Beaumont and Einfeld JJ), but it seems to me that the litigation duty is a special and higher one. To that extent I agree with the defendants that ASIC has a special duty as a Commonwealth agency, in civil proceedings, to act in a manner so as to facilitate a fair trial (DPS [339]), though I do not accept their submission that the content of this duty is analogous to prosecutorial fairness, for reasons I shall explain. That involves considering whether the duty of fairness is raised to a higher level when the proceedings are civil penalty proceedings brought by ASIC, and in particular, where in those proceedings ASIC seeks the imposition of a penalty such as a disqualification.

3.10.5 ASIC's duty of fairness in civil penalty proceedings

- 235 -

526

In its report, Principled Regulation: Federal Civil & Administrative Penalties in Australia (Report No 65, December 2002, at para 2.47), the Australian Law Reform Commission observed:
"Civil penalty proceedings have been described as a hybrid between the criminal and the civil law. They are clearly founded on the notion of preventing or punishing public harm. The contravention itself may be similar to a criminal offence (for example, breaches of a director's duties or publishing misleading material) and may involve the same or similar conduct, and the purpose of imposing the penalty may be to punish the offender, but the procedure by which the offender is sanctioned is based on civil court processes."

527

There are some obvious and important differences between civil penalty proceedings and criminal proceedings. In a criminal trial the defendant is entitled to the presumption of innocence, the burden of proof is to a higher standard, and in criminal proceedings, depending on the penalty, the defendant may have had a right to trial by jury. In contrast, in civil penalty proceedings proof is on the balance of probabilities without any presumption of innocence, and the trial is by a judge alone. The criminal trial procedure and the rules of evidence are different from those applying in civil proceedings, and according to s 1317L the court is to apply the rules of evidence and procedure for civil matters when hearing civil penalty proceedings for a declaration of contravention or a pecuniary penalty order.

528

The measure of similarity that civil penalty proceedings have to criminal proceedings arises from the fact that civil penalty proceedings are concerned with allegations of contravention of statute and the protagonists are a Commonwealth agency and individual subjects of the Crown. Successful prosecution of civil penalty proceedings leads to a determination of contravention of a public law, and may lead to a declaration of contravention which itself involves public opprobrium and condemnation, and the imposition of a penalty by way of pecuniary penalty or disqualification order. ASIC as plaintiff is acting as an agency
- 236 -

of the Commonwealth and not as a private litigant, and like the prosecutor in criminal proceedings, is the guardian of the public interest with a responsibility to ensure that justice is done. There is the same kind of imbalance of power and resources that one finds in criminal prosecution, and in particular, in the preparation of its case, ASIC can take advantage of the very substantial investigatory powers that it has under the ASIC Act, as well as in voting the search warrant powers under the Crimes Act 1914 (Cth), and is right to require assistance under s 1317R.

529

Having regard to these matters, the defendants submitted that in civil penalty proceedings which have the character of penal proceedings (that is, civil penalty proceedings where pecuniary penalties or disqualification orders are sought), ASIC is under ethical obligations of fairness that are significantly greater than those that apply to it in an ordinary civil proceeding (DPS [322]). This is because, they submitted (DPS [323]), the rationale for the duty of prosecutorial fairness is applicable to ASIC in civil penalty proceedings.

530

I agree with the defendants that both limbs of the rationale for imposing a special duty of prosecutorial fairness in criminal proceedings, as outlined above, apply to ASIC in civil penalty proceedings: in summary, ASIC brings those proceedings in the public interest and there is an imbalance of resources between it and the defendants. If there were no statutory or case law impediment it might be open to me to conclude that, at least where the penalty privilege applies, ASIC was to be treated as occupying the same position, mutatis mutandis, as a criminal prosecutor, when it comes to obligations of fairness. But standing against the defendants' submission are s 1317L and the existing case law.

531

The duty of prosecutorial fairness is part of the law of evidence and procedure in criminal matters. Section 1317L requires the court to apply

- 237 -

the rules of evidence and procedure for civil matters. That seems to me to exclude the extension of prosecutorial fairness to civil penalty proceedings including, expressly, proceedings for a pecuniary penalty order. The

significance of the express identification of proceedings for a pecuniary penalty order is that, even before Rich v ASIC in the High Court, proceedings for a pecuniary penalty order were recognised as proceedings for the imposition of a penalty and therefore subject to the penalty privilege. The fact that proceedings for a disqualification order have come to be recognised as subject to the penalty privilege, by virtue of the High Court's decision, does not create a qualification or exception to s 1317L, because the section already had an express application to cases where the penalty privilege applies.

532

The defendants sought to resist the application of s 1317L by arguing that prosecutorial fairness was something more than a principle relating to the rules of evidence and procedure. They referred to Kirby J's concurring judgment in Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd (2004) 216 CLR 161; [2003] HCA 49. One of the questions in that case was whether the standard of proof in a prosecution for contravention of the Customs Act 1901 (Cth) was the civil or criminal standard, in circumstances where the Act said that the prosecution could be brought "in accordance with the usual practice and procedure of the Court in civil cases". The provision under consideration in Labrador Liquor referred only to the usual practice and procedure in civil cases, and did not expressly mention the law of evidence, and the decision might well have been different if (like s 1317L) it had done so.

533

It was held at the standard of proof was proof beyond reasonable doubt. Kirby J (at [78]) regarded the criminal standard of proof as conferring a "practical guarantee of fundamental rights" that as a "basic doctrine of the law", more than "a mere rule of evidence law applicable in proceedings",

- 238 -

and consequently only clear legislative provisions could abrogate that right. The defendants submitted that the defendant's right to prosecutorial fairness is, like the right to be tried according to the criminal standard of proof, "an aspect of the defendant's elementary common law right to a fair trial" (citing R v Ward [1993] 1 WLR 619 at 645 (approved by the House of Lords in R v Mills [1998] AC 382, at 399)).

534

There are two problems with this submission. The first is that, in my respectful view, Kirby J was in error in denying that the criminal standard of proof is part of the law of evidence, at least in jurisdictions governed by the Evidence Acts of 1995. The principal cases to which Kirby J referred to support his reasoning, Goldberg v Ng (1995) 185 CLR 83; [1995] HCA 39, at 121 per Gummow J (dissenting) and O'Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1; [1983] HCA 12, were cases about legal professional privilege, which are distinguishable because legal

professional privilege has been held to be a substantive right rather than a rule of evidence (Baker v Campbell (1983) 153 CLR 52; [1983] HCA 39). The Evidence Acts prescribe the criminal and civil standards of proof as part of the law of evidence (ss 140 and 141). In Labrador Liquor, Hayne J

recognised the statutory treatment of the standard of proof and observed: "Burden and standard of proof are commonly treated as aspects of the law of evidence" (at [122]).

535

But even if the standard of proof, though prescribed by the Evidence Act, were not part of the law of evidence and therefore outside s 1317L, it could not be inferred that another set of principles which appear on their face to be principles about evidence and procedure, namely the principles about prosecutorial fairness, are also outside s 1317L. Although prosecutorial fairness is part of the defendant 's elementary common law right to a fair trial, as the English Court of Appeal said in R v Ward, the duties flowing from prosecutorial fairness are manifested in matters of evidence and

- 239 -

procedure such as those identified at 3.10.3 above (including the duties to call material witnesses and not to split the prosecution case). Conversely, it appears to be recognised that the entitlement of a party freely to decide which witnesses to call or not to call is a familiar incident of civil evidence and procedure: Cross on Evidence, supra, at [17070]-[17080].

536

As Hayne J observed, distinctions such as those between "civil" and "criminal" and between "substance" and "procedure" (and, I would add in the context of s 1317L, between "substance" and "evidence and procedure") are essentially unstable, and much terms on the purpose for drawing a distinction (at [121]). The purpose of considering whether prosecutorial fairness is part of the law of evidence and procedure under s 1317L, or a matter of substantive law, is to determine whether a duty of prosecutorial fairness that might otherwise be implied in civil penalty proceedings is excluded by statutory provision. In my opinion, to import to civil penalty proceedings the full range of procedural and evidentiary consequences of prosecutorial fairness would be to convert those proceedings into something akin to criminal proceedings, contrary to the intention underlying s 1317L.

3.10.6 The authorities on the duty of fairness in civil penalty proceedings

537

I have referred to the statement by Santow J that it was "common ground" that proceedings of this kind invoke requirements of procedural fairness. Those remarks were referred to in ASIC v Plymin (2003) 46 ACSR 126, and it was submitted that the essentially criminal nature of the proceeding dictated that the principles of prosecutorial fairness should apply (at [544]). Mandie J responded (at [547]):
"Assuming without deciding that ASIC had a duty to act with prosecutorial fairness, or at least in analogous duty having regard to the nature of the proceeding, I am satisfied that ASIC did not act in breach of such a duty."

The question whether there was such a duty was left open.
- 240 -

538

The Court of Appeal of New South Wales handed down its decision in the Adler case (Adler v ASIC (2003) 46 ACSR 504; [2003] NSWCA 131) after Plymin. One of the grounds of appeal was that the trial judge erred in not taking account of the unexplained failure of ASIC to call a particular witness, a failure that was alleged to amount to a breach of rules akin to the rules of prosecutorial fairness (at [671]). Giles JA (with whom Mason P and Beazley JA agreed) noted (at [677]) that in a criminal trial, the Crown prosecutor should call all available material witnesses, not because of a duty imposed by law but because this was part of the description of the functions of the Crown prosecutor, who represents the state and must act with fairness and detachment, with the objective of establishing the whole truth. He continued (at [678]):
"However, it has not been suggested that when the State engages in civil litigation as it frequently does, its representative's functions have a similar content, or that failure to call a material witness can lead to reversal of judgment in the State's favour because of miscarriage of justice. The concepts have been developed in the particular circumstances of criminal proceedings. By declaring that these proceedings are to be conducted as civil proceedings, the legislature has plainly declined to pick up the concepts. It was no doubt for this reason that Mr Williams' submissions were in terms of 'rules akin to those of procedural fairness', but once it is recognised not only that the proceedings are not criminal proceedings, but also that they are by prescription civil proceedings, the basis for some analogous rules is hard to see. In my opinion, Mr Williams' submission in this respect should not be accepted."

539

In my judgment on the admissibility of ASIC's documents, ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, I set out the above passage and said (at [358]):
"This amounts to the considered rejection, by the Court of Appeal acting unanimously as part of the ratio of its decision, of the very argument advanced on behalf of the defendants in the present case, in its specific application to the question whether ASIC has a duty in civil proceedings to call a particular witness. The fact that Giles JA went on to determine that 'even if rules analogous to the rules of procedural fairness applied' there was no unfairness or miscarriage of justice (at [681]), is beside the point. It would be

- 241 -

incorrect to say that his Honour's decision that ASIC was not subject to any obligation of procedural fairness somehow turned on his finding that there was no unfairness in ASIC's conduct."

540

The defendants advanced several reasons for not treating the Court of Appeal's decision in Adler as determining the question (DPS [328]). First, they said that Giles JA's rejection of the prosecutorial fairness submission was obiter dicta, as the judgment turned on his Honour's holding (at [681]) that even if rules analogous to the rules of prosecutorial fairness applied, there was no unfairness or miscarriage of justice in that case. I disagree with this submission. In my view the passage at [678] in his Honour's judgment, quoted above, was pivotal to the reasoning that led to rejection of the prosecutorial fairness submission. His statement, that "even if rules analogous to the rules of prosecutorial fairness applied" there was on the facts no unfairness or miscarriage of justice (at [681]), was presented in the nature of an additional reason for rejecting the submission. I adhere to the view I expressed in my earlier judgment (at [358]). I am bound to follow the Court of Appeal's unanimous decision.

541

Second, the defendants said that the Court of Appeal judgment turned, at least in part, on the failure of the defendant to have raised the matter during the trial. It is true that this aspect was noted at [681], but in my view it was referred to as a subsidiary point and was directed to the question whether, if prosecutorial fairness applied, there was a duty to call the particular witness at the trial. It did not detract from the centrality of the reasoning at [678].

542

Third, they submitted that the decision was confined to its particular facts. But what was said at [678] was not confined to the facts of the case, but instead it was a holding that the concepts of prosecutorial fairness were developed in the particular circumstances of criminal proceedings, and that the legislature had declined to pick up those concepts because it

- 242 -

declared that civil penalty proceedings were to be conducted as civil proceedings (presumably, by s 1317L).

543

Fourth, they submitted that the Court of Appeal's decision in Adler was made at a time when courts were treating civil penalty proceedings as protective rather than punitive, and "before their true character as proceedings in which the State accused a citizen of a public wrong was appreciated". It is true that Adler was decided before the High Court decided Rich. It is not true that at the time of the Court of Appeal's decision courts were treating civil penalty proceedings as protective. They were not protective to the extent that they were proceedings for pecuniary penalties, but until the High Court's decision in Rich was handed down, the prevailing view was that a disqualification order was protective rather than punitive. Adler itself was a case in which pecuniary penalties were sought and the penalty privilege applied.

544

Fifth, the defendants urged the court to consider the substance of these proceedings rather than their form, and they submitted that in substance these are proceedings by the Crown against a subject for the infliction of a penalty, and so there is no reason, in principle or policy, why the usual obligations of utmost fairness ought not to apply (DPS [331]-[332]). But as ASIC said, that is an unwarranted invitation to the court to disregard authority (ASR [331-5].

545

Sixth, the defendants contended that the decision in Adler has been overtaken by the later High Court decisions in Rich v ASIC and Labrador Liquor.

546

In my view the defendants' reliance on the High Court's decision in Rich is misplaced. In that case it was emphasised (at [19]-[20]) that s 1317L of the Corporations Act picks up the body of general law relating to privileges,

- 243 -

including the penalty privilege.

The penalty privilege is a rule of

evidence, forming part of the rules relating to civil actions, not a substantive rule of law (at [24]; see also Daniels Corporation v ACCC (2002) 213 CLR 543; [2002] HCA 49, at [31]). The court decided that because of the penalty privilege, the defendants were not obliged to give discovery or serve affidavit evidence before the close of ASIC's case, but that decision said nothing as to the question whether, contrary to the usual incidents of civil evidence and procedure, ASIC had a duty to call material witnesses (see ASR [329-30]).

547

In Adler v Director of Public Prosecutions (2004) 185 FLR 443; [2004] NSWCCA 352, the question was whether an indictment for offences under the Corporations Act was an abuse of process because of exposure to double jeopardy, in light of the civil proceedings. Mason P (with whom Grove and Barr JJ agreed) noted without demur (at [32]) that Giles JA had rejected a submission that the principles of prosecutorial fairness had been carried into the civil proceedings, and he also noted that the High Court had refused special leave. Later he addressed the question whether the trial judge, James J, had been wrong in saying that the civil causes action and the criminal offences had different purposes, and he said (at [42]-[43]):
"The reasons of the High Court in Rich v ASIC cautioned strongly against drawing conclusions based upon strict and mutually exclusive dichotomies between protective (civil) and punitive (criminal) notions (see per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ at [30]-[35], per McHugh J at [41], [56]-[58]). See also Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd (2003) 216 CLR 161; [2003] HCA 49, at [14]). The context of Rich was different to the present, but the warning is apt, especially since the High Court has concluded that 'civil penalty proceedings' that seek disqualification orders under the Corporations Act are to be characterised as 'penal' for the purpose of determining whether the defendant can claim the privilege against exposure to penalties and forfeitures in response to an application for discovery. A fortiori, civil proceedings resulting in a penalty, as were the civil proceedings against the appellant. Some of the reasoning of Santow J referable to his final orders made reference to the public protective purpose of those orders (see e.g., ASIC v Adler No 5, at 105 [80]).

- 244 -

"But nothing in Rich casts any doubt on the civil nature of the proceedings brought against the appellant, as held by the Court of Appeal (with special leave to appeal been refused by the High Court). Nor is the correctness of the orders under appeal undermined by James J's observations relating to the purposes of the civil and criminal proceedings."

548

I respectfully agree. My conclusion is that the High Court's decision in Rich does not detract from the Court of Appeal's decision in Adler that prosecutorial fairness does not apply in civil penalty proceedings.

549

As to Labrador Liquor, the central submission by the defendants (DPS [329]) was that the reasoning of the High Court was inconsistent with the reasoning of Giles JA in Adler, because Giles JA had reasoned from characterising the proceedings as civil proceedings to the conclusion that prosecutorial fairness did not apply.

550

Certainly the High Court rejected the idea that problems of this kind can be solved by a simple, once and for all classification containing only two classes, civil and criminal, or substantive and procedural (see Gummow J at [29]; Kirby J at [52], [64], [66]-[67]; and Hayne J (with whom Gleeson CJ and McHugh J agreed) at [113]-[114]). Such distinctions are, in the words of Hayne J, "unstable", for proceedings may be classified one way for one purpose and another way for another purpose, and is wrong to assume that there are only two possibilities. Therefore it is essential to identify the purpose for which classification is sought.

551

However, in my respectful opinion the reasoning of Giles JA in Adler is not at odds with the approach taken by the High Court. His Honour

considered the nature and purpose of the requirement for a prosecutor to call available material witnesses (at [677]) and then he noted (at [678]) that requirement to call material witnesses had "developed in the particular circumstances of criminal proceedings" (emphasis supplied), and that the

- 245 -

legislature had declined to pick up those concepts when it declared that civil penalty proceedings were to be conducted as civil proceedings (that is, I take it, when the legislature provided in s 1317L that the rules of evidence and procedure in civil matters were to apply in civil penalty proceedings). The reasoning is not simply that the duty to call material witnesses arises in criminal proceedings and not in civil proceedings, and therefore does not arise here. It is reasoning by reference to the nature of the development of the criminal rule and the legislative purpose underlying s 1317L. The Court of Criminal Appeal in Adler v DPP had no difficulty in reaffirming the Court of Appeal's decision in Adler after considering both Rich and Labrador Liquor, and manifestly on the basis that Giles JA's reasoning is quite consistent with the approach of the High Court.

552

My conclusion is that I am bound by s 1317L and the Court of Appeal's judgment in Adler to reject the defendants' submissions on prosecutorial fairness.

3.10.7 The defendants' examples of alleged breach of duty

553

The defendants made the general submission that in the many instances where, in their written submissions, they criticised ASIC in respect of unpleaded and unparticularised allegations, serious allegations made for the first time in submissions, and building a case from inference as to documents without calling witnesses, they were invoking ASIC's duty of fairness in civil penalty proceedings as well as other principles to do with unpleaded allegations, the Briginshaw standard of proof, Jones v Dunkel and Browne v Dunn, all of which overlap with the duty of fairness submissions.

- 246 -

554

Elsewhere in their submissions, the defendants submitted (DPS [244], [246]) that by calling witnesses to give "incriminatory" evidence but consciously avoiding the calling of witnesses whose evidence would be "exculpatory", ASIC has breached rules of procedural fairness that, they submitted, ought to be held applicable to civil prosecutors such as ASIC prosecuting civil penalty proceedings: cf Adler v ASIC (2003) 46 ACSR 504 at [671]-[678]; ASIC v Rich (2005) 53 ACSR 752 at [358]-[359]. They said that, while well over 100 witnesses have been called by ASIC (including witnesses addressing only provenance and procedural matters), only four have been employees of One.Tel in Australia, namely Ms Randall and Ms Ashley, who gave evidence in chief, and Ms Thomas and Mr Spratt, who gave very limited evidence in reply (DPS [248]).

555

My general response is as follows. For the reasons given above, ASIC does have a special duty of fairness in all civil proceedings, including civil penalty proceedings, but it is not enhanced by considerations of prosecutorial fairness in civil penalty proceedings. As far as I can see, and the defendants' submissions do not persuade me to the contrary, ASIC's duty as a Commonwealth agency and model litigant, with respect to unpleaded and unparticularised allegations, serious allegations made for the first time in submissions, and building a case from inference as to documents without calling witnesses, does not lead to any consequences different from those that follow from treating submissions outside the pleaded case as not matters for decision, and applying the correct the onus and standard of proof and the principles in Jones v Dunkel and Browne v Dunn in accordance with the authorities. Specifically, in the absence of any duty akin to prosecutorial fairness, I do not regard ASIC as under a duty in the civil proceedings to call any particular witnesses, although I can and shall apply Blatch v Archer and Jones v Dunkel where I consider them appropriate.

- 247 -

556

The defendants offered four specific examples of cases where they say ASIC has failed to discharge its special duty of fairness.

557

The first relates to ASIC's allegations about the spreadsheet 2403C.xls and misleading reporting to the March board, made without calling Mr Hodgson as a witness or asking any of the director witnesses about management's report to the March board and their understanding of management's forecasts. I note in passing that the absence of Mr Hodgson as a witness has been explained, and should be held against neither the defendants nor ASIC (see 3.6.3). As to whether this is an example of breach of a duty of fairness, my view is that the issue is adequately, and I think completely, dealt with by analysing (as I have in Chapter 2) whether ASIC's allegations stray outside its pleaded case to the prejudice of the defendants. ASIC's duty as a model litigant in civil proceedings does not seem to me to have any greater consequences than the consequences flowing from the application of these other principles.

558

The second example is what the defendants call reliance upon contentious management accounts without calling their authors and persons involved in their preparation, such as Mr Holmes and Ms Nassif. In my opinion this complaint is adequately addressed by the principles in Blatch v Archer and Jones v Dunkel, and ASIC's duty of fairness does not take the matter further.

559

The third example is what the defendants call the "cynical approach to overseas creditors" demonstrated in an undated set of Observations to Counsel (Ex DTB 10/3940). There, the instructing solicitor for ASIC

reported that draft affidavits had been prepared for all major overseas creditors except Global Crossing, which had gone into bankruptcy in the United States. She said all of the creditors raised issues about debts

classified as "past due", and that some of the debts, particularly those

- 248 -

falling into the 120 day plus category, were legitimately disputed. She said all creditors conceded an apparent custom of delayed payment in the industry and at least one creditor acknowledged the tightening of the market in early April 2001. On the other hand, she noted that GTS

actually threatened supply in late March and that it was possible there was further correspondence or real threats to supply from others in February and March, and by late April the creditor position overseas was very serious. She said it was clear from discussions with GTS that until April 2001, and perhaps later, most suppliers were driven by sales and revenue rather than upsetting clients by aggressively chasing debt, and that from April 2001, there was a dramatic drop in the Telco market on the NASDAQ and this apparently had an effect on suppliers' attitude to bad debt (a proposition supported by Ms Kekalainen-Torvinen).

560

These propositions in the observations support the defendants' case that some of the older debt was legitimately disputed, that there was a custom of delayed payment in the industry, and that this changed dramatically in April 2001. The defendants refer to draft affidavits by Mr Menozzi of WorldCom (Ex DTB 15/6133), Mr Rigby of GTS (Ex DTB 14/5967) and Mr Bell of Optimal Communications (Ex P7 at 371), which also would provide a measure of support for their case, if completed and put into evidence. Presumably the "cynical approach" identified by the defendants has to do with the fact that this potential evidence was available to ASIC and was not called. The problem is in Blatch v Archer and Jones v Dunkel territory and I do not see that a duty to act as a model litigant in civil proceedings adds to the analysis.

561

Fourth, the defendants referred to what they called the "tactical decision" by ASIC not to advance evidence of the $40 million missing billing but to wait until after the defendants had cross-examined. ASIC's contention that there never was any significant amount of unbilled data in existence

- 249 -

as at the end of March 2001 first arose in the cross-examination of Mr Rich, and was not specifically pleaded. At 2.3.6.19 I have expressed the view that it was permissible for ASIC to cross-examine about whether there ever was a significant amount of data available to be backbilled, in support of its pleaded case, but ASIC could not make a new case about inaccurate statements to the March board based on this contention. The evidence cited in support of the defendants' submission (Ex P27/7.360-363) is an internal file note, apparently created in May 2002, relating to the $40 million of unbilled revenue, identifying five paragraphs of a draft report by Mr Carter and stating that the paragraphs had been removed from the report and were "to be dealt with in reply", and that Ms Ashley's affidavit should be signed up but not served. In the absence of any disclosed reasoning process as to why these decisions were taken, and having regard to the fact that cross-examination on this subject was permitted within the pleaded case, I would not conclude that the evidence reflects a "deliberate and cynical tactical decision" to keep for reply ASIC's evidence concerning the existence of $40 million of missing billing, in breach of its duty of fairness (compare DPS [3467] with ASR [3467]).

562

A serious failure to comply with the duty of prosecutorial fairness, if it applied, could amount to a miscarriage of justice vitiating the proceedings as a whole, as Mandie J noted in ASIC v Plymin (No 1) (2003) 21 ACLC 700; [2003] VSC 123; at [550]. The defendants did not contend that this

consequence flowed from any of the particular breaches of the duty they purported to identify throughout their written submissions. Instead they submitted that if a breach of ASIC's duty of fairness in civil proceedings was found, the court should not entertain ASIC's allegations made in breach of the duty. That consequence also flows from ASIC's submissions straying outside its pleaded case, and it may flow from non-compliance with the rule in Browne v Dunn. I have held that ASIC's duty in these proceedings is not akin to prosecutorial fairness, but it seems to me that

- 250 -

the same consequence would flow from failure by ASIC to comply, in respect of a particular matter, with its duty of fairness as a model litigant in civil proceedings.

- 251 -

Sign up to vote on this title
UsefulNot useful