FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (No 6) [2018] FCA 1077

ORDERS

THE COURT:

1.    Makes the rulings in para 59 of the reasons for judgment published as Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (No 6) [2018] FCA 1077.

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

REASONS FOR JUDGMENT

YATES J:

Introduction

1    As I have previously recorded (Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (No 5) [2018] FCA 1059), the plaintiff alleges that the defendants have contravened ss 1041A and 1041B of the Corporations Act 2001 (Cth) in the course of carrying out index arbitrage trading on five consecutive serial expiry days for SPI futures from 19 April 2012 to 18 October 2012. The present proceeding is a civil penalty proceeding in which the plaintiff seeks declaratory relief, pecuniary penalties, and orders restraining each defendant from providing financial services involving securities index arbitrage trading for periods to be determined by the Court.

2    A question has arisen as to the admissibility of certain tables and charts which the plaintiff seeks to tender. The tables and charts were prepared by Robert Thomas Clifford, an economist in the plaintiff’s Strategic Intelligence team. The tables and charts are exhibited to an affidavit made by Mr Clifford on 21 April 2016, and are referred to by tab numbers. The tables and charts in question are those contained in Tabs 19 to 24, and 27 to 28 (19 April 2012); Tabs 56 to 61, and 64 to 65 (17 May 2012); Tabs 91 to 96, and 99 to 100 (19 July 2012); Tabs 126 to 131, and 134 to 135 (16 August 2012); and Tabs 162 to 167, and 170 to 171 (18 October 2012). For convenience, I will refer to these as the subject tables and charts (although these are not the only tables and charts prepared by Mr Clifford that the plaintiff seeks to tender).

3    The defendants seek a ruling that the subject tables and charts be rejected under s 135 of the Evidence Act 1995 (Cth) (the Evidence Act) (the s 135 objection) or, alternatively, that their use in evidence be limited under s 136 (the s 136 objection). It is convenient to commence with the s 136 objection.

The s 136 objection

Background

4    Mr Clifford prepared a large number of tables and charts for use in this proceeding. When printed in double-sided format, they comprise 11 folders, divided into 216 tabs. On 2 September 2016, the defendants’ solicitors wrote to the plaintiff, stating that the opus contained “a vast quantity of data” and that the task of verifying the tables and charts was “very substantial”. The letter noted that the plaintiff’s two experts, Mr Morgan and Mr Graves, had referred to only some of the tables and charts. Specifically, the defendants’ solicitors said that Mr Morgan had referred to only 31 of the 209 tables and charts with which he had been provided, and that Mr Graves had referred to only 12 of the 101 tables and charts with which he had been provided. The defendants’ solicitors queried whether the plaintiff intended to rely on “any of the more than 170 tables and charts produced by Mr Clifford but not relied upon by Mr Morgan or Mr Graves …”. They requested that the plaintiff identify specifically, in relation to each table and chart, the information that the plaintiff intended to rely upon, and the purpose for that reliance.

5    The plaintiff responded by stating, in effect, that it intended to rely on all the tables and charts. It provided another table which cross-referenced the tables and charts to paragraphs of the Concise Statement (as then filed and particularised), and paragraphs of Mr Morgan’s and Mr Graves’ respective reports.

6    The defendants’ solicitors did not consider that this reference table provided sufficient information to enable them to properly understand how the tables and charts would be deployed in the plaintiff’s case. As explained in oral submissions before me, the information in the reference table was thought to be “too high level” and “abstract”. The defendants’ solicitors asked the plaintiff to reconsider whether it needed to tender all the tables and charts. Further, for those tables and charts which the plaintiff intended to tender, the defendants’ solicitors asked that, in each case, the plaintiff identify the specific factual propositions or conclusions to be drawn from the information provided.

7    The dispute as to this aspect of the proposed evidence appears not to have been resolved between the parties. On 23 September 2016, Foster J made the following order:

3.    By 14 October 2016, the plaintiff identify, in respect of each of the tables and charts exhibited to Mr Clifford’s affidavit affirmed on 21 April 2016 that it intends to tender in the proceeding, what specific fact or facts set out in that table, or shown by that chart, it intends to rely upon in its case against the defendants and for what purpose.

8    In compliance with that order, the plaintiff provided, on 14 October 2016, a schedule entitled: Plaintiff’s schedule identifying the facts set out in the Tables and Charts in Exhibit RC2 upon which it intends to rely in chief and for what purpose, prepared pursuant to order 3 made on 23 September 2016 (the Schedule).

9    It is necessary at this point to descend to some matters of detail concerning the Schedule. This is conveniently done by reference to the chart in Tab 19 and the table in Tab 20 concerning the defendants’ trading on 19 April 2012, which can be taken as illustrating the s 136 objection as it applies to all the subject tables and charts in relation to the defendants’ other impugned trading activities.

10    The table in Tab 20 (the Tab 20 table) relates to A-B XJO Securities (the A-B securities). It provides part of the underlying data used by Mr Clifford to chart (in Tab 19) the “Whitebox Traders’” buy orders on 19 April 2012 for XJO Securities according to each rotation group in the OSPA. The top half of the chart (Tab 19) shows the portfolio size, for each rotation group, in SPI equivalents over the period between 9:57 am and 10:10 am on 19 April 2012, by reference to a two minute time-scale. The bottom half of the chart shows the percentage change in weighted prices of each rotation group over the same time-scale. The Tab 20 table records data at one second intervals from 9:40:00 am to 10:15:00 am on the same day. The data comprises the value (in SPI equivalents) of the defendants’ buy orders for A-B securities; the value (in SPI equivalents) of the defendants’ sell orders for A-B securities; and the percentage change in weighted price (indicative match price or traded price, as applicable) of A-B securities relative to the closing price of those securities on the previous day.

11    The Schedule states the purpose for which the Tab 20 table is to be relied on:

Purpose:

1.    subject to 2 below, as evidence in support of the contentions at CS [4], and at CS [10] (in particular, as to CS [10], as evidence of the actual immediate impact of the placement or cancellation of those buy orders and sell orders on the indicative match prices of the securities to which the orders related) relating to 19 April 2012;

2.    as to the facts with respect to changes in:

a.    weighted indicative match prices, other than those immediately preceding and immediately following the placement of the Cancellations;

b.     weighted traded prices,

    only to prove the assumptions as to those facts provided to Mr Morgan and Mr Graves.

12    The reference to “CS [4]” and “CS [10]” in the statement of purpose is to paragraphs in the Concise Statement.

13    CS [4] is:

4.     On 19 April 2012 Whitebox and Mr Boshoff caused NAB to trade a positive arbitrage position in the period leading up to the conclusion of the OSPA in the course of which, relevantly:

a.     in the period between 9:54:49am and 9:55:43am, Mr Boshoff placed, or caused the placement of, 2 sets of orders to acquire XJO Securities in aggregate, equivalent in value to 1171 June SPI Futures (Buy Orders);

b.     in the period between 9:59:38am and 9:59:40am, Mr Boshoff placed, or caused the placement of, a further set of orders to acquire XJO Securities in aggregate, equivalent in value to 100.3 June SPI Futures (Subsequent Buy Orders);

c.     shortly prior to each rotation of the OSPA, Mr Boshoff cancelled, or caused the cancellation of, the Buy Orders that were due to trade in that rotation (Cancellations);

d.    Mr Boshoff caused the trade of the Subsequent Buy Orders in the OSPA on ASX by NAB (other than for securities with ASX ticker codes AIO, WPL and WTF).

14    CS [10] is:

10.     Further, Whitebox and Mr Boshoff did not place or cause to be placed each of the Cancellations or Reductions until shortly prior to the respective rotations of the OSPA in which the XJO Securities the subject of those orders were due to trade for the purpose of maintaining (in whole or in part) the likely decreases on 19 April 2012 and the likely increases on each of the other Serial Expiry Days in the indicative match prices attributable to the Cancellations and Reductions so that the respective:

a.     decreases in the indicative match prices were likely to convert into lower match prices for each of the XJO Securities in the OSPA than if the Cancellations had been placed immediately after the placement of the Buy Orders, or alternatively, the Cancellations for XJO Securities traded in the first rotation of the OSPA (A-B Securities); and

b.     increases in the indicative match prices were likely to convert into higher match prices for each of the XJO Securities in the OSPA than if the Reductions had been placed immediately after the placement of the first set of Amended Sell Orders for each of those securities or alternatively, the placement of the amended orders constituting the Reductions for the A-B Securities.

15    It will be observed that CS [10] refers to and distinguishes between indicative match prices (attributable, relevantly to April 2012, to Cancellations) and match prices.

16    An indicative match price is a calculation, undertaken at a point in time in the pre-open phase (before market opening) of what the opening price of a stock would be if the OSPA for that stock were hypothetically held at that point in time. It is derived from the bids and asks that are current in the order book of the ASX Trade platform at the time of the calculation, applying an algorithm (the ASX Algorithm) at that point in time. The indicative match price is recalculated each time an order is entered, amended or cancelled in ASX Trade.

17    A match price is the opening price of a security listed on the ASX as a result of the OSPA for that security. It is determined by a process where overlapping bids and asks for securities from the pre-open phase that remain in the order book at the time of the OSPA are matched and trades result at a price determined by the ASX Algorithm.

18    The importance of these observations is that, pursuant to Order 3 made on 23 September 2016, the plaintiff confined the purpose of tendering the data in the Tab 20 table to evidencing the actual immediate impact of the defendants’ placement or cancellation of orders on the indicative match prices of the securities to which the orders related and (as to certain facts) to underpin certain assumptions provided to Mr Morgan and Mr Graves.

19    Mr Graves was asked to opine on a number of questions. The first question he was asked to address was whether it was likely that placements, amendments that reduce volume, or cancellations of orders with respect to XJO Securities in the pre-open phase on serial expiry days for SPI futures would have an immediate effect on the indicative match price for those securities. According to the purpose stated in the Schedule, this is the question to which, on the plaintiff’s case, the data in the Tab 20 table is relevant, and the purpose for which it relied on that data (apart from proving certain assumptions provided to Mr Morgan and Mr Graves).

20    Subsequent questions posed for Mr Graves’ opinion address different matters, including whether the placements, amendments that reduce volume, or cancellations of orders would have an effect on:

    the indicative match prices for the securities in the period up to the rotation of the OSPA in which those securities were due to trade; and

    the match prices in the OSPA for those securities.

21    In his report, Mr Graves provides answers to the latter questions which, although building on his answer to the first question, do not rely on the data in the subject tables and charts, including the Tab 20 table. Rather, Mr Graves arrives at answers, including with respect to the impugned transactions on each relevant trading day, that rely on a process of reasoning according to certain “rules of thumb” developed by Mr Graves, based on his training and experience as an equity and derivatives specialist. It is not necessary for me to descend to the details of the “rules of thumb” for the purposes of this ruling. It is sufficient for me to record that, on the data provided, Mr Graves determined, for the purposes of the first question he was asked in relation to the defendants’ trading on 19 April 2012, that certain cancellations satisfied what he described as a Significant Cancellation Combination which was likely to have an immediate effect on the indicative match prices of the XJO Securities to which the cancellations related, by lowering those prices. To support his opinion, Mr Graves computed the percentage reductions in the indicative match volumes that he saw arising from the cancellations. The indicative match volume is a calculation of the quantity of a security that would be traded at the indicative match price, if the market were (hypothetically) open at the time of the calculation.

22    However, in relation to the subsequent questions as they applied to the defendants’ trading on 19 April 2012, Mr Graves reasoned that the timing of the cancellations in the pre-open phase were such that some manual order managers would not have had sufficient time to respond before the OSPA. Thus, according to him, the cancellations were likely to have had an ongoing effect on the indicative match prices of the securities throughout the period up to the rotations of the OSPA in which the securities were due to trade and, finally, on the match prices, which were lower than they were likely to have been had the cancellations occurred earlier. It is important to stress that, in arriving at his conclusions on the subsequent questions, Mr Graves did not refer to or rely on the data in the Tab 20 table beyond the purpose of assisting him to answer the first question whether the cancellations would have had an immediate impact on a security’s indicative match price.

23    Mr Graves applied similar reasoning in answer to similar questions in relation to the defendants’ trading on the other relevant days, which involved amendments to reduce orders that had been placed.

24    The next step in this background chronology is the case management issue concerning the timing as to when, if they chose to do so, the defendants would respond to the plaintiff’s expert evidence, in light of the second defendant’s privilege against exposure to a penalty. This issue was resolved by the defendants agreeing to serve their expert evidence in advance of the hearing on liability (i.e., the present hearing), provided certain conditions were adhered to. This agreement is noted in orders which I made on 28 July 2017:

THE COURT NOTES THAT:

1.    The parties have agreed that there would be significant efficiencies for the hearing of the proceedings if the defendants served their expert evidence in advance of the liability hearing and there was an opportunity for the expert witnesses to conclave (as appropriate) for the purposes of jointly reporting to the Court and to the parties prior to the hearing and (as appropriate) giving evidence concurrently.

2.    The second defendant has asserted his privileges against self-incrimination and self-exposure to penalty, both generally and, specifically, in relation to the service of evidence in advance of ASIC closing its case.

3.    Notwithstanding those assertions of privilege, the defendants have agreed to serve their expert evidence in advance of ASIC closing its case, subject to the following being noted by the Court:

(a)    by serving their expert evidence and agreeing to a conclave and joint reporting regime and concurrent evidence, the second defendant is not to be taken as waiving his privileges against self-incrimination and self-exposure to penalty more widely and ASIC agrees that it will not assert hereafter that those privileges have thereby been waived, either generally or, specifically, so as to require the defendants to serve any further evidence prior to ASIC closing its case.

(b)    the defendants have agreed to serve their expert evidence in advance of the hearing on the understanding that:

(i)    ASIC’s case is as identified in the concise statement served, the particulars provided to it to date and in ASIC’s evidence-in-chief including, in particular, the expert reports of Mr Morgan and Mr Graves; and

(ii)    any evidence to be served by ASIC in the proceedings following upon service of the defendant’s expert evidence will be by leave and will be strictly in reply to that evidence, rather than any attempt by ASIC to recast its case in chief.

NOTING THE ABOVE, THE COURT ORDERS BY CONSENT THAT:

1.    The provisional liability of the proceedings listed to commence on 4 September 2017 be vacated.

2.    The proceedings be listed for a liability hearing with an estimate of four weeks commencing on 2 July 2018 (the Rescheduled Hearing Date).

3.    The defendants file and serve expert reports and any supporting material by 15 November 2017.

4.    Unless the Court otherwise directs, the parties’ respective expert witnesses within the same field of expertise are to participate in a joint conference or conferences and are to prepare a joint report or reports in accordance with Order 5 below.

5.    The plaintiff and defendants shall confer after service of the defendants’ expert evidence to:

(a)    identify which of their respective expert witnesses should participate in a joint conference or conferences;

(b)    set a date and time for the joint conference or conferences to be held; and

(c)    discuss the arrangements for the joint conference or conferences, including those referred to in paragraph 7.3 of Practice Note GPN-EXPT (the Practice Note).

6.    The plaintiff shall not serve evidence in reply to the defendants’ expert evidence other than with the leave of the Court. Any application for leave is to be made by formal application to the Court by 8 December 2017 and is to be supported by an affidavit identifying:

(a)    the expert witness to provide the reply evidence;

(b)    the subject matters to be dealt with by the reply evidence sought to be served; and

(c)    the estimated length of the reply evidence.

7.    The parties to serve on each other objections to any evidence served by the other party by 6 weeks prior to the Rescheduled Hearing Dates.

8.    Subject to Order 9 below, the proceedings be listed for a further case management hearing on 13 December 2017 at 9:30am at which time the parties are to propose short minutes establishing a timetable to give effect to Orders 4 and 5 above.

9.    The parties have liberty to apply by formal application to the Court on three days’ notice.

25    I draw particular attention to para 3(b) of the matters that were noted. I also draw attention to Order 6 concerning the filing of expert reply evidence.

26    On 15 November 2017, the defendants filed an affidavit by Professor Michael James Aitken, which exhibited a report made by him on 14 November 2017. (I note for completeness that, on 22 February 2018, the defendants filed a further affidavit and supplementary report by Professor Aitken). Professor Aitken was asked by the defendants’ solicitors to consider certain “rules of thumb” formulated by Mr Graves and other aspects of Mr Graves’ reasoning, which were deployed in expressing his opinions in answer to the questions posed by the plaintiff. In his report, Professor Aitken carried out a number of analyses with a view to expressing conclusions as to whether there was empirical support for Mr Graves’ “rules of thumb” and other aspects of his reasoning.

27    One conclusion reached by Professor Aitken in his report is that, subject to an exception, there is no empirical evidence to suggest that Significant Orders placed in the Final Pre-OSPA Period (as defined by Mr Graves) that moved the indicative match price, did cause a change in the indicative match price that was carried through to the OSPA.

28    Another conclusion reached by Professor Aitken is that there is no empirical support for the conclusion that Significant Orders placed for XJO Securities in the Final Pre-OSPA Period were likely to lead to a change in the indicative match price for XJO Securities in the OSPA that carried through to the opening match prices for XJO Securities in the OSPA.

29    On the 7 June 2018, the plaintiff’s solicitors wrote to the defendants’ solicitors, referring to the expert evidence that had been filed by the defendants:

We refer to the expert evidence on which the defendants rely to the effect that the existence of interposed orders from other market participants make it unlikely that any of the Cancellations or Reductions made by the defendants shortly prior to the relevant OSPA for each group of XJO Securities on the Serial Expiry Days would have any effect on the match price for those securities in their OSPA.

We confirm that we will seek to rely on the following data in the Clifford Tables and Charts in response to that contention:

1.    changes in the weighted indicative match prices in the period immediately prior to the commencement of the respective Cancellations and Reductions and up to the OSPA together with the weighted trade prices in and after the OSPA, as set forth in the tables and charts at Tabs 19-24, 56-61, 91-96, 126-131 and 162-167;

2.    changes in the indicative XJO in the period immediately prior to the commencement of the respective Cancellations and Reductions and up to and as at the trade of the last rotation of the OSPA together with the actual XJO after the trade of the last rotation of the OSPA, as set forth in the tables and charts at Tabs 27-28, 64-65, 99-100, 134-135 and 170-171.

...

30    On 29 June 2018, the defendants’ solicitors responded, noting the Schedule that had been provided on 14 October 2016, and stating that:

… ASIC expressly confirmed that it was only intending to rely on those charts and tables for the purpose of seeking to prove an actual immediate impact of the placement, amendment or cancellation of the Whitebox orders on the indicative match price of the groups of XJO securities the subject of those charts and tables.

We have relied on that conformation in our preparation of the Defendants’ case for hearing and the Defendants would be unfairly prejudiced if ASIC were now permitted to change that position.

31    The plaintiff’s solicitors responded on the same day, stating (amongst other things):

We confirm, for the avoidance of doubt, that ASIC’s case remains one of likely effect on prices in the OSPA not actual effect on the prices in the OSPA. As outlined above, however, ASIC does seek to deploy in reply the data in the tables to rebut the contention advanced by your experts that it was unlikely that any of the Cancellations or Reductions could have had any effect on match prices in the OSPA by reason of the existence of interposed orders.

32    In the course of opening, the plaintiff provided a number of aides-memoire. These included a table headed: Plaintiff’s Aide-Memoire 12 Percentage change in weighted average XJO group prices (both indicative before OSPA and then actual) since closing prices on the previous trading day (AM12). AM12 relates to each of the trading days in question and shows the percentage changes in weighted average prices for each rotation group by reference to four time periods: just before the reduction/cancellations; just after the reduction/cancellations; at the commencement of the OSPA; and at 10:15 am. AM12 illustrates the manner in which the plaintiff now seeks to deploy, for example, the data in the Tab 20 table (and other like tables and charts). There are similar aides-memoire presented by reference to similar time periods, and based on data from the subject tables and charts: Plaintiff’s Aide-Memoire 13 Changes in indicative/actual XJO level from just before Cancellations/Reductions until the start of the OSPA on the Serial Expiry Days; and Plaintiff’s Aide-Memoire 14 Changes in indicative/actual XJO opening price from just before Cancellations/Reductions until start of the OSPA on the Serial Expiry Days.

The defendants’ submissions

33    The defendants submit that if the plaintiff is permitted to use the subject tables and charts in the manner contemplated by the plaintiff’s solicitors’ letter of 7 June 2018—which is outside the purpose(s) stipulated in the Schedule provided on 14 October 2016—the defendants will be unfairly prejudiced. The defendants say that they will be denied a fair opportunity to undertake a proper forensic and empirical analysis of the subject tables and charts for the new purpose for which the plaintiff seeks to deploy them, namely to provide evidence as to the likelihood that the immediate impact on the indicative match prices caused by the defendants’ impugned order cancellations and amendments carried through to the OSPA and into the match prices themselves.

34    Taking AM12 as an example, the defendants submit that the plaintiff’s implicit propositions are that:

    if the price of a group is lower immediately after the defendants’ cancellations than it was immediately beforehand, then one can infer that the price movement is likely to have been caused by those cancellations;

    if the price of the group remains lower at opening than it was immediately before the defendants’ cancellations, then one can infer that it is likely to be a price affected by those cancellations; and

    if the price of the group remains lower at 10:15 am than it was immediately before the defendants’ cancellations, then one can infer that it is likely to still be affected by those cancellations.

35    The defendants submit that these propositions are “simplistic”. In oral submissions, I was taken to AM12 and the Tab 20 table for the purpose of noting trends in the data in the table that are not reflected in AM12. The defendants submit that if the data in the Tab 20 table are to be relied on in the way contemplated in AM12, they are liable to mislead and confuse absent appropriate expert explanation or analysis. In this connection, the defendants submit that the inferences that the plaintiff seeks to draw from the data are not self-evident or founded in ordinary human experience. They submit that there are dangers in inferring a causative relationship between two variables simply based on their coincidence in time. Further in this regard, the defendants submit that, in order to “test and disprove” the plaintiff’s “hypothesis” as to the likely enduring effect of the actual immediate impact of the impugned cancellations and amendments—as the defendants would wish to do—they would need to undertake a proper empirical and statistical analysis of such matters as:

    the trends in relevant pricing on each morning at the critical periods approaching and following the defendants’ order cancellations and amendments;

    the normal volatility in such pricing in the final minute or so before opening and the extent to which the movements pointed to by the plaintiff are within that band of normal volatility;

    whether or not there are statistical correlations between the defendants’ order cancellations and amendments and pricing movements;

    what other order activity was occurring in the period of the defendants’ order cancellations and amendments and in the period thereafter, to test the extent to which the pricing movements during and after the order changes were in fact likely to have been the result of such other activity; and

    the trends in pricing after market opening, to test whether the opening price could be said to have represented market equilibrium, as opposed to an “artificial” price brought about by the defendants’ order cancellations or amendments.

36    The defendants submit further that, in any event, the plaintiff’s intended use of the subject tables and charts is not evidence in reply. In this connection, the defendants point out that their expert evidence (and particularly Professor Aitken’s evidence) is not directed to establishing that the defendants’ impugned cancellations and amendments were “unlikely” to have an effect on the match price for securities in the OSPA, but rather that the conclusions reached by Mr Graves— that the immediate effect on the indicative match prices caused by the defendants’ impugned cancellations and amendments was likely to have continued into the OSPA and, finally, the match prices—are based on “rules” and propositions advanced by Mr Graves which do not have empirical support and fail to have proper regard to the potential impact on both indicative match prices and opening (match) prices of contemporaneous orders by other market participants.

37    By way of elaboration, according to Professor Aitken’s analysis, the Final Pre-OSPA Period (which Mr Graves defines as the period commencing two minutes before the earliest possible time for the rotation of the OSPA held for the rotation group to which an XJO Security belongs, and ending at the time of the actual OSPA rotation for that security) is one in which a “multitude” of orders from different participants can be placed (i.e., interposed orders) and in which an “almost infinite number of different influences” can occur which may affect the placement of those orders, including the reaction to orders placed by others. This activity can occur in milliseconds. Professor Aitken expresses this conclusion:

In conclusion therefore, the empirical evidence does not support the general proposition proposed by Mr Graves, that Significant Orders placed during the Final Pre-OSPA Period are likely to have a continuing effect on the IMP of XJO Securities until the actual OSPA. There is also no empirical support for the more specific conclusion that any of the [impugned orders] that were Significant Orders placed in the Final Pre-OSPA Period had or are likely to have a continuing effect on the IMP of XJO’s Securities until the actual OSPA. The key reason for this conclusion is that Mr Graves does not account for interposed orders, either generally or in the more specific case of [the impugned orders].

38    The defendants submit, therefore, that their expert evidence does not introduce a new issue as to “unlikelihood” but, rather, addresses Mr Graves’ contrary conclusion, particularly in circumstances where Mr Graves himself expressly recognises, when considering whether placements, cancellations and amendments can be “combined” for the purpose of assessing their impact on indicative match volume. In this connection, Mr Graves opines that order placements, cancellations and amendments can be combined if made “at the same time”. However, if the placements, amendments or cancellations are separated in time then, generally speaking, the more time that elapses between individual events and the combination (series), and between the first and last events in the combination (series), the more likely it is that other events will occur in the market that will effect change in the indicative match volume.

39    It is to be noted, however, that Mr Graves does combine the impugned amendments and cancellations in the Final Pre-OSPA Period. Professor Aitken’s point is that, because of interposed orders and exogenous events, one cannot combine placements, cancellations and amendments in the way that Mr Graves does.

40    The defendants submit that the plaintiff’s proposed use of the subject charts as evidence of an actual effect, not just on indicative match prices but on the opening (match) prices, does not directly challenge Professor Aitken’s evidence as to the implications of interposed orders. They argue that the proposed use is simply further evidence to bolster the propositions originally put forward by the plaintiff in its case that the defendants’ cancellations and amendments were “likely” to have had an enduring effect on opening prices which were, therefore, artificially created. They submit that the plaintiff could have relied but chose not to rely—and, more importantly, informed the defendants in substance that it did not rely—on the subject tables and charts in its case in chief to support the allegedly enduring effect of immediate changes to indicative match prices. The defendants submit that the plaintiff is now impermissibly seeking to split its case under the guise of reply evidence.

41    The defendants further submit that even if the plaintiff’s intended use of the subject tables and charts for the new purpose is properly characterised as reply evidence, the effect of the orders made on 28 July 2017 is that the plaintiff requires the Court’s leave to make such use of them. On this question, I note that the defendants do not advance Order 6 made on 28 July 2017 in their submissions. Presumably this is because the subject tables and charts constitute intended evidence that had already been served on the defendants before Order 6 was made, the relevant change being a change in purpose for which the plaintiff now seeks to use those tables and charts. It is clear, however, that the parties’ agreement as to timely service of the defendants’ expert evidence carried with it an acceptance by the plaintiff that it would need leave if it wished to rely on reply evidence.

42    The defendants submit that leave should not be granted because nothing was said by the plaintiff as to its change in position in relation to the use of the subject tables and charts until 7 June 2018, just over three weeks before the commencement of the hearing. The defendants submit that this period of notice is manifestly insufficient time for them to embark on the forensic exercise of analysing and answering the detail of what occurred in the central order book on each day between the execution of the final order changes and market opening, and then after market opening, in order to meet the “simplified propositions now sought to be promulgated by” the plaintiff.

Relevant legal principles

43    The defendants rely on a number of legal principles which the plaintiff does not contest. These are conveniently summarised in Australian Securities and Investments Commission v Rich [2006] NSWSC 826; (2006) 58 ACSR 414 (ASIC v Rich). In that case, Austin J observed (at [15]) that civil penalty cases are treated as being subject to the civil rules of evidence and procedure but, when exercising its discretion in evidentiary and procedural matters, a court should have regard to the nature of the proceeding as a civil penalty proceeding and the seriousness of the consequences in granting the relief that is sought.

44    His Honour went on to say (at [16]-[17]):

[16]    I doubt whether this approach is substantively different from the criminal procedure, in terms of principles or application. The following principles emerge from the criminal cases:

•    the general principle is that the prosecution must present its case completely before the accused is called upon for his defence, and therefore, although the trial judge has a discretion to allow the prosecution to call further evidence after evidence has been given for the defence, the prosecution should be permitted to call evidence at that stage only if the circumstances are very special exceptional and, generally speaking, not if the occasion for calling the further evidence ought reasonably to have been foreseen (R v Chin (1985) 157 CLR 671 at 676 per Gibbs CJ and Wilson J; at 684 per Dawson J; Shaw v R (1952) 85 CLR 365 at 380 per Dixon, McTiernan, Webb and Kitto JJ);

•    this general rule is not merely a technical rule, but an important rule of fairness (Killick v R (1981) 147 CLR 565 at 569 per Gibbs CJ, Murphy and Aickin JJ; Lawrence v R (1981) 38 ALR 1 at 3 per Gibbs CJ);

•    the accused is entitled to know the case which he has to meet so that he may have adequate opportunity to determine what questions he may wish to ask in cross-examination, what evidence, if any, he may wish to call and what objections, if any, he may wish to raise in the case against him (Chin at 685 per Dawson J);

•    although there is no unfair prejudice to the accused in tendering damaging evidence against him in the course of the Crown case, there will frequently be unfair prejudice if a piece of the damaging evidence is kept until his case is in progress or his case is closed (Lawrence at 23 per Brennan J);

•    the general rule applies with equal force whether the Crown seeks to introduce evidence during the course of the case for the defence or after the close of the case for the defence (Lawrence at 3);

•    where evidence, though in rebuttal of the accused's evidence, is relevant to prove the prosecution case and would have been covered if the prosecution case had been fully and strictly proved, and the need to give it could have been foreseen, it will generally be rejected in reply (Chin at 676, 684–5; Shaw at 379–80);

•    on the other hand, if any matter arises that was not reasonably foreseeable, and of which the Crown had no warning, the matter may be answered by the Crown (Shaw at 379–380, partially rejecting the formulation by Tindal CJ in R v Frost (1839) 4 St Tr (NS) 86 at 386);

•    in this respect, the test of reasonable foreseeability has replaced the older view that the matter must be one which arose ex improviso and which no human ingenuity could foresee (Cross on Evidence, 6th Australian edn by JD Heydon (2000), [17650]);

•    the general rule applies where the accused has raised an alibi, and so if the details of the alibi have not been disclosed before the trial, it will generally be right to say that the occasion for calling evidence to rebut the alibi could not have been foreseen, but if details of the alibi were known before the trial, refuting evidence should be called in chief (Killick at 569–70).

•    the prosecution will not be prevented from giving evidence in reply directed to an issue the proof of which does not lie on the prosecution, such as insanity, or from rebutting evidence of the accused's good character, provided the prosecution has not anticipated the raising of an issue of this kind and led evidence with regard to it (Chin at 677, 685; Shaw at 379–380);

•    evidence may be given in reply to prove some purely formal matter the proof of which has been overlooked in chief (Chin at 677).

[17]    Generally, the same principles govern the exercise of the court's discretion in civil cases. It is said that the court applies the principles about splitting the prosecutor's case "less strictly" to a plaintiff in a civil case, to use the language of the learned editor of Cross on Evidence at [17720], citing Shaw's case at 85 CLR 383 per Fullagar J, or "more liberally", to use the language of Santow J in Adler at [9]. But in a civil penalty case in which disqualification orders are sought, once one has regard to the nature of the proceeding and the seriousness of the consequences attaching to the relief sought, and all of the considerations affecting the particular evidence sought to be adduced, it is unlikely that the injunction to be "more liberal" will have any effect on the exercise of the discretion. At any rate, I have found in the present case that the application of the principles governing the exercise of the discretion in criminal and civil cases has led me to reasonably clear conclusions, without the need to consider whether to be, or not to be, "liberal".

45    I will follow this approach.

46    At [18], Austin J recorded a list of discretionary factors that inform the exercise of the discretion to permit a plaintiff, in proceedings such as the present, to adduce further (reply) evidence. The defendants submit that I should have regard to these factors when considering the question of leave in the present case (should the question arise):

[18]    The defendants submitted a list of matters that they claimed to be relevant to the exercise of the court's discretion to permit the plaintiff in a civil penalty proceeding to adduce further evidence after it has closed its case. I accept their list as a useful statement of relevant discretionary factors, applicable in such a case as the one before me. The list is as follows:

(a)    the nature of the proceeding;

(b)    whether the occasion for calling the further evidence ought reasonably to have been foreseen;

(c)    the consideration of fairness that the defendant is entitled to know all of the evidence he has to meet in taking forensic decisions as to cross-examination and the nature and extent of the evidence he will himself adduce on the matters in question;

(d)    the extent to which the plaintiff has embarked upon calling evidence on the issue in question in its case in chief;

(e)    the importance of the issue on which the further evidence is sought to be adduced to the pleaded issues in the case;

(f)    the degree of relevance and probative value of the further evidence sought to be adduced and its potential to involve an undue waste of time;

(g)    the prejudice to the defendant in terms of delay in the completion of the proceeding and the consequential costs;

(h)    the public interest in the timely conclusion of litigation;

(i)    what explanation is offered by the plaintiff for not having called the evidence in chief.

Analysis and conclusion

47    The plaintiff places reliance on the fact that the Schedule it provided in compliance with Order 3 made by Foster J on 23 September 2016 includes within its heading the words “in chief”. I do not think that too much can be made of that fact. I note that Order 3 makes no such qualification. This is no mere slip of the pen. Given the nature of the proceeding, considered in light of the principles noted by Austin J in ASIC v Rich, there could have been no expectation at the time that the order was made that the plaintiff had an unqualified entitlement to call reply evidence. Plainly, the purpose of Order 3 was to require the plaintiff to reach a firm conclusion as to how it intended to use Mr Clifford’s tables and charts, so that the defendants had fair warning and full knowledge of the case they were required to meet, including in light of the plaintiff’s intended expert evidence which, by that time, had already been filed. The confinement in the Schedule of the purpose for which, for example, the Tab 20 table was intended to be used is clear. The plaintiff does not suggest otherwise.

48    I accept that, properly considered, Professor Aitken’s report is not directed to establishing positively that the defendants’ impugned order cancellations and amendments, at the time they were made, were “unlikely” to have a continuing effect up to the rotations in the OSPA and on the match prices. The clear purport of Professor Aitken’s evidence is to challenge the foundations on which Mr Graves expressed his opinions, particularly on his reasoning concerning the likelihood that the immediate effect of the defendants’ impugned order cancellations and amendments would have been enduring in the way he describes. An attack on the propositions underpinning Mr Graves’ conclusions on “likelihood” should not be transformed casually into a case advancing the contrary proposition. I do not accept, therefore, the plaintiff’s submission that the new intended use of the subject tables and charts is, essentially, a reply to Professor Aitken’s evidence. Professor Aitken’s essential proposition is that Mr Graves’ analysis and conclusions do not stand up because the impugned cancellations and amendments cannot be combined in the way that Mr Graves considers that they can be combined in the so-called Final Pre-OSPA Period. This is because of interposed orders which, according to Professor Aitken, simply cannot be disregarded. Whether this particular challenge to Mr Graves’ evidence is correct, remains to be determined. But one task that Professor Aitken does not embark upon is an analysis of such matters as subsequent orders, pricing trends and exogenous circumstances to proffer an opinion that the defendants’ impugned cancellations and amendments were, at the time they were made, unlikely to have an enduring effect into the rotations of the OSPA and on the resulting match prices. In this regard, I accept the defendants’ submissions that the question of whether the impugned cancellations and amendments had an enduring effect beyond their actual immediate effect on indicative match prices would involve consideration of the kinds of matters listed at [35] above.

49    I do not accept, therefore, that the new purpose for which the subject tables and charts are sought to be used is, strictly, reply evidence. For this reason, and subject to my consideration of the s 135 objection, I am persuaded that it would be appropriate to impose a limitation under s 136 of the Evidence Act as to the use to be made of the subject tables and charts as evidence in this proceeding. That use should be confined to establishing the facts identified in the Schedule, for the purposes therein stated.

50    For completeness, I should state that, had I been persuaded that the new use is strictly reply evidence, I would not grant leave to the plaintiff to rely on that evidence. In this regard, I accept the defendants’ submission that the plaintiff’s notification of the new use—just over three weeks before the commencement of the hearing—is insufficient notice. I do not accept the plaintiff’s submission that the data in the subject tables and charts simply stand as factual matters on which the defendants can make submissions. The evidence I have heard thus far persuades me that consideration of the data is more nuanced and complex than the plaintiff’s submission suggests. I also do not accept the plaintiff’s submission that the position in the present case is different because the defendants have already had the subject tables and charts for some time, such that they can be considered to be “existing” evidence, rather than “new” evidence. This distinction effectively overlooks the confined purpose for which the plaintiff originally advanced the data.

51    In light of the concurrent expert evidence I have heard over six days, I am left in no doubt that the tendering of the subject tables and charts for the new purpose, unexplained by expert evidence and without proper consideration of surrounding circumstances in the market at the relevant times, may well be misleading. It would also provoke significant debate as to how the evidence should be interpreted and as to what weight should be given to it for that purpose. The simple fact is that the data were at the plaintiff’s disposal and could have been deployed in support of Mr Graves’ evidence, even though he himself did not seek to use the data for that purpose. The utility of the data for that purpose could reasonably have been foreseen. But the plaintiff obviously elected not to use the data for that purpose in the case it chose to advance. It has provided no explanation for that election, even though the compilation of the Schedule was obviously an act of considerable deliberation. To grant leave now would be to countenance a departure from the plaintiff’s long-stated position and expose the defendants unfairly to possible, considerable prejudice.

The s 135 objection

52    The defendants advance the s 135 objection on the basis that the tender of the subject tables and charts for the new purpose is inherently likely to mislead or confuse, and apt to cause or result in an undue waste of time (particularly given its complexity and volume). In support of this objection they submit that the inferences that the plaintiff now seeks to draw from the data are, once again, not self-evident or founded in ordinary human experience, but require specialised knowledge. They also submit that the data presented “cries out for context” and detailed analysis, neither of which is provided by the plaintiff’s evidence.

53    My determination of this objection is resolved by my determination of the s 136 objection. If the tender of the subject tables and charts is confined to the facts and purposes identified in the Schedule, it cannot be said that the evidence, so confined, is likely to mislead or confuse or likely to cause or result in an undue waste of time. It has already been considered in the context of the expert evidence thus far adduced. The defendants cannot be heard to complain. They have had the opportunity to consider and address the data for the purposes stated in the Schedule. Therefore, in light of my ruling on the s 136 objection, I disallow the s 135 objection.

Further objections

54    The defendants raise two further groups of objections.

55    First, the defendants argue that there are tables and charts prepared by Mr Clifford which the plaintiff seeks to tender which are not referred to by any expert or are not the subject, thus far, of any submissions made by the plaintiff. The defendants submit that one is left to discern the relevance and probative value of this material from the Schedule, which identifies propositions which the tables and charts are said to support, but provides no further explanation. The defendants submit that this evidence should not be admitted. By way of illustration, they direct attention to the tables in Tabs 11, 32 to 34, and 206 to 208, with respect to the defendants’ trading on 19 April 2012.

56    Secondly, the defendants direct attention to Tabs 209 to 216, which are tables covering aspects of the defendants’ trading on 17 May 2012, 19 July 2012, 16 August 2012, and 18 October 2012. Once again, the tables are identified in the Schedule. The defendants submit that these tables should be subject to an order under s 136 of the Evidence Act confining their use as described in the Schedule.

57    As to the first group of tables, I am not persuaded that they should be rejected on the basis that they are unexplained. The facts which the plaintiff seeks to prove, and its purpose in proving those facts, are adequately explained in the Schedule. If there is any deficiency in the explanations provided, this should have been raised by the defendants much earlier than now. Further, I am not disposed to act on such a generalised submission as to relevance. By the descriptions given in the Schedule, the tables have prima facie relevance to the plaintiff’s case.

58    As to the second group of tables, I am not persuaded that it is necessary for me to make any order under s 136 confining their use in evidence. Once again, the facts which the plaintiff seeks to prove, and its purpose in proving those facts, are adequately explained. There is no suggestion that the plaintiff intends to deploy the data in the tables beyond the limitations stated in the Schedule.

Rulings

59    I make the following rulings:

(1)    The use of the evidence in Tabs 19 to 24 and 27 to 28 (19 April 2012); Tabs 56 to 61 and 64 to 65 (17 May 2012); Tabs 91 to 96 and 99 to 100 (19 July 2012); Tabs 126 to 131 and 134 to 135 (16 August 2012); and Tabs 162 to 167 and 170 to 171 (18 October 2012), of Exhibit P11 is limited under s 136 of the Evidence Act 1995 (Cth) (the Evidence Act) to proving the facts identified, for the purposes stated, in the Schedule which is Tab 6 of Exhibit D17, being the Schedule provided by the plaintiff to the defendants on 14 October 2016 pursuant to Order 3 made on 23 September 2016;

(2)     The objections otherwise made by the defendants seeking either the rejection of challenged evidence under s 135 of the Evidence Act, or limitation as to its use under s 136 of the Evidence Act, are disallowed.

Associate:

Dated:    19 July 2018