FEDERAL COURT OF AUSTRALIA

Kirby v Centro Properties Limited (No 3) [2012] FCA 221

THE COURT ORDERS THAT:

1.    Pursuant to s 136(a) of the Evidence Act 1995 (Cth), the evidence of the previous representations contained in:

(a)    paragraphs 53, 60, 72, 74, 99, 101, 127, 131 and 143 of the Affidavit of John Grouios sworn on 21 December 2011; and

(b)    paragraphs 134, 135, 139, 140 and 141 of the affidavit of Stephen John Cougle sworn on 22 December 2011,

are admissible only as evidence of the fact that the previous representations set out in those paragraphs were made and for no other purpose.

2.    The seventh sentence in paragraph 38 of the affidavit of Stephen John Cougle sworn on 22 December 2011 is struck out.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    Pursuant to s 136(a) of the Evidence Act 1995 (Cth), the evidence of the previous representations contained in:

(a)    paragraphs 53, 60, 72, 74, 99, 101, 127, 131 and 143 of the Affidavit of John Grouios sworn on 21 December 2011; and

(b)    paragraphs 134, 135, 139, 140 and 141 of the affidavit of Stephen John Cougle sworn on 22 December 2011,

are admissible only as evidence of the fact that the previous representations set out in those paragraphs were made and for no other purpose.

2.    The seventh sentence in paragraph 38 of the affidavit of Stephen John Cougle sworn on 22 December 2011 is struck out.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    Pursuant to s 136(a) of the Evidence Act 1995 (Cth), the evidence of the previous representations contained in:

(a)    paragraphs 53, 60, 72, 74, 99, 101, 127, 131 and 143 of the Affidavit of John Grouios sworn on 21 December 2011; and

(b)    paragraphs 134, 135, 139, 140 and 141 of the affidavit of Stephen John Cougle sworn on 22 December 2011,

are admissible only as evidence of the fact that the previous representations set out in those paragraphs were made and for no other purpose.

2.    The seventh sentence in paragraph 38 of the affidavit of Stephen John Cougle sworn on 22 December 2011 is struck out.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    Pursuant to s 136(a) of the Evidence Act 1995 (Cth), the evidence of the previous representations contained in:

(a)    paragraphs 53, 60, 72, 74, 99, 101, 127, 131 and 143 of the Affidavit of John Grouios sworn on 21 December 2011; and

(b)    paragraphs 134, 135, 139, 140 and 141 of the affidavit of Stephen John Cougle sworn on 22 December 2011,

are admissible only as evidence of the fact that the previous representations set out in those paragraphs were made and for no other purpose.

2.    The seventh sentence in paragraph 38 of the affidavit of Stephen John Cougle sworn on 22 December 2011 is struck out.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    Pursuant to s 136(a) of the Evidence Act 1995 (Cth), the evidence of the previous representations contained in:

(a)    paragraphs 53, 60, 72, 74, 99, 101, 127, 131 and 143 of the Affidavit of John Grouios sworn on 21 December 2011; and

(b)    paragraphs 134, 135, 139, 140 and 141 of the affidavit of Stephen John Cougle sworn on 22 December 2011,

are admissible only as evidence of the fact that the previous representations set out in those paragraphs were made and for no other purpose.

2.    The seventh sentence in paragraph 38 of the affidavit of Stephen John Cougle sworn on 22 December 2011 is struck out.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

A.    INTRODUCTION

1        The Kirby / Stott Applicants, supported by the Vlachos Applicants, seek orders under ss 169(1)(a), (b) or (c) and/or a ruling pursuant to s 192A of the Evidence Act 1995 (Cth) (the Evidence Act) in response to a failure by PricewaterhouseCoopers (PwC) and PricewaterhouseCoopers Securities Limited (PwCS) (collectively the PwC parties) to comply with requests by the applicants that:

1.    named individuals give evidence about identified subjects;

2.    further or alternatively to (1), that named individuals be called to give evidence; or

3.    alternatively to (1) and (2), evidence about identified subjects not be admitted in evidence.

The request (set out in Attachment A) concerns identified passages in two affidavits filed by the PwC parties but not yet read in Court – an affidavit sworn by Stephen John Cougle, a partner of PwC (Mr Cougle), on 22 December 2011 (the Cougle Affidavit) and an affidavit sworn by John Grouios, also a partner in PwC (Mr Grouios), on 21 December 2011 (the Grouios Affidavit). The paragraphs in the affidavits the subject of the request are extracted in Attachment B. If only part of the paragraph is the subject of the request, then that passage is in bold.

2        Further or alternatively to orders under ss 169(1)(a), (b) or (c) and/or a ruling pursuant to s 192A of the Evidence Act, the Vlachos Applicants seek orders pursuant to ss 135(a) or 136(a) of the Evidence Act in relation to certain passages of the evidence proposed to be relied upon by the PwC parties. Those passages are identified in the second last column of Attachment B headed “Vlachos Applicants’ Request”. The orders ultimately sought by the Vlachos Applicants are set out in Attachment C. The PwC parties do not oppose those orders being made pursuant to s 136(a) of the Evidence Act.

3        These reasons for decision will consider the relevant statutory provisions and authorities and then turn to consider each of the disputed passages.

B.    RELEVANT PROVISIONS AND AUTHORITIES

4        Section 167 of the Evidence Act is entitled “Requests may be made about certain matters” and provides:

A party may make a reasonable request to another party for the purpose of determining a question that relates to:

(a)     a previous representation; or

(b)    evidence of a conviction of a person for an offence; or

(c)     the authenticity, identity or admissibility of a document or thing.

5        We are presently concerned with s 167(a) of the Evidence Act. Section 166(f) of the Evidence Act provides that in Div 1 of Pt 4.6 of the Evidence Act a request means a request that a party makes to another party to “in relation to evidence of a previous representation – to call as a witness the person who made the previous representation”.

6        The PwC parties submitted, and I accept, that there are three requirements for a request under s 167(a) – there must be a request, the request must be reasonable and the reasonable request must be made “for the purpose of determining a question that relates to” a previous representation.

7        The phrase “previous representation” is defined in the Dictionary to the Evidence Act to mean:

a representation made otherwise than in the course of giving evidence in the proceeding in which evidence of the representation is sought to be adduced.

8        The word “representation” is also defined in the Dictionary to the Evidence Act. The definition is inclusionary. It includes:

(a)    an express or implied representation (whether oral or in writing); or

(b)    a representation to be inferred from conduct;

…

9        Unsurprisingly, the scope or reach of the request provisions in relation to “previous representations” is capable of being extensive: Deputy Commissioner of Taxation v Trimcoll Pty Ltd [2005] NSWSC 1324 at [43] and Trimcoll Pty Ltd v Deputy Commissioner of Taxation [2007] NSWCA 307 at [22]-[33].

10        In determining the application of s 167(a), Basten JA outlined the approach in Trimcoll [2007] NSWCA 307 at [53] and [61]-[62] as follows:

To determine the application of s 167(a) it is necessary to identify the representation, express or implied, which might be relevant for the purposes of the proceedings.

…

It is sufficient for the purposes of ss 166-169 of the Evidence Act that there are previous representations which are likely to be relied on during the trial in order to render a request under s 167 reasonable. It is not necessary to determine the correctness of Trimcoll’s submission that no reasonable request could be made of it because its purpose in tendering the documents would be to demonstrate that it made payments because the documents were provided to it, and not based on any fact asserted in them, or at least not any fact in dispute in the proceedings. If it paid money on an invoice, it would appear to have relied upon a representation that certain work had been done pursuant to a contractual obligation requiring that the payment be made. Accordingly, it is not necessary to determine whether a request could be made in relation to a document or representation which was not excluded by the hearsay rule, either before the commencement of the relevant provisions of the Evidence Act, or thereafter.

It is unnecessary and inappropriate to define the relevant purposes of the request in any more detail because such requests will usually be made prior to trial and at a time when there may be doubt about the precise nature of the factual matters in issue. Whether the questions identified will clearly arise, may arise or are most unlikely to arise will involve matters of judgment which may go to the reasonableness of the request or of the refusal to comply.

(Emphasis added.)

11        Section 169 of the Evidence Act entitled “Failure or refusal to comply with requests” outlines what the Court may do if a party has, without reasonable cause, failed or refused to comply with a request. It provides:

(1)    If the party has, without reasonable cause, failed or refused to comply with a request, the court may, on application, make one or more of the following orders:

(a)    an order directing the party to comply with the request;

(b)    an order that the party produce a specified document or thing, or call as a witness a specified person, as mentioned in section 166;

(c)    an order that the evidence in relation to which the request was made is not to be admitted in evidence;

…

(3)    The court may, on application, direct that evidence in relation to which a request was made is not to be admitted in evidence if an order made by it under paragraph (1)(a) or (b) is not complied with.

(4)    Without limiting the circumstances that may constitute reasonable cause for a party to fail to comply with a request, it is reasonable cause to fail to comply with a request if:

(a)    the document or thing to be produced is not available to the party; or

(b)    the existence and contents of the document are not in issue in the proceeding in which evidence of the document is proposed to be adduced; or

(c)    the person to be called as a witness is not available.

(5)    Without limiting the matters that the court may take into account in relation to the exercise of a power under subsection (1), it is to take into account:

(a)    the importance in the proceeding of the evidence in relation to which the request was made; and

(b)    whether there is likely to be a dispute about the matter to which the evidence relates; and

(c)    whether there is a reasonable doubt as to the authenticity or accuracy of the evidence that is, or the document the contents of which are, sought to be proved; and

(d)    whether there is a reasonable doubt as to the authenticity of the document or thing that is sought to be tendered; and

(e)    if the request relates to evidence of a previous representation - whether there is a reasonable doubt as to the accuracy of the representation or of the evidence on which it was based; and

(f)    in the case of a request referred to in paragraph (g) of the definition of request in section 166--whether another person is available to give evidence about the conviction or the facts that were in issue in the proceeding in which the conviction was obtained; and

(g)    whether compliance with the request would involve undue expense or delay or would not be reasonably practicable; and

(h)    the nature of the proceeding.

(Emphasis added.)

12        Section 192A entitled “Advance rulings and findings” is also relevant. It provides that:

Where a question arises in any proceedings, being a question about:

(a)    the admissibility or use of evidence proposed to be adduced; or

(b)    the operation of a provision of this Act or another law in relation to evidence proposed to be adduced; or

(c)    the giving of leave, permission or direction under section 192;

the court may, if it considers it to be appropriate to do so, give a ruling or make a finding in relation to the question before the evidence is adduced in the proceedings.

There is no dispute that the Court is entitled to consider the applicants’ requests before the PwC parties seek to adduce the evidence in the proceedings.

Sections 135 and 136 of the Evidence Act

13        Given the further application made by the Vlachos Applicants, it is also necessary to refer to ss 135 and 136 of the Evidence Act. Those sections relevantly provide:

General discretion to exclude evidence

135.    The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:

(a)    be unfairly prejudicial to a party; or

…

General discretion to limit use of evidence

136.    The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might:

(a)    be unfairly prejudicial to a party; or

…

The PwC parties do not oppose the making of appropriate orders under s 136(a) of the Evidence Act limiting the use of the evidence the subject of the request to a non-hearsay use. The orders sought by the Vlachos Applicants are set out in Attachment C. As will become apparent, a different form of order has been made by the Court.

C.    PARTIES’ SUBMISSIONS

14        The PwC parties submitted that each passage in Attachment B was admissible because it was not being admitted for a hearsay purpose. That is, it was only being sought to be admitted as evidence of the fact that the conversation took place. Therefore, the PwC parties did not oppose an appropriate order under s 136 of the Evidence Act. They did however oppose any further order. It will be necessary to return to consider this aspect of the application later in these reasons for judgment.

15        The PwC parties also submitted that s 167 of the Evidence Act was not engaged because the “previous representations” that s 167 was designed to address were hearsay evidence that would have been inadmissible but were admissible because of the expansive exceptions to the hearsay rule under the Evidence Act. Put another way, the PwC parties submitted that s 167 was designed to address hardship by the admission of hearsay evidence and that no hardship can exist when statements are only being admitted for the non-hearsay purpose of proving that the conversation took place. In support of that submission, the PwC parties referred to the scope, object and purpose of Pt 4.6, Div 1 of the Evidence Act as well as Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 237, texts on the Evidence Act and the Australian Law Reform Commission’s report on Evidence (Australian Law Reform Commission, Evidence, Report No 38 (1987)).

16        The applicants rejected the PwC parties’ characterisation of the disputed passages of the Cougle and Grouios Affidavits. The applicants submitted that the PwC parties do seek to rely on each of the passages for a hearsay purpose.

17        The issue is resolved by applying the Evidence Act and, in particular, s 167 of the Evidence Act to the facts in this case.

D.    ANALYSIS

18        Before turning to consider the particular passages the subject of the application, it should be noted that the Court’s review of and reference to the Cougle and Grouios Affidavits was and is not for the purpose of making any findings of fact about the subject matter of those affidavits. The review of and reference to those affidavits was and is for the sole purpose of determining the applications the subject of these reasons for judgment.

19        I will deal with each of the disputed passages in turn.

6th sentence in paragraph 38 of the Cougle Affidavit

20        The sentence complained about was, in fact, the 7th sentence. It read:

During the course of 2006 and 2007, I had discussions with Gareth [Winter] about matters relevant to the Half Year Reviews and Audits, including in relation to the issues of control and equity accounting referred to in paragraphs 143 to 154 of this affidavit.

21        The sentence is inadmissible. It does not state facts. It is vague and conclusionary. The sentence should be struck out. It is unnecessary to consider the application under ss 167 or 135 of the Evidence Act. As was noted during the course of argument, the PwC parties would be entitled to lead evidence at trial in proper form, if they applied to do so.

Paragraphs 134 and 135 of the Cougle Affidavit

22        Paragraphs 134 and 135 depose to a conversation or conversations between Mr Cougle and Mr Brad Duggan. For the audit of “Centro Properties Group” (CNP) and its subsidiaries including “Centro Retail Group” (CER) (the 2007 Audit), it is not in dispute that Mr Cougle was the “Engagement Partner” for what are described as “Listed Entities (including all reporting entities in the Centro Properties Group structure)” and Mr Duggan was the “Manager, Listed Entities / Wholesale Funds”.

23        The first task is to identify the representations, express or implied (if any), in the identified passages which might be relevant for the purposes of the proceedings: see [10] above. In that context, it is important to recall the hearsay rule. Section 59(1) of the Evidence Act identifies the rule as follows:

Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation.

That rule does not apply “to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of an asserted fact”: s 60 of the Evidence Act.

24        In assessing whether there are implied representations, it is important to recall that it is only necessary for the Court to be satisfied that the representation or representations might be relevant for the purposes of the proceedings: see [10] above. Assessment of whether identified representations will clearly arise, may arise or are most unlikely to arise involves matters of judgment which may go to the reasonableness of the request or of the refusal to comply. Those questions are not relevant to the threshold issue of identifying the representations.

25        The first question is relevance. Evidence is made relevant under s 55 of the Evidence Act. The question which arises is whether the disputed evidence rationally affects (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.

26        In their submissions, the PwC parties described the issue as follows:

The applicants allege that PwC / PwCS made a number of oral and written representations which the applicants say were misleading and deceptive. PwC / PwCS defend the claim, inter alia, on the basis that

(a)     the representations were statements of opinion of the relevant PwC partner (Cougle in the case of PwC and Grouios in the case of PwCS) and

(b)    the opinions were genuinely held and there were reasonable grounds for each opinion.

27        So much is made clear by PwC’s defence filed in VID 326 of 2008. For example, in answer to the plea in paragraph [110] of the Fifth Further Amended Statement of Claim that PwC made identified representations to the Centro Board Audit and Risk Management Committee (BARC) and the other directors of CNP on or about 5 September 2007, PwC’s defence states at [48]:

(b)    … that any representations made by Mr Cougle on or about 5 September 2007, whether expressly or impliedly, were a statement of opinion and Mr Cougle had reasonable grounds for such opinions by reason of the audit planning and procedures undertaken under his supervision, the work done by Mr Cougle and his knowledge of the work done by audit staff in respect of the audit prior to 5 September 2007, the inquiries which he had made of and the information and explanations provided to him by CNP and its directors, officers and employees, and the inquiries which Mr Cougle had made of audit staff, including regarding the inquiries which audit staff had made of, and information and explanations provided to them by, CNP and its directors, officers and employees;

(Emphasis added.)

28        Particulars are then provided in relation to the matters said to give rise the reasonable grounds and include:

(i)    the audit planning and audit work undertaken by Mr Cougle and audit staff (including staff from PwC’s Accounting Consulting Services function);

…

(iii)    in August 2007, CNP had represented to one of the audit staff, Mr Duggan, that the Centro Group’s debt (other than the JP Morgan facility) was non-current and would roll over under existing facilities;

(iv)    further and in the alternative, … on or about 28 August 2007, Mr Cougle had a discussion with at least Mr Duggan as to whether liabilities of the Centro Group (other than any liability in relation to the JP Morgan facility) were current and was advised by Mr Duggan that such liabilities did not require reclassification;

…

(vi)    Mr Cougle was entitled to believe and did believe that the information provided to him and to audit staff by CNP (including the representations particularised above) was not false or misleading in a material particular and did not omit any matter or thing the omission of which rendered that information misleading in a material respect.

29        Much of the focus of the PwC parties’ submissions was directed at persuading the Court that there was no evidentiary dispute that the representations were made. That is, the PwC parties pointed to the fact that none of the applicants adduced evidence on this application or in preparation for trial which raises any doubt as to whether the previous representations were made, in this case, to Mr Cougle (and to Mr Grouios in respect of later passages). By way of example, the PwC parties submitted that the representation in paragraph 141 of the Cougle Affidavit which states that Mr Duggan told Mr Cougle something along the lines “They are okay, Cougs” (see Attachment B below) is relied upon by the Kirby Applicants in a Consolidated List of Admissions which the Kirby Applicants provided to the Court as part of their opening. I reject the PwC parties’ submission that the “true purpose of the request appears to be a collateral one …”. The question to be asked and answered is what is the purpose of the PwC parties seeking to lead the evidence in dispute? As is apparent, evidence is often led for more than one purpose. Once evidence is tendered however it is in for all purposes (subject to a limitation order under s 136 of the Evidence Act): Hughes v National Trustees, Executors and Agency Company Limited (1978) 143 CLR 134 at 153.

30        In the present application, the PwC parties submitted that they do not and will not rely upon the disputed passages to prove any fact other than that Mr Cougle was told certain things by Mr Duggan. That statement is important. In particular, Senior Counsel for the PwC parties submitted that the PwC parties do not and will not rely upon the disputed passages as evidence of the fact that:

1.    the audit was conducted;

2.    the audit was being conducted in a particular manner; and

3.    particular people had particular roles in the conduct of the audit.

31        That is, the PwC parties submitted that they do not and will not rely upon the disputed passages to prove any fact other than that Mr Cougle was told certain things by Mr Duggan.

32        Given the views I have formed, it is unnecessary to resolve the question whether s 167 of the Evidence Act is limited to hearsay evidence which is admissible under an exception in the Evidence Act: Trimcoll [2007] NSWCA 307 at [61]; cf Lewis v Nortex at [4].

33        Because the PwC parties have taken the course described, it is not necessary to decide whether the request made under s 166 is reasonable and if so, what orders the Court should make in response to the request. It is not necessary to do so because the disputed evidence that they have sought to lead is not being led for any hearsay purpose.

Paragraphs 139 and 140 of the Cougle Affidavit

34        Paragraphs 139 and 140 depose to a conversation or conversations between Mr Cougle and Mr Peter Fekete about what has been described as the “reclassification issue”. Again, it is not in dispute that for the 2007 Audit Mr Fekete was the “Engagement Partner” for “CMCS Syndicates, Wholesale Funds and Direct Property Funds”.

35        The reclassification issue involves, inter alia, whether a bridging facility provided by JP Morgan Australia Pty Ltd to CNP on 5 April 2007 (the JPM Domestic Bridge) was improperly classified as non-current (rather than current) debt in the Appendix 4E Preliminary Final Report for the financial year end 30 June 2007 lodged by CNP with the Australian Stock Exchange (ASX) on 9 August 2007 (CNP Preliminary Final Report). The JPM Domestic Bridge was approximately USD1,863,400,000. Unsurprisingly, the reclassification issue (including PwC’s obligations under s 311 of the Corporations Act 2001 (Cth) (the Corporations Act) and further or alternatively, its involvement in the alleged contravention of ASX Listing Rule 4.3D) is a central issue in the proceedings. Its centrality not only relates to the content of CNP’s accounts (the CNP Preliminary Final Report, the CNP Concise Financial Report contained in CNP’s 2007 Annual Report lodged with the ASX on 18 September 2007 and CNP’s continuous disclosure obligations) but also PwC’s conduct both before and after the discovery of the issue of the reclassification of the JPM Domestic Bridge.

36        Again, for present purposes, the first task is to identify the representations, express or implied (if any), contained within those paragraphs which might be relevant for the purposes of the proceedings. In my view, at least the same three implied representations are contained in these paragraphs, namely, that:

1.    the audit was conducted;

2.    the audit was being conducted in a particular manner; and

3.    particular people had particular roles in the conduct of the audit.

37        For the reasons set out above (see [25]-[29]), in the present case, I am satisfied that the representations identified, at the very least, might be relevant for the purposes of the proceedings. However, as noted above, the PwC parties accept that they do not and will not rely upon the disputed passages for those purposes.

Paragraph 141 of the Cougle Affidavit

38        Paragraph 141 deposes to a conversation between Mr Cougle and Mr Duggan about the “reclassification issue”. It falls into the same category as the conversation or conversations in paragraphs 139 and 140: see [34]-[37] above.

2nd and 3rd sentences of paragraph 53 of the Grouios Affidavit

39        The second and third sentences of paragraph 53 depose to a conversation between Mr Grouios and Mr Andrew Cronin about the “CER Review”.

40        In the Grouios Affidavit, Mr Grouios deposes that at the relevant time he was an authorised representative of PwCS which holds an Australian Financial Services Licence allowing PwCS to provide financial product advice under Corporations Act.

41        Mr Grouios further explains that in about June 2007, he became aware of a proposed transaction involving CER and Centro Shopping America Trust (CSF). Mr Grouios describes the steps of the proposed transaction as follows at [18] of the Grouios Affidavit:

… CSF would acquire certain assets from CNP in consideration for the issue of CSF securities to CNP and the assumption of certain debt by CSF and all of the issued units in the CSF would then be acquired by CER in consideration for the issue by CER to CSF security holders of units in CER (Proposed Merger). The proposed merged entity was commonly referred to as “New CER”.

This transaction became known as “Project Sky”.

42        The affidavit then deposes to the retainer of PwCS by CER on 13 August 2007 with the scope of the retainer including:

1.    a “due diligence review” of the forecast distributions of New CER for the 2008 financial year (New CER Forecast Distributions) and the pro-forma balance sheet of New CER (New CER Pro Forma) as at 30 June 2007 (CER Review); and

2.    preparation of an investigating accountant’s report (PDS IAR).

It is common ground that PwCS did both. The issues in dispute include the quality of that work. That issue (the quality of PwCS’ work) is said by the applicants to be significant for both the issue of the PDS IAR as well as PwC’s audit of the Centro entities.

43        Again, the first task is to identify the representations, express or implied (if any), contained within those identified sentences in paragraph 53 which might be relevant for the purposes of the proceedings. In my view, a number of implied representations are contained in these paragraphs, including that:

1.    the CER Review was conducted;

2.    the CER Review was being conducted in a particular manner;

3.    particular people had particular roles in the conduct of the review;

4.    PwCS was involved in the review; and

5.    the CER Review was using or at the very least, had resort to, the 2007 Audit and / or the PwC personnel working on the 2007 Audit.

44        In assessing those implied representations, it is again important to recall that it is only necessary for the Court to be satisfied that the representations might be relevant for the purposes of the proceedings. Assessment of whether the representations identified will clearly arise, may arise or are most unlikely to arise involves matters of judgment which may go to the reasonableness of the request or of the refusal to comply. Those questions are not relevant to the threshold issue of identifying the representations.

45        In the present case, I am satisfied that the representations identified, at the very least, might be relevant for the purposes of the proceedings. So much is made clear by PwCS’ defence in VID 1028 of 2010. By way of example, one of the principal allegations in VID 1028 of 2010 is that the “Negative Assurance Statement” in the IAR was misleading or deceptive. The phrase “Negative Assurance Statement” is defined in the Further Amended Statement of Claim (at [16]) to mean the statement by PwCS that:

“nothing had come to the attention of PWCS which caused PWCS to believe that the Pro-forma Balance Sheet was not prepared consistently with the Accounting Policies, by using key accounting policies including proper classification of borrowings and were presented fairly in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards, and the Accounting Policies …”

46        PwCS’ defence to that plea is important. The defence contains a number of elements. One element is the statement that the Negative Assurance Statement was a statement of fact and was true, or, alternatively, the Negative Assurance Statement was a statement of opinion and PwCS had reasonable grounds for that opinion. The particulars provided in support of that plea were as follows:

PwCS had reasonable grounds for that opinion by reason of:

(i)    the planning and procedures undertaken in performing the PwCS Retainer under the supervision of Mr Grouios;

(ii)    the verification by CER (by its Corporate Finance Manager, Mr Chris Meehan) of the CER pro forma consolidated balance sheet contained in the CER PDS;

(iii)    the fact that the debt of CER would be, and was, classified as non-current in CER’s accounts for the year ended 30 June 2007 and that an audit of such accounts involved a higher level of review than the review required under AUS 902 “Review of Financial Reports”; and

(iv)    the inquiries which PwCS had made of, and information and explanations provided to it by, CER and its directors, officers and employees.

(Emphasis added.)

47        PwCS admits, inter alia, that Mr Cronin:

1.    was a person who was employed by PwCS;

2.    assisted Mr Grouios in relation to the CER Review (to the extent of 157.5 hours of billed time), was involved in co-ordinating PwCS procedures and was present at some of the Due Diligence Committee Meetings that formed part of the CER Review;

3.    from time to time communicated with Messrs Grouios, Fekete, Duggan and McKenna in respect of the CER Review; and

4.    was engaged in relation to the audit of CNP’s and CER’s financial reports for the year ended 30 June 2007 under the supervision of Mr Cougle and spent large periods of time on a daily basis at the premises of CNP and CER.

This list is by no means exhaustive.

48        The evidence of what was said to Mr Grouios (that is, the statement of what he was told) was relevant if and only if he was told it in connection with the CER Review.

49        Given the current state of the proceedings (including the pleadings and the evidence filed by the PwC parties), it is both unnecessary and inappropriate to define the relevant purposes of the request in any more detail. As I have already noted, whether the implied representations are relevant is a matter that I cannot and need not determine at this stage. It is sufficient, as I have found, that the implied representations might be relevant for the purposes of the proceedings. However, as noted above, the PwC parties accept that they do not and will not rely upon the disputed passages for those purposes. That being so, it follows that the disputed passages of evidence are not tendered as evidence of the fact that the Negative Assurance Statement was true or as evidence of the fact that what was said by Mr Cronin was true. They are tendered to prove the fact of the conversation (a matters said to be relevant to the grounds on which an opinion was expressed) and that is all.

3rd sentence of paragraph 60 of the Grouios Affidavit

50        The third sentence of paragraph 60 appears under the heading “Provision of financial models by CER to PwCS”. That section of Mr Grouios’ Affidavit is concerned with what has been described as the “Project Sky model”. Mr Grouios explains in his affidavit (at [59]) that the model included:

1.    the CER and CSF base cases which contained forecast distributable income statements for the years ending 30 June 2008, 30 June 2009 and 30 June 2010 and balance sheets as at 30 June 2007 for both of the separate entities;

2.    forecast distributable income statement and balance sheet in relation to CNP’s Australasian and US property assets which were to be transferred to CSF (and ultimately to New CER) as part of the Proposed Merger;

3.    the proposed New CER Pro Forma;

4.    the New CER Forecast Distributions; and

5.    details of the merger adjustments.

51        Mr Grouios then deposes to having reviewed subsequent versions of the Project Sky model to identify whether there were any significant changes from previous versions and to check that the model was consistent with his understanding of the transaction and the assets that were being transferred as part of it.

52        The critical sentence the subject of this application states:

I would typically discuss the changes with Mr Cronin to see whether he, or the Review team, considered that any issues arose as a result of changes made.

53        Again, the first task is to identify the representations, express or implied (if any), contained within that sentence in paragraph 60 which might be relevant for the purposes of the proceedings. In my view, at least the same implied representations identified at [43] above are contained in these paragraphs. For the reasons set out above (see [44]-[49]), in the present case, I am satisfied that the representations identified, at the very least, might be relevant for the purposes of the proceedings. Again, the PwC parties accept that they do not and will not rely upon the disputed passages for those purposes.

3rd sentence of paragraph 72 of the Grouios Affidavit

54        The third sentence of paragraph 72 appears under the heading “Control and consolidation issues”. That section of Mr Grouios’ affidavit is concerned with one issue which arose in the course of CER’s engagement of PwCS (see [42] above), namely whether following the Proposed Merger, New CER would have control of the US incorporated joint-venture vehicle known as Super LLC and would therefore need to consolidate its interest in Super LLC in the New CER Pro Forma [68]. Mr Grouios deposes to the fact that he reviewed a copy of Mr Cougle’s report to the BARC on or around 22 August 2007 for the purpose of considering the implications raised by the audit of CER for the New CER Forecast Distributions and New CER Pro Forma for the purposes of the CER Retainer. Significantly, Mr Grouios’ affidavit states at [71]:

… I was looking for any indication that past transactions might be non-recurring or where the auditor had exercised judgment in deciding to deal with a matter in a particular way and where the auditor had raised issues or recommendations on alternative ways in which to deal with the issue.

55        The critical sentence the subject of this application states:

Mr Cronin informed me at that time that the audit work was substantially complete but there was still some work to do on the presentation of the financial statements.

56        Again, the first task is to identify the representations, express or implied (if any), contained within that sentence in paragraph 72 which might be relevant for the purposes of the proceedings. In my view, the same implied representations (see [43] above) are contained in these paragraphs. For the reasons set out above (see [44]-[49]), in the present case, I am satisfied that the representations identified, at the very least, might be relevant for the purposes of the proceedings. Again, the PwC parties accept that they do not and will not rely upon the disputed passages for those purposes.

2nd sentence of paragraph 74 of the Grouios Affidavit

57        Under the same heading “Control and consolidation issues”, the following sentence appears:

Mr Cronin also informed me that the Accounting Consulting Services Group (“ACS”) within PwC, which I knew to be a group within PwC which provides specialist technical advice on accounting and audit issues, had been consulted regarding the existing arrangements for the purposes of the Centro Audit and were satisfied that there was joint control.

58        In my opinion, that sentence falls into the same category as the third sentence of paragraph 72 of the Grouios Affidavit.

Last sentence of paragraph 99 of the Grouios Affidavit

59        Under the heading “Events on 4, 5 and 6 September 2007”, the following passage appears:

Mr Cronin came into the room and Mr Duggan and Mr Cronin had a conversation in words to the following effect:

Duggan     “How did the meeting go?”

Cronin:     “Yeah fine.”

Duggan:    “How did the restatement go down?”

Cronin:    “It was raised in the meeting and the directors didn’t even discuss it”

60        In my opinion, that passage falls into the same category as the third sentence of paragraph 72 of the Grouios Affidavit.

Last sentence of paragraph 127 of the Grouios Affidavit

61        Under the heading “Completion of the Project Sky Retainers”, the following passage appears:

Based upon that usual practice, I believe that at about the same time that I sent the email to Mr Cronin I separately instructed him to hold those documents and to release them to CER and CSF only following confirmation of final approval of the disclosure documents by the DDCs the following day.

62        In my opinion, that passage falls into the same category as the third sentence of paragraph 72 of the Grouios Affidavit.

2nd sentence of paragraph 131 of the Grouios Affidavit

63        The second sentence of paragraph 131 states:

I said to Mr Cronin words the effect, “were there any issues arising out of subsequent events?” to which Mr Cronin answered, “no”.

(Emphasis in original.)

64        In my opinion, that passage falls into the same category as the third sentence of paragraph 72 of the Grouios Affidavit.

4th sentence of paragraph 143 of the Grouios Affidavit

65        Under the heading “Further email from Mr Meehan”, the following passage appears at the fourth sentence of paragraph 143:

I discussed this matter with Mr Fekete on 5 October 2007 and he informed me that he had spoken to CER management to discuss the issue.

66        In my opinion, that passage falls into the same category as the third sentence of paragraph 72 of the Grouios Affidavit.

WHERE TO NEXT?

67        As the above analysis demonstrates, the previous representations might be relevant for the purposes of the proceedings. However, as also noted, the PwC parties submitted that they do not and will not rely upon any of the disputed passages for the purpose of proving the truth of any of the implied representations. In particular, the PwC parties will not seek to rely upon the disputed passages to prove any fact other than that Mr Cougle or Mr Grouios was told certain things.

68        Because the disputed evidence might be understood as conveying implied representations (upon which the PwC parties expressly disavow any reliance) it is important to consider whether a limitation order under s 136 can be framed. The Kirby Applicants submitted that no order under s 136 could be framed to sufficiently overcome the disadvantages inherent in the applicants not having the opportunity to test the evidence sought to be adduced by the PwC parties. I reject that submission. For the reasons that follow, it is possible to frame an order under s 136 which meets those disadvantages.

69        In Roach, the s 136 limitation was described in the following terms:

… [I]nsofar as the document contained representations of fact and expressions of opinion, they would not be used as evidence of the truth of facts stated in them or as evidence of facts about the existence of which opinions were stated in them.

70        In Hamod, the order was described as follows:

The second defendant had objected to the tender of those documents. At the point of their admission the second defendant sought in the alternative an order pursuant to s 136 of the Evidence Act 1995 limiting the use that could be made of them. The precise terms of that limitation were described as the “usual document limitation”, which was defined to mean that a document so limited should be admitted only as evidence of the contents of a communication in the form of that document between the named author or authors of the document and the addressee or addressees of the document, and not as evidence of the truth of its contents (including not as evidence of any earlier communication to which the document may have referred). …

(Emphasis added.)

71        Of course, the present application is concerned with oral evidence, not documents. However, the “unfair prejudice” principles conveniently summarised by Sterling J in Roach at [74], with appropriate adaption, are applicable. The principles were as follows:

Having regard to the terms and context of ss 135, 136 and 137 and the case law to which I have referred, I set out my view of considerations relevant to “unfair prejudice” as follows.

(a)    To say that any prejudice must be unfair prejudice is to state the obvious.

(b)    The phrase “unfair prejudice” is not defined. The legislature imposed no restriction on the criteria for unfairness.

(c)    The exceptions to the hearsay rule evince a legislative intention to allow evidence notwithstanding its hearsay character. But ss 135, 136 and 137 evince a legislative intention to allow any evidence, otherwise admissible, to be rejected or its use to be limited if the conditions specified in those sections are met.

(d)    Where hearsay evidence is made admissible by an exception to the hearsay rule it would be wrong to exclude it or to limit its use merely because it is hearsay and therefore of inherently less reliable quality. That would be to frustrate the intention of the legislature in making hearsay evidence admissible where it is covered by an exception to the hearsay rule. But that is not the same as saying that there is scope for the application of ss 135, 136 and 137 in relation to hearsay evidence which is covered by such a statutory exception but where there is some additional factor, for example, where the maker of the representation is not to be called.

(e)    Inability to test the truth of the representation is a legitimate ground for rejecting or limiting the use of evidence which is covered by an exception to the hearsay rule. Thus, whether the maker of the representation will be called as a witness is a relevant consideration.

(f)    However, where hearsay evidence is admissible under an exception to the hearsay rule because of the unavailability of the maker of the representation, there is a special reason for not disallowing the evidence or limiting its use on the ground that the evidence cannot be tested by cross-examination. That is because the legislature has made the evidence admissible notwithstanding that consideration.

(g)    Conversely, where the maker of the representation is available or is not shown to be unavailable and the party tendering the evidence does not call the person, that is a legitimate consideration in favour of a finding of unfair prejudice.

(h)    Sections 60 and 77 give rise to special considerations. Unlike other exceptions to the hearsay rule and the opinion rule, it is not the objective of those sections to facilitate proof. They are there to avoid a distinction having to be made about evidence being used for one purpose and not for another. Where a document goes into evidence because the existence of the document is a relevant fact, the operation of these sections without a limiting order under s 136 may have a consequence which the legislature cannot have intended. Any representation in the document which is probative of some other element in the tendering party’s case becomes evidence of the content of the representation. Representations of fact become evidence of the truth of the representation, irrespective of whether they are first-hand or remote hearsay and irrespective of whether the source of the information is disclosed. Representations of expert opinion in the document are probative of whatever is the subject of the opinion expressed, irrespective of whether the author of the document is qualified to express the opinion and irrespective of whether the assumptions made for the purpose of expressing the opinion are specified. Such consequences cannot have been intended where the opposite party is disadvantaged by such consequences. Section 136 serves to avoid such unfairness.

(i)    Where ss 60 or 77 operate and the author of the document is not called, the truth of facts stated or the efficacy of the opinion expressed cannot be tested by cross-examination. The consequence of the operation of ss 60 or 77 is then potentially the more unfair on that account.

(j)    The operation of s60 on assumption evidence which is given as the basis for an expert opinion is also a special case. Where such evidence is in the form of a bare statement of facts or where facts are stated as having been provided by some other person or persons, s60 operates to make the account evidence of the truth of the facts so stated. That is not so if the expert says that certain facts are assumed for the purpose of providing the opinion. A disadvantage should not be incurred in legal proceedings by happenstance. If the facts stated are contentious, it will ordinarily be unfair that the opposite party is fixed with assumption evidence as evidence of the truth of the facts stated by reason of those facts having been stated in one form rather than the other.

72        It was common ground that in the absence of a s 136 limitation order, if the PwC parties were permitted to use the evidence for the hearsay purposes identified above, the prejudice to the applicants would be an unfair prejudice fully justifying the Court making the s 136(a) order which the parties sought the Court to make. So much was expressly conceded by Senior Counsel for the PwC parties. The question which then arises is what is the appropriate order and what are the consequences of making such an order.

73        First, the form. Less is more. In my view, the order should state the purpose for which the evidence is being adduced. An order in the following terms achieves that objective:

Pursuant to s 136(a) of the Evidence Act 1995 (Cth), the evidence of the previous representations contained in:

a.    paragraphs 53, 60, 72, 74, 99, 101, 127, 131 and 143 of the Affidavit of John Grouios sworn on 21 December 2011; and

b.    paragraphs 134, 135, 139, 140 and 141 of the affidavit of Stephen John Cougle sworn on 22 December 2011,

are admissible only as evidence of the fact that the previous representations set out in those paragraphs were made and for no other purpose.

74        What follows is that the evidence is not admissible for any other purpose. If the PwC parties wish to rely upon that evidence for any other purpose, they will need to make the necessary application with all of the attendant consequences.

SECTIONS 135 AND 136 – REMAINING ISSUES

75        The Vlachos Applicants also sought the following order under s 135 of the Evidence Act:

Pursuant to s 135(a) of the Evidence Act, paragraph 99 and the first sentence of paragraph 100 of the [Grouios Affidavit] are excluded from evidence.

76        If they were unsuccessful, they then sought an order under s 136 in relation to those paragraphs. I have already addressed paragraph 99 in relation to s 136: see [59]-[60] above. Having regard to the limited basis on which that evidence was admitted, the application under s 135 may be put to one side.

77        The first sentence of paragraph 100 and paragraph 102 are in a different category. It is evidence of Mr Grouios’ understanding. The sentences immediately follow the evidence of what he asserts was the basis of his belief – eg overhearing a conversation between two named individuals. Whether that was a reasonable basis for his understanding is a question for trial.

78        I reject the Vlachos Applicants’ application under ss 135 and 136 of the Evidence Act in relation to the first sentence of paragraph 100 and paragraph 102.

79        The remaining paragraph in dispute is paragraph 101 of the Grouios Affidavit. That paragraph seeks to set out a conversation Mr Grouios had with Messrs Cronin and Duggan. Of course, Mr Grouios can give evidence of what he said. In relation to those parts of the conversation which seek to record what either Mr Duggan or Mr Cronin told him, that evidence falls into the same category as third sentence of paragraph 72 of the Grouios Affidavit. It will be subject to the s 136 limitation order.

Associate:

Dated:    13 March 2012

Attachment A

The relief sought by the Kirby / Stott Applicants was as follows:

(a)    an order pursuant to s 169(1)(a) of the Evidence Act … directing PwC to comply with any or all of the requests identified in Schedule A ... (PwC Requests);

Schedule A

(b)    an order pursuant to s 169(l)(a) … directing PwCS to comply with any or all of the requests identified in Schedule B … (PwCS Requests);

Schedule B

(c)    further, or in the alternative to (a), an order pursuant to s 169(1)(b) … directing PWC to call any of all of the persons identified in Schedule C …;

Schedule C

Mr Gareth Winter

Mr Brad Duggan

Mr Peter Fekete

(d)    further, or in the alternative to (b), an order pursuant to s 169(l)(b) … directing PWCS to call any of all of the persons identified in Schedule D …;

Schedule D

Mr Andrew Cronin

Mr Peter Fekete

(e)    in the alternative to (a) and (c), an order pursuant to s 169(1)(c) and/or a ruling pursuant to s 192A … that by reason of the failure to comply with the requests made by the applicants (and/or by reason of the exercise of a discretion pursuant to s 135 …) the evidence in relation to any or all of the PWC Requests (as specified in Schedule E …) not be admitted in evidence;

Schedule E

The 6th Sentence of paragraph 38 of the [Cougle Affidavit]

Paragraphs 134 and 135 of the Cougle Affidavit

Paragraphs 139 and 140 of the Cougle Affidavit

Paragraph 141 of the Cougle Affidavit

(f)    in the alternative to (b) and (d), an order pursuant to s 169(1)(c) and/or a ruling pursuant to s 192A … that by reason of the failure to comply with the requests made by the applicants (and/or by reason of the exercise of a discretion pursuant to s 135 …) the evidence in relation to any or all of the PWCS Requests (as specified in Schedule F …) not be admitted in evidence.

Schedule F

Paragraph 53 of the [Grouios Affidavit]

3rd sentence of paragraph 60 of the Grouios Affidavit

Paragraph 72 of the Grouios Affidavit

Paragraph 74 of the Grouios Affidavit

Last sentence of paragraph 99 of the Grouios Affidavit

Last sentence of paragraph 127of the Grouios Affidavit

Second sentence of paragraphs 131 of the Grouios Affidavit

Paragraph 143 of the Grouios Affidavit

ATTACHMENT B

ATTACHMENT C

1.    Pursuant to s 135(a) of the Evidence Act, paragraph 99 and the first sentence of paragraph 100 of the [Grouios Affidavit] are excluded from evidence.

2.    Pursuant to s 136(a) Evidence Act, the evidence of the previous representations contained in:

(a)    Paragraphs 53, 72, [and paragraphs 99 and 100 if those paragraphs are not ordered to be excluded entirely pursuant to s 135(a) as per the above] 101 and 102 of the [Grouios Affidavit] are admitted only as evidence that the previous representations therein were made, and not as evidence of the truth of those previous representations. The evidence of those previous representations may not be relied on by PWC as evidence of the truth of the facts stated in those previous representations, nor as evidence of facts about the existence of the opinions stated in those previous representations; and

(b)    Paragraphs 134, 135 and 141 of the [Cougle] Affidavit are admitted only as evidence that the previous representations therein were made, and not as evidence of the truth of those previous representations. The evidence of those previous representations may not be relied on by PWC as evidence of the truth of the facts stated in those previous representations, nor as evidence of facts about the existence of the opinions stated in those previous representations.